UNION STATE BANK

                          KEY EMPLOYEES' SUPPLEMENTAL

                          DIVERSIFIED INVESTMENT PLAN


                                             Adopted Effective September 1, 1998
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                                UNION STATE BANK

                     KEY EMPLOYEES' SUPPLEMENTAL DIVERSIFIED
                                 INVESTMENT PLAN

      The Supplemental Employees' Diversified Investment Plan for Salaried
Employees of Union State Bank (the "Plan") is adopted effective September 1,
1998. The Plan is established and maintained by Union State Bank solely for the
purpose of providing to a select group of highly compensated or management
personnel who participate in the U.S.B. Holding Co., Inc. Employee Stock
Ownership Plan (with 401(k) Provisions) ("Qualified Plan") benefits attributable
to (i) contribution allocations which would otherwise be made under the
Qualified Plan but for the compensation limitation of Internal Revenue Code
("Code") Section 401(a)(17), and (ii) contributions equal to amounts in excess
of the limitations on annual additions imposed by Code Section 415.

      Union State Bank desires to permit certain key executive employees
designated by its Board of Directors to defer portions of their compensation, in
order to continue to attract and retain talented executives with a competitive
compensation package. Accordingly, Union State Bank has adopted the Plan for its
key executive employees, to provide for such deferral of compensation effective
as of September 1, 1998.

      It is the intention of the parties that the arrangements contemplated by
the Plan be unfunded for tax purposes and for purposes of Title I of ERISA.

      Accordingly, Union State Bank hereby adopts the Plan pursuant to the terms
and provisions set forth below:


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                                    ARTICLE I

                                   DEFINITIONS

      Wherever used herein the following terms shall have the meanings
hereinafter set forth. Words in the masculine gender shall include the feminine
and the singular shall include the plural, and vice versa, unless qualified by
the context. Any headings used herein are included for ease of reference only,
and are not to be construed so as to alter the terms hereof.

      1.1 "Board" means the Board of Directors of the Company.

      1.2 "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any regulations relating thereto.

      1.3 "Company" means Union State Bank, a New York State banking
association, or, to the extent provided in Section 8.7 below, any successor
corporation or other entity resulting from a merger or consolidation into or
with the Company or a transfer or sale of substantially all of the assets of the
Company.

      1.4 "Deferred Compensation Account" means the account maintained by the
Company under the plan for a Participant that is credited with amounts
contributed under Section 3.1 and 3.3 of the Plan.

      1.5 "Key Employees Supplemental Diversified Investment Plan (KESIP)" means
the nonqualified plan established for certain highly compensated personnel for
which salary deferrals and related Company match are invested only in U.S.B.
Holding Co., Inc., stock.

      1.6 "Matching Contribution" means the Matching Contribution made by the
Company for the benefit of a Participant under and in accordance with the terms
of Section 3.3 of the Plan in any Plan Year.

      1.7 "Optional Contribution" means the Optional Contribution made by the
Company for the benefit of a Participant under and in accordance with the terms
of Section 3.4 of the Plan in any Plan Year.


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      1.8 "Participant" means a salaried employee of the Company to whom or with
respect to whom contributions may be made under the Plan.

      1.9 "Plan" means the Key Employees' Supplemental Diversified Investment
Plan.

      1.10 "Plan Year" means the calendar year. However, the first Plan Year was
the period commencing September 1, 1998, and ending December 31, 1998.

      1.11 "Qualified Plan" means the U.S.B. Holding Co., Inc. Employee
Stock Ownership Plan (with 401(k) Provisions), and each predecessor, successor,
or replacement plan.

      1.12 "Salary Reduction Agreement" means the written salary reduction
agreement entered into by a Participant with the Company pursuant to the Plan.

      1.13 "Salary Reduction Contribution" means the salary reduction
contribution made by the Company for the benefit of a Participant under and in
accordance with the terms of Section 3.1 of the Plan in any Plan Year.

                                   ARTICLE II

                                   ELIGIBILITY

      An employee who is one of a select group of highly compensated or
management personnel who is designated eligible to participate by the Board,
shall be eligible to participate in the Plan.


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                                   ARTICLE III

                                  CONTRIBUTIONS

3.1 Salary Reduction Contributions. The Salary Reduction Contribution to be made
by the Company for the benefit of a Participant for any Plan Year shall be in an
amount equal to the difference between (a) and (b) below:

      (a)   Any portion of the Participant's gross compensation (salary, bonus,
            other cash compensation for services) for a Plan Year

                                      Less

      (b)   the sum of:

      (i)   The amount of the Qualified Plan Salary Reduction Contribution
            actually allocated to the Qualified Plan account of the Participant
            for the Plan Year, and

      (ii)  The amount of the KESIP Reduction Contribution actually allocated to
            the KESIP account of the participant for the Plan Year.

      Salary Reduction Contributions made for the benefit of the Participant
shall be credited to the Deferred Compensation Account in the name of such
Participant within 30 days after the date such compensation would otherwise be
payable, but for the Salary Reduction Agreement.

      3.2 Salary Reduction Agreement. As a condition to the Company's obligation
to make a Salary Reduction Contribution for the benefit of a Participant
pursuant to Section 3.1, the Participant must execute a Salary Reduction
Agreement in the form attached hereto. The Agreement for any Plan Year shall be
made before the beginning of that Year and shall remain in full force and effect
for subsequent Plan Years unless revoked by a Participant by written instrument
delivered to the Company prior to the beginning of the Plan Year in which such
revocation is to be effective.


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      3.3 Matching Contributions. The Matching Contribution made by the Company
for the benefit of a Participant for any Plan Year shall be in an amount equal
to the difference between (a) and (b) below:

      (a) The lesser of the matching contribution that would be allocated to
Participant at the matching rate specified in the Qualified Plan with respect to
the aggregate amount of Salary Reduction Contribution actually made by
Participant to the Qualified Plan, KESIP and this Plan, or the Qualified Plan
Company Matching Contribution which would have been allocated to the Qualified
Plan account of the Participant for the Plan Year if the Participant had
contributed to the Qualified Plan the maximum percentage of his gross
compensation provided by the Qualified Plan, without giving effect to any
reduction in the Qualified Plan Salary Reduction Contribution required by the
limitations imposed by Code Sections 402(g) or 415 of the Code on the Qualified
Plan.

                                      Less

      (b)   the sum of:

      (i)   The amount of the Qualified Plan Company Matching Contribution
            actually allocated to the Qualified Plan account of the Participant
            for the Plan Year, and

      (ii)  The amount of the KESIP Company Matching Contribution actually
            allocated to the KESIP account of the participant for the Plan Year.

      Company Matching Contributions made for the benefit of a Participant for
any Plan Year shall be credited to the Deferred Compensation Account maintained
under the Plan in the name of such participant at the same time as related
Salary Reduction Contributions are credited in accordance with Section 3.1 of
the Plan. Company Matching Contributions for each plan year shall become 100%
vested on the last day of each such plan year, provided that the Participant
remains an employee of the Company on such date; otherwise, all Company Matching
Contributions for such plan year shall be forfeited.


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      3.4 Optional Contributions. The Optional Contribution made by the Company
for the benefit of a Participant for any Plan Year shall be an amount equal to
the difference between (a) and (b) below:

      (a)   The Qualified Plan Company Optional Contribution which would have
            been allocated to the Qualified Plan account of the Participant for
            the Plan Year, considering the full amount of the Participant's
            compensation, without giving effect to any reduction in the
            Qualified Plan Company Optional Contribution required by the
            limitations on compensation imposed on the Qualified Plan by Code
            Sections 401(a)(17) and/or 415

                                      Less

      (b)   the sum of:

      (i)   The amount of the Qualified Plan Company Optional Contribution
            actually allocated to the Qualified Plan account of the Participant
            for the Plan Year, and

      (ii)  The amount of KESIP Optional Contribution actually allocated to the
            KESIP account of the participant for the Plan Year.

                                   ARTICLE IV

                           INVESTMENT OF CONTRIBUTIONS

      If funded, amounts credited hereunder to the Deferred Compensation Account
of a Participant shall be invested in funding vehicles selected by the Trustee
or the Company. Each Participant's Account will be credited with amounts
actually earned by such funding vehicles. If the Company elects not to fund
amounts credited hereunder, each Participant's Account shall be credited with
amounts determined by the Company.


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                                    ARTICLE V

                                  DISTRIBUTIONS

      All amounts credited to a Participant's Deferred Compensation Account,
including gains and losses credited in accordance with Article IV of the Plan,
shall be distributed, to or with respect to a Participant only upon termination
of the Participant's employment with the Company and all affiliates thereof for
any reason including death. All amounts distributable under the Plan shall be
distributed in the manner selected by Participant in his most recent Salary
Reduction Agreement containing a distribution election, or in the manner
selected by Participant on a Special Distribution Election Form furnished by the
Company and filed with the Company not less than twelve (12) months prior to
Participant's termination of employment with Company or any affiliate. If
termination occurs by reason of death, disability or involuntary termination
without "cause", such Form filed at any time before such event shall be valid.

      Distribution shall be made in cash, in kind, or in a combination of both;
provided, however that if assets are invested in stock of the Company or its
parent Company and liquidation thereof for a single cash distribution might be
disruptive, such stock may be sold and cash distributed in an orderly fashion.

      The Participant may, in the manner provided above, choose the following
alternative modes of distribution:

      1.    Distribution of a Participant's Deferred Compensation Account in a
            single distribution immediately within 30 days or at some later
            date; or

      2.    Distribution of a Participant's Deferred Compensation Account in
            substantially equal annual installments over a period not exceeding
            fifteen (15) years (provided that such period does not exceed the
            life expectancy of the Participant); or

      3.    Any combination of the foregoing.

      If no such election is made, the distribution will be made in a single
distribution within 2 years of termination of employment. If no such elections
made on account of death, disability or


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retirement, the distribution will be made in a single distribution within 1 year
of termination of employment.

      If a Participant should die before distribution of the full amount of the
Deferred Compensation Account had been made to him, any remaining amounts shall
be distributed to his beneficiary in the same manner and to the same extent as
the Participant would have received distributions in accordance with the
foregoing.

                                   ARTICLE VI

                           ADMINISTRATION OF THE PLANS

      6.1 Administration by the Company. The Company shall be responsible for
the general operation and administration of the Plan and for carrying out the
provisions thereof.

      6.2 General Powers of Administration. The Company shall be entitled to
rely conclusively upon all tables, valuations, certificates, opinions and
reports furnished by any actuary, accountant, controller, counsel or other
person employed or engaged by the Company with respect to the Plan.

                                   ARTICLE VII

                            AMENDMENT OR TERMINATION

      7.1 Amendment or Termination. The Company intends the Plan to be permanent
but reserves the right to amend or terminate the Plan when, in the sole opinion
of the Company, such amendment or termination is advisable. Any such amendment
or termination shall be made pursuant to a resolution of the Board and shall be
effective as of the date of such resolution.


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      7.2 Effect of Amendment or Termination. No amendment or termination of the
Plan shall directly or indirectly reduce the balance of the Deferred
Compensation Account held hereunder as of the effective date of such amendment
or termination. Upon termination of the Plan, distribution of amounts in the
Deferred Compensation Account shall be made to the Participant or his
beneficiary in the manner and at the time described in Article V of the Plan. No
additional credits of Salary Reduction or Matching Contributions shall be made
to the Deferred Compensation Account of a Participant after termination of the
Plan, but the Company shall continue to credit gains to the Deferred
Compensation Account pursuant to Article IV until the balance of the Deferred
Compensation Account has been fully distributed to the Participant or his
beneficiary.

                                   ARTICLE VII

                               GENERAL PROVISIONS

      8.1 Participant's Rights Unsecured. The Plan at all times shall be
entirely unfunded and no provision shall at any time be made with respect to
segregating any assets of the Company for payment of any distributions
hereunder; provided, however, that the Company in its sole discretion may
establish a reserve, segregate specific assets, or create a trust or other
vehicle, to hold assets for purposes of administering the Plan or for its own
financial purposes. The right of a Participant or his designated beneficiary to
receive a distribution hereunder shall be an unsecured claim against the general
assets of the Company, and neither the Participant nor a designated beneficiary
shall have any rights in or against any specific assets of the Company,
including any reserve, segregated assets, or trust assets that may be maintained
by the Company. All amounts credited to the Deferred Compensation Accounts of
Participants shall constitute general assets of the Company and may be disposed
of by the Company at such time and for such purposes as it may deem appropriate.

      8.2 No Guarantee of Benefits. Nothing contained in the Plan shall
constitute a guaranty by the Company or any other person or entity that the
assets of the Company will be sufficient to pay any benefit hereunder.


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      8.3 No Enlargement of Employee Rights. No Participant shall have any right
to receive a distribution of contributions made under the Plan except in
accordance with the terms of the Plan. Establishment of the Plan shall not be
construed to give any Participant the right to be retained in the service of the
Company.

      8.4 Spendthrift Provisions. No interest of any person or entity in, or
right to receive a distribution under, the Plan shall be subject in any manner
to sale, transfer, assignment, pledge, attachment, garnishment, anticipation, or
other alienation or encumbrance of any kind; nor may such interest or right to
receive a distribution be taken, either voluntarily or involuntarily for the
satisfaction of the debts of, or other obligations or claims against, such
person or entity, including claims for alimony, support, separate maintenance,
and claims in bankruptcy proceedings.

      8.5 Applicable Law. The Plan shall be construed and administered under the
laws of the State of New York.

      8.6 Incapacity of Recipient. If any person entitled to a distribution
under the Plan is deemed by the Company to be incapable of personally receiving
and giving a valid receipt for such payment, then, unless and until claim
therefor shall have been made by a duly appointed guardian or other legal
representative of such person, the Company may provide for such payment or any
part thereof to be made to any other person or institution then contributing
toward or providing for the care and maintenance of such person. Any such
payment shall be a payment for the account of such person and a complete
discharge of any liability of the Company and the Plan therefor.

      8.7 Corporate Successors. The Plan shall not be automatically terminated
by a transfer or sale of assets of the Company or by the merger or consolidation
of the Company into or with any other corporation or other entity, but the Plan
shall be continued after such sale, merger, or consolidation only if and to the
extent that the transferee, purchaser, or successor entity agrees to continue
the Plan. In the event that the Plan is not continued by the transferee,
purchaser, or successor entity, then the Plan shall terminate subject to the
provisions of Section 7.2.


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      8.8 Unclaimed Benefit. Each Participant shall keep the Company informed of
his current address and the current address of his designated beneficiary. The
Company shall not be obligated to search for the whereabouts of any person. If
the location of a Participant is not made known to the Company within three (3)
years after the date on which payment of the Participant's Deferred Compensation
Accounts may first be made, payment maybe made as though the Participant had
died at the end of the three-year period. If, within one additional year after
such three-year period has elapsed, or, within three year after the actual death
of a Participant, the Company is unable to locate any designated beneficiary of
the Participant, then the Company shall have no further obligation to pay any
benefit hereunder to such Participant or designated beneficiary and such benefit
shall be irrevocably forfeited.

      8.9 Limitations on liability. Notwithstanding any of the preceding
provisions of the Plan, neither the Company nor any individual acting as
employee or agent of the Company shall be liable to any Participant, former
Participant or other person for any claim, loss, liability, or expense incurred
in connection with the Plan. However, the preceding sentence shall not apply to
liability for criminal acts or willful misconduct.

      IN WITNESS WHEREOF, the Company has formally adopted this Plan effective
on September 1, 1998.


                                  UNION STATE BANK



                         By: /s/ Thomas E. Hales
                             --------------------------------------------------
                             Thomas E. Hales - Chairman, President and CEO


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                                UNION STATE BANK
                               100 Dutch Hill Road
                           Orangeburg, New York 10962


             KEY EMPLOYEES' SUPPLEMENTAL DIVERSIFIED INVESTMENT PLAN

                           SALARY REDUCTION AGREEMENT

As a condition to receiving a Supplemental Salary Reduction and Matching
Contribution under the Key Employees' Supplemental Diversified Investment Plan
(the "Plan") of Union State Bank (the "Bank"), I hereby agree that the salary,
inclusive of bonuses, otherwise payable to me by Union State Bank for any Plan
Year commencing with the year which begins September 1, 1998, shall be reduced
by _________ percent per pay period after I have met all 401k qualified plan
provisions under the Bank's Employee Stock Ownership Plan (With 401(k)
Provisions) ("KSOP") and also less any amounts deferred under the Key Employees'
Supplemental Investment Plan. Such amount shall be paid by the Bank as a salary
reduction contribution for my benefit pursuant to the terms of the Plan.



_________________________                     ________________________________
       Date                                          Participant