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 June 30, 1999
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
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES |X| NO |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 4, 1999
----- -----------------------------
Common stock, par value 16,022,121
$0.01 per share
<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
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998. 1
CONSOLIDATED STATEMENTS OF INCOME FOR THE
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED). 2
CONSOLIDATED STATEMENTS OF INCOME FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED). 3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS) FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 1999 AND 1998 (UNAUDITED). 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED). 5
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND 1998 (UNAUDITED). 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED). 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK. 31
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. 32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 32
- i -
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
U.S.B. HOLDING CO., INC. (Unaudited)
CONSOLIDATED STATEMENTS OF CONDITION June 30, December 31,
1999 1998
----------- -----------
ASSETS (000's, except share data)
<S> <C> <C>
Cash and due from banks $ 19,668 $ 23,660
Federal funds sold 31,700 45,500
----------- -----------
Cash and cash equivalents 51,368 69,160
Interest bearing deposits in other banks 397 1,877
Securities:
Available for sale (at estimated fair value) 410,400 379,514
Held to maturity (estimated fair value
$175,576 in 1999 and $70,284 in 1998) 176,200 67,019
Loans held for sale -- 3,283
Loans, net of allowance for loan losses of
$9,633 in 1999 and $8,889 in 1998 809,973 719,196
Premises and equipment, net 10,846 11,210
Accrued interest receivable 9,089 7,161
Other real estate owned (OREO) 192 415
Federal Home Loan Bank of New York stock 25,742 17,849
Other assets 17,096 12,128
----------- -----------
TOTAL ASSETS $ 1,511,303 $ 1,288,812
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest bearing deposits $ 156,362 $ 137,270
Interest bearing deposits:
NOW accounts 68,502 66,304
Money market accounts 46,691 44,326
Savings deposits 361,148 331,448
Time deposits 431,118 379,292
----------- -----------
Total deposits 1,063,821 958,640
Accrued interest payable 4,752 4,529
Accrued expenses and other liabilities 9,170 8,089
Securities sold under agreements to repurchase 288,780 165,780
Federal Home Loan Bank of New York advances 28,514 34,335
----------- -----------
Total 1,395,037 1,171,373
Corporation-Obligated mandatory redeemable capital
securities of subsidiary trust 20,000 20,000
Minority interest-junior preferred stock of consolidated
subsidiary 137 --
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, $0.01 par value; authorized shares
50,000,000 in 1999 and 30,000,000 in 1998; issued
shares of 16,325,928 in 1999 and 16,165,175 in 1998 163 162
Additional paid-in capital 97,891 96,919
Retained earnings 6,878 1,513
Treasury stock at cost, 304,107 shares
in 1999 and 201,628 shares in 1998 (3,682) (2,223)
Common stock held for benefit plans (1,539) (1,628)
Deferred compensation obligation 695 675
Accumulated other comprehensive income (loss) (4,277) 2,021
----------- -----------
Total stockholders' equity 96,129 97,439
=========== ===========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,511,303 $ 1,288,812
=========== ===========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
1999 1998
-------- --------
(000's, except share data)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 16,363 $ 14,540
Interest on federal funds sold 344 295
Interest and dividends on securities:
Mortgage-backed securities 6,012 5,541
U.S. Treasury and government agencies 1,793 1,095
Obligations of states and political subdivisions 754 800
Corporate and other 21 18
Interest on deposits in other banks 10 14
Dividends on Federal Home Loan Bank of New York stock 363 273
-------- --------
Total interest income 25,660 22,576
======== ========
INTEREST EXPENSE:
Interest on deposits 8,997 10,047
Interest on borrowings 3,469 1,412
Interest on Corporation - Obligated mandatory redeemable
capital securities of subsidiary trust 488 488
-------- --------
Total interest expense 12,954 11,947
-------- --------
NET INTEREST INCOME 12,706 10,629
Provision for loan losses 302 310
-------- --------
Net interest income after provision for loan losses 12,404 10,319
-------- --------
NON-INTEREST INCOME:
Service charges and fees 766 677
Gain on securities transactions - net 201 686
Other income 306 249
-------- --------
Total non-interest income 1,273 1,612
======== ========
NON-INTEREST EXPENSE:
Salaries and employee benefits 4,275 4,080
Occupancy and equipment expense 1,340 1,168
Advertising and business development 463 368
Professional fees 247 479
Communications 187 199
Stationery and printing 146 168
FDIC insurance 44 41
Other expenses 601 756
-------- --------
Total non-interest expense 7,303 7,259
======== ========
Income before income taxes 6,374 4,672
Provision (benefit) for income taxes 2,391 (582)
-------- --------
NET INCOME $ 3,983 $ 5,254
======== ========
BASIC EARNINGS PER COMMON SHARE $ 0.25 $ 0.34
======== ========
DILUTED EARNINGS PER COMMON SHARE $ 0.24 $ 0.31
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1999 1998
------- -------
(000's, except share data)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $31,995 $28,593
Interest on federal funds sold 728 656
Interest and dividends on securities:
Mortgage-backed securities 11,244 8,945
U.S. Treasury and government agencies 2,709 3,937
Obligations of states and political subdivisions 1,523 1,622
Corporate and other 34 28
Interest on deposits in other banks 29 27
Dividends on Federal Home Loan Bank of New York stock 659 538
------- -------
Total interest income 48,921 44,346
------- -------
INTEREST EXPENSE:
Interest on deposits 17,491 19,594
Interest on borrowings 6,153 2,896
Interest on Corporation - Obligated mandatory redeemable
capital securities of subsidiary trust 976 976
------- -------
Total interest expense 24,620 23,466
------- -------
NET INTEREST INCOME 24,301 20,880
Provision for loan losses 910 620
------- -------
Net interest income after provision for loan losses 23,391 20,260
------- -------
NON-INTEREST INCOME:
Service charges and fees 1,551 1,331
Gain on securities transactions - net 527 1,059
Other income 672 525
------- -------
Total non-interest income 2,750 2,915
------- -------
NON-INTEREST EXPENSE:
Salaries and employee benefits 8,320 7,653
Occupancy and equipment expense 2,638 2,325
Advertising and business development 797 656
Professional fees 444 849
Communications 395 407
Stationery and printing 308 337
FDIC insurance 94 83
Other expenses 1,259 1,410
------- -------
Total non-interest expense 14,255 13,720
------- -------
Income before income taxes 11,886 9,455
Provision for income taxes 4,428 916
------- -------
NET INCOME $ 7,458 $ 8,539
======= =======
BASIC EARNINGS PER COMMON SHARE $ 0.47 $ 0.56
======= =======
DILUTED EARNINGS PER COMMON SHARE $ 0.45 $ 0.51
======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
(000's)
<S> <C> <C> <C> <C>
NET INCOME $ 3,983 $ 5,254 $ 7,458 $ 8,539
-------- -------- -------- --------
Other comprehensive income (loss), net of tax:
Net unrealized holding gain (loss) on
securities available for sale arising
during the period (8,714) 1,250 (10,163) 542
Income tax effect 3,573 (512) 4,167 (222)
-------- -------- -------- --------
(5,141) 738 (5,996) 320
-------- -------- -------- --------
Reclassification adjustment for net gain
realized on securities available for sale
that were held at the beginning of the period (154) (521) (512) (914)
Income tax effect 63 214 210 376
-------- -------- -------- --------
(91) (307) (302) (538)
-------- -------- -------- --------
Other comprehensive income (loss) (5,232) 431 (6,298) (218)
-------- -------- -------- --------
COMPREHENSIVE INCOME (LOSS) $ (1,249) $ 5,685 $ 1,160 $ 8,321
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1999 1998
--------- ---------
OPERATING ACTIVITIES (000's)
<S> <C> <C>
Net income $ 7,458 $ 8,539
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 910 610
Depreciation and amortization 967 836
Amortization/accretion of premiums (discounts) on securities - net 780 293
Tappan Zee Financial, Inc. fiscal year conversion -- (334)
Noncash ESOP and RRP expense 148 106
Deferred income taxes (600) (389)
Gain on securities transactions - net (527) (1,004)
Origination of loans held for sale (481) --
(Increase) decrease in accrued interest receivable (1,928) 289
Net increase in income taxes receivable -- (3,242)
Other - net 1,325 (3,032)
--------- ---------
Net cash provided by operating activities 8,052 2,672
--------- ---------
INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale 38,291 54,377
Proceeds from principal paydowns and redemptions of:
Securities available for sale 69,537 45,550
Securities held to maturity 4,782 73,094
Purchases of securities available for sale (149,736) (216,074)
Purchases of securities held to maturity (113,994) (10,990)
Net decrease in interest bearing deposits in other banks 1,480 1,106
Loans originated, net of principal collections (88,098) (50,472)
Purchases of premises and equipment - net (597) (1,001)
Proceeds from sales of OREO 505 267
Purchase of Federal Home Loan Bank of New York stock (7,893) --
--------- ---------
Net cash used for investing activities (245,723) (104,143)
--------- ---------
FINANCING ACTIVITIES:
Net increase in non-interest bearing deposits,
NOW, money market and savings accounts 53,355 60,783
Increase in time deposits, net of withdrawals and maturities 51,826 42,422
Net increase (decrease) in securities sold under agreements
to repurchase - short-term 73,000 (12,863)
Net decrease in Federal Home Loan Bank of New York
advances - short-term -- (34,000)
Proceeds from securities sold under agreements to
repurchase - long-term 50,000 20,000
Proceeds from Federal Home Loan Bank of New York
advances - long-term -- 10,000
Repayment of Federal Home Loan Bank of New York
advances - long-term (5,821) (5,578)
Cash dividends paid (2,093) (1,532)
Proceeds from sale of junior preferred stock of
consolidated subsidiary 137 --
Proceeds from issuance of common stock and tax benefit of
exercised stock options 934 1,413
Proceeds from sale of treasury stock -- 1
Purchase of treasury stock (1,459) (748)
--------- ---------
Net cash provided by financing activities 219,879 79,898
--------- ---------
</TABLE>
-Continued-
5
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1999 1998
-------- --------
(000's)
<S> <C> <C>
Decrease in Cash and Cash Equivalents $(17,792) $(21,573)
Cash and Cash Equivalents, Beginning of Period 69,160 52,405
-------- --------
Cash and Cash Equivalents, End of Period $ 51,368 $ 30,832
======== ========
Supplemental Disclosures:
Interest paid $ 24,397 $ 21,787
-------- --------
Income tax payments $ 2,030 $ 3,992
-------- --------
Transfer of assets to OREO - net $ 175 $ --
-------- --------
Transfer of loans held for sale to loans held to
maturity at lower of cost or fair value $ 3,764 $ 338
-------- --------
Change in shares held in trust for deferred compensation $ 20 $ 105
-------- --------
Accumulated other comprehensive (loss) $ (6,298) $ (218)
-------- --------
Increase in due from brokers due to unsettled sale of securities
available for sale $ -- $ 22,100
-------- --------
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(000's, except share data)
<TABLE>
<CAPTION>
Common
COMMON STOCK Additional Stock
Shares Par Paid-in Retained Treasury Held For
Outstanding Value Capital Earnings Stock Benefit Plans
----------- ----- ------- -------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 15,963,547 $ 162 $ 96,919 $ 1,513 $ (2,223) $ (1,628)
Net income 7,458
Cash dividends:
Common ($0.13 per share) (2,082)
Junior preferred stock of
consolidated subsidiary (11)
Common Stock Issued:
Employee stock options exercised
($2.02 to $6.20 per share) 37,025 88
Director stock options exercised
($2.22 to $6.41 per share) 123,728 1 603
Tax benefit of exercised stock options 242
Purchases of treasury stock (102,479) (1,459)
ESOP shares committed to be released 39 70
Amortization of RRP awards 39
Change in deferred compensation
obligation (20)
Other comprehensive loss
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1999 16,021,821 $ 163 $ 97,891 $ 6,878 $ (3,682) $ (1,539)
========== ========== ========== ========== ========== ==========
<CAPTION>
Accumulated
Deferred Other
Compensation Comprehensive
Obligation Income (Loss)
---------- -------------
<S> <C> <C>
Balance at January 1, 1999 $ 675 $ 2,021
Net income
Cash dividends:
Common ($0.13 per share)
Junior preferred stock of
consolidated subsidiary
Common Stock Issued:
Employee stock options exercised
($2.02 to $6.20 per share)
Director stock options exercised
($2.22 to $6.41 per share)
Tax benefit of exercised stock options
Purchases of treasury stock
ESOP shares committed to be released
Amortization of RRP awards
Change in deferred compensation
obligation 20
Other comprehensive loss (6,298)
---------- ----------
Balance at June 30, 1999 $ 695 $ (4,277)
========== ==========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(000's, except share data)
<TABLE>
<CAPTION>
COMMON STOCK Additional Common Stock
Shares Par Paid-in Retained Treasury Held For
Outstanding Value Capital Earnings Stock Benefit Plans
----------- ----- ------- -------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 14,085,191 $ 71,067 $ 4,975 $ 10,619 $ (866) $ (2,746)
Net income 8,539
Cash dividends:
Common ($0.108 per share) (1,532)
Common Stock Issued:
Employee stock options exercised
($2.15 to $16.688 per share) 105,153 106 714
Director stock options exercised
($2.25 per share) 8,836 44 (24)
Tax benefit of exercised stock options 573
Reduction of par value of common
stock from $5.00 per share to
$0.01 per share (71,074) 71,074
Purchases of treasury stock (35,649) (748)
Sale of treasury stock 100 1
ESOP shares committed to be released 38 37
Amortization of RRP awards 31
Change in deferred compensation
obligation 105
Other comprehensive loss
Adjustment for pooling of Company
with different fiscal year end (334)
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1998 14,163,631 $ 143 $ 77,350 $ 17,292 $ (1,613) $ (2,573)
========== ========== ========== ========== ========== ==========
<CAPTION>
Accumulated
Deferred Other
Compensation Comprehensive
Obligation Income (Loss)
---------- -------------
<S> <C> <C>
Balance at January 1, 1998 $ 1,441 $ 1,388
Net income
Cash dividends:
Common ($0.108 per share)
Common Stock Issued:
Employee stock options exercised
($2.15 to $16.688 per share)
Director stock options exercised
($2.25 per share)
Tax benefit of exercised stock options
Reduction of par value of common
stock from $5.00 per share to
$0.01 per share
Purchases of treasury stock
Sale of treasury stock
ESOP shares committed to be released
Amortization of RRP awards
Change in deferred compensation
obligation (105)
Other comprehensive loss (218)
Adjustment for pooling of Company
with different fiscal year end
---------- ----------
Balance at June 30, 1998 $ 1,336 $ 1,170
========== ==========
</TABLE>
See notes to consolidated financial statements.
8
<PAGE>
U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Principles of Consolidation
The consolidated financial statements include the accounts of U.S.B.
Holding Co., Inc. (the "Company" ), its wholly-owned bank subsidiaries,
Union State Bank (including its wholly-owned subsidiaries, U.S.B. Realty
Corp. through October 29, 1998, the date of its dissolution, U.S.B.
Financial Services, Inc., Dutch Hill Realty Corp. and TPNZ Preferred
Funding Corporation ("TPNZ") from April 30, 1999) (the "Bank"), and
Tarrytowns Bank, FSB, through April 30, 1999, the date of its merger with
and into the Bank (including its wholly-owned subsidiary, TPNZ, through
that date) ("Tarrytowns"), and the Company's wholly-owned non-bank
subsidiaries, Ad Con, Inc. and Union State Capital Trust I.
2. Acquisition of Tappan Zee Financial, Inc.
On August 31, 1998, the Company completed its acquisition of Tappan Zee
Financial, Inc. ("Tappan Zee"), the parent company of Tarrytowns and TPNZ,
pursuant to a definitive agreement signed on March 6, 1998. As of August
31, 1998, Tappan Zee had approximately $140 million in assets. The
transaction was structured as a tax free exchange of common shares and has
been accounted for as a pooling-of-interests. Accordingly, prior year
financial statements have been restated to reflect the Company and Tappan
Zee on a combined basis as of the earliest period presented. Tappan Zee
was merged into the Company, and Tarrytowns and TPNZ (subsequently
transferred to Tarrytowns) operated as wholly-owned subsidiaries of the
Company and Tarrytowns, respectively, until April 30, 1999, when
Tarrytowns was merged with and into the Bank.
Under the terms of the acquisition, each Tappan Zee shareholder received
Company common stock that had a value of $20.00 per share (adjusted for
the 10% stock dividend in December 1998) for each share of Tappan Zee
common stock. The exchange ratio, which was determined based on the
average of the last reported sale prices for a share of Company stock for
the 20 consecutive full trading days on the American Stock Exchange ended
on the date (August 19, 1998) on which the last of the regulatory
approvals required for consummation of the acquisition was obtained, was
1.12 Company shares for each Tappan Zee share (the "exchange ratio"). The
total value of the transaction based on the average Company stock price as
calculated for purposes of determining the exchange ratio was
approximately $32.5 million, which represented 1.47 times Tappan Zee's
book value as of June 30, 1998.
Prior to the acquisition, the Company and Tappan Zee had different fiscal
periods for financial reporting purposes. The consolidated financial
information as of and for the year ended December 31, 1997 and prior,
therefore, reflects U.S.B. Holding Co., Inc. and its wholly-owned
subsidiaries, Union State Bank, Ad Con, Inc., and Union State Capital
Trust I ("Company Information"), as of and for the year ended for the
applicable calendar year end, combined with Tappan Zee's financial
information as of and for the fiscal year ended for the subsequent March
31st. An adjustment of $334,000 is recorded to combined retained earnings
to eliminate the resulting duplication of recording Tappan Zee net income
for the three month period ended March 31, 1998, that would otherwise have
occurred as a result of preparing the consolidated financial information
in this manner.
9
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
As of the close of business on April 30, 1999, Tarrytowns was merged with
and into the Bank, with its offices continuing to operate and do business
following the merger. Having completed the merger, the Company currently
operates its commercial banking subsidiary, Union State Bank, at 24
locations in Rockland and Westchester Counties.
3. Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments (comprising only
normal recurring accruals) necessary to present fairly the financial
position of the Company as of June 30, 1999 and December 31, 1998, and its
operations and comprehensive income for the three and six month periods
ended June 30, 1999 and 1998, and its cash flows and changes in
stockholders' equity for the six month periods ended June 30, 1999 and
1998. 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 1998 Annual Report to Shareholders.
The results of operations for the three and six month periods ended June
30, 1999 may not necessarily be indicative of the results of operations to
be expected for the remainder of the year. Certain information and note
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission.
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles. 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 Consolidated Statements of Condition
and the revenues and expenses for the periods reported. Actual results
could differ significantly from those estimates.
Estimates that are particularly susceptible to significant change relate
to the determination of the allowance for loan losses and the valuation of
OREO acquired in connection with foreclosures or in satisfaction of loan
receivables. In connection with the determination of the allowance for
loan losses and OREO, Management obtains independent appraisals for
significant properties.
4. Reclassifications
Certain reclassifications have been made to prior period accounts to
conform to the current period's presentation.
10
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
5. Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" as amended in June 1999
by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities Deferral of the Effective Date of FASB Statement No. 133." This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that all derivatives be
recognized in the statement of condition, either as assets or as
liabilities, and measured at fair value. This statement requires that
changes in a derivative's fair value be recognized in current earnings
unless specific hedge accounting criteria are met. Hedge accounting for
qualifying hedges permits a derivative's gains and losses to offset the
related results on the hedged item. An entity that elects to apply hedge
accounting is required to establish at the inception of the hedge the
method it will use for assessing the effectiveness of the hedging
derivative and the measurement approach for determining the ineffective
aspect of the hedge. Those methods must be consistent with the entity's
approach to managing risk.
For the Company, SFAS No. 133 is effective January 1, 2001. A company may
also implement this statement as of the beginning of any fiscal quarter
after issuance but cannot apply the statement retroactively. The Company
does not anticipate that the statement will have a material impact on its
consolidated financial position or results of operations.
Accounting for Mortgage-Backed Securities Retained After the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise, an amendment of FASB
Statement No. 65." This statement amends SFAS No. 65, "Accounting for
Certain Mortgage Banking Activities," to conform the subsequent accounting
to that required (under SFAS No. 115) for securities retained after the
securitization of mortgage loans by a mortgage banking enterprise to the
accounting applicable to non-mortgage banking enterprises. The statement
allows a mortgage banking enterprise to classify securities retained after
a securitization of mortgage loans held for sale based on its ability and
intent to sell or hold those investments. However, such securities must be
classified as trading for any securities that a company commits to sell
before or during the securitization process. On the date of initial
application, a mortgage banking enterprise may reclassify mortgage-backed
securities and other beneficial interests retained after securitization of
mortgage loans held for sale from the trading category, except for those
with sales commitments in place.
The Company adopted this statement effective January 1, 1999 with no
material impact on its financial position or results of operations.
11
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
6. Forward-Looking Statements
The Company has made, and may continue to make, various forward-looking
statements with respect to earnings, credit quality and other financial
and business matters for periods subsequent to June 30, 1999. 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; 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;
ability to achieve cost savings, estimates of merger related costs, and
other assumptions related to the acquisition of Tappan Zee; degree of
expected compliance with the Year 2000 issues that are more fully
discussed in Management's Discussions and Analysis of Financial Condition
and Results of Operations; changes 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 speak 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.
12
<PAGE>
7. Earnings Per Share ("EPS")
The following table sets forth the computation of Basic and Diluted
earnings per common share:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(000's, except share data)
Three Months Ended Six Months Ended
June 30, June30, June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 3,983 $ 5,254 $ 7,458 $ 8,539
Less preferred stock dividends 11 -- 11 --
----------- ----------- ----------- -----------
Net income available to common
stockholders for basic and diluted
earnings per common share $ 3,972 $ 5,254 $ 7,447 $ 8,539
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings
per common share - weighted
average shares 15,938,073 15,399,950 15,913,102 15,384,846
Effects of dilutive securities:
Director and employee
stock options 666,407 1,416,117 675,296 1,426,801
Restricted stock not vested 12,031 20,472 12,085 20,234
----------- ----------- ----------- -----------
Total effects of dilutive securities 678,438 1,436,589 687,381 1,447,035
----------- ----------- ----------- -----------
Denominator for diluted earnings
per common share - adjusted
weighted average shares 16,616,511 16,836,539 16,600,483 16,831,881
=========== =========== =========== ===========
Basic earnings per common share $ 0.25 $ 0.34 $ 0.47 $ 0.56
=========== =========== =========== ===========
Diluted earnings per common share $ 0.24 $ 0.31 $ 0.45 $ 0.51
=========== =========== =========== ===========
</TABLE>
8. Securities
In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Company's investment policies include a
determination of the appropriate classification of securities at the time
of purchase. Securities that may be sold as part of the Company's
asset/liability or liquidity management, or in response to or in
anticipation of changes in interest rates and resulting prepayment risk,
or for similar factors, are classified as available for sale. Securities
that the Company has the ability and positive intent to hold to maturity
are classified as held to maturity and carried at amortized
13
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
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 consolidated statements of
condition at estimated fair value and the resulting net unrealized gains
and losses, net of tax, are shown as a separate component of accumulated
other comprehensive income (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. Estimated fair values for securities are based on quoted market
prices, where available. If quoted market prices are not available,
estimated fair values are based on quoted market prices of comparable
instruments. The Company does not acquire securities for the purpose of
engaging in trading activities.
Sales of securities include gross gains of $226,000 and $688,000 and gross
losses of $25,000 and $2,000 for the three months ended June 30, 1999 and
1998, respectively. For the six months ended June 30, 1999 and 1998, sales
of securities include gross gains of $552,000 and $1,073,000, and gross
losses of $25,000 and $14,000, respectively.
14
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
A summary of the amortized cost and estimated fair values of securities
and related gross unrealized gains and losses at June 30, 1999 and
December 31, 1998, follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
June 30, 1999: ======== ======== ======== ========
Available for Sale: (000's)
<S> <C> <C> <C> <C>
U.S. Treasury and
government agencies $ 69,450 $ 42 $ 982 $ 68,510
Mortgage-backed securities 343,986 476 6,928 337,534
Obligations of states and
political subdivisions 1,539 46 -- 1,585
Corporate securities 2,300 -- -- 2,300
Other 471 -- -- 471
-------- -------- -------- --------
Total securities available for sale $417,746 $ 564 $ 7,910 $410,400
======== ======== ======== ========
Held to Maturity:
U.S. Treasury and
government agencies $ 75,736 $ -- $ 1,537 $ 74,199
Mortgage-backed securities 45,579 339 1,017 44,901
Obligations of states and
political subdivisions 54,885 1,604 13 56,476
-------- -------- -------- --------
Total securities held to maturity $176,200 $ 1,943 $ 2,567 $175,576
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1998: ======== ======== ======== ========
Available for Sale: (000's)
<S> <C> <C> <C> <C>
U.S. Treasury and
government agencies $ 54,532 $ 1,110 $ 4 $ 55,638
Mortgage-backed securities 319,345 2,277 30 321,592
Obligations of states and
political subdivisions 1,539 101 -- 1,640
Corporate securities 472 -- -- 472
Other 172 -- -- 172
-------- -------- -------- --------
Total securities available for sale $376,060 $ 3,488 $ 34 $379,514
======== ======== ======== ========
Held to Maturity:
Mortgage-backed securities $ 9,774 $ 118 $ 7 $ 9,885
Obligations of states and
political subdivisions 57,245 3,154 -- 60,399
-------- -------- -------- --------
Total securities held to maturity $ 67,019 $ 3,272 $ 7 $ 70,284
======== ======== ======== ========
</TABLE>
15
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
9. Loans
Nonaccrual loans were $1.3 million at June 30, 1999 and $2.3 million at
December 31, 1998. Restructured loans were $0.4 million and $0.7 million
at June 30, 1999 and December 31, 1998, respectively.
Substantially all of the nonaccruing and restructured loans are
collateralized by real estate, except for certain loans made by the Bank
to Bennett Funding Group ("Bennett") which are collateralized by cash and
lease receivables. At June 30, 1999, the Company has no commitments to
lend additional funds to any customers with nonaccrual or restructured
loan balances.
At June 30, 1999, there are loans aggregating approximately $7,000, which
are not on nonaccrual status, that were potential problem loans which may
result in their being placed on nonaccrual status in the future.
At June 30, 1999 and December 31, 1998, the recorded investment in loans
that are considered to be impaired under SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," approximated $1.2 million and $1.6
million, of which $0.9 million and $1.2 million at June 30, 1999 and
December 31, 1998 were in nonaccrual status, respectively. Where
warranted, each impaired loan has a related allowance for loan losses
determined in accordance with SFAS No. 114. The total allowance for loan
losses related to impaired loans was $0.4 million and $0.5 million as of
June 30, 1999 and December 31, 1998, respectively. The average recorded
investment in impaired loans for the six months ended June 30, 1999 and
year ended December 31, 1998 was approximately $1.2 million and $3.4
million, respectively. For the three and six months ended June 30, 1999
and 1998, interest income recognized by the Company on impaired loans was
not material.
Restructured loans in the amounts of $0.4 million at both June 30, 1999
and December 31, 1998, that are considered to be impaired due to a
reduction in the contractual interest rate, are on accrual status because
the collateral securing these loans is sufficient to protect the
contractual principal and interest of the restructured loans. These loans
have been performing for a reasonable period of time. Interest accrued on
these loans and not yet collected as of June 30, 1999 is immaterial.
At June 30, 1999, the Bank had $0.6 million of outstanding loans,
collateralized by cash and lease receivables, to Bennett, a lease finance
company, which filed for bankruptcy protection during the first quarter of
1996. Collection of the Bank's loans continues to be delayed by the
bankruptcy proceedings. However, as a result of a favorable ruling in the
second quarter of 1998 by the Bankruptcy Court with jurisdiction over
Bennett, the Bank collected an initial payment of $1.4 million, reducing
the original balance of $3.3 million to $1.9 million. Additional
collections of $1.0 million were received through June 30, 1999, and $0.3
million was charged off during 1998, reducing the balance of the loans to
$0.6 million. Further collections are anticipated. The ruling by the
Bankruptcy Court is subject to appeal by the Trustee.
16
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
10. Borrowings and Stockholders' Equity
The Company utilizes borrowings primarily to meet the funding requirements
for its asset growth and to manage its interest rate risk. Borrowings
include securities sold under agreements to repurchase, federal funds
purchased, and Federal Home Loan Bank of New York ("FHLB") advances.
Short-term securities sold under agreements to repurchase generally mature
between one and 365 days. The Bank may borrow up to $50.0 million from two
primary investment firms under master security sale and repurchase
agreements (of which $9.8 million was long term and outstanding at June
30, 1999). In addition, the Bank also has the ability to borrow under
similar master security sale and repurchase agreements from the FHLB and,
to a lesser extent, its customers. At June 30, 1999 and December 31, 1998,
the Company had $74.0 million and $1.0 million of such short-term
borrowings outstanding with terms of between 30 days and 365 days, and at
interest rates of between 4.95 percent and 5.88 percent, respectively. At
June 30, 1999 and December 31, 1998, the borrowings were collateralized by
securities with an aggregate amortized cost of $80.0 million and $1.0
million and estimated fair value of $78.2 million and $1.0 million,
respectively.
Federal funds purchased represent overnight funds. The Bank has federal
funds purchase lines available with six financial institutions totaling
$46.0 million. At June 30, 1999 and December 31, 1998, the Bank had no
federal funds purchased balances outstanding.
Short-term FHLB advances are borrowings with original maturities of
between one and 365 days. At June 30, 1999 and December 31, 1998, the
Company had no such borrowings outstanding.
Additional information with respect to short-term borrowings as of and for
the six months ended June 30, 1999 and 1998 is presented in the table
below.
--------------------------------------------------------------------------
Short-Term Borrowings 1999 1998
--------------------------------------------------------------------------
(000's except percentages)
Balance at June 30 $ 74,000 $ 23,000
Average balance outstanding 18,685 17,698
Weighted-average interest rate
As of June 30 5.20% 5.64%*
Paid during period 5.14% 5.92%*
--------------------------------------------------------------------------
*The weighted-average interest rates have been adjusted to reflect the
effect of an interest rate swap used to convert a variable rate borrowing
to a fixed rate.
At June 30, 1999 and December 31, 1998, long-term FHLB advances totaled
$28.5 million and $34.3 million, respectively. At June 30, 1999, long-term
FHLB advances aggregating $5.0 million were single principal payments and
are not repayable prior to maturity without penalty. Long-term FHLB
advances aggregating $23.5 million were amortizing advances having
scheduled payments, but may not be repaid in full prior to maturity
without penalty.
17
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
The Bank also had long-term borrowings of $214.8 million and $164.8
million in securities sold under agreements to repurchase as of June 30,
1999 and December 31, 1998, respectively. At June 30, 1999, these
borrowings included $9.8 million having an original term of three years at
an interest rate of 6.08 percent, and $205.0 million having original terms
of between five and ten years at interest rates between 4.13 percent and
5.67 percent that are callable on certain dates after an initial noncall
period at the option of the counter party to the repurchase agreement. As
of June 30, 1999 and December 31, 1998, these borrowings were
collateralized by securities with an aggregate amortized cost of $205.3
million and $147.9 million and estimated fair value of $201.0 million and
$149.5 million, and certain mortgage related assets having an outstanding
balance of $27.5 million and $24.4 million and an estimated fair value of
$24.8 million and $22.0 million, respectively.
At June 30, 1999 and December 31, 1998, the Company held 257,419 shares
and 178,485 shares of capital stock in the FHLB with a carrying value of
$25.7 million and $17.9 million, respectively, which is required in order
to borrow under the short and long-term advance and securities sold under
agreements to repurchase programs from the FHLB. The FHLB generally limits
borrowings up to an aggregate of 30 percent of total assets, excluding
securities sold under agreements to repurchase, upon the prerequisite
purchase of additional shares of FHLB stock. Any advances made from the
FHLB are required to be collateralized by the FHLB stock purchased and
certain other assets.
The following tables are a summary of long-term debt, all of which are
fixed rate, distributed based upon remaining contractual maturity and
estimated expected option call date or principal payment date at June 30,
1999, with a comparative total for December 31, 1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
After 1
Within But Within After 1999 1998
Contractual Maturity 1 Year 5 Years 5 Years Total Total
- ------------------------------------------------------------------------------------------------------
(000's, except percentages)
<S> <C> <C> <C> <C> <C>
Total long-term debt $ 5,000 $ 32,552 $ 205,742 $ 243,294 $ 199,115
Weighted-average interest rate 6.28% 5.56% 5.17% 5.24% 5.30%
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
After 1
Within But Within After 1999 1998
Estimated Call Date 1 Year 5 Years 5 Years Total Total
- ------------------------------------------------------------------------------------------------------
(000's, except percentages)
<S> <C> <C> <C> <C> <C>
Total long-term debt $ 58,801 $ 120,940 $ 63,553 $ 243,294 $ 199,115
Weighted-average interest rate 4.92% 5.23% 5.56% 5.24% 5.30%
- ------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
On December 21, 1998, the Company distributed a ten percent stock dividend
to shareholders of record on December 7, 1998. The weighted average shares
outstanding and per share amounts for the three and six months ended June
30, 1998 have been adjusted to reflect the stock dividend declared in the
fourth quarter of 1998.
At the Company's annual meeting of shareholders held on May 19, 1999, an
amendment to the Company's Certificate of Incorporation was approved by
the shareholders of the Company. This amendment increased the authorized
number of shares of common stock from 30,000,000 to 50,000,000.
In accordance with regulatory requirements, Tarrytowns established a
liquidation account at the time of its conversion to a stock company
("Conversion") in the amount of $7.8 million, equal to its equity at March
31, 1995. The liquidation account is maintained for the benefit of
eligible account holders who continue to maintain their accounts at
Tarrytowns (or its successor) after the Conversion. The liquidation
account is reduced annually to the extent that eligible account holders
have reduced their qualifying deposits as of each anniversary date.
Subsequent increases do not restore an eligible account holder's interest
in the liquidation account. In the event of a complete liquidation of
Tarrytowns (or its successor) each eligible account holder and
supplemental eligible account holder will be entitled to receive a
distribution from the liquidation account in an amount proportionate to
the current adjusted qualifying balances for accounts then held.
The ability of the Company and the Bank to pay cash dividends in the
future is 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 Bank.
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 additional paid-in
capital. At June 30, 1999, the Bank could pay dividends of $27.0 million
to the Company without having to obtain prior regulatory approval.
On April 21, 1999, the Company's Board of Directors authorized the
repurchase of up to 350,000 shares, or approximately 2.2%, of the
Company's outstanding common stock. Repurchases of common stock are
authorized to be made from time to time in open-market and private
transactions throughout 1999 as, in the opinion of management, market
conditions may warrant. The Board of Directors approved the common stock
repurchase program in view of the strong capital position of the Company
and its bank subsidiary, Union State Bank, and to effectively manage and
utilize its capital. Through June 30, 1999, the Company purchased 97,800
shares of treasury stock under the repurchase plan at an aggregate price
of $1,393,200.
11. Income Taxes
Tarrytowns, as a thrift institution, was subject to special provisions in
the Federal and New York State tax laws regarding its allowable tax bad
debt deductions and related tax bad debt reserves. These deductions
historically have been determined using methods based on
19
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
loss experience or a percentage of taxable income. Tax bad debt reserves
represent the excess of allowable deductions over actual bad debt losses
and other reserve reductions. These reserves consist of a defined
base-year amount, plus additional amounts accumulated after the base year.
Under the tax law, as amended, events that would result in taxation of
these reserves include (i) redemptions of Tarrytowns' stock or certain
excess distributions, (ii) failure of Tarrytowns to maintain a specified
qualifying assets ratio or meet other thrift definition tests for New York
State tax purposes, and (iii) a change in the tax law. As a result of the
merger of Tarrytowns with and into the Bank that occurred on April 30,
1999, the reserves for New York State tax purposes are taxable.
Accordingly, a tax liability of $0.6 million was recorded during 1998 as
part of the merger related expenses.
12 Commitments and Contingencies
At June 30, 1999, the Company and Bank are committed under employment
agreements with the Chairman, President and Chief Executive Officer
("CEO"), Senior Executive Vice President and Chief Credit Officer, and
Senior Executive Vice President and Chief Financial Officer requiring an
annual salary of $560,000, $160,000 and $160,000, respectively, annual
bonus payments equal to six, one and one percent of net income (as
defined) of the Company, respectively, under the Executive Incentive Bonus
Plan; and annual stock option grants of 106,480 shares, 39,930 shares and
39,930 shares, respectively, issued at fair value (110 percent of fair
value for incentive stock options if the key officer's ownership of the
Company equals or exceeds 10 percent at the date of grant); and other
benefits for the terms of the respective agreements. The CEO's employment
agreement is for a five year term, expiring November 16, 2003, while the
Senior Executive Vice Presidents' agreements are for three year terms,
expiring November 16, 2001.
The CEO's contract also requires minimum annual salary increases of
$30,000. All of the agreements include change in control provisions,
requiring certain payments, including three times annual salary and
average bonus payments (as defined), in the event of a voluntary or
involuntary termination connected with a change in control.
At June 30, 1999, the Bank is committed under an employment agreement and
consulting agreement with a Senior Vice President of the Bank and former
Executive Vice President of Tarrytowns, and the former President of
Tarrytowns, respectively. Under the employment agreement, the Bank will
make payments of $165,000 per year for services to be performed for a
period of three years. Under the consulting agreement, payments of $77,000
per year for services to be performed will be made for a period of three
years. Both agreements were effective as of August 31, 1998. Payments
under these agreements accelerate in the event of a change in control of
the Company. The Bank is also committed under employment agreements with
three other employees. Under the terms of the agreements, payments
aggregating approximately $140,000 are required for the remaining term of
employment.
Effective May 19, 1999, the Company adopted the Retirement Plan for
Non-Employee Directors of U.S.B. Holding Co., Inc. and Certain Affiliates
(the "Plan"). A Board member who has served for a period of fifteen years
is eligible to receive benefits. The retiree shall
20
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
be paid $2,000 per month for a period not to exceed ten years. In the
event of death, after commencement of retirement payments but prior to the
conclusion of the ten year payment period, the payments shall be paid to
his or her spouse at a rate of 50% of the retirement payment over the
remaining term of the retirement payment period, or through the date of
the spouse's' death if it occurs prior to completion of his/her payment
period. Alternatively, the retiree may choose a lump sum payment
equivalent to the present value of $200,000, discounted based on an
interest rate equal to the average ten-year advance rate from the Federal
Home Loan Bank, for the thirty days prior to the said election. The
Company has recorded a liability to provide the actuarial present value of
payments expected to be made under the Plan. As of June 30, 1999,
substantially all of the recorded liability relates to unamortized prior
service cost, which is being amortized over the average remaining service
period of the current directors. Benefit cost for the Plan for the period
May 19, 1999 through June 30, 1999 was approximately $20,000.
In the normal course of business, various commitments to extend credit are
made which are not reflected in the accompanying consolidated financial
statements. At June 30, 1999, formal credit line and loan commitments,
which are primarily loans collateralized by real estate and credit card
lines, approximated $261.7 million and outstanding letters of credit
totaled $24.1 million. Such amounts represent the maximum risk of loss on
these commitments.
In connection with its asset and liability management program, the Bank
entered into a protected rate agreement ("cap") which has a remaining
aggregate notional amount of $2.0 million at June 30, 1999. The premium
paid in the amount of $85,000 was deferred and is being amortized over the
five year life of the cap which expires in October 1999. Under the terms
of the cap, the Bank will be reimbursed for increases in one-month LIBOR
for any month during the term of the agreement in which such rate exceeds
the "strike level" of 8.1875 percent. Interest rate cap agreements allow
the Company to limit its exposure to unfavorable interest rate
fluctuations over and above the "capped" rate. The purchased cap hedges
income payments on floating rate mortgage-backed securities that have
maximum lifetime interest rate caps. The Bank's risk of loss on the
interest rate cap is equal to the unamortized premium paid to enter into
this agreement.
The Company also has the ability to enter into forward commitments to sell
residential first mortgage loans to reduce market risk associated with
originating and holding loans for sale. A risk associated with these
commitments arises from the Company's potential inability to generate
loans to fulfill the contracts. To control the risk associated with
changes in interest rates, the Company may also use options to hedge loans
closed and expected to close. No such contracts were outstanding at June
30, 1999.
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 Company's consolidated financial position or
results of operations.
21
<PAGE>
U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (cont'd)
13. 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 retail 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.
General information required by SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," is disclosed in the
Consolidated Financial Statements and accompanying notes. 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 and
six months ended June 30, 1999 and 1998, there is no customer that
accounted for more than ten percent of the Company's revenue.
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
FINANCIAL CONDITION
At June 30, 1999 the Company had total assets of $1,511.3 million, an increase
of $222.5 million from December 31, 1998.
Total deposits increased $105.2 million for the six month period ended June 30,
1999 to $1,063.8 million, which represents an 11.0 percent increase from
December 31, 1998. Time deposits increased $51.8 million accounting for the
greatest component of deposit increases. Retail time deposits under $100,000
increased by $2.6 million, other time deposits over $100,000 decreased by $19.9
million and IRA and Keogh time deposit accounts decreased by $0.8 million. Time
deposits greater than $100,000 from local municipalities, which are obtained on
a bidding basis with maturities of 30 to 180 days, increased by $69.9 million as
part of the Bank's overall leveraging strategy. Savings deposits increased by
$29.7 million, as the Company's "Golden Statement" and "Liquid Gold" accounts,
which provide attractive yields for high balance accounts, continued to attract
additional deposits. Demand deposits, NOW accounts and money market accounts
increased by $19.1 million, $2.2 million and $2.4 million, respectively, due to
increasing commercial relationships and advertising and promotions for retail
business.
The securities portfolio, including investments in Federal Home Loan Bank of New
York ("FHLB") stock, of $612.3 million and $464.4 million at June 30, 1999 and
December 31, 1998, respectively, consists of securities held to maturity at
amortized cost of $176.2 million and $67.0 million, securities available for
sale at estimated fair value totaling $410.4 million and $379.5 million, and
FHLB stock of $25.7 million and $17.9 million at June 30, 1999 and December 31,
1998, respectively.
During the six months ended June 30, 1999, U.S. Treasury and government agency
obligations increased $88.6 million primarily due to purchases of U.S. Treasury
notes of $13.0 million and $102.7 million in callable bonds, partially offset by
sales and redemptions of securities totaling $25.0 million and a net decrease in
the fair value of available for sale securities of $2.1 million. Mortgage-backed
securities increased by $51.7 million primarily due to purchases of $107.6
million in fixed-rate and $36.8 million in floating-rate securities, which were
partially offset by sales totaling $15.7 million, principal paydowns of $67.6
million, a net decrease in fair value of available for sale securities of $8.7
million and net premium amortization and discount accretion of $0.7 million.
Mortgage-backed securities that are fixed-rate securities have expected
weighted-average lives of less than ten years at the time of purchase. The
Company's investment in obligations of states and political subdivisions, or
municipal securities, decreased by $2.4 million principally due to maturities of
$3.8 million that were partially offset by purchases of $1.4 million during the
six month period ended June 30, 1999. Municipal securities are considered core
investments which are high yielding on a tax equivalent basis and have
diversified maturities. Purchases of municipal securities are dependent upon
their availability in the marketplace and the comparative tax equivalent yield
of such securities to other securities of comparable credit risk and maturity.
The Company currently has $2.3 million in short-term corporate money market
mutual funds. Short-term to medium-term corporate debt securities, which are
rated investment grade by nationally recognized credit rating organizations,
have been and will continue to be evaluated for investment in the future.
23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (Cont'd)
FINANCIAL CONDITION (Cont'd)
The Company continues to exercise its conservative approach to investing by
making high quality investments and controlling interest rate risk by purchasing
both fixed and floating rate securities and through the averaging of investments
in medium-term maturities.
At June 30, 1999, loans were $819.6 million, a net increase of $88.2 million or
12.1 percent over December 31, 1998. The primary increases of outstanding loan
balances were $5.2 million in time secured loans, $19.6 million in time
unsecured loans, $11.0 million in land acquisition and construction loans, $53.4
million in commercial mortgages, and $5.4 million in residential mortgages,
offset by a net reduction of $6.4 million in all other loan categories. The Bank
has approximately $261.7 million in formal credit lines and loan commitments
outstanding at June 30, 1999. Management considers its liquid resources to be
adequate to fund loans in the foreseeable future, principally by utilizing
excess funds temporarily placed in federal funds sold, increases in deposits and
borrowings, loan repayments and maturing securities.
The Bank's allowance for loan losses increased $0.7 million or 8.4 percent to
$9.6 million at June 30, 1999, from $8.9 million at December 31, 1998. The
allowance for loan losses represents 1.18 percent of gross loans outstanding at
June 30, 1999, compared to 1.22 percent at December 31, 1998. The allowance
reflects a provision of $910,000 and net charge-offs of $166,000 recorded thus
far in 1999. Management takes a prudent and cautious position in evaluating
various business and economic uncertainties in relation to the Bank's loan
portfolio. In management's judgment, the allowance is considered adequate to
absorb potential losses inherent in the loan portfolio.
During the six months ended June 30, 1999, the Bank decreased the amount of
outstanding short- and long-term advances with the Federal Home Loan Bank of New
York by $5.8 million, while borrowings under repurchase agreements increased by
$123.0 million. Overall, borrowings, as well as municipal deposits, increased to
fund loan growth in excess of retail deposit growth and to fund leveraging
strategies.
Stockholders' equity decreased to $96.1 million at June 30, 1999 from the
December 31, 1998 balance of $97.4 million. The decrease primarily results from
a reduction in accumulated other comprehensive income (loss) of $6.3 million,
treasury stock purchases of $1.5 million, and common stock cash dividends of
$2.1 million. The decrease was primarily offset by net income of $7.5 million
for the six month period ended June 30, 1999, a tax benefit from the exercise of
non-qualified stock options of $0.3 million, issuance of common stock in
connection with the exercise of stock options of $0.7 million, and a decrease in
common stock held for benefit plans of $0.1 million. During the six months ended
June 30, 1999, the Company repurchased 102,479 shares of treasury stock, of
which 97,800 shares were purchased under a repurchase plan authorized by the
Company's Board of Directors on April 21, 1999.
The Company's leverage ratio at June 30, 1999 was 8.35 percent, compared to 9.13
percent at December 31, 1998. The Company's Tier I and total capital ratios
under the risk-based capital
24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (Cont'd)
FINANCIAL CONDITION (Cont'd)
guidelines were 13.43 percent and 14.50 percent at June 30, 1999 and 14.97
percent and 16.12 percent at December 31, 1998, respectively. In addition, the
Bank exceeds all current regulatory capital requirements and was in the
"well-capitalized" category at June 30, 1999 and December 31, 1998.
RESULTS OF OPERATIONS
Earnings
Net income for the three and six month periods ended June 30, 1999 was
$3,983,000 and $7,458,000, or $0.24 and $0.45 per diluted common share,
respectively. This compares to $5,254,000, or $0.31 per diluted common share,
and $8,539,000, or $0.51 per diluted common share, for the three and six month
periods ended June 30, 1998, respectively. The 1998 periods include a tax
benefit, net of associated expenses, of $2.0 million ("non-recurring tax
benefit") as a result of the decision to liquidate U.S.B. Realty Corp., the
Bank's real estate investment trust, in the second quarter of 1998. Excluding
the effects of the non-recurring tax benefit in 1998, net income for the three
and six month periods ended June 30, 1999 increased $0.7 million or 21.2 percent
and $0.9 million or 13.5 percent, respectively. On this basis, diluted earnings
per common share increased $0.04 or 20.0 percent and $0.06 or 15.4 percent,
respectively. The overall increase in earnings excluding the non-recurring tax
benefit in 1998, primarily reflects an increase in net interest income and other
income, partially offset by higher non-interest expenses, lower security gains,
and for the six months ended June 30, 1999 compared to June 30, 1998, a higher
provision for loan losses. A discussion of the impact in the changes in the
various components of net income follows.
Net Interest Income
Net interest income, the difference between interest income and interest
expense, is a significant component of the Company's consolidated earnings. For
the three and six month periods ended June 30, 1999, net interest income
increased 19.5 percent to $12.7 million from $10.6 million, and 16.4 percent to
$24.3 million from $20.9 million, respectively, compared to the prior year
periods. Net interest income increased in the current year period due to volume
increases of average earning assets, while the net interest spread declined
slightly. For the three and six months ended June 30, 1999, the interest spread
(yield on earning assets less cost of funds) was 3.55 percent for each period,
compared to 3.59 and 3.57 percent in the same periods of 1998, respectively. On
a tax equivalent basis, the interest spread was 3.67 percent and 3.68 percent
for the three and six month periods ended June 30, 1999, compared to 3.74
percent and 3.73 percent for the comparable periods in 1998, respectively.
Yields on interest earning assets decreased during the three and six month
periods ended June 30, 1999, as compared to the respective periods in 1998,
while the cost of funds decreased at a slightly slower rate, resulting in a
slight narrowing of the net interest spread. The decrease in asset yields is
partially as a result of lower yields available on security investments and
redemptions of callable agency and other securities at higher yields, as well as
declining yields on loans due to increased competition and a general
25
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (Cont'd)
decline in interest rates during the 1999 periods, as compared to respective
periods in 1998. The cost of funds decreased due to the cost of deposits
decreasing in both periods, while interest rates on borrowings declined for the
six month period ended June 30, 1999 and remained stable for the three month
period ended June 30, 1999, compared to the respective periods in 1998. The net
interest margin remained stable at 3.69 percent for each of the three month
periods ended June 30, 1999 and 1998, and was 3.70 percent and 3.71 percent for
the six months ended June 30, 1999 and 1998, respectively, as the decrease in
the spread was substantially offset by an increase in the excess of interest
arning assets over interest bearing liabilities. On a tax equivalent basis, the
net interest margin was 3.80 percent and 3.83 percent for the three and six
months ended June 30, 1999, and 3.84 percent and 3.87 percent for the comparable
periods in 1998, respectively. The decline in the net interest margin on a tax
equivalent basis reflects a lower proportion of tax exempt securities.
Provision for Loan Losses
The provision for loan losses decreased $8,000 to $302,000 and increased
$290,000 to $910,000 for the three and six month periods ended June 30, 1999,
respectively, compared to the same periods in 1998. Net charge-offs in the three
and six month periods ended June 30, 1999 totaled $65,000 and $166,000,
respectively, compared to net charge-offs of $45,000 and $70,000 for the three
and six month periods ended June 30, 1998. The net charge-offs in all periods
primarily relate to credit card loans. Nonaccrual loans were $1.3 million and
$5.2 million, respectively, at June 30, 1999 and 1998, compared to $2.3 million
at December 31, 1998. The reduction in the provision for loan losses in the
second quarter of 1999 reflects improving credit quality and a decline in
non-performing assets, while the higher provision for the first half of 1999
reflects the increasing loan portfolio. 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
Company 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 loss experience. Management
has taken a prudent and cautious position in evaluating various business and
economic uncertainties in relation to the Company's loan portfolio and believes
that the allowance for loan losses at June 30, 1999 reflects the risk elements
inherent in the total loan portfolio at that time. The changes in the provision
charged to income and the allowance for loan losses reflects such uncertainties
on an 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 and six months ended June 30, 1999 decreased
by $339,000 to $1,273,000 and $165,000 to $2,750,000, respectively, compared to
the same periods of 1998.
26
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (Cont'd)
The decreases are primarily related to lower net gains on securities
transactions ($485,000 and $532,000, respectively), offset by increases in
service charges and fees ($89,000 and $220,000, respectively) due to increasing
deposit accounts and revisions to the fee structure, and other income ($57,000
and $147,000, respectively). Other income consists primarily of credit card
fees, loan servicing income, letter of credit fees, loan prepayment penalties,
wire transfer fees, safe deposit, and other fees.
Non-Interest Expenses
Non-interest expenses increased $44,000 to $7,303,000 and $535,000 to
$14,255,000 for the three and six month periods ended June 30, 1999,
respectively, from the comparable periods in 1998. The primary reason for this
increase results from an increase in the cost of salaries and benefits and other
operating costs to support the Bank's growth, partially offset by approximately
$300,000 and $600,000 for the quarter and six months ended June 30, 1999,
respectively, in estimated savings achieved in connection with the acquisition
of Tappan Zee Financial, Inc. on August 31, 1998 and the merger of Tarrytowns
Bank, FSB on April 30, 1999 ("merger related savings"). The following discusses
each component of non-interest expense.
Salaries and benefits, the largest component of non-interest expense, increased
by $195,000, or 4.8 percent and $667,000 or 8.7 percent during the three and six
month periods ended June 30, 1999, compared to the previous year periods. The
increases, net of estimated merger related savings of $200,000 and $400,000,
respectively, occurred due to additional personnel employed by the Bank to
accommodate the increases in deposits and loans and their related services, and
annual merit increases. In addition, employee benefits increased because of
higher incentive compensation programs which are based upon the Company's net
income and overall financial performance, higher payroll taxes during 1999 due
to the higher salary base and increases in the cost of other employee benefit
programs such as medical coverage, tuition reimbursement, and training.
Significant changes (in excess of 5 percent) in the other components of
non-interest expense for the three and six month period ended June 30, 1999
compared to June 30, 1998, were due to the following:
o Increase of $172,000 (14.7%), and $313,000 (13.5%), respectively, in
occupancy and equipment expense. This increase is due principally to
higher maintenance expenses relating to the Bank's branch and computer
related equipment due to increased business volume, and additional rental
and depreciation expense associated with a new branch opening, as well as
additional space for corporate and administrative offices.
o Increase of $95,000 (25.8%), and $141,000 (21.5%), respectively, in
advertising and business development. The increase reflects increased
emphasis on marketing, and the introduction of the Bank's new ad campaign,
"Do business with us, do better with us," as well as increased advertising
expense for deposit and loan products and new branch promotions and other
business development efforts.
o Decrease of $232,000 (48.4%), and $405,000 (47.7%), respectively, in
professional fees. The decrease results partially from merger related
savings, as well as a reduction in
27
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (Cont'd)
professional fees of $166,000 associated with the liquidation of U.S.B.
Realty Corp. in 1998 for both periods, and decreases in legal fees
associated with loan collections, foreclosures and other litigation.
o Decrease of $12,000 (6.0%), and $12,000 (2.9%), respectively, in
communications is due to a decrease in telephone expenses resulting from
reduction of redundant lines and more efficient usage.
o Decrease of $22,000 (13.1%) and $29,000 (8.6%), respectively, in
stationery and printing. The decrease occurred due to a increased control
over printing costs and supplies, as well as reductions due to
efficiencies resulting from the Tappan Zee merger.
o Increase of $3,000 and $11,000, respectively, in FDIC insurance premiums
results from higher deposit balances.
o Decrease of $155,000 (20.5%) and $151,000 (10.7%), respectively, in other
expenses, primarily results from lower foreclosure related expenses and
branch charge-offs, as well as reductions due to efficiencies resulting
from the Tappan Zee merger.
Income Taxes
The effective tax rates for the three and six month periods ended June 30, 1999
and 1998 were 37.5 and 37.3 percent, and (12.5) and 9.7 percent, respectively.
The increase in the overall effective tax rate in 1999, primarily reflects the
tax benefit associated with the liquidation of U.S.B. Realty Corp. that occurred
in the comparable 1998 periods.
Year 2000 Issue
The Company continues to monitor the Year 2000 ("Y2K") issue. The Company has
identified all information technology ("IT") systems and non-IT systems
(primarily telephone, vault and security systems that include micro-processes)
and evaluated their status as to Y2K readiness. The Company's Y2K Committee
reports progress to the Company's Board of Directors on at least a quarterly
basis.
All significant IT and non-IT systems are vendor supported. Vendors have
represented to the Company that all significant systems are or will be Y2K
compliant. In particular, the Company's major core system software vendor has
certified that its software is Y2K compliant. The Company has further determined
which systems are mission critical, i.e., those systems that are critical to the
Company's ability to operate and provide service to its customers without any
interruption to the Company's normal business operations. Each of these systems
have been certified or represented by its vendor that they are or will be Y2K
compliant. These systems include the IBM AS-400 computer, Kirchman D-3000 (core
banking) system, ATM systems, Automated Clearing House (ACH) system, and CR
(communications) system. The Company has completed a successful test of each
mission critical system according to an overall Y2K testing plan. An additional
IBM AS-400 computer has been leased to facilitate testing in a controlled
production environment. As of June 30, 1999, all mission critical systems are
Y2K compliant.
28
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (Cont'd)
Testing of systems identified as significant but not mission critical, i.e.
systems for which alternative processes are available but provide a significant
level of efficiency have also been tested successfully for Y2K compliance.
The Company has also evaluated significant customers' Y2K readiness and/or
progress toward Y2K compliance to evaluate the potential impact on the Company
for their failure to remediate their Y2K issues. In this connection, the Company
has designed a Y2K risk assessment process. Customers with potential Y2K issues
have been identified and the Company has taken steps to mitigate the impact of
such issues to the Company. In addition, the Company has implemented a loan
policy which requires an evaluation of the Y2K status for each loan customer
prior to approving a new loan or renewal of an existing loan. To the extent that
these processes identified customers with potential Year 2000 issues, the
Company estimated a range of appropriate reserves. As a result, the Company has
allocated $500,000 to $1,000,000 of the allowance for loan losses at June 30,
1999 to provide for any loan losses that may occur as a consequence of the Y2K
issue. The Company will continue to evaluate the impact of loan customers' Y2K
status on the allowance for loan losses.
The Company has also evaluated the potential impact of the Y2K readiness of
other significant vendors, particularly utility companies. To the Company's
knowledge, the major utility companies serving the Company have made
representations in their public documents that they believe the possibility of
significant Y2K problems will be significantly reduced with the implementation
of their Y2K plans.
The worst case Y2K scenario would involve no utility service, mission critical
system failure and Federal Reserve, Clearing House and ACH failure. In this
circumstance, the Company would be required to significantly curtail its
operations. Preparation of paper reports prior to year end 1999 will allow the
Company to monitor limited business activity. However, processing of accruals,
customer statements and the like would not be practical. It is expected that
mission critical systems will be compliant or are not date sensitive, based on
completed Y2K remediation, Y2K testing and the vendors' certification and
representations regarding Y2K compliance. A contingency plan has been prepared
to guide operations in the event that a mission critical system is not Y2K
compliant in the Company's operating environment and cannot be immediately
remediated or for Federal Reserve, Clearing House, ACH and major vendor and/or
utility service failure. For other significant systems, an alternative process
exists and such process will be utilized as a contingent process if such a
system fails to be Y2K compliant. The Company is also monitoring liquidity needs
in the event of increased deposit withdrawals or loan commitment usage and a
liquidity contingency plan has been prepared.
There can be no guarantee that the systems of other entities on which the
Company's systems rely will be timely converted, or that a failure to convert by
another entity, or a conversion that is incompatible with the Company's systems,
would not have a material adverse effect on the Company.
Excluding the allocation of the allowance for loan losses at June 30, 1999 for
the potential impact of Y2K related issues on the loan portfolio, the Company's
Y2K project costs expensed have been approximately $220,000 to date. The
estimate of total expenditures for the Y2K
29
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (Cont'd)
project is approximately $460,000, including approximately $75,000 of costs that
are part of the Company's IT Capital budget. Other than capital expenditures,
costs are expensed as incurred. Y2K project costs will be funded through normal
operating cash flow. The cost of the project and the date on which the Company
plans to complete the Y2K modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those plans. No
major IT projects have been deferred due to the Company's Y2K efforts.
The Company will continue to evaluate all issues with respect to the Y2K problem
to minimize the impact on its operations and financial condition.
30
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk at December 31, 1998
were previously reported in the Company's 1998 Annual Report and Form 10-K.
There have been no material changes in the Company's market risk exposures at
June 30, 1999 compared to December 31, 1998. Interest rate risk continues to be
the Company's primary market risk exposure since substantially all Company
transactions are denominated in U.S. dollars with no direct foreign currency
exchange or changes in commodity price exposures. All market risk sensitive
instruments continue to be held to maturity or available for sale with no
financial instruments entered into for trading purposes. The Company does not
use derivative financial instruments such as interest rate swaps and caps
extensively. However, as disclosed in the Notes to Consolidated Financial
Statements (Unaudited), an interest rate contract is in place to manage the
Company's interest rate exposure. The Company has not entered into any new
derivative financial instruments during the six months ended June 30, 1999.
The Company continues to use two methods to evaluate its market risk to changes
in interest rates, a "Static Gap" evaluation and a simulation analysis of the
impact of changes in interest rates on the Company's net interest income and
cash flow. There have been no changes in the Company's policy limit of
acceptable variances to net interest income at June 30, 1999 as compared to
December 31, 1998. The changes in the composition of the Company's assets and
liabilities for the six months ended June 30, 1999 as reported in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations have not materially affected the Company's overall interest rate risk
profile at June 30, 1999 as compared to December 31, 1998. The Company's "Static
Gap" at June 30, 1999 has not changed materially from December 31, 1998. If
interest rates were to gradually ramp up or down 200 basis points from current
rates, the percentage change in estimated net interest income for the subsequent
12 month measurement period continues to be within the Company's policy limit of
not declining by more than 5.0 percent.
31
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May 19, 1999 for
the purpose of considering and voting upon the following matters:
I. Election of two directors, Messrs. Kenneth J. Torsoe and Kevin J.
Plunkett, constituting Class II members of the Board of Directors, to a
three-year term of office.
II. Approval of an amendment to the Certificate of Incorporation to increase
the authorized number of shares of common stock, $0.01 par value per
share, from 30,000,000 to 50,000,000.
III. Approval of the Executive Incentive Bonus Plan. The results of votes for
each of the items above were as follows:
<TABLE>
<CAPTION>
ITEM I ITEM II ITEM III
-------------------------- ------- --------
K.J. Torsoe K.J. Plunkett
----------- -------------
<S> <C> <C> <C> <C>
Votes:
For 11,127,112 11,115,589 10,256,732 10,448,787
Against or Withheld 120,515 132,038 924,925 670,000
Abstentions -- -- 65,969 128,838
Broker Non-Votes -- -- -- --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit No. Exhibit
- ----------- --------
(3)(a) Amended and 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, 1998, Exhibit (3)(a)).
(3)(b) Bylaws of Registrant (incorporated herein by reference from
Registrant's Registration Statement on Form S-14 (file no.
2-79734), Exhibit 3(b)).
(4)(a) Junior Subordinated Indenture, dated February 5, 1997, between
Registrant and The Chase Manhattan Bank, as trustee (incorporated
herein by reference to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996 ("1996 10-K"), Exhibit (4)(a)).
32
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (cont'd)
(A) Exhibits (cont'd)
Exhibit No. Exhibit
- ----------- --------
(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)).
(10)(a) Agreement of Employment dated as of November 16, 1998 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, 1998 ("1998 10-K"), Exhibit (10)(a)).
(10)(b) Agreement of Employment dated as of November 16, 1998 between the
Company and the Bank and Raymond J. Crotty (incorporated herein by
reference to Registrant's 199810-K, Exhibit (10)(b)).
(10)(c) Agreement of Employment dated as of November 16, 1998 between the
Company and the Bank and Steven T. Sabatini (incorporated herein by
reference to Registrant's 1998 10-K, Exhibit (10)(c)).
(10)(d) Registrant's 1984 Incentive Stock Option Plan (incorporated herein
by reference from Form S-8 Registration Statement, file No.
2-90674, Exhibit 28 (b)).
(10)(e) Registrant's 1993 Incentive Stock Option Plan (incorporated herein
by reference from Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 ("1993 10-K"), Exhibit (10)(c)).
(10)(f) Registrant's Employee Stock Ownership Plan (With Code Section
401(k) Provisions) (incorporated herein by reference from
Registrant's 1993 10-K, Exhibit (10)(d )).
(10)(g) 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)(h) Registrant's Director Stock Option Plan (incorporated herein by
reference to Registrant's 1996 10-K, Exhibit (10)(f)).
(10)(i) 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)).
33
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (cont'd)
(A) Exhibits (cont'd)
Exhibit No. Exhibit
- ----------- -------
(10)(j) 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).
(10)(k) 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).
(10)(l) Registrant's 1997 Employee Stock Option Plan (incorporated herein
by reference to Registrant's proxy statement filed April 18, 1997).
(10)(m) Agreement and Plan of Merger, dated as of March 6, 1998, between
U.S.B. Holding Co., Inc. and Tappan Zee Financial, Inc.
(incorporated herein by reference to Registrant's Current Report on
Form 8-K dated as of March 6, 1998).
(10)(n) Stock Option Agreement, dated as of March 6, 1998, between U.S.B.
Holding Co., Inc. and Tappan Zee Financial, Inc. (incorporated
herein by reference to Registrant's Current Report on Form 8-K
dated as of March 6, 1998).
(10)(o) 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 (the
"Tappan Zee 1996 Proxy Statement").
(10)(p) 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 (the "Tappan
Zee 1997 10-K"), Exhibit 10.1.1).
(10)(q) 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 (the " Tappan Zee 1997 Proxy Statement").
(10)(r) 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)(s) 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)(t) Amendment No. 2 to the Outside Director Option Plan (incorporated
herein by reference to Exhibit B to the Tappan Zee 1997 Proxy
Statement).
34
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (cont'd)
(A) Exhibits (cont'd)
Exhibit No. Exhibit
- ----------- --------
(10)(u) Tappan Zee Financial, Inc. 1996 Recognition and Retention Plan for
Officers and Employees ("Employee RRP") (incorporated herein by
reference to Exhibit B to the Tappan Zee 1996 Proxy Statement).
(10)(v) Amendment No. 1 to the Employee RRP (incorporated herein by
reference to the Tappan Zee 1997 10-K, Exhibit 10.3.1 ).
(10)(w) Amendment No. 2 to the Employee RRP (incorporated herein by
reference to Exhibit C to the Tappan Zee 1997 Proxy Statement).
(10)(x) Tappan Zee Financial, Inc. 1996 Recognition and Retention Plan for
Outside Directors ("Outside Director RRP") (incorporated herein by
reference to Exhibit D to the Tappan Zee 1997 Proxy Statement).
(10)(y) Amendment No. 1 to the Outside Director RRP (incorporated herein by
reference to the Tappan Zee 1997 10-K, Exhibit 10.4.1).
(10)(z) Amendment No. 2 to the Outside Director RRP (incorporated herein by
reference to Exhibit D to the Tappan Zee 1997 Proxy Statement).
(10)(aa) Employee Stock Ownership Plan of Tappan Zee Financial, Inc. and
Certain Affiliates, as amended (incorporated herein by reference to
Tappan Zee Financial Inc.'s Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 (the "Tappan Zee 1996 10-K"),
Exhibit 10.6).
(10)(bb) 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 (the "Tappan Zee 1996
10-K") Exhibit 10.7).
(10)(cc) Deferred Compensation Plan for Directors of Tarrytowns Bank, FSB
(Incorporated herein by reference to the Registration Statement on
Form S-1, No. 33-94128, filed on June 30, 1995, as amended (the
"Tappan Zee Registration Statement"), Exhibit 10.7).
(10)(dd) Retirement Plan for Board Members of Tappan Zee Financial, Inc. and
Certain Affiliates, adopted effective as of October 5, 1995
(incorporated herein by reference to the Tappan Zee 1996 10-K,
Exhibit 10.9).
(10)(ee) Consulting Agreement by and between Tarrytowns Bank, FSB and
Stephen C. Byelick, dated effective as of August 31, 1998
(incorporated herein by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998 (the
"September 30, 1998 10-Q"), Exhibit (10)(dd)).
35
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (cont'd)
(A) Exhibits (cont'd)
Exhibit No. Exhibit
- ----------- --------
(10)(ff) Employment Agreement by and between Tarrytowns Bank, FSB and Harry
G. Murphy, dated effective as of August 31, 1998 (incorporated
herein by reference to the September 30, 1998 10-Q, Exhibit
(10)(cc)).
(10)(gg) Employee Retention Agreement by and among Tappan Zee Financial,
Inc. Tarrytowns Bank, FSB and Christina Vidal, effective as of
October 5, 1995 (incorporated herein by reference to the Tappan Zee
1996 10-K, Exhibit 10.15).
(10)(hh) Employee Retention Agreement by and among Tappan Zee Financial,
Inc., Tarrytowns Bank, FSB and Margaret E. Sampson, effective as of
October 5, 1995 (incorporated herein by reference to the Tappan Zee
1996 10-K, Exhibit 10.16).
(10)(ii) Employee Retention Agreement by and among Tappan Zee Financial,
Inc., Tarrytowns Bank, FSB and James D. Haralambie, effective as of
June 23, 1997 (incorporated herein by reference to the U.S.B.
Holding Co., Inc. 1998 10-K, Exhibit (10)(l7)).
(10)(jj) 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)(kk) Forms of Restricted Stock Award Notices to award recipients,
pursuant to the Employee RRP and the Outside Director RRP
(incorporated herein by reference to the Tappan Zee 1997 10-K,
Exhibit 10.16).
(10)(ll) 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.*
(11) Computation of earnings per share.*
(27) Financial Data Schedule.*
*Filed Herewith.
36
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (cont'd)
(B) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on August 13, 1999.
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 Finance,
Chief Executive Officer Chief Financial Officer and
and Director Assistant Secretary
(Principal Financial and
Accounting Officer)
37
Exhibit (10)(ll)
- --------------------------------------------------------------------------------
RETIREMENT PLAN
FOR
NON-EMPLOYEE DIRECTORS
OF
U.S.B. HOLDING CO., INC.
AND CERTAIN AFFILIATES
Effective as OF May 19, 1999
- --------------------------------------------------------------------------------
<PAGE>
Retirement Plan for Non-Employee Directors
of U.S.B. Holding Co., Inc.
The Retirement Plan for Non-Employee Directors of U.S.A. Holding Co., Inc. (the
"Plan") is hereby adopted, effective as of May 19, 1999, by U.S.A. Holding Co.,
Inc. (the "Company") for the purposes of providing modest retirement income for
Directors who have provided long service on the Company's Board of Directors,
and to encourage future Directors to provide long and valuable services.
The provisions of the Plan are as follows:
1. All Directors of the Company who are not employees of the Company or any
affiliate shall he eligible to receive a benefit under the Plan.
2. Every eligible Director who shall have served at least fifteen aggregate
years on the Company's Board of Directors shall be eligible to receive a
retirement benefit under this Plan. In the event a "Change of Control" (as
defined below) occurs, every eligible Director who has served at least
five aggregate years on the Company's Board of Directors, and who shall
not serve on the Board of Directors of the Company or surviving entity
following a "Change of Control," shall receive a pro-rated retirement
benefit under this Plan.
The amount of retirement benefit shall be the sum of $2,000, payable each
month, for a period not to exceed ten (10) years. The amount of a
pro-rated retirement benefit payable in the event of a "Change of Control"
shall be the amount of $2,000, multiplied by a fraction, the numerator
being the aggregate number of full years the Director actually served on
the Board of Directors of the Company and the denominator being 15,
payable each month for a period not to exceed ten (10) years.
The first payment shall be made on the first day of the month following
the Director's retirement from the Board of Directors of the Company, and
payments shall continue for a period equal to the lesser of (a) ten (10)
years or (b) the month in which the Director shall die, subject to Section
3 below. Alternatively, the Director may elect, under Section 4 of the
Plan, to be paid the retirement benefit in a single lump sum.
3. If the Director has qualified, by serving fifteen or more years on the
Board of Directors, for a benefit under this Plan, and is married at the
time of his retirement and at the time of his/her death while receiving
benefits under this Plan, a benefit equal to the lesser of $1,000 per
month, or one-half (1/2) of the pro-rated benefit payable due to a "Change
of Control," shall be paid to the Director's spouse for the remainder of
the ten (10)year period or until the death of the spouse, whichever occurs
first. If the spouse does not survive the Director, no benefit shall be
paid under the Plan following the Director's death.
Page 1 of 3 Pages
<PAGE>
4. Upon joining the Board, or within 90 days following the effective date of
the Plan (for those serving on the Board on May 19, 1999), each Director
shall complete a Distribution Election Form provided by the Company. Each
Director may elect to be paid his/her benefit in the form of a single lump
sum on the first day of the month following retirement, or the first day
of the year following retirement. The lump sum shall equal the present
value of $200,000 (or, in the event of a "Change of Control," the present
value of $200,000 multiplied by a fraction, the numerator being the
aggregate number of full years the Director actually served on the Board
of Directors of the Company, and the denominator being 15), discounted
based on the average ten-year advance rate of the Federal Home Loan Bank
of New York over the thirty day period preceding the payment date,
assuming interest would have compounded and payments would have been made
in equal monthly installments over the ten year discount period. The
present value calculation must be consistent with financial accounting
requirements with respect to the determination of the expense to be
recorded on the Company's Income Statement with respect to such payment.
If the Director does not elect a lump sum payment, payments shall be made
monthly, as stated above.
5. At any time not less than twelve (12) months prior to retirement, a
Director may file a written election with the Company changing the form of
payment under the Plan from monthly payments to a lump sum, or from a lump
sum to monthly payments. Such election shall not be effective until twelve
months following its receipt by the Company.
6. This Plan shall be administered by the Board of Directors of the Company.
Any determination relating to the Plan regarding one or more individual
Directors shall be made by a bare majority of the total number of
Directors, excluding the individual(s) whose benefits or rights are being
determined. Any decisions or interpretations made by the Board of
Directors regarding the Plan shall be final and binding on all parties.
7. The right to receive any benefit under the Plan shall not be subject in
any manner to anticipation, alienation or assignment, nor shall such
rights be liable for or subject to debts, contacts, torts, or an other
liabilities of any party. Any attempt to encumber benefit rights under
this Plan shall result in forfeiture of all such rights.
8. This Plan is intended to be an unfunded deferred compensation arrangement
for the specified participants. The Company may, but shall not be
obligated to, establish a trust, account, or reserve for purposes of
funding its obligations and liabilities hereunder, but no participant
shall have any rights with respect to such trust, account or reserve,
except the rights of any other general unsecured creditor of the Company.
9. Participation in, or eligibility under, this Plan does not in any way
assure that an individual shall be entitled to remain a member of the
Company's Board of Directors. Nomination and/or election to additional
terms on the Board are solely the prerogative of the shareholders of the
Company, and the existence of, or participation in, this Plan shall not in
any way affect or impinge such rights of the shareholders.
Page 2 of 3 Pages
<PAGE>
10. The Board of Directors reserves the right to amend or terminate the Plan
at any time. Any termination or amendment shall not deprive any Director,
who has already become entitled to a benefit by reason of having completed
fifteen years of Board service, of his/her benefit.
11. Notwithstanding any provisions of this Plan, any benefits payable
hereunder are subject to and conditioned upon their compliance with
Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section
1828(k), and any regulations issued thereunder.
12. This Plan shall be construed, administered and enforced in accordance with
the laws of the State of New York. It is intended that this Plan not be
subject to ERISA, and to the extent necessary for such purpose, the Plan
shall be so interpreted.
13. For purposes of this Plan, "Change of Control" shall mean the occurrence
of any of the following events:
a. Any consolidation, merger, stock-for-stock exchange or similar
transaction ("Transaction") which results in the shareholders prior
to the Transaction owning less than 50% of the entity surviving
after the Transaction;
b. Any person, entity, or group of persons or entities becoming the
beneficial owner (as defined in Rule 13d-3 promulgated by the
Securities Exchange Commission under the Exchange Act) of securities
of the Company possessing one-third (1/3) of the voting power for
the election of Directors of the Company, which were not
beneficially owned by such person, entity, or group of persons or
entities prior to the transactions resulting in such new beneficial
ownership;
c. Dining any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period constituted a
majority of the Board of Directors cease for any reason, other than
death or a voluntary retirement entitling such Director to receive
benefits under this Plan, to constitute at least a majority of the
Board of Directors of the Company; or
d. Any sale, lease, exchange or other transfer, in one or more
transactions, of all, or substantially all, of the assets of the
Company to one or more parties which are not controlled by or under
common control with the Company.
/s/ Thomas E. Hales
------------------------------
Thomas E. Hales
Chairman of the Board,
President and
Chief Executive Officer
ATTEST:
/s/ Michael H. Fury
- -------------------------------
Michael H. Fury, Secretary
Page 3 of 3 Pages
EXHIBIT 11
U.S.B. HOLDING CO., INC.
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
Three Months Six Months
Ended Ended
June 30, 1999 June 30, 1999
(000's, except share data)
Numerator:
Net income $ 3,983 $ 7,458
Less preferred stock dividends 11 11
=========== ===========
Net income available to common stockholders
for basic and diluted earnings per share $ 3,972 $ 7,447
=========== ===========
Denominator:
Denominator for basic earnings per common
share - weighted average shares 15,938,073 15,913,102
Effects of dilutive securities:
Director and employee stock options 666,407 675,296
Restricted stock not vested 12,031 12,085
----------- -----------
Total effect of dilutive securities 678,438 687,381
----------- -----------
Denominator for diluted earnings per common
share - adjusted weighted average shares 16,616,511 16,600,483
=========== ===========
Basic earnings per common share $ 0.25 $ 0.47
=========== ===========
Diluted earnings per common share $ 0.24 $ 0.45
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999 DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1999 JUN-01-1999 APR-01-1998 JUN-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1999 JUN-30-1998 JUN-30-1998
<CASH> 19,668 19,668 25,332 25,332
<INT-BEARING-DEPOSITS> 397 397 1,295 1,295
<FED-FUNDS-SOLD> 31,700 31,700 5,500 5,500
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 176,200 176,200 361,036 361,036
<INVESTMENTS-CARRYING> 410,400 410,400 110,535 110,535
<INVESTMENTS-MARKET> 175,576 175,576 113,809 113,809
<LOANS> 819,606 819,606 672,394 672,394
<ALLOWANCE> 9,633 9,633 8,800 8,800
<TOTAL-ASSETS> 1,511,303 1,511,303 1,240,466 1,240,466
<DEPOSITS> 1,063,821 1,063,821 1,005,993 1,005,993
<SHORT-TERM> 74,000 74,000 23,000 23,000
<LIABILITIES-OTHER> 13,922 13,922 9,869 9,869
<LONG-TERM> 243,294 243,294 88,362 88,362
0 0 0 0
0 0 0 0
<COMMON> 163 163 143 143
<OTHER-SE> 95,966 95,966 92,962 92,962
<TOTAL-LIABILITIES-AND-EQUITY> 1,511,303 1,511,303 1,240,466 1,240,466
<INTEREST-LOAN> 16,363 31,995 14,540 28,593
<INTEREST-INVEST> 8,953 16,198 7,741 15,097
<INTEREST-OTHER> 344 728 295 656
<INTEREST-TOTAL> 25,660 48,921 22,576 44,346
<INTEREST-DEPOSIT> 8,997 17,491 10,047 19,594
<INTEREST-EXPENSE> 12,954 24,620 11,947 23,466
<INTEREST-INCOME-NET> 12,706 24,301 10,629 20,880
<LOAN-LOSSES> 302 910 310 620
<SECURITIES-GAINS> 201 527 686 1,059
<EXPENSE-OTHER> 7,303 14,255 7,259 13,720
<INCOME-PRETAX> 6,374 118,886 4,672 9,455
<INCOME-PRE-EXTRAORDINARY> 6,374 118,886 4,672 9,455
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 3,983 7,458 5,254 8,539
<EPS-BASIC> 0.25 0.47 0.34 0.56
<EPS-DILUTED> 0.24 0.45 0.31 0.51
<YIELD-ACTUAL> 3.55 3.55 3.59 3.57
<LOANS-NON> 1,293 1,293 5,155 5,155
<LOANS-PAST> 2,693 2,693 407 407
<LOANS-TROUBLED> 371 371 736 736
<LOANS-PROBLEM> 7 7 500 500
<ALLOWANCE-OPEN> 9,432 8,889 8,535 8,260
<CHARGE-OFFS> 121 209 73 121
<RECOVERIES> 20 43 28 51
<ALLOWANCE-CLOSE> 9,633 9,633 8,800 8,800
<ALLOWANCE-DOMESTIC> 9,633 9,633 8,800 8,800
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0
</TABLE>
