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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
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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 March 31, 2003 Commission File No. 1-12811
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U.S.B. HOLDING CO., INC.
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(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 MAY 2, 2003
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Common stock, par value 18,564,653
$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 MARCH 31, 2003 AND
DECEMBER 31, 2002.
CONDENSED CONSOLIDATED STATEMENTS OF 2
INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 2003 AND 2002.
CONDENSED CONSOLIDATED STATEMENTS OF 3
CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2003 AND 2002.
CONDENSED CONSOLIDATED STATEMENTS OF 5
CHANGES IN STOCKHOLDERS' EQUITY FOR
THE THREE MONTHS ENDED MARCH 31, 2003
AND 2002.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL 7
STATEMENTS.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 15
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 22
ABOUT MARKET RISK.
ITEM 4. NTROLS AND PROCEDURES 23
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 24
SIGNATURES 28
CERTIFICATIONS 29
- i -
ITEM 1. PART I - FINANCIAL INFORMATION
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
- ----------------------------------------------------------
(000'S, EXCEPT SHARE DATA) MARCH 31, DECEMBER 31,
2003 2002
--------------------------
ASSETS
- ------
Cash and due from banks $ 59,415 $ 66,301
Federal funds sold 13,200 24,500
----------- -----------
Cash and cash equivalents 72,615 90,801
Interest bearing deposits in other banks 20 20
Securities:
Available for sale (at estimated fair value) 736,420 775,509
Held to maturity (estimated fair value of
$219,275 in 2003 and $281,424 in 2002) 212,712 274,894
Loans, net of allowance for loan losses of
$14,429 in 2003 and $14,168 in 2002 1,366,096 1,336,273
Premises and equipment, net 13,327 11,299
Accrued interest receivable 10,632 12,412
Federal Home Loan Bank of New York stock 30,850 25,144
Other assets 14,234 16,514
--------------------------
TOTAL ASSETS $ 2,456,906 $ 2,542,866
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Non-interest bearing deposits $ 253,515 $ 260,012
Interest bearing deposits:
NOW accounts 112,739 105,015
Money market accounts 116,064 89,258
Savings deposits 434,508 453,976
Time deposits 691,305 643,526
--------------------------
TOTAL DEPOSITS 1,608,131 1,551,787
Accrued interest payable 5,590 5,738
Accrued expenses and other liabilities 14,963 12,017
Securities transactions not yet settled -- 263,090
Securities sold under agreements to repurchase 508,571 393,205
Federal Home Loan Bank of New York advances 110,007 110,889
--------------------------
TOTAL 2,247,262 2,336,726
Corporation-Obligated mandatory redeemable capital
securities of subsidiary trusts 50,000 50,000
Minority interest-junior preferred stock of consolidated subsidiary 128 129
Commitments and contingencies (Note 10)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value
Authorized shares: 10,000,000; no shares outstanding -- --
Common stock, $0.01 par value; authorized shares 50,000,000;
Issued shares of 19,888,938 in 2003 and 19,802,296 in 2002 199 198
Additional paid-in capital 140,220 140,054
Retained earnings 34,402 28,648
Treasury stock, at cost; common shares 1,250,085 in 2003 and
1,300,716 in 2002 (15,598) (15,777)
Common stock held for benefit plans (1,945) (1,691)
Deferred compensation obligation 1,684 1,398
Accumulated other comprehensive income 554 3,181
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 159,516 156,011
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,456,906 $ 2,542,866
==========================
See notes to condensed consolidated financial statements.
1
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
2003 2002
---------------------------
(000'S, EXCEPT SHARE DATA)
INTEREST INCOME:
Interest and fees on loans $21,371 $20,266
Interest on federal funds sold 142 179
Interest and dividends on securities:
Mortgage-backed securities 5,343 4,879
U.S. government agencies 3,337 3,818
Obligations of states and political subdivisions 837 893
Corporate and other 2 222
Interest on deposits in other banks 1 2
Dividends on Federal Home Loan Bank of New York stock 322 215
-----------------------
TOTAL INTEREST INCOME 31,355 30,474
-----------------------
INTEREST EXPENSE:
Interest on deposits 5,874 7,132
Interest on borrowings 6,303 5,273
Interest on Corporation - Obligated mandatory redeemable
capital securities of subsidiary trusts 884 776
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TOTAL INTEREST EXPENSE 13,061 13,181
-----------------------
NET INTEREST INCOME 18,294 17,293
Provision for credit losses 339 1,232
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NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 17,955 16,061
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NON-INTEREST INCOME:
Service charges and fees 918 807
Other income 779 695
Gain on securities transactions - net 3,032 1,075
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TOTAL NON-INTEREST INCOME 4,729 2,577
-----------------------
NON-INTEREST EXPENSES:
Salaries and employee benefits 6,467 5,638
Occupancy and equipment 1,684 1,549
Advertising and business development 564 423
Professional fees 338 266
Communications 311 284
Stationery and printing 177 202
FDIC insurance 73 72
Amortization of intangibles 254 226
Other 954 804
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TOTAL NON-INTEREST EXPENSES 10,822 9,464
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Income before income taxes 11,862 9,174
Provision for income taxes 4,242 3,165
-----------------------
NET INCOME $ 7,620 $ 6,009
=======================
BASIC EARNINGS PER COMMON SHARE $ 0.41 $ 0.33
=======================
DILUTED EARNINGS PER COMMON SHARE $ 0.40 $ 0.32
=======================
See notes to condensed consolidated financial statements.
2
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
2003 2002
------------------------
OPERATING ACTIVITIES: (000'S)
Net income $ 7,620 $ 6,009
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 339 1,232
Depreciation and amortization 736 671
Amortization of premiums on securities - net 182 439
Deferred income tax benefit - net (1,323) (528)
Gains on securities transactions - net (3,032) (1,075)
Noncash benefit plan expense 101 81
Decrease (increase) in accrued interest receivable 1,780 (3,167)
Decrease in accrued interest payable (148) (1,762)
Increase in accrued income tax payable 3,421 3,397
Other - net 3,492 1,155
----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,168 6,452
----------------------
INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale 160,998 26,054
Proceeds from principal paydowns, redemptions and maturities of:
Securities available for sale 94,024 47,800
Securities held to maturity 63,139 16,987
Purchases of securities available for sale (480,317) --
Purchases of securities held to maturity (864) (35,844)
Net (purchases) redemptions of Federal Home Loan Bank of New York stock (5,706) 28
Net decrease in interest bearing deposits in other banks -- 269
Increase in loans outstanding, net (30,162) (59,351)
Purchases of premises and equipment - net (1,370) (352)
----------------------
NET CASH USED FOR INVESTING ACTIVITIES (200,258) (4,409)
----------------------
FINANCING ACTIVITIES:
Net increase in non-interest bearing deposits,
NOW, money market and savings accounts 8,565 6,083
Increase (decrease) in time deposits, net of withdrawals and maturities 47,779 (5,530)
Increase (decrease) in securities sold under agreements
to repurchase - short-term 366 (173)
Proceeds from securities sold under agreements to repurchase - long-term 115,000 --
Repayment of Federal Home Loan Bank of New York
advances - long-term (882) (832)
Redemption of junior preferred stock of consolidated subsidiary, net 1 --
Cash dividends paid (1,866) (1,661)
Proceeds from exercise of common stock options 1,124 197
Purchases of treasury stock (1,183) --
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NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES $ 168,904 $ (1,916)
----------------------
(Continued)
3
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONT'D)
- --------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
2003 2002
-----------------------
(000'S)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (18,186) $ 127
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 90,801 69,821
----------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 72,615 $ 69,948
======================
Supplemental Disclosures:
Interest paid $ 13,209 $ 14,943
----------------------
Income tax payments $ 460 $ 45
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Purchases of securities, including interest receivable, settled
(not yet settled):
Available for sale $ 263,090 $ --
----------------------
Held to maturity $ -- $ (1,206)
----------------------
Change in shares held in trust for deferred compensation $ (286) $ (188)
----------------------
Change in deferred compensation obligation $ 286 $ 188
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Change in accumulated other comprehensive income $ (2,627) $ (2,672)
----------------------
Non cash exercise of stock options and related tax benefit $ 1,242 $ 560
----------------------
Purchases of treasury stock related to the exercise of stock options $ (874) $ (543)
----------------------
Issuance of treasury stock related to the exercise of stock options $ 2,236 $ 179
----------------------
See notes to condensed consolidated financial statements.
4
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
- ------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(000'S, EXCEPT SHARE DATA)
ACCUMU-
LATED
DEFERRED OTHER
COMMON STOCK ADDITIONAL COMMON STOCK COMPEN- COMPRE- TOTAL
SHARES PAR PAID-IN RETAINED TREASURY HELD FOR SATION HENSIVE STOCKHOLDERS'
------ --- ------- -------- -------- -------- ------ ------- -------------
Balance at January 1, 2003 18,501,580 $ 198 $140,054 $28,648 $(15,777) $(1,691) $1,398 $ 3,181 $156,011
Net income 7,620 7,620
Other comprehensive income:
Net unrealized securities
losses arising during the
period, net of taxes of $879 (1,272) (1,285)
Reclassification adjustment
of net gains for securities
sold, net of taxes of $937 (1,355) (1,342)
------- --------
Other comprehensive income
(loss) (2,627) (2,627)
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Total comprehensive income
(loss) 4,993
Cash dividends:
Common ($0.10 per share) (1,866) (1,866)
Common stock options exercised
and related tax benefit 270,864 1 129 2,236 2,366
Purchases of treasury stock (133,591) (2,057) (2,057)
ESOP shares committed to
be released 37 32 69
Deferred compensation obligation (286) 286 --
---------- ------- -------- ------- -------- ------- ------ --------
Balance at March 31, 2003 18,638,853 $ 199 $140,220 $34,402 $(15,598) $(1,945) $1,684 $ 554 $159,516
========== ======= ======== ======= ======== ======= ====== ======= ========
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 THREE MONTHS ENDED MARCH 31, 2002
(000'S, EXCEPT SHARE DATA)
ACCUMU-
LATED
DEFERRED OTHER
COMMON STOCK ADDITIONAL COMMON STOCK COMPEN- COMPRE- TOTAL
SHARES PAR PAID-IN RETAINED TREASURY HELD FOR SATION HENSIVE STOCKHOLDERS'
------ --- ------- -------- -------- -------- ------ ------- -------------
Balance at January 1, 2003 18,379,346 $ 195 $137,627 $ 8,457 $(13,381) $(1,601) $1,178 $ 2,725 $135,200
Net income 6,009 6,009
Other comprehensive income:
Net unrealized securities
losses arising during the
period, net of taxes of $1,452 (2,044) (2,044)
Reclassification adjustment
of net gains for securities
sold net of taxes of $447 (628) (628)
------- --------
Other comprehensive income
(loss) (2,672) (2,672)
--------
Total comprehensive income
(loss) 3,337
Cash dividends:
Common ($0.09 per share) (1,661) (1,661)
Common stock options exercised 89,248 1 560 179 740
Purchases of treasury stock (38,644) (543) (543)
ESOP shares committed to
be released 30 32 62
Deferred compensation obligation (188) 188 --
---------- ------- -------- ------- -------- ------- ------
Balance at March 31, 2002 18,429,950 $ 196 $138,217 $12,805 $(13,745) $(1,757) $1,366 $ 53 $137,135
========== ======= ======== ======= ======== ======= ====== ======= ========
See notes to condensed consolidated financial statements.
6
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"), as well as 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 March 31, 2003, and its
operations, cash flows and changes in stockholders' equity for the
three months ended March 31, 2003 and 2002. 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 2002 Annual
Report to Stockholders.
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, provision
for credit losses, and the valuation of other real estate acquired in
connection with foreclosures or in satisfaction of loan receivables
("OREO"), when applicable. In connection with the determination of the
allowance for loan losses, provision for credit losses, and OREO,
management obtains independent appraisals for significant properties,
which secure loans for OREO.
3. RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to prior period accounts to
conform to the current period's presentation.
4. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
GUARANTORS ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES,
INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS: In November
2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantors Accounting and Disclosure
Requirements for Guarantees Including Indirect Guarantees of
Indebtedness of Others" ("FIN No. 45"). FIN No. 45 requires a guarantor
to recognize, at the inception of the guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. It
also provides additional guidance on the disclosure of guarantees. The
recognition measurement and disclosure provisions do not encompass
commercial letters of credit and other loan commitments because those
instruments do not guarantee payment of a money obligation and do not
provide for payment in the event of default by the counterparty. The
disclosure provisions of FIN No. 45 were effective December 15, 2002,
while the recognition and measurement provisions were effective January
1, 2003. The Company's adoption of FIN No. 45 did not have a
significant impact on its condensed consolidated financial statements.
7
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
CONSOLIDATION OF VARIABLE INTEREST ENTITIES: In January 2003, the FASB
issued Interpretation No. 46, "Consolidation of Variable Interest
Entities - an interpretation of ARB No. 51" ("FIN No. 46"). FIN No. 46
provides guidance on the consolidation of certain entities in which
equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated
financial support. Such entities are referred to as Variable Interest
Entities or "VIEs." FIN No. 46 requires the primary beneficiary of a
VIE to consolidate the entity. FIN No. 46, as it relates to existing
entities, is effective for fiscal periods beginning after June 15,
2003. For new entities, FIN No. 46 is effective January 31, 2003. The
Company's adoption of the provisions of this statement effective
January 31, 2003 has not had, and adoption of the remaining provisions
of FIN No. 46 effective June 15, 2003 is not expected to have, any
impact on its condensed consolidated financial statements.
5. ACCOUNTING FOR STOCK-BASED COMPENSATION
---------------------------------------
SFAS No. 148, "Accounting for Stock Based Compensation - Transition and
Procedure" (SFAS No. 148) amends SFAS 123 "Accounting for Stock-Based
Compensation" ("SFAS No. 123") to provide alternate methods of
transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based employee compensation. It
also amends the disclosure provisions of that statement to require
prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based
employee compensation. Finally, this statement amends APB Opinion No.
28, "Interim Financial Reporting," to require disclosure about those
effects in interim financial information.
Information on the Company's stock option plans can be found in Note 17
to the Company's Consolidated Financial Statements for the year ended
December 31, 2002, included in the 2002 Annual Report to Stockholders.
The Company has elected to continue to measure compensation expense for
its stock-based compensation plans under the recognition and
measurement principles of APB No. 25, "Accounting for Stock Issued to
Employees," and to provide pro forma disclosures of compensation
expense measured by the fair value based method as defined by SFAS No.
123. No stock-based employee compensation is reflected in net income,
as all options granted under the Company's plans had an exercise price
at lease equal to the market value of the underlying common stock on
the date of grant.
8
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
The following table compares the Company's net income and basic and
diluted earnings per common share, as reported, to the pro forma
results as if the fair value method of accounting for options
prescribed by SFAS No. 123 had been applied for the three months ended
March 31, 2003 and 2002. The fair value of options was estimated at the
date of grant using a Black-Scholes option-pricing model and is
recognized over the options' vesting period.
THREE MONTHS ENDED
MARCH 31,
2003 2002
- -------------------------------------------------------------------------------
(000'S, EXCEPT SHARE DATA)
$7,620 $6,009
Net income, as reported
Less: total stock-based compensation expense determined
under fair value based method for all awards, net of
related tax effects 302 90
- -------------------------------------------------------------------------
Pro forma net income available to common stockholders $7,318 $5,919
=========================================================================
Earnings per common share:
Basic - as reported $ 0.41 $ 0.33
Basic - pro forma 0.39 0.32
Diluted - as reported $ 0.40 $ 0.32
Diluted - pro forma 0.38 0.31
=========================================================================
The following weighted average assumptions were used for Director Plan
grants for the three months ended March 31, 2003 and 2002,
respectively: dividend yields of 2.53 and 2.50 percent; volatility
factors of the expected market price of the Company's common stock of
41.70 and 42.35 percent; risk free interest rates of 2.79 and 4.99
percent; and expected lives of 7.40 and 7.13 years. The following
weighted average assumptions were used for Employee Plan grants for the
three months ended March 31, 2003 and 2002, respectively: dividend
yields of 2.53 and 2.50 percent; volatility factors of the expected
market price of the Company's common stock of 41.70 and 42.35 percent;
risk-free interest rates of 2.79 and 4.99 percent; and expective lives
of 8.45 and 8.06 years.
6. EARNINGS PER COMMON SHARE ("EPS")
---------------------------------
The computation of basic and diluted earnings per common share for the
three months ended March 31 is as follows:
9
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
2003 2002
- --------------------------------------------------------------------------------
(000's, except share data)
NUMERATOR:
Net income for basic and diluted earnings per
common share - net income available to
common stockholders $ 7,620 $ 6,009
=========================
DENOMINATOR:
Denominator for basic earnings per common share -
weighted average shares 18,595,539 18,351,870
Effects of dilutive securities:
Director and employee stock options 419,383 516,495
-------------------------
Total effects of dilutive securities 419,383 516,495
-------------------------
Denominator for diluted earnings per common share -
adjusted weighted average shares 19,014,922 18,868,365
=========================
Basic earnings per common share $ 0.41 $ 0.33
=========================
Diluted earnings per common share $ 0.40 $ 0.32
=========================
7. 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.
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. Securities acquired in connection with a
non-qualified benefit plan, which are traded, are immaterial.
During the three month periods ended March 31, 2003 and 2002, the
Company had gross realized gains from sales of securities available for
sale of $3,032,000 and $1,075,000, respectively.
10
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
A summary of the amortized cost, estimated fair values, and related
gross unrealized gains and losses of securities at March 31, 2003 and
December 31, 2002 is as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
MARCH 31, 2003: ---------------------------------------------------
AVAILABLE FOR SALE: (000'S)
U.S. government agencies $234,795 $ 223 $ -- $235,018
Mortgage-backed securities 498,614 1,233 664 499,183
Obligations of states and
political subdivisions 1,500 104 -- 1,604
Corporate securities 574 58 17 615
-------- -------- -------- --------
TOTAL SECURITIES AVAILABLE FOR SALE $735,483 $ 1,618 $ 681 $736,420
======== ======== ======== ========
HELD TO MATURITY:
U.S. government agencies $119,857 $ 2,633 $ -- $122,490
Mortgage-backed securities 27,127 52 -- 27,179
Obligations of states and
political subdivisions 65,728 3,881 3 69,606
---------------------- --------
TOTAL SECURITIES HELD TO MATURITY $212,712 $ 6,566 $ 3 $219,275
====================== ========
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
DECEMBER 31, 2002: ----------------------------------------------------
AVAILABLE FOR SALE: (000'S)
U.S. government agencies $269,849 $ 1,283 $ 482 $270,650
Mortgage-backed securities 498,614 4,475 2 503,087
Obligations of states and
political subdivisions 1,500 98 -- 1,598
Corporate securities 136 56 18 174
-------- -------- -------- --------
TOTAL SECURITIES AVAILABLE FOR SALE $770,099 $ 5,912 $ 502 $775,509
======== ======== ======== ========
HELD TO MATURITY:
U.S. government agencies $144,824 $ 1,891 $ -- $146,715
Mortgage-backed securities 62,005 306 -- 62,311
Obligations of states and
political subdivisions 68,065 4,351 18 72,398
-------- -------- -------- --------
TOTAL SECURITIES HELD TO MATURITY $274,894 $ 6,548 $ 18 $281,424
======== ======== ======== ========
11
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
8. LOANS
-----
Nonaccrual loans were $12.7 million at March 31, 2003 and $12.5 million
at December 31, 2002. Restructured loans were $0.1 million and $0.2
million at March 31, 2003 and December 31, 2002, respectively.
Substantially all of the nonaccruing and restructured loans are
collateralized by real estate. The Company has agreed to provide
additional funding as further described below with respect to a real
estate construction loan in the amount of $12.6 million. At March 31,
2003, the Company had and continues to have no other commitments to lend
additional funds to any customers with nonaccrual or restructured loan
balances.
At March 31, 2003, there are loans aggregating approximately $1.4
million, which are not 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 March 31, 2003 are immaterial.
At March 31, 2003 and December 31, 2002, 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 $12.8 million
and $12.6 million, of which $12.7 million and $12.5 million were in
nonaccrual status, respectively. The average recorded investment in
impaired loans for the three months ended March 31, 2003 and 2002, and
year ended December 31, 2002 was $12.8 million, $21.2 million and $18.3
million, respectively. Interest income recognized by the Company on
impaired loans for the March 31, 2003 and 2002 three month periods was
not material. As applicable, each impaired loan 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
$2.1 million at March 31, 2003, compared to $2.3 million and $2.2
million at of March 31, 2002 and December 31, 2001, respectively.
At December 31, 2001, the Bank had $0.3 million of outstanding loans,
collateralized by cash and lease receivables, to Bennett Funding Group
("Bennett"), which filed for bankruptcy protection during the first
quarter of 1996. During the quarter ended March 31, 2002, 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 the 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, made a settlement
payment of $0.3 million to the Bankruptcy Estate.
In November 2000, the Company reclassified a real estate construction
loan in the amount of $19.7 million as a non-performing asset and placed
the loan on nonaccrual status. At December 31, 2002, the recorded loan
balance was $12.4 million, and the specific allocation of the allowance
for loan losses was $2.2 million. Through an agreement with the
borrower, additional financing was provided on the non-performing real
estate construction loan to finalize construction of condominium units,
which is substantially complete. The loan balance was reduced during
2002 due to principal payments of $9.6 million and charge-offs of $1.4
million, while additional financing of $3.9 million was provided for
construction on the condominium units.
12
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
At March 31, 2003, the recorded loan balance was $12.6 million with a
$2.1 million specific allocation of the allowance for loan losses. As of
March 31, 2003, of the original 83 units, 12 units remain to be sold. As
of May 9, 2003, 8 units remain to be sold of which one unit is currently
in contract, while the remaining units are being actively marketed for
sale. Pending sales of the units and repayment of the loan, the Bank
continues to proceed with foreclosure on other real estate that also
collateralizes the loan and to pursue its claim against the borrower and
guarantors for any deficiency.
9. 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 March 31, 2003. 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 March 31, 2003 and
December 31, 2002, the Bank had short-term repurchase agreements
outstanding of $1.6 million at an interest rate of 1.16 percent and $1.2
million at an interest rate of 1.18 percent, respectively. At March 31,
2003 and December 31, 2002, these borrowings were collateralized by
securities with an aggregate carrying value and estimated fair value of
$1.6 million and $1.2 million, respectively.
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 March 31, 2003 and December 31, 2002, the
Bank had no federal funds purchased balances outstanding.
Short-term FHLB advances are borrowings with original maturities between
one and 365 days. At March 31, 2003 and December 31, 2002, the Bank had
no such short-term FHLB advances outstanding.
Additional information with respect to short-term borrowings as of and
for the three months ended March 31, 2003 and 2002 is presented in the
table below.
SHORT-TERM BORROWINGS 2003 2002
--------------------------------------------------------------------------
(000's except percentages)
Balance at March 31 $ 1,571 $ 1,107
Average balance outstanding $ 13,755 $ 1,343
Weighted-average interest rate
As of March 31 1.16% 1.77%
Paid during period 1.27% 1.63%
==========================================================================
13
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
The Bank had long-term borrowings, which have original maturities of
over one year, of $507.0 million and $392.0 million in securities sold
under agreements to repurchase at March 31, 2003 and December 31, 2002.
At March 31, 2003 and December 31, 2002, these borrowings have an
original term of between five and ten years at interest rates between
1.07 percent to 6.08 percent and 1.94 percent to 6.08 percent,
respectively, that are callable on certain dates after an initial
noncall period at the option of the counterparty to the repurchase
agreements. As of March 31, 2003 and December 31, 2002, these borrowings
are collateralized by securities with an aggregate carrying value of
$516.9 million and $400.6 million and an estimated fair value of $519.3
million and $402.5 million, respectively.
At March 31, 2003 and December 31, 2002, long-term FHLB advances totaled
$110.0 million and $110.9 million, respectively, at interest rates of
between 3.49 percent to 6.72 percent. At March 31, 2003, borrowings
totaling $10.0 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 March 31, 2003 and
December 31, 2002, 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 $127.7 million and $128.6 million,
respectively.
A summary of long-term, fixed-rate borrowings distributed based upon
remaining contractual payment date and expected option call date at
March 31, 2003, with comparative totals for December 31, 2002, is as
follows:
AFTER 1
WITHIN BUT WITHIN AFTER 2003 2002
LONG-TERM BORROWINGS 1 YEAR 5 YEARS 5 YEARS TOTAL Total
- -------------------------------------------------------------------------------------------------
Contractual Payment: (000's, except percentages)
Total long-term borrowing $ 16,041 $132,182 $468,784 $617,007 $502,889
Weighted-average interest rate 4.21% 3.59% 4.38% 4.21% 4.68%
- -------------------------------------------------------------------------------------------------
Expected Call Date:
Total long-term borrowing $ 16,041 $172,182 $428,784 $617,007 $502,889
Weighted-average interest rate 4.21% 3.41% 4.53% 4.21% 4.68%
=================================================================================================
At March 31, 2003 and December 31, 2002 the Bank held 308,504 shares and
251,445 shares of capital stock of the FHLB with a carrying value of
$30.9 million and $25.1 million, respectively, 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
March 31, 2003, the Bank could pay dividends of $45.7 million to the
Company without having to obtain prior regulatory approval.
14
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
On December 18, 2002, the Company's Board of Directors authorized the
repurchase of up to 150,000 common shares, or approximately 0.8%, 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 2003 as, in the opinion of management,
market conditions may warrant. The repurchased common shares are held as
treasury stock and are available for general corporate purposes. For the
three months ended March 31, 2003, the Company purchased 75,800 shares
of common stock under the repurchase plan at an aggregate cost of
approximately $1.2 million. Purchases of Company stock of 57,791 and
38,644 shares were acquired in connection with stock option exercises
during the three month period ended March 31, 2003 and 2002,
respectively.
10. 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 March 31, 2003, formal credit
lines, and commercial and residential loan commitments (including home
equity commitments), both of which are primarily loans collateralized by
real estate, approximated $257.2 million, $194.7 million and $71.8
million, respectively. Outstanding letters of credit totaled $31.8
million. Such 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, 2002, which is
included in the Company's 2002 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, including
counter claims and related litigation in connection with loan
collections and foreclosures of loan collateral. In the opinion of
management, based on advice from legal counsel, such legal proceedings
will not have a material adverse effect on the Company's consolidated
financial position.
11. 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 three months ended March 31, 2003 and 2002, there
is no customer that accounted for more than ten percent of the Company's
revenue.
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 March 31, 2003. 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.
15
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
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 2002 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 2002 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 2002 Annual Report to
Stockholders.
FINANCIAL CONDITION
- -------------------
At March 31, 2003, the Company had total assets of $2,456.9 million, a decrease
of $86.0 million or 3.4 percent from December 31, 2002.
The securities portfolio, including investments in Federal Home Loan Bank of New
York ("FHLB") stock, totaled $980.0 million and $1,075.5 million at March 31,
2003 and December 31, 2002, respectively, a decrease of $95.6 million during the
quarter ended March 31, 2003. The securities portfolio consists of securities
held to maturity at amortized cost of $212.7 million and $274.9 million,
securities available for sale at estimated fair value totaling $736.4 million
and $775.5 million, and FHLB stock of $30.9 million and $25.1 million at March
31, 2003 and December 31, 2002, respectively. The decrease in the securities
portfolio primarily reflects pre-investment of projected cash flow at December
31, 2002, and the resulting maturities and payments of securities during the
three months ended March 31, 2003.
During the three months ended March 31, 2003, U.S. government agency securities
decreased $60.6 million due primarily to sales of $84.9 million and redemptions
of $75.0 million of callable bonds, and a net decrease in the estimated fair
value of available for sale securities of $0.6 million, offset by purchases
totaling $99.9 million. Mortgage-backed securities decreased by $38.8 million
primarily due to principal paydowns of $78.9 million, net premium amortizations
of $0.2 million, sales of $73.0 million, and a decrease in the estimated fair
value of available for sale securities of $3.9 million, partially offset by
purchases of $117.3 million. The Bank's investment in obligations of states and
political subdivisions, or municipal securities, decreased by $2.3 million
primarily due to maturities of $3.2 million during the three month period ended
March 31, 2003, partially offset by purchases of $0.9 million. 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.
16
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
- -----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
--------------------------------------------
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 and other equity
securities. The Company had outstanding balances in equity securities of $0.6
million and $0.2 million at March 31, 2003 and December 31, 2002, respectively.
The total investment in FHLB stock was $30.9 million and $25.1 million at March
31, 2003 and December 31, 2002, respectively.
The Company continues to exercise its conservative approach to investing by
primarily 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 March 31, 2003, loans outstanding were $1,380.5 million, a net increase of
$30.1 million or 2.2 percent compared to December 31, 2002. The increase in
outstanding loan balances reflects increases of: $18.6 million in commercial
mortgages; $8.8 million in land, acquisition and construction loans; $2.7
million in time secured loans; $1.2 million in residential mortgages; and $1.2
million in time unsecured loans. The increase was partially offset by decreases
of $0.7 million in personal installment loans; $0.7 million in commercial
installment loans; $0.5 million in credit card loans; $0.3 million in home
equity loans; and $0.2 million in other loans. The Company had approximately
$257.2 million in formal credit lines, $266.5 million in loan commitments
outstanding, which are loans primarily collateralized by real estate, and $31.8
million of 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 $0.3 million or 1.8 percent to
$14.4 million at March 31, 2003, from $14.2 million at December 31, 2002. The
allowance for loan losses represents 1.05 percent of gross loans outstanding at
both March 31, 2003 and December 31, 2002. The allowance reflects a provision of
$0.3 million and net charge-offs of $30,000 recorded for the first quarter 2003.
In addition to the allowance for loan losses, a reserve for credit losses
related to unfunded loan commitments of $545,000 at March 31, 2003 and $497,000
at December 31, 2002, is included in other liabilities.
Management believes the allowance for loan losses at March 31, 2003
appropriately reflects the risk elements 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 $56.3 million for the three month period ended March
31, 2003 to $1,608.1 million from $1,551.8 at December 31, 2002. Time, money
market and NOW deposits increased $47.8 million, $26.8 million and $7.7 million,
respectively, partially offset by decreases in savings and demand deposits of
$19.5 million and $6.5 million, respectively. Retail and commercial time
deposits under $100,000 increased $10.9 million because of the Bank's efforts to
promote longer term maturities in this low interest rate environment. Time
deposits greater than $100,000 from local municipalities and retail and
commercial customers, which are obtained on a bidding basis with maturities of
30 to 180 days, also increased $25.7 million and $11.2 million, respectively,
during the three month period ended March 31, 2003. Depending on rate and term,
the Bank utilizes municipals and large time deposits as an alternative to
borrowed funds. Money market and NOW deposits increased due to the Bank
expanding its municipal relationships in efforts to attract low cost deposits.
Municipal money market and NOW deposits increased $27.1 million and $11.4
million, respectively. These increases were partially offset by decreases in
retail money market and NOW deposits of $0.3 million and $3.7 million,
17
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
- -----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
--------------------------------------------
respectively, due to normal volatility for the period. Savings deposits
decreased due to customers seeking higher yielding deposit products in the low
interest rate environment. A decrease in retail demand deposits of $15.6 million
also partially offset the increase in total deposits as the Bank experienced
increased competition from other financial institutions and normal volatility
for the period, partially offset by an increase in municipal demand deposits of
$9.1 million.
During the three months ended March 31, 2003, the Bank increased its net
borrowings $114.5 million. The low interest rate environment influenced the
Bank's strategy to secure 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.
The Bank continues its initiatives to expand its commercial and retail customer
base. On March 3, 2003, the Bank opened its 27th branch located in Goshen
(Orange County) New York. As of May 9, 2003, the Goshen branch has accumulated
approximately $38 million of retail and commercial deposits. The Bank is also in
the process of establishing a de novo branch location in Eastchester
(Westchester County), New York. The Eastchester branch is expected to open
during the second quarter 2003.
Stockholders' equity increased to $159.5 million at March 31, 2003 from the
December 31, 2002 balance of $156.0 million, an increase of 2.2 percent. The
increase primarily results from: $7.6 million of net income for the three month
period ended March 31, 2003; $2.4 million of stock options exercised and $0.1
million of shares committed to be released under benefit plans; partially offset
by treasury stock transactions of $2.1 million; a decrease in other
comprehensive income of $2.6 million, and common stock dividends paid of $1.9
million.
The Company's leverage ratio at March 31, 2003 was 8.22 percent, compared to
8.36 percent at December 31, 2002. The Company's Tier I and total capital ratios
under the risk-based capital guidelines were 13.17 percent and 14.15 percent at
March 31, 2003, and 12.55 percent and 13.58 percent at December 31, 2002,
respectively. In addition, the Bank exceeds all current regulatory capital
requirements and was in the "well-capitalized" category at March 31, 2003 and
December 31, 2002.
RESULTS OF OPERATIONS
- ---------------------
EARNINGS
- --------
The Company's net income of $7.6 million for the three month period ended March
31, 2003 increased 26.8 percent as compared to $6.0 million for the comparable
2002 period. Basic and diluted earnings per common share were $0.41 and $0.40
for the three month period ended March 31, 2003, compared to $0.33 and $0.32 for
the three month period ended March 31, 2002, respectively. The increase in
diluted earnings per common share of 25.0 percent for the three month period
ended March 31, 2003, compared to the prior year period, reflects the higher net
income, partially offset by higher adjusted weighted average shares.
The Company's increase in net income was due to an increase in net interest
income, non-interest income and net security gains, and a lower provision for
credit losses due to improvement in the credit quality of the loan portfolio.
These increases were partially offset by higher non-interest expenses and a
higher effective rate for the provision for income taxes.
A discussion of the factors impacting the changes in the various components of
net income follows.
18
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
- -----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
--------------------------------------------
NET INTEREST INCOME
- -------------------
Net interest income, the difference between interest income and interest
expense, is the most significant component of the Company's consolidated
earnings. For the three month period ended March 31, 2003, net interest income
increased 5.8 percent to $18.3 million from $17.3 million recorded for the three
months ended March 31, 2002. Net interest income increased in the current year
period primarily due to an increase in average earning assets primarily funded
by interest bearing liabilities, non-interest bearing deposits, and Trust
Preferred securities, partially offset by a decrease in the net interest margin.
For the three months ended March 31, 2003, average interest earning assets over
interest bearing liabilities and Trust Preferred securities increased 37.3
percent ($106.0 million) as compared to the three months ended March 31, 2002,
which also has a positive effect on net interest income.
Average interest earning assets increased 20.5 percent ($403.0 million) to
$2,366.4 million during the 2003 first quarter as compared to $1,963.3 million
for the prior year period. The increase was primarily due to increases in
average securities of $222.8 million and average loans of $173.7 million.
Interest bearing liabilities and Trust Preferred securities also increased 17.7
percent ($297.0 million) to $1,975.8 million for the three months ended March
31, 2003. The increase was due to increases in average borrowings of $168.3
million, average interest bearing deposits of $118.7 million and Trust Preferred
securities of $10.0 million.
The increase in net interest income related to volume was partially offset by
decreases in the net interest spread and margin on a tax equivalent basis to
3.03 percent and 3.18 percent for the three month period ended March 31, 2003 as
compared to 3.54 percent and 3.65 percent for the 2002 comparable period,
respectively. The decreases in the net interest margin and spread reflects more
significant decreases in yields on interest earning assets as compared to
interest bearing liabilities (including demand deposits), and Trust Preferred
securities ("interest bearing liabilities") for the three month period ended
March 31, 2003 as compared to the prior year period.
Yields on interest earning assets decreased to 5.31 percent for the 2003 first
quarter as compared to 6.22 percent for the prior year period. The decrease was
primarily due to decreases in yields on loans and investments to 6.13 percent
and 4.11 percent for the three months ended March 31, 2003 as compared to 6.65
percent and 5.47 percent for the comparable 2002 period. The decrease in the
yield on investments was primarily due to additional leverage strategies and the
reinvestment of maturities and proceeds of sales of available for sale
securities in the lower interest rate environment. Reinvestment included
purchases of $110.0 million of floating rate callable securities, which
increases the asset sensitivity of the investment portfolio and favorably
position the yields on the investment portfolio in a rising rate environment.
Yields on interest bearing liabilities decreased to 2.36 percent for the 2003
first quarter as compared to 2.80 percent for the prior year period. The
decrease was primarily due to decreases in yields on borrowings and interest
bearing deposits to 4.36 percent and 1.49 percent for the three months ended
March 31, 2003 as compared to 5.11 percent and 2.36 percent for the comparable
prior year period, respectively.
The Company continues a leverage strategy of purchasing government securities
funded by borrowings. Although the leverage strategy results in narrower net
interest spreads, the strategy increases net interest income without significant
credit risk or increase in operating expenses. The Company has also taken
advantage of opportunities during the first quarter of 2003 to restructure the
available for sale security portfolio. Net security gains of $3.0 million on
sales of available for sale securities of $158.0 million were realized for the
three months ended March 31, 2003. Sales of available for sale securities
included $85.0 million of callable securities, which would have been called
within a six month time frame, and $73.0 million of mortgage backed securities.
The proceeds were reinvested in other security investments (see discussion of
Financial Condition above).
19
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
- -----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
--------------------------------------------
The Company's balance sheet is asset sensitive during the short-term period (one
year and less). Management cannot predict future market conditions and the
related effect on its net interest rate spread and margin. However, due to the
balance sheet's asset sensitivity, a continuation of the historically low
short-term interest rate environment may cause the net interest spread and
margin to decrease.
PROVISION FOR CREDIT LOSSES
- ---------------------------
The provision for credit losses decreased $893,000 to $339,000 for the three
month period ended March 31, 2003, compared to the same period in 2002. The
decrease in the current period primarily reflects improvement of credit quality
in the loan portfolio and a decrease in net charge-offs to $30,000 for the three
months ended March 31, 2003 as compared to $609,000 for the 2002 prior year
period. Net charge-offs primarily relate to credit cards in 2003, and in 2002 a
commercial loan to Bennett Funding Group and credit cards. Nonaccrual loans,
which are primarily collateralized by real estate, were $12.7 million and $20.4
million, respectively, at March 31, 2003 and 2002, compared to $12.5 million at
December 31, 2002.
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.
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,
impaired loans and potential problem loans, assessments of the expected effects
of the current economic environment, industry, geographic and customer
concentrations in the loan portfolio, and review of 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 to
absorb losses inherent in the credit portfolio.
A substantial portion (89.2 percent at March 31, 2003) 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 2003 and 2002 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 for the three months ended March 31, 2003 increased by
$2,152,000 (83.5 percent) to $4,729,000 as compared to the same period in 2002.
The increase for the three month period ended March 31, 2003 reflects higher net
securities gains of $1,957,000, prepayment penalty fees of $92,000, service
charges on deposit accounts of $111,000, and other fee income of $92,000. The
increase was partially offset by decreases in letter of credit fees of $128,000.
20
U.S.B. HOLDING CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
- -----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
--------------------------------------------
NON-INTEREST EXPENSES
- ---------------------
Non-interest expenses increased $1,358,000 (14.3 percent) to $10,822,000 for the
three month period ended March 31, 2003 from the comparable period in 2002. The
primary reason for this increase results from higher levels of salaries and
benefits, business development expenses, occupancy and equipment expenses, and
other expenses necessary to expand and support increased business volume and
balance sheet growth.
Salaries and employee benefits, the largest component of non-interest expenses,
increased by $829,000, or 14.7 percent, during the three month period ended
March 31, 2003 compared to the prior year period. The increase occurred due to
additional personnel employed by the Company to accommodate the increases in
deposits and loans and their related services, merit increases, higher levels of
incentive compensation (certain of which are tied to increases in the net income
of the Company) and increases in medical benefits and payroll taxes.
Significant changes in the other components of non-interest expenses for the
three month period ended March 31, 2003 compared to March 31, 2002, were due to
the following:
Increase of $135,000 (8.7%) in occupancy expense. The increase was
primarily due to maintenance of branch locations, higher utility bills
due to an increased number of Bank locations, and higher depreciation
due to new branch locations.
Increase of $141,000 (33.3%) in advertising and business development.
The increase reflects an increase in marketing expense that includes
television advertising to support increases in market share.
Increase of $72,000 (27.1%) in professional fees. The increase is due to
the increases in Director fees and legal costs related to a
nonperforming real estate construction loan.
Increase of $27,000 (9.5%) in communications expense. The increase
relates to greater telephone usage as a result of increased employees,
corporate office space and data lines usage, the opening of new branch
locations and higher bandwidth to accommodate technological
enhancements.
Decrease of $25,000 (12.4%) in stationery and printing. The decrease
reflects a decrease in office supplies and equipment due to document
imaging and rebates from the Bank's check vendor.
Increase of $150,000 (18.7%) in other expenses. The increase is
primarily due to an increase in credit card operations and outside
consulting fees.
INCOME TAXES
- ------------
The effective income tax rates for the three month periods ended March 31, 2003
and 2002 were 35.8 percent and 34.5 percent, respectively. The higher effective
income tax rate in 2003 reflects a lower proportion of tax exempt income
(principally from municipal bonds) in the current year period, partially offset
by a decrease in the statutory New York State income tax rate.
21
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, 2002
were reported in the Company's 2002 Annual Report to Stockholders. There have
been no material changes in the Company's market risk exposures at March 31,
2003 compared to December 31, 2002. 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 significant 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 three months ended March 31, 2003.
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 March 31, 2003 as compared to
December 31, 2002. The Company's "Static Gap" at March 31, 2003 was a positive
cumulative $320.7 million in the one year time frame compared to a positive
cumulative $246.4 million at December 31, 2002. If interest rates were to
gradually increase 200 basis points or decrease 50 basis points (normally 200
basis points during periods of higher interest rates) from current rates, the
percentage change in estimated net interest income for the subsequent three
month measurement period continues to be within the Company's policy limit of
not declining by more than 5.0 percent.
22
U.S.B. HOLDING CO., INC.
ITEM 4. CONTROLS AND PROCEDURES
- -------------------------------
The Company has evaluated the design and operation of its disclosure controls
and procedures to determine whether they are effective in ensuring that the
disclosure of required information is timely made in accordance with the
Securities Exchange Act of 1934 and the rules and forms of the Securities and
Exchange Commission. This evaluation was made under the supervision and with the
participation of management, including the Company's chief executive officer and
chief financial officer within the 90-day period prior to the filing of this
Quarterly Report on Form 10-Q. The chief executive officer and chief financial
officer have concluded, based on their review, that the Company's disclosure
controls and procedures, as defined by Exchange Act Rules 13a-14(c) and
15d-14(c), are effective to ensure that information required to be disclosed by
the Company in reports that it files under the Exchange Act is recorded,
processed, summarized, and reported within the time period specified in
Securities and Exchange Commission rules and forms. There were no significant
changes to the Company's internal controls or other factors that could
significantly affect these controls subsequent to the date of their evaluation.
23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(A) EXHIBITS
Exhibit No. Exhibit
- -------------------------
(3) (a) Restated Certificate of Incorporation of Registrant
(incorporated herein by reference to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002 ("2002
Second Quarter Form 10-Q"), Exhibit (3)(a)).
(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)).
(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, (incorporated herein by reference to
Registrant's 2002 Second Quarter Form 10-Q, Exhibit (4) (g)).
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONT'D)
- --------------------------------------------------
(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,
(incorporated herein by reference to Registrant's 2002 Second
Quarter Form 10-Q, Exhibit (4) (h)).
(4) (i) Amended and Restated Declaration of Trust of USB Statutory
Trust III, (incorporated herein by reference to Registrant's
2002 Second Quarter Form 10-Q, Exhibit (4) (i)).
(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)).
(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
("2001 10-K"), 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)).
25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONT'D)
- --------------------------------------------------
(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 ("Tappan Zee 1996
Proxy Statement")).
(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).
26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONT'D)
- --------------------------------------------------
(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) Asset Purchase and account Assumption Agreement by and
between Union State Bank and La Jolla bank dated May 25, 2000
(incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the six months ended June
30, 2000, Exhibit (10)(00)).
(10) (y) U.S.B. Holding Co., Inc. Severance Plan dated January 30,
2002 (incorporated herein by reference from Registrant's 2001
10-K, Exhibit (10)(y)).
(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, (incorporated herein by reference
to Registrant's 2002 Second Quarter Form 10-Q, Exhibit (10)
(z)).
(10) (aa) 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).
(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.*
(11) Computation of earnings per share.*
*Filed Herewith.
(B) REPORTS ON FORM 8-K
None.
27
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 May 13, 2003.
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)
28
CERTIFICATION
I, Thomas E. Hales, Chairman, President and Chief Executive Officer,
certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of U.S.B.
Holding Co., Inc. (the "Company").
2. Based on my knowledge, this Quarterly Report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the Audit Committee of the
registrant's Board of Directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrants ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003 /s/ Thomas E. Hales
--------------------------------------------------------------------------
Thomas E. Hales
Chairman of the Board, President &
Chief Executive Officer
29
CERTIFICATION
I, Steven T. Sabatini, Senior Executive Vice President and Chief
Financial Officer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of U.S.B.
Holding Co., Inc. (the "Company").
2. Based on my knowledge, this Quarterly Report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the Audit Committee of the
registrant's Board of Directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrants ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003 /s/ Steven T. Sabatini
--------------------------------------------------------------------------
Steven T. Sabatini
Senior Executive Vice President &
Chief Financial Officer
30