<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1995 Commission File No. 010950
--------------
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 office with zip code)
914-365-4600
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 2, 1995
----- --------------------------
Common stock, par value
$5 per share 2,482,403
<PAGE>
U.S.B. HOLDING CO., INC.
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CONDITION AS
OF MARCH 31, 1995 AND DECEMBER 31, 1994
(UNAUDITED) 1
CONSOLIDATED STATEMENTS OF INCOME FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED) 2
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED MARCH 31, 1995 AND
1994 (UNAUDITED) 4
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE THREE MONTHS
ENDED MARCH 31, 1995 (UNAUDITED) 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 12
PART II. OTHER INFORMATION AND SIGNATURES 17
<PAGE>
-1-
PART I - FINANCIAL INFORMATION
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
(000's Except Share Data)
<S> <C> <C>
ASSETS
Cash and due from banks $ 15,476 $ 19,464
Federal funds sold 25,000 5,001
-------- --------
Cash and cash equivalents 40,476 24,465
Interest-bearing deposits in other banks and
other temporary investments 2,463 1,186
Securities:
Available for sale at fair value 86,979 75,944
Held to maturity (fair value $142,331
in 1995 and $143,961 in 1994) 144,410 149,580
Loans held for sale 1,196 3,272
Loans, net of allowance for loan losses of
$3,323 in 1995 and $3,320 in 1994 340,787 326,978
Premises and equipment, net 10,850 10,794
Accrued interest receivable 4,883 4,385
Other real estate owned (OREO) 794 544
Other assets 5,100 5,455
-------- --------
TOTAL ASSETS $637,938 $602,603
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest bearing demand deposits $ 71,175 $ 78,585
Interest-bearing deposits:
Money Market 69,851 71,200
Savings 121,629 116,404
NOW 38,738 39,777
Time 279,253 237,896
-------- --------
Total deposits 580,646 543,862
Accrued interest payable 1,633 1,108
Accrued expenses and other liabilities 1,754 1,614
Federal funds purchased and Federal Home
Loan Bank advances 10,500 15,900
Long-term debt qualifying as regulatory capital 1,800 1,800
-------- --------
Total liabilities 596,333 564,284
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, no par value; authorized
shares 100,000; outstanding shares:
37,500 3,750 3,750
Common stock, $5 par value; 7,000,000
shares authorized and issued shares of
2,562,524 in 1995 and 2,535,400 in 1994 12,813 12,677
Additional paid-in capital 12,769 12,452
Retained earnings 14,530 13,180
Treasury stock, 86,316 shares (1,075) (1,075)
Unrealized loss on available for sale
securities, net of tax (1,182) (2,665)
-------- --------
Total stockholders' equity 41,605 38,319
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $637,938 $602,603
-------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
-2-
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1995 1994
---------- ---------
(000's Except Share Data)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 7,716 $ 6,128
Interest on Federal funds sold 273 22
Interest and dividends on securities:
U.S. Treasury and Government agencies 2,330 1,694
Obligations of states and political
subdivisions 886 867
Corporate and other 309 388
Interest on deposits in other banks and
other temporary investments 25 11
Dividends on Federal Home Loan Bank stock 41 43
-------- --------
Total interest income 11,580 9,153
-------- --------
INTEREST EXPENSE:
Interest on deposits 5,410 3,234
Interest on Federal funds purchased and Federal
Home Loan Bank advances 185 85
Interest on long-term debt 42 29
-------- --------
Total interest expense 5,637 3,348
-------- --------
NET INTEREST INCOME 5,943 5,805
Provision for loan losses 200 135
-------- --------
Net interest income after provision for
loan losses 5,743 5,670
-------- --------
NON-INTEREST INCOME:
Gain (loss) on securities transactions - net (57) 172
Gain (loss) on loans held for sale - net 14 (235)
Service charges and fees 644 649
Other income 248 165
-------- --------
Total non-interest income 849 751
-------- --------
NON-INTEREST EXPENSES:
Salaries 1,474 1,250
Employee benefits 648 702
Occupancy and equipment expense 776 701
Advertising and business development 188 134
Professional fees 185 148
Communications 146 126
Stationery and printing 72 46
FDIC insurance 303 266
Other expenses 391 317
-------- --------
Total non-interest expenses 4,183 3,690
-------- --------
Income before income taxes 2,409 2,731
Provision for income taxes 709 889
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NET INCOME $ 1,700 $ 1,842
-------- --------
NET INCOME PER COMMON AND COMMON EQUIVALENT
SHARE $ .64 $ .73
-------- --------
<PAGE>
-3-
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 2,549,449 2,398,657
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
-4-
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1995 1994
--------- ---------
(000's)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,700 $ 1,842
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 200 135
Depreciation and amortization 357 321
Amortization/accretion of premiums/discounts on
securities - net 18 253
(Gain) loss on securities transactions - net 57 (172)
(Gain) loss on loans held for sale - net (14) 235
Origination of loans held for sale (598) (5,148)
Proceeds from sales of loans held for sale 2,674 9,118
Increase in accrued interest receivable (498) (843)
Other - net 435 162
-------- --------
Net cash provided by operating activities 4,331 5,903
-------- --------
INVESTING ACTIVITIES:
Proceeds from sales of securities available
for sale 22,367 12,611
Proceeds from sales of securities held to
maturity 260 -
Proceeds from principal paydowns and maturities
of securities available for sale 7,937 12,240
Proceeds from maturities of securities held to
maturity 6,970 12,661
Purchases of securities available for sale (39,291) (12,949)
Purchases of securities held to maturity (2,087) (34,766)
Net decrease (increase) in interest bearing
deposits in other banks and other temporary
investments (1,277) 495
Loans originated, net of principal collections (14,269) (35,760)
Loans purchased (350) -
Purchases of premises and equipment - net (391) (250)
Proceeds from sales of OREO 324 205
-------- --------
Net cash used for investing activities (19,807) (45,513)
-------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing
deposits, NOW, money market and savings accounts (4,573) 6,243
Increase in time deposits, net of
withdrawals and maturities 41,357 12,379
Net increase (decrease) in Federal funds
purchased and Federal Home Loan advances -
short-term (5,400) 23,050
Cash dividends paid (350) (343)
Proceeds from issuance of common stock 453 206
-------- --------
Net cash provided by financing activities 31,487 41,535
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 16,011 1,925
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,465 14,439
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 40,476 $ 16,364
-------- --------
</TABLE>
<PAGE>
-5-
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1995 1994
---------- ---------
(000's)
<S> <C> <C>
Supplemental Disclosures:
Interest paid $ 5,112 $ 3,322
-------- --------
Income tax payments $ 363 $ 549
-------- --------
Transfer of assets to OREO $ 624 $ 330
-------- --------
Loans securitized into mortgage-backed
securities $ - $ 1,024
-------- --------
Unrealized gain (loss) on available for sale
securities - net of ($823) and $294 in
deferred tax assets in 1995 and 1994,
respectively. $ 1,483 $ (549)
-------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
-6-
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 (000's except share data)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Common Common Preferred Additional on Available
Shares Stock Stock Paid-In Retained Treasury for Sale
Outstanding $5 Par No Par Capital Earnings Stock Securities
----------- ------ ------ ------- -------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1995 2,449,084 $12,677 $3,750 $12,452 $13,180 $(1,075) $(2,665)
Net income 1,700
Cash dividends:
Common stock
($.11 per
share) (271)
Preferred
stock (79)
Common stock
issued:
Incentive
stock
options
exercised
($6.92 to
$10.75 per
share) 12,854 65 57
Directors'
stock
option
exercised
($9.95 per
share) 1,825 9 9
Dividend
Reinvest-
ment Plan 12,445 62 251
Change in un-
realized loss
on available
for sale
securities,
net of tax
effect 1,483
--------- ------- ------ ------- ------- ------- -------
Balance at
March 31,
1995 2,476,208 $12,813 $3,750 $12,769 $14,530 $(1,075) $(1,182)
--------- ------- ------ ------- ------- ------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
-7-
U.S.B. HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION
In 1983, U.S.B. Holding Co., Inc. (the Company) issued on a one-for-one
basis, its common stock in exchange for all of the outstanding stock in
Union State Bank (the Bank), the Company's principal subsidiary. The
financial statements include the accounts of the Company and its
wholly-owned banking subsidiaries (the Banks), Union State Bank and Royal
Oak Savings Bank F.S.B. (Royal) and its non-bank subsidiary, Ad Con, Inc.
All significant intercompany accounts and transactions are eliminated in
consolidation.
2. RECLASSIFICATIONS
Certain reclassifications have been made to prior year accounts to conform
to the current year presentation.
3. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited consolidated
financial statements include all adjustments (comprising only normal
recurring accruals) necessary to present fairly the financial position of
the Company as of March 31, 1995, the results of operations for the three
month periods ended March 31, 1995 and 1994, cash flows for the three month
periods then ended, and changes in stockholders' equity for the three months
ended March 31, 1995. A summary of the Company's significant accounting
policies is set forth in Note l to the Consolidated Financial Statements in
the Company's Annual Report to Shareholders for 1994.
4. ACCOUNTING FOR IMPAIRMENT OF A LOAN
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures," which was
adopted by the Company as of January 1, 1995, requires recognition of an
impairment of a loan when it is probable that either principal and/or
interest are not collectible in accordance with the terms of the loan
agreement. Measurement of the impairment is based on the present value
of expected cash flows discounted at the loan's effective rate or, as a
practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral-dependent. The impact
on the Company's books as a result of the implementation of SFAS 114 was
not material. Prior to 1995, the allowance for credit losses related
to impaired loans was based on undiscounted cash flows or the fair value
of the collateral for collateral dependent loans. The Company primarily
uses the cash basis method to recognize interest income on loans that
are impaired.
At March 31, 1995, the recorded investment in loans that are considered
to be impaired under SFAS 114 was $3.6 million (of which $3.1 million
were in non-accrual status). Each impaired loan has a related allowance
for credit losses determined in accordance with this statement. The total
allowance for credit losses related to impaired loans was $584,000 as of
March 31, 1995. The average recorded investment in impaired loans for the
period ended March 31, 1995 was approximately $3.6 million. For the period
ending March 31, 1995, interest income recognized by the Company on impaired
loans was not material.
5. SECURITIES AND LOANS HELD FOR SALE
As of January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which had an after-tax
effect of an increase to stockholders' equity of $919,000, and revised its
securities accounting policy. 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 other similar factors, were classified as available for sale and carried
at fair value. 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, including certain mortgage-backed securities which were
reclassified as such upon clarification of applicable regulatory parameters.
<PAGE>
-8-
U.S.B. HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. SECURITIES AND LOANS HELD FOR SALE (Cont'd)
Realized gains and losses on the sales of all securities are reported in
earnings. Unrealized gains and losses on available for sale securities are
shown, net of taxes, as a separate component of stockholders' equity. At
March 31, 1995 and December 31, 1994, the effect of SFAS No. 115 was a
reduction of securities by $2,005,000 and $4,101,000, respectively, which
after the applicable tax effect, resulted in a reduction to stockholders'
equity of $1,182,000 and $2,665,000, respectively, representing the
unrealized loss.
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. Fair values
for securities are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on quoted market
prices of comparable instruments.
The Banks do not acquire securities for the purpose of engaging in trading
activities.
A summary of the amortized cost and fair value of securities and related
gross unrealized gains and losses at March 31, 1995 and December 31, 1994,
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(000's)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
As of March 31, 1995:
--------------------------------------------------------------------------
AVAILABLE FOR SALE:
U.S. Treasury and Govern-
ment agencies $ 39,343 $ 144 $ 89 $ 39,398
Obligations of states
and political sub-
divisions 2,000 15 - 2,015
Other 553 8 - 561
Mortgage-backed
securities 47,088 23 2,106 45,005
--------------------------------------------------------------------------
Total available for sale
securities $ 88,984 $ 190 $2,195 $ 86,979
--------------------------------------------------------------------------
HELD TO MATURITY:
U.S. Treasury and Govern-
ment agencies $ 4,500 $ - $ 333 $ 4,167
Obligations of states
and political sub-
divisions 70,242 1,107 658 70,691
Corporate bonds 13,382 169 33 13,518
Other 652 2 39 615
Mortgage-backed
securities 55,634 68 2,362 53,340
--------------------------------------------------------------------------
Total securities held to
maturity $144,410 $1,346 $3,425 $142,331
--------------------------------------------------------------------------
</TABLE>
<PAGE>
-9-
U.S.B. HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. SECURITIES AND LOANS HELD FOR SALE (Cont'd)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(000's)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As of December 31, 1994:
AVAILABLE FOR SALE:
U.S. Treasury and Govern-
ment agencies $ 25,135 $ 10 $ 302 $ 24,843
Obligations of states
and political sub-
divisions 2,000 15 - 2,015
Other 582 8 14 576
Mortgage-backed
securities 52,328 5 3,823 48,510
--------------------------------------------------------------------------
Total available for sale
securities $ 80,045 $ 38 $4,139 $ 75,944
--------------------------------------------------------------------------
HELD TO MATURITY:
U.S. Treasury and Govern-
ment agencies $ 4,500 $ - $ 490 $ 4,010
Obligations of states
and political sub-
divisions 73,116 274 1,515 71,875
Corporate bonds 14,347 105 184 14,268
Other 670 2 - 672
Mortgage-backed
securities 56,947 48 3,859 53,136
--------------------------------------------------------------------------
Total securities held to
maturity $149,580 $ 429 $6,048 $143,961
--------------------------------------------------------------------------
</TABLE>
Residential fixed rate real estate loans held for sale, had an aggregate
cost of $1,222,000 and $3,770,000, with a market value of $1,196,000 and
$3,695,000 at March 31, 1995 and December 31, 1994, respectively. Loans held
for sale at December 31, 1994, included commitments which had not yet closed
as of that date.
6. COMMON STOCK, ADDITIONAL PAID-IN CAPITAL, FEDERAL HOME LOAN BANK ADVANCES,
LONG-TERM DEBT QUALIFYING AS CAPITAL AND NET INCOME PER COMMON SHARE DATA
At March 31, 1995 Royal had outstanding term advances with the Federal Home
Loan Bank of Atlanta in the amount of $5,500,000; $1,000,000 due April 4,
1995 with an interest rate of 6.58%, $1,000,000 due April 10, 1995 with an
interest rate of 6.54%, $1,000,000 due April 12, 1995 with an interest rate
of 6.41% and $2,500,000 due April 28, 1995 with an interest rate of 6.40%.
The Bank had a $5.0 million advance from the Federal Home Loan Bank of New
York with a final maturity on November 15, 1999, with options to prepay
without penalty in whole or in part on November 14, 1995 and seminanually
thereafter. The advance has an interest rate adjusting monthly to 20 basis
points over the one month London Inter-Bank Offer Rate (LIBOR) rate. The
interest rate at March 31, 1995 was 6.325%.
<PAGE>
-10-
U.S.B. HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. COMMON STOCK, ADDITIONAL PAID-IN CAPITAL, FEDERAL HOME LOAN BANK ADVANCES,
LONG-TERM DEBT QUALIFYING AS CAPITAL AND NET INCOME PER COMMON SHARE DATA
(Cont'd)
Advances of the Banks are collateralized by stock in the Federal Home Loan
Banks of New York and Atlanta and by certain mortgage loans under a blanket
pledge agreement.
The dividend rate on the Company's Series "A" preferred stock issued to a
single investor is determined quarterly and is subject to certain minimum
and maximum per annum dividend rates as specified in the agreement. For the
three month periods ended March 31, 1995 and 1994, the weighted average
dividend rates were 8.4% (the minimum rate) for each period, and the net
income per common share reflects the preferred stock dividends declared and
accrued totalling $79,000 for each three month period ended March 31, 1995
and 1994, respectively.
In December 1993, the Company implemented a Dividend Reinvestment Plan. The
Plan allows stockholders to invest cash dividends in shares of the Company's
stock at fair value and in the third quarter of 1994, a stock purchase
feature was added to allow stockholders to purchase at fair value up to
$2,500 per quarter. As of March 31, 1995, 200,000 shares of common stock are
reserved for issuance in connection with the Plan, of which 60,261 shares
have been issued.
Shares granted but not yet issued under the Company's stock option plans are
considered common stock equivalents for earnings per share calculations;
however, these options had a minor dilutive effect (less than 3%) in the
first quarter of 1994 and, therefore, are not reflected in the earnings per
share computation for that period. In the first quarter of 1995, the
dilutive effect of stock options granted was greater than 3%. Net income per
common share is based on net income after preferred stock dividend
requirements and the weighted average number of common shares outstanding
and, in 1995, common equivalent shares, adjusted for common stock dividends.
The Company and its subsidiaries' ability to pay cash dividends in the
future are restricted by various regulatory requirements. The Company's
ability to pay cash dividends to its shareholders is primarily dependent
upon the receipt of dividends from the Banks. The Bank's dividends to the
Company may not exceed the sum of the Bank's net income for that year and
its undistributed net income for the preceding two years, less any required
transfers to paid-in capital. Royal may pay dividends to the Company, upon
30-day notice to the OTS, if it has met its fully-phased-in capital
requirements, in an amount that would not reduce its surplus capital ratio
by more than one-half at the beginning of the year, plus all of its net
income determined on the basis of generally accepted accounting principles
for that calendar year. Royal must continue to meet all fully-phased-in
capital requirements after the proposed capital distribution.
The Company issued $1,700,000 in 1991 ($200,000 repaid in July 1993) and
issued $300,000 in 1992 of the $2.0 million Series "A" subordinated notes
authorized by the Company, to other banking and credit institutions and
individual investors, 80% of which currently qualifies as Tier II capital
under risk-based capital guidelines at March 31, 1995. The notes, which
mature on June 30, 1999, bear interest at a floating rate of prime plus
one-half percent, payable
<PAGE>
-11-
U.S.B. HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. COMMON STOCK, ADDITIONAL PAID-IN CAPITAL, FEDERAL HOME LOAN BANK ADVANCES,
LONG-TERM DEBT QUALIFYING AS CAPITAL AND NET INCOME PER COMMON SHARE DATA
(Cont'd)
quarterly. The weighted average interest rates for the three month periods
ended March 31, 1995 and 1994 were 9.33% and 6.52%, respectively. The
Company intends to prepay the notes in the second quarter of 1995.
7. COMMITMENTS AND CONTINGENCIES
At March 31, 1995, the Bank was committed under an employment agreement with
a key officer, director and shareholder requiring annual salary and other
payments of $340,000, increasing annually by $30,000 during the term of the
contract, annual stock option grants of 20,000 shares, issued at fair value
at the date of grant and other benefits for the term of the contract
expiring July 1, 1999.
During the three month period ended March 31, 1995, the Bank sold in the
secondary market for cash, mortgage loans with net proceeds totalling $2.7
million. During the quarter ended March 31, 1995, no fixed rate residential
mortgages were swapped with the Federal Home Loan Mortgage Corporation
(FHLMC) by the Banks for guaranteed participation certificates in
residential mortgage pools.
At March 31, 1995, the principal balance of the loans sold and exchanged
with the FHLMC which remain uncollected approximated $120.8 million. The
Banks are committed to service these loans. At March 31, 1995, the Bank was
also committed to service approximately $787,000 of outstanding mortgage
principal balances relating to the State of New York Mortgage Agency
(SONYMA).
In the normal course of business, the Banks make various commitments to
extend credit which are not reflected in the accompanying financial
statements. At March 31, 1995, formal credit line and loan commitments,
which are primarily loans collateralized by real estate at variable interest
rates, approximated $74.8 million and outstanding letters of credit totalled
$7.7 million. Such amounts represent the maximum risk of loss on these
commitments.
In the ordinary course of business, the Company is party to various legal
proceedings, none of which, in the opinion of Management, will have a
material effect on the financial position of the Company.
<PAGE>
-12-
U.S.B. HOLDING CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At March 31, 1995, the Company had total assets of $637.9 million, an increase
of 6%, or $35.3 million from December 31, 1994. Total deposits increased $36.8
million for the three month period ended March 31, 1995, to $580.6 million,
which represented a 7% increase from December 31, 1994. Time deposits increased
$41.4 million, primarily due to a time deposit promotion associated with the new
Ossining branch opening of the Bank ($12.4 million) and an increase in time
deposits of $100,000 and over from local municipalities ($22.5 million). Both
the retail time deposits and municipal time deposits, which are obtained on a
bidding basis with maturities of 30 to 180 days, were used to temporarily fund
loans and securities under the Company's asset liability policy. Savings
deposits also increased $5.2 million as the Company introduced and promoted new
products during the quarter. These products included a tiered-rate savings
product and a "liquid gold" account which pays a rate equal to the Federal
Reserve discount rate. These increases were offset by decreases in demand
deposits ($7.4 million), money market deposits ($1.3 million) and NOW accounts
($1.0 million) as customers generally switched their balances to the higher
yielding deposit products in an increasing rate environment.
The increase in deposits was used to fund security purchases and loan closings.
In addition, Federal funds sold increased by $20.0 million at March 31, 1995,
compared to December 31, 1994, as time deposits increased substantially in
the higher deposit rate environment. These funds are being utilized during
the second quarter to further fund loan closings and additional security
purchases.
The securities portfolio of $231.4 million and $225.5 million at March 31, 1995
and December 31, 1994, respectively, consists of securities held to maturity of
$144.4 million and $149.6 million and securities available for sale totalling
$87.0 million and $75.9 million.
Obligations of other U.S. Treasury and Government agencies increased by $14.6
million in the quarter ended March 31, 1995 due to the purchases of $35.9
million, net of $7.0 million of called securities and sales of $14.2 million.
The securities sold were those which would have been called during 1995.
Obligations of other U.S. Government agencies are often used as collateral for
the Company's borrowing requirements. Mortgage-backed securities decreased $4.8
million during the quarter as a result of principal payments, sales of $7.7
million of available for sale securities, offset by purchases of $3.4 million,
which was a part of an overall restructuring of the portfolio to adjust to
the change in market conditions as interest rates were falling and a decrease
in the net unrealized loss on mortgage-backed securities of $1.7 million. The
Bank's investment in obligations of states and political subdivisions
decreased by $2.9 million for the three month period due to maturities.
However, the Bank still considers such securities as core investments which
are high yielding on a tax equivalent basis and have diversified final
maturities and will maximize its holdings of "tax-qualified" tax-exempt New
York State securities as they become available at attractive yields. The
Banks also invest in medium-term corporate debt securities and other
securities which are rated investment grade by nationally recognized rating
organizations. During the quarter ended March 31, 1995, such securities had a
net decrease of $1.0 million, principally due to maturities of corporate
bonds of $3.0 million, which offset purchases during the period. The Company
continues to invest in securities that provide safety and liquidity, produce
income on excess
<PAGE>
-13-
U.S.B. HOLDING CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Cont'd)
FINANCIAL CONDITION (Cont'd)
funds during structural changes in the composition of deposits, as well as
during cyclical and seasonal changes in loan demand, and whose cash flow
patterns result in a low degree of interest rate risk.
At March 31, 1995, net loans were $342.0 million, a net increase of $11.7
million from December 31, 1994. Outstanding loan balances increased $3.0 million
in commercial mortgages, $4.9 million in construction loans, $1.3 million in
residential mortgages (net of mortgage loan cash sales of $2.7 million), $.8
million in home equity loans and $2.4 million in time secured and unsecured
loans, offset by net payoffs in installment loans. At March 31, 1995, the Banks
had approximately $74.8 million in loan commitments outstanding. It is expected
that future loans will be funded principally by excess funds temporarily placed
in Federal funds sold, deposits from customers and municipalities, loan
repayments from existing loan customers and maturing securities.
The Bank's allowance for loan losses was $3.3 million at both March 31, 1995 and
December 31, 1994. The loan loss allowance represented .97% of net loans
(including loans held for sale) outstanding at March 31, 1995, compared to 1.01%
at December 31, 1994. The allowance reflects a provision of $200,000 and net
charge-offs of $197,000 recorded during the quarter ended March 31, 1995.
Management takes a prudent and cautious position in evaluating various business
and economic uncertainties in relation to the Company's loan portfolio. At March
31, 1995, management believes that the allowance is considered adequate to
absorb potential losses inherent in the credit portfolio.
Stockholders' equity increased to $41.6 million at March 31, 1995, an increase
of $3.3 million from the December 31, 1994 balance of $38.3 million. The net
income of $1.7 million for the three month period ended March 31, 1995 was
offset by cash dividends on both its preferred stock of $79,000 and common stock
of $271,000. Under the Company's dividend reinvestment plan, stockholders
purchased 12,445 shares of common stock at a value of $313,000 and stock options
of 14,679 shares were exercised under the Company's stock option plans, in the
aggregate amount of $140,000. Due to market conditions during the quarter, the
effect of SFAS No. 115 for the three month period ended March 31, 1995, was an
increase to stockholders' equity, net of tax effect, of $1,483,000.
The Company's leverage ratio at March 31, 1995 of 6.85%, down from 7.21% at
December 31, 1994, was well above the "well-capitalized" level of five percent.
The Company's Tier I and total capital ratios under the risk-based capital
guidelines were 10.71% and 11.91% at March 31, 1995 and 10.58% and 11.82% at
December 31, 1994, respectively, which remained above the "well-capitalized"
levels of six percent (Tier I) and ten percent (Total Capital).
RESULTS OF OPERATIONS
EARNINGS
Net income for the three month period ended March 31, 1995, decreased $142,000
or 8% to $1.7 million, compared to the same period in 1994. Net income per
common and common equivalent share decreased to $.64 per share in the first
quarter of 1995 from $.73 per common share recorded in the same period in 1994.
The annualized return on average total assets decreased to 1.10% for the three
months ended March 31, 1995 from 1.37% for the quarter ended March 31, 1994. A
<PAGE>
-14-
U.S.B. HOLDING CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Cont'd)
EARNINGS (Cont'd)
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, 1995, net interest income increased 2% to
$5.9 million, from $5.8 million in the year earlier period. Although net
interest income increased $138,000 year-to-year due to the volume increase of
average net earning assets, the net interest spread declined to 3.57% in the
first quarter of 1995 from 4.34% in the three month period ended March 31, 1994,
as interest rates increased throughout 1994 and into the first quarter of 1995.
During the first quarter of 1995, much of the effect of seven short-term
interest rate increases by the Federal Reserve during 1994 and the first
quarter of 1995, impacted the Company's net interest spread. Cost of funds
rose as deposit rates increased, principally in saving accounts with the
introduction of a new product which paid a rate equal to the Federal Reserve
discount rate, and time deposits due to the new Ossining branch promotion and
the effect of time deposits renewing at the prevailing higher rates. The
impact of an increased level of nonaccrual loans in the first quarter of 1995
compared to 1995 also negatively affected net interest income year-to-year.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $65,000 to $200,000 for the three month
period ended March 31, 1995, compared to the same period in 1994. Charge-offs in
the first quarter of 1995 totalled $205,000 relating primarily to commercial
loans, compared to $47,000 of charged-off loans during the same period in 1994.
Nonaccrual loans, which are principally secured by real estate, increased to
$6.9 million at March 31, 1995, from $5.9 million at December 31, 1994 and $4.0
million at March 31, 1994. 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. Net income is
adversely impacted by the level of non-performing assets of the Bank since, in
addition to foregone revenue, the Company must increase the level of provision
for loan losses, and incur other costs associated with collections of past due
balances.
An evaluation of the quality of the loan portfolio is performed by management on
an ongoing basis as an integral part of the loan function, which includes the
identification of past due loans, the recognition of the current economic
environment and the review of the historical loan experience. Management has
taken a prudent and cautious position in evaluating various business and
economic uncertainties in relation to the Company's loan portfolio. The changes
in the provision charged to income and the allowance for loan losses reflects
such uncertainties on an ever increasing 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, 1995 increased $98,000
to $849,000 from $751,000 in the same period of 1994. The increase in 1995 was
<PAGE>
-15-
U.S.B. HOLDING CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NON-INTEREST INCOME (Cont'd)
due to losses on loans held for sale in the 1994 period, while a small gain was
recorded in 1995, and an increase in other income, which offset decreases in
gains on securities transactions and service charges and fees. The relationship
of non-interest income to non-interest expenses remained relatively flat for
each three month period at approximately 20%.
The net loss on securities transactions of $57,000 for the three months ended
March 31, 1995, was a result of transactions that occurred in the quarter to
restructure the securities portfolio by enhancing yield and improving liquidity,
offset by gains on the sale of certain callable securities which would have been
called during 1995. The $172,000 gain on securities transactions for the three
month period ended March 31, 1994 was primarily comprised of gains from the
January 1994 sale of $4.0 million of mortgage-backed pools originated by the
Banks due to accelerated principal prepayments.
The net gain on loans held for sale in the first quarter of 1995 of $14,000 was
principally due to the sale of $2.7 million of fixed rate residential mortgages,
while the loss of $235,000 that occurred in the first three months of 1994 was
principally related to a write-down of loans held for sale of $261,000.
Service charges decreased $5,000 in the first three months of 1995, compared to
the prior year, as increases which resulted from an increased level of account
activity resulting from a higher deposit base, were offset by higher customer
rebates during the period.
Other income increased $83,000 to $248,000 in the first quarter of 1995,
primarily as a result of higher mortgage servicing income ($23,000) as a
result of increased volume in loans serviced, and increased fee income
($39,000) relating to various services provided by the Banks and commissions
from credit cards.
NON-INTEREST EXPENSES
Non-interest expenses rose to $4,183,000 for the three months ended March 31,
1995, a 13% increase over the comparable period in 1994 of $3,690,000.
Salaries, the largest component of non-interest expense, increased $224,000
to $1.5 million for the quarter ended March 31, 1995, compared to 1994. This
increase occurred due to annual merit increases, the opening of the North
White Plains branch in July, 1994 and Ossining branch in January, 1995, and
also additional personnel necessary for the Bank to accommodate the increases
in both deposits and loans and their related services. Full-time equivalent
employees of 195 at March 31, 1995 represented an increase from 188 full-time
equivalent employees at March 31, 1994.
Employee benefits decreased $54,000 to $648,000 for the three month period ended
March 31, 1995, compared to the quarter ended March 31, 1994. The decrease
occurred primarily because of a reduction in incentive compensation programs
which are based on the Company's net income and overall financial performance
and in 1994, loan related incentives. In addition, a favorable state
unemployment adjustment occurred during the first quarter of 1995. These
decreases were offset by higher payroll taxes during the first three months of
1995 due to the higher salaries base. The changes in the other components of
<PAGE>
-16-
U.S.B. HOLDING CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Cont'd)
NON-INTEREST EXPENSES (Cont'd)
non-interest expenses for the three month period ended March 31, 1995 compared
to March 31, 1994 were due to the following:
- - Increase of $75,000 (11%) in occupancy and equipment cost was due principally
to increased costs associated with the two branches opened in the third
quarter of 1994 and January, 1995.
- - Increase of $54,000 (40%) in advertising and business development because of
the new branch opening promotions and advertising related to other new
deposit products such as "liquid gold."
- - Increase of $37,000 (25%) in professional fees due to loan related
professional fees associated with loan collections and foreclosures.
- - Increase of $20,000 (16%) in communication expenses due to an increase
in postage and telephone expenses that arose as a result of postal volume,
rates and new branch additions.
- - Increase of $26,000 (57%) in stationery and printing because of new branches
and increase in deposit and loan volume.
- - Increase of $37,000 (14%) in FDIC insurance premiums due to an overall 19%
increase in deposit levels between March 31, 1995 and 1994.
- - Increase of $74,000 (23%) in other expense due to foreclosure related
expenses relating to the loss on a sale of a foreclosed property and expenses
associated with Royal's credit card program.
INCOME TAXES
The effective tax rates for the three month periods ended March 31, 1995 and
1994 were 29% and 33%, respectively. The variance in the effective tax rate in
1995 was due to the recording of deferred tax benefits in 1995 related to the
allowance for loan losses and the Bank's increased investment in tax-exempt
securities. The Bank utilizes such securities to collateralize municipal
deposits and also take advantage of the tax benefits, which results in a
lowering of the effective tax rate. The purchase of such bonds is currently
limited by the low level of securities in the market place.
<PAGE>
-17-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit XI - Statement re: Computation of Per Share Earnings
(b) Reports on Form 8-K. None were filed during the quarter ended
March 31, 1995.
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 11, 1995.
U.S.B. HOLDING CO., INC.
/s/ Thomas E. Hales /s/ Steven T. Sabatini
- ----------------------------------- ---------------------------------
Thomas E. Hales Steven T. Sabatini
Chairman of the Board Executive Vice President Finance
President, Chief Financial Officer and
Chief Executive Officer Assistant Secretary
and Director (Principal Financial and
Accounting Officer)
<PAGE>
-18-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit XI - Statement re: Computation of Per Share Earnings
(b) Reports on Form 8-K. None were filed during the quarter ended
March 31, 1995.
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 11, 1995.
U.S.B. HOLDING CO., INC.
- ------------------------------ ---------------------------------
Thomas E. Hales Steven T. Sabatini
Chairman of the Board Executive Vice President Finance
President, Chief Financial Officer and
Chief Executive Officer Assistant Secretary
and Director (Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT XI
U.S.B. HOLDING CO., INC.
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Weighted average number of common
shares outstanding 2,455,610
Assuming exercise of options reduced
by the number of shares which could
have been purchased with the proceeds
from exercise of such options 93,839
---------
Weighted average common and common
equivalent shares outstanding 2,549,449
---------
---------
Net Income Per Common and Common Equivalent Share $ 0.64
---------
---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000707805
<NAME> USB HOLDING CO. INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 15,476
<INT-BEARING-DEPOSITS> 509,471
<FED-FUNDS-SOLD> 25,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 86,979
<INVESTMENTS-CARRYING> 144,410
<INVESTMENTS-MARKET> 142,331
<LOANS> 341,983
<ALLOWANCE> 3,323
<TOTAL-ASSETS> 637,938
<DEPOSITS> 580,646
<SHORT-TERM> 5,500
<LIABILITIES-OTHER> 3,387
<LONG-TERM> 6,800
<COMMON> 12,813
0
3,750
<OTHER-SE> 25,042
<TOTAL-LIABILITIES-AND-EQUITY> 637,938
<INTEREST-LOAN> 7,716
<INTEREST-INVEST> 3,591
<INTEREST-OTHER> 273
<INTEREST-TOTAL> 11,580
<INTEREST-DEPOSIT> 5,410
<INTEREST-EXPENSE> 5,637
<INTEREST-INCOME-NET> 5,943
<LOAN-LOSSES> 200
<SECURITIES-GAINS> (57)
<EXPENSE-OTHER> 4,183
<INCOME-PRETAX> 2,409
<INCOME-PRE-EXTRAORDINARY> 2,409
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,700
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
<YIELD-ACTUAL> 0
<LOANS-NON> 0
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