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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2002 Commission File No. 1-12811
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U.S.B. HOLDING CO., INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3197969
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 DUTCH HILL ROAD, ORANGEBURG, NEW YORK 10962
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(Address of principal executive office with zip code)
845-365-4600
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
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 AUGUST 5, 2002
----- -----------------------------
Common stock, par value 18,480,787
$0.01 per share
U.S.B. HOLDING CO., INC.
TABLE OF CONTENTS
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PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF 1
CONDITION AS OF JUNE 30, 2002 AND
DECEMBER 31, 2001.
CONDENSED CONSOLIDATED STATEMENTS OF 2
INCOME FOR THE THREE MONTHS ENDED
JUNE 30, 2002 AND 2001.
CONDENSED CONSOLIDATED STATEMENTS OF 3
INCOME FOR THE SIX MONTHS ENDED
JUNE 30, 2002 AND 2001.
CONDENSED CONSOLIDATED STATEMENTS OF 4
CASH FLOW FOR THE SIX MONTHS ENDED
JUNE 30, 2002 AND 2001.
CONDENSED CONSOLIDATED STATEMENTS OF 6
CHANGES IN STOCKHOLDERS' EQUITY FOR
THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL 8
STATEMENTS.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 17
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 25
ABOUT MARKET RISK.
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY 26
HOLDERS.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 26
- i -
ITEM 1. PART I - FINANCIAL INFORMATION
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
- ----------------------------------------------------------
(000'S, EXCEPT SHARE DATA) JUNE 30, DECEMBER 31,
2002 2001
----------- -----------
ASSETS
- ------
Cash and due from banks $ 58,751 $ 48,721
Federal funds sold 85,600 21,100
----------- -----------
Cash and cash equivalents 144,351 69,821
Interest bearing deposits in other banks 21 290
Securities:
Available for sale (at estimated fair value) 401,826 454,001
Held to maturity (estimated fair value of
$293,862 in 2002 and $298,429 in 2001) 289,729 298,883
Loans, net of allowance for loan losses of
$12,879 in 2002 and $12,412 in 2001 1,238,254 1,158,534
Premises and equipment, net 11,152 11,343
Accrued interest receivable 10,657 10,087
Other real estate owned (OREO) 34 34
Federal Home Loan Bank of New York stock 20,759 20,815
Other assets 13,700 16,318
----------- -----------
TOTAL ASSETS $ 2,130,483 $ 2,040,126
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Non-interest bearing deposits $ 233,620 $ 210,811
Interest bearing deposits:
NOW accounts 94,614 84,136
Money market accounts 92,017 82,381
Savings deposits 429,349 431,893
Time deposits 649,513 616,737
----------- -----------
TOTAL DEPOSITS 1,499,113 1,425,958
Accrued interest payable 5,735 7,244
Accrued expenses and other liabilities 15,302 14,024
Securities sold under agreements to repurchase 303,628 303,279
Federal Home Loan Bank of New York advances 112,614 114,291
----------- -----------
TOTAL 1,936,392 1,864,796
Corporation-Obligated mandatory redeemable capital
securities of subsidiary trusts 50,000 40,000
Minority interest-junior preferred stock of consolidated subsidiary 130 130
Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value
Authorized shares: 100,000; no shares outstanding -- --
Common stock, $0.01 par value; authorized shares - 50,000,000;
issued shares - 19,709,359 in 2002 and 19,531,188 in 2001 197 195
Additional paid-in capital 138,748 137,627
Retained earnings 17,252 8,457
Treasury stock, at cost; common shares 1,255,298 in 2002 and
1,151,842 in 2001 (14,987) (13,381)
Common stock held for benefit plans (1,774) (1,601)
Deferred compensation obligation 1,416 1,178
Accumulated other comprehensive income 3,109 2,725
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 143,961 135,200
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,130,483 $ 2,040,126
=========== ===========
See notes to condensed consolidated financial statements.
1
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------
THREE MONTHS ENDED
JUNE 30,
2002 2001
------- -------
(000'S, EXCEPT SHARE DATA)
INTEREST INCOME:
Interest and fees on loans $21,326 $21,532
Interest on federal funds sold 195 497
Interest and dividends on securities:
Mortgage-backed securities 4,487 6,494
U.S. Treasury and government agencies 4,216 3,471
Obligations of states and political subdivisions 902 822
Corporate securities and other 213 4
Interest on deposits in other banks 3 3
Dividends on Federal Home Loan Bank of New York stock 231 571
------- -------
TOTAL INTEREST INCOME 31,573 33,394
------- -------
INTEREST EXPENSE:
Interest on deposits 7,028 13,825
Interest on borrowings 5,302 4,252
Interest on Corporation - Obligated mandatory redeemable
capital securities of subsidiary trusts 779 488
------- -------
TOTAL INTEREST EXPENSE 13,109 18,565
------- -------
NET INTEREST INCOME 18,464 14,829
Provision for credit losses 1,365 220
------- -------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 17,099 14,609
------- -------
NON-INTEREST INCOME:
Service charges and fees 820 878
Other income 850 427
Gain on securities transactions - net 293 851
------- -------
TOTAL NON-INTEREST INCOME 1,963 2,156
------- -------
NON-INTEREST EXPENSES:
Salaries and employee benefits 5,859 5,155
Occupancy and equipment 1,604 1,597
Advertising and business development 486 474
Professional fees 256 236
Communications 239 247
Stationery and printing 199 199
FDIC insurance 68 71
Amortization of intangibles 225 226
Other expense 820 631
------- -------
TOTAL NON-INTEREST EXPENSES 9,756 8,836
------- -------
Income before income taxes 9,306 7,929
Provision for income taxes 3,200 2,762
------- -------
NET INCOME $ 6,106 $ 5,167
======= =======
BASIC EARNINGS PER COMMON SHARE $ 0.33 $ 0.28
======= =======
DILUTED EARNINGS PER COMMON SHARE $ 0.32 $ 0.28
======= =======
See notes to condensed consolidated financial statements.
2
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
2002 2001
------- -------
(000'S, EXCEPT SHARE DATA)
INTEREST INCOME:
Interest and fees on loans $41,592 $43,933
Interest on federal funds sold 374 1,104
Interest and dividends on securities:
Mortgage-backed securities 9,374 12,732
U.S. Treasury and government agencies 8,034 7,112
Obligations of states and political subdivisions 1,795 1,632
Corporate securities and other 427 3
Interest on deposits in other banks 5 5
Dividends on Federal Home Loan Bank of New York stock 446 1,199
------- -------
TOTAL INTEREST INCOME 62,047 67,720
------- -------
INTEREST EXPENSE:
Interest on deposits 14,160 29,639
Interest on borrowings 10,575 7,812
Interest on Corporation - Obligated mandatory redeemable
capital securities of subsidiary trusts 1,555 976
------- -------
TOTAL INTEREST EXPENSE 26,290 38,427
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NET INTEREST INCOME 35,757 29,293
Provision for credit losses 2,597 420
------- -------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 33,160 28,873
------- -------
NON-INTEREST INCOME:
Service charges and fees 1,627 1,716
Other income 1,545 971
Gains on securities transactions - net 1,368 1,533
------- -------
TOTAL NON-INTEREST INCOME 4,540 4,220
------- -------
NON-INTEREST EXPENSES:
Salaries and employee benefits 11,510 10,201
Occupancy and equipment 3,153 3,140
Advertising and business development 909 828
Professional fees 522 419
Communications 523 509
Stationery and printing 401 422
FDIC insurance 140 141
Amortization of intangibles 451 452
Other expense 1,611 1,316
------- -------
TOTAL NON-INTEREST EXPENSES 19,220 17,428
------- -------
Income before income taxes 18,480 15,665
Provision for income taxes 6,365 5,427
------- -------
NET INCOME $12,115 $10,238
======= =======
BASIC EARNINGS PER COMMON SHARE $ 0.66 $ 0.56
======= =======
DILUTED EARNINGS PER COMMON SHARE $ 0.64 $ 0.55
======= =======
See notes to condensed consolidated financial statements.
3
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
- ----------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
2002 2001
--------- ---------
OPERATING ACTIVITIES: (000'S)
Net income $ 12,115 $ 10,238
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 2,597 420
Depreciation and amortization 1,339 1,420
Amortization of premiums on securities - net 744 562
Deferred income tax (benefit) provision - net (1,965) 5,480
Gains on securities transactions - net (1,368) (1,533)
Noncash benefit plan expense 134 126
(Increase) decrease in accrued interest receivable (570) 2,883
Decrease in accrued interest payable (1,509) (1,379)
Other - net 5,578 1,435
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,095 19,652
--------- ---------
INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale 33,344 162,380
Proceeds from principal paydowns, redemptions and maturities of:
Securities available for sale 133,753 44,739
Securities held to maturity 26,517 106,432
Purchases of securities available for sale (88,675) (275,977)
Purchases of securities held to maturity (42,359) (91,099)
Net redemptions of Federal Home Loan Bank of New York stock 56 --
Net decrease (increase) in interest bearing deposits in other banks 269 (9)
Increase in loans outstanding (82,317) (10,134)
Purchases of premises and equipment - net (697) (868)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (20,109) (64,536)
--------- ---------
FINANCING ACTIVITIES:
Net increase in non-interest bearing deposits,
NOW, money market and savings accounts 40,379 43,045
Net increase (decrease) in time deposits, net of withdrawals and maturities 32,776 (92,204)
Net increase (decrease) in securities sold under agreements
to repurchase - short-term 349 (116)
Proceeds from securities sold under agreements to
repurchase - long-term -- 30,000
Proceeds from Federal Home Loan Bank of New York
advances - long-term -- 70,000
Repayment of Federal Home Loan Bank of New York
advances - long-term (1,677) (1,810)
Net proceeds from issuance of Corporation-Obligated mandatory
redeemable capital securities of subsidiary trust 9,699 --
Cash dividends paid (3,320) (2,687)
Proceeds from exercise of common stock options 230 46
Purchases of treasury stock (892) (276)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 77,544 $ 45,998
========= =========
(Continued)
4
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) (CONT'D)
- -------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
2002 2001
--------- ---------
(000'S)
INCREASE IN CASH AND CASH EQUIVALENTS $ 74,530 $ 1,114
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 69,821 74,891
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 144,351 $ 76,005
========= =========
Supplemental Disclosures:
Interest paid $ 27,799 $ 39,806
--------- ---------
Income tax payments $ 4,755 $ 90
--------- ---------
Transfer of held to maturity securities to available for sale securities $ -- $ 592
--------- ---------
Change in shares held in trust for deferred compensation $ (238) $ (246)
--------- ---------
Change in deferred compensation obligation $ 238 $ 246
--------- ---------
Change in accumulated other comprehensive income $ 384 $ 132
--------- ---------
Purchases of treasury stock related to exercise of stock options $ (796) $ (1,049)
--------- ---------
Non cash exercise of stock options and related tax benefit $ 1,003 $ 1,699
--------- ---------
Purchases of securities not yet settled:
Available for sale $ -- $ 2,032
--------- ---------
Held to maturity $ -- $ 9,994
--------- ---------
Exchange of Tappan Zee Financial, Inc. common
shares to treasury stock $ (97) $ --
--------- ---------
See notes to condensed consolidated financial statements.
5
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
- -------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(000'S, EXCEPT SHARE DATA)
ACCUMULATED
COMMON STOCK ADDITIONAL COMMON STOCK DEFERRED OTHER TOTAL
SHARES PAR PAID-IN RETAINED TREASURY HELD FOR COMPENSATION COMPREHENSIVE STOCKHOLDERS'
OUTSTANDING VALUE CAPITAL EARNINGS STOCK BENEFIT PLANS OBLIGATION INCOME EQUITY
----------- ----- ------- -------- ----- ------------- ---------- ------ ------
Balance at January 1, 2002 18,379,346 $195 $137,627 $ 8,457 $(13,381) $(1,601) $1,178 $2,725 $135,200
Net income 12,115 12,115
Other comprehensive income:
Net unrealized securities
gains arising during the
period, net of taxes of $825 1,179 1,179
Reclassification adjustment
of net gains for securities
sold net of taxes of $558 (795) (795)
------ --------
Other comprehensive income 384 384
--------
Total comprehensive income 12,499
Cash dividends:
Common ($0.18 per share) (3,310) (3,310)
Junior Preferred stock (10) (10)
Common stock options exercised
and related tax benefit 193,549 2 1,052 179 1,233
Purchases of treasury stock (118,834) (1,785) (1,785)
ESOP shares committed to
be released 69 65 134
Deferred compensation
obligation (238) 238 --
---------- ---- -------- ------- -------- ------- ------ ------ --------
BALANCE AT JUNE 30, 2002 18,454,061 $197 $138,748 $17,252 $(14,987) $(1,774) $1,416 $3,109 $143,961
========== ==== ======== ======= ======== ======= ====== ====== ========
See notes to condensed consolidated financial statements.
6
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
- -------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(000'S, EXCEPT SHARE DATA)
ACCUMULATED
COMMON STOCK ADDITIONAL COMMON STOCK DEFERRED OTHER TOTAL
SHARES PAR PAID-IN RETAINED TREASURY HELD FOR COMPENSATION COMPREHENSIVE STOCKHOLDERS'
OUTSTANDING VALUE CAPITAL EARNINGS STOCK BENEFIT PLANS OBLIGATION INCOME EQUITY
----------- ----- ------- -------- ----- ------------- ---------- ------ ------
Balance at January 1, 2001 16,591,111 $175 $111,942 $17,116 $(11,158) $(1,431) $ 856 $ 377 $117,877
Net income 10,238 10,238
Other comprehensive income:
Net unrealized securities
gains arising during the
period, net of taxes of $629 886 886
Reclassification adjustment
of net gains for securities
sold, net of taxes of $536 (754) (754)
------ --------
Other comprehensive income 132 132
--------
Total comprehensive income 10,370
Cash dividends:
Common ($0.15 per share) (2,676) (2,676)
Junior preferred stock (11) (11)
Common stock options exercised
and related tax benefit 251,761 2 1,556 187 1,745
Purchases of treasury stock (111,468) (1,325) (1,325)
Amortization of RRP awards 18 18
ESOP shares committed to
be released 42 66 108
Deferred compensation
obligation (246) 246 --
---------- ---- -------- ------- -------- ------- ------ ------ --------
BALANCE AT JUNE 30, 2001 16,731,404 $177 $113,540 $24,667 $(12,296) $(1,593) $1,102 $ 509 $126,106
========== ==== ======== ======= ======== ======= ====== ====== ========
See notes to condensed consolidated financial statements.
7
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
1. PRINCIPLES OF CONSOLIDATION
---------------------------
The condensed consolidated financial statements include the accounts of
U.S.B. Holding Co., Inc. and its wholly-owned subsidiaries (the
"Company"), Union State Bank (the "Bank") [including its wholly-owned
subsidiaries, Dutch Hill Realty Corp., U.S.B. Financial Services, Inc,
and TPNZ Preferred Funding Corporation ("TPNZ")], Union State Capital
Trust I, Union State Statutory Trust II, USB Statutory Trust III, and
Ad Con, Inc. All significant intercompany accounts and transactions are
eliminated in consolidation.
2. BASIS OF PRESENTATION
---------------------
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments (comprised of
only normal recurring accruals) necessary to present fairly the
financial position of the Company as of June 30, 2002, and its
operations, cash flow and changes in stockholders' equity for the three
and six months ended June 30, 2002 and 2001. A summary of the Company's
significant accounting policies is set forth in Note 3 to the
consolidated financial statements included in the Company's 2001 Annual
Report to Stockholders.
The Company's Board of Directors declared a ten percent common stock
dividend, which was distributed on January 22, 2002 to stockholders of
record on January 8, 2002. The weighted average common shares
outstanding and per common share amounts for the three and six months
ended June 30, 2001 have been adjusted to reflect the ten percent
common stock dividend.
The condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America and predominant practices used within the banking
industry. In preparing such financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of actual and contingent assets and liabilities as of the dates
of the condensed consolidated statements of condition and the revenues
and expenses for the periods reported. Actual results could differ
significantly from those estimates.
Estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the
valuation of other real estate acquired in connection with foreclosures
or in satisfaction of loan receivables ("OREO"). In connection with the
determination of the allowance for loan losses and OREO, management
obtains independent appraisals for significant properties.
3. CORPORATION-OBLIGATED MANDATORY REDEEMABLE CAPITAL SECURITIES OF
SUBSIDIARY TRUSTS
----------------------------------------------------------------
On June 26, 2002, the Company completed its third issuance of Trust
Preferred Capital Securities (the "Capital Securities") that raised
$10.0 million of regulatory capital (approximately $9.7 million net
proceeds after issuance costs), of which approximately $5.0 million is
included in Tier I regulatory capital and the remaining amount is
included in total regulatory capital under regulatory guidelines as of
June 30, 2002. The previous issuances of Capital Securities include
$20.0 million of fixed rate Capital Securities
8
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
issued in February 1997 at 9.58 percent and $20.0 million of floating
rate Capital Securities issued in July 2001 (current rate as of June
30, 2002, 5.50 percent). The aggregate amount of Capital Securities
issued by the Company totaled $50.0 million at June 30, 2002, of which
$45.0 million is included in Tier I regulatory capital.
The Capital Securities issued on June 26, 2002 pay interest on a
floating rate basis, based on three month LIBOR plus 345 basis points,
with the initial rate set at 5.34 percent, which resets September,
December, March and June of each calendar year. The Capital Securities,
which are due June 26, 2032 were issued by USB Statutory Trust III, a
Connecticut business trust, that was formed by the Company solely to
issue the Capital Securities and related common stock. The Capital
Securities may not be redeemed, except under limited circumstances,
until 2007 at par. The Company may also reduce outstanding Capital
Securities through open market purchases. Dividends are paid quarterly
in September, December, March and June.
Detailed discussion of the Capital Securities issued in February 1997
and July 2001 is included in Note 10 to the Company's Consolidated
Financial Statements for the year ended 2001, included in the 2001
Annual Report to Stockholders.
4. RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to prior period accounts to
conform to the current period's presentation.
5. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections. This statement
clarifies guidance related to the reporting of gains and losses from
extinguishment of debt and resolves inconsistencies related to the
required accounting treatment of certain lease modifications. The
provisions of this statement relating to extinguishment of debt become
effective for financial statements issued for fiscal years beginning
after May 15, 2002. The provisions of this statement relating to lease
modification are effective for transactions occurring after May 15,
2002. The adoption of the effective provisions of this statement did
not have any impact on its condensed consolidated financial statements.
In addition, the Company does not expect that the provisions effective
for the year beginning January 1, 2003 will have any impact on the
consolidated financial statements.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
------------------------------------
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"), which became effective January 1,
2002. SFAS No. 142 requires, among other things, the discontinuance of
goodwill amortization, the reclassification of certain existing
recognized intangibles as goodwill, the reassessment of useful lives of
existing recognized intangibles and the identification of reporting
units for purposes of assessing potential future impairments of
goodwill. SFAS No. 142 also requires a transitional goodwill impairment
test six months from the date of adoption. The
9
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
Company's adoption of SFAS No. 142 on January 1, 2002 did not have any
impact on its condensed consolidated financial statements.
7. EARNINGS PER COMMON SHARE ("EPS")
---------------------------------
The computation of basic and diluted earnings per common share for the
three and six months ended June 30 is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
NUMERATOR: (000'S, EXCEPT SHARE DATA)
Net income $ 6,106 $ 5,167 $ 12,115 $ 10,238
Less preferred stock dividends 10 11 10 11
----------- ----------- ----------- -----------
Net income for basic and diluted
earnings per common share - net
income available to common
stockholders $ 6,096 $ 5,156 $ 12,105 $ 10,227
=========== =========== =========== ===========
DENOMINATOR:
Denominator for basic earnings
per common share - weighted
average shares 18,403,822 18,329,430 18,377,990 18,267,285
Effects of dilutive securities:
Director and employee
stock options 579,211 398,147 558,778 412,100
Restricted stock not vested -- 3,703 -- 3,749
----------- ----------- ----------- -----------
Total effects of dilutive securities 579,211 401,850 558,778 415,849
----------- ----------- ----------- -----------
Denominator for diluted earnings
per common share - adjusted
weighted average shares 18,983,033 18,731,280 18,936,768 18,683,134
=========== =========== =========== ===========
Basic earnings per common share $ 0.33 $ 0.28 $ 0.66 $ 0.56
=========== =========== =========== ===========
Diluted earnings per common share $ 0.32 $ 0.28 $ 0.64 $ 0.55
=========== =========== =========== ===========
8. SECURITIES
----------
In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Company's investment policies include
a determination of the appropriate classification of securities at the
time of purchase. Securities that may be sold as part of the Company's
asset/liability or liquidity management, or in response to or in
anticipation of changes in interest rates and resulting prepayment
risk, or for similar factors, are classified as available for sale.
Securities that the Company has the ability and positive intent to hold
to maturity are classified as held to maturity and carried at amortized
cost. Realized gains and losses on the sales of all securities,
determined by using the specific identification method, are reported in
earnings. Securities available for sale are shown in the condensed
consolidated statements of condition at estimated fair value and the
resulting net unrealized gains and losses, net of tax, are shown in
accumulated other comprehensive income.
10
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
The decision to sell available for sale securities is based on
management's assessment of changes in economic or financial market
conditions, interest rate risk, and the Company's financial position
and liquidity. Estimated fair values for securities are based on quoted
market prices, where available. If quoted market prices are not
available, estimated fair values are based on quoted market prices of
comparable instruments. The Company does not acquire securities for the
purpose of trading activities.
During the three and six month periods ended June 30, 2002, the Company
had gross realized gains from sales of securities available for sale of
$293,000 and $1,368,000, respectively. The Company did not have gross
losses during the 2002 periods.
A summary of the amortized cost, estimated fair values, and related
gross unrealized gains and losses of securities at June 30, 2002 and
December 31, 2001 is as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
JUNE 30, 2002:
AVAILABLE FOR SALE: (000'S)
U.S. government agencies $104,926 $ 1,036 $ 146 $105,816
Mortgage-backed securities 274,948 4,147 87 279,008
Obligations of states and
political subdivisions 1,530 89 -- 1,619
Corporate securities 15,134 257 8 15,383
-------- -------- -------- --------
TOTAL SECURITIES AVAILABLE FOR SALE $396,538 $ 5,529 $ 241 $401,826
======== ======== ======== ========
HELD TO MATURITY:
U.S. government agencies $124,914 $ 234 $ 93 $125,055
Mortgage-backed securities 93,130 1,038 114 94,054
Obligations of states and
political subdivisions 71,685 3,068 -- 74,753
-------- -------- -------- --------
TOTAL SECURITIES HELD TO MATURITY $289,729 $ 4,340 $ 207 $293,862
======== ======== ======== ========
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
DECEMBER 31, 2001:
AVAILABLE FOR SALE: (000'S)
U.S. government agencies $106,953 $ 1,884 $ 513 $108,324
Mortgage-backed securities 325,753 3,947 517 329,183
Obligations of states and
political subdivisions 1,532 74 -- 1,606
Corporate securities 15,102 36 250 14,888
-------- -------- -------- --------
TOTAL SECURITIES AVAILABLE FOR SALE $449,340 $ 5,941 $ 1,280 $454,001
======== ======== ======== ========
HELD TO MATURITY:
U.S. government agencies $124,926 $ 149 $ 2,035 $123,040
Mortgage-backed securities 104,306 435 453 104,288
Obligations of states and
political subdivisions 69,651 1,976 526 71,101
-------- -------- -------- --------
TOTAL SECURITIES HELD TO MATURITY $298,883 $ 2,560 $ 3,014 $298,429
======== ======== ======== ========
11
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
9. LOANS
-----
Nonaccrual loans were $19.3 million at June 30, 2002 and $20.7 million
at December 31, 2001. Restructured loans were $0.2 million at both June
30, 2002 and December 31, 2001.
Substantially all of the nonaccruing and restructured loans are
collateralized by real estate. At June 30, 2002, the Company had and
continues to have no commitments to lend additional funds to any
customers with nonaccrual or restructured loan balances, except as
further described below with respect to a real estate construction loan
in the amount of $17.8 million.
At June 30, 2002, there were no loans on nonaccrual status, that were
potential problem loans which may result in their being placed on
nonaccrual status in the future. Accruing loans that are contractually
past due 90 days or more at June 30, 2002 are immaterial.
At June 30, 2002 and December 31, 2001, the recorded investment in
loans that are considered to be impaired under SFAS No. 114,
"Accounting for Impairment of a Loan" ("SFAS No. 114"), approximated
$19.5 million and $20.6 million, of which $19.3 million and $20.4
million were in nonaccrual status, respectively. The average recorded
investment of impaired loans for the six months ended June 30, 2002 and
2001, and year ended December 31, 2001 was $20.9 million, $19.4 million
and $20.0 million, respectively. Interest income recognized by the
Company on impaired loans for the June 30, 2002 and 2001 three and six
month periods was not material. As applicable, each impaired loan at
June 30, 2002 and December 31, 2001 has a related allowance for loan
losses determined in accordance with SFAS No. 114. The total allowance
for loan losses specifically allocated to impaired loans was $1.8
million and $1.6 million as of June 30, 2002 and December 31, 2001,
respectively.
A restructured loan in the amount of $0.2 million at both June 30, 2002
and December 31, 2001, that is considered to be impaired due to a
reduction in the contractual interest rate, is on accrual status
because the collateral securing this loan is sufficient to protect the
contractual principal and interest. The loan has been performing for a
reasonable period of time. Interest accrued on the restructured loan as
of June 30, 2002 is immaterial.
At December 31, 2001, the Bank had $0.3 million of outstanding loans,
collateralized by cash and lease receivables, to Bennett, which filed
for bankruptcy protection during the first quarter of 1996. As a result
of a favorable ruling in the second quarter of 1998 by the Bankruptcy
Court, the Bank has collected payments of $2.6 million, reducing the
original balance of $3.3 million to $0.7 million. A total of $0.4
million was charged-off in 1999 and 1998, further reducing the recorded
balance of the loans to $0.3 million. During the 2002 first quarter,
the Bank reached a settlement agreement with the Bankruptcy Trustee for
the Bennett loan, which settled all claims against the Bankruptcy
Estate and the Bank, including dismissal of remaining fraudulent
conveyance claims against the Bank. As a result, the Bank charged off
the remaining $0.3 million of the Bennett loan, and in addition, agreed
to make a settlement payment of $0.3 million to the Bankruptcy Estate.
12
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
On November 9, 2000, the Company reclassified a real estate
construction loan with 35 remaining condominium units in the amount of
$19.7 million as a non-performing asset and placed the loan on
nonaccrual status. As a result of the impairment of this loan, $2.2
million was charged-off in 2000 reducing the loan balance to $17.5
million. During the year ended December 31, 2001, "protective advances"
of $0.6 million were made in connection with payments of real estate
taxes and common charges, which increased the recorded loan balance to
$18.1 million. During 2001 and the six month period ended June 30,
2002, the Bank also advanced $1.8 million and $2.2 million,
respectively, through an agreement with the borrower to be used for
completion of the project. As of August 12, 2002, the Bank intends to
lend up to an additional $1.0 million to fund the completion of the
project and facilitate sales, which proceeds are being used to reduce
the Bank's loan. During the 2002 first quarter, the specific allocation
of the allowance for loan losses was increased to $2.3 million, and
during the second quarter of 2002, $1.3 million was charged off
reducing the reserve to $1.0 million. As of June 30, 2002 and December
31, 2001, the balance of the loan, net of paydowns and charge-offs, was
$17.8 million and $19.5 million, respectively.
Construction of the condominium units is substantially complete, and
eleven units have been sold and closed as of July 25, 2002. Also, as of
July 25, 2002, there were six additional units under contract of sale.
Pending sales of the units and repayment of the loan, the Bank
continues to proceed with foreclosure on other real estate, which also
collateralizes the loan. The loan is also personally guaranteed by the
principals, and such guarantees will be pursued to recover losses
incurred in connection with the loan. The personal guarantees have not
been considered in determining the amount of the charge-offs or
allowance for loan losses applicable to this loan.
10. BORROWINGS AND STOCKHOLDERS' EQUITY
-----------------------------------
The Company utilizes borrowings primarily to meet the funding
requirements for its asset growth and to manage its interest rate risk.
Borrowings include securities sold under agreements to repurchase,
federal funds purchased, and Federal Home Loan Bank of New York
("FHLB") advances.
Short-term securities sold under agreements to repurchase generally
mature between one and 365 days. The Bank may borrow up to $175.0
million from two primary investment firms under master security sale
and repurchase agreements. There were no outstanding borrowings under
these agreements at June 30, 2002. In addition, the Bank has the
ability to borrow from the FHLB under similar master security sale and
repurchase agreements and, to a lesser extent, its customers. At June
30, 2002 and December 31, 2001, the Bank had short-term repurchase
agreements outstanding of $1.6 million at an interest rate of 1.65
percent and $1.3 million at a weighted average interest rate of 1.68
percent, respectively. At June 30, 2002 and December 31, 2001, these
borrowings were collateralized by securities with an aggregate carrying
value and estimated fair value of $1.7 million and $1.3 million,
respectively.
13
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
Federal funds purchased represent overnight funds. The Bank has federal
funds purchase lines available with six financial institutions for a
total of $73.0 million. At June 30, 2002 and December 31, 2001, the
Bank had no federal funds purchased balances outstanding.
Short-term FHLB advances are borrowings with original maturities
between one and 365 days. At June 30, 2002 and December 31, 2001, the
Bank had no such short-term FHLB advances outstanding.
Additional information with respect to short-term borrowings as of and
for the six months ended June 30, 2002 and 2001 is presented in the
table below.
SHORT-TERM BORROWINGS 2002 2001
-----------------------------------------------------------------------
(000's except percentages)
Balance at June 30 $ 1,627 $ 398
Average balance outstanding 1,278 4,889
Weighted-average interest rate
As of June 30 1.65% 3.47%
Paid during period 1.65 5.44
=======================================================================
The Bank had long-term borrowings, which have original maturities of
over one year, of $302.0 million in securities sold under agreements to
repurchase at both June 30, 2002 and December 31, 2001. At June 30,
2002 and December 31, 2001, these borrowings have an original term of
between five and ten years at interest rates between 4.33 percent and
6.08 percent that are callable on certain dates after an initial
noncall period at the option of the counterparty to the repurchase
agreements. As of June 30, 2002 and December 31, 2001, these borrowings
are collateralized by securities with an aggregate carrying value of
$303.4 million and $306.3 million and an estimated fair value of $304.3
million and $305.7 million, respectively.
At June 30, 2002 and December 31, 2001, long-term FHLB advances totaled
$112.6 million and $114.3 million, respectively, at interest rates of
between 3.49 percent to 6.72 percent. At June 30, 2002, borrowings
totaling $12.6 million are amortizing advances having scheduled
payments and $30.0 million are payable only at maturity. Other
borrowings totaling $70.0 million have an original term of ten years
that are callable on certain dates after an initial noncall period at
the option of the counterparty to the advance. These borrowings may not
be repaid in full prior to maturity without penalty. At June 30, 2002
and December 31, 2001, these borrowings were collateralized by a pledge
to the FHLB of a security interest in certain mortgage-related assets
having an aggregate carrying value of $135.4 million and $138.2
million, respectively.
A summary of long-term, fixed-rate borrowings distributed based upon
remaining contractual payment date and expected option call date at
June 30, 2002, with comparative totals for December 31, 2001, is as
follows:
14
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
AFTER 1
WITHIN BUT WITHIN AFTER 2002 2001
LONG-TERM BORROWINGS 1 YEAR 5 YEARS 5 YEARS TOTAL Total
-----------------------------------------------------------------------------------------------------
Contractual Payment/Expected (000's, except percentages)
Call Date:
Total long-term borrowing $ 3,457 $ 57,358 $ 353,799 $414,614 $ 416,291
Weighted-average interest rate 5.75% 4.50% 5.13% 5.05% 5.05%
=====================================================================================================
At June 30, 2002 and December 31, 2001, the Bank held 207,590 shares
and 208,146 shares of capital stock of the FHLB with a carrying value
of $20.8 million for both periods, which is required in order to borrow
under the short- and long-term advance and securities sold under
agreements to repurchase programs from the FHLB. The FHLB generally
limits borrowings up to an aggregate of 30 percent of total assets,
excluding securities sold under agreements to repurchase, upon the
prerequisite purchase of additional shares of FHLB stock. Any advances
made from the FHLB are required to be collateralized by the FHLB stock
and certain other assets of the Bank.
The ability of the Company and Bank to pay cash dividends in the future
is restricted by various regulatory requirements. The Company's ability
to pay cash dividends to its stockholders is primarily dependent upon
the receipt of dividends from the Bank. The Bank's dividends to the
Company may not exceed the sum of the Bank's undistributed net income
for that year and its undistributed net income for the preceding two
years, less any required transfers to additional paid-in capital. At
June 30, 2002, the Bank could pay dividends of $32.5 million to the
Company without having to obtain prior regulatory approval.
On May 23, 2002, the Company's stockholders approved an amendment to
the certificate of Incorporation (the "Amendment") to increase the
number of authorized shares of preferred stock, with no par value, from
100,000 to 10,000,000. The Amendment was filed with the State of
Delaware and became effective on July 25, 2002. The increase in the
authorized shares of preferred stock will benefit the Company by
improving its flexibility in responding to future business needs and
opportunities. The additional authorized shares will be available for
issuance from time to time in connection with raising capital that
would qualify as Tier I or total capital for regulatory purposes to
support growth of the Company and common stock repurchase programs,
provide capital for possible acquisitions and for other corporate
purposes.
On December 18, 2001, the Company's Board of Directors authorized the
repurchase of up to 330,000 common shares (adjusted for the ten percent
common stock dividend), or approximately 1.8%, of the Company's
outstanding common stock at that date. Repurchases of common stock are
authorized to be made from time to time in open-market and private
transactions throughout 2002 as, in the opinion of management, market
conditions may warrant. During the six month period ended June 30,
2002, the purchases of 58,000 common shares were made under the
authorized repurchase plan at an average price of $15.37. Common shares
repurchased will be held as treasury stock and will be available for
general corporate purposes.
15
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
11. COMMITMENTS AND CONTINGENCIES
-----------------------------
In the normal course of business, various commitments to extend credit
are made which are not reflected in the accompanying condensed
consolidated financial statements. At June 30, 2002, formal credit
lines, and commercial and residential loan commitments, which are
primarily loans collateralized by real estate, approximated $367.2
million, $140.9 million and $23.4 million, respectively. Outstanding
standby letters of credit totaled $41.2 million. Such commitment
amounts represent the maximum risk of loss on these commitments.
Other commitments are described in Note 16 to the consolidated
financial statements of the Company for the year ended December 31,
2001, which is included in the Company's 2001 Annual Report to
Stockholders.
In the ordinary course of business, the Company is party to various
legal proceedings arising in the ordinary course of business, none of
which, in the opinion of management, based on advise from legal
counsel, will have a material adverse effect on the Company's
consolidated financial position or results of operations.
12. SEGMENT INFORMATION
-------------------
The Company has one reportable segment, "Community Banking." All of the
Company's activities are interrelated, and each activity is dependent
and assessed based on how each of the activities of the Company
supports the others. For example, commercial lending is dependent upon
the ability of the Bank to fund itself with deposits and other
borrowings and to manage interest rate and credit risk. This situation
is also similar for consumer and residential mortgage lending.
Accordingly, all significant operating decisions are based upon
analysis of the Company as one operating segment or unit.
The Company operates only in the U.S. domestic market, specifically the
lower Hudson Valley, which includes the counties of Rockland,
Westchester, Orange, Putnam and Dutchess, New York, as well as New York
City and Long Island, New York, Northern New Jersey and Southern
Connecticut. For the six months ended June 30, 2002 and 2001, there is
no customer that accounted for more than ten percent of the Company's
revenue.
13. BRANCH ACQUISITIONS
-------------------
On June 18, 2002, the Bank signed a definitive agreement to acquire the
Yonkers branch of Fourth Federal Savings Bank ("Fourth Federal") of
White Plains, New York. The branch has approximately $18.6 million in
deposits, which will be assumed by the Bank in this transaction. The
Bank will pay a premium of six percent for deposit accounts maintained
at the branch, except for certain large deposit accounts for which the
premium will be three percent. Deposits to be assumed will exclude
brokered deposits, loan hold bank accounts, overdrawn accounts, dormant
accounts, other wholesale deposits and affiliated deposits owned by
related entities of the Fourth Federal. The transaction is subject to
regulatory approval. Upon completion of the transaction, the branch
will become the Bank's second branch in Yonkers.
16
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
--------------------------------------------------
FORWARD-LOOKING STATEMENTS
- --------------------------
The Company has made, and may continue to make, various forward-looking
statements with respect to earnings, credit quality and other financial and
business matters for periods subsequent to June 30, 2002. The Company cautions
that these forward-looking statements are subject to numerous assumptions, risks
and uncertainties, and that statements relating to subsequent periods
increasingly are subject to greater uncertainty because of the increased
likelihood of changes in underlying factors and assumptions. Actual results
could differ materially from forward-looking statements.
In addition to those factors previously disclosed by the Company and those
factors identified elsewhere herein, the following factors could cause actual
results to differ materially from such forward-looking statements: competitive
pressures on loan and deposit product pricing; other actions of competitors;
changes in economic conditions, including changes in interest rates and the
shape of the U.S. Treasury yield curve and the credit quality of borrowers;
wartime events or terrorist activity; the extent and timing of actions of the
Federal Reserve Board; customer deposit disintermediation; changes in customers'
acceptance of the Company's products and services; increase in Federal and state
income taxes and/or the Company's effective income tax rate; and the extent and
timing of legislative and regulatory actions and reform.
The Company's forward-looking statements are only as of the date on which such
statements are made. By making any forward-looking statements, the Company
assumes no duty to update them to reflect new, changing or unanticipated events
or circumstances.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The Company's accounting policies are disclosed in Note 3 to the consolidated
financial statements included in the Company's 2001 Annual Report to
Stockholders. The more critical policies given the Company's current business
strategy and asset/liability structure are accounting for non-performing loans,
the allowance for loan losses and provision for credit losses, and the
classification of securities as either held to maturity or available for sale.
In addition to Note 3 to the 2001 consolidated financial statements, the
Company's practice on each of these accounting policies is further described in
the applicable sections of Management's Discussion and Analysis of Financial
Condition and Results of Operations, also included in the 2001 Annual Report to
Stockholders.
FINANCIAL CONDITION
- -------------------
At June 30, 2002, the Company had total assets of $2,130.5 million, an increase
of $90.4 million or 4.4 percent from December 31, 2001.
The securities portfolio, including investments in Federal Home Loan Bank of New
York ("FHLB") stock, totaled $712.3 million and $773.7 million at June 30, 2002
and December 31, 2001, respectively, a decrease of $61.4 million during the six
months ended June 30, 2002. The securities portfolio consists of securities held
to maturity at amortized cost of $289.7 million and $298.9 million, securities
available for sale at estimated fair value totaling $401.8 million and $454.0
million, respectively, and FHLB stock of $20.8 million for both periods.
Proceeds from
17
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
--------------------------------------------------
sales and redemption of the securities not otherwise reinvested in securities
were used to fund the loan portfolio or invested in Federal funds sold pending
evaluation of alternative investments.
During the six months ended June 30, 2002, U.S. government agency securities
decreased $2.5 million due primarily to sales and redemptions of $97.0 million
in callable bonds, and a net decrease in the estimated fair value of available
for sale securities of $0.5 million, offset by purchases totaling $95.0 million.
Mortgage-backed securities decreased by $61.4 million primarily due to principal
paydowns of $90.0 million, net premium amortizations of $0.7 million, partially
offset by purchases totaling $28.7 million, an increase in the estimated fair
value of available for sale securities of $0.6 million. The Bank's investment in
obligations of states and political subdivisions, or municipal securities,
increased by $2.0 million primarily due to purchases of $7.3 million that were
partially offset by maturities of $5.3 million during the six month period ended
June 30, 2002. Municipal securities are considered core investments having
favorable tax equivalent yields and diversified maturities. Purchases of
municipal securities are dependent upon their availability in the marketplace
and the comparative tax equivalent yields of such securities compared to other
securities of similar credit risk and maturity.
The Company invests in medium-term corporate debt securities and other
securities that are rated investment grade by nationally recognized credit
rating organizations at the time of purchase and bank equity securities. The
Company had outstanding balances in corporate securities of $15.4 million and
$14.9 million at June 30, 2002 and December 31, 2001, respectively, consisting
of Federal Home Loan Mortgage Corp. ("FHLMC") preferred stock of $15.2 million
and $14.8 million and bank equities of $0.2 million and $0.1 million at June 30,
2002 and December 31, 2001, respectively. The preferred stock is issued by the
FHLMC and has a favorable tax equivalent yield. The total investment in FHLB
stock was $20.8 million for both periods.
The Company continues to exercise its conservative approach to investing by
purchasing high credit quality investments, and controlling interest rate risk
by purchasing both fixed and floating rate securities through the averaging of
investments in medium-term maturities.
At June 30, 2002, loans outstanding were $1,251.1 million, a net increase of
$80.2 million or 6.8 percent compared to $1,170.9 at December 31, 2001. The
increase in outstanding loan balances reflects increases of: $32.1 million in
commercial mortgages; $20.4 million in land, acquisition and construction loans;
$17.1 million in residential mortgages; $9.5 million in time unsecured loans;
$2.2 million in time secured loans; $1.9 million in home equity loans; and $0.5
million in commercial installment loans. The increase was partially offset by
decreases in $1.8 million in personal installment loans; $0.6 million in credit
card loans; and $1.1 million in other loans. The Company had approximately
$367.2 million in formal credit lines, $164.3 million in loan commitments
outstanding, which are loans primarily collateralized by real estate, and $41.2
million in standby letters of credit outstanding. Management considers its
liquid resources to be adequate to fund loans in the foreseeable future,
principally by utilizing excess funds temporarily placed in federal funds sold,
increases in deposits and borrowings, loan repayments and maturing securities.
The Company's allowance for loan losses increased $0.5 million or 3.8 percent to
$12.9 million at June 30, 2002, from $12.4 million at December 31, 2001. The
allowance for loan losses
18
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
--------------------------------------------------
represents 1.03 percent and 1.06 percent of gross loans outstanding at June 30,
2002 and December 31, 2001, respectively. The allowance reflects a provision of
$2.6 million and net charge-offs of $2.0 million recorded for the six month 2002
period.
Management believes the allowance for loan losses at June 30, 2002 is
appropriate based on its evaluation of the risk elements and resulting estimated
losses inherent in the total loan portfolio at that time. 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.
Total deposits increased $73.2 million for the six month period ended June 30,
2002 to $1,499.1 million from $1,426.0 at December 31, 2001. Time deposits under
$100,000, demand, NOW and money market deposits increased $33.2 million, $22.8
million, $10.5 million and $9.6 million, which was partially offset by decreases
in savings deposits and other time deposits of $2.5 million and $0.4 million,
respectively. Time deposits under $100,000 increased due to the Bank attracting
longer term deposits with competitive rates during a low interest rate period.
Demand deposits benefitted from an increase in retail and commercial demand
deposits from competitive account products and an increase in loan growth. NOW
and money market deposits increased as customers moved funds into more liquid,
short-term deposit accounts because of the uncertainty associated with the
current interest rate environment. The increase in NOW and money market deposits
was also due to municipal deposit increases of $2.4 million and $7.5 million,
respectively. Savings deposits decreased due to customers seeking more
competitive products as a result of lower yields offered during this period of
lower interest rates. Time deposits greater than $100,000 from local
municipalities and retail customers, which are obtained on a bidding basis,
decreased $4.5 million during the six month period ended June 30, 2002.
Depending on rate and term, the Bank utilizes municipal and large time deposits
as an alternative to borrowed funds. The decrease in time deposits was partially
offset by an increase in IRA and KEOGH time deposits of $4.1 million.
During the six months ended June 30, 2002, the Bank utilized cash flow from its
investment portfolio, which decreased $61.4 million, to fund the increase in
loans outstanding of $80.2 million, as well as invest in Federal funds sold
pending evaluation of alternative investments. The low interest rate environment
also influenced the Bank's strategy to attract longer-term time deposits,
securing low interest rates for an extended period of time. Management will
continue to evaluate the interest rate environment in order to determine the
most effective combination of borrowings and deposits.
Stockholders' equity increased to $144.0 million at June 30, 2002 from the
December 31, 2001 balance of $135.2 million, an increase of 6.5 percent. The
increase primarily results from: $12.1 million of net income for the six month
period ended June 30, 2002; $1.2 million of stock options exercised; $0.4
million in other comprehensive income; and $0.1 million of shares committed to
be released under benefit plans; partially offset by common stock dividends paid
of $3.3 million and treasury stock purchase transactions of $1.8 million.
The Company's leverage ratio at June 30, 2002 was 8.60 percent, compared to 8.19
percent at December 31, 2001. The Company's Tier I and Total Capital ratios
under the risk-based capital
19
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
--------------------------------------------------
guidelines were 13.22 percent and 14.57 percent at June 30, 2002, and 14.03
percent and 13.03 percent at December 31, 2001, respectively. In addition, the
Bank exceeds all current regulatory capital requirements and was in the
"well-capitalized" category at June 30, 2002 and December 31, 2001.
On June 26, 2002, the Company issued $10 million of additional Capital
Securities. The Capital Securities qualify for Tier I (up to certain limits) and
Total Capital for regulatory purposes and also provides additional liquidity
(See Note 3 to the Notes to Condensed Consolidated Financial Statements
(Unaudited)).
RESULTS OF OPERATIONS
- ---------------------
EARNINGS
- --------
Net income for the three and six month periods ended June 30, 2002 was $6.1
million and $12.1 million compared to $5.2 million and $10.2 million for the
three and six month periods ended June 30, 2001, an increase of 18.2 percent and
18.3 percent, respectively. Diluted earnings per common share were $0.32 and
$0.64 for the three and six month periods ended June 30, 2002, compared to 0.28
and $0.55 for the three and six month periods ended June 30, 2001, increases of
14.3 percent and 16.4 percent, respectively.
The increase in net income for the three and six month periods ended June 30,
2002 compared to the prior year reflects increases in net interest income and
non-interest income. These increases were partially offset by higher
non-interest expenses and provision for credit losses, and lower net security
gains in the 2002 period, while the effective income tax rate was approximately
the same in both periods. The increase in diluted earnings per common share for
both the 2002 periods as compared to 2001 reflects higher net income, partially
offset by higher adjusted weighted average shares.
A discussion of the factors impacting the changes in the various components of
net income follows.
NET INTEREST INCOME
- -------------------
Net interest income, the difference between interest income and interest
expense, is a significant component of the Company's consolidated earnings. For
the three and six month periods ended June 30, 2002, net interest income
increased 24.5 percent and 22.1 percent to $18.5 million and $35.8 million from
$14.8 million and $29.3 million for the three and six month periods ended June
30, 2001, respectively. Net interest income increased in the current periods
primarily due to increases in the volume of earning assets, as well as an
increase in both the net interest spread and margin, partially offset by
increases in average interest bearing liabilities.
For the three and six months ended June 30, 2002, the net interest spread on a
tax equivalent basis (yield on earning assets less cost of funds, including
demand deposits) was 3.71 percent and 3.63 percent, as compared to 3.14 percent
and 3.18 percent for the prior year periods, respectively. The net interest
margin on a tax equivalent basis (net interest income on a tax
20
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
--------------------------------------------------
equivalent basis divided by average interest earning assets) for the three and
six months ended June 30, 2002, was 3.80 percent and 3.73 percent, as compared
to 3.33 percent for both the prior periods, respectively.
The increase in the net interest spread and margin reflects the more significant
decrease in cost of funds as compared to the decline in yields on interest
earning assets for the three and six months ended June 30, 2002 compared to the
prior year periods. The more significant decline in cost of funds during the
2002 periods reflects management's strategies to lower interest expense, while
extending the maturities of liabilities during the lower interest rate
environment. The net interest margin also benefited from a $47.9 million (19.7
percent) increase and $45.8 million (18.1 percent) increase in average earning
assets over interest bearing liabilities and Capital Securities for the three
and six months ended June 30, 2002 compared to the 2001 periods.
The decrease in yield on average interest earning assets on a tax equivalent
basis from 7.29 and 7.56 percent for the three and six month periods ended June
30, 2001 to 6.41 percent and 6.38 percent for the same periods in 2002 consisted
of decreases in yields on average net loans, average gross securities, and
average federal funds sold. The interest yield on average net loans decreased
from 7.92 percent and 8.14 percent for the three and six months ended June 30,
2001 to 6.85 percent and 6.86 percent for the comparable 2002 periods. The
interest yield on average gross securities decreased to 5.61 percent and 5.54
percent for the second quarter and six months ended 2002 from 6.37 percent and
6.54 percent for the comparable 2001 periods. The interest yield on average
federal funds sold decreased from 4.29 percent and 4.88 percent for the three
and six months ended June 30, 2001 to 1.70 percent and 1.67 percent for the
comparable 2002 periods.
The decrease in yields resulting in a reduction of interest income was partially
offset by volume increases of average interest earning assets. For the 2002
second quarter, average interest earning assets increased $161.6 million (8.8
percent) compared to the 2001 period. The increase primarily consisted of
increases in average net loans of $158.2 million for the three months ended June
30, 2002 compared to the 2001 period. For the six months ended June 30, 2002,
average interest earning assets increased $165.9 million (9.1 percent) compared
to the 2001 period. The increase consisted of increase in average net loans of
$134.6 million and average gross securities of $31.7 million, partially offset
by a decrease in federal funds sold of $0.4 million for the six months ended
June 30, 2002 compared to the 2001 period, respectively. The increase in average
interest earning assets during both 2002 periods were primarily from net
increases in real estate secured land acquisition and construction loans,
commercial mortgages, residential mortgages and investment securities.
Cost of interest bearing liabilities decreased during the three and six month
periods ended June 30, 2002, as compared to the same periods in the prior year.
The costs of average interest bearing liabilities (including demand deposits and
Capital Securities) decreased from 4.15 percent and 4.38 percent for the three
and six months ended June 30, 2001 to 2.70 percent and 2.75 percent for the 2002
comparable periods. The decrease in yields on interest bearing liabilities
consisted primarily of a decrease in yields on interest bearing deposits to 2.25
percent and 2.31 percent for the three and six months ended June 30, 2002 from
4.40 percent and 4.69 percent as compared to the 2001 periods, respectively. The
decrease in yields on interest bearing liabilities was partially
21
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
--------------------------------------------------
offset by a net increase in the average balances of $115.8 million (7.3 percent)
and $118.0 million (7.5 percent) for the three and six months ended June 20,
2002 compared to the 2001 period.
The Company continues a leverage strategy of purchasing government securities
funded by borrowings. Although the leverage strategy results in tighter net
interest spreads, the strategy increases net interest income while managing
interest rate risk. The Company has also taken advantage of opportunities during
the six months ended June 30, 2002 to realize gains on available-for-sale
securities that most likely would have been called or prepaid at par value while
the reinvestment of the sales proceeds minimally affected the yield on the
security portfolio. Net security gains of $0.3 million and $1.4 million were
realized for the three and six months ended June 30, 2002 periods as compared to
$0.9 million and $1.5 million for the 2001 periods, respectively.
PROVISION FOR CREDIT LOSSES
- ---------------------------
The provision for credit losses increased $1.1 million to $1.4 million and $2.2
million to $2.6 million for the three and six month periods ended June 30, 2002,
respectively, compared to the same periods in 2001. The increase in the
provision for the three month 2002 period was primarily attributable to an
increase in loans of $21.4 million for the quarter, as well as the on going
reevaluation of existing credits. During the three months ended June 30, 2002,
net charge-offs totaled $1.4 million as compared to $41,000 for the 2001 period.
The increase in net charge-offs for the three month 2002 period was primarily
due to a $1.3 million partial charge-off of a real estate construction loan on
nonaccrual status. The increase in the provision for credit losses for the six
months ended June 30, 2002 was primarily due to an $80.2 million increase in
loans outstanding as of June 30, 2002 compared to year end 2001 and reevaluation
of existing credits. Net charge-offs totaled $2.0 million and $0.1 million for
the six month June 30, 2002 and 2001 periods, respectively. The net charge-off
increase for the six month June 30, 2002 period was primarily due to a $0.6
million charge-off related to the settlement of the Bennett loan and related
litigation, and the $1.3 million partial charge-off of a real estate
construction loan.
Nonaccrual loans were $19.3 million and $19.4 million at June 30, 2002 and 2001
compared to $20.7 million at December 31, 2001. Total nonaccrual loans at June
30, 2002 primarily consisted of a real estate construction loan that was reduced
from $19.5 million at December 31, 2001 to $17.8 million at June 30, 2002 due to
the $1.3 million partial charge-off and principle paydowns, partially offset by
advances to complete the project.
It is the Company's policy to discontinue the accrual of interest on loans when,
in the opinion of management, a reasonable doubt exists as to the timely
collectibility of the amounts due. Regulatory requirements generally prohibit
the accrual of interest on certain loans when principal or interest is due and
remains unpaid for 90 days or more (with the exception of credit card loans for
which the criteria is 180 days past due). Net income is adversely impacted by
the level of non-performing assets caused by the deterioration of borrowers'
ability to meet scheduled interest and principal payments. In addition to
forgone revenue, the Company must increase the level of provisions for credit
losses, incur collection costs, and other costs associated with the management
and disposition of foreclosed properties.
22
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
--------------------------------------------------
An evaluation of the quality of the loan portfolio is performed by management on
a quarterly basis as an integral part of the credit administration function,
which includes the identification of past due loans, non-performing loans and
impaired loans, assessments of the expected effects of the current economic
environment and industry, geographic and customer concentrations in the loan
portfolio, and review of the historical loan loss experience. Management takes a
prudent and cautious position in evaluating various business and economic
uncertainties in relation to the Company's loan portfolio. In management's
judgment, the allowance is considered appropriate based on its evaluation of the
risk elements and resulting estimated losses inherent in the credit portfolio.
A substantial portion (87.8 percent at June 30, 2002) of total gross loans of
the Company is collateralized by real estate, primarily located in the New York
Metropolitan area. Accordingly, the collectibility of the loan portfolio of the
Company is subject to changes in the real estate market in which the Company
operates. The provisions for credit losses established in 2002 and 2001 and the
related allowance for loan losses reflects net charge-offs and losses incurred
with respect to real estate, time and demand, installment, credit card and other
loans, and the effect of the real estate market and general economic conditions
of the New York Metropolitan area on the loan portfolio. 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.
NON-INTEREST INCOME
- -------------------
Non-interest income decreased for the three months ended June 30, 2002 by $0.2
million to $2.0 million, a decrease of 9.0 percent. The decrease reflects net
security gains of $0.3 million for the 2002 period compared to $0.9 million for
2001. The decrease was also primarily attributed to a decline in service charges
on deposit accounts ($54,000) and fee income on nontraditional products
($42,000), partially offset by an increase in loan prepayment fees ($336,000).
For the six month period ended June 30, 2002, non-interest income increased by
$0.3 million to $4.5 million, a 7.6 percent increase. The increase is primarily
due to an increase in loan prepayment fees ($545,000), partially offset by a
decrease in net security gains ($165,000) and service charges on deposit
accounts ($85,000) and fee income on nontraditional products ($84,000).
NON-INTEREST EXPENSES
- ---------------------
Non-interest expense increased $0.9 million (10.4 percent) to $9.8 million and
$1.8 million (10.3 percent) to $19.2 million for the three and six month periods
ended June 30, 2002 from the comparable periods in 2001, respectively. The
primary reason for these increases results from higher levels of salaries and
benefits, professional fees and other expense categories related to credit cards
and corporate filings.
Salaries and employee benefits, the largest component of non-interest expense,
increased by $704,000, or 13.7 percent, and $1,309,000, or 12.8 percent, during
the three and six month periods ended June 30, 2002 compared to the prior year
periods. The increase occurred due to additional personnel employed by the
Company primarily to support deposit and loan growth. In addition, salaries and
employee benefits increased because of additional expenses related to incentive
compensation and bonus plans and payroll taxes. Increases in salaries and
employee
23
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
--------------------------------------------------
benefits expense were partially offset by an increase in the deferral of FASB
No. 91 loan allocation expenses for the 2002 periods as compared to prior year
periods.
Significant changes in the other components of non-interest expense for the
three and six month periods ended June 30, 2002, respectively, compared to the
prior year periods, were due to the following:
o Increase of $7,000 (0.4 percent) and $13,000 (0.4 percent) in occupancy
and equipment expense. The slight increase in both periods is primarily
due to an increase in building maintenance and maintenance contracts,
partially offset by a reduction in utility expense from more
competitive rates and less severe weather.
o Increase of $12,000 (2.5 percent) and $81,000 (9.8 percent) in
advertising and business development. The increases reflect the hiring
of a public relations firm in 2002 and more emphasis on marketing
programs to attract retail deposits during a period of higher net loan
growth in 2002 as compared to 2001.
o Increase of $20,000 (8.5 percent) and decrease of $103,000 (24.6
percent) in professional fees. The increases reflect higher Director
fees and consulting fees in 2002, partially offset by a decline in
legal fees related to nonaccrual loans.
o Decrease of $8,000 (3.2 percent) and increase of $14,000 (2.8 percent)
in communications expense. The decrease for the three month period
relates to closer management control of such expenses. The increase for
the six month period relates to an increase in customer mailings
compared to the prior year.
o Decrease of $21,000 (5.0 percent) in stationery and printing for the
six month period. The decrease primarily reflects a decrease in
printing special purpose letters in 2002 compared to 2001. There was no
change for the three month periods.
o Decrease of $3,000 (4.2 percent) and $1,000 (0.7 percent) in FDIC
insurance. The decreases are related to a reduction in FDIC insurance
rates for 2002, partially offset by an increase in insured deposits.
o Increase of $189,000 (30.0 percent) and increase of $295,000 (22.4
percent) in other expenses. The increases are primarily due to
increases in branch related expenses, Internet fees and corporate
filing fees, partially offset by decreases in courier fees.
INCOME TAXES
- ------------
The effective income tax rates for the three and six month periods ended June
30, 2002 were 34.4 percent for both periods, compared to 34.8 percent and 34.6
percent, respectively, for the prior periods in 2001. The lower effective income
tax rate for both periods, as compared to the Federal Statutory tax rate,
primarily reflects benefits associated with tax exempt obligations of states and
political subdivisions, partially offset by state income taxes, net of Federal
tax benefits.
24
U.S.B. HOLDING CO., INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
Quantitative and qualitative disclosures about market risk at December 31, 2001
were reported in the Company's 2001 Annual Report to Stockholders. There have
been no material changes in the Company's market risk exposures at June 30, 2002
compared to December 31, 2001. Interest rate risk continues to be the Company's
primary market risk exposure since all Company transactions are denominated in
U.S. dollars with no direct foreign currency exchange or changes in commodity
price exposures. All market risk sensitive instruments continue to be held to
maturity or available for sale with no financial instruments entered into for
trading purposes. The Company does not use derivative financial instruments such
as interest rate swaps and caps extensively and has not been party to any
derivative financial instruments during the six months ended June 30, 2002.
The Company continues to use two methods to evaluate its market risk to changes
in interest rates, a "Static Gap" evaluation and a simulation analysis of the
impact of changes in interest rates on the Company's net interest income and
cash flow. There have been no changes in the Company's policy limit of
acceptable variances to net interest income at June 30, 2002 as compared to
December 31, 2001. The Company's "Static Gap" at June 30, 2002 was a positive
cumulative $333.7 million in the one year time frame compared to a negative
cumulative $31.4 million at December 31, 2001. The change in the Static Gap at
June 30, 2002 compared to December 31, 2001, reflects an increase in maturities
and acceleration of call dates for securities due to the lower interest rate
environment, an increase in federal funds sold, and an extension of maturities
of time deposits. If interest rates were to gradually ramp up or down 200 basis
points from current rates, the percentage change in estimated net interest
income for the subsequent twelve month measurement period continues to be within
the Company's policy limit of not declining by more than 5.0 percent.
25
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on May 23, 2002 for
the purpose of considering and voting upon the following matters:
I. Election of three directors, Messrs. Kenneth J. Torsoe, Kevin J.
Plunkett and Steven T. Sabatini, constituting Class II members of the
Board of Directors, to a three-year term of office.
The results of votes for each of the items above were as follows:
ITEM I
------------------------------------------------
K.J. TORSOE K.J. PLUNKETT S.T. SABATINI
----------- ------------- -------------
Votes:
------
For 15,791,242 15,792,939 15,745,804
Withheld 350,001 348,304 395,439
II. Approval of an amendment to the Certificate of Incorporation to
increase the number of authorized shares of preferred stock, with no
par value, from 100,000 to 10,000,000.
The results of votes for the item above are as follows:
ITEM II
------------------------------------------------
Votes:
------
For 12,376,425
Against 1,272,888
Abstentions 60,533
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(A) EXHIBITS
Exhibit No. Exhibit
- ----------- -------
(3)(a) Restated Certificate of Incorporation dated July 25, 2002.*
(3)(b) Bylaws of Registrant (incorporated herein by reference from
Registrant's Registration Statement on Form S-14 (file no.
2-79734), Exhibit 3(b)).
(4)(a) Junior Subordinated Indenture, dated February 5, 1997, between
Registrant and The Chase Manhattan Bank, as trustee
(incorporated herein by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996 ("1996 10-K"),
Exhibit (4)(a)).
26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONT'D)
- ------- -----------------------------------------
(4)(b) Guarantee Agreement, dated February 5, 1997, by and between
Registrant and The Chase Manhattan Bank, as trustee for the
holders of 9.58% Capital Securities of Union State Capital Trust
I (incorporated herein by reference to Registrant's 1996 10-K,
Exhibit (4)(b)).
(4)(c) Amended and Restated Declaration of Trust of Union State Capital
Trust I (incorporated herein by reference to Registrant's 1996
10-K, Exhibit (4)(c)).
(4)(d) Junior Subordinated Indenture, dated July 31, 2001, between
Registrant and State Street Bank and Trust Company of
Connecticut, National Association, as trustee (incorporated
herein by reference to Registrant's Quarterly report on Form
10-Q for the quarter ended September 30, 2001 ("2001 Third
Quarter 10-Q"), Exhibit (4)(d)).
(4)(e) Guarantee Agreement, dated July 31, 2001, by and between
Registrant and State Street Bank and Trust Company of
Connecticut, National Association, as trustee for the holders of
Capital Securities of Union State Statutory Trust II
(incorporated herein by reference to Registrant's 2001 Third
Quarter 10-Q, Exhibit (4)(e)).
(4)(f) Amended and Restated Declaration of Trust of Union State
Statutory Trust II (incorporated herein by reference to
Registrant's 2001 Third Quarter 10-Q, Exhibit (4)(f)).
(4)(g) Indenture, dated June 26, 2002, between Registrant and State
Street Bank and Trust Company of Connecticut, National
Association, as Trustee.*
(4)(h) Guarantee Agreement, dated June 26, 2002, by and between
Registrant and State Street Bank and Trust Company of
Connecticut, National Association, as Trustee for the holders of
Capital Securities of USB Statutory Trust III.*
(4)(i) Amended and Restated Declaration of Trust of USB Statutory Trust
III.*
(10)(a) Agreement of Employment dated as of November 16, 1998, and as
amended November 8, 2000, between the Company and the Bank and
Thomas E. Hales (incorporated herein by reference to
Registrant's Annual Report on Form 10-Q for the quarter ended
September 30, 2000 ("2000 Third Quarter 10-Q"), Exhibit
(10)(a)).
(10)(b) Agreement of Employment dated as of November 16, 1998, and as
amended November 8, 2000, between the Company and the Bank and
Raymond J. Crotty (incorporated herein by reference to
Registrant's 2000 Third Quarter 10-Q, Exhibit (10)(b)).
(10)(c) Amendment to Employment Agreement as of October 25, 2001 between
the Company and the Bank and Raymond J. Crotty (incorporated
herein by reference to Registrant's 2001 Third Quarter 10-Q,
Exhibit (10)(c)).
27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONT'D)
- ------- -----------------------------------------
(10)(d) Agreement of Employment dated as of November 16, 1998, and as
amended November 8, 2000, between the Company and the Bank and
Steven T. Sabatini (incorporated herein by reference to
Registrant's 2000 Third Quarter 10-Q, Exhibit (10)(c)).
(10)(e) Amendment to Employment Agreement as of October 25, 2001 between
the Company and the Bank and Steven T. Sabatini (incorporated
herein by reference to Registrant's 2001 Third Quarter 10-Q,
Exhibit (10)(e)).
(10)(f) Registrant's 1993 Incentive Stock Option Plan (incorporated
herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999 ("1999 Third
Quarter 10-Q"), Exhibit (10)(e)).
(10)(g) Registrant's U.S.B. Holding Co., Inc. Employee Stock Ownership
Plan (With Code Section 401(k) Provisions) (incorporated herein
by reference from Registrant's Annual Report on Form 10-K for
the year ended December 31, 2001, Exhibit (10)(g)).
(10)(h) Registrant's Dividend Reinvestment and Stock Purchase Plan
(incorporated herein by reference from Registrant's Form S-3
Registration Statement (file No. 33-72788).
(10)(i) Registrant's Director Stock Option Plan (incorporated herein by
reference to Registrant's 1996 10-K, Exhibit (10)(f)).
(10)(j) Registrant's 1998 Director Stock Option Plan (incorporated
herein by reference to Registrant's Form S-8 Registration
Statement, filed June 5, 1998, Exhibit (10)(d)).
(10)(k) Registrant's Key Employees' Supplemental Investment Plan, as
amended July 1, 1997 and September 1, 1998 (incorporated herein
by reference to the Plan's Annual Report on Form 11-K for the
year ended December 31, 1998, Exhibit (10)(j)).
(10)(l) Registrant's Key Employees' Supplemental Diversified Investment
Plan dated September 1, 1998 (incorporated herein by reference
to the Plan's Annual Report on Form 11-K for the year ended
December 31, 1998, Exhibit (10)(k)).
(10)(m) Registrant's 1997 Employee Stock Option Plan (incorporated
herein by reference to Registrant's Proxy Statement filed April
18, 1997).
(10)(n) Tappan Zee Financial, Inc. 1996 Stock Option Plan for Officers
and Employees ("Employee Stock Option Plan") (incorporated
herein by reference to Exhibit B to Tappan Zee Financial, Inc.'s
Proxy Statement for use in connection with its 1996 Annual
Meeting of Shareholders).
28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONT'D)
- ------- -----------------------------------------
(10)(o) Amendment No. 1 to the Employee Stock Option Plan (incorporated
herein by reference to Tappan Zee Financial, Inc.'s Annual
Report on Form 10-K for the fiscal year ended March 31, 1997
("Tappan Zee 1997 10-K"), Exhibit 10.1.1).
(10)(p) Amendment No. 2 to the Employee Stock Option Plan (incorporated
herein by reference to Exhibit A to Tappan Zee Financial, Inc.'s
Proxy Statement for use in connection with its 1997 Annual
Meeting of Shareholders ("Tappan Zee 1997 Proxy Statement")).
(10)(q) Tappan Zee Financial, Inc. 1996 Stock Option Plan for Outside
Directors ("Outside Director Option Plan") (incorporated herein
by reference to Exhibit B to the Tappan Zee 1997 Proxy
Statement).
(10)(r) Amendment No. 1 to the Outside Director Option Plan
(incorporated herein by reference to the Tappan Zee 1997 10-K,
Exhibit 10.2.1).
(10)(s) Amendment No. 2 to the Outside Director Option Plan
(incorporated herein by reference to Exhibit B to the Tappan Zee
1997 Proxy Statement).
(10)(t) Loan Agreement to the Employee Stock Ownership Plan Trust of
Tappan Zee Financial, Inc. and Certain Affiliates (incorporated
herein by reference to the Tappan Zee Financial, Inc.'s Annual
Report on Form 10-K for the fiscal year ended March 31, 1996,
Exhibit 10.7).
(10)(u) Deferred Compensation Plan for Directors of Tarrytowns Bank, FSB
(Incorporated herein by reference to the Registration Statement
on Form S-1 (file No. 33-94128), filed on June 30, 1995, as
amended, Exhibit 10.7).
(10)(v) Forms of Stock Option Agreement by and between Tappan Zee
Financial, Inc. and recipients of stock options granted pursuant
to the Employee Option Plan and the Outside Director Option Plan
(incorporated herein by reference to the Tappan Zee 1997 10-K,
Exhibit 10.16).
(10)(w) Registrant's Retirement Plan for Non-Employee Directors of
U.S.B. Holding Co., Inc. and Certain Affiliates dated effective
as of May 19, 1999 and as amended March 20, 2002 (incorporated
herein by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 2001, (Exhibit (10)(w)).
(10)(x) U.S.B. Holding Co., Inc. Severance Plan dated January 30, 2002
(incorporated herein by reference from Registrant's Annual
Report on Form 10-K for the year ended December 31, 2001,
Exhibit (10)(y)).
(10)(y) U.S.B. Holding Co., Inc. Executive Incentive Bonus Plan as
amended February 24, 1999 (incorporated herein by reference to
Registrant's Proxy Statement filed April 27, 1999).
29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONT'D)
- ------- -----------------------------------------
(10)(z) Asset Purchase and Liability Assumptions Agreement dated as of
June 14, 2002, by and between Union State Bank and Fourth
Federal Savings Bank.*
(11) Computation of earnings per share.*
(99.1) Certification of Chief Executive Officer and 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.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
2002.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on August 12, 2002
U.S.B. HOLDING CO., INC.
/s/ Thomas E. Hales /s/ Steven T. Sabatini
- ----------------------------- -------------------------------
Thomas E. Hales Steven T. Sabatini
Chairman of the Board, President, Senior Executive Vice President,
Chief Executive Officer and Director Chief Financial Officer, Assistant
Secretary and Director
(Principal Financial and
Accounting Officer)
30