**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 endedMarch
                  31, 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 Number1-12811




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


(Exact
      Name of Registrant as Specified in Its Charter)





**DELAWARE**
            **36-3197969**(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            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:  ̈





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  ̈ Accelerated
      filer x Non-accelerated
      filer  ̈





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


Yes:    ̈ 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 MAY 1, 2007**Common
                stock, par value
            21,930,758$0.01
                per share





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





**TABLE
      OF CONTENTS**




**PAGE
                NO.****PART
                I.**
            **FINANCIAL
                INFORMATION****ITEM
                1.**
            FINANCIAL
                STATEMENTS (UNAUDITED)CONDENSED
                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF MARCH 31, 2007
                AND
                DECEMBER 31, 2006
            
            1CONDENSED
                CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH
                31,
                2007 AND 2006
            
            2CONDENSED
                CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
                MARCH 31,
                2007 AND 2006
            
            3CONDENSED
                CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE
                MONTHS ENDED MARCH 31, 2007
            
            4CONDENSED
                CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE
                MONTHS ENDED MARCH 31, 2006
            
            5NOTES
                TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            
            6**ITEM
                2.**
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            
            20**ITEM
                3.**
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            
            32**ITEM
                4.**
            CONTROLS
                AND PROCEDURES
            
            33**PART
                II.**
            **OTHER
                INFORMATION****ITEM
                1A.**
            RISK
                FACTORS
            
            34**ITEM
                6.**
            EXHIBITS
            
            34SIGNATURES
            
            35





-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)****March
                31,**
              **2007**
            
            **December
                31,**
              **2006****ASSETS**Cash
                and due from banks
            
            $
            41,439
            
            $
            33,493Federal
                funds sold
            
            
            36,000
            
            
            23,600Cash
                and cash equivalents
            
            
            **77,439**
            
            
            **57,093**Interest
                bearing deposits in other banks
            
            
            172
            
            
            175Securities:Available
                for sale (at estimated fair value)
            
            
            422,870
            
            
            431,294Held
                to maturity (estimated fair value of $748,038 as of 2007
              and
                $747,507 as of 2006)
            
            
            750,874
            
            
            751,948Loans,
                net of allowance for loan losses of $15,959 as of 2007 and $16,034
                as of
                2006
            
            
            1,599,936
            
            
            1,577,386Premises
                and equipment, net
            
            
            14,001
            
            
            13,943Accrued
                interest receivable
            
            
            18,490
            
            
            22,486Federal
                Home Loan Bank of New York stock
            
            
            33,960
            
            
            34,523Intangible
                assets, net
            
            
            2,296
            
            
            2,572Goodwill
            
            
            1,380
            
            
            1,380Other
                assets
            
            
            26,779
            
            
            30,447**TOTAL
                ASSETS**
            
            **$**
            **2,948,197**
            
            **$**
            **2,923,247****LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Liabilities:**Non-interest
                bearing deposits
            
            $
            273,970
            
            $
            294,882Interest
                bearing deposits:NOW
                accounts
            
            
            200,652
            
            
            166,809Money
                market accounts
            
            
            173,089
            
            
            161,531Savings
                deposits
            
            
            371,869
            
            
            372,959Time
                deposits
            
            
            915,545
            
            
            900,188**Total
                deposits**
            
            
            **1,935,125**
            
            
            **1,896,369**Accrued
                interest payable
            
            
            11,067
            
            
            12,274Dividend
                payable
            
            
            3,286
            
            
            3,285Accrued
                expenses and other liabilities
            
            
            11,165
            
            
            12,884Securities
                transactions not yet settled
            
            
            —
            
            
            5,000Securities
                sold under agreements to repurchase
            
            
            570,834
            
            
            606,206Federal
                Home Loan Bank of New York advances
            
            
            126,804
            
            
            101,809Subordinated
                debt issued in connection with corporation-obligated
              mandatory
                redeemable capital securities of subsidiary trusts
            
            
            61,858
            
            
            61,858**Total
                liabilities**
            
            
            **2,720,139**
            
            
            **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
            
            
            212,913
            
            
            212,398Retained
                earnings
            
            
            44,232
            
            
            40,777Treasury
                stock at cost, common shares 1,228,983 as of 2007 and 1,232,052 as
                of
                2006
            
            
            (22,292
            )
            
            (22,348
            )Common
                stock held for benefit plans
            
            
            (3,516
            )
            
            (3,390
            )Deferred
                compensation obligation
            
            
            3,516
            
            
            3,390Accumulated
                other comprehensive loss
            
            
            (7,150
            )
            
            (7,622
            )**Total
                stockholders’ equity**
            
            
            **227,934**
            
            
            **223,436****TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            **$**
            **2,948,197**
            
            **$**
            **2,923,247**




*See
      notes to condensed consolidated financial statements.*




1


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


**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)**







**(000’s,
                except share data)**
              **Three
                Months Ended**
              **March
                31,****2007**
            
            **2006****INTEREST
                INCOME:**Interest
                and fees on loans
            
            $
            29,026
            
            $
            25,941Interest
                on federal funds sold
            
            
            836
            
            
            231Interest
                and dividends on securities:U.S.
                government agencies
            
            
            9,941
            
            
            9,935Mortgage-backed
                securities
            
            
            5,015
            
            
            4,216Obligations
                of states and political subdivisions
            
            
            1,195
            
            
            1,112Corporate
                and other
            
            
            45
            
            
            43Dividends
                on Federal Home Loan Bank of New York stock
            
            
            609
            
            
            378**Total
                interest income**
            
            
            **46,667**
            
            
            **41,856****INTEREST
                EXPENSE:**Interest
                on deposits
            
            
            15,290
            
            
            10,129Interest
                on borrowings
            
            
            7,847
            
            
            7,038Interest
                on subordinated debt issued in connection with
              corporation-obligated
                mandatory redeemable
              capital
                securities of subsidiary trusts
            
            
            1,396
            
            
            1,327**Total
                interest expense**
            
            
            **24,533**
            
            
            **18,494****NET
                INTEREST INCOME**
            
            
            **22,134**
            
            
            **23,362**Provision
                for credit losses
            
            
            347
            
            
            309**Net
                interest income after provision for credit losses**
            
            
            **21,787**
            
            
            **23,053****NON-INTEREST
                INCOME:**Service
                charges and fees
            
            
            820
            
            
            829Other
                income
            
            
            917
            
            
            1,128**Total
                non-interest income**
            
            
            **1,737**
            
            
            **1,957****NON-INTEREST
                EXPENSES:**Salaries
                and employee benefits
            
            
            8,694
            
            
            8,264Occupancy
                and equipment
            
            
            2,042
            
            
            1,948Advertising
                and business development
            
            
            462
            
            
            602Professional
                fees
            
            
            480
            
            
            373Communications
            
            
            387
            
            
            346Amortization
                of intangibles
            
            
            276
            
            
            285Stationery
                and printing
            
            
            153
            
            
            153FDIC
                insurance
            
            
            65
            
            
            72Other
                expense
            
            
            998
            
            
            925**Total
                non-interest expenses**
            
            
            **13,557**
            
            
            **12,968**Income
                before income taxes
            
            
            9,967
            
            
            12,042Provision
                for income taxes
            
            
            3,226
            
            
            3,927**NET
                INCOME**
            
            **$**
            **6,741**
            
            **$**
            **8,115****BASIC
                EARNINGS PER COMMON SHARE**
            
            **$**
            **0.31**
            
            **$**
            **0.37****DILUTED
                EARNINGS PER COMMON SHARE**
            
            **$**
            **0.30**
            
            **$**
            **0.36****WEIGHTED
                AVERAGE COMMON SHARES**
            
            
            **21,902,371**
            
            
            **21,723,833****ADJUSTED
                WEIGHTED AVERAGE COMMON SHARES**
            
            
            **22,564,980**
            
            
            **22,724,986****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 CASH FLOWS (UNAUDITED)**








**(000’s)**
              **Three
                Months Ended**
              **March
                31,****2007**
            
            **2006****OPERATING
                ACTIVITIES:**Net
                income
            
            $
            6,741
            
            $
            8,115Adjustments
                to reconcile net income to net cash provided by operating
                activities:Provision
                for credit losses
            
            
            347
            
            
            309Depreciation
                and amortization
            
            
            771
            
            
            830Amortization
                of discounts on securities - net
            
            
            (74
            )
            
            (51
            )Deferred
                income tax benefit, net
            
            
            (99
            )
            
            (187
            )Gains
                on securities transactions
            
            
            (2
            )
            
            (5
            )Share-based
                compensation
            
            
            521
            
            
            164Income
                tax benefits from share-based payment arrangements
            
            
            (11
            )
            
            (376
            )Benefit
                plan liability
            
            
            8
            
            
            7Decrease
                in accrued interest receivable
            
            
            3,996
            
            
            1,119Decrease
                in accrued interest payable
            
            
            (1,207
            )
            
            (938
            )Increase
                in accrued income tax payable
            
            
            3,279
            
            
            3,704Other
                - net
            
            
            (1,391
            )
            
            1,074**Net
                cash provided by operating activities**
            
            
            **12,879**
            
            
            **13,765****INVESTING
                ACTIVITIES:**Proceeds
                from sales of securities available for sale
            
            
            3
            
            
            10Proceeds
                from principal repayments, redemptions and maturities of:Securities
                available for sale
            
            
            13,183
            
            
            12,111Securities
                held to maturity
            
            
            6,981
            
            
            5,255Purchases
                of securities available for sale
            
            
            (4,177
            )
            
            (49,950
            )Purchases
                of securities held to maturity
            
            
            (10,705
            )
            
            (4,997
            )Net
                redemptions (purchases) of Federal Home Loan Bank of New York
                stock
            
            
            563
            
            
            (4,005
            )Net
                decrease in interest bearing deposits in other banks
            
            
            3
            
            
            4Net
                increase in loans outstanding
            
            
            (22,972
            )
            
            (24,098
            )Purchases
                of premises and equipment
            
            
            (553
            )
            
            (600
            )**Net
                cash used for investing activities**
            
            
            **(17,674**
            **)**
            
            **(66,270**
            **)****FINANCING
                ACTIVITIES:**Net
                increase (decrease) in non-interest bearing deposits, NOW, money
                market
                and savings accounts
            
            
            23,399
            
            
            (43,634
            )Net
                increase (decrease) in time deposits, net of withdrawals and
                maturities
            
            
            15,357
            
            
            (7,406
            )Net
                increase in securities sold under agreements to repurchase -
                short-term
            
            
            2,128
            
            
            74,856Repayment
                of securities sold under agreement to repurchase -
                long-term
            
            
            (37,500
            )
            
            (35,000
            )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
            
            
            (25,005
            )
            
            (4
            )Redemption
                of junior preferred stock of consolidated subsidiary
            
            
            (2
            )
            
            —Cash
                dividends paid
            
            
            (3,286
            )
            
            (3,045
            )Income
                tax benefits from share-based payment arrangements
            
            
            11
            
            
            376Proceeds
                from exercise of common stock options
            
            
            39
            
            
            1,098Purchases
                of treasury stock
            
            
            —
            
            
            (1,414
            )**Net
                cash provided by financing activities**
            
            
            **25,141**
            
            
            **35,827****Net
                increase (decrease) in Cash and Cash Equivalents**
            
            
            **20,346**
            
            
            **(16,678**
            **)****Cash
                and Cash Equivalents, Beginning of Period**
            
            
            **57,093**
            
            
            **80,935****Cash
                and Cash Equivalents, End of Period**
            
            **$**
            **77,439**
            
            **$**
            **64,257****Supplemental
                Disclosures:**Interest
                paid
            
            $
            (25,740
            )
            $
            (19,432
            )Income
                tax payments
            
            $
            (34
            )
            $
            (33
            )Amortization
                of loss on transfer of available for sale securities to held to maturity
                securities
            
            $
            (169
            )
            $
            (169
            )Change
                in shares held in trust for deferred compensation
            
            $
            126
            
            $
            108Change
                in deferred compensation obligation
            
            $
            (126
            )
            $
            (108
            )Change
                in accumulated other comprehensive loss
            
            $
            472
            
            $
            (2,430
            )Non-cash
                purchases of treasury stock related to the exercise of stock
                options
            
            $
            —
            
            $
            78Issuance
                of treasury stock related to the exercise of stock options
            
            $
            56
            
            $
            1,680




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




3





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


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





**FOR
      THE THREE MONTHS ENDED MARCH 31, 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
            
            
            
            
            
            
            
            
            
            
            
            6,741
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,741Other
                comprehensive income:
              Net
                unrealized securities
              gains
                arising during the
              period,
                net of tax of $250
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            465
            
            
            465Reclassification
                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 $5
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            9
            
            
            9Other
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            472
            
            
            472Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            7,213Cash
                dividends:
              Common
                ($0.15 per share)
            
            
            
            
            
            
            
            
            
            
            
            (3,286
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,286
            )Common
                stock options exercised
              and
                related tax benefit
            
            
            3,069
            
            
            
            
            
            (6
            )
            
            
            
            
            56
            
            
            
            
            
            
            
            
            
            
            
            50Compensation
                cost related to
              stock
                options
            
            
            
            
            
            
            
            
            521
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            521Deferred
                compensation
              obligation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (126
            )
            
            126
            
            
            
            
            
            ―**Balance
                at March 31, 2007**
            
            
            **21,905,092**
            
            **$**
            **231**
            
            **$**
            **212,913**
            
            **$**
            **44,232**
            
            **$**
            **(22,292**
            **)**
            **$**
            **(3,516**
            **)**
            **$**
            **3,516**
            
            **$**
            **(7,150**
            **)**
            **$**
            **227,934**





*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 THREE MONTHS ENDED MARCH 31, 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
              
              
              
              
              
              
              
              
              
              
              
              8,115
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,115Other
                  comprehensive loss:
                Net
                  unrealized securities
                loss
                  arising during the
                period,
                  net of tax benefit of
                $1,307
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,427
              )
              
              (2,427
              )Reclassification
                  adjustment of
                net
                  gain for securities sold,
                net
                  of tax of $2
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3
              )
              
              (3
              )Other
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,430
              )
              
              (2,430
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,685Cash
                  dividends:
                Common
                  ($0.14 per share)
              
              
              
              
              
              
              
              
              
              
              
              (3,045
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,045
              )Common
                  stock options exercised
                and
                  related tax benefit
              
              
              108,495
              
              
              
              
              
              56
              
              
              
              
              
              1,680
              
              
              
              
              
              
              
              
              
              
              
              1,736Compensation
                  cost related to
                stock
                  options
              
              
              
              
              
              
              
              
              164
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              164Purchases
                  of treasury stock
              
              
              (68,567
              )
              
              
              
              
              (184
              )
              
              
              
              
              (1,492
              )
              
              
              
              
              
              
              
              
              
              
              (1,676
              )Deferred
                  compensation
                obligation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (108
              )
              
              108
              
              
              
              
              
              ―**Balance
                  at March 31, 2006**
              
              
              **21,753,733**
              
              **$**
              **231**
              
              **$**
              **211,722**
              
              **$**
              **26,724**
              
              **$**
              (21,482
              )
              **$**
              (3,035
              )
              **$**
              **3,035**
              
              **$**
              (10,178
              )
              **$**
              **207,017**
 
 *See
        notes to condensed consolidated financial statements.*





5


**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, 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 March 31, 2007, the Company’s operations for the three months
      ended March 31, 2007 and 2006, and the Company’s cash flows and changes in
      stockholders’ equity for the three months ended March 31, 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.




6


**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. A summary of the Company’s gross
      amounts of unrecognized income tax benefits for the three months ended March
      31,
      2007 is as follows:




(000’s)Balance
                at January 1, 2007
            
            $
            472Increase
                for income tax positions related to the current year
            
            
            37Increase
                for income tax positions related to prior years
            
            
            1**Balance
                at March 31, 2007**
            
            **$**
            **510**





The
      balance at March 31, 2007 of $510,000 is the total amount of gross unrecognized
      income tax benefit, of which the entire unrecognized benefit, if recognized,
      would favorably affect the effective income tax rate. The total gross
      unrecognized income tax benefit at March 31, 2007 includes $320,000 of 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 benefit was recognized by the Company.
      Accrued interest on uncertain income tax positions and related penalties, when
      applicable, is recognized in the provision for income taxes. The impact of
      the
      Company’s adoption of FIN No. 48 did not have a material impact on the Company’s
      condensed consolidated financial statements.





As
      of
      March 31, 2007, 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 gross 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. The gross uncertain income
      tax
      positions related to these tax years at March 31, 2007 totaled
      $326,000.




7
 
 **U.S.B.
          HOLDING CO., INC.**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**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.





**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
      525,000, 588,306, and 928,052 shares (after adjustment for stock splits and
      dividends), respectively, 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 192,297 shares (as adjusted for common stock dividends)
      granted under the 2005 Director Stock Option Plan, and there were options to
      purchase 332,703 shares (as adjusted for common stock dividends) remaining
      to be
      granted at March 31, 2007. No further options may be granted under the 1998
      and
      1989 Director Stock Option Plans.




8


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


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





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.





A
      summary
      of the activity in the Director Plans and related information for the three
      months ended March 31, 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**Exercised
            
            
            —
            
            
            —**Outstanding
                at March 31, 2007**
            
            
            **681,370**
            
            
            **15.76**
            
            **$**
            **4,719****Exercisable
                at March 31, 2007**
            
            
            **583,884**
            
            **$**
            **14.74**
            
            **$**
            **4,640**





A
      summary
      of the activity in the Director Plans and Tappan Zee Directors’ Plan and related
      information for the three months ended March 31, 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**Exercised
            
            
            (3,242
            )
            
            7.06**Outstanding
                at March 31, 2006**
            
            
            **649,651**
            
            
            **14.15**
            
            **$**
            **5,711****Exercisable
                at March 31, 2006**
            
            
            **554,840**
            
            **$**
            **13.12**
            
            **$**
            **5,446**





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 8,475,515 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 719,983 shares (as adjusted
      for common stock dividends) granted under the 2005 Employee Stock Option Plan,
      and there were options to purchase 1,170,017 shares (as adjusted for common
      stock dividends) remaining to be granted at March 31, 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.




9


**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 three months ended March 31, 2007 is as follows:




**2007**
            
            **($
                in 000’s)********Options**
            
            **Weighted-Average**
              **Exercise
                Price**
            
            **Aggregate**
              **Intrinsic
                Value**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**Exercised
            
            
            (3,069
            )
            
            12.44**Outstanding
                at March 31, 2007**
            
            
            **2,584,163**
            
            
            **16.86**
            
            **$**
            **15,604****Exercisable
                at March 31, 2007**
            
            
            **1,987,624**
            
            **$**
            **14.97**
            
            **$**
            **15,365**





A
      summary
      of the activity in the Employee Stock Option Plans and Tappan Zee Stock Option
      Plan and related information for the three months ended March 31, 2006 is as
      follows:




**2006**
            
            **($
                in 000’s)********Options**
            
            **Weighted-Average**
              **Exercise
                Price**
            
            **Aggregate**
              **Intrinsic
                Value**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
            
            
            3,567
            
            
            21.83Exercised
            
            
            (105,253
            )
            
            10.96**Outstanding
                at March 31, 2006**
            
            
            **2,551,049**
            
            
            **14.30**
            
            **$**
            **22,032****Exercisable
                at March 31, 2006**
            
            
            **2,547,482**
            
            **$**
            **14.29**
            
            **$**
            **22,028**Weighted
                average fair value of options grantedduring
                the three months ended March 31, 2006
            
            
            
            
            $
            6.76





For
      the
      three months ended March 31, 2007 and 2006, share-based compensation expense
      under SFAS No. 123R was $0.5 million and $0.2 million, resulting in a decrease
      in net income of $0.3 million and $0.1 million and a decrease in basic earnings
      per common share of $0.02 and $0.01, respectively, and for the three months
      ended March 31, 2007, a decrease in diluted earnings per common share of $0.02.
      The income tax benefit related to the share-based compensation cost for the
      three months ended March 31, 2007 and 2006 was $0.2 million and $0.1 million,
      respectively. For the three months ended March 31, 2007 and 2006, $38,000 and
      $1.1 million was received from the exercise of stock options, and $11,000 and
      $0.4 million was realized as income tax benefits, respectively.





As
      of
      March 31, 2007, there was $3.5 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-three 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.




10




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


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







The
      following weighted average assumptions were used for the Director Plans and
      Employee Stock Option Plans for the three months ended March 31, 2007 and
      2006:




**Three
                months ended****Director
                Plan Assumptions:**
            
            **March
                31, 2007**
            
            **March
                31, 2006**Expected
                stock price volatility
            
            
            31.31
            %
            
            33.16
            %Risk-free
                interest rate
            
            
            5.07
            
            
            4.04Expected
                dividend yield
            
            
            2.43
            
            
            2.60Expected
                annual forfeitures
            
            
            1.70
            
            
            —Expected
                life (in years)
            
            
            7.81
            
            
            7.69**Employee
                Plan Assumptions:**Expected
                stock price volatility
            
            
            30.24
            %
            
            31.79
            %Risk-free
                interest rate
            
            
            4.82
            
            
            4.54Expected
                dividend yield
            
            
            2.43
            
            
            2.51Expected
                annual forfeitures
            
            
            1.29
            
            
            —Expected
                life (in years)
            
            
            6.97
            
            
            7.04





**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 March 31,
      2007
      and December 31, 2006, and accumulated amortization on such intangible assets
      was $6.7 million and $6.4 million at March 31, 2007 and December 31, 2006,
      respectively. The intangible amortization expense was $0.3 million for both
      the
      three months ended March 31, 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.





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





The
      computation of basic and diluted earnings per common share for the three months
      ended March 31, 2007 and 2006 is as follows:




**Three
                Months Ended**
              **March
                31,****2007**
            
            **2006****Numerator:**Net
                income for basic and diluted earnings per common share - net income
                available to common stockholders
            
            $
            6,741
            
            $
            8,115**Denominator:**Denominator
                for basic earnings percommon
                share - weighted average shares
            
            
            21,902,371
            
            
            21,723,833Effects
                of dilutive securities -director
                and employee stock options
            
            
            662,609
            
            
            1,001,153Denominator
                for diluted earnings per common share - adjustedweighted
                average shares
            
            
            22,564,980
            
            
            22,724,986Basic
                earnings per common share
            
            $
            0.31
            
            $
            0.37Diluted
                earnings per common share
            
            
            0.30
            
            
            0.36




**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).


11


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


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




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.





The
      Company had gross realized gains of $2,000 and $5,000 that were recorded as
      part
      of other income during the three months ended March 31, 2007 and 2006,
      respectively. The Company did not have realized losses during the three months
      ended March 31, 2007 and 2006, respectively.





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




**(000’s)****March
                31, 2007**
            
            **Amortized**
              **Cost**
            
            **Gross**
              **Unrealized**
              **Gains**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Estimated**
              **Fair**
              **Value****Available
                for Sale:**U.S.
                government agencies
            
            $
            72,928
            
            $
            ―
            
            $
            779
            
            $
            72,149Mortgage-backed
                securities
            
            
            352,941
            
            
            2,420
            
            
            5,023
            
            
            350,338Obligations
                of states and political subdivisions
            
            
            226
            
            
            11
            
            
            ―
            
            
            237Corporate
                securities
            
            
            109
            
            
            37
            
            
            ―
            
            
            146**Total
                securities available for sale**
            
            **$**
            **426,204**
            
            **$**
            **2,468**
            
            **$**
            **5,802**
            
            **$**
            **422,870****Held
                to Maturity:**U.S.
                government agencies
            
            $
            640,030
            
            $
            1,056
            
            $
            5,503
            
            $
            635,583Obligations
                of states and political subdivisions
            
            
            110,844
            
            
            1,900
            
            
            289
            
            
            112,455**Total
                securities held to maturity**
            
            **$**
            **750,874**
            
            **$**
            **2,956**
            
            **$**
            **5,792**
            
            **$**
            **748,038**




12





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


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




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


**(000’s)****Less
                Than 12 Months**
            
            **12
                Months or More**
            
            **Total****March
                31, 2007**
            
            **Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**U.S.
                government agencies
            
            $
            24,181
            
            $
            84
            
            $
            406,687
            
            $
            6,198
            
            $
            430,868
            
            $
            6,282Mortgage-backedsecurities
            
            
            5,403
            
            
            28
            
            
            139,811
            
            
            4,995
            
            
            145,214
            
            
            5,023Obligations
                of states andpolitical
                subdivisions
            
            
            28,597
            
            
            67
            
            
            9,575
            
            
            222
            
            
            38,172
            
            
            289Corporate
                securities
            
            
            1
            
            
            —
            
            
            —
            
            
            —
            
            
            1
            
            
            —Total
                temporarily impairedsecurities
            
            $
            58,182
            
            $
            179
            
            $
            556,073
            
            $
            11,415
            
            $
            614,255
            
            $
            11,594





**(000’s)****Less
                Than 12 Months**
            
            **12
                Months or More**
            
            **Total****December
                31, 2006**
            
            **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-backedsecurities
            
            
            6,550
            
            
            22
            
            
            145,583
            
            
            4,910
            
            
            152,133
            
            
            4,932Obligations
                of states andpolitical
                subdivisions
            
            
            41,195
            
            
            148
            
            
            8,914
            
            
            238
            
            
            50,109
            
            
            386Total
                temporarily impairedsecurities
            
            $
            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 March 31, 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 March 31, 2007 and December 31,
      2006, approximately $2.2 million and $14.4 million, respectively, of issuances
      were not rated, substantially all of which were bond or tax anticipation notes
      from local municipalities.


13




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


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




At
      March
      31, 2007, the number of securities in an unrealized loss position included
      16
      U.S. government agencies, 29 mortgage-backed securities, and 69 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 March 31, 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.




**8.**
            **Loans**





Nonaccrual
      loans were $9.6 million and $9.8 million at March 31, 2007 and December 31,
      2006, respectively. Restructured loans were $0.1 million at both March 31,
      2007
      and December 31, 2006. At March 31, 2007 and December 31, 2006, the recorded
      investment in loans that are considered to be impaired approximated $9.0 million
      and $9.2 million, respectively, of which $9.0 million and $9.2 million were
      in
      nonaccrual status at March 31, 2007 and December 31, 2006, respectively. The
      average recorded investment in impaired loans for the three months ended March
      31, 2007 and 2006, and for the year ended December 31, 2006 was $9.0 million,
      $13.8 million, and $14.1 million, respectively. There was no interest income
      recognized by the Company on impaired loans for the three months ended March
      31,
      2007 and $0.1 million of interest income on impaired loans was recognized for
      the three months ended March 31, 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 March 31, 2007, impaired
      and nonaccrual loans primarily consisted of three customer relationships. As
      of
      March 31, 2007, the loans related to one customer relationship aggregating
      $0.6
      million have been placed on nonaccrual status as a result of a real estate
      construction project experiencing unexpected delays in completing the
      construction. The loans related to another customer relationship aggregating
      $7.5 million of commercial loans as of March 31, 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 both customer relationships
      due to the market value of the real estate collateral. A line of credit related
      to another customer relationship of $0.7 million also involves problems with
      sources of repayment from operating cash flows. A specific allowance for loan
      loss allocated to this impaired loan was $0.4 million at March 31, 2007. The
      impaired loans mentioned above are also supported by personal
      guarantees.


14





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


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





Substantially
      all of the nonaccruing and restructured loans are collateralized by real estate.
      At March 31, 2007, the Company had and continues to have no commitments to
      lend
      additional funds to any customers with nonaccrual or restructured loan balances.
      At March 31, 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 March 31, 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 March 31, 2007 and
      December 31, 2006, the Bank had no short-term repurchase agreements outstanding
      with the FHLB or primary investment firms.





At
      March
      31, 2007 and December 31, 2006, the Bank had short-term repurchase agreements
      with customers of $2.8 million and $0.7 million at a weighted average interest
      rate of 3.81 percent and 3.83 percent, respectively. These short-term customer
      borrowings were collateralized by securities with an aggregate carrying value
      of
      $3.0 million and an estimated fair value of $2.9 million at March 31, 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
      March 31, 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 March 31, 2007 and
      December 31, 2006.




15





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


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




Additional
      information with respect to short-term borrowings as of and for the three months
      ended March 31, 2007 and 2006 is presented in the following table:




**(000’s
                except percentages)****Short-Term
                Borrowings**
            
            **2007**
            
            **2006**Balance
                at March 31
            
            $
            2,834
            
            $
            137,188Average
                balance outstanding
            
            $
            1,612
            
            $
            62,468Weighted-average
                interest rate:As
                of March 31
            
            
            3.81
            %
            
            4.71
            %Paid
                during period
            
            
            3.79
            %
            
            4.50
            %





The
      Bank
      had long-term borrowings, which have original maturities of over one year,
      of
      $568.0 million and $605.5 million in securities sold under agreements to
      repurchase at March 31, 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 March 31, 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 March 31, 2007,
      long-term repurchase agreements with the FHLB were collateralized by securities
      with an aggregate carrying value of $651.5 million and an estimated fair value
      of $649.7 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
      March
      31, 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 March 31, 2007,
      borrowings totaling $1.8 million were 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 include
      $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 March 31, 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 $156.2 million and $125.6 million,
      respectively.





At
      March
      31, 2007 and December 31, 2006, a $20.0 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 March 31, 2007 and December 31, 2006 having an aggregate book value of $24.6
      million and $24.7 million, respectively.




16


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


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




A
      summary
      of long-term, fixed-rate borrowings distributed based upon remaining contractual
      payment date and expected option call date at March 31, 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
            
            $
            172,093
            
            $
            482,691
            
            $
            694,804
            
            $
            707,309Weighted
                average interest rate
            
            
            5.64
            %
            
            5.41
            %
            
            4.08
            %
            
            4.50
            %
            
            4.46
            %Expected
                Call Date:Total
                long-term borrowing
            
            $
            231,020
            
            $
            202,093
            
            $
            261,691
            
            $
            694,804
            
            $
            707,309Weighted
                average interest rate
            
            
            3.98
            %
            
            5.03
            %
            
            4.56
            %
            
            4.50
            %
            
            4.46
            %





At
      March
      31, 2007 and December 31, 2006, the Bank held 339,599 and 345,227 shares,
      respectively, of capital stock of the FHLB with a carrying value of $34.0
      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 March 31, 2007,
      the Bank could pay dividends of $38.2 million to the Company without having
      to
      obtain prior regulatory approval.





For
      the
      three months ended March 31, 2006, the Company purchased 65,000 shares of its
      common stock at an aggregate cost of $1.4 million under its 2005 repurchase
      plan, which expired December 31, 2006. As of March 31, 2007, the Company’s Board
      of Directors has not authorized a new repurchase plan. For the three months
      ended March 31, 2007, there was no common stock acquired in connection with
      stock option exercises compared to 3,567 shares of common stock acquired for
      the
      three months ended March 31, 2006.





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





The
      Company has issued $61.9 million of junior subordinated debt in connection
      with
      the issuance of $61.9 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 March 31, 2007, Tier I Capital totaled $291.5 million, which
      included $60.0 million of Capital Securities.


17


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


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




**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 March 31, 2007, the Company had approximately $455.9 million
      in
      formal credit lines outstanding, $41.9 million in loan commitments outstanding,
      which are loans primarily collateralized by real estate, $34.3 million of
      standby letters of credit outstanding, and $47.8 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.





The
      Company is party to employment agreements with the Company’s Chief Executive
      Officer, Thomas E. Hales, and its President and Chief Operating Officer, Raymond
      J. Crotty, which are described in Note 16 to the Company’s Consolidated
      Financial Statements included in the 2006 Annual Report to
      Stockholders.





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 March 31,
      2007
      and December 31, 2006, the Company had a recorded liability of $588,000 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
      March 31, 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.





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.


18





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


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




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 three months ended March
      31, 2007 and 2006, there is no customer that accounted for more than ten percent
      of the Company’s revenue.


19


**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.*





**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 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
      30 full service branches and its four loan centers in Rockland, Westchester,
      and
      Orange counties, and New York City in New York and Stamford,
      Connecticut.


20




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




**ITEM
                2.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS**
  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 three months ended March 31, 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.





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.


21





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




**ITEM
                2.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS**
  **COMPARISON
        OF FINANCIAL CONDITION AS OF MARCH 31, 2007 AND DECEMBER 31,
        2006**





At
      March
      31, 2007, the Company had total assets of $2,948.2 million, an increase of
      $25.0
      million from December 31, 2006. The increase in total assets was primarily
      due
      to increases in federal funds sold and loans, net, as well as cash and due
      from
      banks resulting from deposit monies not yet invested in federal funds
      sold.





The
      securities portfolio, including investments in FHLB stock, totaled $1,207.7
      million and $1,217.8 million at March 31, 2007 and December 31, 2006,
      respectively, a decrease of $10.1 million during the three months ended March
      31, 2007. The securities portfolio consisted of securities held to maturity
      at
      amortized cost of $750.9 million and $751.9 million, securities available for
      sale at estimated fair value totaling $422.9 million and $431.3 million, and
      FHLB stock of $34.0 million and $34.5 million at March 31, 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 March 31, 2007 and December 31, 2006 was 7.86 years and 7.87 years,
      respectively.





During
      the three months ended March 31, 2007, U.S. government agency securities
      increased $0.4 million due primarily to an increase of $0.2 million in the
      estimated fair value of available for sale securities and an increase of $0.2
      million of amortization of the loss on transfer of available for sale securities
      to held to maturity. U.S. government agency securities of $712.2 million as
      of
      March 31, 2007 consisted of fixed-rate securities with longer-term maturities
      and call options by the issuer to increase yield. Mortgage-backed securities
      decreased by $8.7 million primarily due to principal paydowns of $13.2 million,
      partially offset by purchases of $4.2 million and an increase in the estimated
      fair value of available for sale securities of $0.3 million. The Bank’s
      investment in obligations of states and political subdivisions, or municipal
      securities, decreased by $1.3 million due primarily to maturities and
      redemptions of $7.0 million, partially offset by purchases of $5.7 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.


22




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




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




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 March 31, 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
      March
      31, 2007, total loans, net were $1,599.9 million, a net increase of $22.6
      million or 1.4 percent compared to December 31, 2006. A summary of the increase
      in total loans, net at March 31, 2007 compared to December 31, 2006 is as
      follows:


**(000’s)****March
                31, 2007**
            
            **December
                31, 2006**
            
            **Increase/**
              **(Decrease)**Time
                and demand loans
            
            $
            165,015
            
            $
            140,416
            
            $
            24,599Installment
                loans
            
            
            27,151
            
            
            28,621
            
            
            (1,470
            )Credit
                Card
            
            
            6,863
            
            
            7,444
            
            
            (581
            )Real
                Estate-
                Commercial
            
            
            569,636
            
            
            572,622
            
            
            (2,986
            )-
                Residential
            
            
            288,823
            
            
            293,370
            
            
            (4,547
            )-
                Construction and real estate secured
            
            
            473,152
            
            
            465,463
            
            
            7,689-
                Home equity
            
            
            83,829
            
            
            82,452
            
            
            1,377Other
            
            
            3,301
            
            
            5,280
            
            
            (1,979
            )Gross
                loans
            
            
            1,617,770
            
            
            1,595,668
            
            
            22,102Deferred
                net loan commitment fees
            
            
            (1,875
            )
            
            (2,248
            )
            
            373Total
                loans
            
            
            1,615,895
            
            
            1,593,420
            
            
            22,475Allowance
                for loan losses
            
            
            (15,959
            )
            
            (16,034
            )
            
            75Total
                loans, net
            
            $
            1,599,936
            
            $
            1,577,386
            
            $
            22,550





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 $455.9 million in formal credit lines
      outstanding, $41.9 million in loan commitments outstanding, which are loans
      primarily collateralized by real estate, $34.3 million of standby letters of
      credit outstanding, and $47.8 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.




23





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




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




The
      Company's allowance for loan losses decreased $0.1 million to $16.0 million
      at
      March 31, 2007. The decrease in the allowance for loan losses was due to a
      decrease in the reserves needed for nonaccrual and impaired loans due to
      charge-offs of $0.5 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 gross loans outstanding of $22.5
      million. The allowance represents 0.99 percent and 1.01 percent of total loans
      outstanding at March 31, 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 $0.3 million and net charge-offs of
      $0.5 million recorded for the three months ended March 31, 2007. The reserve
      for
      unfunded loan commitments and standby letters of credit of $1.0 million at
      March
      31, 2007 and $1.1 million at December 31, 2006 is included in other liabilities.
      At March 31, 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 three months ended March 31,
      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 March 31, 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.




24


**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 $38.8 million, or 2.0 percent, for the three months ended
      March 31, 2007 to $1,935.1 million from $1,896.4 million at December 31, 2006.
      The total deposit increase resulted from net increases in municipal deposits
      of
      $57.9 million and retail and commercial deposits of $7.9 million, partially
      offset by a decrease in brokered deposits of $27.0 million.





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




**(000’s)****March
                31,**
              **2007**
            
            **December
                31, 2006**
            
            **Increase/**
              **(Decrease)****Non-interest
                bearing deposits:**Individuals,
                partnerships, and corporations
            
            $
            252,655
            
            $
            269,468
            
            $
            (16,813
            )Certified
                and official checks
            
            
            10,222
            
            
            14,753
            
            
            (4,531
            )States
                and political subdivisions
            
            
            11,093
            
            
            10,661
            
            
            432Total
                non-interest bearing deposits
            
            
            273,970
            
            
            294,882
            
            
            (20,912
            )**Interest
                bearing deposits:**NOW
                accounts
            
            
            104,008
            
            
            110,386
            
            
            (6,378
            )Money
                market accounts
            
            
            149,129
            
            
            139,052
            
            
            10,077Savings
                deposits
            
            
            369,074
            
            
            370,034
            
            
            (960
            )States
                and political subdivisions - NOW, money market,and
                savings deposits
            
            
            123,399
            
            
            81,827
            
            
            41,572Time
                deposits of individuals, partnerships, corporationsunder
                $100,000
            
            
            391,826
            
            
            378,631
            
            
            13,195Time
                deposits of individuals, partnerships, corporationsover
                $100,000
            
            
            223,679
            
            
            214,039
            
            
            9,640Brokered
                time deposits
            
            
            27,000
            
            
            54,000
            
            
            (27,000
            )States
                and political subdivisions - time deposits
            
            
            177,562
            
            
            161,660
            
            
            15,902IRAs
                and Keoghs
            
            
            95,478
            
            
            91,858
            
            
            3,620Total
                interest bearing deposits
            
            
            1,661,155
            
            
            1,601,487
            
            
            59,668Total
                deposits
            
            $
            1,935,125
            
            $
            1,896,369
            
            $
            38,756





25


**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 March 31, 2007 was primarily due to the Bank offering
      competitively priced short-term time deposits and tiered money market deposits,
      partially offset by increased competition for demand, savings, and NOW deposits.
      The decrease in brokered deposits was a result of maturities during the first
      three 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 March 31, 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 $227.9 million at March 31, 2007 from the December 31,
      2006
      balance of $223.4 million, an increase of 2.0 percent. The increase primarily
      resulted from: $6.7 million of net income for the three months ended March
      31,
      2007; $0.1 million of stock options exercised and related tax benefit; a
      decrease in accumulated other comprehensive loss of $0.5 million; and $0.5
      million of compensation cost related to stock options; partially offset by
      cash
      dividends paid of $3.3 million.





The
      Company's leverage ratio at March 31, 2007 was 9.86 percent, compared to 9.75
      percent at December 31, 2006. The increase in the Company’s leverage capital
      ratio is due primarily to the increase in stockholders’ equity, excluding
      accumulated other comprehensive loss, for the three months ended March 31,
      2007.
      The Company's Tier I and total capital ratios under applicable risk-based
      capital guidelines were 15.67 percent and 16.58 percent at March 31, 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 March 31, 2007 and December 31,
      2006.





**COMPARISON
      OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND
      2006**





**Earnings**





Net
      income for the three months ended March 31, 2007 was $6.7 million compared
      to
      $8.1 million for the three months ended March 31, 2006, a decrease of $1.4
      million, or 16.9 percent. Dilut ed
      earnings per common share for the quarter ended March 31, 2007 was $0.30
      compared to $0.36 for the prior year period, a decrease of 16.7 percent. The
      Company’s first quarter 2007 net income result ed
      in a
      11.95 percent return on average common stockholders’ equity and a 0.91 percent
      return on average total assets, as compared to 15.73 percent and 1.16 percent,
      respectively, for the 2006 first quarter.





26


**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 March 31, 2007, net interest
      income decreased $1.2 million, or 5.3 percent, to $22.1 million compared to
      $23.4 million for the three months ended March 31, 2006.




27


**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 three months ended
      March 31, 2007 compared to the three months ended March 31, 2006 is as
      follows:




**(000’s,
                except percentages)**
                **For
                  the three months ended March 31,****2007**
            
            **2006****Average
                Balance**
            
            **Interest**
            
            **Average
                Yield/Rate**
            
            **Average
                Balance**
            
            **Interest**
            
            **Average
                Yield/Rate****ASSETS**Interest
                earning assets:Federal
                funds sold
            
            $
            64,467
            
            $
            836
            
            
            5.19
            %
            $
            20,954
            
            $
            231
            
            
            4.41
            %Securities:U.S.
                government agencies
            
            
            712,838
            
            
            9,941
            
            
            5.58
            
            
            712,095
            
            
            9,935
            
            
            5.58Mortgage-backed
                securities
            
            
            358,310
            
            
            5,015
            
            
            5.60
            
            
            323,724
            
            
            4,216
            
            
            5.21Obligations
                of statesand
                political subdivisions
            
            
            113,139
            
            
            1,808
            
            
            6.39
            
            
            107,771
            
            
            1,711
            
            
            6.35Corporate
                securities, FHLBstock,
                and other securities
            
            
            36,319
            
            
            654
            
            
            7.20
            
            
            33,251
            
            
            421
            
            
            5.06Loans,
                net
            
            
            1,592,661
            
            
            29,041
            
            
            7.31
            
            
            1,478,222
            
            
            25,988
            
            
            7.05Total
                interest earning assets
            
            
            2,877,734
            
            
            47,295
            
            
            6.58
            %
            
            2,676,017
            
            
            42,502
            
            
            6.36
            %Non-interest
                earning assets
            
            
            81,792
            
            
            
            
            
            
            
            
            111,735**TOTAL**
            
            $
            2,959,526
            
            
            
            
            
            
            
            $
            2,787,752


**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Deposits:NOW
            
            $
            210,112
            
            $
            1,036
            
            
            2.00
            %
            $
            217,752
            
            $
            818
            
            
            1.52
            %Money
                market
            
            
            178,200
            
            
            1,375
            
            
            3.13
            
            
            142,115
            
            
            607
            
            
            1.73Savings
            
            
            366,574
            
            
            2,186
            
            
            2.42
            
            
            436,797
            
            
            2,064
            
            
            1.92Time
            
            
            905,063
            
            
            10,693
            
            
            4.78
            
            
            753,485
            
            
            6,640
            
            
            3.57Total
                interest bearing deposits
            
            
            1,659,949
            
            
            15,290
            
            
            3.73
            
            
            1,550,149
            
            
            10,129
            
            
            2.65Federal
                funds purchased,securities
                sold underagreements to repurchaseand
                FHLB advances
            
            
            701,279
            
            
            7,847
            
            
            4.48
            
            
            638,403
            
            
            7,038
            
            
            4.41Subordinated
                debt issued inconnection
                withcorporation
                - obligatedmandatory
                redeemable capitalsecurities
                of subsidiary trusts
            
            
            61,858
            
            
            1,396
            
            
            9.03
            
            
            61,858
            
            
            1,327
            
            
            8.58Total
                interest bearing liabilities
            
            
            2,423,086
            
            
            24,533
            
            
            4.08
            %
            
            2,250,410
            
            
            18,494
            
            
            3.31
            %Non-interest
                bearing liabilitiesand
                stockholders’ equity:Demand
                deposits
            
            
            305,812
            
            
            
            
            
            
            
            
            313,746Other
                liabilities
            
            
            4,997
            
            
            
            
            
            
            
            
            17,244Stockholders’
                equity
            
            
            225,631
            
            
            
            
            
            
            
            
            206,352**TOTAL**
            
            $
            2,959,526
            
            
            
            
            
            
            
            $
            2,787,752**NET
                INTEREST INCOME**
            
            
            
            
            $
            22,762
            
            
            
            
            
            
            
            $
            24,008**NET
                YIELD ON INTEREST EARNING ASSETS (NET INTEREST
                MARGIN)**
            
            
            
            
            
            
            
            
            3.16
            %
            
            
            
            
            
            
            
            3.59
            %




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 March 31, 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 for the three months ended March 31, 2007
      and
      2006, respectively, are included in interest income on loans, net.




28


**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 months ended March
      31, 2007 and 2006 on a tax equivalent basis:




**For
                  the three months ended**
                **March
                  31, 2007 compared to 2006****Increase
                  (Decrease) due to change in****Average**
                **Volume**
              
              **Average**
                **Rate**
              
              **Total
                  Increase**
                **(Decrease)****(000’s)****INTEREST
                  INCOME:**Federal
                  funds sold
              
              $
              558
              
              $
              47
              
              $
              605Securities
              
              
              616
              
              
              519
              
              
              1,135Loans,
                  net
              
              
              2,068
              
              
              985
              
              
              3,053**Total
                  interest earning assets**
              
              
              **3,242**
              
              
              **1,551**
              
              
              **4,793****INTEREST
                  EXPENSE:**Interest
                  bearing deposits
              
              
              764
              
              
              4,397
              
              
              5,161Federal
                  funds purchased, securities sold underagreements
                  to repurchase and FHLB advances
              
              
              697
              
              
              112
              
              
              809Subordinated
                  debt issued in connection withcorporation
                  - obligated mandatory redeemablecapital
                  securities of subsidiary trusts
              
              
              —
              
              
              69
              
              
              69**Total
                  interest bearing liabilities**
              
              
              **1,461**
              
              
              **4,578**
              
              
              **6,039****Increase
                  (decrease) in interest differential**
              
              **$**
              **1,781**
              
              **$**
              **(3,027**
              **)**
              **$**
              **(1,246**
              **)**




The
      decrease in net interest income for the three months ended March 31, 2007
      resulted primarily from decreases in the net interest spread and margin on
      a tax
      equivalent basis. The decreases in the net interest spread and 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. As of March 31, 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 months ended March 31, 2007 increased
      to $347,000 compared to $309,000 for 2006. The ratio of allowance for loan
      losses to total loans at March 31, 2007, December 31, 2006, and March 31, 2006
      was 0.99 percent, 1.01 percent, and 1.03 percent, respectively. The ratio of
      non-performing assets to total assets at March 31, 2007 was 0.33 percent
      compared to 0.34 percent and 0.29 percent at December 31, 2006 and March 31,
      2006, respectively. During the three months ended March 31, 2007, net
      charge-offs totaled $0.5 million compared to $0.1 million for the 2006 period.
      Net charge-offs during the three months ended March 31, 2007 primarily consisted
      of $0.4 million related to one non-performing real estate construction
      loan.




29


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


Nonaccrual
      loans were $9.6 million and $8.1 million at March 31, 2007 and 2006,
      respectively, compared to $9.8 million at December 31, 2006. Total nonaccrual
      loans at March 31, 2007 primarily consisted of one customer relationship with
      commercial loans aggregating $7.5 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 March 31, 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 (87.6 percent at March 31, 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 decreased for the three months ended March 31, 2007 to $1.7 million
      from
      $2.0 million compared to the 2006 first quarter. The decrease was primarily
      due
      to lower levels of service charges on deposit accounts, loan prepayment fees,
      and credit card related income.





**Non-Interest
      Expenses**





Non-interest
      expenses increased $0.6 million, or 4.5 percent, to $13.6 million for the three
      months ended March 31, 2007 compared to the 2006 first quarter. The primary
      reasons for the increase were higher levels of salaries and employee benefits
      expense, occupancy and equipment expense, professional fees, communications
      expense, and other expense. The increase was partially offset by decreases
      in
      advertising and business development expense.





Salaries
      and employee benefits expense, the largest component of non-interest expense,
      increased by $430,000, or 5.2 percent, during the three months ended March
      31,
      2007 compared to the 2006 first quarter. The increase for the three months
      ended
      March 31, 2007 was primarily due to an increase in stock option expense, higher
      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.





30


**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 months ended March 31, 2007 compared
      to
      the three months ended March 31, 2006 were also primarily due to the
      following:




·
            Increase
                of $94,000 (4.8 percent) in occupancy and equipment expense. The
                increase
                primarily reflects 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.





C
            Decrease
                of $140,000 (23.3 percent) in advertising and business development
                expense. The decrease primarily reflects lower print, radio, and
                television advertising costs and business development
                expenses.





C
            Increase
                of $107,000 (28.7 percent) in professional fees. The increase was
                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.





C
            Increase
                of $41,000 (11.8 percent) in communications expense. The increase
                was
                primarily due to higher data line costs for the Bank’s computer
                network.





C
            Increase
                of $73,000 (7.9 percent) in other expense. The increase was primarily
                due
                to higher credit card related expenses, partially offset by lower
                expenses
                for courier runs to Bank locations.





**Income
      Taxes**





The
      effective income tax rate for the three months ended March 31, 2007 was 32.4
      percent compared to 32.6 percent for the 2006 first quarter. 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 March 31, 2007, December 31, 2006, and March 31, 2006,
      the
      valuation allowance was $4.0 million, $3.7 million, and $3.0 million,
      respectively. As of March 31, 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 uncertain income tax positions totaling $0.5 million as of March 31,
      2007 identified under FIN No. 48, see Note 3 to the condensed consolidated
      financial statements.





31


**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 March 31, 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 three months ended March 31, 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 March 31, 2007 as compared to
      December 31, 2006. The Company’s “Static Gap” at March 31, 2007 was a negative
      cumulative gap of $460.3 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.




32


**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 March 31, 2007.
      The
      Chief Executive Officer and Chief Financial Officer have each concluded, based
      on their review, that as of March 31, 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 March 31,
      2007
      that has materially affected or is reasonably likely to materially affect the
      Company’s internal control over financial reporting.




33


**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
      6.**   **EXHIBITS**




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





34




**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 May 10, 2007.





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





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


35