10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2012

Commission File No. 001-34453

HUDSON VALLEY HOLDING CORP.

(Exact name of registrant as specified in its charter)

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

21 Scarsdale Road, Yonkers, NY 10707

(Address of principal executive office with zip code)

914-961-6100

(Registrant’s telephone number including area code)

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

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

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

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

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

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

Class	Outstanding at May 1, 2012
Common stock, par value $0.20 per share	19,630,389

FORM 10-Q

TABLE OF CONTENTS

		Page No.
PART I:  FINANCIAL INFORMATION
ITEM 1	CONDENSED FINANCIAL STATEMENTS		2
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		30
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		49
ITEM 4	CONTROLS AND PROCEDURES		50
PART II:  OTHER INFORMATION
ITEM 1A	RISK FACTORS		51
ITEM 6	EXHIBITS		51
SIGNATURES			52

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 Mar 31
	2012			2011
Interest Income:
Loans, including fees	$	28,915		$	26,332
Securities:
Taxable		3,313			2,950
Exempt from Federal income taxes		986			1,161
Federal funds sold		8			26
Deposits in banks		56			164
Total interest income		33,278			30,633
Interest Expense:
Deposits		1,750			2,274
Securities sold under repurchase agreements and other short-term borrowings		51			47
Other borrowings		181			844
Total interest expense		1,982			3,165
Net Interest Income		31,296			27,468
Provision for loan losses		1,359			5,451
Net interest income after provision for loan losses		29,937			22,017
Non Interest Income:
Service charges		1,867			2,040
Investment advisory fees		2,398			2,606
Recognized impairment charge on securities available for sale (includes $500 and $773 of total losses in 2012 and 2011, respectively, less $22 and $612 of losses on securities available for sale, recognized in other comprehensive income in 2012 and 2011, respectively)		(478	)		(161	)
Gains on sales and revaluation of loans held for sale and other real estate owned, net		15,935			127
Other income		632			607
Total non interest income		20,354			5,219
Non Interest Expense:
Salaries and employee benefits		10,818			10,818
Occupancy		2,232			2,345
Professional services		1,867			1,453
Equipment		1,068			1,010
Business development		517			506
FDIC assessment		628			1,111
Other operating expenses		3,746			3,207
Total non interest expense		20,876			20,450
Income Before Income Taxes		29,415			6,786
Income Taxes		11,402			1,962
Net Income	$	18,013		$	4,824
Basic Earnings Per Common Share	$	0.92		$	0.25
Diluted Earnings Per Common Share	$	0.92		$	0.25

See notes to condensed consolidated financial statements

2

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Dollars in thousands

	Three Months Ended Mar 31
	2012			2011
Net Income	$	18,013		$	4,824
Other comprehensive income (loss), net of tax:
Net change in unrealized gains (losses):
Other-than-temporarily impaired securities available for sale:
Total gains (losses)		(500	)		(773	)
Losses recognized in earnings		478			161
Gains (losses) recognized in comprehensive income		(22	)		(612	)
Income tax effect		9			251
Unrealized holding gains (losses) on other-than-temporarily impaired
securities available for sale, net of tax		(13	)		(361	)
Securities available for sale not other-than-temporarily impaired:
Gains (losses) arising during the year		(2,381	)		(2,533	)
Income tax effect		791			989
		(1,590	)		(1,544	)
Gains (losses) recognized in earnings		—			—
Income tax effect		—			—
		—			—
Unrealized holding gains (losses) on securities available for sale not
other-than-temporarily-impaired , net of tax		(1,590	)		(1,544	)
Unrealized holding gains (losses) on securities, net		(1,603	)		(1,905	)
Accrued benefit liability adjustment		144			81
Income tax effect		(58	)		(32	)
		86			49
Other comprehensive loss		(1,517	)		(1,856	)
Comprehensive Income	$	16,496		$	2,968

See notes to condensed consolidated financial statements

3

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

Dollars in thousands, except share amounts

	Mar 31 2012			Dec 31 2011
ASSETS
Cash and non interest earning due from banks	$	44,906		$	43,743
Interest earning deposits in banks		522,837			34,361
Federal funds sold		11,878			16,425
Securities available for sale, at estimated fair value (amortized cost of $446,117 in 2012 and $503,584 in 2011)		448,028			507,897
Securities held to maturity, at amortized cost (estimated fair value of $13,010 in 2012 and $13,819 in 2011)		12,160			12,905
Federal Home Loan Bank of New York (FHLB) stock		3,831			3,831
Loans (net of allowance for loan losses of $31,856 in 2012 and $30,685 in 2011)		1,609,199			1,541,405
Loans held for sale		2,532			473,814
Accrued interest and other receivables		29,165			40,405
Premises and equipment, net		25,622			25,936
Other real estate owned		1,174			1,174
Deferred income tax, net		19,793			19,822
Bank owned life insurance		38,126			37,563
Goodwill		23,842			23,842
Other intangible assets		1,464			1,651
Other assets		10,719			12,896
TOTAL ASSETS	$	2,805,276		$	2,797,670
LIABILITIES
Deposits:
Non interest bearing	$	935,501		$	910,329
Interest bearing		1,488,400			1,514,953
Total deposits		2,423,901			2,425,282
Securities sold under repurchase agreements and other short-term borrowings		46,337			53,056
Other borrowings		16,457			16,466
Accrued interest and other liabilities		27,697			25,304
TOTAL LIABILITIES		2,514,392			2,520,108
STOCKHOLDERS’ EQUITY
Preferred Stock, $0.01 par value; authorized 15,000,000 shares; no shares outstanding in 2012 and 2011, respectively		—			—
Common stock, $0.20 par value; authorized 25,000,000 shares: outstanding 19,629,981 and 19,516,490 shares in 2012 and 2011, respectively		4,186			4,163
Additional paid-in capital		348,083			347,764
Retained earnings (deficit)		(4,030	)		(18,527	)
Accumulated other comprehensive income		209			1,726
Treasury stock, at cost; 1,299,414 shares in 2012 and 2011		(57,564	)		(57,564	)
TOTAL STOCKHOLDERS’ EQUITY		290,884			277,562
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,805,276		$	2,797,670

See notes to condensed consolidated financial statements

4

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended March 31, 2012 and 2011

Dollars in thousands, except share amounts

	Number of Shares Outstanding		Common Stock		Treasury Stock			Additional Paid-in Capital		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total
Balance at January 1, 2012		19,516,490	$	4,163	$	(57,564	)	$	347,764	$	(18,527	)	$	1,726		$	277,562
Net income											18,013						18,013
Stock option expense and exercises of stock options, net of tax		13,064		3					210								213
Restricted stock awards		100,427		20					109								129
Cash dividends ($0.18 per share)											(3,516	)					(3,516	)
Accrued benefit liability adjustment														86			86
Net unrealized gain on securities available for sale:
Not other-than-temporarily impaired														(1,590	)		(1,590	)
Other-than-temporarily impaired (includes $500 of total losses less $478 of losses recognized in earnings, net of $9 tax)														(13	)		(13	)
Balance at March 31, 2012		19,629,981	$	4,186	$	(57,564	)	$	348,083	$	(4,030	)	$	209		$	290,884

	Number of Shares Outstanding		Common Stock		Treasury Stock			Additional Paid-in Capital		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total
Balance at January 1, 2011		17,665,908	$	3,793	$	(57,564	)	$	346,750	$	(3,989	)	$	927		$	289,917
Net income											4,824						4,824
Stock option expense and exercises of stock options, net of tax		20,155		4					416								420
Cash dividends ($0.14 per share)											(2,651	)					(2,651	)
Accrued benefit liability adjustment														49			49
Net unrealized gain on securities available for sale:
Not other-than-temporarily impaired														(1,544	)		(1,544	)
Other-than-temporarily impaired (includes $773 of total losses less $161 of losses recognized in earnings, net of $251 tax)														(361	)		(361	)
Balance at March 31, 2011		17,686,063	$	3,797	$	(57,564	)	$	347,166	$	(1,816	)	$	(929	)	$	290,654

See notes to condensed consolidated financial statements

5

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Dollars in thousands

	For the Three Months Ended Mar 31
	2012			2011
Operating Activities:
Net Income	$	18,013		$	4,824
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,359			5,451
Depreciation and amortization		962			1,001
Recognized impairment charge on securities available for sale		478			161
Amortization of premiums on securities, net		607			666
Realized (gain) loss on sale and revaluation of OREO		—			(127	)
Increase in cash value of bank owned life insurance		(354	)		(267	)
Amortization of other intangible assets		187			206
Stock option expense		12			47
Realized (gain) on sale of loans held-for-sale		(15,935	)		—
Deferred taxes (benefit)		772			(647	)
(Decrease) increase in deferred loan fees, net		(158	)		72
Decrease in accrued interest and other receivables		11,240			1,238
Decrease in other assets		2,177			1,086
Excess tax benefits from share-based payment arrangements		—			(7	)
Increase in accrued interest and other liabilities		2,437			2,724
Net cash provided by operating activities		21,797			16,428
Investing Activities:
Net decrease in short term investments		4,547			32,560
Decrease in FHLB stock		—			1,632
Proceeds from maturities of securities available for sale		60,137			52,516
Proceeds from maturities of securities held to maturity		745			1,015
Purchases of securities available for sale		(3,527	)		(46,510	)
Net increase in loans		(68,996	)		(88,710	)
Proceeds from sales of loans held for sale		487,217			—
Proceeds from sales of other real estate owned		—			6,345
Premiums paid on bank owned life insurance		(209	)		(259	)
Net purchases of premises and equipment		(648	)		377
Net cash provided by (used in) Investing Activities		479,266			(41,034	)
Financing Activities:
Proceeds from issuance of common stock and exercises of stock options		201			373
Excess tax benefits from share-based payment arrangements		—			7
Net (decrease) increase in deposits		(1,381	)		9,201
Cash dividends paid		(3,516	)		(2,651	)
Repayment of other borrowings		(9	)		(36,259	)
Net (decrease) increase in securities sold under repurchase agreements and short-term borrowings		(6,719	)		9,886
Net cash used in Financing Activities		(11,424	)		(19,443	)
Increase (decrease) in Cash and Due from Banks		489,639			(44,049	)
Cash and Due from Banks, beginning of period		78,104			284,156
Cash and Due from Banks, end of period	$	567,743		$	240,107
Supplemental disclosures:
Interest paid		2,312			3,537
Income tax payments		19			60
Transfer from loans held for sale back to loan portfolio		—			2,305

See notes to condensed consolidated financial statements

6

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Dollars in thousands, except per share and share amounts

1.    Description of Operations

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

The Company provides financial services through its wholly-owned subsidiary, Hudson Valley Bank, N.A. (“HVB” or “the Bank”), a national banking association established in 1972, with operational headquarters in Westchester County, New York. The Bank has 18 branch offices in Westchester County, New York, 5 in Manhattan, New York, 4 in Bronx County, New York, 2 in Rockland County, New York, 1 in Kings County, New York, 5 in Fairfield County, Connecticut and 1 in New Haven County, Connecticut.

The Company provides both investment management and brokerage services through a wholly-owned subsidiary of HVB, A.R. Schmeidler & Co., Inc. (“ARS”), a Manhattan, New York based money management firm.

We derive substantially all of our revenue and income from providing banking and related services to businesses, professionals, municipalities, not-for-profit organizations and individuals within our market area, primarily Westchester County and Rockland County, New York, portions of New York City, Fairfield County and New Haven County, Connecticut.

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

Our principal customers are businesses, professionals, municipalities, not-for-profit organizations and individuals. We are dedicated to providing personalized service to customers and focusing on products and services for selected segments of the market. We believe that our ability to attract and retain customers is due primarily to our focused approach to our markets, our personalized and professional services, our product offerings, our experienced staff, our knowledge of our local markets and our ability to provide responsive solutions to customer needs. We provide these products and services to a diverse range of customers and do not rely on a single large depositor for a significant percentage of deposits. Our long term strategy is to expand through various initiatives, which could include: opening new full-service banking facilities and loan production offices; by expanding deposit gathering and loan originations in our market area; by enhancing and expanding computerized and telephonic products; by diversifying our products and services; by acquiring other banks and related businesses and through strategic alliances and contractual relationships.

2.    Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (comprising only normal recurring adjustments) necessary to present fairly the financial position of the Company at March 31, 2012 and December 31, 2011 and the results of its operations, comprehensive income, cash flows and changes in stockholders’ equity for the three month period ended March 31, 2012. The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of the results of operations to be expected for the remainder of the year.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and predominant practices used within the banking industry. Certain information and note disclosures normally included in annual financial statements have been omitted.

In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated balance sheets and statements of income for the periods reported. Actual results could differ significantly from those estimates.

Estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the determination of the fair value of securities available for sale, the determination of other-than-temporary impairment of investments and the carrying amounts of goodwill and deferred tax assets. In 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, 2011 and notes thereto.

Cash and Cash Equivalents – For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and interest bearing deposits in other banks (including the Federal Reserve Bank of New York).

Securities — Securities are classified as either available for sale, representing securities the Company may sell in the ordinary course of business, or as held to maturity, representing securities that the Company has determined that it is more likely than not that it would not be required to sell prior to maturity or recovery of cost. Securities available for sale are reported at fair value with unrealized gains and losses (net of tax) excluded from operations and reported in other comprehensive income. Securities held to maturity are stated at amortized cost. Interest income includes amortization of purchase premium and accretion of purchase discount. The amortization of premiums and accretion of discounts is determined by using the level yield method. Securities are not acquired for purposes of engaging in trading activities. Realized gains and losses from sales of securities are determined using the specific identification method. The Company regularly reviews declines in the fair value of securities below their costs for purposes of determining whether such declines are other-than-temporary in nature. In estimating other-than-temporary impairment (“OTTI”), management considers adverse changes in expected cash flows, the length of time and extent that fair value has been less than cost and the financial condition and near term prospects of the issuer. The Company also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Loans Held for Sale – Loan sales occur in limited circumstances as part of strategic business or regulatory compliance initiatives. Loans held for sale, including deferred fees and costs, are reported at the lower of cost or fair value as determined by expected bid prices from potential investors. Loans held for sale are segregated into pools based on distinct criteria and the lower of cost or fair value analysis is performed at the pool level. Loans are sold without recourse and servicing released. When a loan is transferred from portfolio to held for sale and the fair value is less than cost, a charge off is recorded against the allowance for loan loss. Subsequent declines in fair value, if any, are recorded as a valuation allowance and charged against earnings.

Loans — Loans are reported at their outstanding principal balance, net of the allowance for loan losses, and deferred loan origination fees and costs. Loan origination fees and certain direct loan origination costs are deferred and recognized over the life of the related loan or commitment as an adjustment to yield, or taken directly into income when the related loan is sold or commitment expires.

Allowance for Loan Losses — The Company maintains an allowance for loan losses to absorb probable losses incurred in the loan portfolio based on ongoing quarterly assessments of the estimated losses. The Company’s methodology for assessing the appropriateness of the allowance consists of a specific component for identified problem loans, and a formula component which addresses historical loan loss experience together with other relevant risk factors affecting the portfolio. This methodology applies to all portfolio segments.

The specific component incorporates the Company’s analysis of impaired loans. 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. In addition, a loan which has been renegotiated with a borrower experiencing financial difficulties for which the terms of the loan have been modified with a concession that the Company would not otherwise have granted are considered troubled debt restructurings and are also recognized as impaired.

8

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 an impaired loan is less than the related recorded amount, a specific valuation component is established within the allowance for loan losses or, if the impairment is considered to be permanent, a partial charge-off is recorded against the allowance for loan losses. Individual measurement of impairment does not apply to large groups of smaller balance homogenous loans that are collectively evaluated for impairment such as portions of the Company’s portfolios of home equity loans, real estate mortgages, installment and other loans.

The formula component is calculated by first applying historical loss experience factors to outstanding loans by type. The Company uses a three year average loss experience as the starting base for the formula component. This component is then adjusted to reflect additional risk factors not addressed by historical loss experience. These factors include the evaluation of then-existing economic and business conditions affecting the key lending areas of the Company and other conditions, such as new loan products, credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, recent charge-off and delinquency experience, specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectibility of the loan portfolio. Senior management reviews these conditions quarterly. Management’s evaluation of the loss related to each of these conditions is quantified by portfolio segment and reflected in the formula component. The evaluations of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty due to the subjective nature of such evaluations and because they are not identified with specific problem credits.

Actual losses can vary significantly from the estimated amounts. The 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, 2012. 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 their 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.

Loan Charge-Offs – The Company’s charge-off policy covers all loan portfolio classes. Loans are generally charged-off at the earlier of when it is determined that collection efforts are no longer productive or when they have been identified as losses by management, internal loan review and/or bank examiners. Factors considered in determining whether collection efforts are no longer productive include any amounts currently being collected, the status of discussions or negotiations with the borrower, the principal and/or guarantors, the cost of continuing, efforts to collect, the status of any foreclosure or legal actions, the value of the collateral, and any other pertinent factors.

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 collectibility of principal. Loans can be returned to accruing status when they become current as to principal and interest, demonstrate a period of performance under the contractual terms, and when, in management’s opinion, they are estimated to be fully collectible. This methodology applies to all loan classes.

9

Premises and Equipment — Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, generally 3 to 5 years for furniture, fixtures and equipment and 31.5 years for buildings. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful life of the asset.

Other Real Estate Owned (“OREO”) — Real estate properties acquired through loan foreclosure are recorded at estimated fair value, net of estimated selling costs, at time of foreclosure establishing a new cost basis. Credit losses arising at the time of foreclosure are charged against the allowance for loan losses. Subsequent valuations are periodically performed by management and the carrying value is adjusted by a charge to expense to reflect any subsequent declines in the estimated fair value. Routine holding costs are charged to expense as incurred.

Goodwill and Other Intangible Assets — Goodwill and identified intangible assets with indefinite useful lives are not subject to amortization. Identified intangible assets that have finite useful lives are amortized over those lives by a method which reflects the pattern in which the economic benefits of the intangible asset are used up. Goodwill is subject to impairment testing on an annual basis, or more often if events or circumstances indicate that impairment may exist. Identifiable intangible assets are subject to impairment 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 goodwill impairment evaluations as of December 31, 2011 did not indicate any impairment. The Company is not aware of any events or circumstances that existed with the identified intangible assets that would indicate impairment as of March 31, 2012.

Loss Contingencies – Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Legal fees associated with loss contingencies are included in loss contingency accruals.

Income Taxes — Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to 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 from a change in tax rates is recognized in income in the period the change is enacted.

Stock-Based Compensation — Compensation costs relating to share-based payment transactions are recognized in the financial statements with measurement based upon the fair value of the equity or liability instruments issued. Compensation costs related to share based payment transactions are expensed over their respective vesting periods. The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. See Note 7 “Stock-Based Compensation” herein for additional discussion.

Earnings per Common Share — Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. The computation of diluted earnings per common share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares, consisting solely of stock options, had been issued.

Disclosures About Segments of an Enterprise and Related Information — Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company has one operating segment, “Community Banking.”

Bank Owned Life Insurance — The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

10

Retirement Plans — Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. Employee 401(k) and profit sharing plan expense is the amount of matching contributions. Supplemental retirement plan expense allocates the benefits over years of service.

3.    Securities

The following tables set forth the amortized cost, gross unrealized gains and losses and the estimated fair value of securities classified as available for sale and held to maturity at March 31, 2012 and December 31, 2011 (in thousands):

March 31, 2012

	Amortized Cost		Gross Unrealized				Estimated  Fair Value
			Gains		Losses
Classified as Available for Sale
U.S. Treasury and government agencies		—		—		—		—
Mortgage-backed securities — residential	$	329,741	$	7,100	$	721	$	336,120
Obligations of states and political subdivisions		94,517		3,940		—		98,457
Other debt securities		11,792		1		8,860		2,933
Total debt securities		436,050		11,041		9,581		437,510
Mutual funds and other equity securities		10,067		571		120		10,518
Total	$	446,117	$	11,612	$	9,701	$	448,028
	Amortized Cost		Gross Unrecognized				Estimated Fair Value
			Gains		Losses
Classified as Held To Maturity
Mortgage-backed securities — residential	$	7,022	$	571		—	$	7,593
Obligations of states and political subdivisions		5,138		279		—		5,417
Total	$	12,160	$	850		—	$	13,010

December 31, 2011

	Amortized Cost		Gross Unrealized				Estimated Fair Value
			Gains		Losses
Classified as Available for Sale
U.S. Treasury and government agencies		—		—		—		—
Mortgage-backed securities — residential	$	385,206	$	8,430	$	218	$	393,418
Obligations of states and political subdivisions		96,091		4,508		—		100,599
Other debt securities		12,220		—		8,888		3,332
Total debt securities		493,517		12,938		9,106		497,349
Mutual funds and other equity securities		10,067		617		136		10,548
Total	$	503,584	$	13,555	$	9,242	$	507,897
	Amortized Cost		Gross Unrecognized				Estimated Fair Value
			Gains		Losses
Classified as Held To Maturity
Mortgage-backed securities — residential	$	7,767	$	607		—	$	8,374
Obligations of states and political subdivisions		5,138		307		—		5,445
Total	$	12,905	$	914		—	$	13,819

Included in other debt securities are investments in six pooled trust preferred securities with amortized costs and estimated fair values of $11,282 and $2,422, respectively, at March 31, 2012. These investments represent

11

trust preferred obligations of banking industry companies. The value of these investments has been severely negatively affected by the recent downturn in the economy and increased investor concerns about recent and potential future losses in the financial services industry. These investments are rated below investment grade by Moody’s Investor Services at March 31, 2012 with ratings ranging from Ca to C. In light of these conditions, these investments were reviewed for other-than-temporary impairment.

In estimating OTTI losses, the Company considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuers, (3) whether the Company intends to sell or whether it is more likely than not that the Company would be required to sell the investments prior to recovery of cost and (4) evaluation of cash flows to determine if they have been adversely affected.

The Company uses a discounted cash flow (“DCF”) analysis to provide an estimate of an OTTI loss. Inputs to the discount model include known defaults and interest deferrals, projected additional default rates, projected additional deferrals of interest, over-collateralization tests, interest coverage tests and other factors. Expected default and deferral rates were weighted toward the near future to reflect the current adverse economic environment affecting the banking industry. The discount rate was based upon the yield expected from the related securities. Significant inputs to the cash flow models used in determining credit related other-than-temporary impairment losses on pooled trust preferred securities as of March 31, 2012 included the following:

Annual Prepayment	1.00%
Projected specific defaults/deferrals	33.1% - 74.4%
Projected severity of loss on specific defaults/deferrals	55.8% - 86.8%
Projected additional defaults:
Year 1	2.00%
Year 2	1.00%
Thereafter	0.25%
Projected severity of loss on additional defaults	85.00%
Present value discount rates	3m LIBOR + 1.60% -2.25%

The significant unobservable inputs used in the fair value measurement of the Company’s trust preferred obligations are probabilities of specific-issuer defaults and deferrals and specific-issuer recovery assumptions. Significant increases in specific-issuer default assumptions or decreases in specific-issuer recovery assumptions would result in a significantly lower fair value measurement. Conversely, decreases in specific-issuer default assumptions or increases in specific-issuer recovery assumptions would result in a higher fair value measurement.

The following table summarizes the change in pretax OTTI credit related losses on securities available for sale for the three months ended March 31, 2012 and 2011 (in thousands):

	2012		2011
Balance at beginning of period:
Total OTTI credit related impairment charges beginning of period	$	9,478	$	9,110
Increase to the amount related to the credit loss for which other-than-temporary impairment was previously recognized		478		161
Credit related impairment not previously recognized		—		—
Balance at end of period:	$	9,956	$	9,271

During the three month period ended March 31, 2012, pretax OTTI losses of $2, $25, $3, $447 and $1, respectively, were recognized on five pooled trust preferred securities which prior to the 2012 charges had book values of $2,088, $5,696, $919, $2,228 and $662, respectively. These OTTI losses resulted from adverse changes in the expected cash flows of these securities which indicated that the Company may not recover the entire cost basis of these investments. Continuation or worsening of current adverse economic conditions may result in further impairment charges in the future.

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At March 31, 2012 and December 31, 2011, securities having a stated value of approximately $348,000 and $365,000, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

The following tables reflect the Company’s investment’s fair value and gross unrealized loss, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, as of March 31, 2012 and December 31, 2011 (in thousands):

March 31, 2012

	Duration of Unrealized Loss
	Less Than 12 Months				Greater than 12 Months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Classified as Available for Sale
U.S. Treasuries and government agencies		—		—		—		—		—		—
Mortgage-backed securities — residential	$	58,040	$	714	$	3,015	$	7	$	61,055	$	721
Obligations of states and political subdivisions		—		—		—		—		—		—
Other debt securities		—		—	$	2,422	$	8,860		2,422		8,860
Total debt securities		58,040		714		5,437		8,867		63,477		9,581
Mutual funds and other equity securities		—		—		104		120		104		120
Total temporarily impaired securities	$	58,040	$	714	$	5,541	$	8,987	$	63,581	$	9,701

There were no securities classified as held to maturity in an unrealized loss position at March 31, 2012.

December 31, 2011

	Duration of Unrealized Loss
	Less Than 12 Months				Greater than 12 Months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Classified as Available for Sale
U.S. Treasuries and government agencies		—		—		—		—		—		—
Mortgage-backed securities — residential	$	41,421	$	218		—		—	$	41,421	$	218
Obligations of states and political subdivisions		—		—		—		—		—		—
Other debt securities		460		50	$	2,816	$	8,838		3,276		8,888
Total debt securities		41,881		268		2,816		8,838		44,697		9,106
Mutual funds and other equity securities		—		—		92		136		92		136
Total temporarily impaired securities	$	41,881	$	268	$	2,908	$	8,974	$	44,789	$	9,242

There were no securities classified as held to maturity in an unrealized loss position at December 31, 2011.

The total number of securities in the Company’s portfolio that were in an unrealized loss position was 85 and 82, respectively, at March 31, 2012 and December 31, 2011. The Company has determined that it does not intend to sell, or it is more likely than not that it will be required to sell, its securities that are in an unrealized loss position prior to the recovery of its amortized cost basis. With the exception of the investment in pooled trust preferred securities discussed above, the Company believes that its securities continue to have satisfactory ratings, are readily marketable and that current unrealized losses are primarily a result of changes in interest rates. Therefore, management does not consider these investments to be other-than-temporarily impaired at

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March 31, 2012. With regard to the investments in pooled trust preferred securities, the Company has decided to hold these securities as it believes that current market quotes for these securities are not necessarily indicative of their value. The Company has recognized impairment charges on five of the pooled trust preferred securities. Management believes that the remaining impairment in the value of these securities to be primarily related to illiquidity in the market and therefore not credit related at March 31, 2012.

The contractual maturity of all debt securities held at March 31, 2012 is shown below. Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Contractual Maturity
Within 1 year	$	10,394	$	10,402		—		—
After 1 year but within 5 years		42,288		44,023	$	5,138	$	5,417
After 5 year but within 10 years		41,835		44,033		—		—
After 10 years		11,792		2,932		—		—
Mortgage-backed securities — residential		329,741		336,120		7,022		7,593
Total	$	436,050	$	437,510	$	12,160	$	13,010

4.    Loans

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

	March 31 2012			December 31 2011
Real Estate:
Commercial	$	705,603		$	690,837
Construction		106,698			110,027
Residential		568,472			514,828
Commercial & Industrial		222,485			218,500
Individuals & lease financing		41,503			41,760
Total loans		1,644,761			1,575,952
Deferred loan fees		(3,706	)		(3,862	)
Allowance for loan losses		(31,856	)		(30,685	)
Loans, net	$	1,609,199		$	1,541,405

In March 2012, the Company purchased $65,795 of adjustable rate residential loans as a partial redeployment of loan sales completed during the first quarter of 2012.

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

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

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

14

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

Residential Real Estate Loans — Various loans secured by residential real estate properties are offered by the Company, including 1-4 family residential mortgages, multi-family residential loans and a variety of home equity line of credit products. Repayment of such loans may be negatively impacted should the borrower default, should there be a significant decline in the value of the property securing the loan or should there be a decline in general economic conditions.

Commercial and Industrial Loans — The Company’s commercial and industrial loan portfolio consists primarily of commercial business loans and lines of credit to businesses and professionals. These loans are usually made to finance the purchase of inventory, new or used equipment or other short or long-term working capital purposes. These loans are generally secured by corporate assets, often with real estate as secondary collateral, but are also offered on an unsecured basis. In granting this type of loan, the Company primarily looks to the borrower’s cash flow as the source of repayment with collateral and personal guarantees, where obtained, as a secondary source. Commercial loans are often larger and may involve greater risks than other types of loans offered by the Company. Payments on such loans are often dependent upon the successful operation of the underlying business involved and, therefore, repayment of such loans may be negatively impacted by adverse changes in economic conditions, management’s inability to effectively manage the business, claims of others against the borrower’s assets which may take priority over the Company’s claims against assets, death or disability of the borrower or loss of market for the borrower’s products or services.

Lease Financing and Other Loans — The Company originates lease financing transactions which are primarily conducted with businesses, professionals and not-for-profit organizations and provide financing principally for office equipment, telephone systems, computer systems, energy saving improvements and other special use equipment. Payments on such loans are often dependent upon the successful operation of the underlying business involved and, therefore, repayment of such loans may be negatively impacted by adverse changes in economic conditions, and management’s inability to effectively manage the business. The Company also offers installment loans and reserve lines of credit to individuals. Repayment of such loans are often dependent on the personal income of the borrower which may be negatively impacted by adverse changes in economic conditions. The Company does not place an emphasis on originating these types of loans.

The following table presents the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2012 and 2011 (in thousands):

	Three Months Ended March 31, 2012
	Total			Commercial Real Estate			Construction		Residential Real Estate			Commercial & Industrial			Lease Financing & Other
Balance at beginning of period	$	30,685		$	12,776		$	6,470	$	8,093		$	2,650		$	696
Charge-offs		(1,125	)		(398	)		—		(558	)		(125	)		(44	)
Recoveries		937			298			1		534			89			15
Net Charge-offs		(188	)		(100	)		1		(24	)		(36	)		(29	)
Provision for loan losses		1,359			373			97		717			147			25
Net change during the period		1,171			273			98		693			111			(4	)
Balance at end of period	$	31,856		$	13,049		$	6,568	$	8,786		$	2,761		$	692

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	Three Months Ended March 31, 2011
	Total			Commercial Real Estate			Construction			Residential Real Estate			Commercial & Industrial			Lease Financing & Other
Balance at beginning of period	$	38,949		$	16,736		$	7,140		$	9,851		$	4,290		$	932
Charge-offs		(5,255	)		(156	)		(736	)		(2,195	)		(2,168	)		—
Recoveries		1,142			238			139			554			205			6
Net Charge-offs		(4,113	)		82			(597	)		(1,641	)		(1,963	)		6
Provision for loan losses		5,451			(145	)		587			2,749			2,288			(28	)
Net change during the period		1,338			(63	)		(10	)		1,108			325			(22	)
Balance at end of period	$	40,287		$	16,673		$	7,130		$	10,959		$	4,615		$	910

Impaired loans and the recorded investment in impaired loans as of March 31, 2012 and December 31, 2011 were as follows:

	March 31, 2012						December 31, 2011
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial	$	30,159	$	28,647		—	$	31,877	$	30,762		—
Construction		753		590		—		2,690		1,723		—
Residential		5,653		4,879		—		4,599		3,824		—
Commercial & industrial		8,487		7,730		—		8,560		7,803		—
Lease financing & other		—		—		—		—		—		—
With an allowance recorded:
Commercial		—		—		—		—		—		—
Construction		3,726		3,726	$	2,241		3,758		3,758	$	2,374
Residential		—		—		—		—		—		—
Commercial & industrial		—		—		—		—		—		—
Lease financing & other		—		—		—		—		—		—
Total loans	$	48,778	$	45,572	$	2,241	$	51,484	$	47,870	$	2,374

The carrying value of impaired loans was determined using either the fair value of the underlying collateral of the loan or by an analysis of the expected cash flows related to the loan. The Company made no additional allocations of specific reserves during the three month period ended March 31, 2012. Specific reserves of $2,241 and $2,374 were allocated to impaired loans as of March 31, 2012 and December 31, 2011, respectively. Impaired loans as of March 31, 2012 and December 31, 2011 included $27,020 and $28,256, respectively, of loans considered to be troubled debt restructurings (“TDRs”). There were no additional loan modifications classified as TDRs during the three month period ended March 31, 2012. The Company is not committed to extend any additional credit to borrowers whose loans are classified as TDRs. For the three month period ended March 31, 2012, seven TDRs with carrying amounts of $17,713 were on accrual status and performing in accordance with their modified terms. All other TDRs for the three month period ended March 31, 2012 were on nonaccrual status. The TDRs described above resulted in no charge offs for the three month period ended March 31, 2012. For the three month period ended March 31, 2012, there were no TDRs in which there were payment defaults within twelve months following the modification. The Company’s policy states that a loan is considered to be in payment default once it is 45 days contractually past due under the modified terms.

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The following table presents the average recorded investment in impaired loans by portfolio segment and interest recognized on impaired loans for the three month periods ended March 31, 2012 and 2011 (in thousands):

	March 31, 2012				March 31, 2011
	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
Loans:
Commercial Real Estate:
Owner occupied	$	20,700	$	178	$	6,067	$	14
Non owner occupied		9,005		—		17,207		45
Construction:
Commercial		4,897		—		9,279		—
Residential		—		—		6,052		—
Residential:
Multifamily		672		—		3,433		—
1-4 family		1,904		9		4,871		—
Home equity		1,776		—		2,441		—
Commercial & industrial		7,767		—		5,188		—
Other:
Lease financing and other		—		—		391		—
Overdrafts		—		—		—		—
Total	$	46,721	$	187	$	54,929	$	59

Gross interest income that would have been recorded if these borrowers had been current in accordance with their original loan terms was $303 and $836, respectively, for the three month periods ended March 31, 2012 and 2011.

The following tables present the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of March 31, 2012 and December 31, 2011 (in thousands):

	March 31, 2012
	Total		Commercial Real Estate		Construction		Residential Real Estate		Commercial & Industrial		Lease Financing & Other
Allowance for loan losses:
Ending balance attributed to loans:
Collectively evaluated for impairment	$	29,615	$	13,049	$	4,327	$	8,786	$	2,761	$	692
Individually evaluated for impairment		2,241		—		2,241		—		—		—
Total ending balance of allowance	$	31,856	$	13,049	$	6,568	$	8,786	$	2,761	$	692
Total loans:
Ending balance of loans:
Collectively evaluated for impairment	$	1,599,189	$	676,956	$	102,382	$	563,593	$	214,755	$	41,503
Individually evaluated for impairment		45,572		28,647		4,316		4,879		7,730		—
Total ending balance of loans	$	1,644,761	$	705,603	$	106,698	$	568,472	$	222,485	$	41,503

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	December 31, 2011
	Total		Commercial Real Estate		Construction		Residential Real Estate		Commercial & Industrial		Lease Financing & Other
Allowance for loan losses:
Ending balance attributed to loans:
Collectively evaluated for impairment	$	28,311	$	12,776	$	4,096	$	8,093	$	2,650	$	696
Individually evaluated for impairment		2,374		—		2,374		—		—		—
Total ending balance of allowance	$	30,685	$	12,776	$	6,470	$	8,093	$	2,650	$	696
Total loans:
Ending balance of loans:
Collectively evaluated for impairment	$	1,528,082	$	660,075	$	104,546	$	511,004	$	210,697	$	41,760
Individually evaluated for impairment		47,870		30,762		5,481		3,824		7,803		—
Total ending balance of loans	$	1,575,952	$	690,837	$	110,027	$	514,828	$	218,500	$	41,760

The following table presents the recorded investment in non-accrual loans and loans past due 90 days and still accruing by class of loans as of March 31, 2012 and December 31, 2011 (in thousands):

	March 31, 2012				December 31, 2011
	Non-Accrual		Past Due 90 Days and Still Accruing		Non-Accrual		Past Due 90 Days and Still Accruing
Loans:
Commercial Real Estate:
Owner occupied	$	6,268		—	$	3,856		—
Non owner occupied		5,104		—		9,356		—
Construction:
Commercial		4,317		—		5,481		—
Residential		—		—		—		—
Residential:
Multifamily		1,344		—		—		—
1-4 family		1,470		—		1,470		—
Home equity		1,626		—		1,926		—
Commercial & industrial		7,730		—		7,803		—
Other:
Lease financing and other		—		—		—		—
Overdrafts		—		—		—		—
Total	$	27,859		—	$	29,892		—

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The following table presents the aging of loans (including past due and non-accrual loans) as of March 31, 2012 and December 31, 2011 by class of loans (in thousands):

	March 31, 2012
	Total		31-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Current
Loans:
Commercial Real Estate:
Owner occupied	$	256,668	$	3,128	$	368	$	3,086	$	6,582	$	250,086
Non owner occupied		448,935		1,910		—		5,104		7,014		441,921
Construction:
Commercial		56,003		—		—		4,316		4,316		51,687
Residential		50,695		—		—		—		—		50,695
Residential:
Multifamily		225,428		—		1,344		—		1,344		224,084
1-4 family		231,970		3,952		607		1,470		6,029		225,941
Home equity		111,074		119		—		1,626		1,745		109,329
Commercial & industrial		222,485		6,265		269		4,348		10,882		211,603
Other:
Lease financing and other		40,666		195		2		—		197		40,469
Overdrafts		837		—		—		—		—		837
Total	$	1,644,761	$	15,569	$	2,590	$	19,950	$	38,109	$	1,606,652

	December 31, 2011
	Total		31-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Current
Loans:
Commercial Real Estate:
Owner occupied	$	243,862	$	1,801		—	$	3,489	$	5,290	$	238,572
Non owner occupied		446,975		1,917		—		5,108		7,025		439,950
Construction:
Commercial		56,933		—		—		4,883		4,883		52,050
Residential		53,094		900		—		—		900		52,194
Residential:
Multifamily		227,595		—		—		—		—		227,595
1-4 family		174,714		—		—		1,470		1,470		173,244
Home equity		112,519		—	$	97		1,926		2,023		110,496
Commercial & industrial		218,500		197		50		4,403		4,650		213,850
Other:
Lease financing and other		39,898		1		10		—		11		39,887
Overdrafts		1,862		—		—		—		—		1,862
Total	$	1,575,952	$	4,816	$	157	$	21,279	$	26,252	$	1,549,700

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

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

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

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

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

The following table presents the risk category by class of loans as of March 31, 2012 and December 31, 2011 of non-homogeneous loans individually classified as to credit risk as of the most recent analysis performed (in thousands):

	March 31, 2012
	Total		Pass		Special Mention		Substandard		Doubtful
Commercial Real Estate:
Owner occupied	$	256,668	$	191,805	$	24,457	$	40,406		—
Non owner occupied		448,935		428,996		13,199		6,740		—
Construction:
Commercial		56,003		42,510		5,748		7,745		—
Residential		50,695		37,305		8,052		5,338		—
Residential:
Multifamily		225,428		224,084		—		1,344		—
1-4 family		88,219		71,178		15,081		1,960		—
Home equity		1,825		—		—		1,825		—
Commercial & Industrial		222,485		209,448		4,266		8,771		—
Other:
Lease Financing & Other		39,214		38,525		422		267		—
Total loans	$	1,389,472	$	1,243,851	$	71,225	$	74,396		—

	December 31, 2011
	Total		Pass		Special Mention		Substandard		Doubtful
Commercial Real Estate:
Owner occupied	$	243,862	$	177,921	$	32,144	$	33,797		—
Non owner occupied		446,975		422,402		14,924		9,649		—
Construction:
Commercial		56,933		42,641		5,382		8,910		—
Residential		53,094		38,956		7,274		6,864		—
Residential:
Multifamily		227,595		226,224		—		1,371		—
1-4 family		90,033		72,594		15,109		2,330		—
Home equity		2,174		—		—		2,174		—
Commercial & Industrial		218,500		204,305		5,410		8,785		—
Other:
Lease Financing & Other		38,441		37,619		523		299		—
Total loans	$	1,377,607	$	1,222,662	$	80,766	$	74,179		—

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

The following table presents the delinquency categories by class of loans as of March 31, 2012 and December 31, 2011 for loans evaluated for risk in groups of homogeneous loans (in thousands):

	March 31, 2012
	Total		31-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Current
Residential:
1-4 family	$	143,751	$	607		—		—	$	607	$	143,144
Home equity		109,249		119		—		—		119		109,130
Other:
Other loans		1,452		—	$	2		—		2		1,450
Overdrafts		837		—		—		—		—		837
Total loans	$	255,289	$	726	$	2		—	$	728	$	254,561

	December 31, 2011
	Total		31-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Current
Residential:
1-4 family	$	84,681		—		—		—		—	$	84,681
Home equity		110,345		—	$	97		—	$	97		110,248
Other:
Other loans		1,457	$	1		10		—		11		1,446
Overdrafts		1,862		—		—		—		—		1,862
Total loans	$	198,345	$	1	$	107		—	$	108	$	198,237

Loans Held for Sale

On February 1, 2012, the Company announced plans to sell a total of $474 million in performing and non-performing loans in two tranches by mid-2012, as a significant step toward reducing the Bank’s concentrations of commercial real estate loans and classified assets. These loans were transferred to loans held-for-sale at December 31, 2011 and the sales were completed in March 2012.

The first tranche included $200 million in performing and non-performing loans. The carrying value of these commercial real estate loans was reduced by $60 million at December 31, 2011. These loans were primarily commercial real estate credits, including classified assets totaling $53 million net of the market value adjustment. The recorded sales price, net of broker fees and expenses, exceeded the carrying value of this portfolio, resulting in a pre-tax gain of approximately $7.9 million.

The second tranche included $274 million in performing, non-classified multifamily loans. No market value adjustment was recorded when this portfolio was transferred to held-for-sale at December 31, 2011, as they were expected to be sold at or above par value. The sale of these loans in March 2012 resulted in a pre-tax gain of approximately $8.0 million.

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5.    Earnings Per Share

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

	Three Months Ended March 31
	2012		2011
	(000’s except share data)
Numerator:
Net income (loss) available to common shareholders for basic and diluted earnings per share	$	18,013	$	4,824
Denominator:
Denominator for basic earnings per common share — weighted average shares		19,538,334		19,446,409
Effect of diluted securities:
Stock options		19,762		71,454
Denominator for diluted earnings per common share — adjusted weighted average shares		19,558,096		19,517,863
Basic earnings per common share	$	0.92	$	0.25
Diluted earnings per common share	$	0.92	$	0.25
Dividends declared per share	$	0.18	$	0.14

In November 2011, the Company declared a 10% stock dividend. Share and per share amounts for 2011 have been retroactively restated to reflect the issuance of the additional shares.

6.    Benefit Plans

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

	Three Months Ended Mar 31
	2012			2011
Service cost	$	110		$	95
Interest cost		153			147
Amortization of prior service cost		(58	)		(58	)
Amortization of net loss		168			139
Net periodic pension cost	$	373		$	323

The Company makes contributions to the unfunded defined benefit plans only as benefit payments become due. The Company disclosed in its 2011 Annual Report on Form 10-K that it expected to contribute $813 to the unfunded defined benefit plans during 2012. For the three month period ended March 31, 2012, the Company contributed $153 to these plans.

7.    Stock-Based Compensation

In accordance with the provisions of the Hudson Valley Holding Corp. 2010 Omnibus Incentive Plan, approved by the Company’s shareholders on May 27, 2010, the Company may grant eligible employees incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards and other types of awards. Directors, consultants and other advisors may also be granted awards under the 2010 Plan. The 2010 Plan provides for the issuance of up to 1,331,000 shares of the

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Company’s common stock. Prior to the 2010 Plan, the Company had stock option plans that provided for the granting of options to directors, officers, eligible employees, and certain advisors, based upon eligibility as determined by the Compensation Committee. Under the prior plans, options were granted for the purchase of shares of the Company’s common stock at an exercise price not less than the market value of the stock on the date of grant, vested over various periods ranging from immediate to five years from date of grant, and had expiration dates up to ten years from the date of grant.

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

The following table summarizes stock-based compensation activity for the three month period ended March 31, 2012:

Prior Option Plans:	Shares			Weighted Average Grant or Exercise Price		Aggregate Intrinsic Value(1) ($000’s)		Weighted Average Remaining Contractual Term
Outstanding at December 31, 2011		625,256		$	22.81
Granted		—			—
Exercised		(4,655	)		16.48
Cancelled or Expired		(8,979	)		24.67
Outstanding at March 31, 2012		611,622			22.83	$	40		2.3
Exercisable at March 31, 2012		602,748			22.64	$	40		2.3
2010 Omnibus Incentive Plan:
Available for grant at December 31, 2011		1,331,000
Restricted stock awards		(100,427	)	$	16.66
Available for future grant		1,230,573

1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current fair value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on March 31, 2012. This amount changes based on changes in the fair value of the Company’s stock.

The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. There were no stock options granted in the three month period ended March 31, 2012 or the year ended December 31, 2011. There were 8,874 nonvested stock options with an average exercise price of $35.96 at March 31, 2012 and December 31, 2011. All of these options are expected to vest in the fourth quarter of 2012. The restricted stock awards during the three month period ended March 31, 2012 were the initial awards under the 2010 Plan. Of the 100,427 shares granted, 7,543 vested during the period and the remaining 92,884 shares were not vested.

Net compensation expense of $12 and $40 related to the Company’s stock option plans was included in net income for the three month periods ended March 31, 2012 and 2011, respectively. The total tax effect related thereto was $(2) and $(1), respectively. Unrecognized compensation expense related to non-vested share-based compensation granted under the Company’s stock option plans totaled $39 at March 31, 2012. This expense is expected to be recognized over a remaining weighted average period of 0.8 years.

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8.    Fair Value

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

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

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

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

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

Investment Securities - The fair values of investment securities are determined by obtaining quoted prices on nationally recognized securities exchanges, if available (Level 1), or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities, which is a Level 2 input. The Company’s available for sale securities at March 31, 2012 and December 31, 2011 included several pooled trust preferred instruments. The recent severe downturn in the overall economy and, in particular, in the financial services industry has created a situation where significant observable inputs (Level 2) are not readily available for these instruments. As an alternative, the Company combined Level 2 input of market yield requirements of similar instruments together with certain Level 3 assumptions addressing the impact of current market illiquidity to estimate the fair value of these instruments. The fair values of Level 3 investment securities are determined by the Controller and Investment Officer who report to the Chief Financial Officer. See Note 3 “Securities” for further discussion of pooled trust preferred securities.

Impaired Loans – At the time a loan is considered impaired, it is valued at lower of cost or fair value. Impaired loans carried at fair value generally are partially charged off or receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value in commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraiser to adjust for differences between the comparable sales and the income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining value. Non real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

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

Loans Held for Sale - Loans held for sale are carried at lower of cost or fair value. The fair value of loans held for sale is determined using average bid indicators from third parties expected to participate in the loan

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sales, in some cases adjusted for specific attributes of that loan or other observable market data. Such bids and adjustments often vary significantly and typically result in Level 3 classification of the inputs used in determining fair value.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at March 31, 2012 (dollars in thousands):

Asset	Fair Value		Valuation Technique	Unobservable Inputs	Range of Inputs
Impaired loans	$	6,726	Sales comparison and income based appraisals	Discount for dated appraisal	0% - 20%
			Sales comparison and income based appraisals	Discount for costs to sell	0% - 30%
Loans held for sale	$	2,532	Third party bids	Bids from interested third parties	42% -65%
Other real estate owned	$	1,174	Sales comparison and income based appraisals	Discount for costs to sell	30%

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Assets and liabilities measured at fair value are summarized below:

	Fair Value Measurements at March 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(000’s)
Measured on a recurring basis:
Available for sale securities:
U.S. Treasury and government agencies		—		—		—		—
Mortgage-backed securities —residential		—	$	336,120		—	$	336,120
Obligations of states and political subdivisions		—		98,457		—		98,457
Other debt securities		—		511	$	2,422		2,933
Mutual funds and other equity securities		—		10,518		—		10,518
Total assets at fair value		—	$	445,606	$	2,422	$	448,028
Measured on a non-recurring basis:
Impaired loans:(1)
Commercial Real Estate		—		—	$	1,012	$	1,012
Construction		—		—		2,076		2,076
Residential		—		—		1,529		1,529
Commercial & Industrial		—		—		2,109		2,109
Other		—		—		—		—
Loans held for sale		—		—		2,532		2,532
Other real estate owned		—		—		1,174		1,174
Total assets at fair value		—		—	$	10,432	$	10,432

	Fair Value Measurements at December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(000’s)
Measured on a recurring basis:
Available for sale securities:
U.S. Treasury and government agencies		—		—		—		—
Mortgage-backed securities — residential		—	$	393,418		—	$	393,418
Obligations of states and political subdivisions		—		100,599		—		100,599
Other debt securities		—		516	$	2,816		3,332
Mutual funds and other equity securities		—		10,548		—		10,548
Total assets at fair value		—	$	505,081	$	2,816	$	507,897
Measured on a non-recurring basis:
Impaired loans:(1)
Commercial Real Estate		—		—	$	1,410	$	1,410
Construction		—		—		3,107		3,107
Residential		—		—		1,529		1,529
Commercial & Industrial		—		—		2,145		2,145
Other		—		—		—		—
Loans held for sale		—		—		473,814		473,814
Other real estate owned		—		—		1,174		1,174
Total assets at fair value		—		—	$	483,179	$	483,179

(1) The recorded investments in impaired loans subject to fair value reporting on March 31, 2012 and December 31, 2011 were $8,967 and $10,565, respectively, for which specific allowances of $ 2,241 and $2,374, respectively, had been established within the allowance for loan losses.

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The table below presents a reconciliation and income statement classification of gains and losses for securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three month periods ended March 31, 2012 and 2011:

	Level 3 Assets Measured on a Recurring
	For the Three Months Ended March 31
	2012			2011
	(000’s)
Balance at beginning of period	$	2,816		$	3,687
Transfers into (out of) Level 3		106			102
Net unrealized gain (loss) included in other comprehensive income		(22	)		(612	)
Principal payments		—			—
Recognized impairment charge included in the statement of income		(478	)		(161	)
Balance at end of period	$	2,422		$	3,016

9. Fair Value of Financial Instruments

The Company follows the “Financial Instruments” topic of the FASB Accounting Standards Codification which requires the disclosure of the estimated fair value of certain financial instruments. These estimated fair values as of March 31, 2012 and December 31, 2011 have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange. The use of alternative market assumptions and estimation methodologies could have had a material effect on these estimates of fair value.

Carrying amount and estimated fair value of financial instruments, not previously presented, at March 31, 2012 was as follows:

			Fair Value Measurements
	Carrying Amount		Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Financial assets for which carrying value approximates fair value	$	579.6	$	579.6	$	579.6		—		—
Held to maturity securities and accrued interest		12.2		13.0		—		13.0		—
FHLB Stock		3.8		N/A		—		—		—
Loans and accrued interest		1,640.9		1,680.6		—		—		1,680.6
Liabilities:
Deposits with no stated maturity and accrued interest		2,282.0		2,282.0		2,282.0		—		—
Time deposits and accrued interest		142.7		143.0		—		143.0		—
Securities sold under repurchase agreements and other short-term borrowing and accrued interest		46.3		46.3		46.3		—		—
Other borrowings and accrued interest		16.6		14.0		—		14.0		—

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	December 31
	2011
	Carrying Amount		Estimated Fair Value
	(in millions)
Assets:
Financial assets for which carrying value approximates fair value	$	94.5	$	94.5
Held to maturity securities and accrued interest		13.0		13.9
FHLB Stock		3.8		N/A
Loans and accrued interest		1,571.3		1,609.2
Liabilities:
Deposits with no stated maturity and accrued interest		2,274.7		2,274.7
Time deposits and accrued interest		151.7		152.1
Securities sold under repurchase agreements and other short-term borrowing and accrued interest		53.1		53.1
Other borrowings and accrued interest		16.6		14.0

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

Financial assets for which carrying value approximates fair value — The estimated fair value approximates carrying amount because of the immediate availability of these funds or based on the short maturities and current rates for similar deposits. Cash and due from banks as well as Federal funds sold are reported in this line item.

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

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

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

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

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

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

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

10. Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs “which represents the convergence of the FASB’s and the IASB’s guidance on fair value measurement. ASU 2011-04 reflects the common requirements under U.S. GAAP and IFRS for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning for the term “fair value.” The new guidance does not extend the use of fair value but, rather, provides guidance about how fair value should be

28

applied where it is already required or permitted under IFRS or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS 13. A public company is required to apply the ASU prospectively for interim and annual periods beginning after December 15, 2011. Early adoption is not permitted for a public company. The adoption of this ASU did not have a material impact on the Company’s financial condition or results of operations.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income” the provisions of which allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 should be applied retrospectively and is effective for public companies for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Company’s financial condition or results of operations.

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment” the provisions of which allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The provisions for ASU 2011-08 become effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Company’s financial condition or results of operations.

Other — Certain 2011 amounts have been reclassified to conform to the 2012 presentation.

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

This section presents discussion and analysis of the Company’s consolidated financial condition at March 31, 2012 and December 31, 2011, and the consolidated results of operations for the three month periods ended March 31, 2012 and March 31, 2011. The Company is consolidated with its wholly owned subsidiaries Hudson Valley Bank, N.A. and its subsidiaries (collectively “HVB” or “the Bank”) and HVHC Risk Management Corp. This discussion and analysis should be read in conjunction with the financial statements and supplementary financial information contained in the Company’s 2011 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 2011 Annual Report on Form 10-K.

The Company derives substantially all of its revenue from providing banking and related services to businesses, professionals, municipalities, not-for profit organizations and individuals within its market area, primarily Westchester County and Rockland County, New York, portions of New York City and Fairfield County and New Haven County, Connecticut. The 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. Considering current economic conditions, the Company’s primary market risk exposures are interest rate risk, the risk of deterioration of market values of collateral supporting the Company’s loan portfolio, particularly commercial and residential real estate and potential risks associated with the impact of regulatory changes that may take place in reaction to the current crisis in the financial system. Interest rate risk is the exposure of net interest income to changes in interest rates. Commercial and residential real estate are the primary collateral for the majority of the Company’s loans.

The Company recorded net income for the three month period ended March 31, 2012 of $18.0 million or $0.92 per diluted share, an increase of $13.2 million compared to net income of $4.8 million or $0.25 per diluted share for the same period in the prior year. Per share amounts for the 2011 periods have been adjusted to reflect the effects of the 10 percent stock dividend issued in December 2011.

The increases in earnings resulted primarily from pretax gain of $15.9 million resulting from the successful completion of $474 million of loan sales announced in the first quarter of 2012 as part of the Company’s efforts to reduce the levels of nonperforming and other classified loans, and also to reduce the overall concentration in commercial real estate loans. In addition, there was a decrease of $4.1 million in the provision for loan losses which totaled $1.4 million for the three month period ended March 31, 2012, compared to $5.5 million for the same period in the prior year. The 2012 provision is significantly lower than in 2011, however, the provisions in both 2012 and 2011 are reflective of continued weakness in the overall economy, and the related effects of this weakness on the Company’s overall asset quality. In addition to the gains on the loan sales, income from the first quarter of 2012 was higher, compared to the same period in the prior year, as a result of higher net interest income, partially offset by higher impairment charges on securities available for sale and slightly higher non interest expenses.

Total loans, excluding loans held for sale, increased $68.8 million during the three month period ended March 31, 2012 compared to the prior year end. This increase resulted primarily from the purchase of adjustable rate residential loans, which were purchased as partial redeployment of proceeds from sales of loans held for sale. The Company continues to provide lending availability to both new and existing customers.

Nonperforming assets (including nonperforming loans held for sale) decreased to $29.0 million at March 31, 2012, compared to $58.9 million at December 31, 2011. The Company recognized $0.2 million of net charge-offs during the three month period ended March 31, 2012. Overall asset quality, however, continued to be adversely

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affected by the current state of the economy and the real estate market, which has resulted in the continuation of elevated levels of delinquent and nonperforming loans, slowdowns in repayments and declines in the loan-to-value ratios on existing loans. The Company continues to reevaluate each problem loan and make a determination of net realizable value based on management’s estimation of the most probable outcome considering the individual characteristics of each asset against the likelihood of resolution with the current borrower, expectations for resolution through the court system, or other available market opportunities including consideration of additional loan sales.

Total deposits decreased $1.4 million during the three month period ended March 31, 2012, compared to the prior year end. The Company continued to experience slight growth in new customers both in existing branches and new branches added during the last few years. This growth was offset by planned reductions in certain deposit balances, primarily higher cost municipal demand deposits.

The Company’s short-term liquidity increased significantly during the first quarter of 2012 primarily as a result of not fully redeploying the proceeds of the aforementioned loan sales. The loan sales were completed during the last few days of the first quarter of 2012 and, as a result, had little impact on the quarter’s net interest margin, which increased to 4.75 percent, compared to 4.39 percent for the same period in the prior year. The 2012 increase was primarily the result of reinvestment of 2011 excess liquidity into loans, primarily local market multi-family loans. Prior to the loan sales, this reinvestment had significantly offset margin compression resulting from interest rates continuing at historically low levels. The Company expects net interest margin compression in future quarters due to maturing loans and investments being reinvested at lower interest rates and until full redeployment of the proceeds from the recent loan sales can be completed in a manner consistent with both the company’s risk management policies and the requirements of the Office of the Controller of the Currency (OCC). Regardless of the timing of the aforementioned redeployment, if interest rates continue at current levels, we expect that additional downward pressure on net interest margin will continue.

As a result of the aforementioned activity in the Company’s core businesses of loans and deposits and other asset/liability management activities, tax equivalent basis net interest income increased by $3.7 million or 13.2 percent to $31.8 million for the three month period ended March 31, 2012, compared to $28.1 million for the same period in the prior year. The effect of the adjustment to a tax equivalent basis was $0.5 million for the three month period ended March 31, 2012, compared to $0.6 million for the same period in the prior year.

The Company’s non interest income was $20.4 million for the three month period ended March 31, 2012, compared to $5.2 million for the same period in the prior year. The increase resulted primarily from the $15.9 million pretax gain on sales of loans, partially offset by decreases in investment advisory fees and service charges and an increase in pre-tax impairment charges on securities available for sale. Advisory fee income decreased by $0.2 million primarily as a result of the effects of continued fluctuation in both domestic and international equity markets. Service charges decreased slightly due to decreased activity. Pre-tax impairment charges on securities available for sale were $0.5 million for the three month period ended March 31, 2012 and $0.2 million for the same period in the prior year. The impairment charges were related to the Company’s investments in pooled trust preferred securities.

Non interest expense was $20.9 million for the three month period ended March 31, 2012. This represented an increase of $0.4 million or 2.0 percent, compared to $20.5 million for the same period in the prior year. The increase in non interest expense resulted primarily from an additional provision of $1.3 million related to the previously announced ongoing investigations by the Securities and Exchange Commission (SEC) relating to issues surrounding the brokerage practices and policies and disclosures about such practices of the Company’s investment advisory subsidiary, A.R. Schmeidler & Co., Inc. Based on ongoing discussions with the SEC, the Company believes it has substantially accrued for any penalties and related costs anticipated in the final resolution of this matter although, until final agreement is reached, the exact result cannot be determined. Noninterest expenses for the three month period ended March 31, 2012, compared to the same period in the prior year also reflected increases in costs associated with problem asset resolution, and investment in technology and personnel to accommodate growth and the expansion of services and products available to new and existing customers. These increases were partially offset by a $0.6 million reduction of previously accrued officers’ incentive compensation and a lower FDIC insurance assessment.

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The OCC, which is the primary federal regulator of the Bank, has directed greater scrutiny to banks with higher levels of commercial real estate loans. During the fourth quarter of 2009, the OCC required HVB to maintain, by December 31, 2009, a total risk-based capital ratio of at least 12.0%, a Tier 1 risk-based capital ratio of at least 10.0%, and a Tier 1 leverage ratio of at least 8.0%. These capital levels are in excess of “well capitalized” levels generally applicable to banks under current regulations. The Company and HVB have continuously exceeded all required regulatory capital ratios.

On February 1, 2012, Hudson Valley announced that during a routine exam and discussions with the OCC, the Bank was made aware that it would be required to reduce its concentration in commercial real estate loans, including multi-family lending, as well as classified loans. As previously disclosed, the Company’s response to these discussions with the OCC included a commitment to reduce concentrations of CRE loans and classified assets to less than 400 percent and 25 percent of risk-based capital, respectively, in the near term.

Primarily as a result of the bank’s sale of $474 million in loans, during the first quarter of 2012 Hudson Valley reduced CRE loans to 401 percent of risk-based capital from 558 percent at the end of last year, while lowering classified assets to 27 percent of risk-based capital. Classified assets ranged between 56 percent and 67 percent of risk-based capital in 2011, before the impact of loan marks at December 31, 2011.

Also on February 1, Hudson Valley announced its new dividend policy capping dividend payments at no more than 50 percent of quarterly net income in 2012, and in future periods if CRE loans and classified assets exceed 400 percent and 25 percent of risk-based capital, respectively.

On April 24, 2012, the board of directors of Hudson Valley Bank signed a formal written agreement with the OCC. With this agreement, Hudson Valley is committing to adopt best practices modeled on those of the nation’s larger financial institutions, as well as evolving expectations of regulatory agencies on community banks. Included in the agreed-upon commitments are enhancements to the bank’s procedures, systems, policies, programs, plans, training and resources. The agreement is consistent with the CRE lending and classified asset concentration commitments Hudson Valley announced on February 1. The written agreement imposes no specific capital ratio mandates or other quantitative conditions or obligations on Hudson Valley and does not impose any express limit on the Bank board’s ability to pay dividends to its parent, except those imposed by the law, although OCC approval for a capital plan is required. The Bank expects to submit to the OCC a capital plan, containing the Bank’s near term and long term dividend policy, pursuant to the written agreement.

Critical Accounting Policies

Application of Critical Accounting Policies — The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The Company’s significant accounting policies are more fully described in Note 2 to the Consolidated Financial Statements. Certain accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an on-going basis, management evaluates its estimates and assumptions, and the effects of revisions are reflected in the financial statements in the period in which they are determined to be necessary. The accounting policies described below are those that most frequently require management to make estimates and judgments, and therefore, are critical to understanding the Company’s results of operations. Senior management has discussed the development and selection of these accounting estimates and the related disclosures with the Audit Committee of the Company’s Board of Directors.

Results of Operations for the Three Month Periods Ended March 31, 2012 and March 31, 2011

Summary of Results

The Company recorded net income of $18.0 million or $0.92 per diluted share for the three month period ended March 31, 2012, compared to net income of $4.8 million or $0.25 per diluted share for the same period in the prior year. Per share amounts for the 2011 periods have been adjusted to reflect the effects of the 10% stock dividend issued in December 2011. The increase in net income for the three month period ended March 31, 2012,

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compared to the same period in the prior year, resulted primarily from higher net interest income, significantly higher non interest income and a lower provision for loan losses, partially offset by slightly higher non interest expense. The increase in net interest income resulted primarily from the reinvestment of excess liquidity into new loans and a lower average cost of funds. The increase in non interest income resulted from the $15.9 million pretax gain on sales of loans, partially offset by decreases in investment advisory fees and service charges and an increase in pre-tax impairment charges on securities available for sale. Advisory fee income decreased by $0.2 million primarily as a result of the effects of continued fluctuation in both domestic and international equity markets. Service charges decreased slightly due to decreased activity. Pre-tax impairment charges on securities available for sale were $0.5 million for the three month period ended March 31, 2012 and $0.2 million for the same period in the prior year. The impairment charges were related to the Company’s investments in pooled trust preferred securities. The decrease in the provision for loan losses resulted from improvement in asset quality primarily as a result of actions taken during 2011 and the first quarter of 2012, including the aforementioned loan sale. Although the 2012 provision is significantly lower than in the same period in the prior year, the provisions in both 2012 and 2011 are reflective of continued weakness in the overall economy, and the related effects of this weakness on the Company’s overall asset quality. The increase in non interest expense reflects an additional provision of $1.3 million related to the previously announced ongoing investigations by the SEC relating to issues surrounding the brokerage practices and policies and disclosures about such practices of the company’s investment advisory subsidiary, A.R. Schmeidler & Co., Inc., increases in costs associated with problem asset resolution, and additional investments in technology and personnel to accommodate growth, expansion of services and products and increased regulatory compliance requirements. These increases were partially offset by a $0.6 million reduction of previously accrued officers’ incentive compensation and a lower FDIC insurance assessment.

Annualized returns on average stockholders’ equity and average assets were 25.5 percent and 2.5 percent for the three month period ended March 31, 2012, compared to 6.6 percent and 0.7 percent for the same period in the prior year. Returns on adjusted average stockholders’ equity were 25.8 percent and 6.6 percent, respectively, for the three month periods ended March 31, 2012 and 2011. Adjusted average stockholders’ equity excludes the effects of average net unrealized gains, net of tax of $2.9 million for the three month period ended March 31, 2012, and $0.4 million for the same period in the prior year, on securities available for sale. The annualized return on adjusted average stockholders’ equity is, under SEC regulations, a non-GAAP financial measure. Management believes that this non-GAAP financial measure more closely reflects actual performance, as it is more consistent with the Company’s stated asset/liability management strategies, which do not contemplate significant realization of market gains or losses on securities available for sale which were primarily related to changes in interest rates or illiquidity in the marketplace.

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Average Balances and Interest Rates

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

	Three Months Ended March 31,
	2012							2011
	Average Balance		Interest(3)		Yield/ Rate			Average Balance		Interest(3)		Yield/ Rate
	(Unaudited)
ASSETS
Interest earning assets:
Deposits in Banks	$	122,635	$	56		0.18	%	$	276,957	$	164		0.24	%
Federal funds sold		16,636		8		0.19	%		44,662		26		0.23	%
Securities:(1)
Taxable		394,994		3,313		3.35	%		339,975		2,950		3.47	%
Exempt from federal income taxes		100,659		1,517		6.03	%		115,360		1,786		6.19	%
Loans, net(2)		1,997,391		28,915		5.79	%		1,727,420		26,332		6.10	%
Total interest earning assets		2,632,315		33,809		5.14	%		2,504,374		31,258		4.99	%
Non interest earning assets:
Cash and due from banks		49,420							41,022
Other assets		159,252							153,212
Total non interest earning assets		208,672							194,234
Total assets	$	2,840,987						$	2,698,608
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Deposits:
Money market	$	982,858	$	1,239		0.50	%	$	870,155	$	1,539		0.71	%
Savings		115,795		113		0.39	%		114,769		127		0.44	%
Time		144,942		254		0.70	%		184,473		435		0.94	%
Checking with interest		300,673		144		0.19	%		280,805		173		0.25	%
Securities sold under repo & other s/t borrowings		53,584		51		0.38	%		39,708		47		0.47	%
Other borrowings		16,460		181		4.40	%		75,063		844		4.50	%
Total interest bearing liabilities		1,614,312		1,982		0.49	%		1,564,973		3,165		0.81	%
Non interest bearing liabilities:
Demand deposits		921,891							819,945
Other liabilities		25,198							22,713
Total non interest bearing liabilities		947,089							842,658
Stockholders’ equity(1)		279,586							290,977
Total liabilities and stockholders’ equity	$	2,840,987						$	2,698,608
Net interest earnings			$	31,827						$	28,093
Net yield on interest earning assets						4.84	%						4.49	%

(1) Excludes unrealized gains (losses) on securities available for sale. Management believes that this presentation more closely reflects actual performance, as it is more consistent with the Company’s stated asset/liability management strategies, which have not resulted in significant realization of temporary market gains or losses on securities available for sale which were primarily related to changes in interest rates. Effects of these adjustments are presented in the table below.

(2) Includes loans classified as non-accrual and loans held-for-sale.

(3) The data contained in the table has been adjusted to a tax equivalent basis, based on the Company’s federal statutory rate of 35 percent. Management believes that this presentation provides comparability of net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent with industry practice and SEC rules. Effects of these adjustments are presented in the table below.

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Average Balances and Interest Rates Non-GAAP Reconciliation to GAAP

	Three Months Ended Mar 31
	2012			2011
	(000’s)
Total interest earning assets:
As reported	$	2,636,551		$	2,504,935
Unrealized gain on securities available for sale(1)		4,236			561
Adjusted total interest earning assets	$	2,632,315		$	2,504,374
Net interest earnings:
As reported	$	31,296		$	27,468
Adjustment to tax equivalency basis(2)		531			625
Adjusted net interest earnings	$	31,827		$	28,093
Net yield on interest earning assets:
As reported		4.75	%		4.39	%
Effects of(1) and(2) above		0.09	%		0.10	%
Adjusted net yield on interest earning assets		4.84	%		4.49	%
Average stockholders’ equity:
As reported	$	282,459		$	291,426
Effects of(1) and(2) above		2,873			449
Adjusted average stockholders’ equity	$	279,586		$	290,977

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, 2012 and 2011:

	(000’s)
	Three Month Period Increase (Decrease) Due to Change in
	Volume			Rate			Total(1)
Interest income:
Deposits in Banks	$	(91	)	$	(17	)	$	(108	)
Federal funds sold		(16	)		(2	)		(18	)
Securities:
Taxable		477			(114	)		363
Exempt from federal income taxes(2)		(228	)		(41	)		(269	)
Loans, net		4,115			(1,532	)		2,583
Total interest income		4,257			(1,706	)		2,551
Interest expense:
Deposits:
Money market		199			(499	)		(300	)
Savings		1			(15	)		(14	)
Time		(93	)		(88	)		(181	)
Checking with interest		12			(41	)		(29	)
Securities sold under repo & other s/t borrowings		16			(12	)		4
Other borrowings		(659	)		(4	)		(663	)
Total interest expense		(524	)		(659	)		(1,183	)
Increase (decrease) in interest differential	$	4,781		$	(1,047	)	$	3,734

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(1) Changes attributable to both rate and volume are allocated between the rate and volume variances based upon their absolute relative weight to the total change.

(2) Equivalent yields on securities exempt from federal income taxes are based on a federal statutory rate of 35 percent in 2012 and 2011.

Net Interest Income

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

Net interest income, the difference between interest income and interest expense, is the most significant component of the Company’s consolidated earnings. As previously noted in the Company’s 2011 Annual Report on Form 10-K, the Company has experienced an extended period of severe negative economic conditions and historically low interest rates. These conditions have resulted in sharp declines in the value of collateral securing many of the Company’s loans, elevated levels of classified and nonperforming loans, weak loan demand and declining margins. In addition, a dynamically changing regulatory landscape has resulted in greater scrutiny of the historic business models of smaller community-based institutions. This has resulted in greater pressure on many community banks to reduce loan concentrations, particularly commercial real estate loans, and to accelerate the reduction of levels of nonperforming and classified loans. During this period of economic difficulty and low interest rates, the Company took various steps to maximize its net interest income. These steps included repositioning its securities portfolio, reducing higher cost term borrowings and, from the second half of 2010 through 2011, redeploying excess liquidity into new loans, primarily local market multi-family loans. These actions enabled the Company to significantly offset margin compression, particularly in 2011 and in the first quarter of 2012, resulting from interest rates continuing at historically low levels. As previously noted, and in reaction to the OCC’s requirements to reduce levels of exposure to commercial real estate and nonperforming assets, the Company, in the first quarter of 2012, sold approximately $474 million of loans, including part of the multi-family portfolio originated in 2010 and 2011, in an effort to reduce its concentration in commercial real estate loans and its level of classified loans. Proceeds from the loan sales were partially redeployed by a purchase of $65.8 million of adjustable rate residential loans. The weighted average yield of the loans sold was 5.36 percent and the weighted average yield of the loans purchased was 3.71. As a result of these differentials in redeployment and average yields, together with the current historically low interest rate environment, the Company expects that significant margin compression will result, at least in the near term, particularly during the period of redeployment of the remaining proceeds from the loan sale. Management believes that the results of the loan sales and other efforts have enabled the Company, given the difficulties encountered during the recent financial crisis, to address regulatory concerns, and effectively reposition its portfolios from both asset composition and interest rate risk perspectives.

Net interest income, on a tax equivalent basis, increased by $3.7 million or 13.2 percent to $31.8 million for the three month periods ended March 31, 2012, compared to $28.1 million for the same period in the prior year. Net interest income for the 2012 period was higher partially due to increases in the tax equivalent basis net interest margin to 4.84 percent for the three month period ended March 31, 2012, compared to 4.49 percent for the same period in the prior year, partially offset by generally lower interest rates. The increase in net interest income was also partially due to increases in the excess of adjusted average interest earning assets over average interest bearing liabilities of $78.6 million or 8.4 percent to $1,018.0 million, for the three month period ended March 2012 compared to $939.4 million for the same period in the prior year.

The Company’s overall asset quality has continued to be adversely affected by the current state of the economy and has continued to experience higher than normal levels of delinquent and nonperforming loans and a continuation of the slowdowns in repayments and declines in the loan-to-value ratios on existing loans. Changes in the levels of nonperforming loans have a direct impact on net interest income.

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Additional liquidity from deposit growth was used to fund loan growth, increase securities portfolio or was retained in the Company’s short-term liquidity portfolios, available to fund future loan growth. The Company’s short-term liquidity remains at elevated levels, resulting from continued strong deposit growth and soft loan demand. With interest rates remaining at historical low levels, this excess liquidity contributed to margin compression.

The Company has made efforts throughout the extended period of severe economic uncertainty and fluctuating interest rates to minimize the impact on its net interest income by appropriately repositioning its securities portfolio and funding sources while maintaining prudence and awareness of the potential consequences that the current economic crisis could have on its asset quality and interest rate risk profiles. The Company continues to increase the number of loans originated with interest rate floors and exercise caution in reinvestment of excess liquidity provided from continued strong deposit growth. These actions are being conducted partially to maintain flexibility in reaction to the continuation of historically low interest rates. The Company’s ability to make changes in its asset mix allows management to capitalize on more desirable yields, as available, on various interest earning assets. Management believes that the result of these efforts has enabled the Company, given the difficulties being encountered in the current economic crisis, to maximize the effective repositioning of its portfolios from both asset and interest rate risk perspectives.

Interest income is determined by the volume of, and related rates earned on, interest earning assets. Volume decreases in investments, federal funds sold and interest bearing deposits, partially offset by a volume increase in loans and a slightly higher average yield on interest earning assets, resulted in higher interest income for the three month period ended March 31, 2012, compared to the same period in the prior year. Adjusted average interest earning assets for the three month period ended March 31, 2012 increased $127.9 million or 5.1 percent to $2,632.3 million from $2,504.4 million for the same period in the prior year.

Loans are the largest component of interest earning assets. Average net loans increased $270.0 million or 15.6 percent to $1,997.4 million, for the three month period ended March 31, 2012, compared to $1,727.4 million for the same period in the prior year. The average yield on loans was 5.79 percent for the three month period ended March 31, 2012, compared to 6.10 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, 2012, compared to the same period in the prior year, due to higher volume, partially offset by lower average interest rates.

Average total securities, including Federal Home Loan Bank (“FHLB”) stock and excluding net unrealized gains and losses, increased $40.4 million or 8.9 percent to $495.7 million for the three month period ended March 31, 2012, compared to $455.3 million for the same period in the prior year. The decrease in average total securities resulted primarily from a planned reduction in the portfolio conducted by the Company as part of its ongoing asset/liability management efforts. The average tax equivalent basis yield on securities was 3.90 percent for the three month period ended March 31, 2012, compared to 4.16 percent for the same period in the prior year. As a result, tax equivalent basis interest income on securities increased for the three month period ended March 31, 2012, compared to the same period in the prior year, due to higher volume, partially offset by lower interest rates. Increases or decreases in average FHLB stock result from purchases or redemptions of stock in order to maintain required levels to support FHLB borrowings.

Interest expense is a function of the volume of, and rates paid for, interest bearing liabilities, comprised of deposits and borrowings. Interest expense decreased $1.2 million or 37.5 percent to $2.0 million for the three month period ended March 31, 2012, compared to $3.2 million for the same period in the prior year. Average interest bearing liabilities increased $49.3 million or 3.2 percent to $1,614.3 million for the three month period ended March 31, 2012, compared to $1,565.0 million for the same period in the prior year. The increase in average interest bearing liabilities for the three month period ended March 31, 2012, compared to the same period in the prior year, was due to volume increases in interest bearing demand deposits and securities sold under repurchase agreements and other short-term borrowings and other borrowings. There were increases in average interest bearing deposits and in noninterest bearing demand deposits. The decrease in average short-term and other borrowings for the three month period ended March 31, 2012, compared to the same period in the prior year, resulted from management’s decision to utilize cash flow from deposit growth and maturing investment securities to reduce borrowings as part of the Company’s ongoing asset/liability management efforts. The

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average interest rate paid on interest bearing liabilities was 0.49 percent for the three month period ended March 31, 2012, compared to 0.81 percent for the same period in the prior year. As a result of these factors, interest expense on average interest bearing liabilities was lower for the three month period ended March 31, 2012, compared to the same period in the prior year due to lower interest rates.

Average non interest bearing demand deposits increased $102.0 million or 12.4 percent to $921.9 million for the three month period ended March 31, 2012, compared to $819.9 million for the same period in the prior year. Non interest bearing demand deposits are an important component of the Company’s ongoing asset liability management, and also have a direct impact on the determination of net interest income.

The interest rate spread on a tax equivalent basis for the three month periods ended March 31, 2012 and 2011 is as follows:

	Three Months Ended Mar 31
	2012			2011
Average interest rate on:
Total average interest earning assets		5.14	%		4.99	%
Total average interest bearing liabilities		0.49	%		0.81	%
Total interest rate spread		4.65	%		4.18	%

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

Provision for Loan Losses

The Company recorded a provision for loan losses of $1.4 million for the three month period ended March 31, 2012, compared to $5.5 million for the same period in the prior year. 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 “Allowance for Loan Losses” for further discussion.

Non Interest Income

The Company’s non interest income was $20.4 million for the three month period ended March 31, 2012. This represented an increase of $15.2 million or 292.3 percent compared to $5.2 million for the same period in the prior year. This increase primarily resulted from a $15.9 million pretax gain on sales of loans held for sale. Income from investment advisory fees decreased slightly primarily as a result of the effects of continued fluctuations in both domestic and international equity markets. Assets under management were approximately $1.3 billion at March 31, 2012 compared to $1.6 billion at March 31, 2011. Non interest income also included recognized pre-tax impairment charges on securities available for sale of $0.5 million for the three month period ended March 31, 2012 and $0.2 million for the same period in the prior year. The impairment charges were related to the Company’s investments in pooled trust preferred securities. The Company has continued to hold its investments in pooled trust preferred securities as it does not believe that the current market value estimates for these investments are indicative of their underlying value. The pooled trust preferred securities are primarily backed by various U.S. financial institutions many of which are experiencing severe financial difficulties as a result of the current economic downturn. Continuation of these conditions may result in additional impairment charges on these securities in the future.

Non Interest Expense

Non interest expense was $20.9 million for the three month period ended March 31, 2012. This represented an increase of $0.4 million or 2.0 percent compared to $20.5 million for the same period in the prior year. The increase in non interest expense resulted primarily from an additional provision of $1.3 million related to the previously announced ongoing investigations by the SEC relating to issues surrounding the brokerage practices

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and policies and disclosures about such practices of the company’s investment advisory subsidiary, A.R. Schmeidler & Co., Inc. Based on ongoing discussions with the SEC, the Company believes it has substantially accrued for any penalties and related costs anticipated in the final resolution of this matter although, until final agreement is reached, the exact result cannot be determined. Noninterest expenses for the three month period ended March 31, 2012, compared to the same period in the prior year also reflected increases in costs associated with problem asset resolution, and investment in technology and personnel to accommodate growth and the expansion of services and products available to new and existing customers. These increases were partially offset by a $0.6 million reduction of previously accrued officers’ incentive compensation and a lower FDIC insurance assessment.

Salaries and employee benefits expense, the largest component of non interest expense, was unchanged at $10.8 million for the three month period ended March 31, 2012, compared to the same period in the prior year. Increases in salaries in 2012 were offset by the partial reduction of previously accrued officers’ incentive compensation in March 2012.

Occupancy expense for the three month period ended March 31, 2012 decreased $0.1 million or 4.3 percent to $2.2 million compared to $2.3 million for the same period in the prior year. The slight decrease reflected lower maintenance costs during the current period.

Professional services expense for the three month period ended March 31, 2012 increased $0.4 million or 26.7 percent to $1.9 million compared to $1.5 million for the same period in the prior year. The increase was primarily due to costs related to the engagement of consultants to assist with new systems implementations and legal costs related to the aforementioned SEC investigation of A.R. Schmeidler & Co., Inc.

Equipment expense for the three month period ended March 31, 2012 increased $0.1 million or 10.0 percent to $1.1 million compared to $1.0 million for the same period in the prior year. The increase was due to increased equipment and software maintenance costs.

Business development expense was $0.5 million for the three month period ended March 31, 2012, which remained constant from the same period in the prior year.

The FDIC assessment for the three month period ended March 31, 2012 decreased $0.5 million or 45.5 percent to $0.6 million compared to $1.1 million for the same period in the prior year. The decrease was due to the change in the premium calculation base by the FDIC.

Significant changes in other components of non interest expense for the three month period ended March 31, 2012 compared to December 31, 2012, were due to the following:

• Decrease of $26,000 (57.8 %) in other insurance expense, resulting from reductions in the estimates of the net cost of certain life insurance policies, partially offset by an increase in blanket bond insurance costs,

• Decrease of $19,000 (9.3%) in stationary and printing costs, due to lower consumption levels,

• Decrease of $108,000 (30.5%) in courier expenses due to decreased utilization in 2012,

• Decrease of $159,000 (13.8%) in outside services, due to outsourcing of several data processing functions,

• Decrease of $38,000 (28.8%) in meetings and seminars, reflecting reduced participation in such events in 2012,

• Increase of $844,000 (98.3%) in other expenses, resulting from the additional contingency provision of $1.2 million related to the aforementioned SEC investigation of A.R. Schmeidler & Co., Inc.

Income Taxes

Income taxes of $11.4 million were recorded in the three month period ended March 31, 2012, compared to $2.0 million for the same period in the prior year. The overall effective tax rate of 38.8 percent for the three month period ended March 31, 2012 was higher compared to 28.9 percent for the same period in the prior year. The 2012 effective rate was higher primarily due to the fact that the tax effect of the $15.9 million gain on loan sales resulted in tax-exempt income representing a lower percentage of pretax income in 2012 compared to 2011.

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The Company is subject to a Federal statutory rate of 35 percent, a New York State tax rate of 7.1 percent plus a 17 percent surcharge, a Connecticut State tax rate of 7.5 percent and a New York City tax rate of 9 percent.

Financial Condition

Assets

The Company had total assets of $2,805.3 million at March 31, 2012, an increase of $7.6 million or 0.3 percent from $2,797.7 million at December 31, 2011.

Cash and Due from Banks

Cash and due from banks was $567.7 million at March 31, 2012, an increase of $489.6 million from $78.1 million at December 31, 2011. Included in cash and due from banks is interest earning deposits of $522.8 million at March 31, 2012 and $34.4 million at December 31, 2011. The increase was due to the proceeds from the sale of loans held for sale not being fully deployed.

Federal Funds Sold

Federal funds sold totaled $11.9 million at March 31, 2012, a decrease of $4.5 million or 27.4 percent from $16.4 million at December 31, 2011. The decrease was a result of excess liquidity being deployed into loans.

Securities Portfolio

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

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

The available for sale portfolio totaled $448.0 million at March 31, 2012 which was a decrease of $59.9 million or 11.8 percent from $507.9 million at December 31, 2011. The decrease resulted from a $57.3 million decrease in mortgage-backed securities, a decrease of $2.1 million of obligations of state political subdivisions and a decrease of $0.4 million of other debt securities. Included in other debt securities are pooled trust preferred securities, which had an aggregate cost basis of $11.3 million at March 31, 2012 and $11.6 million at December 31, 2011. These pooled trust preferred securities have suffered severe declines in the prior periods in estimated fair value primarily as a result of both illiquidity in the marketplace and declines in the credit ratings of a number of issuing banks underlying these securities. Management cannot predict what effect that continuation of such conditions could have on potential future value or whether there will be additional impairment charges related to these securities.

The held to maturity portfolio totaled $12.2 million at March 31, 2012, which was a decrease of $0.7 million or 5.4 percent from $12.9 million at December 31, 2011. The decrease was due to a decrease in mortgage-backed securities.

The Bank, as a member of the FHLB, invests in stock of the FHLB as a prerequisite to obtaining funding under various programs offered by the FHLB. The Bank must purchase additional shares of FHLB stock to obtain increases in such borrowings. Shares in excess of required amounts for outstanding borrowings are generally redeemed by the FHLB. The investment in FHLB stock totaled $3.8 million at both March 31, 2012 and December 31, 2011.

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

There were no obligations of any single issuer which exceeded ten percent of stockholders’ equity at March 31, 2012 or December 31, 2011.

Loan Portfolio

Net loans totaled $1,609.2 million at March 31, 2012, an increase of $67.8 million or 4.4 percent from $1,541.4 million at December 31, 2011. The increase resulted principally from a $53.6 million increase in residential real estate loans, a $14.8 million increase in commercial real estate loans and a $4.0 million increase is commercial and industrial loans, which were partially offset by a $3.3 million decrease in construction loans and a decrease of $0.3 million in lease financing and other loans. The significant increase in residential loans was primarily the result the purchase of adjustable rate residential loans, which were purchased as partial redeployment of proceeds from sales of loans held for sale.

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

	March 31 2012			December 31 2011
Real Estate:
Commercial	$	705,603		$	690,837
Construction		106,698			110,027
Residential		568,472			514,828
Commercial & Industrial		222,485			218,500
Individuals & lease financing		41,503			41,760
Total loans		1,644,761			1,575,952
Deferred loan fees		(3,706	)		(3,862	)
Allowance for loan losses		(31,856	)		(30,685	)
Loans, net	$	1,609,199		$	1,541,405

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The following table illustrates the trend in nonperforming assets, delinquency and net charge-offs from March 2011 to March 2012 (in thousands):

	Mar 31 2012			Dec 31 2011			Sep 30 2011			Jun 30 2011			Mar 31 2011
Non-Accrual Loans:
Real Estate:
Commercial		11,372			13,212			20,614			20,778			19,184
Construction		4,317			5,481			17,237			13,785			15,305
Residential		4,440			3,396			12,248			13,755			13,745
Total Real Estate		20,129			22,089			50,099			48,318			48,234
Commercial & Industrial		7,730			7,803			8,196			9,050			5,546
Lease Financing and Individuals		—			—			241			249			653
Total Non-Accrual Loans		27,859			29,892			58,536			57,617			54,433
Other Real Estate Owned		1,174			1,174			924			2,370		$	4,810
Nonperforming Assets excluding loans held for sale		29,033			31,066			59,460			59,988			59,243
Nonperforming loans held for sale		—			27,848			2,244			4,506			5,506
Total Nonperforming Assets including loans held for sale	$	29,033		$	58,914		$	61,704		$	64,494		$	64,749
Net charge-offs (recoveries) during quarter	$	188		$	72,418		$	2,276		$	(56	)	$	4,113
Nonperforming assets to total assets:
Excluding loans held for sale		1.03	%		1.11	%		2.03	%		2.13	%		2.23	%
Including loans held for sale		1.03	%		2.11	%		2.11	%		2.29	%		2.44	%

Non-accrual loans decreased $2.0 million to $27.9 million at March 31, 2012 from $29.9 million at December 31, 2011. There was no interest income on non-accrual loans included in net income for the three month period ended March 31, 2012 and the year ended December 31, 2011. Gross interest income that would have been recorded if these borrowers had been current in accordance with their original loan terms was $0.3 million and $0.8 million for the three month period ended March 31, 2012 and the year ended December 31, 2011, respectively.

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

The elevated level of nonperforming assets has primarily resulted from the current severe economic slowdown, which has had negative effects on real estate values, sales and available financing, particularly in the commercial and residential real estate sectors. Continuation of this condition could result in additional increases in nonperforming assets and charge-offs in the future.

During the three month period ended March 31, 2012:

• Non-accrual commercial real estate loans decreased $1.8 million resulting from the partial charge-off of one loan totaling $0.4 million and principal payments of $1.4 million.

• Non-accrual construction loans decreased $1.2 million, resulting from the payoff of one loan totaling $1.1 million and principal payments of $0.1 million.

• Non-accrual residential loans increased $1.0 million resulting from the addition of one loan totaling $1.3 million partially offset by the charge-off of one loan totaling $0.3 million.

• Non-accrual commercial and industrial loans decreased $0.1 million resulting from principal payments of $0.1 million

There were no loans past due 90 days or more and still accruing at March 31, 2012 and December 31, 2011. In addition, the Company had $10.3 million and $5.0 million of loans that were 31-89 days delinquent and still accruing at March 31, 2012 and December 31, 2011, respectively.

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Loans considered by the Company to be impaired totaled $45.6 million and $47.9 million at March 31, 2012 and December 31, 2011, respectively, for which specific reserves of $2.2 million and $2.4 million had been established.

There were fifteen loans totaling $27.0 million at March 31, 2012 and sixteen loans totaling $29.0 million at December 31, 2011 that were considered troubled debt restructurings. There were seven loans totaling $17.7 million at March 31, 2012 and seven loans totaling $18.0 million at December 31, 2011 that were performing in accordance with their restructured terms. The remaining loans which totaled $9.3 million and $11.0 million at March 31, 2012 and December 31, 2011, respectively, are on non-accrual status. At March 31, 2012, the Company had no commitments to lend additional funds to non-accrual or restructured loans.

The Company performs extensive ongoing asset quality monitoring by both internal and independent loan review functions. In addition, the Company conducts timely remediation and collection activities through a network of internal and external resources which include an internal asset recovery department, real estate and other loan workout attorneys and external collection agencies. In addition, during the second quarter of 2010, the Company decided to implement a more aggressive workout strategy for the resolution of problem assets in light of a sluggish economic recovery, continued weakness in local real estate activity and market values and growing difficulty in resolving problem loans in a timely fashion through traditional foreclosure proceedings due to increased bankruptcy filings and overcrowded court systems. See “Allowance for Loan Losses” below for further discussion of this strategy. Management believes that these efforts are appropriate for accomplishing either successful remediation or maximizing collections related to nonperforming assets.

Allowance for Loan Losses

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

See Note 2 to the Company’s condensed consolidated financial statements presented in this Form 10-Q for a detailed description of the methodology employed by the Company in determining the specific and formula components of the allowance for loan losses.

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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:

	(000’s)
	March 31 2012		Change During 2012			December 31 2011
Components
Specific:
Real Estate:
Commercial		—		—			—
Construction	$	2,241	$	(133	)	$	2,374
Residential		—		—			—
Commercial and Industrial		—		—			—
Lease Financing and other		—		—			—
Total Specific Component		2,241		(133	)		2,374
Formula:
Real Estate:
Commercial		13,049		273			12,776
Construction		4,327		231			4,096
Residential		8,786		693			8,093
Commercial and Industrial		2,761		111			2,650
Lease Financing and other		692		(4	)		696
Total Formula Component		29,615		1,304			28,311
Total Allowance	$	31,856				$	30,685
Net Change				1,171
Net Charge-offs				188
Provision for loan losses			$	1,359

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	(000’s)
	March 31 2011		Change During 2011			December 31 2010
Components
Specific:
Real Estate:
Commercial		—		—			—
Construction	$	850		—		$	850
Residential		19	$	2			17
Commercial and Industrial		68		43			25
Lease Financing and other		—		—			—
Total Specific Component		937		45			892
Formula:
Real Estate:
Commercial		16,673		(63	)		16,736
Construction		6,280		(10	)		6,290
Residential		10,940		1,106			9,834
Commercial and Industrial		4,547		282			4,265
Lease Financing and other		910		(22	)		932
Total Formula Component		39,350		1,293			38,057
Total Allowance	$	40,287				$	38,949
Net Change				1,338
Net Charge-offs				4,113
Provision for loan losses			$	5,451

The specific component of the allowance for loan losses is the result of our analysis of impaired loans and our determination of the amount required to reduce the carrying amount of such loans to estimated fair value. Accordingly, such allowance is dependent on the particular loans and their characteristics at each measurement date, not necessarily the total amount of such loans. The Company usually records partial charge-offs as opposed to specific reserves for impaired loans that are real estate collateral dependent and for which independent appraisals have determined the fair value of the collateral to be less than the carrying amount of the loan. During the three months ended March 31, 2012, the Company recorded $1.1 million of charge-offs, of which $0.4 million were partial charge-offs related to current nonaccrual loans. At March 31, 2012, the Company had $2.2 million of specific reserves allocated to one impaired loan. There were $2.4 million of specific reserves allocated to one impaired loan as of December 31, 2011. The Company’s analyses as of March 31, 2012 and December 31, 2011 indicated that impaired loans were principally real estate collateral dependent and that, with the exception of those loans for which specific reserves were assigned, there was sufficient underlying collateral value or guarantees to indicate expected recovery of the carrying amount of the loans.

The changes in the formula component of the allowance for loan losses are the result of the application of historical loss experience to outstanding loans by type. Loss experience for each year is based upon average charge-off experience for the prior three year period by loan type. The formula component is then adjusted to reflect changes in other relevant factors affecting loan collectability. Management periodically adjusts the formula component to an amount that, when considered with the specific component, represented its best estimate of probable losses in the loan portfolio as of each balance sheet date.

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. By assessing the estimated losses inherent in the loan portfolio on a quarterly basis, the Bank is able to adjust specific and inherent loss estimates based upon any more recent information that has become available. Additional information related to the

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Company’s allowance for loan losses is contained in Note 4 to the Company’s condensed consolidated financial statements presented in this Form 10-Q.

Management believes the allowance for loan losses is the best estimate of probable losses which have been incurred as of March 31, 2012. There is no assurance that the Company will not be required to make future adjustments to the allowance in response to changing economic conditions or regulatory examinations.

Deposits

Deposits totaled $2,423.9 million at March 31, 2012, a decrease of $1.4 million or 0.1 percent from $2,425.3 million at December 31, 2011. The following table presents a summary of deposits at March 31, 2012 and December 31, 2011:

	(000’s)
	March 31 2012		December 31 2011		Increase (Decrease)
Demand deposits	$	935,501	$	910,329	$	25,172
Money market accounts		944,038		963,390		(19,352	)
Savings accounts		115,065		114,371		694
Time deposits of $100,000 or more		103,830		110,967		(7,137	)
Time deposits of less than $100,000		38,798		40,634		(1,836	)
Checking with interest		286,669		285,591		1,078
Total Deposits	$	2,423,901	$	2,425,282	$	(1,381	)

The Company experienced growth in both new and existing customers, including growth from new branches added during 2010 and 2011 which was partially offset by seasonal decreases in municipal deposits. This growth was offset by planned reductions in certain deposits, primarily higher cost municipal demand deposits.

Borrowings

Total borrowings were $62.8 million at March 31, 2012, a decrease of $6.7 million or 9.6 percent from $69.5 million at December 31, 2011. The decrease resulted from a $6.7 million decrease in short-term repurchase agreements. Borrowings are utilized as part of the Company’s continuing efforts to effectively leverage its capital and to manage interest rate risk.

Stockholders’ Equity

Stockholders’ equity totaled $290.9 million at March 31, 2012, an increase of $13.3 million or 4.8 percent from $277.6 million at December 31, 2011. The increase in stockholders’ equity resulted from net income of $18.0 million and net increase related to exercises of stock options of $0.3 million, which was partially offset by cash dividends paid on common stock of $3.5 million and a decrease in accumulated other comprehensive income of $1.5 million.

The Company’s and the Bank’s capital ratios at March 31, 2012 and December 31, 2011 are as follows:

	March 31 2012			December 31 2011			Minimum to be Considered Well Capitalized			Enhanced Capital Requirements Effective as of December 31, 2009
Leverage ratio:
Company		9.4	%		8.8	%		5.0	%		N /A
HVB		9.1	%		8.4	%		5.0	%		8.0	%
Tier 1 capital:
Company		15.0	%		11.3	%		6.0	%		N /A
HVB		14.6	%		10.8	%		6.0	%		10.0	%
Total capital:
Company		16.3	%		12.6	%		10.0	%		N /A
HVB		15.8	%		12.1	%		10.0	%		12.0	%

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Since the fourth quarter of 2009, the OCC required HVB to maintain a total risk-based capital ratio of at least 12.0%, a Tier 1 risk-based capital ratio of at least 10.0%, and a Tier 1 leverage ratio of at least 8.0%. These capital levels are in excess of “well capitalized” levels generally applicable to banks under current regulations.

Liquidity

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

The Company’s liquid assets at March 31, 2012 include cash and due from banks of $44.9 million, $522.8 million of interest earning deposits and Federal funds sold of $11.9 million. Interest earning deposits and Federal funds sold represent the Company’s excess liquid funds which are invested with other financial institutions and are available daily.

Other sources of liquidity include maturities and principal and interest payments on loans and securities. The loan and securities portfolios are of high credit quality and of mixed maturity, providing a constant stream of maturing and re-investable assets, which can be converted into cash should the need arise. The ability to redeploy these funds is an important source of medium to long term liquidity. The amortized cost of securities having contractual maturities, expected call dates or average lives of one year or less amounted to $165.4 million at March 31, 2012. This represented 36.1 percent of the amortized cost of the securities portfolio. Excluding installment loans to individuals, real estate loans other than construction loans and lease financing, $368.9 million, or 36.0 percent of loans at March 31, 2012, mature in one year or less. The Company may increase liquidity by selling certain residential mortgages, or exchanging them for mortgage-backed securities that may be sold in the secondary market.

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

HVB is a member of the FHLB. As a member, HVB is able to participate in various FHLB borrowing programs which require certain investments in FHLB common stock as a prerequisite to obtaining funds. As of March 31, 2012, HVB had short-term borrowing lines with the FHLB of $200 million with no amounts outstanding. These and various other FHLB borrowing programs available to members are subject to availability of qualifying loan and/or investment securities collateral and other terms and conditions.

HVB also has unsecured overnight borrowing lines totaling $70 million with three major financial institutions which were all unused and available at March 31, 2012. In addition, HVB has approved lines under Retail Certificate of Deposit Agreements with three major financial institutions totaling $1.0 billion of which no balances were outstanding as at March 31, 2012. Utilization of these lines are subject to product availability and other restrictions.

Additional liquidity is also provided by the Company’s ability to borrow from the Federal Reserve Bank’s discount window. In response to the current economic crisis, the Federal Reserve Bank has increased the ability of banks to borrow from this source through its Borrower-in-Custody (“BIC”) program, which expanded the types of collateral which qualify as security for such borrowings. HVB has been approved to participate in the BIC program. There were no balances outstanding with the Federal Reserve at March 31, 2012.

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As of March 31, 2012, the Company had qualifying loan and investment securities totaling approximately $347 million which could be utilized under available borrowing programs thereby increasing liquidity.

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

Contractual Obligations and Off-Balance Sheet Arrangements

The Company has outstanding, at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to the Company’s obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. The Company is also obligated under leases or license agreements for certain of its branches and equipment. There have been no material changes to those obligations or arrangements outside the ordinary course of business since the most recent fiscal year end.

Forward-Looking Statements

This Form 10-Q contains various forward-looking statements with respect to earnings, credit quality and other financial and business matters within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking-statements include, but are not limited to, statements. These statements can be identified by words such as “expects,” “anticipates,” “intends,” “believes,” “estimates,” “predicts” and words of similar import. The Company cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, and that statements relating to future periods are subject to uncertainty because of the increased likelihood of changes in underlying factors and assumptions. Actual results could differ materially from forward-looking statements.

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

• the Office of the Comptroller of the Currency (the “OCC”) and other bank regulators may require us to further modify or change our mix of assets, including our concentration in certain types of loans, or require us to take further remedial actions as a result of our most recent regulatory examination;

• the results of the investigation of A.R. Schmeidler & Co., Inc. by the Securities and Exchange Commission (the “SEC”) and the possibility that our management’s attention will be diverted to the SEC investigation and we will incur costs and further legal expenses;

• the Company’s intent and ability to pay quarterly cash dividends to stockholders in light of our earnings, the current and future economic environment, our capital plan requirements and Federal Reserve Board guidance;

• regulatory limitations on dividends payable to the Company by Hudson Valley Bank under our OCC approved capital plan and by law;

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

• unexpected increases in our non-performing loans and allowance for loan losses;

• ineffectiveness in managing our commercial real estate portfolio;

• lower than expected future performance of our investment portfolio;

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

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

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• lower than expected demand for our products and services;

• possible impairment of our goodwill and other intangible assets;

• our inability to manage interest rate risk;

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

• our inability to maintain regulatory capital above the levels required by the OCC for Hudson Valley Bank and the levels required for us to be “well-capitalized”, or such higher capital levels as may be required;

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

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

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

• potential liabilities under federal and state environmental laws; and

• the costs and effects of technological changes and initiatives, including our inability to effectively complete our core processing conversion.

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

Impact of Inflation and Changing Prices

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

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk at December 31, 2011 were previously reported in the Company’s 2011 Annual Report on Form 10-K. There have been no material changes in the Company’s market risk exposure at March 31, 2012 compared to December 31, 2011.

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, 2012. The Company had no derivative financial instruments in place at March 31, 2012 and December 31, 2011.

The Company uses a simulation analysis to evaluate market risk to changes in interest rates. The simulation analysis at March 31, 2012 shows the Company’s net interest income increasing slightly if interest rates rise and decreasing slightly if interest rates fall, considering a continuation of the current yield curve. A change in the shape or steepness of the yield curve will impact our market risk to change in interest rates. These simulation

49

results will be directionally consistent and somewhat elevated as the Company redeploys the cash proceeds from approximately $474 million in loans sold in the first quarter of 2012.

The Company also prepares a static gap analysis which, at March 31, 2012, shows a positive cumulative static gap of $290.6 million in the one year time frame.

The following table illustrates the estimated exposure under a rising rate scenario and a declining rate scenario calculated as a percentage change in estimated net interest income assuming a gradual shift in interest rates for the next 12 month measurement period, beginning March 31, 2012.

Gradual Change in Interest Rates	Percentage Change in Estimated Net Interest Income from March 31, 2012			Policy Limit
+200 basis points		3.3	%		(5.0	)%
–100 basis points		(1.6	)%		(5.0	)%

Beginning on March 31, 2008, a 100 basis point downward change was substituted for the 200 basis point downward scenario previously used, as management believes that a 200 basis point downward change is not a meaningful analysis in light of current interest rate levels. The percentage change in estimated net income in the +200 and –100 basis points scenario is within the Company’s policy limits.

Item 4.    Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information the Company must disclose in its reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported on a timely basis. Any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of March 31, 2012. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2012, 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, 2012, there has not been any change that has materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

50

PART II — OTHER INFORMATION

Item 1A.    Risk Factors

Our business is subject to various risks. These risks are included in our 2011 Annual Report on Form 10-K under “Risk Factors”.

There has been no material changes in such risk factors since the date of such report.

Item 6.     Exhibits

(A)  Exhibits

3.1	Restated Certificate of Incorporation of Hudson Valley Holding Corp.(1)
3.2	Amended and Restated By-Laws of Hudson Valley Holding Corp.(2)
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).
101.INS	XBRL Instance Document(3)
101.SCH	XBRL Taxonomy Extension Schema(3)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase(3)
101.LAB	XBRL Taxonomy Extension Label Linkbase(3)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase(3)
101.DEF	XBRL Taxonomy Extension Definition Linkbase(3)

(1) Incorporated herein by reference in this document to the Form 10-Q filed on October 20, 2009.

(2) Incorporated herein by reference in this document to the Form 8-K filed on April 28, 2010.

(3) Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or section 34(b) of the Investment Company Act of 1940, as amended, and otherwise is not subject to liability under these sections.

51

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, 2012

52

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James J. Landy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hudson Valley Holding Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/S/    JAMES J. LANDY        

James J. Landy

President and Chief Executive Officer

Dated: May 10, 2012

52

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Stephen R. Brown, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hudson Valley Holding Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/S/    STEPHEN R. BROWN        

Stephen R. Brown

Senior Executive Vice President,

Chief Financial Officer and Treasurer

Dated: May 10, 2012

53

EX-32.1

EXHIBIT 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

In connection with the Quarterly Report on Form 10-Q of Hudson Valley Holding Corp. (the “Company”) for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James J. Landy, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/S/    JAMES J. LANDY        

James J. Landy

President and Chief Executive Officer

Dated: May 10, 2012

54

EX-32.2

EXHIBIT 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

In connection with the Quarterly Report on Form 10-Q of Hudson Valley Holding Corp. (the “Company”) for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen R. Brown, Senior Executive Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in this Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/S/    STEPHEN R. BROWN        

Stephen R. Brown

Senior Executive Vice President,

Chief Financial Officer and Treasurer

Dated: May 10, 2012

55

XML

Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Operating Activities:
Net Income	$ 18,013	$ 4,824
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,359	5,451
Depreciation and amortization	962	1,001
Recognized impairment charge on securities available for sale	478	161
Amortization of premiums on securities, net	607	666
Realized (gain) loss on sale and revaluation of OREO		(127)
Increase in cash value of bank owned life insurance	(354)	(267)
Amortization of other intangible assets	187	206
Stock option expense	12	47
Realized (gain) on sale of loans held-for-sale	(15,935)
Deferred taxes (benefit)	772	(647)
(Decrease) increase in deferred loan fees, net	(158)	72
Decrease in accrued interest and other receivables	11,240	1,238
Decrease in other assets	2,177	1,086
Excess tax benefits from share-based payment arrangements		(7)
Increase in accrued interest and other liabilities	2,437	2,724
Net cash provided by operating activities	21,797	16,428
Investing Activities:
Net decrease in short term investments	4,547	32,560
Decrease in FHLB stock		1,632
Proceeds from maturities of securities available for sale	60,137	52,516
Proceeds from maturities of securities held to maturity	745	1,015
Purchases of securities available for sale	(3,527)	(46,510)
Net increase in loans	(68,996)	(88,710)
Proceeds from sales of loans held for sale	487,217
Proceeds from sales of other real estate owned		6,345
Premiums paid on bank owned life insurance	(209)	(259)
Net purchases of premises and equipment	(648)	377
Net cash provided by (used in) Investing Activities	479,266	(41,034)
Financing Activities:
Proceeds from issuance of common stock and exercises of stock options	201	373
Excess tax benefits from share-based payment arrangements		7
Net (decrease) increase in deposits	(1,381)	9,201
Cash dividends paid	(3,516)	(2,651)
Repayment of other borrowings	(9)	(36,259)
Net (decrease) increase in securities sold under repurchase agreements and short-term borrowings	(6,719)	9,886
Net cash used in Financing Activities	(11,424)	(19,443)
Increase (decrease) in Cash and Due from Banks	489,639	(44,049)
Cash and Due from Banks, beginning of period	78,104	284,156
Cash and Due from Banks, end of period	567,743	240,107
Supplemental disclosures:
Interest paid	2,312	3,537
Income tax payments	19	60
Transfer from loans held for sale back to loan portfolio		$ 2,305

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Cash dividends per share	$ 0.18	$ 0.14
Total gains (losses) on Other-than-temporarily impaired securities available for sale	$ 500	$ 773
Losses recognized in earnings	478	161
Income tax effect	9	251
Retained Earnings (Deficit)
Cash dividends per share	$ 0.18	$ 0.14
Accumulated Other Comprehensive Income (Loss)
Total gains (losses) on Other-than-temporarily impaired securities available for sale	500	773
Losses recognized in earnings	478	161
Income tax effect	$ 9	$ 251

XML

Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Interest Income:
Loans, including fees	$ 28,915	$ 26,332
Securities:
Taxable	3,313	2,950
Exempt from Federal income taxes	986	1,161
Federal funds sold	8	26
Deposits in banks	56	164
Total interest income	33,278	30,633
Interest Expense:
Deposits	1,750	2,274
Securities sold under repurchase agreements and other short-term borrowings	51	47
Other borrowings	181	844
Total interest expense	1,982	3,165
Net Interest Income	31,296	27,468
Provision for loan losses	1,359	5,451
Net interest income after provision for loan losses	29,937	22,017
Non Interest Income:
Service charges	1,867	2,040
Investment advisory fees	2,398	2,606
Recognized impairment charge on securities available for sale (includes $500 and $773 of total losses in 2012 and 2011, respectively, less $22 and $612 of losses on securities available for sale, recognized in other comprehensive income in 2012 and 2011, respectively)	(478)	(161)
Gains on sales and revaluation of loans held for sale and other real estate owned, net	15,935	127
Other income	632	607
Total non interest income	20,354	5,219
Non Interest Expense:
Salaries and employee benefits	10,818	10,818
Occupancy	2,232	2,345
Professional services	1,867	1,453
Equipment	1,068	1,010
Business development	517	506
FDIC assessment	628	1,111
Other operating expenses	3,746	3,207
Total non interest expense	20,876	20,450
Income Before Income Taxes	29,415	6,786
Income Taxes	11,402	1,962
Net Income	$ 18,013	$ 4,824
Basic Earnings Per Common Share	$ 0.92	$ 0.25
Diluted Earnings Per Common Share	$ 0.92	$ 0.25

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Consolidated Balance Sheets [Abstract]
Amortized cost of securities available for sale at estimated fair value	$ 446,117	$ 503,584
Fair value of securities held to maturity at amortized cost	13,010	13,819
Allowances for loan losses	$ 31,856	$ 30,685
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	15,000,000	15,000,000
Preferred stock, shares outstanding
Common stock, par value	$ 0.20	$ 0.20
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares outstanding	19,629,981	19,516,490
Treasury stock, shares	1,299,414	1,299,414

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock	Treasury Stock	Additional Paid-in Capital	Retained Earnings (Deficit)	Accumulated Other Comprehensive Income (Loss)
Beginning balance at Dec. 31, 2010	$ 289,917	$ 3,793	$ (57,564)	$ 346,750	$ (3,989)	$ 927
Beginning balance, shares at Dec. 31, 2010		17,665,908
Net income	4,824				4,824
Stock option expense and exercises of stock options, net of tax, shares		20,155
Stock option expense and exercises of stock options, net of tax	420	4		416
Cash dividends ($0.14 and $0.18 per share in March 31, 2011 and 2012, respectively)	(2,651)				(2,651)
Accrued benefit liability adjustment	49					49
Net unrealized gain on securities available for sale:
Not other-than-temporarily impaired	(1,905)					(1,544)
Other-than-temporarily impaired (includes $773 and $500 of total losses, less $161 and $478 of losses recognized in earnings, net of $251 and $9 tax; in March 2011 and 2012, respectively)	(361)					(361)
Ending balance at Mar. 31, 2011	290,654	3,797	(57,564)	347,166	(1,816)	(929)
Ending balance, shares at Mar. 31, 2011		17,686,063
Beginning balance at Dec. 31, 2011	277,562	4,163	(57,564)	347,764	(18,527)	1,726
Beginning balance, shares at Dec. 31, 2011	19,516,490	19,516,490
Net income	18,013				18,013
Stock option expense and exercises of stock options, net of tax, shares		13,064
Stock option expense and exercises of stock options, net of tax	213	3		210
Restricted stock awards, shares		100,427
Restricted stock awards	129	20		109
Cash dividends ($0.14 and $0.18 per share in March 31, 2011 and 2012, respectively)	(3,516)				(3,516)
Accrued benefit liability adjustment	86					86
Net unrealized gain on securities available for sale:
Not other-than-temporarily impaired	(1,603)					(1,590)
Other-than-temporarily impaired (includes $773 and $500 of total losses, less $161 and $478 of losses recognized in earnings, net of $251 and $9 tax; in March 2011 and 2012, respectively)	(13)					(13)
Ending balance at Mar. 31, 2012	$ 290,884	$ 4,186	$ (57,564)	$ 348,083	$ (4,030)	$ 209
Ending balance, shares at Mar. 31, 2012	19,629,981	19,629,981

XML

Consolidated Statements of Income (Unaudited) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Consolidated Statements of Income [Abstract]
Recognized impairment charge on securities available for sale, total losses	$ 500	$ 773
losses on securities available for sale	$ 22	$ 612

XML

Fair Value

3 Months Ended

Mar. 31, 2012

Fair Value [Abstract]

Fair Value

8.    Fair Value

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

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

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

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

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

Investment Securities - The fair values of investment securities are determined by obtaining quoted prices on nationally recognized securities exchanges, if available (Level 1), or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities, which is a Level 2 input. The Company’s available for sale securities at March 31, 2012 and December 31, 2011 included several pooled trust preferred instruments. The recent severe downturn in the overall economy and, in particular, in the financial services industry has created a situation where significant observable inputs (Level 2) are not readily available for these instruments. As an alternative, the Company combined Level 2 input of market yield requirements of similar instruments together with certain Level 3 assumptions addressing the impact of current market illiquidity to estimate the fair value of these instruments. The fair values of Level 3 investment securities are determined by the Controller and Investment Officer who report to the Chief Financial Officer. See Note 3 “Securities” for further discussion of pooled trust preferred securities.

Impaired Loans – At the time a loan is considered impaired, it is valued at lower of cost or fair value. Impaired loans carried at fair value generally are partially charged off or receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value in commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraiser to adjust for differences between the comparable sales and the income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining value. Non real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

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

Loans Held for Sale - Loans held for sale are carried at lower of cost or fair value. The fair value of loans held for sale is determined using average bid indicators from third parties expected to participate in the loan sales, in some cases adjusted for specific attributes of that loan or other observable market data. Such bids and adjustments often vary significantly and typically result in Level 3 classification of the inputs used in determining fair value.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at March 31, 2012 (dollars in thousands):

Asset	Fair Value		Valuation Technique	Unobservable Inputs	Range of Inputs
Impaired loans	$	6,726	Sales comparison and income based appraisals	Discount for dated appraisal	0% - 20%
			Sales comparison and income based appraisals	Discount for costs to sell	0% - 30%
Loans held for sale	$	2,532	Third party bids	Bids from interested third parties	42% -65%
Other real estate owned	$	1,174	Sales comparison and income based appraisals	Discount for costs to sell	30%

Assets and liabilities measured at fair value are summarized below:

	Fair Value Measurements at March 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(000’s)
Measured on a recurring basis:
Available for sale securities:
U.S. Treasury and government agencies		—		—		—		—
Mortgage-backed securities —residential		—	$	336,120		—	$	336,120
Obligations of states and political subdivisions		—		98,457		—		98,457
Other debt securities		—		511	$	2,422		2,933
Mutual funds and other equity securities		—		10,518		—		10,518
Total assets at fair value		—	$	445,606	$	2,422	$	448,028
Measured on a non-recurring basis:
Impaired loans:(1)
Commercial Real Estate		—		—	$	1,012	$	1,012
Construction		—		—		2,076		2,076
Residential		—		—		1,529		1,529
Commercial & Industrial		—		—		2,109		2,109
Other		—		—		—		—
Loans held for sale		—		—		2,532		2,532
Other real estate owned		—		—		1,174		1,174
Total assets at fair value		—		—	$	10,432	$	10,432

	Fair Value Measurements at December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(000’s)
Measured on a recurring basis:
Available for sale securities:
U.S. Treasury and government agencies		—		—		—		—
Mortgage-backed securities — residential		—	$	393,418		—	$	393,418
Obligations of states and political subdivisions		—		100,599		—		100,599
Other debt securities		—		516	$	2,816		3,332
Mutual funds and other equity securities		—		10,548		—		10,548
Total assets at fair value		—	$	505,081	$	2,816	$	507,897
Measured on a non-recurring basis:
Impaired loans:(1)
Commercial Real Estate		—		—	$	1,410	$	1,410
Construction		—		—		3,107		3,107
Residential		—		—		1,529		1,529
Commercial & Industrial		—		—		2,145		2,145
Other		—		—		—		—
Loans held for sale		—		—		473,814		473,814
Other real estate owned		—		—		1,174		1,174
Total assets at fair value		—		—	$	483,179	$	483,179

(1) The recorded investments in impaired loans subject to fair value reporting on March 31, 2012 and December 31, 2011 were $8,967 and $10,565, respectively, for which specific allowances of $ 2,241 and $2,374, respectively, had been established within the allowance for loan losses.

The table below presents a reconciliation and income statement classification of gains and losses for securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three month periods ended March 31, 2012 and 2011:

	Level 3 Assets Measured on a Recurring
	For the Three Months Ended March 31
	2012			2011
	(000’s)
Balance at beginning of period	$	2,816		$	3,687
Transfers into (out of) Level 3		106			102
Net unrealized gain (loss) included in other comprehensive income		(22	)		(612	)
Principal payments		—			—
Recognized impairment charge included in the statement of income		(478	)		(161	)
Balance at end of period	$	2,422		$	3,016

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2012	May 01, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	HUDSON VALLEY HOLDING CORP
Entity Central Index Key	0000722256
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		19,630,389

XML

Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2012

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

9. Fair Value of Financial Instruments

The Company follows the “Financial Instruments” topic of the FASB Accounting Standards Codification which requires the disclosure of the estimated fair value of certain financial instruments. These estimated fair values as of March 31, 2012 and December 31, 2011 have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange. The use of alternative market assumptions and estimation methodologies could have had a material effect on these estimates of fair value.

Carrying amount and estimated fair value of financial instruments, not previously presented, at March 31, 2012 was as follows:

			Fair Value Measurements
	Carrying Amount		Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Financial assets for which carrying value approximates fair value	$	579.6	$	579.6	$	579.6		—		—
Held to maturity securities and accrued interest		12.2		13.0		—		13.0		—
FHLB Stock		3.8		N/A		—		—		—
Loans and accrued interest		1,640.9		1,680.6		—		—		1,680.6
Liabilities:
Deposits with no stated maturity and accrued interest		2,282.0		2,282.0		2,282.0		—		—
Time deposits and accrued interest		142.7		143.0		—		143.0		—
Securities sold under repurchase agreements and other short-term borrowing and accrued interest		46.3		46.3		46.3		—		—
Other borrowings and accrued interest		16.6		14.0		—		14.0		—

	December 31
	2011
	Carrying Amount		Estimated Fair Value
	(in millions)
Assets:
Financial assets for which carrying value approximates fair value	$	94.5	$	94.5
Held to maturity securities and accrued interest		13.0		13.9
FHLB Stock		3.8		N/A
Loans and accrued interest		1,571.3		1,609.2
Liabilities:
Deposits with no stated maturity and accrued interest		2,274.7		2,274.7
Time deposits and accrued interest		151.7		152.1
Securities sold under repurchase agreements and other short-term borrowing and accrued interest		53.1		53.1
Other borrowings and accrued interest		16.6		14.0

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

Financial assets for which carrying value approximates fair value — The estimated fair value approximates carrying amount because of the immediate availability of these funds or based on the short maturities and current rates for similar deposits. Cash and due from banks as well as Federal funds sold are reported in this line item.

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

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

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

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

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

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

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

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Consolidated Statements of Comprehensive Income [Abstract]
Net Income	$ 18,013	$ 4,824
Other-than-temporarily impaired securities available for sale:
Total gains (losses)	(500)	(773)
Losses recognized in earnings	478	161
Gains (losses) recognized in comprehensive income	(22)	(612)
Income tax effect	9	251
Unrealized holding gains (losses) on other-than-temporarily impaired securities available for sale, net of tax	(13)	(361)
Securities available for sale not other-than-temporarily impaired:
Gains (losses) arising during the year	(2,381)	(2,533)
Income tax effect	791	989
Total securities available for sale not-other-than temporarily impaired	(1,590)	(1,544)
Gains (losses) recognized in earnings
Income tax effect
Total securities available for sale not-other-than temporarily impaired
Unrealized holding gains (losses) on securities available for sale not other-than-temporarily-impaired , net of tax	(1,590)	(1,544)
Unrealized holding gains (losses) on securities, net	(1,603)	(1,905)
Accrued benefit liability adjustment	144	81
Income tax effect	(58)	(32)
Total securities available for sale not other-than-temporarily impaired	86	49
Other comprehensive (loss) income	(1,517)	(1,856)
Comprehensive Income	$ 16,496	$ 2,968

XML

Securities

3 Months Ended

Mar. 31, 2012

Securities [Abstract]

Securities

3.    Securities

The following tables set forth the amortized cost, gross unrealized gains and losses and the estimated fair value of securities classified as available for sale and held to maturity at March 31, 2012 and December 31, 2011 (in thousands):

March 31, 2012

	Amortized Cost		Gross Unrealized				Estimated  Fair Value
			Gains		Losses
Classified as Available for Sale
U.S. Treasury and government agencies		—		—		—		—
Mortgage-backed securities — residential	$	329,741	$	7,100	$	721	$	336,120
Obligations of states and political subdivisions		94,517		3,940		—		98,457
Other debt securities		11,792		1		8,860		2,933
Total debt securities		436,050		11,041		9,581		437,510
Mutual funds and other equity securities		10,067		571		120		10,518
Total	$	446,117	$	11,612	$	9,701	$	448,028
	Amortized Cost		Gross Unrecognized				Estimated Fair Value
			Gains		Losses
Classified as Held To Maturity
Mortgage-backed securities — residential	$	7,022	$	571		—	$	7,593
Obligations of states and political subdivisions		5,138		279		—		5,417
Total	$	12,160	$	850		—	$	13,010

December 31, 2011

	Amortized Cost		Gross Unrealized				Estimated Fair Value
			Gains		Losses
Classified as Available for Sale
U.S. Treasury and government agencies		—		—		—		—
Mortgage-backed securities — residential	$	385,206	$	8,430	$	218	$	393,418
Obligations of states and political subdivisions		96,091		4,508		—		100,599
Other debt securities		12,220		—		8,888		3,332
Total debt securities		493,517		12,938		9,106		497,349
Mutual funds and other equity securities		10,067		617		136		10,548
Total	$	503,584	$	13,555	$	9,242	$	507,897
	Amortized Cost		Gross Unrecognized				Estimated Fair Value
			Gains		Losses
Classified as Held To Maturity
Mortgage-backed securities — residential	$	7,767	$	607		—	$	8,374
Obligations of states and political subdivisions		5,138		307		—		5,445
Total	$	12,905	$	914		—	$	13,819

Included in other debt securities are investments in six pooled trust preferred securities with amortized costs and estimated fair values of $11,282 and $2,422, respectively, at March 31, 2012. These investments represent trust preferred obligations of banking industry companies. The value of these investments has been severely negatively affected by the recent downturn in the economy and increased investor concerns about recent and potential future losses in the financial services industry. These investments are rated below investment grade by Moody’s Investor Services at March 31, 2012 with ratings ranging from Ca to C. In light of these conditions, these investments were reviewed for other-than-temporary impairment.

In estimating OTTI losses, the Company considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuers, (3) whether the Company intends to sell or whether it is more likely than not that the Company would be required to sell the investments prior to recovery of cost and (4) evaluation of cash flows to determine if they have been adversely affected.

The Company uses a discounted cash flow (“DCF”) analysis to provide an estimate of an OTTI loss. Inputs to the discount model include known defaults and interest deferrals, projected additional default rates, projected additional deferrals of interest, over-collateralization tests, interest coverage tests and other factors. Expected default and deferral rates were weighted toward the near future to reflect the current adverse economic environment affecting the banking industry. The discount rate was based upon the yield expected from the related securities. Significant inputs to the cash flow models used in determining credit related other-than-temporary impairment losses on pooled trust preferred securities as of March 31, 2012 included the following:

Annual Prepayment	1.00%
Projected specific defaults/deferrals	33.1% - 74.4%
Projected severity of loss on specific defaults/deferrals	55.8% - 86.8%
Projected additional defaults:
Year 1	2.00%
Year 2	1.00%
Thereafter	0.25%
Projected severity of loss on additional defaults	85.00%
Present value discount rates	3m LIBOR + 1.60% -2.25%

The significant unobservable inputs used in the fair value measurement of the Company’s trust preferred obligations are probabilities of specific-issuer defaults and deferrals and specific-issuer recovery assumptions. Significant increases in specific-issuer default assumptions or decreases in specific-issuer recovery assumptions would result in a significantly lower fair value measurement. Conversely, decreases in specific-issuer default assumptions or increases in specific-issuer recovery assumptions would result in a higher fair value measurement.

The following table summarizes the change in pretax OTTI credit related losses on securities available for sale for the three months ended March 31, 2012 and 2011 (in thousands):

	2012		2011
Balance at beginning of period:
Total OTTI credit related impairment charges beginning of period	$	9,478	$	9,110
Increase to the amount related to the credit loss for which other-than-temporary impairment was previously recognized		478		161
Credit related impairment not previously recognized		—		—
Balance at end of period:	$	9,956	$	9,271

During the three month period ended March 31, 2012, pretax OTTI losses of $2, $25, $3, $447 and $1, respectively, were recognized on five pooled trust preferred securities which prior to the 2012 charges had book values of $2,088, $5,696, $919, $2,228 and $662, respectively. These OTTI losses resulted from adverse changes in the expected cash flows of these securities which indicated that the Company may not recover the entire cost basis of these investments. Continuation or worsening of current adverse economic conditions may result in further impairment charges in the future.

At March 31, 2012 and December 31, 2011, securities having a stated value of approximately $348,000 and $365,000, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

The following tables reflect the Company’s investment’s fair value and gross unrealized loss, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, as of March 31, 2012 and December 31, 2011 (in thousands):

March 31, 2012

	Duration of Unrealized Loss
	Less Than 12 Months				Greater than 12 Months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Classified as Available for Sale
U.S. Treasuries and government agencies		—		—		—		—		—		—
Mortgage-backed securities — residential	$	58,040	$	714	$	3,015	$	7	$	61,055	$	721
Obligations of states and political subdivisions		—		—		—		—		—		—
Other debt securities		—		—	$	2,422	$	8,860		2,422		8,860
Total debt securities		58,040		714		5,437		8,867		63,477		9,581
Mutual funds and other equity securities		—		—		104		120		104		120
Total temporarily impaired securities	$	58,040	$	714	$	5,541	$	8,987	$	63,581	$	9,701

There were no securities classified as held to maturity in an unrealized loss position at March 31, 2012.

December 31, 2011

	Duration of Unrealized Loss
	Less Than 12 Months				Greater than 12 Months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Classified as Available for Sale
U.S. Treasuries and government agencies		—		—		—		—		—		—
Mortgage-backed securities — residential	$	41,421	$	218		—		—	$	41,421	$	218
Obligations of states and political subdivisions		—		—		—		—		—		—
Other debt securities		460		50	$	2,816	$	8,838		3,276		8,888
Total debt securities		41,881		268		2,816		8,838		44,697		9,106
Mutual funds and other equity securities		—		—		92		136		92		136
Total temporarily impaired securities	$	41,881	$	268	$	2,908	$	8,974	$	44,789	$	9,242

There were no securities classified as held to maturity in an unrealized loss position at December 31, 2011.

The total number of securities in the Company’s portfolio that were in an unrealized loss position was 85 and 82, respectively, at March 31, 2012 and December 31, 2011. The Company has determined that it does not intend to sell, or it is more likely than not that it will be required to sell, its securities that are in an unrealized loss position prior to the recovery of its amortized cost basis. With the exception of the investment in pooled trust preferred securities discussed above, the Company believes that its securities continue to have satisfactory ratings, are readily marketable and that current unrealized losses are primarily a result of changes in interest rates. Therefore, management does not consider these investments to be other-than-temporarily impaired at March 31, 2012. With regard to the investments in pooled trust preferred securities, the Company has decided to hold these securities as it believes that current market quotes for these securities are not necessarily indicative of their value. The Company has recognized impairment charges on five of the pooled trust preferred securities. Management believes that the remaining impairment in the value of these securities to be primarily related to illiquidity in the market and therefore not credit related at March 31, 2012.

The contractual maturity of all debt securities held at March 31, 2012 is shown below. Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Contractual Maturity
Within 1 year	$	10,394	$	10,402		—		—
After 1 year but within 5 years		42,288		44,023	$	5,138	$	5,417
After 5 year but within 10 years		41,835		44,033		—		—
After 10 years		11,792		2,932		—		—
Mortgage-backed securities — residential		329,741		336,120		7,022		7,593
Total	$	436,050	$	437,510	$	12,160	$	13,010

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Basis of Presentation

3 Months Ended

Mar. 31, 2012

Description of Operations and Basis of Presentation [Abstract]

Basis of Presentation

2.    Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (comprising only normal recurring adjustments) necessary to present fairly the financial position of the Company at March 31, 2012 and December 31, 2011 and the results of its operations, comprehensive income, cash flows and changes in stockholders’ equity for the three month period ended March 31, 2012. The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of the results of operations to be expected for the remainder of the year.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and predominant practices used within the banking industry. Certain information and note disclosures normally included in annual financial statements have been omitted.

In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated balance sheets and statements of income for the periods reported. Actual results could differ significantly from those estimates.

Estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the determination of the fair value of securities available for sale, the determination of other-than-temporary impairment of investments and the carrying amounts of goodwill and deferred tax assets. In connection with the determination of the allowance for loan losses, management utilizes the work of professional appraisers for significant properties.

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

These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2011 and notes thereto.

Cash and Cash Equivalents – For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and interest bearing deposits in other banks (including the Federal Reserve Bank of New York).

Securities — Securities are classified as either available for sale, representing securities the Company may sell in the ordinary course of business, or as held to maturity, representing securities that the Company has determined that it is more likely than not that it would not be required to sell prior to maturity or recovery of cost. Securities available for sale are reported at fair value with unrealized gains and losses (net of tax) excluded from operations and reported in other comprehensive income. Securities held to maturity are stated at amortized cost. Interest income includes amortization of purchase premium and accretion of purchase discount. The amortization of premiums and accretion of discounts is determined by using the level yield method. Securities are not acquired for purposes of engaging in trading activities. Realized gains and losses from sales of securities are determined using the specific identification method. The Company regularly reviews declines in the fair value of securities below their costs for purposes of determining whether such declines are other-than-temporary in nature. In estimating other-than-temporary impairment (“OTTI”), management considers adverse changes in expected cash flows, the length of time and extent that fair value has been less than cost and the financial condition and near term prospects of the issuer. The Company also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Loans Held for Sale – Loan sales occur in limited circumstances as part of strategic business or regulatory compliance initiatives. Loans held for sale, including deferred fees and costs, are reported at the lower of cost or fair value as determined by expected bid prices from potential investors. Loans held for sale are segregated into pools based on distinct criteria and the lower of cost or fair value analysis is performed at the pool level. Loans are sold without recourse and servicing released. When a loan is transferred from portfolio to held for sale and the fair value is less than cost, a charge off is recorded against the allowance for loan loss. Subsequent declines in fair value, if any, are recorded as a valuation allowance and charged against earnings.

Loans — Loans are reported at their outstanding principal balance, net of the allowance for loan losses, and deferred loan origination fees and costs. Loan origination fees and certain direct loan origination costs are deferred and recognized over the life of the related loan or commitment as an adjustment to yield, or taken directly into income when the related loan is sold or commitment expires.

Allowance for Loan Losses — The Company maintains an allowance for loan losses to absorb probable losses incurred in the loan portfolio based on ongoing quarterly assessments of the estimated losses. The Company’s methodology for assessing the appropriateness of the allowance consists of a specific component for identified problem loans, and a formula component which addresses historical loan loss experience together with other relevant risk factors affecting the portfolio. This methodology applies to all portfolio segments.

The specific component incorporates the Company’s analysis of impaired loans. 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. In addition, a loan which has been renegotiated with a borrower experiencing financial difficulties for which the terms of the loan have been modified with a concession that the Company would not otherwise have granted are considered troubled debt restructurings and are also recognized as impaired. 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 an impaired loan is less than the related recorded amount, a specific valuation component is established within the allowance for loan losses or, if the impairment is considered to be permanent, a partial charge-off is recorded against the allowance for loan losses. Individual measurement of impairment does not apply to large groups of smaller balance homogenous loans that are collectively evaluated for impairment such as portions of the Company’s portfolios of home equity loans, real estate mortgages, installment and other loans.

The formula component is calculated by first applying historical loss experience factors to outstanding loans by type. The Company uses a three year average loss experience as the starting base for the formula component. This component is then adjusted to reflect additional risk factors not addressed by historical loss experience. These factors include the evaluation of then-existing economic and business conditions affecting the key lending areas of the Company and other conditions, such as new loan products, credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, recent charge-off and delinquency experience, specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectibility of the loan portfolio. Senior management reviews these conditions quarterly. Management’s evaluation of the loss related to each of these conditions is quantified by portfolio segment and reflected in the formula component. The evaluations of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty due to the subjective nature of such evaluations and because they are not identified with specific problem credits.

Actual losses can vary significantly from the estimated amounts. The 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, 2012. 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 their 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.

Loan Charge-Offs – The Company’s charge-off policy covers all loan portfolio classes. Loans are generally charged-off at the earlier of when it is determined that collection efforts are no longer productive or when they have been identified as losses by management, internal loan review and/or bank examiners. Factors considered in determining whether collection efforts are no longer productive include any amounts currently being collected, the status of discussions or negotiations with the borrower, the principal and/or guarantors, the cost of continuing, efforts to collect, the status of any foreclosure or legal actions, the value of the collateral, and any other pertinent factors.

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 collectibility of principal. Loans can be returned to accruing status when they become current as to principal and interest, demonstrate a period of performance under the contractual terms, and when, in management’s opinion, they are estimated to be fully collectible. This methodology applies to all loan classes.

Premises and Equipment — Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, generally 3 to 5 years for furniture, fixtures and equipment and 31.5 years for buildings. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful life of the asset.

Other Real Estate Owned (“OREO”) — Real estate properties acquired through loan foreclosure are recorded at estimated fair value, net of estimated selling costs, at time of foreclosure establishing a new cost basis. Credit losses arising at the time of foreclosure are charged against the allowance for loan losses. Subsequent valuations are periodically performed by management and the carrying value is adjusted by a charge to expense to reflect any subsequent declines in the estimated fair value. Routine holding costs are charged to expense as incurred.

Goodwill and Other Intangible Assets — Goodwill and identified intangible assets with indefinite useful lives are not subject to amortization. Identified intangible assets that have finite useful lives are amortized over those lives by a method which reflects the pattern in which the economic benefits of the intangible asset are used up. Goodwill is subject to impairment testing on an annual basis, or more often if events or circumstances indicate that impairment may exist. Identifiable intangible assets are subject to impairment 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 goodwill impairment evaluations as of December 31, 2011 did not indicate any impairment. The Company is not aware of any events or circumstances that existed with the identified intangible assets that would indicate impairment as of March 31, 2012.

Loss Contingencies – Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Legal fees associated with loss contingencies are included in loss contingency accruals.

Income Taxes — Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to 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 from a change in tax rates is recognized in income in the period the change is enacted.

Stock-Based Compensation — Compensation costs relating to share-based payment transactions are recognized in the financial statements with measurement based upon the fair value of the equity or liability instruments issued. Compensation costs related to share based payment transactions are expensed over their respective vesting periods. The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. See Note 7 “Stock-Based Compensation” herein for additional discussion.

Earnings per Common Share — Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. The computation of diluted earnings per common share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares, consisting solely of stock options, had been issued.

Disclosures About Segments of an Enterprise and Related Information — Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company has one operating segment, “Community Banking.”

Bank Owned Life Insurance — The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Retirement Plans — Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. Employee 401(k) and profit sharing plan expense is the amount of matching contributions. Supplemental retirement plan expense allocates the benefits over years of service.

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2012

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

10. Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs “which represents the convergence of the FASB’s and the IASB’s guidance on fair value measurement. ASU 2011-04 reflects the common requirements under U.S. GAAP and IFRS for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning for the term “fair value.” The new guidance does not extend the use of fair value but, rather, provides guidance about how fair value should be applied where it is already required or permitted under IFRS or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS 13. A public company is required to apply the ASU prospectively for interim and annual periods beginning after December 15, 2011. Early adoption is not permitted for a public company. The adoption of this ASU did not have a material impact on the Company’s financial condition or results of operations.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income” the provisions of which allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 should be applied retrospectively and is effective for public companies for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Company’s financial condition or results of operations.

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment” the provisions of which allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The provisions for ASU 2011-08 become effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Company’s financial condition or results of operations.

Other — Certain 2011 amounts have been reclassified to conform to the 2012 presentation.

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Benefit Plans

3 Months Ended

Mar. 31, 2012

Benefit Plans [Abstract]

Benefit Plans

6.    Benefit Plans

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

	Three Months Ended Mar 31
	2012			2011
Service cost	$	110		$	95
Interest cost		153			147
Amortization of prior service cost		(58	)		(58	)
Amortization of net loss		168			139
Net periodic pension cost	$	373		$	323

The Company makes contributions to the unfunded defined benefit plans only as benefit payments become due. The Company disclosed in its 2011 Annual Report on Form 10-K that it expected to contribute $813 to the unfunded defined benefit plans during 2012. For the three month period ended March 31, 2012, the Company contributed $153 to these plans.

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Loans

3 Months Ended

Mar. 31, 2012

Loans [Abstract]

Loans

4.    Loans

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

	March 31 2012			December 31 2011
Real Estate:
Commercial	$	705,603		$	690,837
Construction		106,698			110,027
Residential		568,472			514,828
Commercial & Industrial		222,485			218,500
Individuals & lease financing		41,503			41,760
Total loans		1,644,761			1,575,952
Deferred loan fees		(3,706	)		(3,862	)
Allowance for loan losses		(31,856	)		(30,685	)
Loans, net	$	1,609,199		$	1,541,405

In March 2012, the Company purchased $65,795 of adjustable rate residential loans as a partial redeployment of loan sales completed during the first quarter of 2012.

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

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

Construction Loans — Construction loans are short-term loans (generally up to 18 months) secured by land for both residential and commercial development. The loans are generally made for acquisition and improvements. Funds are disbursed as phases of construction are completed. Most non-residential construction loans require pre-approved permanent financing or pre-leasing by the company or another bank providing the permanent financing. The Company funds construction of single family homes and commercial real estate, when no contract of sale exists, based upon the experience of the builder, the financial strength of the owner, the type and location of the property and other factors. Construction loans are generally personally guaranteed by the principal(s). Repayment of such loans may be negatively impacted by the builders’ inability to complete construction, by a downturn in the new construction market, by a significant increase in interest rates or by a decline in general economic conditions.

Residential Real Estate Loans — Various loans secured by residential real estate properties are offered by the Company, including 1-4 family residential mortgages, multi-family residential loans and a variety of home equity line of credit products. Repayment of such loans may be negatively impacted should the borrower default, should there be a significant decline in the value of the property securing the loan or should there be a decline in general economic conditions.

Commercial and Industrial Loans — The Company’s commercial and industrial loan portfolio consists primarily of commercial business loans and lines of credit to businesses and professionals. These loans are usually made to finance the purchase of inventory, new or used equipment or other short or long-term working capital purposes. These loans are generally secured by corporate assets, often with real estate as secondary collateral, but are also offered on an unsecured basis. In granting this type of loan, the Company primarily looks to the borrower’s cash flow as the source of repayment with collateral and personal guarantees, where obtained, as a secondary source. Commercial loans are often larger and may involve greater risks than other types of loans offered by the Company. Payments on such loans are often dependent upon the successful operation of the underlying business involved and, therefore, repayment of such loans may be negatively impacted by adverse changes in economic conditions, management’s inability to effectively manage the business, claims of others against the borrower’s assets which may take priority over the Company’s claims against assets, death or disability of the borrower or loss of market for the borrower’s products or services.

Lease Financing and Other Loans — The Company originates lease financing transactions which are primarily conducted with businesses, professionals and not-for-profit organizations and provide financing principally for office equipment, telephone systems, computer systems, energy saving improvements and other special use equipment. Payments on such loans are often dependent upon the successful operation of the underlying business involved and, therefore, repayment of such loans may be negatively impacted by adverse changes in economic conditions, and management’s inability to effectively manage the business. The Company also offers installment loans and reserve lines of credit to individuals. Repayment of such loans are often dependent on the personal income of the borrower which may be negatively impacted by adverse changes in economic conditions. The Company does not place an emphasis on originating these types of loans.

The following table presents the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2012 and 2011 (in thousands):

	Three Months Ended March 31, 2012
	Total			Commercial Real Estate			Construction		Residential Real Estate			Commercial & Industrial			Lease Financing & Other
Balance at beginning of period	$	30,685		$	12,776		$	6,470	$	8,093		$	2,650		$	696
Charge-offs		(1,125	)		(398	)		—		(558	)		(125	)		(44	)
Recoveries		937			298			1		534			89			15
Net Charge-offs		(188	)		(100	)		1		(24	)		(36	)		(29	)
Provision for loan losses		1,359			373			97		717			147			25
Net change during the period		1,171			273			98		693			111			(4	)
Balance at end of period	$	31,856		$	13,049		$	6,568	$	8,786		$	2,761		$	692

	Three Months Ended March 31, 2011
	Total			Commercial Real Estate			Construction			Residential Real Estate			Commercial & Industrial			Lease Financing & Other
Balance at beginning of period	$	38,949		$	16,736		$	7,140		$	9,851		$	4,290		$	932
Charge-offs		(5,255	)		(156	)		(736	)		(2,195	)		(2,168	)		—
Recoveries		1,142			238			139			554			205			6
Net Charge-offs		(4,113	)		82			(597	)		(1,641	)		(1,963	)		6
Provision for loan losses		5,451			(145	)		587			2,749			2,288			(28	)
Net change during the period		1,338			(63	)		(10	)		1,108			325			(22	)
Balance at end of period	$	40,287		$	16,673		$	7,130		$	10,959		$	4,615		$	910

Impaired loans and the recorded investment in impaired loans as of March 31, 2012 and December 31, 2011 were as follows:

	March 31, 2012						December 31, 2011
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial	$	30,159	$	28,647		—	$	31,877	$	30,762		—
Construction		753		590		—		2,690		1,723		—
Residential		5,653		4,879		—		4,599		3,824		—
Commercial & industrial		8,487		7,730		—		8,560		7,803		—
Lease financing & other		—		—		—		—		—		—
With an allowance recorded:
Commercial		—		—		—		—		—		—
Construction		3,726		3,726	$	2,241		3,758		3,758	$	2,374
Residential		—		—		—		—		—		—
Commercial & industrial		—		—		—		—		—		—
Lease financing & other		—		—		—		—		—		—
Total loans	$	48,778	$	45,572	$	2,241	$	51,484	$	47,870	$	2,374

The carrying value of impaired loans was determined using either the fair value of the underlying collateral of the loan or by an analysis of the expected cash flows related to the loan. The Company made no additional allocations of specific reserves during the three month period ended March 31, 2012. Specific reserves of $2,241 and $2,374 were allocated to impaired loans as of March 31, 2012 and December 31, 2011, respectively. Impaired loans as of March 31, 2012 and December 31, 2011 included $27,020 and $28,256, respectively, of loans considered to be troubled debt restructurings (“TDRs”). There were no additional loan modifications classified as TDRs during the three month period ended March 31, 2012. The Company is not committed to extend any additional credit to borrowers whose loans are classified as TDRs. For the three month period ended March 31, 2012, seven TDRs with carrying amounts of $17,713 were on accrual status and performing in accordance with their modified terms. All other TDRs for the three month period ended March 31, 2012 were on nonaccrual status. The TDRs described above resulted in no charge offs for the three month period ended March 31, 2012. For the three month period ended March 31, 2012, there were no TDRs in which there were payment defaults within twelve months following the modification. The Company’s policy states that a loan is considered to be in payment default once it is 45 days contractually past due under the modified terms.

The following table presents the average recorded investment in impaired loans by portfolio segment and interest recognized on impaired loans for the three month periods ended March 31, 2012 and 2011 (in thousands):

	March 31, 2012				March 31, 2011
	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
Loans:
Commercial Real Estate:
Owner occupied	$	20,700	$	178	$	6,067	$	14
Non owner occupied		9,005		—		17,207		45
Construction:
Commercial		4,897		—		9,279		—
Residential		—		—		6,052		—
Residential:
Multifamily		672		—		3,433		—
1-4 family		1,904		9		4,871		—
Home equity		1,776		—		2,441		—
Commercial & industrial		7,767		—		5,188		—
Other:
Lease financing and other		—		—		391		—
Overdrafts		—		—		—		—
Total	$	46,721	$	187	$	54,929	$	59

Gross interest income that would have been recorded if these borrowers had been current in accordance with their original loan terms was $303 and $836, respectively, for the three month periods ended March 31, 2012 and 2011.

The following tables present the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of March 31, 2012 and December 31, 2011 (in thousands):

	March 31, 2012
	Total		Commercial Real Estate		Construction		Residential Real Estate		Commercial & Industrial		Lease Financing & Other
Allowance for loan losses:
Ending balance attributed to loans:
Collectively evaluated for impairment	$	29,615	$	13,049	$	4,327	$	8,786	$	2,761	$	692
Individually evaluated for impairment		2,241		—		2,241		—		—		—
Total ending balance of allowance	$	31,856	$	13,049	$	6,568	$	8,786	$	2,761	$	692
Total loans:
Ending balance of loans:
Collectively evaluated for impairment	$	1,599,189	$	676,956	$	102,382	$	563,593	$	214,755	$	41,503
Individually evaluated for impairment		45,572		28,647		4,316		4,879		7,730		—
Total ending balance of loans	$	1,644,761	$	705,603	$	106,698	$	568,472	$	222,485	$	41,503
	December 31, 2011
	Total		Commercial Real Estate		Construction		Residential Real Estate		Commercial & Industrial		Lease Financing & Other
Allowance for loan losses:
Ending balance attributed to loans:
Collectively evaluated for impairment	$	28,311	$	12,776	$	4,096	$	8,093	$	2,650	$	696
Individually evaluated for impairment		2,374		—		2,374		—		—		—
Total ending balance of allowance	$	30,685	$	12,776	$	6,470	$	8,093	$	2,650	$	696
Total loans:
Ending balance of loans:
Collectively evaluated for impairment	$	1,528,082	$	660,075	$	104,546	$	511,004	$	210,697	$	41,760
Individually evaluated for impairment		47,870		30,762		5,481		3,824		7,803		—
Total ending balance of loans	$	1,575,952	$	690,837	$	110,027	$	514,828	$	218,500	$	41,760

The following table presents the recorded investment in non-accrual loans and loans past due 90 days and still accruing by class of loans as of March 31, 2012 and December 31, 2011 (in thousands):

	March 31, 2012				December 31, 2011
	Non-Accrual		Past Due 90 Days and Still Accruing		Non-Accrual		Past Due 90 Days and Still Accruing
Loans:
Commercial Real Estate:
Owner occupied	$	6,268		—	$	3,856		—
Non owner occupied		5,104		—		9,356		—
Construction:
Commercial		4,317		—		5,481		—
Residential		—		—		—		—
Residential:
Multifamily		1,344		—		—		—
1-4 family		1,470		—		1,470		—
Home equity		1,626		—		1,926		—
Commercial & industrial		7,730		—		7,803		—
Other:
Lease financing and other		—		—		—		—
Overdrafts		—		—		—		—
Total	$	27,859		—	$	29,892		—

The following table presents the aging of loans (including past due and non-accrual loans) as of March 31, 2012 and December 31, 2011 by class of loans (in thousands):

	March 31, 2012
	Total		31-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Current
Loans:
Commercial Real Estate:
Owner occupied	$	256,668	$	3,128	$	368	$	3,086	$	6,582	$	250,086
Non owner occupied		448,935		1,910		—		5,104		7,014		441,921
Construction:
Commercial		56,003		—		—		4,316		4,316		51,687
Residential		50,695		—		—		—		—		50,695
Residential:
Multifamily		225,428		—		1,344		—		1,344		224,084
1-4 family		231,970		3,952		607		1,470		6,029		225,941
Home equity		111,074		119		—		1,626		1,745		109,329
Commercial & industrial		222,485		6,265		269		4,348		10,882		211,603
Other:
Lease financing and other		40,666		195		2		—		197		40,469
Overdrafts		837		—		—		—		—		837
Total	$	1,644,761	$	15,569	$	2,590	$	19,950	$	38,109	$	1,606,652

	December 31, 2011
	Total		31-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Current
Loans:
Commercial Real Estate:
Owner occupied	$	243,862	$	1,801		—	$	3,489	$	5,290	$	238,572
Non owner occupied		446,975		1,917		—		5,108		7,025		439,950
Construction:
Commercial		56,933		—		—		4,883		4,883		52,050
Residential		53,094		900		—		—		900		52,194
Residential:
Multifamily		227,595		—		—		—		—		227,595
1-4 family		174,714		—		—		1,470		1,470		173,244
Home equity		112,519		—	$	97		1,926		2,023		110,496
Commercial & industrial		218,500		197		50		4,403		4,650		213,850
Other:
Lease financing and other		39,898		1		10		—		11		39,887
Overdrafts		1,862		—		—		—		—		1,862
Total	$	1,575,952	$	4,816	$	157	$	21,279	$	26,252	$	1,549,700

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

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

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

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

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

The following table presents the risk category by class of loans as of March 31, 2012 and December 31, 2011 of non-homogeneous loans individually classified as to credit risk as of the most recent analysis performed (in thousands):

	March 31, 2012
	Total		Pass		Special Mention		Substandard		Doubtful
Commercial Real Estate:
Owner occupied	$	256,668	$	191,805	$	24,457	$	40,406		—
Non owner occupied		448,935		428,996		13,199		6,740		—
Construction:
Commercial		56,003		42,510		5,748		7,745		—
Residential		50,695		37,305		8,052		5,338		—
Residential:
Multifamily		225,428		224,084		—		1,344		—
1-4 family		88,219		71,178		15,081		1,960		—
Home equity		1,825		—		—		1,825		—
Commercial & Industrial		222,485		209,448		4,266		8,771		—
Other:
Lease Financing & Other		39,214		38,525		422		267		—
Total loans	$	1,389,472	$	1,243,851	$	71,225	$	74,396		—

	December 31, 2011
	Total		Pass		Special Mention		Substandard		Doubtful
Commercial Real Estate:
Owner occupied	$	243,862	$	177,921	$	32,144	$	33,797		—
Non owner occupied		446,975		422,402		14,924		9,649		—
Construction:
Commercial		56,933		42,641		5,382		8,910		—
Residential		53,094		38,956		7,274		6,864		—
Residential:
Multifamily		227,595		226,224		—		1,371		—
1-4 family		90,033		72,594		15,109		2,330		—
Home equity		2,174		—		—		2,174		—
Commercial & Industrial		218,500		204,305		5,410		8,785		—
Other:
Lease Financing & Other		38,441		37,619		523		299		—
Total loans	$	1,377,607	$	1,222,662	$	80,766	$	74,179		—

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

The following table presents the delinquency categories by class of loans as of March 31, 2012 and December 31, 2011 for loans evaluated for risk in groups of homogeneous loans (in thousands):

	March 31, 2012
	Total		31-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Current
Residential:
1-4 family	$	143,751	$	607		—		—	$	607	$	143,144
Home equity		109,249		119		—		—		119		109,130
Other:
Other loans		1,452		—	$	2		—		2		1,450
Overdrafts		837		—		—		—		—		837
Total loans	$	255,289	$	726	$	2		—	$	728	$	254,561

	December 31, 2011
	Total		31-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Current
Residential:
1-4 family	$	84,681		—		—		—		—	$	84,681
Home equity		110,345		—	$	97		—	$	97		110,248
Other:
Other loans		1,457	$	1		10		—		11		1,446
Overdrafts		1,862		—		—		—		—		1,862
Total loans	$	198,345	$	1	$	107		—	$	108	$	198,237

Loans Held for Sale

On February 1, 2012, the Company announced plans to sell a total of $474 million in performing and non-performing loans in two tranches by mid-2012, as a significant step toward reducing the Bank’s concentrations of commercial real estate loans and classified assets. These loans were transferred to loans held-for-sale at December 31, 2011 and the sales were completed in March 2012.

The first tranche included $200 million in performing and non-performing loans. The carrying value of these commercial real estate loans was reduced by $60 million at December 31, 2011. These loans were primarily commercial real estate credits, including classified assets totaling $53 million net of the market value adjustment. The recorded sales price, net of broker fees and expenses, exceeded the carrying value of this portfolio, resulting in a pre-tax gain of approximately $7.9 million.

The second tranche included $274 million in performing, non-classified multifamily loans. No market value adjustment was recorded when this portfolio was transferred to held-for-sale at December 31, 2011, as they were expected to be sold at or above par value. The sale of these loans in March 2012 resulted in a pre-tax gain of approximately $8.0 million.

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Earnings Per Share

3 Months Ended

Mar. 31, 2012

Earnings Per Share [Abstract]

Earnings Per Share

5.    Earnings Per Share

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

	Three Months Ended March 31
	2012		2011
	(000’s except share data)
Numerator:
Net income (loss) available to common shareholders for basic and diluted earnings per share	$	18,013	$	4,824
Denominator:
Denominator for basic earnings per common share — weighted average shares		19,538,334		19,446,409
Effect of diluted securities:
Stock options		19,762		71,454
Denominator for diluted earnings per common share — adjusted weighted average shares		19,558,096		19,517,863
Basic earnings per common share	$	0.92	$	0.25
Diluted earnings per common share	$	0.92	$	0.25
Dividends declared per share	$	0.18	$	0.14

In November 2011, the Company declared a 10% stock dividend. Share and per share amounts for 2011 have been retroactively restated to reflect the issuance of the additional shares.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

7.    Stock-Based Compensation

In accordance with the provisions of the Hudson Valley Holding Corp. 2010 Omnibus Incentive Plan, approved by the Company’s shareholders on May 27, 2010, the Company may grant eligible employees incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards and other types of awards. Directors, consultants and other advisors may also be granted awards under the 2010 Plan. The 2010 Plan provides for the issuance of up to 1,331,000 shares of the Company’s common stock. Prior to the 2010 Plan, the Company had stock option plans that provided for the granting of options to directors, officers, eligible employees, and certain advisors, based upon eligibility as determined by the Compensation Committee. Under the prior plans, options were granted for the purchase of shares of the Company’s common stock at an exercise price not less than the market value of the stock on the date of grant, vested over various periods ranging from immediate to five years from date of grant, and had expiration dates up to ten years from the date of grant.

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

The following table summarizes stock-based compensation activity for the three month period ended March 31, 2012:

Prior Option Plans:	Shares			Weighted Average Grant or Exercise Price		Aggregate Intrinsic Value(1) ($000’s)		Weighted Average Remaining Contractual Term
Outstanding at December 31, 2011		625,256		$	22.81
Granted		—			—
Exercised		(4,655	)		16.48
Cancelled or Expired		(8,979	)		24.67
Outstanding at March 31, 2012		611,622			22.83	$	40		2.3
Exercisable at March 31, 2012		602,748			22.64	$	40		2.3
2010 Omnibus Incentive Plan:
Available for grant at December 31, 2011		1,331,000
Restricted stock awards		(100,427	)	$	16.66
Available for future grant		1,230,573

1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current fair value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on March 31, 2012. This amount changes based on changes in the fair value of the Company’s stock.

The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. There were no stock options granted in the three month period ended March 31, 2012 or the year ended December 31, 2011. There were 8,874 nonvested stock options with an average exercise price of $35.96 at March 31, 2012 and December 31, 2011. All of these options are expected to vest in the fourth quarter of 2012. The restricted stock awards during the three month period ended March 31, 2012 were the initial awards under the 2010 Plan. Of the 100,427 shares granted, 7,543 vested during the period and the remaining 92,884 shares were not vested.

Net compensation expense of $12 and $40 related to the Company’s stock option plans was included in net income for the three month periods ended March 31, 2012 and 2011, respectively. The total tax effect related thereto was $(2) and $(1), respectively. Unrecognized compensation expense related to non-vested share-based compensation granted under the Company’s stock option plans totaled $39 at March 31, 2012. This expense is expected to be recognized over a remaining weighted average period of 0.8 years.

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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
ASSETS
Cash and non interest earning due from banks	$ 44,906	$ 43,743
Interest earning deposits in banks	522,837	34,361
Federal funds sold	11,878	16,425
Securities available for sale, at estimated fair value (amortized cost of $446,117 in 2012 and $503,584 in 2011)	448,028	507,897
Securities held to maturity, at amortized cost (estimated fair value of $13,010 in 2012 and $13,819 in 2011)	12,160	12,905
Federal Home Loan Bank of New York (FHLB) stock	3,831	3,831
Loans (net of allowance for loan losses of $31,856 in 2012 and $30,685 in 2011)	1,609,199	1,541,405
Loans held for sale	2,532	473,814
Accrued interest and other receivables	29,165	40,405
Premises and equipment, net	25,622	25,936
Other real estate owned	1,174	1,174
Deferred income tax, net	19,793	19,822
Bank owned life insurance	38,126	37,563
Goodwill	23,842	23,842
Other intangible assets	1,464	1,651
Other assets	10,719	12,896
TOTAL ASSETS	2,805,276	2,797,670
Deposits:
Non interest bearing	935,501	910,329
Interest bearing	1,488,400	1,514,953
Total deposits	2,423,901	2,425,282
Securities sold under repurchase agreements and other short-term borrowings	46,337	53,056
Other borrowings	16,457	16,466
Accrued interest and other liabilities	27,697	25,304
TOTAL LIABILITIES	2,514,392	2,520,108
STOCKHOLDERS' EQUITY
Preferred Stock, $0.01 par value; authorized 15,000,000 shares; no shares outstanding in 2012 and 2011, respectively
Common stock, $0.20 par value; authorized 25,000,000 shares: outstanding 19,629,981 and 19,516,490 shares in 2012 and 2011, respectively	4,186	4,163
Additional paid-in capital	348,083	347,764
Retained earnings (deficit)	(4,030)	(18,527)
Accumulated other comprehensive income	209	1,726
Treasury stock, at cost; 1,299,414 shares in 2012 and 2011	(57,564)	(57,564)
TOTAL STOCKHOLDERS' EQUITY	290,884	277,562
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 2,805,276	$ 2,797,670

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Description of Operations

3 Months Ended

Mar. 31, 2012

Description of Operations and Basis of Presentation [Abstract]

Description of Operations

1.    Description of Operations

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

The Company provides financial services through its wholly-owned subsidiary, Hudson Valley Bank, N.A. (“HVB” or “the Bank”), a national banking association established in 1972, with operational headquarters in Westchester County, New York. The Bank has 18 branch offices in Westchester County, New York, 5 in Manhattan, New York, 4 in Bronx County, New York, 2 in Rockland County, New York, 1 in Kings County, New York, 5 in Fairfield County, Connecticut and 1 in New Haven County, Connecticut.

The Company provides both investment management and brokerage services through a wholly-owned subsidiary of HVB, A.R. Schmeidler & Co., Inc. (“ARS”), a Manhattan, New York based money management firm.

We derive substantially all of our revenue and income from providing banking and related services to businesses, professionals, municipalities, not-for-profit organizations and individuals within our market area, primarily Westchester County and Rockland County, New York, portions of New York City, Fairfield County and New Haven County, Connecticut.

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

Our principal customers are businesses, professionals, municipalities, not-for-profit organizations and individuals. We are dedicated to providing personalized service to customers and focusing on products and services for selected segments of the market. We believe that our ability to attract and retain customers is due primarily to our focused approach to our markets, our personalized and professional services, our product offerings, our experienced staff, our knowledge of our local markets and our ability to provide responsive solutions to customer needs. We provide these products and services to a diverse range of customers and do not rely on a single large depositor for a significant percentage of deposits. Our long term strategy is to expand through various initiatives, which could include: opening new full-service banking facilities and loan production offices; by expanding deposit gathering and loan originations in our market area; by enhancing and expanding computerized and telephonic products; by diversifying our products and services; by acquiring other banks and related businesses and through strategic alliances and contractual relationships.