Hudson Valley Holding Corp. Announces Financial Results For The First Quarter Of 2014

YONKERS, N.Y., April 28, 2014 /PRNewswire/ -- Hudson Valley Holding Corp. (NYSE: HVB) reported first quarter 2014 earnings, benefitting from continued loan growth, credit quality improvement, and low funding costs.

The parent company of Hudson Valley Bank earned $1.6 million, or $0.08 per diluted share, in the first quarter of 2014, which includes a previously disclosed $1.9 million pre-tax charge ($1.1 million after tax) for prepaying all $16.4 million of the Company's outstanding Federal Home Loan Bank borrowings and a $0.2 million tax charge related to New York State Corporate Tax Reform enacted on March 31, 2014. Excluding the after-tax impact of these charges, net income was $2.9 million, or $0.14 per share, in the first quarter of 2014.

In the fourth quarter of 2013, the Company reported a loss of $8.5 million, or ($0.43) per share, reflecting a goodwill-impairment charge related to its investment management subsidiary and an other-than-temporary impairment charge on the Company's collateralized debt obligation securities portfolio. Excluding the after-tax impact of these charges, net income was $3.3 million, or $0.16 per share in the linked quarter. In the first quarter of 2013, the Company earned $3.7 million, or $0.18 per share.

"We continued to take significant steps designed to deploy liquidity and diversify our product offering and customer base," President and Chief Executive Officer Stephen R. Brown said. "Recent management changes have been made to ensure that our collective focus remains squarely on these efforts, and by the end of the first quarter our new equipment finance business was launched. Additionally, our asset based lending team has already closed transactions totaling $21.8 million in commitments since we brought the team on board in late 2013. Our relationships with current depositors and customers remain exceptionally strong, and replicating that success with new customers within our well-defined market niches will continue to be our emphasis in 2014."

Balance Sheet
Loans totaled $1.66 billion at March 31, 2014, increasing 1.7 percent during the first quarter and 17.2 percent from March 31, 2013.

Commercial and industrial loans of $284.0 million represented 17.1 percent of total loans at March 31, 2014, compared to 15.9 percent at the end of the linked quarter and 17.7 percent at the end of the year-ago quarter. 

Loans secured by 1-4 family residential mortgages of $314.7 million at March 31, 2014, represented 19.0 percent of total loans, compared to 19.6 percent at the end of the linked quarter and 13.3 percent at the end of the year-ago quarter. 

The Company maintained very high levels of core deposits, which represented 97 percent of total deposits at the end of the first quarter of 2014. Core deposits, which exclude time deposits greater than $100,000, totaled $2.5 billion at March 31, 2014, compared to $2.5 billion at December 31, 2013 and $2.4 billion at March 31, 2013.

Portfolio Credit Quality
Overall portfolio trends continue to reflect a gradually improving credit environment.

Nonperforming assets (NPAs), which include nonaccrual loans, accruing loans delinquent over 90 days and other real estate owned (OREO), were $21.0 million at March 31, 2014, compared to $23.5 million at December 31, 2013 and $32.1 million at March 31, 2013.  NPAs totaled 0.72 percent of total assets at March 31, 2014, compared to 0.78 percent at December 31, 2013 and 1.14 percent at March 31, 2013.

Net recoveries were $0.8 million for the first quarter of 2014, compared to net charge-offs of $0.5 million and $1.3 million in the linked and year-ago quarters, respectively. As a percentage of average loans, annualized charge-offs were 0.13 percent in the linked quarter and 0.36 percent in the year-ago quarter. The Company does not expect ongoing net recoveries in future quarters.

The Company's allowance for loan losses was $26.9 million at March 31, 2014 compared to $26.0 million at December 31, 2013 and $26.1 million at March 31, 2013. The allowance measured 1.62 percent, 1.59 percent and 1.84 percent of total loans at each of those dates, respectively.

Classified assets at March 31, 2014 represented 18.0 percent of Tier 1 capital plus the allowance for loan losses, compared to 20.7 percent at December 31, 2013 and 35.4 percent at March 31, 2013.

The Company's provision for loan losses in the first quarter of 2014 was $0.1 million, compared to $0.6 million in the linked quarter and $0.8 million in the year-ago quarter, reflecting changes in credit mix and net recoveries recorded during the first quarter of 2014.

Revenues and Margin
The Company's net interest margin was 3.14 percent in the first quarter of 2014, compared to 2.95 percent in the linked quarter and 3.18 percent in the year-ago quarter.

Net interest income was $21.7 million in the first quarter of 2014, compared to $20.6 million in the linked quarter and $21.2 million in the year-ago quarter. 

The yield on interest-earning assets averaged 3.30 percent in the first quarter of 2014, compared to 3.14 percent in the linked quarter and 3.40 percent in the year-ago quarter. Lower asset yields continued to be partially offset by the Company's historically low average cost of deposits of 0.17 percent in the first quarter of 2014, compared to 0.18 percent in linked quarter and 0.20 percent in the year-ago quarter.

Non interest income was $2.5 million for the first quarter of 2014, including a $1.9 million prepayment penalty on FHLB borrowings. Non interest income was $2.6 million for the fourth quarter of 2013, including a $1.2 million securities other-than-temporary impairment loss.  Non interest income for the first quarter of 2014 was positively affected by higher service charges and stable investment advisory fees. Non interest income was $4.5 million in the first quarter of 2013.

Non Interest Expense
Total non interest expense in the first three months of 2014 was $21.8 million. In the linked quarter, non-interest expense was $39.1 million, including an $18.7 goodwill impairment, and $19.6 million in the first quarter of 2013. Expense savings achieved in 2013 through the elimination of non-profitable operations, have been reinvested into new strategic initiatives designed to diversify our product offering and customer base.  These initiatives are already producing value as a result of the activity of the new hires in our ABL and equipment financing units. As such, salaries and employee benefits expense increased to $13.0 million in the first quarter of 2014, compared to $11.5 million and $11.3 million in the linked and year-ago quarters, respectively.

The following table details the Company's net income and diluted earnings per common share, and the effects of the charges during the first quarter of 2014 and the fourth quarter of 2013.

Quarterly Cash Dividend and Capital Management
The Company's board of directors declared a quarterly cash dividend of $0.06 per share, payable on May 16, 2014, to all common stock shareholders of record as of the close of business on May 9, 2014.

At March 31, 2014, the Company maintained a total risk-based capital ratio of 17.5 percent, a Tier 1 risk-based capital ratio of 16.2 percent, and a Tier 1 leverage ratio of 9.7 percent. Its Hudson Valley Bank subsidiary at March 31, 2014 maintained a total risk-based capital ratio of 17.2 percent, a Tier 1 risk-based capital ratio of 15.9 percent, and a Tier 1 leverage ratio of 9.5 percent. 

Non-GAAP Financial Disclosures and Reconciliation to GAAP
In addition to evaluating the Company's results of operations in accordance with U.S. generally accepted accounting principles ("GAAP"), management routinely supplements this evaluation with an analysis of certain non-GAAP financial measures, such as the tangible equity ratio and tangible book value per share. Management believes these non-GAAP financial measures provide information useful to investors in understanding Hudson Valley Holding Corp.'s underlying operating performance and trends, and facilitates comparisons with the performance of other banks.  Further, the tangible equity ratio and tangible book value per share are used by management to analyze the relative strength of Hudson Valley Holding Corp.'s capital position.  

In addition, Hudson Valley Holding Corp. in this press release discloses, net income exclusive of the prepayment penalty on FHLB borrowings and the tax charge related to New York State Corporate Tax Reform in the first quarter of 2014, and the goodwill impairment and other-than-temporary impairment charges in the fourth quarter of 2013, and non interest income exclusive of the FHLB prepayment penalty in the first quarter of 2014 and other-than-temporary impairment charges in the fourth quarter of 2013. The Company believes that these presentations of net income are important to investors because it provides a more appropriate comparison to the prior quarter and prior year results.

In light of diversity in presentation among financial institutions, the methodologies used by Hudson Valley Holding Corp. for determining the non-GAAP financial measures discussed above may differ from those used by other financial institutions.

Conference Call 

As previously announced, the Company will hold its quarterly conference call to review the Company's financial results on Tuesday, April 29, 2014 at 10:00 AM ET:

Domestic (toll free): 1-888-317-6016; International (toll): + 1-412-317-6016.

All participants should dial in at least ten minutes prior to the call and request the "Hudson Valley First Quarter Earnings Call."

A replay of the call will be available one hour from the close of the conference through May 12, 2014 at 9:00 AM ET:

Domestic Toll Free: 1-877-344-7529 - Conference # 10043862; International Toll: +1-412-317-0088 - Conference # 10043862.

Participants will be required to state their name and company upon entering call.

The Company webcast will be available live at 10:00 AM ET, and archived after the call through its website at www.hudsonvalleybank.com.

About Hudson Valley Holding Corp. Through its Hudson Valley Bank subsidiary, headquartered in Yonkers, N.Y., Hudson Valley Holding Corp (NYSE:HVB) serves small- and mid-sized businesses, professional services firms, not-for-profit organizations and their principals throughout metropolitan New York.  The Company focuses on building strategic relationships with its niche customers, providing a full range of banking, deposit, financing, trust and investment management services, in addition to specialized services, such as asset based lending and equipment financing, across varied industries nationwide. With $3.0 billion in assets, $2.6 billion in deposits and 28 branches, Hudson Valley is the largest bank headquartered in Westchester County. Its common stock is traded on the New York Stock Exchange and is a Russell 3000^® Index component. More information is available at www.hudsonvalleybank.com.

Forward Looking Statements
Hudson Valley Holding Corp. ("Hudson Valley") has made in this press release various forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to earnings, credit quality and other financial and business matters for periods subsequent to March 31, 2014. These statements may be identified by such forward-looking terminology as "expect", "may", "will", "anticipate", "continue", "believe" or similar statements or variations of such terms.  Hudson Valley cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, and that statements relating to subsequent periods increasingly are subject to greater uncertainty because of the increased likelihood of changes in underlying factors and assumptions. Actual results could differ materially from forward-looking statements.

Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, in addition to those risk factors disclosed in the Hudson Valley's Annual Report on Form 10-K for the year ended December 31, 2013 include, but are not limited to:

• 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;
• our inability to deploy our excess cash, reduce our expenses and improve our operating leverage and efficiency;
• our ability to pay quarterly cash dividends to shareholders in light of our earnings, the current and future economic environment,  Federal Reserve Board guidance, our Bank's capital plan and other regulatory requirements applicable to Hudson Valley or Hudson Valley Bank;
• the possibility that we may need to raise additional capital in the future and our ability to raise such capital on terms that are favorable to us;
• further increases in our 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;
• inability to effectively integrate and manage the new businesses and lending teams;
• a lack of opportunities for growth, plans for expansion (including opening new branches) and increased or unexpected competition in attracting and retaining customers;
• continued poor economic conditions generally and in our market area in particular, which may adversely affect the ability of borrowers to repay their loans and the value of real property or other property held as collateral for such loans;
• lower than expected demand for our products and services;
• possible additional impairment of our goodwill and other intangible assets;
• our inability to manage interest rate risk;
• increased expense and burdens resulting from the regulatory environment in which we operate and our ability to comply with existing and future  regulatory requirements;
• our inability to maintain regulatory capital above the minimum levels Hudson Valley Bank has set as its minimum capital levels, or such higher capital levels as may be required;
• proposed legislative and regulatory action may adversely affect us and the financial services industry;
• legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulations) may subject us to additional regulatory oversight which may result in increased compliance costs and/or require us to change our business model;
• future increased Federal Deposit Insurance Corporation, or FDIC, special assessments or changes to regular assessments;
• potential liabilities under federal and state environmental laws;
• legislative and regulatory changes to laws governing New York State's taxation of HVB's REIT subsidiary.

We assume no obligation for updating any such forward-looking statements at any given time.

SOURCE Hudson Valley Holding Corp.

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