EMPLOYMENT AGREEMENT


                                 by and between


                             U.S.B. HOLDING CO, INC.
                                UNION STATE BANK


                                       and


                                RAYMOND J. CROTTY


                           ---------------------------
                           Made and Entered Into As of

                                November 16, 1998
                           ---------------------------
<PAGE>

                              EMPLOYMENT AGREEMENT

      This Employment Agreement ("Agreement") is made and entered into as of
November 16, 1998 by and between U.S.B. HOLDING CO., INC., a publicly held
business corporation organized and operating under the laws of the State of
Delaware (the "Company") and Union State Bank (the "Bank"), both having an
office at 100 Dutch Hill Road, Orangeburg, New York 10962 and RAYMOND J. CROTTY,
an individual residing at 11 Dickens Street, Stony Point, New York 10980 ("Mr.
Crotty").

                                   WITNESSETH:

      WHEREAS, Mr. Crotty currently serves the Company and the Bank in the
capacity of Senior Executive Vice President, Chief Credit Officer and Assistant
Secretary; and

      WHEREAS, the Company and the Bank desire to assure for themselves the
continued availability of Mr. Crotty's services and the ability of Mr. Crotty to
perform such services; and

      WHEREAS, Mr. Crotty is willing to continue to serve the Company and the
Bank on the terms and conditions hereinafter set forth;

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions hereinafter set forth, the Company and the Bank and Mr. Crotty
hereby agree as follows:

      Section 1. Employment

      The Company and the Bank agree to continue to employ Mr. Crotty in the
capacities stated above, and Mr. Crotty hereby agrees to such continued
employment, during the period and upon the terms and conditions set forth in
this Agreement.

      Section 2. Employment Period: Remaining Unexpired Employment Period

      (a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this Section 2
("Employment Period"). The Employment Period shall be for al term of three years
beginning on the date of this Agreement and ending on the third anniversary date
of this Agreement (an "Anniversary Date"), plus such extensions, if any, as are
provided for in this Agreement or otherwise agreed to by the Boards of Directors
of the Company and the Bank (collectively, the "Boards").

      (b) Nothing in this Agreement shall be deemed to prohibit the Company
and/or the Bank at any time from terminating Mr. Crotty's employment during the
Employment Period with or without notice for any reason; provided, however, that
the relative rights and obligations of the Company and the Bank and Mr. Crotty
in the event of any such termination shall be determined under this Agreement.


                                  Page 1 of 15
<PAGE>

      Section 3. Duties

      Mr. Crotty shall serve as Senior Executive Vice President, Chief Credit
Officer and Assistant Secretary of the Company and the Bank, having such power,
authority and responsibility and performing such duties as are prescribed by or
under the By-Laws of the Company or the Bank and as are customarily associated
with such position. Mr. Crotty shall devote his full business time and attention
(other than during weekends, holidays, approved vacation periods, and periods of
illness or approved leaves of absence) to the business and affairs of the
Company and the Bank and shall use his best efforts to advance the interests of
the Company and the Bank.

      Section 4. Cash Compensation

      In consideration for the services to be rendered by Mr. Crotty hereunder,
the Company and the Bank shall together pay to him a salary at an initial annual
rate of ONE HUNDRED SIXTY THOUSAND DOLLARS ($160,000), payable in approximately
equal installments in accordance with the Company's and Bank's customary payroll
practices for senior officers. On each Anniversary Date occurring during the
Employment Period, Mr. Crotty's annual rate of salary shall be reviewed and
increased as determined by the Chairman of the Board, President and Chief
Executive Officer of the Company and/or the Bank. In addition to salary, Mr.
Crotty may receive other cash compensation from the Company or the Bank for
services hereunder at such times, in such amounts and on such terms and
conditions as determined by the Chairman of the Board, President and Chief
Executive Officer of the Company and/or the Bank from time to time.

      The Company and the Bank agree to pay to Mr. Crotty a minimum annual bonus
of 1.0 percent, or a percent as otherwise provided on mutual agreement between
the parties, to be computed based upon the net profits realized by the
consolidated earnings of the Company and the Bank and their affiliates in
accordance with the Executive Compensation Plan which has been adopted by the
Board.

      Mr. Crotty shall be granted stock options by the Company of no less than
36,300 shares each year during the term of this Agreement under the Company's
Employee Stock Option Plans as may be established by the Company, such stock
options to be adjusted for stock dividends and stock splits after the date of
this Agreement by the Company during the term of this Agreement. Upon the
exercise of options with existing owned stock, additional options to purchase
stock will be issued to Mr. Crotty in an amount equivalent to such Company stock
utilized in the exercise. In addition, if Mr. Crotty sells existing owned stock
or stock acquired as a result of such exercise of options to pay income taxes as
a result of the exercise of options or sells stock acquired upon exercise of
options ("cashless exercise"), Mr. Crotty shall be awarded new options to
purchase Company stock equivalent to the number of shares of Company stock sold
under the circumstances described in this sentence.

      The foregoing salary shall be in addition to the monthly Board fees
presently paid to Mr. Crotty or as hereafter provided by the Boards or any Board
of Directors of an affiliate of the Company or the Bank.

      Mr. Crotty, at his option, shall be allowed to defer any portion of his
cash compensation in accordance with any plan approved by the Company or the
Bank.


                                  Page 2 of 15
<PAGE>

      Section 5. Insurance

      If Mr. Crotty should become disabled during the term of this Agreement,
the Company and the Bank will compensate Mr. Crotty for the difference between
any disability insurance, the premiums for which are paid by the Company and the
Bank, and Mr. Crotty's full salary for the balance of the term of this Agreement
and thereafter for a period of six months after the termination of this
Agreement. Full fringe benefits will continue through the earlier of (i) the
balance of the term of this Agreement or (ii) the period of Mr. Crotty's
disability.

      In accordance with the foregoing, the Company and/or the Bank will
maintain and pay the premiums for the following life insurance policy on the
life of Mr. Crotty: Universal Life Policy No. 001224102 of Security Mutual Life
Insurance Company in the amount of $1,000,000. The beneficiaries under the
foregoing policy of insurance shall be designated by Mr. Crotty.

      Section 6. Employee Benefit Plans and Programs

      During the Employment Period, Mr. Crotty shall be treated as an employee
of the Company and the Bank and shall be entitled to participate in and receive
benefits under any and all qualified or non-qualified retirement, pension,
savings, profit-sharing or stock bonus plans, any and all group life, health
(including hospitalization, medical and major medical), dental, accident and
long-term disability insurance plans, and any other employee benefit and
compensation plans (including but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Company or the Bank, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs which
are consistent with the Company's and the Bank's customary practices.

      Section 7. Indemnification and Insurance

      (a) During the Employment Period and for a period of six (6) years
thereafter, the Company or the Bank shall cause Mr. Crotty to be covered by and
named as an insured under any policy or contract of insurance obtained by it to
insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the Company or
the Bank or service in other capacities at the request of the Company or the
Bank. The coverage provided to Mr. Crotty pursuant to this Section 7 shall be of
the same scope and on the same terms and conditions as the coverage (if any)
provided to other officers or directors of the Company and the Bank.

      (b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six (6) years thereafter, the Company and
the Bank shall indemnify Mr. Crotty against and hold him harmless from any
costs, liabilities, losses and expenses to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Company, the Bank or any subsidiary or affiliate
thereof


                                  Page 3 of 15
<PAGE>

      Section 8. Outside Activities

      Mr. Crotty may serve as a member of a board of directors of such business,
community and charitable organizations as he may disclose to and as may be
approved by the Chairman of the Board, President and Chief Executive Officer of
the Company and/or the Bank, which approval shall not be unreasonably withheld;
provided, however, that such service shall not materially interfere with the
performance of his duties under this Agreement. Mr. Crotty may also engage in
personal business and investment activities which do not materially interfere
with the performance of his duties hereunder; provided, however, that such
activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Company and/or Bank and generally
applicable to all similarly situated executives. Mr. Crotty may also serve as an
officer or director of any subsidiary of the Company or the Bank. If Mr. Crotty
is discharged or suspended, or is subject to any regulatory prohibition or
restriction with respect to participation in the affairs of the Company or the
Bank, he shall continue to perform services for the Company and the Bank in
accordance with this Agreement but shall not directly or indirectly provide
services to or participate in the affairs of the Company and the Bank in a
manner inconsistent with the terms of such discharge or suspension or any
applicable regulatory order.

      Section 9. Working Facilities and Expenses

      Mr. Crotty's principal place of employment shall be at the Company's and
the Bank's executive offices at the address first above written, or at such
other location at which the Company or the Bank shall maintain its principal
executive offices, or at such other location as the Company and the Bank and Mr.
Crotty may mutually agree upon. The Company or the Bank shall provide Mr. Crotty
at his principal place of employment with a private office, secretarial
services, an automobile, and other support services and facilities suitable to
his position with the Company and the Bank and necessary or appropriate in
connection with the performance of his assigned duties under this Agreement. The
Company or the Bank shall provide to Mr. Crotty for his exclusive use an
automobile owned or leased by the Company or the Bank appropriate to his
position, to be used in the performance of his duties hereunder, including
commuting to and from his personal residence. The Company or the Bank shall
reimburse Mr. Crotty for his ordinary and necessary business expenses,
including, without limitation, all expenses associated with his business use of
the aforementioned automobile, fees for memberships in such clubs and
organizations as Mr. Crotty and the Company or the Bank shall mutually agree are
necessary and appropriate for business purposes, and his travel and
entertainment expenses incurred in connection with the performance of his duties
under this Agreement, in each case upon presentation to the Company or the Bank
of an itemized account of such expenses in such form as the Company or the Bank
may reasonably require.

      The Company and the Bank shall specifically pay the annual membership fees
of one Country Club membership for Mr. Crotty.

      Section 10. Vacation

      Mr. Crotty shall be entitled annually to vacation time of five (5) weeks
in total and two (2) personal days, or any additional vacation and personal time
agreed to by the parties or permitted by Company or Bank policy.


                                  Page 4 of l5
<PAGE>

      Section 11. Termination of Employment with Severance Benefits

      (a) Mr. Crotty shall be entitled to the severance benefits described
herein in the event that his employment with the Company or the Bank terminates
during the Employment Period under any of the following circumstances:

      (i) Mr. Crotty's voluntary resignation from employment with the Company
      and the Bank within ninety (90) days following:

            (A) the failure of the Boards to appoint or re-appoint or elect or
      re-elect Mr. Crotty to the office of Senior Executive Vice President,
      Chief Credit Officer and Assistant Secretary (or a more senior office) of
      the Company and the Bank;

            (B) the failure of the stockholders of the Company or the Bank to
      elect or re-elect Mr. Crotty as a director of the Boards or the failure of
      the Boards (or the nominating committee thereof) to nominate Mr. Crotty
      for such election or re-election;

            (C) the expiration of a thirty (30) day period following the date on
      which Mr. Crotty gives written notice to the Company and/or the Bank of
      its material failure, whether by amendment of the Company's or the Bank's
      Organization Certificate or By-laws, action of the Boards or the Company's
      or the Bank's stockholders or otherwise, to vest in Mr. Crotty the
      functions, duties, or responsibilities prescribed in Section 3 of this
      Agreement, unless, during such thirty (30) day period, the Company and/or
      the Bank cures such failure in a manner determined by Mr. Crotty and the
      Boards to be satisfactory; or

            (D) the expiration of a thirty (30) day period following the date on
      which Mr. Crotty gives written notice to the Company and/or the Bank of
      its material breach of any term, condition or covenant contained in this
      Agreement (including, without limitation any reduction of Mr. Crotty's
      rate of base salary in effect from time to time and any change in the
      terms and conditions of any compensation or benefit program in which Mr.
      Crotty participates which, either individually or together with other
      changes, has a material adverse effect on the aggregate value of his total
      compensation package), unless, during such thirty (30) day period, the
      Company and/or the Bank cures such failure in a manner determined by Mr.
      Crotty and the Boards to be satisfactory; or

      (ii) Mr. Crotty's death; or

      (iii) subject to the provisions of Section 12, the termination of Mr.
      Crotty's employment with the Company or the Bank for any other reason not
      described in Section 11(a).

      (b) Upon the termination of Mr. Crotty's employment with the Company
and/or the Bank under circumstances described in Section 11(a) of this
Agreement, the Company or the Bank shall pay and provide to Mr. Crotty (or, in
the event of his death, to his estate):

      (i) his earned but unpaid compensation (including, without limitation, all
      items which constitute wages under Section 190.1 of the New York Labor Law
      and the payment of which is not otherwise provided for under this Section
      11(b)) as of the date of the termination of


                                  Pages 5 of 15
<PAGE>

      his employment with the Company and the Bank, such payment to be made at
      the time and in the manner prescribed by law applicable to the payment of
      wages but in no event later than thirty (30) days after termination of
      employment;

      (ii) the benefits, if any, to which he is entitled as a former employee
      under the employee benefit plans and programs and compensation plans and
      programs maintained for the benefit of the Company's and the Bank's
      officers and employees;

      (iii) continued group life, health (including hospitalization, medical and
      major medical and the insurance provided under Section 5), dental,
      accident and long term disability insurance benefits, in addition to that
      provided pursuant to Section 11(b)(ii), and after taking into account the
      coverage provided by any subsequent employer, if and to the extent
      necessary to provide for Mr. Crotty, for the Remaining Unexpired
      Employment Period, coverage equivalent to the coverage to which he would
      have been entitled under such plans (as in effect on the date of his
      termination of employment, or, if his termination of employment occurs
      after a Change of Control, on the date of such Change of Control,
      whichever benefits are greater), if he had continued working for the
      Company and the Bank during the Remaining Unexpired Employment Period at
      the highest annual rate of compensation achieved during that portion of
      the Employment Period which is prior to Mr. Crotty's termination of
      employment with the Company or the Bank;

      (iv) within thirty (30) days following his termination of employment with
      the Company and/or the Bank, a lump sum payment in an amount equal to the
      present value of the salary that Mr. Crotty would have earned if he had
      continued working for the Company and the Bank for one year at the highest
      annual rate of salary achieved during that portion of the Employment
      Period which is prior to Mr. Crotty's termination of employment with the
      Company and the Bank, where such present value is to be determined using a
      discount rate equal to the applicable short-term federal rate prescribed
      under Section 1274(d) of the Internal Revenue Code of 1986 ("Code"),
      compounded using the compounding period corresponding to the Company's and
      the Bank's regular payroll periods for its officers, such lump sum to be
      paid in lieu of all other payments of salary provided for under this
      Agreement in respect of the period following any such termination. At the
      option of Mr. Crotty, such payments may be made in equal monthly
      installments over a period of not less than three years, nor more than
      five years, in which case such payments will not be discounted;

      (v) within thirty (30) days following his termination of employment with
      the Company and/or the Bank, a lump sum payment in an amount equal to the
      present value of the additional employer contributions to which he would
      have been entitled under any and all qualified and non-qualified defined
      contribution plans maintained by, or covering employees of, the Company
      and the Bank, if he were 100% vested thereunder and had continued working
      for the Company and the Bank, during the Remaining Unexpired Employment
      Period at the highest annual rate of compensation achieved during that
      portion of the Employment Period which is prior to Mr. Crotty's
      termination of employment with the Company or the Bank, and making the
      maximum amount of employee contributions, if any, required under such plan
      or plans, such present value to be determined on the basis of a discount
      rate, compounded using the compounding period that corresponds to the
      frequency


                                  Page 6 of 15
<PAGE>

      with which employer contributions are made to the relevant plan, equal to
      the applicable PBGC Rate. At the option of Mr. Crotty, such payments may
      be made in equal monthly installments over a period of not less than
      three, nor more than five years, in which case such payments will not be
      discounted;

      (vi) the payment that would have been made to Mr. Crotty under any cash
      bonus or long-term or short-term cash incentive compensation plan
      maintained by, or covering employees of, the Company or the Bank, if he
      had continued working for the Company or the Bank during the Remaining
      Unexpired Employment Period and had earned the maximum bonus or incentive
      award in each calendar year that ends during the Remaining Unexpired
      Employment Period, such payments to be equal to the product of:

            (A) the maximum percentage rate at which an award was ever available
      to Mr. Crotty under such incentive compensation plan, multiplied by

            (B) net income of the Company for the most recent fiscal year which
      is prior to Mr. Crotty's termination of employment with the Company;

      such payments to be made in a lump sum payment in an amount equal to the
      present value of such payments as if made in accordance with Company's
      and/or Bank's Executive Bonus Plan, where such present value is to be
      determined using a discount rate equal to the applicable short-term
      federal rate prescribed under Section 1274(d) of the Code, within thirty
      (30) days following Mr. Crotty's termination of employment. At the option
      of Mr. Crotty, such payments may be made in equal monthly installments
      over a period of not less than three, nor more than five years, in which
      case such payments will not be discounted;

      (vii) at the election of the Company and the Bank made within thirty (30)
      days following his termination of employment with the Company and the
      Bank, upon the surrender of stock options or stock appreciation rights
      issued to Mr. Crotty under any stock option and appreciation rights plan
      or program maintained by, or covering employees of, the Company and the
      Bank, a lump sum payment in an amount equal to the product of:

            (A) the excess of (i) the fair market value of a share of stock of
      the same class as the stock subject to the option or appreciation right,
      determined as of the date of termination of employment, over (ii) the
      exercise price per share for such option or appreciation right, as
      specified in or under the relevant plan or program; multiplied by

            (B) the number of shares with respect to which options or
      appreciation rights are being surrendered.

      For purposes of this Section 11(b)(vii) and for purposes of determining
      Mr. Crotty's right following his termination of employment with the
      Company or the Bank to exercise any options or appreciation rights not
      surrendered pursuant hereto, Mr. Crotty shall be deemed fully vested in
      all options and appreciation rights under any stock option or appreciation
      rights plan or program maintained by, or covering employees of, the
      Company or Bank, even if he is not vested under such plan or program, and
      shall have a period of three months from the date of termination of
      employment to exercise such stock options or appreciation rights.


                                  Page 7 of l5
<PAGE>

      (viii) at the election of the Company or the Bank made within thirty (30)
      days following Mr. Crotty's termination of employment with the Company and
      the Bank, upon the surrender of any shares awarded to Mr. Crotty under any
      restricted stock plan maintained by, or covering employees of, the Company
      and the Bank, a lump sum payment in an amount equal to the product of:

            (A) the fair market value of a share of stock of the same class of
      stock granted under such plan, determined as of the date of Mr. Crotty
      termination of employment; multiplied by

            (B) the number of shares which are being surrendered.

      For purposes of this Section 11(b)(viii) and for purposes of determining
      Mr. Crotty's right following his termination of employment with the
      Company and the Bank to any stock not surrendered pursuant hereto, Mr.
      Crotty shall be deemed fully vested in all shares awarded under any
      restricted stock plan maintained by, or covering employees of, the Company
      and the Bank, even if he is not vested under such plan;

      (ix) the title to the car then currently provided to Mr. Crotty shall be
      transferred to Mr. Crotty.

The Company and the Bank and Mr. Crotty hereby stipulate that the damages which
may be incurred by Mr. Crotty following any such termination of employment are
not capable of accurate measurement as of the date first above written and that
the payments and benefits contemplated by this Section 11(b) constitute
reasonable damages under the circumstances and shall be payable without any
requirement of proof of actual damage and without regard to Mr. Crotty's
efforts, if any, to mitigate damages. The Company and the Bank and Mr. Crotty
further agree that the Company and the Bank may condition the payments and
benefits (if any) due under Sections 11(b)(iii), (iv), (v), (vi), and (vii) on
the receipt of Mr. Crotty's resignation from any and all positions which he
holds as an officer, director or committee member with respect to the Company,
the Bank or any subsidiary or affiliate of either of them.

      Section 12. Termination without Additional Company/Bank Liability

      (a) In the event that Mr. Crotty employment with the Company and the Bank
shall terminate during the Employment Period on account of:

      (i) the discharge of Mr. Crotty for "cause," which, for purposes of this
      Agreement shall mean: (A) Mr. Crotty intentionally engages in dishonest
      conduct in connection with his performance of services for the Company or
      the Bank resulting in his conviction of a felony; (B) Mr. Crotty is
      convicted of, or pleads guilty or nolo contendere to, a felony or any
      crime involving moral turpitude; (C) Mr. Crotty willfully fails or refuses
      to perform his duties under this Agreement and fails to cure such breach
      within sixty (60) days following written notice thereof from the Company
      or the Bank; (D) Mr. Crotty breaches his fiduciary duties to the Company
      or the Bank for personal profit; or (E) Mr. Crotty's willful breach or
      violation of any law, rule or regulation (other than traffic violations or
      similar offenses), or final cease and desist order in connection with his
      performance of services for the Company 


                                  Page 8 of 15
<PAGE>

      or the Bank;

      (ii) Mr. Crotty's voluntary resignation from employment with the Company
      and the Bank for reasons other than those specified in Section 11(a); or

      (iii) a determination that Mr. Crotty is eligible for long-term disability
      benefits under the Company's or Bank's long-term disability insurance
      program or, if there is no such program, under the federal Social Security
      Act;

then the Company and the Bank shall have no further obligations under this
Agreement, other than the payment to Mr. Crotty (or, in the event of his death,
to his estate) of his earned but unpaid salary as of the date of the termination
of his employment, and the provision of such other benefits, if any, to which he
is entitled as a former employee under the employee benefit plans and programs
and compensation plans and programs maintained by, or covering employees of, the
Company or the Bank.

      (b) For purposes of Section 12(a)(i)(A) or (B), no act or failure to act,
on the part of Mr. Crotty, shall be considered "willful" unless it is done, or
omitted to be done, by Mr. Crotty in bad faith or without reasonable belief that
Mr. Crotty's action or omission was in the best interests of the Company or the
Bank. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Boards or based upon the written advice of
counsel for the Company or the Bank shall be conclusively presumed to be done,
or omitted to be done, by Mr. Crotty in good faith and in the best interests of
the Company or the Bank. The cessation of employment by Mr. Crotty shall not be
deemed to be for "cause" within the meaning of Section 12(a)(i) unless and until
there shall have been delivered to Mr. Crotty a copy of a resolution duly
adopted by the affirmative vote of three-fourths of the non-employee members of
the Boards at a meeting of the Boards called and held for such purpose (after
reasonable notice is provided to Mr. Crotty and Mr. Crotty is given an
opportunity, together with counsel, to be heard before the Boards), finding
that, in the good faith opinion of the Boards, Mr. Crotty is guilty of the
conduct described in Section 12(a)(i) above, and specifying the particulars
thereof in detail.

      Section 13. Termination Upon or Following a Change of Control

      (a) A change of control of the Company or the Bank ("Change of Control")
shall be deemed to have occurred upon the happening of any of the following
events:

      (i) approval by the stockholders of the Company or the Bank of a
      transaction that would result in the reorganization, merger or
      consolidation of the Company or the Bank, respectively, with one or more
      other persons, other than a transaction following which:

            (A) at least 51% of the equity ownership interests of the entity
      resulting from such transaction are beneficially owned (within the meaning
      of Rule 13d-3 promulgated under the Exchange Act) in substantially the
      same relative proportions by persons who, immediately prior to such
      transaction, beneficially owned (within the meaning of Rule 13d-3
      promulgated under the Exchange Act) at least 51% of the outstanding equity
      ownership interests in the Company or the Bank; and


                                  Page 9 of 15
<PAGE>

            (B) at least 51% of the securities entitled to vote generally in the
      election of directors of the entity resulting from such transaction are
      beneficially owned (within the meaning of Rule 13d-3 promulgated under the
      Exchange Act) in substantially the same relative proportions by persons
      who, immediately prior to such transaction, beneficially owned (within the
      meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of
      the securities entitled to vote generally in the election of directors of
      the Company or the Bank;

      (ii) the acquisition of all or substantially all of the assets of the
      Company or the Bank or beneficial ownership (within the meaning of Rule
      13d-3 promulgated under the Exchange Act) of 20% or more of the
      outstanding securities of the Company or the Bank entitled to vote 
      generally in the election of directors by any person or by any persons 
      acting in concert, or approval by the stockholders of the Company or the
      Bank of any transaction which would result in such an acquisition;

      (iii) a complete liquidation or dissolution of the Company or the Bank, or
      approval by the stockholders of the Company or the Bank of a plan for such
      liquidation or dissolution;

      (iv) the occurrence of any event if, immediately following such event, at
      least 50% of the members of the board of directors of the Company or the
      Bank do not belong to any of the following groups:

            (A) individuals who were members of the board of directors of the
      Company or the Bank on the date of this Agreement; or

            (B) individuals who first became members of the board of directors
      of the Company or the Bank after the date of this Agreement either:

                  (I) upon election to serve as a member of the board of
            directors of the Company or the Bank by affirmative vote of
            three-quarters of the members of such board, in office at the time
            of such first election; or

                  (II) upon election by the stockholders to serve as a member of
            the board of directors of the Company or the Bank, but only if
            nominated for election by affirmative vote of three-quarters of the
            members of the board of directors of the Company or the Bank, or of
            a nominating committee thereof, in office at the time of such first
            nomination;

      provided, however, that such individual's election or nomination did not
      result from an actual or threatened election contest (within the meaning
      of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
      other actual or threatened solicitation of proxies or consents (within the
      meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
      Act) other than by or on behalf of the Board of the Company or the Bank.

In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or a subsidiary of
either of them, or by any employee benefit plan maintained 


                                 Page 10 of 15
<PAGE>

by any of them. For purposes of this Section 13(a), the term "person" shall have
the meaning assigned to it under Sections 13(d)(3) or 14(d)(2) of the Exchange
Act.

      (b) In the event of a Change of Control, Mr. Crotty shall be entitled to
the payments and benefits contemplated by Section 11(b), provided, however, that
with respect to any such benefits or payments to be made thereunder, the
benefits or payments contemplated by Section 11(b) will be calculated as if the
remaining Unexpired Employment Period is equal to three years in the event of
his termination of employment with the Company or the Bank under any of the
circumstances described in Section 11(a) of this Agreement or under any of the
following circumstances:

      (i) resignation, voluntary or otherwise, by Mr. Crotty at any time during
      the Employment Period following his demotion, loss of title, office or
      significant authority or responsibility, or following any reduction in any
      element of his package of compensation and benefits;

      (ii) resignation, voluntary or otherwise, by Mr. Crotty at any time during
      the Employment Period following any relocation of his principal place of
      employment or any change in working conditions at such principal place of
      employment which Mr. Crotty, in his reasonable discretion, determines to
      be embarrassing, derogatory or otherwise adverse;

      (iii) resignation, voluntary or otherwise, by Mr. Crotty at any time
      during the Employment Period following the failure of any successor to the
      Company or the Bank in the Change of Control to include Mr. Crotty in any
      compensation or benefit program maintained by it or covering any of its
      executive officers, unless Mr. Crotty is already covered by a
      substantially similar plan of the Company which is at least as favorable
      to him; or

      (iv) resignation, voluntary or otherwise, for any other reason whatsoever
      following the effective date of the Change of Control.

      Section 14. Tax Indemnification

      (a) This Section 14 shall apply if Mr. Crotty's employment is terminated
upon or following (i) a Change of Control (as defined in Section 13 of this
Agreement); or (ii) a change "in the ownership or effective control" of the
Company or the Bank or "in the ownership of a substantial portion of the assets"
of the Company or the Bank within the meaning of Section 280G of the Code. If
this Section 14 applies, then, if for any taxable year, Mr. Crotty shall be
liable for the payment of an excise tax under Section 4999 of the Code with
respect to any payment in the nature of compensation made by the Company, the
Bank or any direct or indirect subsidiary or affiliate of the Company or the
Bank to (or for the benefit of) Mr. Crotty, the Company or the Bank shall pay to
Mr. Crotty an amount equal to X determined under the following formula:

      X =               ExP 
          --------------------------------
          1- [(FI x(1 -SLI))+ SLI + E + M]

     where

      E =   the rate at which the excise tax is assessed under Section 4999 of
            the Code;


                                  Page 11 of 15
<PAGE>

      P =   the amount with respect to which such excise tax is assessed,
            determined without regard to this Section 14;

      FI =  the highest marginal rate of income tax applicable to Mr. Crotty
            under the Code for the taxable year in question;

      SLI = the sum of the highest marginal rates of income tax applicable to
            Mr. Crotty under all applicable state and local laws for the taxable
            year in question; and

      M =   the highest marginal rate of Medicare tax applicable to Mr. Crotty
            under the Code for the taxable year in question.

With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Mr. Crotty under the terms of this Agreement, or otherwise,
and on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 14(a) shall be made to Mr. Crotty on the
earlier of (i) the date the Company, the Bank or any direct or indirect
subsidiary or affiliate of the Company or the Bank is required to withhold such
tax, or (ii) the date the tax is required to be paid by Mr. Crotty.

      (b) Notwithstanding anything in this Section 14 to the contrary, in the
event that Mr. Crotty's liability for the excise tax under Section 4999 of the
Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in Section 14(a), Mr. Crotty, the Company or the Bank, as the case may
be, shall pay to the other party at the time that the amount of such excise tax
is finally determined, an appropriate amount, plus interest, such that the
payment made under Section 14(a), when increased by the amount of the payment
made to Mr. Crotty under this Section 14(b) by the Company or the Bank, or when
reduced by the amount of the payment made to the Company or the Bank under the
Section 14(b) by Mr. Crotty, equals the amount that should have properly been
paid to Mr. Crotty under Section 14(a). The interest paid under this Section
14(b) shall be determined at the rate provided under Section 1274(b)(2)(B) of
the Code. To confirm that the proper amount, if any, was paid to Mr. Crotty
under this Section 14, Mr. Crotty shall furnish to the Company a copy of each
tax return which reflects a liability for an excise tax payment made by the
Company or the Bank, at least 20 days before the date on which such return is
required to be filed with the Internal Revenue Service.

      Section 15. Confidentiality

      Unless he obtains the prior written consent of the Company or the Bank,
Mr. Crotty shall keep confidential and shall refrain from using for the benefit
of himself, or any person or entity other than the Company or the Bank or any
entity which is a subsidiary of the Company or the Bank or of which the Company
is a subsidiary, any material document or information obtained from the Company
or the Bank, or from its parent or subsidiaries, in the course of his employment
with any of them concerning their properties, operations or business (unless
such document or information is readily ascertainable from public or published
information or trade sources or has otherwise been made available to the public
through no fault of his own) until the same ceases to be material (or becomes so
ascertainable or available); provided, however, that nothing in this Section 15
shall prevent Mr. Crotty, with or without the Company's or Bank's consent, from
participating in or


                                  Page 12 of 15
<PAGE>

disclosing documents or information in connection with any judicial or
administrative investigation, inquiry or proceeding to the extent that such
participation or disclosure is required under applicable law.

      Section 16. No Effect on Employee Benefit Plans or Programs

      The termination of Mr. Crotty's employment during the term of this
Agreement or thereafter, whether by the Company or the Bank or by Mr. Crotty,
shall have no effect on the rights and obligations of the parties hereto under
the Company's or Bank's qualified or non-qualified retirement, pension, savings,
thrift, profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Company or the Bank from time to time.

      Section 17. Successors and Assigns

      This Agreement will inure to the benefit of and be binding upon Mr.
Crotty, his legal representatives and testate or intestate distributees, and the
Company and the Bank, and its successors and assigns, including any successor by
merger or consolidation or a statutory receiver or any other person or firm or
corporation to which all or substantially all of the assets and business of the
Company or the Bank may be sold or otherwise transferred. Failure of the Company
and the Bank to obtain from any successor its express written assumption of the
Company's and the Bank's obligations hereunder at least sixty (60) days in
advance of the scheduled effective date of any such succession shall be deemed a
material breach of this Agreement.

      Section 18. Notices

      Any communication required or permitted to be given under this Agreement,
including any notice, direction, designation, consent, instruction objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally, or five (5) days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below or at such other address as one such
party may by written notice specify to the other party:

      If to Mr. Crotty:

             Mr. Raymond J. Crotty
             11 Dickens Street
             Stony Point, New York 10980

      If to the Company or the Bank:

             U.S.B. Holding Co., Inc.
             Union State Bank
             100 Dutch Hill Road
             Orangeburg, New York 10962
             Attention: Corporate Secretary


                                  Page 13 of 15
<PAGE>

      Section 19. Severability

      A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.

      Section 20. Waiver

      Failure to insist upon strict compliance with any of the terms, covenants
or conditions hereof shall not be deemed a waiver of such term, covenant, or
condition. A waiver of any provision of this Agreement must be made in writing,
designated as a waiver, and signed by the party against whom its enforcement is
sought. Any waiver or relinquishment of any right or power hereunder at any one
or more times shall not be deemed a waiver or relinquishment of such right or
power at any other time or times.

      Section 21. Counterparts

      This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.

      Section 22. Governing Law

      This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.

      Section 23. Headings and Construction

      The headings of sections in this Agreement are for the convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.

      Section 24. Entire Agreement; Modifications

      This instrument contains the entire agreement of the parties relating to
the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.

      Section 25. Non-duplication

      In the event that Mr. Crotty performs services for the Company, the Bank
or an other direct or indirect subsidiary of the Company or the Bank, any
compensation or benefits provided to Mr. Crotty by such other employer shall be
applied to offset the obligations of the Company and the Bank hereunder, it
being intended that this Agreement set forth the aggregate compensation and
benefits payable to Mr. Crotty for all services to the Company, the Bank, and
all of its direct or indirect subsidiaries.


                                  Page 14 of 15
<PAGE>

      In Witness Whereof, the Company and the Bank have caused this Agreement to
be executed by their duly authorized officers and Mr. Crotty has hereunto set
his hand, all as of the day and year first above written.


                                                 /s/ Raymond J. Crotty
                                        ----------------------------------------
                                                  RAYMOND J. CROTTY


ATTEST:                                 U.S.B. HOLDING CO., INC.

By /s/ [ILLEGIBLE]                      By /s/ Thomas E. Hales
   ----------------------------------      -------------------------------------
Secretary                                 Name: Thomas E. Hales
                                          Title: CHAIRMAN, PRES. & CEO


                                        UNION STATE BANK

By /s/ [ILLEGIBLE]                      By /s/ Thomas E. Hales
   ----------------------------------      -------------------------------------
Secretary                                 Name: Thomas E. Hales
                                          Title: CHAIRMAN, PRES & CEO


                                  Page 15 of 15