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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 2004, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to __________________
Commission file Number 1-12811
------------------------
U.S.B. HOLDING CO., INC.
------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-3197969
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 DUTCH HILL ROAD, ORANGEBURG, NEW YORK 10962
- ----------------------------------------- -------------
(Address of Principal Executive Offices) (Zip Code)
845-365-4600
------------
(Registrant's Telephone Number (including area code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 (or for such shorter period that the registrant was
required to file such reports), 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 4, 2004
----- --------------------------
Common stock, par value 19,540,329
$0.01 per share
U.S.B. HOLDING CO., INC.
TABLE OF CONTENTS
-----------------
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF
CONDITION AS OF MARCH 31, 2004 AND
DECEMBER 31, 2003. 1
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 2004 AND 2003. 2
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2004 AND 2003. 3
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY FOR
THE THREE MONTHS ENDED MARCH 31, 2004
AND 2003. 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK. 23
ITEM 4. CONTROLS AND PROCEDURES 24
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS,
AND ISSUER PURCHASES OF EQUITY SECURITIES 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 25
SIGNATURES 31
-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,
2004 2003
----------- -----------
ASSETS
- ------
Cash and due from banks $ 59,782 $ 57,451
Federal funds sold 18,400 10,000
----------- -----------
Cash and cash equivalents 78,182 67,451
Interest bearing deposits in other banks 4,316 25
Securities:
Available for sale (at estimated fair value) 1,014,208 1,081,380
Held to maturity (estimated fair value of
$228,509 in 2004 and $240,752 in 2003) 223,652 237,998
Loans, net of allowance for loan losses of
$14,820 in 2004 and $14,757 in 2003 1,470,942 1,433,923
Premises and equipment, net 15,811 15,353
Accrued interest receivable 12,985 15,721
Federal Home Loan Bank of New York stock 37,548 30,594
Securities transactions not yet settled 31,666 --
Other assets 19,888 24,017
----------- -----------
TOTAL ASSETS $ 2,909,198 $ 2,906,462
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits $ 304,079 $ 296,133
Interest bearing deposits:
NOW accounts 160,815 133,382
Money market accounts 223,291 195,510
Savings deposits 432,670 436,561
Time deposits 756,734 713,463
----------- -----------
TOTAL DEPOSITS 1,877,589 1,775,049
Accrued interest payable 6,258 6,599
Accrued expenses and other liabilities 11,234 10,416
Securities transactions not yet settled 21,507 924
Securities sold under agreements to repurchase 658,550 788,632
Federal Home Loan Bank of New York advances 93,966 104,873
Subordinated debt issued in connection with Corporation-Obligated
mandatory redeemable capital securities of subsidiary trusts 61,858 51,548
----------- -----------
TOTAL 2,730,962 2,738,041
Minority interest-junior preferred stock of consolidated subsidiary 128 128
Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value
Authorized shares: 10,000,000; no shares outstanding in 2004 and 2003 -- --
Common stock, $0.01 par value; authorized shares 50,000,000;
Issued shares of 20,942,105 in 2004 and 20,924,504 in 2003 209 209
Additional paid-in capital 159,746 159,628
Retained earnings 36,863 31,655
Treasury stock, at cost; common shares 1,399,076 in 2004 and
1,436,714 in 2003 (17,872) (18,225)
Common stock held for benefit plans (2,480) (2,491)
Deferred compensation obligation 2,349 2,327
Accumulated other comprehensive loss (707) (4,810)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 178,108 168,293
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,909,198 $ 2,906,462
=========== ===========
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,
2004 2003
------- -------
(000'S, EXCEPT SHARE DATA)
INTEREST INCOME:
Interest and fees on loans $21,530 $21,371
Interest on federal funds sold 85 142
Interest and dividends on securities:
U.S. government agencies 8,680 3,337
Mortgage-backed securities 2,968 5,343
Obligations of states and political subdivisions 853 837
Corporate and other 29 2
Interest on deposits in other banks -- 1
Dividends on Federal Home Loan Bank of New York stock 111 322
------- -------
TOTAL INTEREST INCOME 34,256 31,355
------- -------
INTEREST EXPENSE:
Interest on deposits 6,047 5,874
Interest on borrowings 7,008 6,303
Interest on subordinated debt issued in connection with/and
Corporation - Obligated mandatory redeemable
capital securities of subsidiary trusts 884 884
------- -------
TOTAL INTEREST EXPENSE 13,939 13,061
------- -------
NET INTEREST INCOME 20,317 18,294
Provision for credit losses 211 339
------- -------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 20,106 17,955
------- -------
NON-INTEREST INCOME:
Service charges and fees 1,096 918
Other income 720 779
Gains on securities transactions 1,112 3,032
------- -------
TOTAL NON-INTEREST INCOME 2,928 4,729
------- -------
NON-INTEREST EXPENSES:
Salaries and employee benefits 7,284 6,467
Occupancy and equipment 1,873 1,684
Advertising and business development 671 564
Professional fees 406 338
Communications 360 311
Stationery and printing 203 177
FDIC insurance 76 73
Amortization of intangibles 266 254
Other expense 864 954
------- -------
TOTAL NON-INTEREST EXPENSES 12,003 10,822
------- -------
Income before income taxes 11,031 11,862
Provision for income taxes 3,674 4,242
------- -------
NET INCOME $ 7,357 $ 7,620
======= =======
BASIC EARNINGS PER COMMON SHARE $ 0.38 $ 0.39
======= =======
DILUTED EARNINGS PER COMMON SHARE $ 0.36 $ 0.38
======= =======
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,
2004 2003
--------- ---------
(000'S)
OPERATING ACTIVITIES:
Net income $ 7,357 $ 7,620
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 211 339
Depreciation and amortization 806 736
Amortization of (discounts) premiums on securities - net (118) 182
Deferred income tax benefit - net (874) (1,323)
Gains on securities transactions (1,112) (3,032)
Non-cash benefit plan expense 126 101
Decrease in accrued interest receivable 2,733 1,780
Decrease in accrued interest payable (361) (148)
Increase in accrued income tax payable 3,766 3,421
Other - net 1,471 3,492
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,005 13,168
--------- ---------
INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale 75,070 160,998
Proceeds from principal paydowns, redemptions and maturities of:
Securities available for sale 173,075 94,024
Securities held to maturity 22,071 63,139
Purchases of securities available for sale (184,514) (480,317)
Purchases of securities held to maturity (6,945) (864)
Net purchases of Federal Home Loan Bank of New York stock (6,954) (5,706)
Net liabilities assumed in Reliance Bank acquisition 10,697 --
Net increase in interest bearing deposits in other banks (4,266) --
Increase in loans outstanding, net (26,343) (30,162)
Purchases of premises and equipment - net (923) (1,370)
--------- ---------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 50,968 (200,258)
--------- ---------
FINANCING ACTIVITIES:
Net increase in non-interest bearing deposits,
NOW, money market and savings accounts 48,615 8,565
Net increase in time deposits, net of withdrawals and maturities 30,012 47,779
Net (decrease) increase in securities sold under agreements
to repurchase - short-term (205,082) 366
Repayment of Federal Home Loan Bank of New York advances - short-term (10,500) --
Proceeds from securities sold under agreements to repurchase - long-term 75,000 115,000
Repayment of Federal Home Loan Bank of New York advances - long-term (407) (882)
Net proceeds from issuance of Corporation-Obligated mandatory redeemable
capital securities of subsidiary trusts 9,975 --
Redemption of junior preferred stock of consolidated subsidiary, net -- 1
Cash dividends paid (2,149) (1,866)
Proceeds from exercise of common stock options 294 1,124
Purchases of treasury stock -- (1,183)
--------- ---------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES $ (54,242) $ 168,904
--------- ---------
(Continued)
3
U.S.B. HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONT'D)
- --------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
2004 2003
--------- ---------
(000'S)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 10,731 $ (18,186)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 67,451 90,801
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 78,182 $ 72,615
========= =========
Supplemental Disclosures:
Interest paid $ (14,300) $ (13,209)
--------- ---------
Income tax payments $ (745) $ (460)
--------- ---------
Purchases of available for sale securities, including interest receivable $ 21,507 $ 263,090
--------- ---------
Payment for held to maturity securities not yet settled at beginning
of period, including interest receivable $ (924) $ --
--------- ---------
Sales of available for sale securities not yet settled, including
interest receivable $ (31,666) $ --
--------- ---------
Loans acquired in acquisition of Reliance Bank, including
interest receivable $ 10,869 $ --
--------- ---------
Deposits assumed in acquisition of Reliance Bank, including
interest payable $ 23,933 $ --
--------- ---------
Other assets (including intangibles) acquired in acquisition of
Reliance Bank, net of other liabilities assumed $ 2,367 $ --
--------- ---------
Change in shares held in trust for deferred compensation $ (22) $ (286)
--------- ---------
Change in deferred compensation obligation $ 22 $ 286
--------- ---------
Change in accumulated other comprehensive loss $ 4,103 $ (2,627)
--------- ---------
Non cash exercise of stock options and related tax benefit $ 412 $ 1,242
--------- ---------
Purchases of treasury stock related to the exercise of stock options $ (295) $ (874)
--------- ---------
Issuance of treasury stock related to the exercise of stock options $ 648 $ 2,236
--------- ---------
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, 2004
(000'S, EXCEPT SHARE DATA)
ACCUMULATED
COMMON STOCK ADDITIONAL COMMON STOCK DEFERRED OTHER
SHARES PAR PAID-IN RETAINED TREASURY HELD FOR COMPENSATION COMPREHENSIVE
OUTSTANDING VALUE CAPITAL EARNINGS STOCK BENEFIT PLANS OBLIGATION (LOSS) INCOME
----------- ------ ---------- -------- --------- ------------- ------------ -------------
Balance at January 1, 2004 19,487,790 $ 209 $ 159,628 $ 31,655 $ (18,225) $(2,491) $ 2,327 $ (4,810)
Net income 7,357
Other comprehensive income:
Net unrealized securities
gain arising during the
period, net of taxes of $2,071 3,846
Reclassification adjustment
of net loss for securities
sold, net of taxes of $178 257
Other comprehensive income 4,103
Total comprehensive income
Cash dividends:
Common ($0.11 per share) (2,149)
Common stock options exercised
and related tax benefit 68,634 58 648
Purchases of treasury stock (13,395) (295)
ESOP shares committed to
be released 60 33
Deferred compensation obligation (22) 22
---------- ------ --------- -------- --------- ------- ------- --------
BALANCE AT MARCH 31, 2004 19,543,029 $ 209 $ 159,746 $ 36,863 $ (17,872) $(2,480) $ 2,349 $ (707)
========== ====== ========= ======== ========= ======= ======= ========
TOTAL
STOCKHOLDERS'
EQUITY
-------------
Balance at January 1, 2004 $168,293
Net income 7,357
Other comprehensive income:
Net unrealized securities
gain arising during the
period, net of taxes of $2,071 3,846
Reclassification adjustment
of net loss for securities
sold, net of taxes of $178 257
--------
Other comprehensive income 4,103
--------
Total comprehensive income 11,460
Cash dividends:
Common ($0.11 per share) (2,149)
Common stock options exercised
and related tax benefit 706
Purchases of treasury stock (295)
ESOP shares committed to
be released 93
Deferred compensation obligation --
--------
BALANCE AT MARCH 31, 2004 $178,108
========
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, 2003
(000'S, EXCEPT SHARE DATA)
ACCUMULATED
COMMON STOCK ADDITIONAL COMMON STOCK DEFERRED OTHER
SHARES PAR PAID-IN RETAINED TREASURY HELD FOR COMPENSATION COMPREHENSIVE
OUTSTANDING VALUE CAPITAL EARNINGS STOCK BENEFIT PLANS OBLIGATION (LOSS) INCOME
----------- ------ ---------- -------- --------- ------------- ------------ -------------
Balance at January 1, 2003 18,501,580 $ 198 $ 140,054 $ 28,648 $ (15,777) $ (1,691) $ 1,398 $ 3,181
Net income 7,620
Other comprehensive income:
Net unrealized securities
losses arising during the
period, net of taxes of $879 (1,272)
Reclassification adjustment
of net gains for securities
sold, net of taxes of $937 (1,355)
-------------
Other comprehensive income
(loss) (2,627)
Total comprehensive income
Cash dividends:
Common ($0.095 per share) (1,866)
Common stock options exercised
and related tax benefit 270,864 1 129 2,236
Purchases of treasury stock (133,591) (2,057)
ESOP shares committed to
be released 37 32
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
========== ====== ========= ======== ========== ======== ========== ========
TOTAL
STOCKHOLDERS'
EQUITY
-------------
Balance at January 1, 2003 $156,011
Net income 7,620
Other comprehensive income:
Net unrealized securities
losses arising during the
period, net of taxes of $879 (1,272)
Reclassification adjustment
of net gains for securities
sold, net of taxes of $937 (1,355)
-------------
Other comprehensive income
(loss) (2,627)
-------------
Total comprehensive income 4,993
Cash dividends:
Common ($0.10 per share) (1,866)
Common stock options exercised
and related tax benefit 2,366
Purchases of treasury stock (2,057)
ESOP shares committed to
be released 69
Deferred compensation obligation --
--------
BALANCE AT MARCH 31, 2003 $159,516
========
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 USB Delaware Inc., including its wholly-owned subsidiary, TPNZ
Preferred Funding Corporation ("TPNZ"), and Ad Con, Inc. As of and for
the three months ended March 31, 2003, the condensed consolidated
financial statements also include the Company's subsidiary Trusts,
Union State Capital Trust I, Union State Statutory Trust II, and USB
Statutory Trust III, (collectively, including Union State Statutory
Trust IV, which issued Capital Securities in March 2004 (see Note 10),
the "Trusts"). As required by FIN 46R, the Company has deconsolidated
the Trusts and recorded subordinated debt issued to the Trusts and the
Company's investment in the common equity of the Trusts as of December
31, 2003. 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
7
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
accruals) necessary to present fairly the financial position of the Company as
of March 31, 2004, and its operations, cash flows and changes in stockholders'
equity for the three months ended March 31, 2004 and 2003. For purposes of
presenting the condensed consolidated financial statements of cash flows, cash
and cash equivalents include cash and due from banks and federal funds sold.
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. 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 2003 Annual Report to Stockholders. 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 valuation reserve for net deferred tax assets.
In connection with the determination of these estimates, management
obtains independent appraisals for significant properties that secure
loans collateralized with real estate.
3. RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to prior period accounts to
conform to the current period's presentation.
4. ACQUISITION OF RELIANCE BANK
----------------------------
As of the close of business on March 19, 2004, the Bank assumed
approximately $23.9 million in deposits and acquired approximately
$10.5 million of single family residential mortgage loans, $10.7
million of cash and cash equivalents, $2.2 million of other assets, and
$0.3 million in other loans in connection with Reliance Bank
acquisition. The premium paid for the deposits assumed was $2.2
million, or 9.4 percent, and $0.2 million, or 1.6 percent, for the
single family residential loans acquired. Reliance Bank was closed by
the New York Superintendent of Banks, which appointed the FDIC as
Receiver. Reliance Bank, which operated as a one branch bank at 1200
Mamaroneck Avenue, White Plains, New York became a Union State Bank
branch effective immediately after its closing.
The assumption of deposits and acquisition of certain assets of
Reliance Bank has been accounted for as a business combination in
accordance with Statement of Financial Accounting Standard ("SFAS")
No.141, "Accounting for Business Combinations." Assets, time deposits,
and other liabilities acquired have been recorded at their estimated
fair values as of March 19, 2004. The premium paid for core deposits
will be allocated between the core deposit intangible and the goodwill
component upon completion of a core deposit valuation study. The core
deposit intangible will be amortized over its estimated life in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets."
Any amortization would be insignificant in the first quarter 2004 due
to timing of the acquisition, and the immateriality of the amount
involved. The results of Reliance
8
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
Bank operations related to the assets and deposits acquired and assumed
are included in the Company's statements of income from the date of its
acquisition. Pro forma information as if the transaction occurred at
the beginning of the period is not material.
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, 2003, included in the 2003 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 Opinion 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
prescribed 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 least equal to the market value of the
underlying common stock on the date of grant.
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, 2004 and 2003. 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,
--------------------------------------------------------------------------------------------------------
2004 2003
--------------------------------------------------------------------------------------------------------
(000'S, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------------------------------
Net income, as reported $7,357 $7,620
--------------------------------------------------------------------------------------------------------
Less: total stock-based compensation expense determined under fair
value based method for all awards, net of related tax effects 146 65
--------------------------------------------------------------------------------------------------------
Pro forma net income available to common stockholders $7,211 $7,555
========================================================================================================
Earnings per common share:
--------------------------------------------------------------------------------------------------------
Basic - as reported $0.38 $ 0.39
Basic - pro forma 0.37 0.39
--------------------------------------------------------------------------------------------------------
Diluted - as reported $0.36 $0.38
Diluted - pro forma 0.35 0.38
========================================================================================================
The following weighted average assumptions were used for Employee Plan
grants for the three months ended March 31, 2004 and 2003,
respectively: dividend yields of 2.43 and 2.53 percent; volatility
factors of the expected market price of the Company's common stock of
40.94 and 41.81 percent; risk free interest rates of 3.66 and 3.12
percent; and expected lives of 8.48 and 8.24 years. The following
weighted average assumptions were used for Director Plan grants for
both the three months ended March 31, 2004 and 2003, dividend yields of
2.52 percent; volatility factors of the expected market price of the
Company's common stock of 41.33 percent; risk-free interest rates of
2.47 percent; and expected lives of 7.62 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,
2004 2003
-------------- -------------
(000's, except share data)
NUMERATOR:
Net income for basic and diluted earnings per common
share - net income available to common stockholders $ 7,357 $ 7,620
============== ==============
DENOMINATOR:
Denominator for basic earnings per common share -
weighted average shares 19,504,329 19,525,316
Effects of dilutive securities: Director and employee
stock options 885,128 440,352
-------------- --------------
Total effects of dilutive securities 885,128 440,352
-------------- --------------
Denominator for diluted earnings per common share -
adjusted weighted average shares 20,389,457 19,965,668
============== ==============
Basic earnings per common share $ 0.38 $ 0.39
============== ==============
Diluted earnings per common share $ 0.36 $ 0.38
============== ==============
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 (loss).
The decision to sell securities available for sale 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 in an unrealized loss position are
periodically evaluated for other than temporary impairment. Management
considers the effect of interest rates, credit ratings and other factors
on the valuation of such securities, as well as the Company's ability to
hold such securities for the foreseeable future. The Company does not
acquire securities for the purpose of engaging in trading activities.
During the three month periods ended March 31, 2004 and 2003, the
Company had gross realized gains from sales of securities available for
sale of $1,112,000 and $3,032,000, respectively.
A summary of the amortized cost, estimated fair values, and related
gross unrealized gains and losses of securities at March 31, 2004 and
December 31, 2003 is as follows:
10
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
MARCH 31, 2004: COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
AVAILABLE FOR SALE: (000'S)
U.S. government agencies $ 637,590 $ 505 $ 2,084 $ 636,011
Mortgage-backed securities 376,160 1,123 796 376,487
Obligations of states and
political subdivisions 1,395 81 -- 1,476
Corporate securities 150 85 1 234
----------- ---------- ---------- ----------
TOTAL SECURITIES AVAILABLE FOR SALE $ 1,015,295 $ 1,794 $ 2,881 $1,014,208
=========== ========== ========== ==========
HELD TO MATURITY:
U.S. government agencies $ 144,846 $ 625 $ 743 $ 144,728
Obligations of states and
political subdivisions 78,806 5,019 44 83,781
----------- ---------- ---------- ----------
TOTAL SECURITIES HELD TO MATURITY $ 223,652 $ 5,644 $ 787 $ 228,509
=========== ========== ========== ==========
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 2003: COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
AVAILABLE FOR SALE: (000'S)
U.S. government agencies $ 637,582 $ 30 $ 6,034 $ 631,578
Mortgage-backed securities 450,381 1,000 3,295 448,086
Obligations of states and
political subdivisions 1,400 84 -- 1,484
Corporate securities 152 81 1 232
----------- ------------ ------------ -----------
TOTAL SECURITIES AVAILABLE FOR SALE $ 1,089,515 $ 1,195 $ 9,330 $ 1,081,380
=========== ============ ============ ===========
HELD TO MATURITY:
U.S. government agencies $ 164,821 $ 748 $ 1,733 $ 163,836
Obligations of states and
political subdivisions 73,177 4,118 379 76,916
----------- ------------ ------------ -----------
TOTAL SECURITIES HELD TO MATURITY $ 237,998 $ 4,866 $ 2,112 $ 240,752
=========== ============ ============ ===========
8. LOANS
-----
Nonaccrual loans were $5.0 million at March 31, 2004 and $6.1 million at
December 31, 2003. Restructured loans were $0.1 million at both March
31, 2004 and December 31, 2003, respectively.
11
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
Substantially all of the nonaccruing and restructured loans are
collateralized by real estate. The Company has agreed to provide
additional funding of up to $0.2 million with respect to a nonaccruing
real estate construction loan in the amount of $4.1 million at March 31,
2004 (see discussion below). 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, 2004, there are loans aggregating approximately $0.5
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, 2004 are immaterial.
At March 31, 2004 and December 31, 2003, the recorded investment in
loans that are considered to be impaired approximated $5.2 million and
$5.6 million, of which $5.0 million and $5.5 million were in nonaccrual
status, respectively. The average recorded investment in impaired loans
for the three months ended March 31, 2004 and 2003, and for the year
ended December 31, 2003 was $5.4 million, $12.8 million, and $9.1
million, respectively. Interest income recognized by the Company on
impaired loans for the March 31, 2004 and 2003 three month periods was
not material.
As applicable, each impaired loan has a related allowance for loan
losses. The total allowance for loan losses specifically allocated to
one impaired real estate construction loan with balances of $4.1
million, $5.5 million, and $12.6 million was $0.2 million, $0.2 million,
and $2.1 million as of March 31, 2004, December 31, 2003, and March 31,
2003, respectively.
In November 2000, the Company reclassified the real estate construction
loan referred to above in the amount at that date of $19.7 million as a
non-performing asset and placed the loan on nonaccrual status. At
December 31, 2003, the recorded loan balance was $5.5 million, and the
specific allocation of the allowance for loan losses was $0.2 million.
At March 31, 2004, the recorded loan balance was $4.1 million with a
$0.2 million specific allocation of the allowance for loan losses. The
recorded loan balance was reduced during the 2004 first quarter by
principal payments and a charge-off of $0.2 million. The loan is
collateralized by a mortgage on certain condominium units and other real
estate collateral. As of April 28, 2004, two condominium units (of the
original 83) remain to be sold, both of which are in contract. The Bank
continues to proceed with foreclosure of its $2.9 million mortgage on
other real estate that also collateralizes the loan, and to pursue its
claim against the borrower and guarantors for any deficiency. The
guarantors have filed counter claims in this case, which the Bank will
vigorously defend.
9. BORROWINGS AND STOCKHOLDERS' EQUITY
-----------------------------------
The Company utilizes short-term and long-term borrowings primarily to
meet funding requirements for its asset growth, balance sheet leverage,
and to manage its interest rate risk.
Short-term borrowings include securities sold under agreements to
repurchase, federal funds purchased, and short-term 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 has borrowing availability under master security sale and
repurchase agreements through four primary investment firms, the FHLB,
and to a lesser extent, its customers. At March 31, 2004, the Bank had
short-term repurchase agreements outstanding with the FHLB of $75.0
million at a weighted average interest rate of 1.11 percent. These
short-term borrowings with the FHLB were collateralized by securities
with an aggregate carrying value and estimated fair value of $88.7
million. There were no short-term repurchase agreements with the FHLB at
December 31, 2003.
There were no short-term repurchase agreements outstanding with primary
investment firms at March 31, 2004. At December 31, 2003, outstanding
short-term repurchase agreements with primary investment firms totaled
$280.0 million at a weighted average interest rate of 1.16 percent and
were collateralized by securities having an aggregate carrying value of
$300.3 million and estimated fair value of $300.0 million. At both March
31, 2004 and December 31, 2003, the Bank had short-term repurchase
agreements with customers of $1.6 million at a weighted average interest
rate of 0.91 percent and 1.18
12
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
percent, respectively. These short-term customer borrowings were
collateralized by securities with an aggregate carrying value and
estimated fair value of $1.6 million and $1.2 million at March 31, 2004
and December 31, 2003, 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, 2004 and December 31, 2003, the
Bank had no federal funds purchased balances outstanding.
Short-term FHLB advances are borrowings with original maturities between
one and 365 days. There were no short-term FHLB advances outstanding at
March 31, 2004. At December 31, 2003, outstanding short-term FHLB
advances totaled $10.5 million at a weighted average interest rate of
1.06 percent and were collateralized by a pledge to the FHLB of a
security interest in certain mortgage-related assets having an aggregate
book value of $12.2 million, respectively.
Additional information with respect to short-term borrowings as of and
for the three months ended March 31, 2004 and 2003 is presented in the
table below.
SHORT-TERM BORROWINGS 2004 2003
-----------------------------------------------------------------------
(000's except percentages)
Balance at March 31 $ 76,550 $ 1,571
Average balance outstanding $ 163,206 $ 13,755
Weighted-average interest rate
As of March 31 1.11% 1.16%
Paid during period 1.13% 1.27%
=======================================================================
The Bank had long-term borrowings, which have original maturities of
over one year, of $582.0 million and $507.0 million in securities sold
under agreements to repurchase at March 31, 2004 and December 31, 2003.
At both March 31, 2004 and December 31, 2003, these borrowings have an
original term of between five and ten years at interest rates of 1.07
percent to 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 March 31, 2004 and December 31, 2003, these
borrowings are collateralized by securities with an aggregate carrying
value of $612.7 million and $531.6 million, and an estimated fair value
of $612.6 million and $531.1 million, respectively.
At March 31, 2004 and December 31, 2003, long-term FHLB advances totaled
$94.0 million and $94.4 million, respectively, at interest rates of
between 4.27 percent to 6.05 percent. At March 31, 2004, borrowings
totaling $4.0 million are amortizing advances having scheduled payments
and $20.0 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, 2004 and
December 31, 2003, 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 $109.2 million and $109.9 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, 2004, with comparative totals for December 31, 2003, is as
follows:
AFTER 1
WITHIN BUT WITHIN AFTER 2004 2003
LONG-TERM BORROWINGS 1 YEAR 5 YEARS 5 YEARS TOTAL Total
- -------------------------------------------------------------------------------------------------------------------
(000's, except percentages)
Contractual Payment or
Expected Call Date:
Total long-term borrowing $ 11,691 $185,512 $478,763 $675,966 $601,374
Weighted-average interest rate 4.53% 4.03% 4.02% 4.03% 4.21%
- -------------------------------------------------------------------------------------------------------------------
13
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
At March 31, 2004 and December 31, 2003 the Bank held 375,484 shares and
305,937 shares of capital stock of the FHLB with a carrying value of
$37.5 million and $30.6 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, or for collateral pledged by TPNZ, 75 percent of net equity,
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, 2004, the Bank could pay dividends of $47.6 million to the
Company without having to obtain prior regulatory approval.
The Company distributed a 5 percent common stock dividend on September
26, 2003 to stockholders of record on September 12, 2003. The weighted
average common shares outstanding and per common share amounts have been
adjusted to reflect all common stock dividends.
On December 17, 2003, the Company's Board of Directors authorized the
repurchase of up to 300,000 common shares, or approximately 1.5 percent,
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 2004 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. The December 17, 2003 stock repurchase plan replaces the
previous December 18, 2002 repurchase plan for up to 157,500 common
shares. For the three months ended March 31, 2004, the Company did not
purchase any shares of common stock under the repurchase plan. The
Company purchased 79,590 shares of common stock under its repurchase
plan at an aggregate cost of approximately $1.2 million for the three
months ended March 31, 2003. Purchases of common stock of 13,395 and
60,681 common shares (adjusted for the 5 percent common stock dividend)
were acquired in connection with stock option exercises during the three
month period ended March 31, 2004 and 2003, respectively.
10. SUBORDINATED DEBT ISSUED IN CONNECTION WITH CORPORATION-OBLIGATED
-----------------------------------------------------------------
MANDATORY REDEEMABLE CAPITAL SECURITIES OF SUBSIDIARY TRUSTS
------------------------------------------------------------
On March 25, 2004, the Company completed its fourth issuance of junior
subordinated debt in connection with the issuance of Capital Securities
totaling $10.3 million that raised $10.0 million of regulatory capital
($9,975,000 net proceeds after issuance costs).
The Capital Securities and related subordinated debt issued in the first
quarter pay dividends and interest on a floating rate basis at a rate
equal to three month LIBOR plus 280 basis points (current rate as of
March 31, 2004 of 3.91 percent). Dividend and interest payments, as well
as the reset of the interest rate, occurs in June, October, January, and
March of each calendar year. These Capital Securities, due March 25,
2034, were issued by Union State Statutory Trust IV ("Trust IV"), a
Delaware business trust that was formed by the Company solely to issue
the Capital Securities and related common stock. Trust IV advanced the
proceeds to the Company by purchasing junior subordinated debt of the
Company. These Capital Securities and related subordinated debt may not
be redeemed, except under limited circumstances, until March 2009, at
par.
The total amount of Capital Securities outstanding as of March 31, 2004
is $60 million. Such Capital Securities are included in Tier I
regulatory capital in an amount not in excess of 25 percent of Tier I
Capital, with the remainder included in Tier II Capital. At March 31,
2004, Tier I Capital totaled $231.1 million, which included $59.6
million of Capital Securities. As a result of the changes in accounting
as described in Note 1, the Federal
14
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
Reserve Bank is reviewing the regulatory implications of this
accounting change on the capital treatment of the Capital Securities
and, if necessary or warranted, will provide appropriate guidance.
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 March 31, 2004, formal credit
lines, and commercial and residential loan commitments (including home
equity commitments), both of which are primarily loans collateralized by
real estate, approximated $366.4 million, $101.4 million and $22.2
million, respectively. Outstanding letters of credit totaled $36.9
million. Such amounts represent the maximum risk of loss on these
commitments.
Standby letters of credit are issued to guarantee financial performance
or obligations of the Bank's customers. Generally, standby letters of
credit are either partially or fully collateralized by cash, real
estate, or other assets, and, in some cases, are not collateralized. In
most cases, personal guarantees are obtained. Standby letters of credit
are considered in the Bank's evaluation of its reserve for unfunded loan
commitments.
Other commitments are described in Note 16 to the consolidated financial
statements of the Company for the year ended December 31, 2003, which is
included in the Company's 2003 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.
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 three months ended March 31, 2004 and 2003, there
is no customer that accounted for more than ten percent of the Company's
revenue.
15
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, 2004. 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; wartime events or terrorist activity and
the related impact on the credit quality of borrowers; 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 significant accounting policies are disclosed in Note 3 to the
consolidated financial statements included in the Company's 2003 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, the
classification of securities as either held to maturity or available for sale,
and the valuation reserve for net deferred tax assets. In addition to Note 3 to
the 2003 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 2003 Annual Report to Stockholders.
FINANCIAL CONDITION
- -------------------
At March 31, 2004, the Company had total assets of $2,909.2 million, an increase
of $2.7 million from December 31, 2003. As of March 31, 2004, statements of
condition balances include cash and cash equivalents, loans, and deposits of
$10.7 million, $10.8 million and $23.9 million, respectively, acquired or
assumed in connection with the Reliance Bank acquisition on March 19, 2004 (see
Note 4 to the condensed consolidated financial statements (unaudited)) . This
acquisition is consistent with the Company's initiatives to expand its
commercial and retail customer base and further penetrate the Westchester County
market.
The securities portfolio, including investments in Federal Home Loan Bank of New
York ("FHLB") stock, totaled $1,275.4 million and $1,350.0 million at March 31,
2004 and December 31,
16
2003, respectively, a decrease of $74.6 million during the quarter ended March
31, 2004. The securities portfolio consists of securities held to maturity at
amortized cost of $223.7 million and $238.0 million, securities available for
sale at estimated fair value totaling $1,014.2 million and $1.081.4 million, and
FHLB stock of $37.5 million and $30.6 million at March 31, 2004 and December 31,
2003, respectively.
17
During the three months ended March 31, 2004, U.S. government agency securities
decreased $15.5 million due primarily to redemptions of $170.0 million of
callable bonds, partially offset by purchases totaling $149.8 million, an
increase in the estimated fair value of available for sale securities of $4.4
million, and discount accretion of $0.3 million. Mortgage-backed securities
decreased by $71.6 million primarily due to principal paydowns of $23.1 million,
net premium amortizations of $0.1 million, and sales of $105.5 million,
partially offset by purchases of $54.5 million and an increase in the estimated
par value of available for sale securities of $2.6 million. The Bank's
investment in obligations of states and political subdivisions, or municipal
securities, increased by $5.6 million primarily due to purchases of $7.7 million
during the three month period ended March 31, 2004, partially offset by
maturities of $2.1 million. Municipal securities are considered core investments
having favorable tax equivalent yields and diversified maturities. The
obligations are principally New York State political subdivisions with
diversified maturities, and substantially all are classified as held to
maturity. 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. The Company had outstanding
balances in equity securities of $0.2 million at both March 31, 2004 and
December 31, 2003, respectively. The total investment in FHLB stock was $37.5
million and $30.6 million at March 31, 2004 and December 31, 2003, 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. Emphasis has been placed on
investing in floating rate securities and mortgage-backed securities with
favorable cash flow characteristics to maintain an asset sensitive position in
anticipation of an increase in interest rates, as well as investment in fixed
rate callable securities to enhance yield. At March 31, 2004, the weighted
average yield on a tax equivalent basis and weighted average life of the
investment portfolio was 4.12 percent and 4.4 years, respectively. The Company
will continue to utilize the investment portfolio to invest excess cash flow and
leverage capital, while managing interest rate risk.
At March 31, 2004, loans outstanding were $1,485.8 million, a net increase of
$37.1 million or 2.6 percent compared to December 31, 2003. The increase in
outstanding loan balances reflects increases of: $19.2 million in time unsecured
loans; $9.1 million in residential mortgages; $8.3 million in land, acquisition,
and construction loans; $7.8 million in time secured loans; and $4.2 million in
home equity loans. The increase was partially offset by decreases of $10.7
million in commercial mortgages; $0.1 million in personal installment loans;
$0.3 million in credit card loans; $0.2 million in commercial installment loans;
and $0.2 million in other loans. The net increase in residential mortgages is
almost entirely due to the Reliance Bank acquisition. The Company had
approximately $366.4 million in formal credit lines, $123.6 million in loan
commitments outstanding, which are loans primarily collateralized by real
estate, and $36.9 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.
18
The Company's allowance for loan losses increased $63,000 or 0.4 percent to
$14,820,000 at March 31, 2004, from $14,757,000 at December 31, 2003. The
allowance for loan losses represents 1.00 percent and 1.02 percent of gross
loans outstanding at March 31, 2004 and December 31, 2003, respectively. The
allowance reflects a provision of $0.2 million and net charge-offs of $142,000
recorded for the first quarter 2004. In addition to the allowance for loan
losses, a reserve for credit losses related to unfunded loan commitments of
$542,000 at March 31, 2004 and $536,000 at December 31, 2003, is included in
other liabilities.
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 judgement, the allowance for loan losses and reserve for unfunded
loan commitments appropriately reflect the risk elements in the total loan
portfolio at March 31, 2004. There is no assurance that the Company will not be
required to make future adjustments to the allowance for loan losses and reserve
for unfunded loan commitments in response to changing economic conditions or
regulatory examinations.
Total deposits increased $102.5 million, or 5.8 percent, for the three month
period ended March 31, 2004 to $1,877.6 million from $1,775.0 at December 31,
2003. The total deposit increase resulted from net increases in municipal
deposits of $43.8 million, retail and commercial deposits of $33.7 million, and
brokered deposits of $25.0 million. The retail and commercial deposit increase
includes $23.9 million assumed as part of the Reliance Bank Acquisition.
As of March 31, 2004, municipal money market, NOW, demand, and savings deposits
increased $33.0 million, $23.0 million, $1.8 million, and $1.3 million,
respectively, as compared to December 31, 2003. The increases reflect higher
deposit levels and a greater number of municipal customers. The increase in
municipal deposits was partially offset by a decrease in municipal time deposits
of $15.2 million at March 31, 2004, compared to December 31, 2003. The decrease
was due to municipalities' decision to place funds in short-term liquid accounts
at competitive rates.
The increase in retail, commercial, and brokered deposits at March 31, 2004 was
due to increases in time, demand, and NOW deposits of $58.5 million, $6.2
million, and $4.4 million, respectively, compared to December 31, 2003. The
increase was partially offset by a decrease in retail and commercial money
market and savings deposits of $5.2 million each as compared to December 31,
2003. The increase in retail and commercial deposits at March 31, 2004 includes
increases in time deposits under and over $100,000 of $17.4 million and $36.0
million respectively, and IRA and KEOGH deposits of $5.1 million, compared to
December 31, 2003. The increase in retail and commercial time deposits was due
to the Bank advertising competitive long-term time deposit rates to extend
liabilities during a period of historically low interest rates, in addition to
$13.2 million assumed from Reliance Bank and the acquisition of medium-term
brokered deposits of $25.0 million, which was also a result of securing
longer-term funds. Retail and commercial demand and NOW deposits also increased
from the Bank expanding and adding relationships in its existing and contiguous
markets, as well as from the assumption of $4.9 million in retail and commercial
demand deposits from Reliance Bank. Retail and commercial money market and
savings deposits decreased due to customers seeking more competitive products as
a result of lower yields offered during this period of low interest rates,
partially offset by $5.8 million of savings deposits assumed from Reliance Bank.
During the three months ended March 31, 2004, the Bank decreased its net
borrowings $141.0 million. The borrowings were primarily used to provide funding
for the securities portfolio, which decreased $81.5 million during the 2004
first quarter due to security maturities, principal payments, and sales.
Short-term borrowings provided management with the ability to react to changes
in levels of earning assets. 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 $178.1 million at March 31, 2004 from the
December 31, 2003 balance of $168.3 million, an increase of 5.8 percent. The
increase primarily results from: $7.4 million of net income for the three month
period ended March 31, 2004; an increase in other comprehensive income of $4.1
million; $0.7 million of stock options exercised and $0.1 million of shares
committed to be released under benefit plans; partially offset by common stock
dividends paid of $2.2 million and treasury stock transactions of $0.3 million.
19
The Company's leverage ratio at March 31, 2004 was 8.05 percent, compared to
7.54 percent at December 31, 2003. The Company's Tier I and total capital ratios
under the risk-based capital guidelines were 13.38 percent and 14.29 percent at
March 31, 2004, and 12.80 percent and 13.70 percent at December 31, 2003,
respectively. In addition, the Bank exceeds all current regulatory capital
requirements and was in the "well-capitalized" category at March 31, 2004 and
December 31, 2003. The increase in the Company's capital ratios are due to the
increase in stockholder's equity for the three months ended March 31, 2004, as
well as the issuance of $10 million of capital securities (see Note 10 to the
condensed consolidated financial statements (unaudited)).
RESULTS OF OPERATIONS
- ---------------------
EARNINGS
- --------
The Company's net income of $7.4 million for the three month period ended March
31, 2004 decreased 3.5 percent as compared to $7.6 million for the comparable
2003 period. Basic and diluted earnings per common share were $0.38 and $0.36
for the three month period ended March 31, 2004, compared to $0.39 and $0.38 for
the three month period ended March 31, 2003, respectively. The decrease in
diluted earnings per common share of 5.3 percent for the three month period
ended March 31, 2004, compared to the prior year period, reflects the lower net
income and a higher adjusted weighted average shares.
The decrease in the 2004 first quarter net income and diluted earnings per
common share compared to the prior year is primarily due to $3.0 million of
security gains ($1.6 million after income taxes and incentive compensation) from
sales of available for sale securities in the 2003 period, compared to $1.1
million of security gains ($0.6 million after income taxes and incentive
compensation) in the current period, a 63.3 percent decrease. This decrease was
partially offset by increases in net interest income and non-interest income,
and decreases in the provision for credit losses and effective rate for the
provision for income taxes, while operating expenses increased to support
balance sheet growth.
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 month period ended March 31, 2004, net interest income increased 11.1
percent to $20.3 million from $18.3 million recorded for the three months ended
March 31, 2003. Net interest income increased in the current year period
primarily due to an increase in average earning assets primarily funded by
interest bearing liabilities, and non-interest bearing deposits.
Average interest earning assets increased $394.2 million (16.7 percent) to
$2,760.5 million during the 2004 first quarter as compared to $2,366.4 million
for the prior year period. The increase was primarily due to increases in
average securities of $316.1 million and average loans of $91.3 million.
Interest bearing liabilities also increased $406.8 million (20.6 percent) to
$2,382.6 million for the three months ended March 31, 2004. The increase in
interest bearing liabilities was due to increases in average interest bearing
deposits of $206.0 million and average borrowings of $198.6 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
2.95 percent and 3.02 percent for the three month period ended March 31, 2004,
as compared to 3.03 percent and 3.18 percent for the 2003 comparable period,
respectively. The decreases in the net interest spread and margin reflects more
significant decreases in yields on interest earning assets as compared to
interest bearing liabilities, including demand deposits ("interest bearing
liabilities") for the three month period ended March 31, 2004 as compared to the
prior year period.
Tax equivalent yields on interest earning assets decreased to 5.03 percent for
the 2004 first quarter as compared to 5.39 percent for the prior year period.
The decrease was primarily due to decreases in yields on loans and investments
to 5.94 percent and 4.12 percent for the three months ended March 31, 2004, as
compared to 6.33 percent and 4.31 percent for the comparable 2003 period. The
decrease in the yield on earning assets was primarily due to historically low
short and medium-term interest rates that affect the repriceability of variable
rate and maturing
20
loans and investments.
Yields on interest bearing liabilities decreased to 2.08 percent for the 2004
first quarter as compared to 2.36 percent for the prior year period. The
decrease was primarily due to decreases in yields on borrowings and interest
bearing deposits to 3.58 percent and 1.57 percent for the three months ended
March 31, 2004 as compared to 4.36 percent and 1.78 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 2004 to sell
approximately $105 million of available for sale mortgage-backed investment
securities. Net security gains of $1.1 million were realized for the three
months ended March 31, 2004. The sales were made to restructure and enhance the
yield of the investment portfolio by reinvesting sale proceeds in a combination
of fixed rate callable U.S. Government agencies and other mortgage-backed
securities.
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 $128,000 to $211,000 for the three
month period ended March 31, 2004, compared to $339,000 for the March 31, 2003
period. The decrease in the current period primarily reflects improvement of
credit quality in the loan portfolio, partially offset by net charge-offs of
$142,000 for the three months ended March 31, 2004 as compared to $30,000 for
the 2003 prior year period. Net charge-offs primarily relate to a non-performing
real estate construction loan in 2004 and credit cards in 2003. Nonaccrual
loans, which are primarily collateralized by real estate, were $5.0 million and
$6.1 million, respectively, at March 31, 2004 and December 31, 2003,
respectively, compared to $12.7 million at March 31, 2003. The total nonaccrual
loans at March 31, 2004 primarily consist of a real estate construction loan
that was $5.5 million at December 31, 2003, reduced to $4.1 million at March 31,
2004 due to principal paydowns and a $0.2 million charge-off, 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.
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 at March 31, 2004.
A substantial portion (87.9 percent at March 31, 2004) 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 2004 and 2003 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
21
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, 2004 decreased by
$1,801,000 (38.1 percent) to $2,928,000 as compared to the same period in 2003.
The decrease for the three month period ended March 31, 2004 primarily reflects
lower net securities gains of $1,920,000 and loan prepayment penalty fees of
$138,000, partially offset by higher service charges on deposit accounts of
$178,000.
NON-INTEREST EXPENSES
- ---------------------
Non-interest expenses increased $1,181,000 (10.9 percent) to $12,003,000 for the
three month period ended March 31, 2004 from the comparable period in 2003. The
primary reason for this increase results from higher levels of salaries and
benefits, business development expenses, occupancy and equipment expenses, and
professional fees 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 $817,000, or 12.6 percent, during the three month period ended
March 31, 2004 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, 2004 compared to March 31, 2003, were due to
the following:
o Increase of $189,000 (11.2%) in occupancy expense. The increase was
primarily due to higher depreciation expense from the purchase of assets
related to technological upgrades and branch buildings.
o Increase of $107,000 (19.0%) in advertising and business development. The
increase reflects an increase in business development expense for
additional costs to support customer deposit and loan relationships.
o Increase of $68,000 (20.1%) in professional fees. The increase is due to
the increases in compliance costs related to Sarbanes-Oxley legislation,
fees related to strategic analysis and tax planning, and legal costs
related to a nonperforming real estate construction loan.
o Increase of $49,000 (15.8%) in communications expense. The increase relates
to data line usage at the Bank's branch locations and corporate
headquarters.
o Increase of $26,000 (14.7%) in stationery and printing. The increase
relates to additional computer related supplies needed at branch locations
and the corporate headquarters.
o Decrease of $75,000 (5.9%) in other expenses. The decrease is primarily due
to a decrease in credit card operations expense related to a reduction in
the liability for potential redemption of scorecard award points.
INCOME TAXES
- ------------
The effective income tax rates for the three month periods ended March 31, 2004
and 2003 were 33.3 percent and 35.8 percent, respectively. The lower effective
income tax rate in 2004 reflects implementation of income tax planning
strategies.
22
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, 2003
were reported in the Company's 2003 Annual Report to Stockholders. There have
been no material changes in the Company's market risk exposures at March 31,
2004 compared to December 31, 2003. 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. Substantially 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, 2004.
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, 2004 as compared to
December 31, 2003. The Company's "Static Gap" at March 31, 2004 was a positive
cumulative $638.7 million in the one year time frame compared to a positive
cumulative $305.0 million at December 31, 2003. 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 twelve
month measurement period continues to be within the Company's policy limit of
not declining by more than 5.0 percent.
23
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 as of March 31, 2004, 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-15(e) and
15d-15(e), 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 was no change to the
Company's internal control over financial reporting that occurred during the
first quarter ended March 31, 2004 that has materially affected or is reasonably
likely to materially affect the Company's internal control over financial
reporting.
24
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF
- ------- ---------------------------------------------------------------
EQUITY SECURITIES
-----------------
The following table sets forth information with respect to purchases made by the
Company of its common stock during the three months ended March 31, 2004.
MAXIMUM
TOTAL NUMBER NUMBER OF
OF SHARES SHARES THAT
PURCHASED AS MAY YET BE
TOTAL NUMBER AVERAGE PART OF PUBLICLY PURCHASED
OF SHARES PRICE PAID ANNOUNCED UNDER THE
PERIOD PURCHASED PER SHARE PROGRAMS PROGRAMS
- ------ ------------ ---------- ---------------- -----------
January 2004 5,186 $19.32 N/A 300,000
February 2004 4,112 $22.99 N/A 300,000
March 2004 4,097 $24.40 N/A 300,000
--------------- ---------- ---------------- -----------
TOTAL 13,395 $22.00 N/A 300,000
=============== ========== ================ ===========
Common stock purchased reflected in the above table are the result of
acquisitions of treasury stock related to the exercise of stock options. There
were no treasury stock purchases under the Company's Treasury Stock Repurchase
Plan during the three months ended March 31, 2004.
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)).
25
(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)).
(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, 2003 between the
Company and the Bank and Thomas E. Hales (incorporated herein by
reference to Registrant's Annual Report on Form 10-K for the year
ended December 31, 2003, Exhibit (10)(a)).
(10)(b) Agreement of Employment dated as of November 16, 1998, and as
amended
26
November 8, 2000, between the Company and the Bank and
Raymond J. Crotty (incorporated herein by reference to Registrant's
Quarterly report on Form 10-Q for the quarter ended September 30,
2000 ("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 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)).
(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
27
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).
(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
28
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 Assumption 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).
(10)(ab) Amendment No. 2 to the Key Employees' Supplemental Investment Plan
dated September 1, 2003 (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003 ("2003 Third Quarter 10-Q"), Exhibit (10) (ab)).
(10)(ac) Amendment No. 1 to the Key Employees' Diversified Investment Plan
dated September 1, 2003 (incorporated by reference to the
Registrant's 2003 Third Quarter 10-Q, Exhibit (10) (ab)).
(10)(ad) Amended and Restated Declaration of Trust of Union State Statutory
Trust IV dated March 25, 2004.*
(10)(ae) Indenture dated March 25, 2004 between Registrant and Wilmington
Trust Company, as Trustee.*
(10)(af) Guarantee Agreement dated March 24, 2004 by and between Registrant
and Wilmington Trust Company, as Trustee for the holders of Capital
Securities of Union State Bank Statutory Trust IV.*
(10)(ag) Purchase and Assumption Agreement among the Federal Deposit
Insurance Corporation, Receiver of Reliance Bank, White Plains, New
York and Union State Bank, Nanuet, New York dated as of March 19,
2004.*
(10)(ah) Loan Sale Agreement by and between the Federal Deposit Insurance
corporation in its Receivership Capacity and Union State Bank,
Nanuet, New York.*
(14)(a) Business Code of Conduct (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 2003, Exhibit (14) (a)).
(14)(b) Code of Ethics applicable to Financial Officers and the Chief
Executive Officer (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 2003,
Exhibit (14) (b)).
(31.1) Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
29
(31.2) Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
(32) 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
The Company filed a report on Form 8-K on January 26, 2004 regarding the
2004 fourth quarter and year to date December 31, 2003 earnings.
Selected Company financial information was included in such Form 8-K.
The Company also filed a Form 8-K on March 23, 2004 and March 29, 2004
regarding the acquisition of Reliance Bank and issuance of $10 million
of Capital Securities, respectively.
30
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 7, 2004.
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)
31