**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,**  **D.C.**  **20549**





**FORM**  **10-Q**




(Mark
      One)




x
            Quarterly
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934 For
                the quarterly period endedJune
                30, 2007,
                or  o
            Transition report pursuant to Section
              13 or
              15(d) of the Securities Exchange Act of
              1934




For
      the
      transition period from ____________________ to
      _____________________





Commission
      file Number 1-12811





**U.S.B.
      HOLDING CO., INC.**


(Exact
      Name of Registrant as Specified in Its Charter)




**DELAWARE******
            **36-3197969**(State
                or other jurisdiction ofincorporation
                or organization)
            (I.R.S.
                Employer Identification
                No.)




**100
                DUTCH HILL ROAD, ORANGEBURG, NEW YORK**
            **10962**(Address
                of Principal Executive
                Offices)
            (Zip
                Code)





**845-365-4600**


(Registrant's
      Telephone Number (including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes:   x No: o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
      accelerated filer o   Accelerated
      filer x    Non-accelerated
      filer o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes:   o No: x





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.




**CLASS**
            **NUMBER
                OF SHARES**
              **OUTSTANDING
                AT AUGUST 1,
                2007**Common
                stock, par value
              $0.01
                per share
            21,947,092









**U.S.B.
      HOLDING CO., INC.**




**TABLE
        OF CONTENTS**


**PAGE
                      NO.****PART
                      I. FINANCIAL INFORMATION****ITEM
                      1.**
                  FINANCIAL
                      STATEMENTS (UNAUDITED)CONDENSED
                      CONSOLIDATED STATEMENTS OFFINANCIAL
                      CONDITION AS OF JUNE 30, 2007AND
                      DECEMBER 31, 2006
                  1CONDENSED
                      CONSOLIDATED STATEMENTS OFINCOME
                      FOR THE THREE MONTHS ENDEDJUNE
                      30, 2007 AND 2006
                  2CONDENSED
                      CONSOLIDATED STATEMENTS OFINCOME
                      FOR THE SIX MONTHS ENDEDJUNE
                      30, 2007 AND 2006
                  3CONDENSED
                      CONSOLIDATED STATEMENT OFCASH
                      FLOWS FOR THE SIX MONTHS ENDEDJUNE
                      30, 2007 AND 2006
                  4CONDENSED
                      CONSOLIDATED STATEMENT OFCHANGES
                      IN STOCKHOLDERS’ EQUITY FORTHE
                      SIX MONTHS ENDED JUNE 30, 2007
                  5CONDENSED
                      CONSOLIDATED STATEMENTS OFCHANGES
                      IN STOCKHOLDERS’ EQUITY FOR THE
                    SIX
                      MONTHS ENDED JUNE 30, 2006
                  6NOTES
                      TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS
                  7**ITEM
                      2.**
                  MANAGEMENT'S
                      DISCUSSION AND ANALYSIS OFFINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
                  22**ITEM
                      3.**
                  QUANTITATIVE
                      AND QUALITATIVE DISCLOSURESABOUT
                      MARKET RISK
                  35**ITEM
                      4.**
                  CONTROLS
                      AND PROCEDURES
                  36**PART
                      II. OTHER INFORMATION****ITEM
                      1A.**
                  RISK
                      FACTORS
                  37**ITEM
                      4.**
                  SUBMISSION
                      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                  37**ITEM
                      6.**
                  EXHIBITS
                  37SIGNATURES
                  
                  39




i




**ITEM
      1.**  **PART
      I - FINANCIAL INFORMATION**





**U.S.B.
      HOLDING CO., INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
      (UNAUDITED)**




**(000’s,
                except share
                data)****ASSETS**
            
            **June
                30,**
              **2007**
            
            **December
                31,**
              **2006**Cash
                and due from banks
            
            $
            43,074
            
            $
            33,493Federal
                funds sold
            
            
            27,700
            
            
            23,600Cash
                and cash equivalents
            
            
            **70,774**
            
            
            **57,093**Interest
                bearing deposits in other banks
            
            
            206
            
            
            175Securities:Available
                for sale (at estimated fair value)
            
            
            504,600
            
            
            431,294Held
                to maturity (estimated fair value of $740,405 as of 2007
              and
                $747,507 as of 2006)
            
            
            756,645
            
            
            751,948Loans,
                net of allowance for loan losses of $15,696 as of 2007 and $16,034
                as of
                2006
            
            
            1,588,021
            
            
            1,577,386Premises
                and equipment, net
            
            
            13,906
            
            
            13,943Accrued
                interest receivable
            
            
            23,217
            
            
            22,486Federal
                Home Loan Bank of New York stock
            
            
            36,673
            
            
            34,523Intangible
                assets, net
            
            
            2,024
            
            
            2,572Goodwill
            
            
            1,380
            
            
            1,380Other
                assets
            
            
            32,310
            
            
            30,447**TOTAL
                ASSETS**
            
            **$**
            **3,029,756**
            
            **$**
            **2,923,247****LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Liabilities:**Non-interest
                bearing deposits
            
            $
            315,976
            
            $
            294,882Interest
                bearing deposits:NOW
                accounts
            
            
            172,751
            
            
            166,809Money
                market accounts
            
            
            204,515
            
            
            161,531Savings
                deposits
            
            
            415,547
            
            
            372,959Time
                deposits
            
            
            861,799
            
            
            900,188**Total
                deposits**
            
            
            **1,970,588**
            
            
            **1,896,369**Accrued
                interest payable
            
            
            10,194
            
            
            12,274Dividend
                payable
            
            
            3,291
            
            
            3,285Accrued
                expenses and other liabilities
            
            
            11,825
            
            
            12,884Securities
                transactions not yet settled
            
            
            —
            
            
            5,000Securities
                sold under agreements to repurchase
            
            
            627,028
            
            
            606,206Federal
                Home Loan Bank of New York advances
            
            
            126,799
            
            
            101,809Subordinated
                debt issued in connection with corporation-obligated
              mandatory
                redeemable capital securities of subsidiary trusts
            
            
            51,548
            
            
            61,858**Total
                liabilities**
            
            
            **2,801,273**
            
            
            **2,699,685**Minority-interest
                in junior preferred stock of consolidated subsidiary
            
            
            124
            
            
            126Commitments
                and contingencies (Note 11)**Stockholders’
                equity:**Preferred
                stock, no par valueAuthorized
                shares: 10,000,000; no shares outstanding as of 2007 and
                2006
            
            
            —
            
            
            —Common
                stock, $0.01 par value; authorized shares 50,000,000;
              issued
                shares of 23,134,075 as of 2007 and 2006
            
            
            231
            
            
            231Additional
                paid-in capital
            
            
            213,424
            
            
            212,398Retained
                earnings
            
            
            47,445
            
            
            40,777Treasury
                stock at cost, common shares 1,194,506 as of 2007 and 1,232,052 as
                of
                2006
            
            
            (21,667
            )
            
            (22,348
            )Common
                stock held for benefit plans
            
            
            (3,571
            )
            
            (3,390
            )Deferred
                compensation obligation
            
            
            3,571
            
            
            3,390Accumulated
                other comprehensive loss
            
            
            (11,074
            )
            
            (7,622
            )**Total
                stockholders’ equity**
            
            
            **228,359**
            
            
            **223,436****TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            **$**
            **3,029,756**
            
            **$**
            **2,923,247**




*See
      notes to condensed consolidated financial statements.*




1


**U.S.B.
        HOLDING CO., INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
        (UNAUDITED)**




**(000’s,
                except share data)**
              **Three
                Months Ended**
              **June
                30,****2007**
            
            **2006****INTEREST
                INCOME:**Interest
                and fees on loans
            
            $
            29,885
            
            $
            27,014Interest
                on federal funds sold
            
            
            829
            
            
            390Interest
                and dividends on securities:U.S.
                government agencies
            
            
            9,940
            
            
            9,945Mortgage-backed
                securities
            
            
            5,536
            
            
            4,549Obligations
                of states and political subdivisions
            
            
            1,191
            
            
            1,102Corporate
                and other
            
            
            45
            
            
            43Dividends
                on Federal Home Loan Bank of New York stock
            
            
            632
            
            
            403**Total
                interest income**
            
            
            **48,058**
            
            
            **43,446****INTEREST
                EXPENSE:**Interest
                on deposits
            
            
            16,106
            
            
            11,237Interest
                on borrowings
            
            
            8,167
            
            
            7,962Interest
                on subordinated debt issued in connection with
              corporation-obligated
                mandatory redeemable
              capital
                securities of subsidiary trusts
            
            
            1,692
            
            
            1,382**Total
                interest expense**
            
            
            **25,965**
            
            
            **20,581****NET
                INTEREST INCOME**
            
            
            **22,093**
            
            
            **22,865**Provision
                for credit losses
            
            
            357
            
            
            998**Net
                interest income after provision for credit losses**
            
            
            **21,736**
            
            
            **21,867****NON-INTEREST
                INCOME:**Service
                charges and fees
            
            
            823
            
            
            834Other
                income
            
            
            865
            
            
            773**Total
                non-interest income**
            
            
            **1,688**
            
            
            **1,607****NON-INTEREST
                EXPENSES:**Salaries
                and employee benefits
            
            
            8,842
            
            
            8,000Occupancy
                and equipment
            
            
            2,060
            
            
            1,942Advertising
                and business development
            
            
            779
            
            
            673Professional
                fees
            
            
            441
            
            
            401Communications
            
            
            305
            
            
            297Amortization
                of intangibles
            
            
            272
            
            
            276Stationery
                and printing
            
            
            171
            
            
            143FDIC
                insurance
            
            
            64
            
            
            64Other
                expense
            
            
            1,080
            
            
            994**Total
                non-interest expenses**
            
            
            **14,014**
            
            
            **12,790**Income
                before income taxes
            
            
            9,410
            
            
            10,684Provision
                for income taxes
            
            
            2,896
            
            
            3,459**NET
                INCOME**
            
            **$**
            **6,514**
            
            **$**
            **7,225****BASIC
                EARNINGS PER COMMON SHARE**
            
            **$**
            **0.30**
            
            **$**
            **0.33****DILUTED
                EARNINGS PER COMMON SHARE**
            
            **$**
            **0.29**
            
            **$**
            **0.32****WEIGHTED
                AVERAGE COMMON SHARES**
            
            
            **21,923,663**
            
            
            **21,756,023****ADJUSTED
                WEIGHTED AVERAGE COMMON SHARES**
            
            
            **22,310,710**
            
            
            **22,771,764****DIVIDENDS
                PER COMMON SHARE**
            
            **$**
            **0.15**
            
            **$**
            **0.14**




*See
      notes to condensed consolidated financial statements.*




2


**U.S.B.
        HOLDING CO., INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)**




**(000’s,
                except share data)**
              **Six
                Months Ended**
              **June
                30,****2007**
            
            **2006****INTEREST
                INCOME:**Interest
                and fees on loans
            
            $
            58,911
            
            $
            52,955Interest
                on federal funds sold
            
            
            1,665
            
            
            619Interest
                and dividends on securities:U.S.
                government agencies
            
            
            19,881
            
            
            19,880Mortgage-backed
                securities
            
            
            10,551
            
            
            8,768Obligations
                of states and political subdivisions
            
            
            2,386
            
            
            2,214Corporate
                and other
            
            
            90
            
            
            85Dividends
                on Federal Home Loan Bank of New York stock
            
            
            1,241
            
            
            781**Total
                interest income**
            
            
            **94,725**
            
            
            **85,302****INTEREST
                EXPENSE:**Interest
                on deposits
            
            
            31,396
            
            
            21,366Interest
                on borrowings
            
            
            16,014
            
            
            15,000Interest
                on subordinated debt issued in connection with
              corporation-obligated
                mandatory redeemable
              capital
                securities of subsidiary trusts
            
            
            3,088
            
            
            2,709**Total
                interest expense**
            
            
            **50,498**
            
            
            **39,075****NET
                INTEREST INCOME**
            
            
            **44,227**
            
            
            **46,227**Provision
                for credit losses
            
            
            704
            
            
            1,307**Net
                interest income after provision for credit losses**
            
            
            **43,523**
            
            
            **44,920****NON-INTEREST
                INCOME:**Service
                charges and fees
            
            
            1,643
            
            
            1,663Other
                income
            
            
            1,782
            
            
            1,901**Total
                non-interest income**
            
            
            **3,425**
            
            
            **3,564****NON-INTEREST
                EXPENSES:**Salaries
                and employee benefits
            
            
            17,536
            
            
            16,264Occupancy
                and equipment
            
            
            4,102
            
            
            3,890Advertising
                and business development
            
            
            1,241
            
            
            1,275Professional
                fees
            
            
            921
            
            
            774Communications
            
            
            692
            
            
            643Amortization
                of intangibles
            
            
            548
            
            
            561Stationery
                and printing
            
            
            324
            
            
            296FDIC
                insurance
            
            
            129
            
            
            136Other
                expense
            
            
            2,078
            
            
            1,919**Total
                non-interest expenses**
            
            
            **27,571**
            
            
            **25,758**Income
                before income taxes
            
            
            19,377
            
            
            22,726Provision
                for income taxes
            
            
            6,122
            
            
            7,386**NET
                INCOME**
            
            **$**
            **13,255**
            
            **$**
            **15,340****BASIC
                EARNINGS PER COMMON SHARE**
            
            **$**
            **0.60**
            
            **$**
            **0.71****DILUTED
                EARNINGS PER COMMON SHARE**
            
            **$**
            **0.59**
            
            **$**
            **0.67****WEIGHTED
                AVERAGE COMMON SHARES**
            
            
            **21,912,589**
            
            
            **21,744,542****ADJUSTED
                WEIGHTED AVERAGE COMMON SHARES**
            
            
            **22,403,713**
            
            
            **22,755,686****DIVIDENDS
                PER COMMON SHARE**
            
            **$**
            **0.30**
            
            **$**
            **0.28**




*See
      notes to condensed consolidated financial statements.*





3




**U.S.B.
        HOLDING CO., INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**





**(000’s)**
              **Six
                Months Ended**
              **June
                30,****2007**
            
            **2006****OPERATING
                ACTIVITIES:**Net
                income
            
            $
            13,255
            
            $
            15,340Adjustments
                to reconcile net income to net cash provided by operating
                activities:Provision
                for credit losses
            
            
            704
            
            
            1,307Depreciation
                and amortization
            
            
            1,479
            
            
            1,648Amortization
                of discounts on securities - net
            
            
            (150
            )
            
            (102
            )Deferred
                income tax benefit, net
            
            
            (239
            )
            
            (428
            )Gains
                on securities transactions
            
            
            (2
            )
            
            (5
            )Share-based
                compensation
            
            
            1,198
            
            
            499Income
                tax benefits from share-based payment arrangements
            
            
            (98
            )
            
            (731
            )Benefit
                plan liability
            
            
            16
            
            
            14Increase
                in accrued interest receivable
            
            
            (731
            )
            
            (141
            )(Decrease)
                increase in accrued interest payable
            
            
            (2,080
            )
            
            930Decrease
                in accrued income tax payable
            
            
            (372
            )
            
            (1,097
            )Other
                - net
            
            
            (288
            )
            
            899**Net
                cash provided by operating activities**
            
            
            **12,692**
            
            
            **18,133****INVESTING
                ACTIVITIES:**Proceeds
                from sales of securities available for sale
            
            
            3
            
            
            10Proceeds
                from principal repayments, redemptions and maturities of:Securities
                available for sale
            
            
            27,027
            
            
            25,427Securities
                held to maturity
            
            
            12,302
            
            
            16,117Purchases
                of securities available for sale
            
            
            (105,925
            )
            
            (51,098
            )Purchases
                of securities held to maturity
            
            
            (21,598
            )
            
            (7,582
            )Net
                purchases of Federal Home Loan Bank of New York stock
            
            
            (2,150
            )
            
            (1,497
            )Net
                (increase) decrease in interest bearing deposits in other
                banks
            
            
            (31
            )
            
            9Net
                increase in loans outstanding
            
            
            (11,396
            )
            
            (23,602
            )Purchases
                of premises and equipment
            
            
            (894
            )
            
            (1,430
            )**Net
                cash used for investing activities**
            
            
            **(102,662**
            **)**
            
            **(43,646**
            **)****FINANCING
                ACTIVITIES:**Net
                increase in non-interest bearing deposits, NOW, money market and
                savings
                accounts
            
            
            112,608
            
            
            22,164Net
                decrease in time deposits, net of withdrawals and
                maturities
            
            
            (38,389
            )
            
            (2,627
            )Net
                increase (decrease) in securities sold under agreements to repurchase
                -
                short-term
            
            
            322
            
            
            (61,594
            )Proceeds
                from securities sold under agreements to repurchase -
                long-term
            
            
            100,000
            
            
            160,000Repayment
                of securities sold under agreement to repurchase -
                long-term
            
            
            (79,500
            )
            
            (82,500
            )Proceeds
                from Federal Home Loan Bank of New York advances -
                long-term
            
            
            50,000
            
            
            50,000Repayment
                of Federal Home Loan Bank of New York advances - long term
            
            
            (25,010
            )
            
            (30,009
            )Redemption
                of junior preferred stock of consolidated subsidiary
            
            
            (2
            )Redemption
                of corporation-obligated mandatory redeemable capital securities
                of
                subsidiary trusts
            
            
            (10,310
            )
            
            ―Cash
                dividends paid
            
            
            (6,577
            )
            
            (6,103
            )Income
                tax benefits from share-based payment arrangements
            
            
            98
            
            
            731Proceeds
                from exercise of common stock options
            
            
            411
            
            
            1,631Purchases
                of treasury stock
            
            
            —
            
            
            (2,615
            )**Net
                cash provided by financing activities**
            
            
            **103,651**
            
            
            **49,078****Net
                increase in Cash and Cash Equivalents**
            
            
            **13,681**
            
            
            **23,565****Cash
                and Cash Equivalents, Beginning of Period**
            
            
            **57,093**
            
            
            **80,935****Cash
                and Cash Equivalents, End of Period**
            
            **$**
            **70,774**
            
            **$**
            **104,500****Supplemental
                Disclosures:**Interest
                paid
            
            $
            (52,578
            )
            $
            (38,145
            )Income
                tax payments
            
            $
            (6,660
            )
            $
            (8,227
            )Amortization
                of loss on transfer of available for sale securities to held to maturity
                securities
            
            $
            339
            
            $
            338Change
                in shares held in trust for deferred compensation
            
            $
            (181
            )
            $
            (160
            )Change
                in deferred compensation obligation
            
            $
            181
            
            $
            160Change
                in accumulated other comprehensive loss
            
            $
            (3,452
            )
            $
            (4,771
            )Non-cash
                purchases of treasury stock related to the exercise of stock
                options
            
            $
            —
            
            $
            (197
            )Issuance
                of treasury stock related to the exercise of stock options
            
            $
            681
            
            $
            2,869




*See
      notes to condensed consolidated financial statements* *.*




4




**U.S.B.
      HOLDING CO., INC.**


**CONDENSED
      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
      (UNAUDITED)**




**FOR
                THE SIX MONTHS ENDED JUNE 30, 2007**
              **(000’s
                except share data)****Common**
              **Stock**
              **Shares**
              **Outstanding**
            
            **Common**
              **Stock**
              **Par**
              **Value**
            
            **Additional**
              **Paid-In**
              **Capital**
            
            **Retained**
              **Earnings**
            
            **Treasury**
              **Stock**
            
            **Common**
              **Stock**
              **Held
                for**
              **Benefit
                Plans**
            
            **Deferred**
              **Compensation**
              **Obligation**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **Loss**
            
            **Total**
              **Stockholders’**
              **Equity**Balance
                at January 1, 2007
            
            
            21,902,023
            
            $
            231
            
            $
            212,398
            
            $
            40,777
            
            $
            (22,348
            )
            $
            (3,390
            )
            $
            3,390
            
            $
            (7,622
            )
            $
            223,436Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            13,255
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            13,255Other
                comprehensive income:Net
                unrealized securities
              gains
                arising during the
              period,
                net of tax benefitof
                $1,868
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,469
            )
            
            (3,469
            )Reclassification
                adjustment of
              net
                gain for securities sold,
              net
                of tax of $1
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2
            )
            
            (2
            )Compensation
                cost
              related
                to
              The
                Retirement Plan for
              Non-Employee
                Directors, net
              of
                tax benefit of $9
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19
            
            
            19Other
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,452
            )
            
            (3,452
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            9,803Cash
                dividends:Common
                ($0.30 per share)
            
            
            
            
            
            
            
            
            
            
            
            (6,577
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,577
            )Junior
                preferred stock
            
            
            
            
            
            
            
            
            
            
            
            (10
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (10
            )Common
                stock options
              exercisedand
                related tax benefit
            
            
            37,546
            
            
            
            
            
            (172
            )
            
            
            
            
            681
            
            
            
            
            
            
            
            
            
            
            
            509Compensation
                cost related to
              stock
                options
            
            
            
            
            
            
            
            
            1,198
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,198Deferred
                compensation
              obligation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (181
            )
            
            181
            
            
            
            
            
            ―**Balance
                at June 30, 2007**
            
            
            **21,939,569**
            
            **$**
            **231**
            
            **$**
            **213,424**
            
            **$**
            **47,445**
            
            **$**
            **(21,667**
            **)**
            **$**
            **(3,571**
            **)**
            **$**
            **3,571**
            
            **$**
            **(11,074**
            **)**
            **$**
            **228,359**





*See
      notes to condensed consolidated financial statements.*




5


**U.S.B.
      HOLDING CO., INC.**


**CONDENSED
      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)**









**FOR
                THE SIX MONTHS ENDED JUNE 30, 2006**
              **(000’s
                except share data)****Common**
              **Stock**
              **Shares**
              **Outstanding**
            
            **Common**
              **Stock**
              **Par**
              **Value**
            
            **Additional**
              **Paid-In**
              **Capital**
            
            **Retained**
              **Earnings**
            
            **Treasury**
              **Stock**
            
            **Common**
              **Stock**
              **Held
                for**
              **Benefit
                Plans**
            
            **Deferred**
              **Compensation**
              **Obligation**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **Loss**
            
            **Total**
              **Stockholders’**
              **Equity**Balance
                at January 1, 2006
            
            
            21,713,805
            
            $
            231
            
            $
            211,686
            
            $
            21,654
            
            $
            (21,670
            )
            $
            (2,927
            )
            $
            2,927
            
            $
            (7,748
            )
            $
            204,153Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            15,340
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            15,340Other
                comprehensive loss:Net
                unrealized securities
              loss
                arising during the period,
              net
                of tax benefit of $2,567
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,768
            )
            
            (4,768
            )Reclassification
              adjustment
                of
              net
                gain for securities sold,
              net
                of tax of $2
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3
            )
            
            (3
            )Other
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,771
            )
            
            (4,771
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10,569Cash
                dividends:Common
                ($0.28 per share)
            
            
            
            
            
            
            
            
            
            
            
            (6,093
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,093
            )Junior
                preferred stock
            
            
            
            
            
            
            
            
            
            
            
            (10
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (10
            )Common
                stock options exercised
              and
                related tax benefit
            
            
            183,985
            
            
            
            
            
            147
            
            
            
            
            
            2,869
            
            
            
            
            
            
            
            
            
            
            
            3,016Amortization
                related to
              stockoptions
                vested
              during
                theperiod
            
            
            
            
            
            
            
            
            499
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            499Purchases
                of treasury stock
            
            
            (129,222
            )
            
            
            
            
            (456
            )
            
            
            
            
            (2,813
            )
            
            
            
            
            
            
            
            
            
            
            (3,269
            )Deferred
                compensation
              obligation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (160
            )
            
            160
            
            
            
            
            
            ―**Balance
                at June 30, 2006**
            
            
            **21,768,568**
            
            **$**
            **231**
            
            **$**
            **211,876**
            
            **$**
            **30,891**
            
            **$**
            **(21,614**
            **)**
            **$**
            **(3,087**
            **)**
            **$**
            **3,087**
            
            **$**
            **(12,519**
            **)**
            **$**
            **208,865**





*See
      notes to condensed consolidated financial statements.*





6




**U.S.B.
        HOLDING CO., INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        (UNAUDITED)**







**1.**
            **Principles
                of Consolidation**





The
      condensed consolidated financial statements include the accounts of U.S.B.
      Holding Co., Inc. and its wholly-owned subsidiaries (the “Company”), Union State
      Bank (the “Bank”) and Ad Con, Inc. The condensed consolidated financial
      statements also include the Bank’s wholly-owned subsidiaries, Dutch Hill Realty
      Corp., U.S.B. Financial Services, Inc., and USB Delaware Inc., including its
      majority-owned subsidiary, TPNZ Preferred Funding Corporation (“TPNZ”). All
      significant intercompany accounts and transactions are eliminated in
      consolidation.





The
      Company also has four subsidiary trusts, Union State Capital Trust I, Union
      State Statutory Trust II, USB Statutory Trust III (through June 26, 2007, as
      described in Note 10 of these notes to condensed consolidated financial
      statements), and Union State Statutory Trust IV (collectively, the “Trusts”),
      that are not consolidated with the Company for financial reporting purposes
      in
      accordance with accounting principles generally accepted in the United States
      of
      America (“GAAP”). The Trusts were established by the Company in 1997, 2001,
      2002, and 2004, respectively, for the purpose of issuing corporation-obligated
      mandatory redeemable capital securities (“Capital Securities”) and acquiring
      junior subordinated debt from the Company. See Note 10 to the Company’s
      Consolidated Financial Statements included in the Company’s 2006 Annual Report
      to Stockholders for a further discussion of the Capital Securities and the
      junior subordinated debt issued by the Company. The Company owns 100 percent
      of
      the voting securities of each of the Trusts. The Company has fully and
      unconditionally guaranteed the Capital Securities along with all obligations
      of
      the Trusts under the trust agreements relating to the Capital Securities. The
      Company’s ability to make interest payments on the subordinated debt is
      primarily dependent on the receipt of dividends from the Bank. See Note 9 of
      these notes to condensed consolidated financial statements for a discussion
      of
      the limits on the Bank’s ability to pay dividends to the Company.





**2.**
            **Basis
                of Presentation**





In
      the
      opinion of management, the accompanying unaudited condensed consolidated
      financial statements include all adjustments (comprised of only normal and
      recurring adjustments) necessary to present fairly the financial position of
      the
      Company as of June 30, 2007, the Company’s operations for the three and six
      months ended June 30, 2007 and 2006, and the Company’s cash flows and changes in
      stockholders’ equity for the six months ended June 30, 2007 and 2006. For
      purposes of presenting the condensed consolidated statements of cash flows,
      cash
      and cash equivalents include cash and due from banks, as well as federal funds
      sold. Certain reclassifications have been made to prior year accounts to conform
      to the current year’s presentations.





The
      condensed consolidated financial statements have been prepared in accordance
      with GAAP and predominant practices used within the banking industry. A summary
      of the Company's significant accounting policies is set forth in Note 3 to
      the
      Consolidated Financial Statements included in the Company's 2006 Annual Report
      to Stockholders. In preparing such financial statements, management is required
      to make estimates and assumptions that affect the reported amounts of actual
      and
      contingent assets and liabilities as of the dates of the condensed consolidated
      statements of condition and the revenues and expenses for the periods reported.
      Actual results could differ significantly from those estimates.





7


**U.S.B.
          HOLDING CO., INC.**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
          (UNAUDITED)**


These
      condensed consolidated financial statements should be read in conjunction with
      the Company’s Consolidated Financial Statements for the year ended December 31,
      2006 and related notes included in the Company’s 2006 Annual Report to
      Stockholders and Form 10-K.





**3.**
            **Accounting
                Pronouncements**





**Accounting
      for Uncertainty in Income Tax Positions:** In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes - An Interpretation of FASB
      Statement No. 109” (“FIN No. 48”). FIN No. 48 prescribes a recognition threshold
      and measurement attribute, as well as clear criteria for subsequently
      recognizing, derecognizing and measuring income tax positions, for financial
      statement purposes. FIN No. 48 establishes a “more-likely-than-not” recognition
      threshold that must be met before an income tax benefit can be recognized in
      the
      consolidated financial statements. To meet this threshold, a company must
      determine that, upon examination by the taxing authority, the income tax
      position is more likely than not to be sustained based on the technical merits
      of the position. Once the recognition threshold has been met, a company is
      required to recognize the largest amount of income tax benefit that is greater
      than 50 percent likely of being realized upon ultimate settlement with the
      taxing authority.





The
      Company adopted FIN No. 48 on January 1, 2007. Upon adoption of FIN No. 48
      by
      the Company, the total amount of unrecognized income tax benefit was $0.5
      million, of which the total amount, if recognized, that would favorably affect
      the effective income tax rate was $0.2 million. Unrecognized income tax benefits
      of $0.3 million are related to interest that would be incurred as a result
      of
      the Internal Revenue Service (“IRS”) and New York State Tax Department (“NYS Tax
      Department”) disallowing the income tax benefit during the year in which the
      benefits were recognized by the Company. Accrued interest on uncertain income
      tax positions and related penalties, when applicable, are recognized in the
      provision for income taxes. The Company’s adoption of FIN No. 48 did not have a
      material impact on the Company’s condensed consolidated financial
      statements.





The
      Company’s tax years for 2003, 2004, 2005, and 2006 can be subject to examination
      by the IRS according to a three year statute of limitations. The Company is
      currently under examination by the NYS Tax Department for the tax years 2003,
      2004, and 2005. The Company can also be subject to examination by the NYS Tax
      Department for tax year 2006.





The
      Company’s uncertain income tax positions may change over the subsequent 12-month
      period as a result of completing the current NYS Tax Department examination
      for
      tax years 2003, 2004, and 2005. Upon adoption of FIN No. 48, unrecognized income
      tax benefits related to these tax years was $0.3 million.





**Pending
      Accounting Pronouncement - Fair Value Measurements:** In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair
      value, establishes a framework for measuring fair value and expands disclosures
      about fair value measurements. SFAS No. 157 emphasizes that fair value is a
      market-based measurement, not an entity-specific measurement. A fair value
      measurement should be determined based on the assumptions that market
      participants would use in pricing an asset or liability. SFAS No. 157 applies
      only to fair value measurements already required or permitted by other
      accounting standards and does not impose requirements for additional fair value
      measurements. This statement is effective for financial statements issued for
      fiscal years beginning after November 15, 2007, and interim periods within
      those
      fiscal years. Management is currently evaluating the impact that the adoption
      of
      SFAS No. 157 will have on the Company’s consolidated financial statements.





8


**U.S.B.
          HOLDING CO., INC.**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
          (UNAUDITED)**


**Pending
      Accounting Pronouncement - Fair Value Option for Financial Assets and Financial
      Liabilities:** In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities Including an Amendment to FASB
      Statement No. 115” (“SFAS No. 159”), which permits companies to choose to
      measure eligible items at fair value at specified election dates. The objective
      is to improve financial reporting by providing entities with the opportunity
      to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions. SFAS No. 159 is effective as of the beginning of the first fiscal
      year that begins after November 15, 2007. Management is in the process of
      evaluating the effects of choosing to measure eligible items at fair value
      under
      SFAS No. 159.





**4.**
            **Accounting
                for Share-Based
                Compensation**





SFAS
      No.
      123R, “Share-Based Payment” (“SFAS No. 123R”), requires accounting for
      share-based compensation cost using a fair value method in the financial
      statements. Compensation cost is recognized, net of estimated forfeitures,
      for
      the portion of outstanding awards for which the requisite service has not yet
      been rendered, based on the grant-date fair value of those awards.





In
      2005,
      1998 and 1989, the stockholders of the Company approved Director Stock Option
      Plans (the “Director Plans”) under which options to purchase an aggregate of
      2,041,358 shares (after adjustment for stock splits and dividends) of the
      Company’s common stock may be granted to all non-employee members of the
      Company’s Board of Directors. There have been options to purchase 292,459 shares
      (as adjusted for common stock dividends) granted under the 2005 Director Stock
      Option Plan, and there were options to purchase 232,541 shares (as adjusted
      for
      common stock dividends) remaining to be granted at June 30, 2007. No further
      options may be granted under the 1998 and 1989 Director Stock Option
      Plans.





Under
      the
      Tappan Zee Directors’ Stock Option Plan (the “Tappan Zee Directors’ Plan”),
      which was assumed by the Company, options to purchase 80,057 shares (as adjusted
      for common stock dividends) were authorized for grant to non-employee directors.
      There have been options to purchase an aggregate of 66,710 shares (as adjusted
      for common stock dividends) granted under this plan. This plan expired at the
      end of August 2006, and no further options may be granted under this
      plan.





9




**U.S.B.
          HOLDING CO., INC.**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
          (UNAUDITED)**
 
  A
        summary
        of the activity in the Director Plans and related information for the six
        months
        ended June 30, 2007 is as follows:


**2007****Options**
              
              
              **Weighted-Average**
                **Exercise
                  Price**
              
              
              **Aggregate**
                **Intrinsic
                  Value**
                **($
                  in 000’s)**Vested
                  outstanding at January 1, 2007
              
              
              583,884
              
              $
              14.74Unvested
                  outstanding at January 1, 2007
              
              
              97,486
              
              
              21.88**Outstanding
                  at January 1, 2007**
              
              
              **681,370**
              
              
              **15.76**Granted
              
              
              100,162
              
              
              20.59Exercised
              
              
              (24,915
              )
              
              10.30**Outstanding
                  at June 30, 2007**
              
              
              **756,617**
              
              
              **16.58**
              
              **$**
              **2,510****Exercisable
                  at June 30, 2007**
              
              
              **656,455**
              
              **$**
              **15.97**
              
              **$**
              **2,510**Weighted
                  average fair value of options granted during the six months ended
                  June 30,
                  2007
              
              
              
              
              $
              6.25





A
      summary
      of the activity in the Director Plans and Tappan Zee Directors’ Plan and related
      information for the six months ended June 30, 2006 is as follows:











**2006****Options**
            
            **Weighted-Average**
              **Exercise
                Price**
            
            **Aggregate**
              **Intrinsic
                Value**
              **($
                in 000’s)**Vested
                outstanding at January 1, 2006
            
            
            558,082
            
            $
            13.09Unvested
                outstanding at January 1, 2006
            
            
            94,811
            
            
            20.14**Outstanding
                at January 1, 2006**
            
            
            **652,893**
            
            
            **14.11**Granted
            
            
            97,486
            
            
            21.88Exercised
            
            
            (55,667
            )
            
            9.20**Outstanding
                at June 30, 2006**
            
            
            **694,712**
            
            
            **15.60**
            
            **$**
            **4,796****Exercisable
                at June 30, 2006**
            
            
            **597,226**
            
            **$**
            **14.57**
            
            **$**
            **4,736**Weighted
                average fair value of options granted during the six months ended
                June 30,
                2006
            
            
            
            
            $
            7.38





Under
      the
      1993 and 1984 Incentive Stock Option Plans and the 2005, 2001, and 1997 Employee
      Stock Option Plans (collectively, the “Employee Stock Option Plans”), both
      incentive and non-qualified options to purchase an aggregate of 8,288,717 shares
      (after adjustment for stock splits and stock dividends) of the Company’s common
      stock were authorized to be granted to key employees of the Company and its
      subsidiaries. There have been options to purchase 1,038,447 shares (as adjusted
      for common stock dividends) granted under the 2005 Employee Stock Option Plan,
      and there were options to purchase 851,553 shares (as adjusted for common stock
      dividends) remaining to be granted at June 30, 2007. No further options may
      be
      granted under the 1993 and 1984 Incentive Stock Option Plans and the 2001 and
      1997 Employee Stock Option Plans.





Under
      the
      Tappan Zee Stock Option Plan, which was assumed by the Company, options to
      purchase 186,798 shares (as adjusted for common stock dividends) were authorized
      for grant to employees. There have been options to purchase 133,430 shares
      (as
      adjusted for common stock dividends) granted under this plan. This plan expired
      at the end of August 2006, and no further options may be granted under this
      plan.





10


**U.S.B.
        HOLDING CO., INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        (UNAUDITED)**







A
      summary
      of the activity in the Employee Stock Option Plans and related information
      for
      the six months ended June 30, 2007 is as follows:




**2007********Options**
            
            **Weighted-Average**
              **Exercise
                Price**
            
            **Aggregate**
              **Intrinsic
                Value**
              **($
                in 000’s)**Vested
                outstanding at January 1, 2007
            
            
            1,990,693
            
            $
            14.96Unvested
                outstanding at January 1, 2007
            
            
            596,539
            
            
            23.16**Outstanding
                at January 1, 2007**
            
            
            **2,587,232**
            
            
            **16.85**Granted
            
            
            321,669
            
            
            21.96Cancelled
            
            
            (3,205
            )
            
            21.87Exercised
            
            
            (12,631
            )
            
            12.16**Outstanding
                at June 30, 2007**
            
            
            **2,893,065**
            
            
            **17.44**
            
            **$**
            **8,540****Exercisable
                at June 30, 2007**
            
            
            **2,083,219**
            
            **$**
            **15.33**
            
            **$**
            **8,540**Weighted
                average fair value of options grantedduring
                the six months ended June 30, 2007
            
            
            
            
            $
            6.55





A
      summary
      of the activity in the Employee Stock Option Plans and Tappan Zee Stock Option
      Plan and related information for the six months ended June 30, 2006 is as
      follows:




**2006********Options**
            
            **Weighted-Average**
              **Exercise
                Price**
            
            **Aggregate**
              **Intrinsic
                Value**
              **($
                in 000’s)**Vested
                outstanding at January 1, 2006
            
            
            2,651,175
            
            $
            14.16Unvested
                outstanding at January 1, 2006
            
            
            1,560
            
            
            22.26**Outstanding
                at January 1, 2006**
            
            
            **2,652,735**
            
            
            **14.16**Granted
            
            
            321,586
            
            
            21.96Exercised
            
            
            (128,318
            )
            
            10.26Expired
            
            
            (69,300
            )
            
            22.37**Outstanding
                at June 30, 2006**
            
            
            **2,776,703**
            
            
            **15.04**
            
            **$**
            **20,716****Exercisable
                at June 30, 2006**
            
            
            **2,456,900**
            
            **$**
            **14.14**
            
            **$**
            **20,542**Weighted
                average fair value of options grantedduring
                the six months ended June 30, 2006
            
            
            
            
            $
            6.92





For
      the
      three months ended June 30, 2007 and 2006, share-based compensation expense
      under SFAS No. 123R was $0.7 million and $0.3 million, resulting in a decrease
      in net income of $0.4 million and $0.2 million, a decrease in basic earnings
      per
      common share of $0.02 and $0.01, and a decrease in diluted earnings per common
      share of $0.02 and $0.01, respectively. The income tax benefit related to the
      share-based compensation cost for the three months ended June 30, 2007 and
      2006
      was $0.2 million and $0.1 million, respectively. For the three months ended
      June
      30, 2007 and 2006, $0.4 million and $0.5 million was received from the exercise
      of stock options, and $0.1 million and $0.3 million was realized as income
      tax
      benefits, respectively.





For
      the
      six months ended June 30, 2007 and 2006, share-based compensation expense under
      SFAS No. 123R was $1.2 million and $0.5 million, resulting in a decrease in
      net
      income of $0.8 million and $0.3 million, a decrease in basic earnings per common
      share of $0.04 and $0.02, and a decrease in diluted earnings per common share
      of
      $0.03 and $0.01, respectively. The income tax benefit related to the share-based
      compensation cost for the six months ended June 30, 2007 and 2006 was $0.4
      million and $0.2 million, respectively. For the six months ended June 30, 2007
      and 2006, $0.4 million and $1.6 million was received from the exercise of stock
      options, and $0.1 million and $0.7 million was realized as income tax benefits,
      respectively.




11
 
  **U.S.B.
        HOLDING CO., INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        (UNAUDITED)**







As
      of
      June 30, 2007, there was $5.5 million of total unrecognized compensation cost
      related to non-vested share-based compensation awards granted under the stock
      option plans. The cost is expected to be recognized over thirty-four months.
      The
      fair value for these options was estimated at the date of grant using a
      Black-Scholes option-pricing model and is recognized over the options’ vesting
      period.





The
      following weighted average assumptions were used for the Director Plans and
      Employee Stock Option Plans for the six months ended June 30, 2007 and
      2006:




**Three
                months ended**
            
            **Six
                months ended****Director
                Plan Assumptions:**
            
            **June
                30,**
              **2007**
            
            **June
                30,**
              **2006**
            
            **June
                30,**
              **2007**
            
            **June
                30,**
              **2006**Expected
                stock price volatility
            
            
            30.59
            %
            
            32.22
            %
            
            30.59
            %
            
            32.22
            %Risk-free
                interest rate
            
            
            4.96
            
            
            4.56
            
            
            4.96
            
            
            4.56Expected
                dividend yield
            
            
            2.64
            
            
            2.51
            
            
            2.64
            
            
            2.51Expected
                annual forfeitures
            
            
            1.85
            
            
            1.70
            
            
            1.85
            
            
            1.70Expected
                life (in years)
            
            
            7.87
            
            
            7.75
            
            
            7.87
            
            
            7.75**Employee
                Plan Assumptions:**Expected
                stock price volatility
            
            
            29.92
            %
            
            30.52
            %
            
            29.92
            %
            
            30.54
            %Risk-free
                interest rate
            
            
            4.78
            
            
            5.03
            
            
            4.78
            
            
            5.03Expected
                dividend yield
            
            
            2.58
            
            
            2.43
            
            
            2.58
            
            
            2.43Expected
                annual forfeitures
            
            
            1.30
            
            
            1.29
            
            
            1.30
            
            
            1.29Expected
                life (in years)
            
            
            7.42
            
            
            6.86
            
            
            7.42
            
            
            6.87





**5.**
            **Intangible
                Assets**





The
      gross
      carrying amounts of intangible assets acquired in connection with branch and
      bank acquisitions and a favorable lease were $9.0 million at both June 30,
      2007
      and December 31, 2006, and accumulated amortization on such intangible assets
      was $7.0 million and $6.4 million at June 30, 2007 and December 31, 2006,
      respectively. The intangible amortization expense was $0.3 million and $0.6
      million for both the three and six months ended June 30, 2007 and 2006. The
      annual amortization expense for the remaining life of all intangibles will
      vary
      throughout the amortization periods. During such periods, the maximum amount
      of
      amortization will be $1.1 million on an annual basis.




12


**U.S.B.
        HOLDING CO., INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        (UNAUDITED)**




**6.**
            **Earnings
                Per Common Share
                (“EPS”)**





The
      computation of basic and diluted earnings per common share for the three and
      six
      months ended June 30, 2007 and 2006 is as follows:


**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Numerator:**Net
                Income
            
            $
            6,514
            
            $
            7,225
            
            $
            13,255
            
            $
            15,340Less:
                preferred dividends
            
            
            10
            
            
            10
            
            
            10
            
            
            10Net
                income for basic and diluted
              earnings
                per common share - net income
              available
                to common stockholders
            
            $
            6,504
            
            $
            7,215
            
            $
            13,245
            
            $
            15,330**Denominator:**Denominator
                for basic earnings per
              common
                share - weighted average shares
            
            
            21,923,663
            
            
            21,765,023
            
            
            21,912,589
            
            
            21,744,542Effects
                of dilutive securities -
              director
                and employee stock options
            
            
            387,047
            
            
            1,006,741
            
            
            491,124
            
            
            1,011,144Denominator
                for diluted earnings per
              common
                share - adjusted weighted
              average
                shares
            
            
            22,310,710
            
            
            22,771,764
            
            
            22,403,713
            
            
            22,755,686Basic
                earnings per common share
            
            $
            0.30
            
            $
            0.33
            
            $
            0.60
            
            $
            0.71Diluted
                earnings per common share
            
            
            0.29
            
            
            0.32
            
            
            0.59
            
            
            0.67




**7.**
            **Securities**





In
      accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and
      Equity Securities,” the Company’s investment policies include a determination of
      the appropriate classification of securities at the time of purchase. Securities
      that may be sold as part of the Company’s asset/liability or liquidity
      management, or in response to or in anticipation of changes in interest rates
      and resulting prepayment risk, or for similar factors, are classified as
      available for sale. Securities that the Company has the ability and positive
      intent to hold to maturity are classified as held to maturity and carried at
      amortized cost. Realized gains and losses on the sales of all securities,
      determined by using the specific identification method, are reported in
      earnings. Securities available for sale are shown in the condensed consolidated
      statements of financial condition at estimated fair value and the resulting
      net
      unrealized gains and losses, net of tax, are shown in accumulated other
      comprehensive income (loss).





The
      decision to sell securities available for sale is based on management’s
      assessment of changes in economic or financial market conditions, interest
      rate
      risk, and the Company’s financial position and liquidity. Estimated fair values
      for securities are based on quoted market prices, where available. If quoted
      market prices are not available, estimated fair values are based on quoted
      market prices of similar instruments. Securities in an unrealized loss position
      are periodically evaluated for other-than-temporary impairment. Management
      considers the effect of interest rates, credit ratings and other factors on
      the
      valuation of such securities, as well as the Company’s intent and ability to
      hold such securities until a forecasted recovery or maturity occurs. The Company
      does not acquire a significant amount of securities for the purpose of engaging
      in trading activities.





13




**U.S.B.
          HOLDING CO., INC.**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
          (UNAUDITED)**




The
      Company did not have gross realized gains during the three months ended June
      30,
      2007 and 2006. The Company had gross realized gains of $2,000 and $5,000 that
      were recorded as part of other income during the six months ended June 30,
      2007
      and 2006, respectively. The Company did not have realized losses during the
      three and six months ended June 30, 2007 and 2006, respectively.





A
      summary
      of the amortized cost, estimated fair values, and related gross unrealized
      gains
      and losses on securities at June 30, 2007 and December 31, 2006 is as
      follows:




**(000’s)****June
                30, 2007**
            
            **Amortized**
              **Cost**
            
            **Gross**
              **Unrealized**
              **Gains**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Estimated**
              **Fair**
              **Value****Available
                for Sale:**U.S.
                government agencies
            
            $
            72,930
            
            $
            ―
            
            $
            2,277
            
            $
            70,653Mortgage-backed
                securities
            
            
            440,891
            
            
            1,905
            
            
            9,228
            
            
            433,568Obligations
                of states and political subdivisions
            
            
            226
            
            
            9
            
            
            ―
            
            
            235Corporate
                securities
            
            
            108
            
            
            36
            
            
            ―
            
            
            144**Total
                securities available for sale**
            
            **$**
            **514,155**
            
            **$**
            **1,950**
            
            **$**
            **11,505**
            
            **$**
            **504,600****Held
                to Maturity:**U.S.
                government agencies
            
            $
            640,214
            
            $
            ―
            
            $
            16,544
            
            $
            623,670Obligations
                of states and political subdivisions
            
            
            116,431
            
            
            1,273
            
            
            969
            
            
            116,735**Total
                securities held to maturity**
            
            **$**
            **756,645**
            
            **$**
            **1,273**
            
            **$**
            **17,513**
            
            **$**
            **740,405**





**(000’s)****December
                31, 2006**
            
            **Amortized**
              **Cost**
            
            **Gross**
              **Unrealized**
              **Gains**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Estimated**
              **Fair**
              **Value****Available
                for Sale:**U.S.
                government agencies
            
            $
            72,927
            
            $
            —
            
            $
            1,027
            
            $
            71,900Mortgage-backed
                securities
            
            
            361,904
            
            
            2,027
            
            
            4,932
            
            
            358,999Obligations
                of states and political subdivisions
            
            
            230
            
            
            12
            
            
            ―
            
            
            242Corporate
                securities
            
            
            109
            
            
            44
            
            
            ―
            
            
            153**Total
                securities available for sale**
            
            **$**
            **435,170**
            
            **$**
            **2,083**
            
            **$**
            **5,959**
            
            **$**
            **431,294****Held
                to Maturity:**U.S.
                government agencies
            
            $
            639,846
            
            $
            178
            
            $
            6,033
            
            $
            633,991Obligations
                of states and political subdivisions
            
            
            112,102
            
            
            1,800
            
            
            386
            
            
            113,516**Total
                securities held to maturity**
            
            **$**
            **751,948**
            
            **$**
            **1,978**
            
            **$**
            **6,419**
            
            **$**
            **747,507**




Available
      for sale and held to maturity qualified obligations of states and political
      subdivisions are not subject to Federal income tax.




14


**U.S.B.
            HOLDING CO., INC.**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            (UNAUDITED)**




A
                summary of gross unrealized losses on securities that are not
                other-than-temporarily impaired, which have been in a continuous
                unrealized loss position for less than 12 months and for 12 months
                or
                longer as of June 30, 2007 and December 31, 2006, is as
                follows:






**Securities
        in an Unrealized Loss Position that are not Other-Than-Temporarily
        Impaired**


**(000’s)**


**June
                30, 2007**
            
            **Less
                Than 12 Months**
            
            **12
                Months or More**
            
            **Total****Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Fair****Value**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**U.S.
                government agencies
            
            $
            294,349
            
            $
            5,901
            
            $
            399,974
            
            $
            12,920
            
            $
            694,323
            
            $
                18,821Mortgage-backed
              securities
            
            
            150,932
            
            
            1,875
            
            
            132,854
            
            
            7,353
            
            
            283,786
            
            9,228Obligations
                of states and
              political
                subdivisions
            
            
            57,917
            
            
            562
            
            
            9,395
            
            
            407
            
            
            67,312
            
            969Corporate
                securities
            
            
            1
            
            
            —
            
            
            —
            
            
            —
            
            
            1
            
            —Total
                temporarily impaired
              securities
            
            $
            503,199
            
            $
            8,338
            
            $
            542,223
            
            $
            20,680
            
            $
            1,045,422
            
            $29,018




**(000’s)****December
                31, 2006**
            
            **Less
                Than 12 Months**
            
            **12
                Months or More**
            
            **Total****Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**U.S.
                government agencies
            
            $
            120,536
            
            $
            511
            
            $
            406,325
            
            $
            6,549
            
            $
            526,861
            
            $
            7,060Mortgage-backed
              securities
            
            
            6,550
            
            
            22
            
            
            145,583
            
            
            4,910
            
            
            152,133
            
            
            4,932Obligations
                of states and
              political
                subdivisions
            
            
            41,195
            
            
            148
            
            
            8,914
            
            
            238
            
            
            50,109
            
            
            386Total
                temporarily impaired
              securities
            
            $
            168,281
            
            $
            681
            
            $
            560,822
            
            $
            11,697
            
            $
            729,103
            
            $
            12,378





The
      Company’s U.S. government agency and mortgage-backed securities that are in an
      unrealized loss position at June 30, 2007 and December 31, 2006 are credit
      rated
      AAA or Aaa by nationally recognized statistical rating organizations.
      Substantially all obligations of states and political subdivisions are credit
      rated AAA or Aaa due to insurance, which guarantees the obligations against
      default, by private insurance companies. At June 30, 2007 and December 31,
      2006,
      approximately $3.1 million and $14.4 million, respectively, of issuances were
      not rated, substantially all of which were bond or tax anticipation notes from
      local municipalities.




At
      June
      30, 2007, the number of securities in an unrealized loss position included
      24
      U.S. government agencies, 39 mortgage-backed securities, and 143 obligations
      of
      states and political subdivisions. At December 31, 2006, the number of
      securities in an unrealized loss position included 17 U.S. government agencies,
      29 mortgage-backed securities, and 107 obligations of states and political
      subdivisions. The temporary impairment on securities of less than 12 months
      and
      12 months or more at June 30, 2007 and December 31, 2006 is due to the higher
      interest rate environment, as compared to the periods in which the securities
      were initially purchased. The higher interest rates resulted in a decline in
      the
      market value of the securities. The temporary impairment will fluctuate as
      the
      interest rate environment changes. In a rising interest rate environment, the
      temporary impairment will increase, while a decrease in the temporary impairment
      will occur in a declining interest rate environment. Management does not
      consider the impairment of the securities to be other than temporary due to
      the
      high credit quality or insurance provided by private insurance companies, and
      the intent and ability of the Company to hold such securities until a forecasted
      recovery or maturity occurs.




15




**U.S.B.
      HOLDING CO., INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**





**8.**
            **Loans**





Nonaccrual
      loans were $8.3 million and $9.8 million at June 30, 2007 and December 31,
      2006,
      respectively. Restructured loans were $0.1 million at both June 30, 2007 and
      December 31, 2006. At June 30, 2007 and December 31, 2006, the recorded
      investment in loans that are considered to be impaired approximated $8.0 million
      and $9.2 million, respectively. Such loans were also in nonaccrual status at
      June 30, 2007 and December 31, 2006, respectively. The average recorded
      investment in impaired loans for the six months ended June 30, 2007 and 2006
      and
      for the year ended December 31, 2006 was $8.8 million, $14.6 million, and $14.1
      million, respectively. There was no interest income recognized by the Company
      on
      impaired loans for the three and six months ended June 30, 2007 and $0.2 million
      of interest income on impaired loans was recognized for the three and six months
      ended June 30, 2006.





As
      applicable, each impaired loan has a related allowance for loan losses in
      accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan
      - an amendment of FASB Statements No. 5 and 15.” As of June 30, 2007, impaired
      and nonaccrual loans primarily consisted of one customer relationship. The
      loans
      related to this customer relationship, aggregating $7.4 million of commercial
      loans as of June 30, 2007, involve problems with sources of repayment from
      operating cash flows. No specific allowance for loan loss was allocated to
      the
      impaired loans related to this customer relationship due to the market value
      of
      the real estate collateral. The impaired loans mentioned above are also
      supported by personal guarantees.





Substantially
      all of the nonaccruing and restructured loans are collateralized by real estate.
      At June 30, 2007, the Company had and continues to have no commitments to lend
      additional funds to any customers with nonaccrual or restructured loan balances.
      At June 30, 2007, accruing loans denoted as potential problem loans, which
      may
      result in the loans being placed on nonaccrual status in the near future, were
      not significant. Accruing loans that are contractually past due 90 days or
      more
      at June 30, 2007 were not significant.





**9.**
            **Borrowings
                and Stockholders’
Equity**





The
      Company utilizes short-term and long-term borrowings primarily to meet funding
      requirements for its asset growth, balance sheet leverage, and to manage its
      interest rate risk.





Short-term
      borrowings include securities sold under agreements to repurchase, federal
      funds
      purchased, and short-term Federal Home Loan Bank of New York (“FHLB”) advances.
      Short-term securities sold under agreements to repurchase have original
      maturities between one and 365 days. The Bank has borrowing availability under
      master security sale and repurchase agreements through four primary investment
      firms, the FHLB, and to a lesser extent, its customers. At June 30, 2007 and
      December 31, 2006, the Bank had no short-term repurchase agreements outstanding
      with the FHLB or primary investment firms.




16


**U.S.B.
        HOLDING CO., INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**




At
      June
      30, 2007 and December 31, 2006, the Bank had short-term repurchase agreements
      with customers of $1.0 million and $0.7 million at a weighted average interest
      rate of 3.79 percent and 3.83 percent, respectively. These short-term customer
      borrowings were collateralized by securities with an aggregate carrying value
      of
      $1.1 million and an estimated fair value of $1.0 million at June 30, 2007 and
      an
      aggregate carrying value and estimated fair value of $0.7 million at December
      31, 2006.





Federal
      funds purchased represent overnight funds. The Bank has federal funds purchase
      lines available with six financial institutions for a total of $90.0 million.
      At
      June 30, 2007 and December 31, 2006, the Bank had no federal funds purchased
      balances outstanding.





Short-term
      FHLB advances are borrowings with original maturities between one and 365 days.
      There were no short-term FHLB advances outstanding at June 30, 2007 and December
      31, 2006.





Additional
      information with respect to short-term borrowings as of and for the six months
      ended June 30, 2007 and 2006 is presented in the following table:




**(000’s
                except percentages)****Short-Term
                Borrowings**
            
            **2007**
            
            **2006**Balance
                at June 30
            
            $
            1,028
            
            $
            738Average
                balance outstanding
            
            $
            1,888
            
            $
            62,716Weighted-average
                interest rate:As
                of June 30
            
            
            3.79
            %
            
            3.75
            %Paid
                during period
            
            
            3.94
            %
            
            4.67
            %





The
      Bank
      had long-term borrowings, which have original maturities of over one year,
      of
      $626.0 million and $605.5 million in securities sold under agreements to
      repurchase at June 30, 2007 and December 31, 2006, respectively. These
      borrowings have an original term of ten years at interest rates between 2.83
      percent and 6.08 percent at June 30, 2007, and between 1.99 percent and 6.08
      percent at December 31, 2006 that are callable on certain dates after an initial
      noncall period at the option of the counterparty to the repurchase agreements.
      The long-term borrowings in securities sold under agreements to repurchase
      may
      not be repaid in full prior to maturity without penalty. As of June 30, 2007,
      long-term repurchase agreements with the FHLB were collateralized by securities
      with an aggregate carrying value of $747.0 million and an estimated fair value
      of $736.0 million. As of December 31, 2006, long-term repurchase agreements
      with
      the FHLB were collateralized by securities with an aggregate carrying value
      of
      $653.8 million and an estimated fair value of $650.8 million.





At
      June
      30, 2007 and December 31, 2006, long-term FHLB advances totaled $126.8 million
      and $101.8 million at interest rates between 4.04 percent and 5.99 percent
      and
      between 4.05 percent and 5.99 percent, respectively. At June 30, 2007,
      borrowings totaling $1.8 million consisted of amortizing advances having
      scheduled payments. Other borrowings totaling $125.0 million have an original
      term of ten years that are callable on certain dates after an initial noncall
      period at the option of the counterparty to the advance. Advances at December
      31, 2006 included $1.8 million of amortizing advances having scheduled periodic
      payments and $100.0 million that are callable on certain dates after an initial
      noncall period at the option of the issuer. The long-term FHLB advances may
      not
      be repaid in full prior to maturity without penalty. At June 30, 2007 and
      December 31, 2006, these borrowings were collateralized by a pledge to the
      FHLB
      of a security interest in certain residential mortgage-related assets having
      an
      aggregate book value of $158.2 million and $125.6 million,
      respectively.




17


**U.S.B.
        HOLDING CO., INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**




At
      June
      30, 2007 a $28.0 million FHLB letter of credit was used as collateral for a
      New
      York State governmental deposit. The FHLB letter of credit was collateralized
      by
      a pledge to the FHLB of residential mortgage loans at June 30, 2007 having
      an
      aggregate book value of $34.9 million. At December 31, 2006, a $20.0 million
      FHLB letter of credit was used as collateral for a New York State government
      deposit and collateralized by a pledge to the FHLB of residential mortgage
      loans
      having an aggregate book value of $24.7 million.





A
      summary
      of long-term, fixed-rate borrowings distributed based upon remaining contractual
      payment date and expected option call date at June 30, 2007, with comparative
      totals for December 31, 2006, is as follows:




**(000’s
                except percentages)****Long-Term
                Borrowings**
            
            **Within**
              **1
                Year**
            
            **After
                1**
              **But
                Within**
              **5
                Years**
            
            **After**
              **5
                Years**
            
            **2007**
              **Total**
            
            2006
              TotalContractual
                Payment Date:Total
                long-term borrowing
            
            $
            40,020
            
            $
            130,095
            
            $
            582,684
            
            $
            752,799
            
            $
            707,309Weighted
                average interest rate
            
            
            5.64
            %
            
            5.70
            %
            
            4.09
            %
            
            4.45
            %
            
            4.46
            %Expected
                Call Date:Total
                long-term borrowing
            
            $
            356,020
            
            $
            395,095
            
            $
            1,684
            
            $
            752,799
            
            $
            707,309Weighted
                average interest rate
            
            
            4.04
            %
            
            4.81
            %
            
            5.99
            %
            
            4.45
            %
            
            4.46
            %





At
      June
      30, 2007 and December 31, 2006, the Bank held 366,728 and 345,227 shares,
      respectively, of capital stock of the FHLB with a carrying value of $36.7
      million and $34.5 million, respectively, which is required in order to borrow
      under the short- and long-term advances and securities sold under agreements
      to
      repurchase programs from the FHLB. The FHLB generally limits borrowings to
      an
      aggregate of 50 percent of total assets upon the prerequisite purchase of
      additional shares of FHLB stock. Any advances made from the FHLB are required
      to
      be collateralized by the FHLB stock and certain other assets of the
      Bank.





The
      ability of the Company and Bank to pay cash dividends in the future is
      restricted by various regulatory requirements. The Company's ability to pay
      cash
      dividends to its stockholders is primarily dependent upon the receipt of
      dividends from the Bank. The Bank's dividends to the Company in any year may
      not
      exceed the sum of the Bank's undistributed net income for that year and its
      undistributed net income for the preceding two years, less any required
      transfers to additional paid-in capital. In addition, the Bank may not declare
      and pay dividends more often than quarterly, and no dividends may be declared
      or
      paid if there is any impairment of the Bank’s capital stock. At June 30, 2007,
      the Bank could pay dividends of $32.5 million to the Company without having
      to
      obtain prior regulatory approval.





For
      the
      six months ended June 30, 2006, the Company purchased 120,300 shares of its
      common stock at an aggregate cost of $2.6 million under its 2005 repurchase
      plan, which expired December 31, 2006. As of June 30, 2007, the Company’s Board
      of Directors has not authorized a new repurchase plan. For the six months ended
      June 30, 2007, there was no common stock acquired in connection with stock
      option exercises compared to 8,922 shares of common stock acquired for the
      six
      months ended June 30, 2006.




18


**U.S.B.
        HOLDING CO., INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**




**10.**
            **Corporation-Obligated
                Mandatory Redeemable Capital Securities of Subsidiary
                Trusts**





At
      June
      30, 2007, the Company had outstanding $51.5 million of junior subordinated
      debt
      in connection with the issuance of $51.5 million of Capital Securities. Capital
      Securities are generally permitted to be included in Tier I regulatory capital
      in an amount not in excess of 25 percent of Tier I Capital, with the remainder
      included in Total Capital. At June 30, 2007, Tier I Capital totaled $286.2
      million, which included $50.0 million of Capital Securities.





On
      June
      26, 2007, the Capital Securities of USB Statutory Trust III were redeemed at
      a
      redemption price equal to the $1,000 liquidation amount of each security, plus
      all accrued and unpaid interest per security to, but not including, the
      redemption date. The redemption of the Capital Securities was made in connection
      with the concurrent redemption by the Company of all of its $10.3 million
      Floating Rate Junior Subordinated Deferrable Interest Debentures (the
“Debentures”) due June 26, 2032, which were held exclusively by USB Statutory
      Trust III, on June 26, 2007 at a redemption price equal to the principal
      outstanding amount of the Debentures, plus interest accrued and unpaid on the
      Debentures to, but not including, the redemption date.





**11.**
            **Commitments
                and Contingencies**





In
      the
      normal course of business, various commitments to extend credit are made that
      are not reflected in the accompanying condensed consolidated financial
      statements. At June 30, 2007, the Company had approximately $463.0 million
      in
      formal credit lines outstanding, $63.7 million in loan commitments outstanding,
      which are loans primarily collateralized by real estate, $32.8 million of
      standby letters of credit outstanding, and $47.7 million of credit card lines
      outstanding. Such amounts represent the maximum risk of loss on these
      commitments.





Standby
      letters of credit are issued to guarantee financial performance or obligations
      of the Bank’s customers. Generally, standby letters of credit are either
      partially or fully collateralized by cash, real estate, or other assets. In
      most
      cases, personal guarantees are obtained. Standby letters of credit are
      considered in the Bank’s evaluation of its reserve for unfunded loan
      commitments.





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 “Director Retirement
      Plan”), which is described in Note 17 to the Company’s Consolidated Financial
      Statements included in the 2006 Annual Report to Stockholders. At June 30,
      2007
      and December 31, 2006, the Company had a recorded liability of $596,000 and
      $580,000, respectively, to provide for the present value of payments expected
      to
      be made under the Director Retirement Plan. The discount rate used to compute
      the present value obligation is 5.25 percent for both periods.





The
      Company adopted SFAS No. 158, “Employers Accounting for Deferred Pension and
      Other Postretirement Plans - An Amendment of FASB Statements No. 87, 88, 106,
      and 132(R)” (“SFAS No. 158”) as of December 31, 2006. The adoption of SFAS No.
      158 required the Company to record the unamortized prior service cost, which
      is
      being amortized over the average remaining service period of the current
      non-employee directors, as a component of accumulated other comprehensive income
      (loss). Benefit cost for the Director Retirement Plan for the three months
      ended
      June 30, 2007 and 2006 was approximately $22,000 and $31,000, of which $8,000
      and $7,000 represents current service cost and $14,000 and $24,000 represents
      prior service cost, respectively. Benefit cost for the Director Retirement
      Plan
      for the six months ended June 30, 2007 and 2006 was approximately $44,000 and
      $63,000, of which $16,000 and $14,000 represents current service cost and
      $28,000 and $49,000 represents amortization of prior service cost,
      respectively.




19


**U.S.B.
        HOLDING CO., INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**




Other
      commitments are also described in Note 16 to the Company’s Consolidated
      Financial Statements included in the Company’s 2006 Annual Report to
      Stockholders.





The
      Company is party to various legal proceedings arising in the ordinary course
      of
      business. Because litigation is inherently unpredictable, particularly in cases
      where claimants seek substantial or indeterminate damages or where
      investigations and proceedings are in the early phases, the Company cannot
      predict with certainty the loss or range of loss related to such matters, how
      such matters will be resolved, when they will ultimately be resolved, or what
      the eventual settlement, fine, penalty, or other relief might be, if any.
      Consequently, the Company cannot estimate losses or ranges of losses for matters
      where there is only a reasonable possibility that a loss may have been incurred.
      Although the ultimate outcome of these matters cannot be ascertained at this
      time, it is the opinion of management, after consultation with counsel, that
      the
      resolution of such matters will not have a material adverse effect on the
      financial condition of the Company, taken as a whole; such resolution may,
      however, have a material effect on the operating results in any future period,
      depending on the level of income for such period.





The
      Company provides reserves in accordance with SFAS No. 5, “Accounting for
      Contingencies,” as required. The ultimate resolution of any legal proceedings
      may differ from the amounts reserved, if any.





**12.**
            **Segment
                Information**





The
      Company has one reportable segment, “Community Banking.” All of the Company’s
      activities are interrelated, and each activity is dependent and assessed based
      on how each of the activities of the Company supports the others. For example,
      commercial lending is dependent upon the ability of the Bank to fund itself
      with
      deposits and other borrowings and to manage interest rate and credit risk.
      This
      situation is also similar for consumer and residential mortgage lending.
      Accordingly, all significant operating decisions are based upon analysis of
      the
      Company as one operating segment or unit.





The
      Company operates only in the U.S. domestic market, specifically the lower Hudson
      Valley, which includes the counties of Rockland, Westchester, Orange, Putnam
      and
      Dutchess, New York, as well as New York City and Long Island, New York, and
      Southern Connecticut and the surrounding area. For the six months ended June
      30,
      2007 and 2006, there is no customer that accounted for more than ten percent
      of
      the Company’s revenue.




20


**U.S.B.
        HOLDING CO., INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**




**13.**
            **Subsequent
                Events**





The
      Company announced the execution of an Agreement and Plan of Merger among
      KeyCorp, KYCA Corporation, and U.S.B. Holding Co., Inc., dated as of July 26,
      2007, as amended on August 6, 2007, (the “Agreement”), pursuant to which the
      Company will merge into KYCA Corporation, a wholly-owned subsidiary of KeyCorp,
      in exchange for cash and stock valued at approximately $575 million and the
      Bank
      will merge into KeyBank National Association. Under the terms of the agreement,
      shareholders of the Company will be entitled to receive 0.455 shares of KeyCorp
      common stock and $8.925 in cash for each share of Company common stock that
      they
      own. Consummation of the merger is subject to a number of customary conditions,
      including, but not limited to, the approval of the agreement by the Company’s
      shareholders and the receipt of all required bank regulatory
      approvals.





On
      July
      25, 2007, the Company and the Bank entered into amended and restated employment
      agreements with each of Thomas E. Hales and Raymond J. Crotty (collectively,
      the
“Employment Agreements”) in order to renew the terms to five years for Mr. Hales
      and three years for Mr. Crotty. In addition, the Employment Agreements were
      amended to comply with section 409A of the Internal Revenue Code of 1986, as
      amended (the “Code”), and regulations or other guidance of the Internal Revenue
      Service published thereunder (collectively, “Section 409A”). Among other
      requirements, Section 409A requires restrictions on payment timing to specified
      individuals under certain types of compensation agreements.





On
      July
      25, 2007, the Bank entered into a letter agreement with Mr. Thomas Buonaiuto
      which provides change of control benefit protections to Mr. Buonaiuto in certain
      circumstances.





On
      July
      25, 2007, the Company adopted the U.S.B. Holding Co., Inc. Amended and Restated
      Severance Plan (the “Severance Plan”), which will provide severance protections
      to eligible full time employees of both the Company and Bank following a change
      in control (as defined in the Severance Plan) of the Company.





Generally,
      all full time employees (other than management personnel with employment
      agreements or change in control agreements) will be eligible to participate
      in
      the Severance Plan. Under the Severance Plan, in the event of a change in
      control, as defined, eligible employees who are terminated from or, in certain
      cases, terminate their employment (for reasons specified under the Severance
      Plan), within one year after the change in control will be entitled to receive
      severance benefits, including a cash severance payment equal to between two
      weeks and forty weeks of the participant’s annual compensation, depending on the
      participant’s full years of service with the Company or a subsidiary thereof. In
      addition, participants entitled to severance will also receive continued medical
      and dental coverage at no cost to the participant for the length of their
      severance period (i.e., between two and forty weeks depending upon years of
      service) with the ability to continue coverage thereafter pursuant to COBRA
      at
      the participant’s expense.





21


**U.S.B.
        HOLDING CO., INC.**
 **ITEM
        2.**  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION** **AND
        RESULTS OF OPERATIONS**




***Forward-Looking
      Statements***




*This
      Quarterly Report on Form 10-Q contains a number of “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended,
      and
      Section 21E of the Securities Exchange Act of 1934, as amended. These
      forward-looking statements may be identified by the use of such words as
“believe,” “expect,” “anticipate,” “intend,” “should,” “will,” “would,” “could,”
“may,” “planned,” “estimated,” “potential,” “outlook,” “predict,” “project” and
      similar terms and phrases, including references to
      assumptions.*





*Forward-looking
      statements are based on various assumptions and analyses made by the Company
      in
      light of management's experience and its perception of historical trends,
      current conditions and expected future developments, as well as other factors
      the Company believes are appropriate under the circumstances. These statements
      are not guarantees of future performance and are subject to risks, uncertainties
      and other factors (many of which are beyond the Company’s control) that could
      cause actual results to differ materially from future results expressed or
      implied by such forward-looking statements. These factors include, without
      limitation, the following: the timing and occurrence or non-occurrence of events
      may be subject to circumstances beyond the Company’s control; there may be
      increases in competitive pressure among financial institutions or from
      non-financial institutions; changes in the interest rate environment may reduce
      interest margins or affect the value of the Company’s investments; changes in
      deposit flows, loan demand or real estate values may adversely affect the
      Company’s business; changes in accounting principles, policies or guidelines may
      cause the Company’s financial condition to be perceived differently; general
      economic conditions, either nationally or locally in some or all of the areas
      in
      which the Company does business, or conditions in the securities markets or
      the
      banking industry may be less favorable than the Company currently anticipates;
      legislative or regulatory changes may adversely affect the Company’s business;
      applicable technological changes may be more difficult or expensive than the
      Company anticipates; success or consummation of new business initiatives may
      be
      more difficult or expensive than the Company anticipates; or litigation or
      matters before regulatory agencies, whether currently existing or commencing
      in
      the future, may delay the occurrence or non-occurrence of events longer than
      the
      Company anticipates.*





*The
      Company's forward-looking statements are only as of the date on which such
      statements are made. By making any forward-looking statements, the Company
      assumes no duty to update them to reflect new, changing or unanticipated events
      or circumstances. These risks and uncertainties should be considered in
      evaluating forward-looking statements and undue reliance should not be placed
      on
      these statements.*





**MERGER
      AGREEMENT WITH KEYCORP**





The
      Company announced the execution of an Agreement and Plan of Merger among
      KeyCorp, KYCA Corporation, and U.S.B. Holding Co., Inc. dated as of July 26,
      2007, as amended on August 6, 2007, (the “Agreement”), pursuant to which the
      Company will merge into KYCA Corporation, a wholly-owned subsidiary of KeyCorp,
      in exchange for cash and stock valued at approximately $575 million and the
      Bank
      will merge into KeyBank National Association. Under the terms of the agreement,
      shareholders of the Company will be entitled to receive 0.455 shares of KeyCorp
      common stock and $8.925 in cash for each share of Company common stock that
      they
      own. Consummation of the merger is subject to a number of customary conditions,
      including, but not limited to, the approval of the agreement by the Company’s
      shareholders and the receipt of all required bank regulatory
      approvals.





22




**U.S.B.
      HOLDING CO., INC.**


**ITEM
      2.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION** **AND
      RESULTS OF OPERATIONS**


**OVERVIEW**





The
      Company’s primary business is obtaining deposits through its retail branch
      system, and commercial and municipal relationships, and lending to both a retail
      and commercial customer base. A substantial amount of loans are collateralized
      by real estate, including construction projects. The Bank’s residential mortgage
      portfolio does not contain sub-prime loans and, therefore, has not been affected
      by the sub-prime loan market. The Company also acquires triple-A credit rated
      securities and obligations of local municipalities to invest deposits in excess
      of loan production and borrows on a wholesale basis to leverage capital and
      manage interest rate risk. The Company operates through its 31 full service
      branches and its four loan centers in Rockland, Westchester, and Orange
      counties, and New York City in New York and Stamford, Connecticut.




The
      Company’s primary source of revenue is net interest income, which is the
      difference between interest income on interest earning assets and interest
      expense on interest bearing liabilities. The Company also derives income from
      non-interest income sources such as service charges on deposit accounts, gains
      on sales of securities and other forms of income. Net interest income and
      non-interest income support the Company’s operating expenses and provision for
      credit losses.




As
      the
      Company’s primary source of income is net interest income, the interest rate
      environment has a significant effect on revenue. The market for and credit
      quality of loans is impacted by interest rates, as well as the local economy.
      Deposits are also sensitive to interest rates, local economic conditions, and
      the attractiveness of alternative investments, such as stocks, bonds, mutual
      funds, and annuities.




The
      Company’s core revenue, net interest income, has been adversely affected during
      the six months ended June 30, 2007 by a decrease in the net interest margin
      as a
      result of an inverted U.S. Treasury yield curve in which short-term interest
      rates are at higher levels than medium- to long-term interest rates, and pricing
      pressures from increased competition for loans and deposits. The current slope
      of the U.S. Treasury yield curve, combined with continuing pricing pressures
      on
      deposits and loans in the Company’s marketplace, could continue to negatively
      affect net interest income by causing the net interest margin to compress
      further.




Also
      significant to the Company’s net income and earnings per common share is the
      ability to generate quality interest earning assets in the form of loans and
      securities at reasonable interest rate spreads to maintain or increase net
      interest income. Increasing the Company’s interest earning assets is challenging
      as a result of the inverted U.S. Treasury yield curve in the current interest
      rate environment, intense competition for loans, and difficulty in obtaining
      acceptable yields and structures on security investments, while managing
      interest rate risk. In addition, loan prepayments, particularly on commercial
      mortgage loans, also impact the Company’s ability to increase interest earning
      assets.




**Critical
      Accounting Policies**





The
      Company’s financial statements are prepared in accordance with accounting
      principles generally accepted in the United States of America (“GAAP”). The
      Company’s significant accounting policies are more fully described in Note 3 to
      the Company’s Consolidated Financial Statements included in the Company’s
      2006 Annual Report to Stockholders. Certain accounting policies require
      management to make estimates and assumptions that affect the reported amounts
      of
      actual and contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenue and expense during the reporting
      period. On an on-going basis, management evaluates its estimates and
      assumptions, and the effects of revisions are reflected in the financial
      statements in the period in which they are determined to be
      necessary.




23


**U.S.B.
        HOLDING CO., INC.**
 **ITEM
        2.**  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION** **AND
        RESULTS OF OPERATIONS**




The
      critical policies given the Company’s current business strategy and
      asset/liability structure are accounting for non-performing loans, the allowance
      for loan losses, the reserve for unfunded loan commitments and standby letters
      of credit, the provision for credit losses, the classification of securities
      as
      either held to maturity or available for sale, the evaluation of other than
      temporary impairment of securities, and the evaluation of the valuation reserves
      for net deferred tax assets. These accounting policies are those that most
      frequently require management to make estimates and judgments and, therefore,
      are critical to understanding the Company’s results of operations. The Company’s
      critical accounting policies are described in greater detail under the heading
      “Critical Accounting Policies” in the Management’s Discussion and Analysis of
      Financial Condition and Results of Operations included in the Company’s 2006
      Annual Report to Stockholders. The Company’s practice on each of these
      accounting policies is further described in the applicable sections of
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations included in the Company’s 2006 Annual Report to
      Stockholders.





**COMPARISON
      OF FINANCIAL CONDITION AS OF JUNE 30, 2007 AND DECEMBER 31,
      2006**





At
      June
      30, 2007, the Company had total assets of $3,029.8 million, an increase of
      $106.5 million from December 31, 2006. The increase in total assets was
      primarily due to increases in the securities portfolio and loans,
      net.





The
      securities portfolio, including investments in FHLB stock, totaled $1,297.9
      million and $1,217.8 million at June 30, 2007 and December 31, 2006,
      respectively, an increase of $80.2 million during the six months ended June
      30,
      2007. The securities portfolio consisted of securities held to maturity at
      amortized cost of $756.6 million and $751.9 million, securities available for
      sale at estimated fair value totaling $504.6 million and $431.3 million, and
      FHLB stock of $36.7 million and $34.5 million at June 30, 2007 and December
      31,
      2006, respectively.





Securities
      are selected to provide safety of principal and liquidity, produce income on
      excess funds during structural changes in the composition of deposits and during
      cyclical and seasonal changes in loan demand, and to leverage capital. The
      amount of securities purchased and maintained in the investment portfolio is
      dependent on the level of deposit growth in excess of loan growth, the ability
      to leverage capital, while maintaining adequate capital ratios and managing
      interest rate risk, and the ability of the Bank to borrow wholesale funds.
      In
      order to manage liquidity and control interest rate risk, the Company’s
      investment strategy focuses on a combination of securities that have short-term
      maturities, adjustable-rate securities or those whose cash flow patterns result
      in a lower degree of interest rate risk, and investments in fixed rate
      securities with longer-term maturities and call options by the issuer to
      increase yield.





Generally,
      most securities may be used to collateralize borrowings and public deposits.
      As
      a result, the investment portfolio is an integral part of the Company’s funding
      strategy. The Company will continue to seek opportunities in utilizing the
      investment portfolio to invest excess cash flow and leverage capital, while
      managing interest rate risk. The weighted average life of the investment
      portfolio at June 30, 2007 and December 31, 2006 was 8.42 years and 7.87 years,
      respectively.




24


**U.S.B.
        HOLDING CO., INC.**
 **ITEM
        2.**  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION** **AND
        RESULTS OF OPERATIONS**




During
      the six months ended June 30, 2007, U.S. government agency securities decreased
      $0.9 million due primarily to a decrease of $1.2 million in the estimated fair
      value of available for sale securities, partially offset by an increase of
      $0.3
      million of amortization of the loss on transfer of available for sale securities
      to held to maturity. U.S. government agency securities of $710.9 million as
      of
      June 30, 2007 consisted of fixed-rate securities with longer-term maturities
      and
      call options by the issuer to increase yield. Mortgage-backed securities
      increased by $74.6 million primarily due to purchases of $105.9 million and
      an
      increase of $0.1 million in discount accretion, partially offset by principal
      paydowns of $27.0 million and a decrease in the estimated fair value of
      available for sale securities of $4.4 million. The Bank’s investment in
      obligations of states and political subdivisions, or municipal securities,
      increased by $4.3 million. This was primarily due to purchases of $16.6 million,
      partially offset by maturities and redemptions of $12.3 million. Municipal
      securities are considered core investments having favorable tax equivalent
      yields and diversified maturities. These obligations are principally of New
      York
      State political subdivisions and substantially all are classified as held to
      maturity. Purchases of municipal securities are dependent upon their
      availability in the marketplace and the comparative tax equivalent yields of
      such securities compared to other securities of similar credit risk and
      maturity.





The
      Company invests in medium-term corporate debt securities and bank and other
      equity securities. The Company had outstanding balances in corporate securities
      of $0.1 million and $0.2 million at June 30, 2007 and December 31, 2006,
      respectively, consisting of bank and other equity securities.





Loans
      represent the largest and highest yielding earning assets of the Company. The
      Company continues to originate a significant portion of loans collateralized
      by
      real estate within the markets in which it primarily conducts business. Loan
      volume is dependent on the Bank’s ability to originate loans in the competitive
      markets in which it operates. Critical factors include the credit worthiness
      of
      borrowers, the economy of the Bank’s markets, and the level of interest rates.
      Also impacting net loan growth is the level of loan prepayments and competition
      from other financial institutions.





At
      June
      30, 2007, total loans, net were $1,588.0 million, a net increase of $10.6
      million or 0.7 percent compared to December 31, 2006. A summary of the increase
      in total loans, net at June 30, 2007 compared to December 31, 2006 is as
      follows:





**(000’s)****June
                30, 2007**
            
            **December
                31, 2006**
            
            **Increase/****(Decrease)**Time
                and demand loans
            
            $
            131,369
            
            $
            140,416
            
            $
            (9,047
            )Installment
                loans
            
            
            26,879
            
            
            28,621
            
            
            (1,742
            )Credit
                Card
            
            
            7,329
            
            
            7,444
            
            
            (115
            )Real
                Estate-
                Commercial
            
            
            575,539
            
            
            572,622
            
            
            2,917-
                Residential
            
            
            285,024
            
            
            293,370
            
            
            (8,346
            )-
                Construction and real estate secured
            
            
            491,797
            
            
            465,463
            
            
            26,334-
                Home equity
            
            
            83,020
            
            
            82,452
            
            
            568Other
            
            
            4,395
            
            
            5,280
            
            
            (885
            )Gross
                loans
            
            
            1,605,352
            
            
            1,595,668
            
            
            9,684Deferred
                net loan commitment fees
            
            
            (1,635
            )
            
            (2,248
            )
            
            613Total
                loans
            
            
            1,603,717
            
            
            1,593,420
            
            
            10,297Allowance
                for loan losses
            
            
            (15,696
            )
            
            (16,034
            )
            
            338Total
                loans, net
            
            $
            1,588,021
            
            $
            1,577,386
            
            $
            10,635





25


**U.S.B.
        HOLDING CO., INC.**
 **ITEM
        2.**  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION** **AND
        RESULTS OF OPERATIONS**




In
      the
      normal course of business, various commitments to extend credit are made that
      are not reflected in the accompanying condensed consolidated financial
      statements. The Company had approximately $463.0 million in formal credit lines
      outstanding, $63.7 million in loan commitments outstanding, which are loans
      primarily collateralized by real estate, $32.8 million of standby letters of
      credit outstanding, and $47.7 million of credit card lines outstanding. Such
      amounts represent the maximum risk of loss on these commitments. 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, increasing deposits and borrowings, and receiving proceeds from
      loan
      and security repayments.




The
      Company's allowance for loan losses decreased $0.3 million to $15.7 million
      at
      June 30, 2007 from $16.0 million at December 31, 2006. The decrease in the
      allowance for loan losses was due to charge-offs of $1.1 million of
      nonperforming loans, as well as improved factors applied to other loan
      classifications. The decrease in the allowance for loan losses was partially
      offset by an increase in total loans outstanding of $10.3 million. The allowance
      represents 0.98 percent and 1.01 percent of total loans outstanding at June
      30,
      2007 and December 31, 2006, respectively.





The
      allowance for loan losses and reserve for unfunded loan commitments and standby
      letters of credit reflect a provision of $0.7 million and net charge-offs of
      $1.1 million recorded for the six months ended June 30, 2007. The reserve for
      unfunded loan commitments and standby letters of credit of $1.0 million at
      June
      30, 2007 and $1.1 million at December 31, 2006 is included in other liabilities.
      At June 30, 2007, accruing loans denoted as potential problem loans, which
      may
      result in the loans being placed on nonaccrual status in the near future, were
      not significant.





As
      with
      any financial institution, poor economic conditions and high inflation, interest
      rates or unemployment may lead to increased losses in the loan portfolio.
      Conversely, improvements in economic conditions tend to reduce the amounts
      charged against the allowance. Management has established various controls,
      in
      addition to Board approved underwriting standards, in order to limit future
      losses, such as (1) a “watch list” of possible problem and classified loans, (2)
      various loan policies concerning loan administration (loan file documentation,
      disclosures, approvals, etc.), and (3) a loan review staff employed by the
      Company to determine compliance with established controls, and to review the
      quality and identify anticipated collectibility issues of the portfolio.
      Management determines which loans are uncollectible and makes additional
      provisions, as necessary, to state the allowance and the reserve at the
      appropriate levels.





An
      evaluation of the quality of the loan portfolio is performed by management
      on a
      quarterly basis as an integral part of the credit administration function,
      which
      includes the identification and evaluation of past due loans, non-performing
      loans, impaired loans and potential problem loans, assessments of the expected
      effects of the current economic environment, applicable industry, geographic,
      and customer concentrations within the loan portfolio, and a review of
      historical loss experience. Management takes a prudent and cautious position
      in
      evaluating various business and economic uncertainties in relation to the
      Company’s loan portfolio. In management’s judgment, the allowance and reserve
      are considered adequate to absorb losses inherent in the credit portfolio.
      The
      collectibility of the loan portfolio of the Company is subject to changes in
      the
      real estate market in which the Company operates.




The
      provisions for credit losses established for the six months ended June 30,
      2007
      and 2006, and the related allowance and reserve, reflect net charge-offs
      incurred and risks with respect to real estate, time and demand, installment,
      credit card, and other loans, as well as the effect of the real estate market
      and general economic conditions of the New York Metropolitan area on the loan
      portfolio. Management believes the allowance and the reserve at June 30, 2007
      appropriately reflect the risk elements inherent in the total credit portfolio
      at that time. There is no assurance that the Company will not be required to
      make future adjustments to the allowance or the reserve in response to changing
      economic conditions or regulatory examinations.




26


**U.S.B.
        HOLDING CO., INC.**
 **ITEM
        2.**  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION** **AND
        RESULTS OF OPERATIONS**




The
      Company’s fundamental source of funds supporting interest earning assets
      continues to be deposits, consisting of demand deposits (non-interest bearing),
      NOW, money market, savings, and various forms of time deposits. Retail deposits
      are obtained primarily by mass marketing efforts and are fee and interest rate
      sensitive. Commercial deposits are generally obtained through direct marketing
      and business relationship development efforts, as well as a result of lending
      relationships. The maintenance of a strong deposit base is key to the
      development of lending opportunities and creates long-term customer
      relationships, which enhance the ability to cross sell services. Depositors
      include individuals, small and large businesses, and governmental entities.
      To
      meet the requirements of a diverse customer base, a full range of deposit
      instruments is offered, which has allowed the Company to maintain the deposit
      base despite intense competition from other banking institutions and non-bank
      financial service providers.




Total
      deposits increased $74.2 million, or 3.9 percent, for the six months ended
      June
      30, 2007 to $1,970.6 million. The total deposit increase resulted from net
      increases in retail and commercial deposits of $85.3 million and municipal
      deposits of $42.9 million, partially offset by a decrease in brokered deposits
      of $54.0 million.





A
      summary
      of the increase in total deposits at June 30, 2007 compared to December 31,
      2006
      is as follows:


**(000’s)****June
                  30,**
                **2007**
              
              **December
                  31, 2006**
              
              **Increase/**
                **(Decrease)****Non-interest
                  bearing deposits:**Individuals,
                  partnerships, and corporations
              
              $
              287,501
              
              $
              269,468
              
              $
              18,033Certified
                  and official checks
              
              
              10,598
              
              
              14,753
              
              
              (4,155
              )States
                  and political subdivisions
              
              
              17,877
              
              
              10,661
              
              
              7,216Total
                  non-interest bearing deposits
              
              
              315,976
              
              
              294,882
              
              
              21,094**Interest
                  bearing deposits:**NOW
                  accounts
              
              
              102,068
              
              
              110,386
              
              
              (8,318
              )Money
                  market accounts
              
              
              177,784
              
              
              139,052
              
              
              38,732Savings
                  deposits
              
              
              413,263
              
              
              370,034
              
              
              43,229States
                  and political subdivisions - NOW, money market,
                and
                  savings deposits
              
              
              99,698
              
              
              81,827
              
              
              17,871Time
                  deposits of individuals, partnerships, corporations
                under
                  $100,000
              
              
              377,666
              
              
              378,631
              
              
              (965
              )Time
                  deposits of individuals, partnerships, corporations
                over
                  $100,000
              
              
              208,036
              
              
              214,039
              
              
              (6,003
              )Brokered
                  time deposits
              
              
              ―
              
              
              54,000
              
              
              (54,000
              )States
                  and political subdivisions - time deposits
              
              
              179,483
              
              
              161,660
              
              
              17,823IRAs
                  and Keoghs
              
              
              96,614
              
              
              91,858
              
              
              4,756Total
                  interest bearing deposits
              
              
              1,654,612
              
              
              1,601,487
              
              
              53,125Total
                  deposits
              
              $
              1,970,588
              
              $
              1,896,369
              
              $
              74,219




27


**U.S.B.
        HOLDING CO., INC.**
 **ITEM
        2.**  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION** **AND
        RESULTS OF OPERATIONS**


The
      increase in municipal deposits was primarily due to competitive rates being
      offered on municipal time and NOW deposits. The increase in retail and
      commercial deposits at June 30, 2007 was primarily due to the Bank offering
      competitively priced NOW, savings, short-term time deposits and tiered money
      market deposits, as well as obtaining higher levels of demand deposits from
      existing commercial customers. The decrease in brokered deposits was a result
      of
      maturities during the first six months of 2007. The brokered deposits were
      not
      renewed as a result of alternative sources of funding (i.e., wholesale
      borrowings and municipal deposits) being more competitively priced.





As
      the
      amounts of deposits change and earning assets increase or decrease, the Bank
      will manage its funding with short-term borrowings. Short-term borrowings
      provide management with the ability to react to changes in levels of earning
      assets. As of June 30, 2007, the Bank did not have any FHLB short-term
      borrowings as a result of an increase in municipal deposits. Management will
      continue to evaluate the interest rate environment in order to determine the
      most effective combination of borrowings and deposits.





Stockholders'
      equity increased to $228.4 million at June 30, 2007 from the December 31, 2006
      balance of $223.4 million, an increase of 2.2 percent. The increase primarily
      resulted from: $13.3 million of net income for the six months ended June 30,
      2007; $0.5 million of stock options exercised and related tax benefit; and
      $1.2
      million of compensation cost related to stock options; partially offset by
      cash
      dividends paid of $6.6 million and an increase in accumulated other
      comprehensive loss of $3.5 million.





The
      Company's leverage ratio at June 30, 2007 was 9.52 percent, compared to 9.75
      percent at December 31, 2006. The decrease in the Company’s leverage capital
      ratio is due primarily to the redemption of USB Statutory Trust III Capital
      Securities, partially offset by an increase in stockholders’ equity, excluding
      accumulated other comprehensive loss, for the six months ended June 30, 2007.
      The Company's Tier I and total capital ratios under applicable risk-based
      capital guidelines were 15.32 percent and 16.21 percent at June 30, 2007, and
      15.43 percent and 16.34 percent at December 31, 2006, respectively. In addition,
      the Bank exceeded all current regulatory capital requirements and was in the
      “well-capitalized” category at June 30, 2007 and December 31, 2006.





**COMPARISON
      OF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND
      2006**





**Earnings**





Net
      income for the three months ended June 30, 2007 was $6.5 million compared to
      $7.2 million for the three months ended June 30, 2006, a decrease of $0.7
      million, or 9.8 percent. Dilut ed
      earnings per common share for the quarter ended June 30, 2007 was $0.29 compared
      to $0.32 for the prior year period, a decrease of 9.4 percent. The Company’s
      second quarter 2007 net income result ed
      in a
      11.38 percent return on average common stockholders’ equity and a 0.87 percent
      return on average total assets, as compared to 13.88 percent and 1.03 percent,
      respectively, for the 2006 second quarter.





Net
      income for the six months ended June 30, 2007 was $13.3 million compared to
      $15.3 million for the six months ended June 30, 2006, a decrease of $2.1
      million, or 13.6 percent. Diluted earnings per common share for the quarter
      ended June 30, 2007 was $0.59 compared to $0.67 for the prior year period,
      a
      decrease of 11.9 percent. The Company’s six months ended June 30, 2007 net
      income resulted in a 11.67 percent return on average common stockholders’ equity
      and a 0.89 percent return on average total assets, as compared to 14.80 percent
      and 1.10 percent, respectively, for the 2006 period.




28


**U.S.B.
        HOLDING CO., INC.**
 **ITEM
        2.**  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION** **AND
        RESULTS OF OPERATIONS**




A
      discussion of the factors impacting the changes in the various components of
      net
      income follows.





**Net
      Interest Income**





Net
      interest income, the difference between interest income and interest expense,
      is
      the most significant component of the Company’s consolidated earnings. Net
      interest income is positively impacted by a combination of increases in interest
      earning assets over interest bearing liabilities and an increase in the net
      interest spread between interest earning assets and interest bearing
      liabilities. Net interest income is adversely impacted by a combination of
      decreases in interest earning assets over interest bearing liabilities and
      a
      decrease in the net interest spread between interest earning assets and interest
      bearing liabilities. For the three months ended June 30, 2007, net interest
      income decreased $0.8 million, or 3.4 percent, to $22.1 million compared to
      $22.9 million for the three months ended June 30, 2006. For the six months
      ended
      June 30, 2007, net interest income decreased $2.0 million, or 4.3 percent,
      to
      $44.2 million compared to $46.2 million for the six months ended June 30,
      2006.





29


A
      summary
      of the average balances and interest yield/rates for the three months ended
      June
      30, 2007 compared to the three months ended June 30, 2006 is as
      follows:


**(000’s,
                  except percentages)**
                **For
                  the three months ended June 30,****2007**
              
              **2006****Average
                  Balance**
              
              **Interest**
              
              **Average
                  Yield/Rate**
              
              **Average
                  Balance**
              
              **Interest**
              
              **Average
                  Yield/Rate****INTEREST
                  EARNING ASSETS**Interest
                  earning assets:Federal
                  funds sold
              
              $
              63,184
              
              $
              829
              
              
              5.19
              %
              $
              31,333
              
              $
              390
              
              
              4.92
              %Securities:U.S.
                  government agencies
              
              
              713,023
              
              
              9,940
              
              
              5.58
              
              
              712,282
              
              
              9,945
              
              
              5.58Mortgage-backed
                  securities
              
              
              396,486
              
              
              5,536
              
              
              5.58
              
              
              338,019
              
              
              4,549
              
              
              5.38Obligations
                  of statesand
                  political subdivisions
              
              
              112,758
              
              
              1,800
              
              
              6.39
              
              
              106,182
              
              
              1,695
              
              
              6.39Corporate
                  securities, FHLBstock,
                  and other securities
              
              
              37,223
              
              
              677
              
              
              7.28
              
              
              36,142
              
              
              446
              
              
              4.95Loans,
                  net
              
              
              1,621,700
              
              
              29,900
              
              
              7.35
              
              
              1,486,197
              
              
              27,060
              
              
              7.26Total
                  interest earning assets
              
              
              2,944,374
              
              
              48,682
              
              
              6.60
              %
              
              2,710,155
              
              
              44,085
              
              
              6.49
              %**INTEREST
                  BEARING LIABILITIES**Deposits:NOW
              
              $
              187,240
              
              $
              853
              
              
              1.83
              %
              $
              170,669
              
              $
              475
              
              
              1.12
              %Money
                  market
              
              
              180,831
              
              
              1,483
              
              
              3.29
              
              
              150,347
              
              
              782
              
              
              2.09Savings
              
              
              433,927
              
              
              2,926
              
              
              2.70
              
              
              420,709
              
              
              2,237
              
              
              2.13Time
              
              
              902,098
              
              
              10,844
              
              
              4.81
              
              
              772,002
              
              
              7,743
              
              
              4.01Total
                  interest bearing deposits
              
              
              1,704,096
              
              
              16,106
              
              
              3.75
              
              
              1,513,727
              
              
              11,237
              
              
              2.93Federal
                  funds purchased,
                securities
                  sold under
                agreements
                  to repurchase
                and
                  FHLB advances
              
              
              720,566
              
              
              8,167
              
              
              4.48
              
              
              699,842
              
              
              7,962
              
              
              4.50Subordinated
                  debt issued in
                connection
                  with
                corporation
                  - obligated
                mandatory
                  redeemable capital
                securities
                  of subsidiary trusts
              
              
              61,285
              
              
              1,692
              
              
              11.04
              
              
              61,858
              
              
              1,382
              
              
              8.94Total
                  interest bearing liabilities
              
              
              2,485,947
              
              
              25,965
              
              
              4.14
              %
              
              2,275,427
              
              
              20,581
              
              
              3.57
              %**NET
                  INTEREST INCOME**
              
              
              
              
              $
              22,717
              
              
              
              
              
              
              
              $
              23,504**NET
                  YIELD ON INTEREST EARNING ASSETS (NET INTEREST
                  MARGIN)**
              
              
              
              
              
              
              
              
              3.09
              %
              
              
              
              
              
              
              
              3.47
              %




The
      data
      contained herein has been adjusted to a tax equivalent basis, based on the
      Federal statutory tax rate of 35 percent. The effect of the tax equivalent
      adjustment to interest income on total interest earning assets was $0.6 million
      for the three months ended June 30, 2007 and 2006. The estimated fair value
      adjustment on the available for sale securities is included in non-interest
      earning assets. Non accruing loans are included in average balances of loans,
      net. The net amortization of loan commitment fees, net of certain direct loan
      origination costs of $0.5 million and $0.6 million for the three months ended
      June 30, 2007 and 2006, respectively, are included in interest income on loans,
      net.




30


**U.S.B.
        HOLDING CO., INC.**
 **ITEM
        2.**  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION** **AND
        RESULTS OF OPERATIONS**




A
      summary
      of the average balances and interest yield/rates for the six months ended June
      30, 2007 compared to the six months ended June 30, 2006 is as
      follows:


******(000’s,
                  except percentages)**
                **For
                  the six months ended June 30,****2007**
              
              **2006****Average
                  Balance**
              
              **Interest**
              
              **Average
                  Yield/Rate**
              
              **Average
                  Balance**
              
              **Interest**
              
              **Average
                  Yield/Rate****INTEREST
                  EARNING ASSETS**Interest
                  earning assets:Federal
                  funds sold
              
              $
              63,822
              
              $
              1,665
              
              
              5.19
              %
              $
              26,172
              
              $
              619
              
              
              4.70
              %Securities:U.S.
                  government agencies
              
              
              712,931
              
              
              19,881
              
              
              5.58
              
              
              712,189
              
              
              19,880
              
              
              5.58Mortgage-backed
                  securities
              
              
              377,504
              
              
              10,551
              
              
              5.59
              
              
              330,910
              
              
              8,768
              
              
              5.30Obligations
                  of statesand
                  political subdivisions
              
              
              112,948
              
              
              3,608
              
              
              6.39
              
              
              106,972
              
              
              3,406
              
              
              6.38Corporate
                  securities, FHLBstock,
                  and other securities
              
              
              36,773
              
              
              1,331
              
              
              7.24
              
              
              34,704
              
              
              866
              
              
              5.03Loans,
                  net
              
              
              1,606,728
              
              
              58,941
              
              
              7.32
              
              
              1,482,236
              
              
              53,047
              
              
              7.14Total
                  interest earning assets
              
              
              2,910,706
              
              
              95,977
              
              
              6.59
              %
              
              2,693,183
              
              
              86,586
              
              
              6.43
              %**INTEREST
                  BEARING LIABILITIES**Deposits:NOW
              
              $
              198,613
              
              $
              1,889
              
              
              1.92
              %
              $
              194,081
              
              $
              1,293
              
              
              1.34
              %Money
                  market
              
              
              179,522
              
              
              2,858
              
              
              3.21
              
              
              146,253
              
              
              1,389
              
              
              1.92Savings
              
              
              400,438
              
              
              5,112
              
              
              2.57
              
              
              428,709
              
              
              4,301
              
              
              2.02Time
              
              
              903,573
              
              
              21,537
              
              
              4.79
              
              
              762,795
              
              
              14,383
              
              
              3.79Total
                  interest bearing deposits
              
              
              1,682,146
              
              
              31,396
              
              
              3.76
              
              
              1,531,838
              
              
              21,366
              
              
              2.81Federal
                  funds purchased,
                securities
                  sold under
                agreements
                  to repurchase
                and
                  FHLB advances
              
              
              710,976
              
              
              16,014
              
              
              4.48
              
              
              669,292
              
              
              15,000
              
              
              4.46Subordinated
                  debt issued in
                connection
                  with
                corporation
                  - obligated
                mandatory
                  redeemable capital
                securities
                  of subsidiary trusts
              
              
              61,573
              
              
              3,088
              
              
              10.03
              
              
              61,858
              
              
              2,709
              
              
              8.76Total
                  interest bearing liabilities
              
              
              2,454,695
              
              
              50,498
              
              
              4.12
              %
              
              2,262,988
              
              
              39,075
              
              
              3.46
              %**NET
                  INTEREST INCOME**
              
              
              
              
              $
              45,479
              
              
              
              
              
              
              
              $
              47,511**NET
                  YIELD ON INTEREST EARNING ASSETS (NET INTEREST
                  MARGIN)**
              
              
              
              
              
              
              
              
              3.12
              %
              
              
              
              
              
              
              
              3.53
              %




The
      data
      contained herein has been adjusted to a tax equivalent basis, based on the
      Federal statutory tax rate of 35 percent. The effect of the tax equivalent
      adjustment to interest income on total interest earning assets was $1.3 million
      for the six months ended June 30, 2007 and 2006. The estimated fair value
      adjustment on the available for sale securities is included in non-interest
      earning assets. Non accruing loans are included in average balances of loans,
      net. The net amortization of loan commitment fees, net of certain direct loan
      origination costs of $1.0 million for the six months ended June 30, 2007 and
      2006, respectively, are included in interest income on loans, net.




31


**U.S.B.
          HOLDING CO., INC.**
 **ITEM
          2.**  **MANAGEMENT’S
          DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION** **AND
          RESULTS OF OPERATIONS**


The
      following table sets forth the dollar amount of changes in interest income,
      interest expense, and net interest income between the three and six months
      ended
      June 30, 2007 and 2006 on a tax equivalent basis:





**For
                the three months ended**
              **June
                30, 2007 compared to 2006**
            
            **For
                the six months ended**
              **June
                30, 2007 compared to 2006****Increase
                (Decrease) due to change in**
            
            **Increase
                (Decrease) due to change in****Average**
              **Volume**
            
            **Average**
              **Rate**
            
            **Total
                Increase**
              **(Decrease)**
            
            **Average**
              **Volume**
            
            **Average**
              **Rate**
            
            **Total
                Increase**
              **(Decrease)****INTEREST
                INCOME:**Federal
                funds sold
            
            $
            416
            
            $
            23
            
            $
            439
            
            $
            975
            
            $
            71
            
            $
            1,046Securities
            
            
            947
            
            
            371
            
            
            1,318
            
            
            1,565
            
            
            886
            
            
            2,451Loans,
                net
            
            
            2,500
            
            
            340
            
            
            2,840
            
            
            4,533
            
            
            1,361
            
            
            5,894**Total
                interest earning assets**
            
            
            **3,863**
            
            
            **734**
            
            
            **4,597**
            
            
            **7,073**
            
            
            **2,318**
            
            
            **9,391****INTEREST
                EXPENSE:**Interest
                bearing deposits
            
            
            1,510
            
            
            3,359
            
            
            4,869
            
            
            2,256
            
            
            7,774
            
            
            10,030Federal
                funds purchased, securities
              sold
                under agreements to repurchase
              and
                FHLB advances
            
            
            422
            
            
            (217
            )
            
            205
            
            
            946
            
            
            68
            
            
            1,014Subordinated
                debt issued in connection
              with
                corporation - obligated
              mandatory
                redeemable capital
              securities
                of subsidiary trusts
            
            
            (87
            )
            
            397
            
            
            310
            
            
            (37
            )
            
            416
            
            
            379**Total
                interest bearing liabilities**
            
            
            **1,845**
            
            
            **3,539**
            
            
            **5,384**
            
            
            **3,165**
            
            
            **8,258**
            
            
            **11,423****Decrease
                in interest differential**
            
            **$**
            **2,018**
            
            **$**
            **(2,805**
            **)**
            **$**
            **(787**
            **)**
            **$**
            **3,908**
            
            **$**
            **(5,940**
            **)**
            **$**
            **(2,032**
            **)**





The
      decrease in net interest income for the three and six months ended June 30,
      2007
      resulted primarily from decreases in the net interest spread and margin on
      a tax
      equivalent basis. The decreases in the net interest margin on a tax equivalent
      basis were primarily due to the rates on interest bearing liabilities increasing
      more rapidly than the yields on interest earning assets due to competitive
      pressures on loan and deposit pricing and a flat-to-inverted U.S. Treasury
      yield
      curve. The decrease was partially offset by increases in average volume on
      interest earning assets. As of June 30, 2007, the Company’s balance sheet is in
      a liability interest rate sensitive position.





The
      net
      interest margin may continue to be negatively affected if the U.S. Treasury
      yield curve maintains an inverted position with short-term interest rates at
      higher levels than medium- to long-term interest rates, or, to a lesser extent,
      begins to flatten resulting in short-term interest rates at similar levels
      to
      medium- and long-term interest rates. If short-term interest rates were to
      decrease, resulting in a steepening U.S. Treasury yield curve, the net interest
      margin would be positively affected.





Management
      uses its strong capital position to prudently leverage the balance sheet by
      purchasing government securities funded by borrowings. Although the leverage
      strategy results in narrower net interest spreads, the strategy increases net
      interest income without significant credit risk or increase in operating
      expenses. Management will continue to evaluate and manage the effect of the
      changing interest rate environment on the Company’s present and future
      operations, while continuing to competitively price its products and services
      throughout the markets it serves.





**Provision
      for Credit Losses**





The
      provision for credit losses for the three and six months ended June 30, 2007
      decreased to $357,000 and $704,000 compared to $998,000 and $1,307,000 for
      2006.
      The ratio of allowance for loan losses to total loans at June 30, 2007, December
      31, 2006, and June 30, 2006 was 0.98 percent, 1.01 percent, and 1.09 percent,
      respectively. The ratio of non-performing assets to total assets at June 30,
      2007 was 0.28 percent compared to 0.34 percent and 0.32 percent at December
      31,
      2006 and June 30, 2006, respectively. During the three and six months ended
      June
      30, 2007, net charge-offs totaled $0.6 million and $1.1 million compared to
      $0.2
      million and $0.3 million for the 2006 period, respectively. Net charge-offs
      during the six months ended June 30, 2007 primarily consisted of $0.4 million
      related to one non-performing real estate construction loan (charged-off during
      the 2007 first quarter) and $0.6 million related to one non-performing business
      loan (charged-off during the 2007 second quarter).




32


**U.S.B.
          HOLDING CO., INC.**
 **ITEM
          2.**  **MANAGEMENT’S
          DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION** **AND
          RESULTS OF OPERATIONS**


Nonaccrual
      loans were $8.3 million and $9.0 million at June 30, 2007 and 2006,
      respectively, compared to $9.8 million at December 31, 2006. Total nonaccrual
      loans at June 30, 2007 primarily consisted of one customer relationship with
      commercial loans aggregating $7.4 million. The loans involve problems with
      sources of repayment from operating cash flows. The loans are also supported
      by
      personal guarantees. No specific allowance for loan loss was allocated to these
      impaired loans due to the market value of the real estate collateral.
      Restructured loans were $0.1 million at both June 30, 2007 and December 31,
      2006.





It
      is the
      Company’s policy to discontinue the accrual of interest on loans when, in the
      opinion of management, a reasonable doubt exists as to the timely collectibility
      of the amounts due. Regulatory requirements generally prohibit the accrual
      of
      interest on certain loans when principal or interest is due and remains unpaid
      for 90 days or more (with the exception of credit card loans for which the
      criteria is 180 days past due).





Net
      income is adversely impacted by the level of non-performing assets caused by
      the
      deterioration of borrowers’ ability to meet scheduled interest and principal
      payments. In addition to foregone revenue, the Company must increase the level
      of its provision for credit losses and incur collection and other costs
      associated with the management and disposition of foreclosed properties. A
      substantial portion (89.5 percent at June 30, 2007) of total loans of the
      Company is collateralized by real estate, primarily located in the New York
      Metropolitan area. Accordingly, the collectibility of the loan portfolio of
      the
      Company is subject to changes in the real estate market in which the Company
      operates.





**Non-Interest
      Income**





Non-interest
      income increased for the three months ended June 30, 2007 to $1.7 million and
      decreased for the six months ended June 30, 2007 to $3.4 million compared to
      $1.6 million and $3.6 million for the 2006 periods, respectively. The increase
      for the June 30, 2007 three month period compared to 2006 was primarily due
      to
      higher levels of credit card related income and fee income from nontraditional
      Bank products. The decrease for the June 30, 2007 six month period compared
      to
      2006 was primarily due to lower levels of service charges on deposit accounts
      and loan prepayment fees.





**Non-Interest
      Expenses**





Non-interest
      expenses increased $1.2 million, or 9.6 percent, and $1.8 million, or 7.0
      percent, to $14.0 million and $27.6 million for the three and six months ended
      June 30, 2007, respectively. The primary reasons for the increases were higher
      levels of salaries and employee benefits expense, occupancy and equipment
      expenses, other expense, and for the three month period, advertising and
      business development expense.





Salaries
      and employee benefits expense, the largest component of non-interest expense,
      increased by $842,000, or 10.5 percent, and $1,272,000, or 7.8 percent, to
      $8.8
      million and $17.5 million, during the three and six months ended June 30, 2007
      compared to the 2006 periods, respectively. The increases for the three and
      six
      months ended June 30, 2007 were primarily due to an increase in stock option
      expense, payroll expense, medical benefit costs, and a lower level of deferred
      salaries and employee benefits expense related to loan originations. The
      increase was partially offset by lower levels of incentive compensation
      expense.




33


**U.S.B.
          HOLDING CO., INC.**
 **ITEM
          2.**  **MANAGEMENT’S
          DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION** **AND
          RESULTS OF OPERATIONS**


Changes
      in non-interest expense for the three and six months ended June 30, 2007
      compared to the three and six months ended June 30, 2006 were also primarily
      due
      to the following:




·
            Increases
                of $118,000 (6.1 percent) and $212,000 (5.4 percent) in occupancy
                and
                equipment expense. The increases primarily reflect higher occupancy
                and
                equipment costs from the opening of branch locations and maintenance
                contracts on new equipment purchased. The increases were partially
                offset
                by lower levels of depreciation
                expense.





·
            Increase
                of $106,000 (15.8 percent) and a decrease of $34,000 (2.7 percent)
                in
                advertising and business development expense. The increase primarily
                reflects increases in sponsorship events, while the decrease reflects
                lower radio and television advertising
                costs.





·
            Increases
                of $40,000 (10.0 percent) and $147,000 (19.0 percent) in professional
                fees. The increases were primarily due to higher legal fees related
                to a
                previous non-performing real estate construction loan held by the
                Bank’s
                wholly-owned subsidiary, Dutch Hill Realty Corp., as well as higher
                audit
                and legal fees for Securities and Exchange Commission
                compliance.





·
            Increase
                of $86,000 (8.7 percent) and $159,000 (8.3 percent) in other expense.
                The
                increases were primarily due to higher credit card related expenses
                and
                outside printing costs, partially offset by lower expenses for courier
                runs to Bank locations.





**Income
      Taxes**





The
      effective income tax rate for the three and six months ended June 30, 2007
      was
      30.8 percent and 31.6 percent compared to 32.4 percent and 32.5 percent for
      the
      2006 periods, respectively. The effective income tax rate for both the 2007
      and
      2006 periods reflects nontaxable income from municipal bonds.





As
      a
      result of a reduction in taxable income for New York State tax purposes, the
      Company has established a valuation allowance that reduces the New York State
      net deferred tax asset to the amount management believes will more likely than
      not be realized. At June 30, 2007, December 31, 2006, and June 30, 2006, the
      valuation allowance was $4.3 million, $3.7 million, and $3.3 million,
      respectively. As of June 30, 2007, the New York State deferred tax asset, net
      of
      state deferred tax liabilities, is fully reserved by the valuation
      allowance.





The
      Company adopted FIN No. 48 on January 1, 2007. For more information on the
      Company’s unrecognized income tax benefits identified under FIN No. 48, see Note
      3 to the condensed consolidated financial statements.




34




**U.S.B.
      HOLDING CO., INC.**


**ITEM
      3.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




Market
      risk is the potential for economic losses to be incurred on market risk
      sensitive instruments as a result of adverse changes in market indices such
      as
      interest rates, foreign currency exchange rates, and commodity prices.
      Quantitative and qualitative disclosures about market risk at December 31,
      2006
      were reported in the Company’s 2006 Annual Report to Stockholders. There were no
      material changes in the Company’s market risk exposures at June 30, 2007
      compared to December 31, 2006. 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. Substantially all market risk sensitive
      instruments continue to be held to maturity or available for sale with no
      significant financial instruments entered into or acquired for trading purposes.
      The Company does not use derivative financial instruments such as interest
      rate
      swaps and caps and has not been party to any derivative financial instruments
      during the six months ended June 30, 2007.





The
      Company continues to use two methods to evaluate its sensitivity 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, 2007 as compared to
      December 31, 2006. The Company’s “Static Gap” at June 30, 2007 was a negative
      cumulative gap of $535.6 million in the one-year time frame compared to a
      negative cumulative gap of $391.8 million at December 31, 2006. If interest
      rates were to gradually increase 200 basis points or decrease 200 basis points
      from current rates, the percentage change in estimated net interest income
      for
      the subsequent twelve month measurement period would continue to be within
      the
      Company’s policy limit of not changing by more than 5.0 percent.




35





**U.S.B.
      HOLDING CO., INC.**


**ITEM
      4.**  **CONTROLS
      AND PROCEDURES**





The
      Company has evaluated the design and operation of its disclosure controls and
      procedures to determine whether they are effective in ensuring that the
      disclosure of required information is timely made in accordance with the
      Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and forms of
      the Securities and Exchange Commission. This evaluation was made under the
      supervision and with the participation of management, including the Company’s
      Chief Executive Officer and Chief Financial Officer, as of June 30, 2007. The
      Chief Executive Officer and Chief Financial Officer have each concluded, based
      on their review, that as of June 30, 2007, the Company’s disclosure controls and
      procedures, as defined by Exchange Act Rules 13a-15(e) and 15d-15(e), were
      effective to ensure that information required to be disclosed by the Company
      in
      reports that it files under the Exchange Act is recorded, processed, summarized,
      and reported within the time period specified in Securities and Exchange
      Commission rules and forms and that such information is accumulated and
      communicated to management as appropriate to allow timely decisions regarding
      required disclosure. There was no change in the Company’s internal control over
      financial reporting that occurred during the fiscal quarter ended June 30,
      2007
      that has materially affected or is reasonably likely to materially affect the
      Company’s internal control over financial reporting.




36


**PART
      II - OTHER INFORMATION**




**ITEM
      1A.**  **RISK
      FACTORS**





There
      have been no material changes in the risk factors relevant to our operations
      from those disclosed in the Company’s 2006 Annual Report on Form 10-K in
      response to Item 1A to Part I of Form 10-K.





**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





The
      Annual Meeting of Stockholders of the Company was held on May 23, 2007 for
      the
      purpose of considering and voting upon the following matters:





I.
            Election
                of two directors, Messrs. Howard V. Ruderman and Edward T. Lutz,
                constituting Class I members of the Board of Directors, to a three-year
                term of office.


**Votes**
              ****
              **For**
              
              **Withheld**Howard
                  V. Ruderman
              
              
              18,090,918
              
              
              610,925Edward
                  T. Lutz
              
              
              18,124,184
              
              
              577,689




The
      names
      of each other director whose term of office as a director continued after the
      meetings are as follows: Thomas E. Hales, Raymond J. Crotty, Michael H. Fury,
      Kevin J. Plunkett, and Kenneth J. Torsoe.





II.
            The
                appointment of the Company’s independent registered public accounting
                firm, Deloitte & Touche, LLP, for the audit of the Company’s
                consolidated financial statements for the year ending December 31,
                2007
                was ratified with 18,614,257 shares voting for, 71,447 shares voting
                against, and 16,139 shares
                abstaining.





**ITEM
      6.**  **EXHIBITS**





**Exhibit
      No.**  **Exhibit**





(2)
                (a)
            Agreement
                and Plan of Merger among KeyCorp, KYCA Corporation and U.S.B. Holding,
                Co., Inc. dated as of July 26, 2007 (incorporated herein by reference
                to
                Exhibit 2(a) to the Registrant’s Form 8-K filed on July 30,
                2007).





(2)
                (b)
            First
                Amendment to the Agreement and Plan of Merger among KeyCorp, KYCA
                Corporation, and U.S.B. Holding Co., Inc. dated as of August 6,
                2007.





(10)
                (w)
            Employment
                Agreement dated as of July 25, 2007 among the Company, the Bank and
                Thomas
                E. Hales (incorporated herein by reference to Exhibit 10(w) to the
                Registrant’s Form 8-K filed on July 30,
                2007).





(10)
                (x)
            Employment
                Agreement dated as of July 25, 2007 among the Company, the Bank and
                Raymond J. Crotty (incorporated herein by reference to Exhibit 10(x)
                to
                the Registrant’s Form 8-K filed on July 30,
                2007).





37


**Exhibit
                No.**
            **Exhibit**





(10)
                (y)
            Letter
                Agreement dated July 25, 2007 between the Company and Thomas Buonaiuto
                (incorporated herein by reference to Exhibit 10(y) to the Registrant’s
                Form 8-K filed on July 30, 2007).





(10)
                (z)
            U.S.B.
                Holding Co., Inc. Amended and Restated Severance Plan (incorporated
                herein
                by reference to Exhibit 10(z) to the Registrant’s Form 8-K filed on July
                30, 2007).





(31.1)
            Certification
                of Chief Executive Officer Pursuant to Exchange Act Rule
                13a-14(a).





(31.2)
            Certification
                of Chief Financial Officer Pursuant to Exchange Act Rule
                13a-14(a).





(32)
            Certification
                of Chief Executive Officer and Chief Financial Officer Pursuant to
                18
                U.S.C. Section 1350.




38


**SIGNATURES**





Pursuant
      to the requirements of the Securities 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 9, 2007.




**U.S.B.
      HOLDING CO., INC.**




/s/
              Thomas E. Hales
            
            
            /s/
                Thomas M. BuonaiutoThomas
              E. Hales
            
            
            Thomas
              M. BuonaiutoChairman of the
              Board,
            
            
            Executive Vice President,Chief Executive Officer,
              and
              Director
            
            
            Chief Financial Officer,
              andAssistant Secretary(Principal Financial
              andAccounting
              Officer)


39