SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

                       THE SECURITIES EXCHANGE ACT OF 1934


       For the Quarter Ended September 30, 1999 Commission File No. 010950


                            U.S.B. HOLDING CO., INC.
                            ------------------------
             (Exact name of registrant as specified in its charter)

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


                 100 DUTCH HILL ROAD, ORANGEBURG, NEW YORK 10962
                 -----------------------------------------------
             (Address of principal executive office with zip code)

                                  914-365-4600
                                  ------------
               (Registrant's telephone number including area code)


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

                             YES |X|    NO |_|

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

                CLASS                   OUTSTANDING AT NOVEMBER 8, 1999
                -----                   -------------------------------

        Common stock, par value                    15,884,273
            $0.01 per share
<PAGE>

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

                                TABLE OF CONTENTS

                                                                        PAGE NO.
                                                                        --------

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

        CONSOLIDATED STATEMENTS OF CONDITION AS OF
        SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998.                  1

        CONSOLIDATED STATEMENTS OF INCOME FOR THE
        THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
        (UNAUDITED).                                                           2

        CONSOLIDATED STATEMENTS OF INCOME FOR THE
        NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
        (UNAUDITED).                                                           3

        CONSOLIDATED STATEMENTS OF COMPREHENSIVE
        INCOME  FOR THE THREE AND NINE MONTHS
        ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED).                         4

        CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
        (UNAUDITED).                                                           5

        CONSOLIDATED STATEMENTS OF CHANGES IN
        STOCKHOLDERS' EQUITY FOR THE NINE MONTHS
        ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED).                         7

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (UNAUDITED).                                                           9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS.                        23

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
        ABOUT MARKET RISK.                                                    31

PART II. OTHER INFORMATION AND SIGNATURES

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.                                     32


                                      - i -
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CONDITION

<TABLE>
<CAPTION>
                                                           (Unaudited)
                                                           September 30   December 31,
                                                               1999           1998
                                                           -----------    -----------
                                                            (000's, except share data)
<S>                                                        <C>            <C>
ASSETS
Cash and due from banks                                    $    34,555    $    23,660
Federal funds sold                                              52,300         45,500
                                                           -----------    -----------
Cash and cash equivalents                                       86,855         69,160
Interest bearing deposits in other banks                           488          1,877
Securities:
    Available for sale (at estimated fair value)               404,167        379,514
    Held to maturity (estimated fair value
       $191,585 in 1999 and $70,284 in 1998)                   195,746         67,019
Loans held for sale                                                 --          3,283
Loans, net of allowance for loan losses of
    $10,181 in 1999 and $8,889 in 1998                         875,199        719,196
Premises and equipment, net                                     10,673         11,210
Accrued interest receivable                                     10,860          7,161
Other real estate owned (OREO)                                      34            415
Federal Home Loan Bank of New York stock                        28,038         17,849
Other assets                                                    17,289         12,128
                                                           -----------    -----------
TOTAL ASSETS                                               $ 1,629,349    $ 1,288,812
                                                           ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest bearing deposits                              $   210,722    $   137,270
Interest bearing deposits:
    NOW accounts                                                65,062         66,304
    Money market accounts                                       46,376         44,326
    Savings deposits                                           351,224        331,448
    Time deposits                                              479,450        379,292
                                                           -----------    -----------
Total deposits                                               1,152,834        958,640
Accrued interest payable                                         4,715          4,529
Accrued expenses and other liabilities                          10,656          8,089
Securities sold under agreements to repurchase                 317,135        165,780
Federal Home Loan Bank of New York advances                     27,584         34,335
                                                           -----------    -----------
Total                                                        1,512,924      1,171,373
Corporation-Obligated mandatory redeemable capital
     securities of subsidiary trust                             20,000         20,000
Minority interest-junior preferred stock of consolidated
     subsidiary                                                    137             --
Commitments and contingencies (Note 12)
Stockholders' equity:
    Common stock, $0.01 par value; authorized shares
    50,000,000 in 1999 and 30,000,000 in 1998; issued
     shares of 16,371,482 in 1999 and 16,165,175 in 1998           164            162
    Additional paid-in capital                                  98,601         96,919
    Retained earnings                                           10,195          1,513
    Treasury stock at cost, 496,907 shares
       in 1999 and 201,628 shares in 1998                       (6,426)        (2,223)
    Common stock held for benefit plans                         (1,464)        (1,628)
    Deferred compensation obligation                               723            675
    Accumulated other comprehensive income (loss)               (5,505)         2,021
                                                           -----------    -----------
Total stockholders' equity                                      96,288         97,439
                                                           -----------    -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $ 1,629,349    $ 1,288,812
                                                           ===========    ===========
</TABLE>

See notes to consolidated financial statements.


                                       1
<PAGE>

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

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                               September 30
                                                             1999       1998
                                                            -------   -------
                                                        (000's, except share data)
<S>                                                         <C>       <C>
INTEREST INCOME:
Interest and fees on loans                                  $17,831   $14,786
Interest on federal funds sold                                  274       418
Interest and dividends on securities:
        Mortgage-backed securities                            6,217     5,377
        U.S. Treasury and government agencies                 2,792     1,392
        Obligations of states and political subdivisions        734       767
        Corporate and other                                      17         3
Interest on deposits in other banks                               1        17
Dividends on Federal Home Loan Bank of New York stock           463       275
                                                            -------   -------
Total interest income                                        28,329    23,035
                                                            -------   -------

INTEREST EXPENSE:
Interest on deposits                                          9,268     9,655
Interest on borrowings                                        4,269     1,909
Interest on Corporation - Obligated mandatory redeemable
        capital securities of subsidiary trust                  488       488
                                                            -------   -------
Total interest expense                                       14,025    12,052
                                                            -------   -------

NET INTEREST INCOME                                          14,304    10,983
Provision for loan losses                                       700       311
                                                            -------   -------
Net interest income after provision for loan losses          13,604    10,672
                                                            -------   -------

NON-INTEREST INCOME:
Service charges and fees                                        834       684
Gain on securities transactions - net                            --        31
Other income                                                    377       445
                                                            -------   -------
Total non-interest income                                     1,211     1,160
                                                            -------   -------

NON-INTEREST EXPENSE:
Salaries and employee benefits                                4,633     3,898
Occupancy and equipment expense                               1,348     1,276
Advertising and business development                            407       343
Professional fees                                               284       351
Communications                                                  217       194
Stationery and printing                                         159       144
FDIC insurance                                                   44        42
Other expenses                                                  650       682
Merger related expenses                                          --     4,190
                                                            -------   -------
Total non-interest expense                                    7,742    11,120
                                                            -------   -------
Income before income taxes                                    7,073       712
Provision for income taxes                                    2,645       702
                                                            -------   -------
NET INCOME                                                  $ 4,428   $    10
                                                            =======   =======

BASIC EARNINGS PER COMMON SHARE                             $  0.28   $    --
                                                            =======   =======

DILUTED EARNINGS PER COMMON SHARE                           $  0.27   $    --
                                                            =======   =======
</TABLE>

See notes to consolidated financial statements.


                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                               Nine Months Ended
                                                                  September 30
                                                                1999       1998
                                                               -------   -------
                                                           (000's, except share data)
<S>                                                            <C>       <C>
INTEREST INCOME:
Interest and fees on loans                                     $49,826   $43,399
Interest on federal funds sold                                   1,002     1,074
Interest and dividends on securities:
        Mortgage-backed securities                              17,461    14,322
        U.S. Treasury and government agencies                    5,501     5,329
        Obligations of states and political subdivisions         2,257     2,390
        Corporate and other                                         51        30
Interest on deposits in other banks                                 30        44
Dividends on Federal Home Loan Bank of New York stock            1,122       813
                                                               -------   -------
Total interest income                                           77,250    67,401
                                                               -------   -------

INTEREST EXPENSE:
Interest on deposits                                            26,759    29,249
Interest on borrowings                                          10,422     4,805
Interest on Corporation - Obligated mandatory redeemable
        capital securities of subsidiary trust                   1,464     1,464
                                                               -------   -------
Total interest expense                                          38,645    35,518
                                                               -------   -------

NET INTEREST INCOME                                             38,605    31,883
Provision for loan losses                                        1,610       931
                                                               -------   -------
Net interest income after provision for loan losses             36,995    30,952
                                                               -------   -------

NON-INTEREST INCOME:
Service charges and fees                                         2,385     2,014
Gain on securities transactions - net                              527     1,091
Other income                                                     1,049       950
                                                               -------   -------
Total non-interest income                                        3,961     4,055
                                                               -------   -------

NON-INTEREST EXPENSE:
Salaries and employee benefits                                  12,953    11,552
Occupancy and equipment expense                                  3,986     3,602
Advertising and business development                             1,204       998
Professional fees                                                  728     1,200
Communications                                                     612       601
Stationery and printing                                            467       480
FDIC insurance                                                     138       124
Other expenses                                                   1,909     2,093
Merger related expenses                                             --     4,190
                                                               -------   -------
Total non-interest expense                                      21,997    24,840
                                                               -------   -------
Income before income taxes                                      18,959    10,167
Provision for income taxes                                       7,073     1,618
                                                               -------   -------
NET INCOME                                                     $11,886   $ 8,549
                                                               =======   =======

BASIC EARNINGS PER COMMON SHARE                                $  0.75   $  0.55
                                                               =======   =======

DILUTED EARNINGS PER COMMON SHARE                              $  0.72   $  0.51
                                                               =======   =======
</TABLE>


See notes to consolidated financial statements.


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                              Three Months Ended             Nine Months Ended
                                                                 September 30,                 September 30,
                                                             1999           1998           1999           1998
                                                           --------       --------       --------       --------
                                                                                  (000's)
<S>                                                        <C>            <C>            <C>            <C>
NET INCOME                                                 $  4,428       $     10       $ 11,886       $  8,549
                                                           --------       --------       --------       --------

Other comprehensive income (loss), net of tax:
Net unrealized holding gain (loss) on
    securities available for sale arising
    during the period                                        (2,112)         2,976        (12,431)         3,478
        Income tax effect                                       884         (1,245)         5,202         (1,426)
                                                           --------       --------       --------       --------
                                                             (1,228)         1,731         (7,229)         2,052
                                                           --------       --------       --------       --------

Unrealized holding gain as a result of
    reclassification of Tappan Zee Financial, Inc.
    held to maturity securities to available for sale            --            858             --            858
        Income tax effect                                        --           (352)            --           (352)
                                                           --------       --------       --------       --------
                                                                 --            506             --            506
                                                           --------       --------       --------       --------

Reclassification adjustment for net gain
    realized on securities available for sale
    that were held at the beginning of the period                --            (10)          (511)          (924)
        Income tax effect                                        --              4            214            379
                                                           --------       --------       --------       --------
                                                                 --             (6)          (297)          (545)
                                                           --------       --------       --------       --------

Other comprehensive income (loss)                            (1,228)         2,231         (7,526)         2,013
                                                           --------       --------       --------       --------

COMPREHENSIVE INCOME                                       $  3,200       $  2,241       $  4,360       $ 10,562
                                                           ========       ========       ========       ========
</TABLE>

See notes to consolidated financial statements.


                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                Nine Months Ended
                                                                                  September 30,
                                                                              1999            1998
                                                                           ---------       ---------
                                                                                     (000's)
<S>                                                                        <C>             <C>
OPERATING ACTIVITIES
Net income                                                                 $  11,886       $   8,549
Adjustments to reconcile net income to net cash
   provided by operating activities:
   Provision for loan losses                                                   1,610             921
   Depreciation and amortization                                               1,472           1,299
   Amortization/accretion of premiums (discounts) on securities - net          1,042             481
   Tappan Zee Financial, Inc. fiscal year conversion                              --            (334)
   Change in accrual for merger related expenses                                (247)          1,191
   Noncash ESOP and RRP expense                                                  336             363
   Deferred income taxes                                                        (499)         (1,009)
   Gain on securities transactions - net                                        (527)         (1,035)
Origination of loans held for sale                                              (481)             --
Increase in accrued interest receivable                                       (3,699)           (107)
Net decrease (increase) in income taxes receivable/payable                       437          (1,972)
Other - net                                                                    3,179          (1,718)
                                                                           ---------       ---------
Net cash provided by operating activities                                     14,509           6,629
                                                                           ---------       ---------

INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale                          40,614          78,828
Proceeds from principal paydowns and redemptions of:
   Securities available for sale                                              81,543          79,948
   Securities held to maturity                                                 6,205          76,742
Purchases of securities available for sale                                  (160,228)       (221,063)
Purchases of securities held to maturity                                    (134,948)        (11,211)
Net decrease in interest bearing deposits in other banks                       1,389             381
Loans originated, net of principal collections                              (154,024)        (73,947)
Purchases of premises and equipment - net                                       (905)         (1,675)
Proceeds from sales of OREO                                                      641           1,059
Purchase of Federal Home Loan Bank of New York stock                         (10,189)           (536)
                                                                           ---------       ---------
Net cash used for investing activities                                      (329,902)        (71,474)
                                                                           ---------       ---------

FINANCING ACTIVITIES:
Net increase in non-interest bearing deposits,
   NOW, money market and savings accounts                                     94,036          81,210
Net increase (decrease) in time deposits                                     100,158         (18,646)
Net increase (decrease) in securities sold under agreements
   to repurchase -  short-term                                               111,355         (33,863)
Net decrease in Federal Home Loan Bank of New York
   advances - short-term                                                          --         (35,000)
Proceeds from securities sold under agreements to
   repurchase - long-term                                                     50,000          70,000
Repayment of securities sold under agreements to
   repurchase - long-term                                                    (10,000)             --
Proceeds from Federal Home Loan Bank of New York
    advances - long-term                                                          --          11,935
Repayment of Federal Home Loan Bank of New York
    advances - long-term                                                      (6,751)         (6,164)
Cash dividends paid                                                           (3,204)         (2,507)
Proceeds from sale of junior preferred stock of
    consolidated subsidiary                                                      137              --
Proceeds from issuance of common stock and tax benefit of exercised
    stock options, and amortized and accelerated RRP awards                    1,560           2,425
Proceeds from sale of treasury stock                                              --               1
Purchase of treasury stock                                                    (4,203)           (748)
                                                                           ---------       ---------
Net cash provided by financing activities                                    333,088          68,643
                                                                           ---------       ---------
</TABLE>

        -Continued-


                                       5
<PAGE>

U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS  (UNAUDITED)  (cont'd)

<TABLE>
<CAPTION>
                                                                                Nine Months Ended
                                                                                  September 30,
                                                                              1999            1998
                                                                           ---------       ---------
                                                                                     (000's)
<S>                                                                        <C>             <C>
Increase  in Cash and Cash Equivalents                                     $  17,695       $   3,798
Cash and Cash Equivalents, Beginning of Period                                69,160          52,405
                                                                           ---------       ---------
Cash and Cash Equivalents, End of Period                                   $  86,855       $  56,203
                                                                           =========       =========

Supplemental Disclosures:
   Interest paid                                                           $  38,459       $  34,234
                                                                           ---------       ---------
   Income tax payments                                                     $   4,556       $   4,599
                                                                           ---------       ---------
   Transfer of assets to OREO - net                                        $     175       $      --
                                                                           ---------       ---------
   Transfer of loans held for sale to loans held to
       maturity at lower of cost or fair value                             $   3,764       $      --
                                                                           ---------       ---------
   Change in deferred compensation obligation                              $      48       $    (766)
                                                                           ---------       ---------
   Transfer of Tappan Zee securities held to maturity to
       available for sale                                                  $      --       $  39,462
                                                                           ---------       ---------
   Change in other comprehensive income (loss)                             $  (7,526)      $   2,013
                                                                           ---------       ---------
</TABLE>

See notes to consolidated financial statements.

Note: The cash flow information for the nine month period ended September 30,
      1998 includes Tappan Zee fiscal year conversion adjustments. These
      adjustments are necessary to eliminate the duplication of recording Tappan
      Zee income and expense components for the three month period ended March
      31, 1998, as the December 31, 1997 consolidated statement of condition
      contains Tappan Zee information as of March 31, 1998.


                                       6
<PAGE>

U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENT OF CHANGES  IN STOCKHOLDERS' EQUITY (UNAUDITED)

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
                           (000's, except share data)

<TABLE>
<CAPTION>
                                                                                                                    Common
                                                  COMMON STOCK          Additional                                   Stock
                                              Shares           Par       Paid-in       Retained       Treasury      Held For
                                            Outstanding       Value      Capital       Earnings         Stock     Benefit Plans
                                            -----------       -----     ----------     --------       --------    -------------
<S>                                          <C>              <C>      <C>             <C>            <C>           <C>
Balance at January 1, 1999                   15,963,547       $ 162    $    96,919     $   1,513      $ (2,223)     $  (1,628)

Net income                                                                                11,886

Cash dividends:
   Common ($0.20 per share)                                                               (3,193)
   Junior preferred stock of
     consolidated subsidiary                                                                 (11)

Common Stock Issued:
      Employee stock options exercised
      ($2.02 to $6.20 per share)                 45,311                        129

     Director stock options exercised
     ($2.22 to $6.41 per share)                 160,996           2            810

Tax benefit of exercised stock options
    and RRP shares                                                             619

Purchases of treasury stock                    (295,279)                                                (4,203)

ESOP shares committed to be released                                           124                                         79

Amortization and acceleration of
     RRP awards                                                                                                           133

Change in deferred compensation
   obligation                                                                                                             (48)

Other comprehensive loss
                                             ----------       -----    -----------     ---------      --------      ---------

Balance at September 30, 1999                15,874,575       $ 164    $    98,601     $  10,195      $ (6,426)     $  (1,464)
                                             ==========       =====    ===========     =========      ========      =========

<CAPTION>
                                                               Accumulated
                                                Deferred          Other
                                              Compensation    Comprehensive
                                               Obligation     Income (Loss)
                                              ------------    -------------
<S>                                              <C>            <C>
Balance at January 1, 1999                       $  675         $  2,021

Net income

Cash dividends:
   Common ($0.20 per share)
   Junior preferred stock of
     consolidated subsidiary

Common Stock Issued:
      Employee stock options exercised
      ($2.02 to $6.20 per share)

     Director stock options exercised
     ($2.22 to $6.41 per share)

Tax benefit of exercised stock options
    and RRP shares

Purchases of treasury stock

ESOP shares committed to be released

Amortization and acceleration of
     RRP awards

Change in deferred compensation
   obligation                                        48

Other comprehensive loss                                          (7,526)
                                                 ------         --------

Balance at September 30, 1999                    $  723         $ (5,505)
                                                 ======         ========
</TABLE>

See notes to consolidated financial statements.


                                       7
<PAGE>

U.S.B. HOLDING CO., INC.
CONSOLIDATED STATEMENT OF CHANGES  IN STOCKHOLDERS' EQUITY (UNAUDITED)

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
                           (000's, except share data)

<TABLE>
<CAPTION>
                                                                                                                       Common
                                                                                                                        Stock
                                                      COMMON STOCK         Additional                                  Held For
                                                   Shares         Par       Paid-in       Retained       Treasury       Benefit
                                                 Outstanding     Value      Capital       Earnings        Stock         Plans
                                                 -----------     -----     ----------     --------       --------      --------
<S>                                               <C>          <C>          <C>           <C>           <C>            <C>
Balance at January 1, 1998                        14,085,191   $ 71,067     $  4,975      $ 10,619      $   (866)      $ (2,746)
Net income                                                                                   8,549
Cash dividends:
   Common ($0.16 per share)                                                                 (2,496)
   Junior preferred stock of consolidated
     subsidiary                                                                                (11)
Common Stock Issued:
   Employee stock options exercised
   ($1.93 to $15.17 per share)                       314,154        110        1,562
   Director stock options exercised
     ($2.05 to $2.12 per share)                       28,717         44           15
Tax benefit of exercised stock options                                           694
Reduction of par value of common
    stock from $5.00 per share to
    $0.01 per share                                             (71,075)      71,075
Purchases of treasury stock                          (35,649)                                               (748)
Sale of treasury stock                                   100                                                   1
Change in deferred compensation
    obligation                                                                                                              766
Amortization and acceleration of RRP awards                                                                                 224
ESOP shares committed to be released                                              66                                         73
Other comprehensive income
Adjustment for pooling of company
   with different fiscal year end                                                             (334)
                                                  ----------   --------     --------      --------      --------       --------
Balance at September 30, 1998                     14,392,513   $    146     $ 78,387      $ 16,327      $ (1,613)      $ (1,683)
                                                  ==========   ========     ========      ========      ========       ========

<CAPTION>

                                                                    Accumulated
                                                     Deferred          Other
                                                   Compensation    Comprehensive
                                                    Obligation     Income (Loss)
                                                   ------------    -------------
<S>                                                  <C>              <C>
Balance at January 1, 1998                           $ 1,441          $ 1,388
Net income
Cash dividends:
   Common ($0.16 per share)
   Junior preferred stock of consolidated
     subsidiary
Common Stock Issued:
   Employee stock options exercised
   ($1.93 to $15.17 per share)
   Director stock options exercised
     ($2.05 to $2.12 per share)
Tax benefit of exercised stock options
Reduction of par value of common
    stock from $5.00 per share to
    $0.01 per share
Purchases of treasury stock
Sale of treasury stock
Change in deferred compensation
    obligation                                          (766)
Amortization and acceleration of RRP awards
ESOP shares committed to be released
Other comprehensive income                                              2,013
Adjustment for pooling of company
   with different fiscal year end
                                                     -------          -------
Balance at September 30, 1998                        $   675          $ 3,401
                                                     =======          =======
</TABLE>

See notes to consolidated financial statements.


                                       8
<PAGE>

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

1.    Principles of Consolidation

      The consolidated financial statements include the accounts of U.S.B.
      Holding Co., Inc. (the "Company" ), its wholly-owned bank subsidiaries,
      Union State Bank (including its wholly-owned subsidiaries, U.S.B. Realty
      Corp. through October 29, 1998, the date of its dissolution, U.S.B.
      Financial Services, Inc., Dutch Hill Realty Corp. and TPNZ Preferred
      Funding Corporation ("TPNZ") from April 30, 1999) (the "Bank"), and
      Tarrytowns Bank, FSB, through April 30, 1999, the date of its merger with
      and into the Bank (including its wholly-owned subsidiary, TPNZ, through
      that date) ("Tarrytowns"), and the Company's wholly-owned non-bank
      subsidiaries, Ad Con, Inc. and Union State Capital Trust I.

2.    Acquisition of Tappan Zee Financial, Inc.

      On August 31, 1998, the Company completed its acquisition of Tappan Zee
      Financial, Inc. ("Tappan Zee"), the parent company of Tarrytowns and TPNZ,
      pursuant to a definitive agreement signed on March 6, 1998. As of August
      31, 1998, Tappan Zee had approximately $140 million in assets. The
      transaction was structured as a tax free exchange of common shares and has
      been accounted for as a pooling-of-interests. Accordingly, prior year
      financial statements have been restated to reflect the Company and Tappan
      Zee on a combined basis as of the earliest period presented. Tappan Zee
      was merged into the Company, and Tarrytowns and TPNZ (subsequently
      transferred to Tarrytowns) operated as wholly-owned subsidiaries of the
      Company and Tarrytowns, respectively, until April 30, 1999, when
      Tarrytowns was merged with and into the Bank.

      Under the terms of the acquisition, each Tappan Zee shareholder received
      Company common stock that had a value of $20.00 per share (adjusted for
      the 10% stock dividend in December 1998) for each share of Tappan Zee
      common stock. The exchange ratio, which was determined based on the
      average of the last reported sale prices for a share of Company stock for
      the 20 consecutive full trading days on the American Stock Exchange ended
      on the date (August 19, 1998) on which the last of the regulatory
      approvals required for consummation of the acquisition was obtained, was
      1.12 Company shares for each Tappan Zee share (the "exchange ratio"). The
      total value of the transaction based on the average Company stock price as
      calculated for purposes of determining the exchange ratio was
      approximately $32.5 million, which represented 1.47 times Tappan Zee's
      book value as of June 30, 1998.

      Prior to the acquisition, the Company and Tappan Zee had different fiscal
      periods for financial reporting purposes. The consolidated financial
      information as of and for the year ended December 31, 1997 and prior,
      therefore, reflects U.S.B. Holding Co., Inc. and its wholly-owned
      subsidiaries, Union State Bank, Ad Con, Inc., and Union State Capital
      Trust I ("Company Information"), as of and for the year ended for the
      applicable calendar year end, combined with Tappan Zee's financial
      information as of and for the fiscal year ended for the subsequent March
      31st. An adjustment of $334,000 is recorded to combined retained earnings
      to eliminate the resulting duplication of recording Tappan


                                       9
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

      Zee net income for the three month period ended March 31, 1998, that would
      otherwise have occurred as a result of preparing the consolidated
      financial information in this manner.

      As of the close of business on April 30, 1999, Tarrytowns was merged with
      and into the Bank, with its offices continuing to operate and do business
      following the merger. Having completed the merger, the Company currently
      operates its commercial banking subsidiary, Union State Bank, at 24
      locations in Rockland and Westchester Counties.

3.    Basis of Presentation

      In the opinion of management, the accompanying unaudited condensed
      consolidated financial statements include all adjustments (comprising only
      normal recurring accruals) necessary to present fairly the financial
      position of the Company as of September 30, 1999 and December 31, 1998,
      its operations and comprehensive income for the three and nine month
      periods ended September 30, 1999 and 1998, and its cash flows and changes
      in stockholders' equity for the nine month periods ended September 30,
      1999 and 1998. These financial statements should be read in conjunction
      with the audited consolidated financial statements as of and for the year
      ended December 31, 1998 and notes thereto of the Company. A summary of the
      Company's significant accounting policies is set forth in Note 3 to the
      consolidated financial statements included in the Company's 1998 Annual
      Report to Shareholders.

      The results of operations for the three and nine month periods ended
      September 30, 1999 may not necessarily be indicative of the results of
      operations to be expected for the remainder of the year. Certain
      information and note disclosures normally included in financial statements
      prepared in accordance with generally accepted accounting principles have
      been omitted pursuant to the rules and regulations of the Securities and
      Exchange Commission.

      The consolidated financial statements have been prepared in accordance
      with generally accepted accounting principles. In preparing such financial
      statements, Management is required to make estimates and assumptions that
      affect the reported amounts of actual and contingent assets and
      liabilities as of the dates of the consolidated statements of condition
      and the revenues and expenses for the periods reported. Actual results
      could differ significantly from those estimates.

      Estimates that are particularly susceptible to significant change relate
      to the determination of the allowance for loan losses and the valuation of
      OREO acquired in connection with foreclosures or in satisfaction of loan
      receivables. In connection with the determination of the allowance for
      loan losses and OREO, Management obtains independent appraisals for
      significant properties.


                                       10
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

4.    Reclassifications

      Certain reclassifications have been made to prior period accounts to
      conform to the current period's presentation.

5.    Recent Accounting Pronouncements

      Accounting for Derivative Instruments and Hedging Activities

      In June 1998, the Financial Accounting Standards Board ("FASB") issued
      Statements of Financial Accounting Standards ("SFAS") No. 133, "Accounting
      for Derivative Instruments and Hedging Activities" as amended in June 1999
      by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
      Activities - Deferral of the Effective Date of FASB Statement No. 133."
      This statement establishes accounting and reporting standards for
      derivative instruments and hedging activities. It requires that all
      derivatives be recognized in the statement of condition, either as assets
      or as liabilities, and measured at fair value. This statement requires
      that changes in a derivative's fair value be recognized in current
      earnings unless specific hedge accounting criteria are met. Hedge
      accounting for qualifying hedges permits a derivative's gains and losses
      to offset the related results on the hedged item. An entity that elects to
      apply hedge accounting is required to establish at the inception of the
      hedge the method it will use for assessing the effectiveness of the
      hedging derivative and the measurement approach for determining the
      ineffective aspect of the hedge. Those methods must be consistent with the
      entity's approach to managing risk.

      For the Company, SFAS No. 133 is effective January 1, 2001. A company may
      also implement this statement as of the beginning of any fiscal quarter
      after issuance but cannot apply the statement retroactively. The Company
      does not anticipate that the statement will have a material impact on its
      consolidated financial position or results of operations.

      Accounting for Mortgage-Backed Securities Retained After the
      Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
      Enterprise

      Effective January 1, 1999, the Company adopted SFAS No. 134, "Accounting
      for Mortgage-backed Securities Retained after the Securitization of
      Mortgage Loans Held for Sale by a Mortgage Banking Enterprise, an
      amendment of FASB Statement No. 65." This statement amends SFAS No. 65,
      "Accounting for Certain Mortgage Banking Activities," to conform the
      subsequent accounting to that required (under SFAS No. 115) for securities
      retained after the securitization of mortgage loans by a mortgage banking
      enterprise to the accounting applicable to non-mortgage banking
      enterprises. The statement allows a mortgage banking enterprise to
      classify securities retained after a securitization of mortgage loans held
      for sale based on its ability and intent to sell or hold those
      investments. However, such securities must be classified as trading for
      any securities that a company commits to sell before or during the
      securitization process. The


                                       11
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

      adoption of this statement had no material impact on the Company's
      financial position or results of operations.

6.    Forward-Looking Statements

      The Company has made, and may continue to make, various forward-looking
      statements with respect to earnings, credit quality and other financial
      and business matters for periods subsequent to September 30, 1999. The
      Company cautions that these forward-looking statements are subject to
      numerous assumptions, risks and uncertainties, and that statements
      relating to subsequent periods increasingly are subject to greater
      uncertainty because of the increased likelihood of changes in underlying
      factors and assumptions. Actual results could differ materially from
      forward-looking statements.

      In addition to those factors previously disclosed by the Company and those
      factors identified elsewhere herein, the following factors could cause
      actual results to differ materially from such forward-looking statements:
      competitive pressures on loan and deposit product pricing; other actions
      of competitors; changes in economic conditions; the extent and timing of
      actions of the Federal Reserve Board; customer deposit disintermediation;
      changes in customers' acceptance of the Company's products and services;
      ability to achieve cost savings, estimates of merger related costs, and
      other assumptions related to the acquisition of Tappan Zee; degree of
      expected compliance with the Year 2000 issues that are more fully
      discussed in Management's Discussions and Analysis of Financial Condition
      and Results of Operations; changes in Federal and state income taxes
      and/or the Company's effective income tax rate; and the extent and timing
      of legislative and regulatory actions and reform.

      The Company's forward-looking statements speak only as of the date on
      which such statements are made. By making any forward-looking statements,
      the Company assumes no duty to update them to reflect new, changing or
      unanticipated events or circumstances.


                                       12
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

7.    Earnings Per Common Share

      The following table sets forth the computation of basic and diluted
      earnings per common share:

<TABLE>
<CAPTION>
      ---------------------------------------------------------------------------------------------------------------
                                                        Three Months Ended                   Nine Months Ended
                                                           September 30,                        September 30,
                                                      1999              1998               1999              1998
                                                  ------------      ------------       ------------      ------------
                                                                   (000's, except share data)
      <S>                                         <C>               <C>                <C>               <C>
      Numerator:
        Net income                                $      4,428      $         10       $     11,886      $      8,549
        Less preferred stock dividends                      --                11                 11                11
                                                  ------------      ------------       ------------      ------------

        Net income (loss) available to
          common stockholders for
          basic and diluted earnings
          per common share                        $      4,428      $         (1)      $     11,875      $      8,538
                                                  ============      ============       ============      ============

      Denominator:
        Denominator for basic earnings
          per common share - weighted
          average shares                            15,883,388        15,527,562         15,907,163        15,415,366

        Effects of dilutive securities:
          Director and employee
            stock options                              607,581         1,102,221            642,328         1,193,411
          Restricted stock not vested                    5,041             8,087              5,037             8,632
                                                  ------------      ------------       ------------      ------------
        Total effects of dilutive securities           612,622         1,110,308            647,365         1,202,043
                                                  ------------      ------------       ------------      ------------

        Denominator for diluted earnings
          per common share - adjusted
          weighted average shares                   16,496,010        16,637,870         16,554,528        16,617,409
                                                  ============      ============       ============      ============

      Basic earnings per common share             $       0.28      $         --       $       0.75      $       0.55
                                                  ============      ============       ============      ============
      Diluted earnings per common share           $       0.27      $         --       $       0.72      $       0.51
                                                  ============      ============       ============      ============
</TABLE>

8.    Securities

      In accordance with SFAS No. 115, "Accounting for Certain Investments in
      Debt and Equity Securities," the Company's investment policies include a
      determination of the appropriate classification of securities at the time
      of purchase. Securities that may be sold as part of the Company's
      asset/liability or liquidity management, or in response to or in
      anticipation of changes in interest rates and resulting prepayment risk,
      or for similar factors, are classified as available for sale. Securities
      that the Company has the ability and


                                       13
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

      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
      consolidated statements of condition at estimated fair value and the
      resulting net unrealized gains and losses, net of tax, are shown as a
      separate component of accumulated other comprehensive income (loss).

      The decision to sell available for sale securities is based on
      management's assessment of changes in economic or financial market
      conditions, interest rate risk, and the Company's financial position and
      liquidity. Estimated fair values for securities are based on quoted market
      prices, where available. If quoted market prices are not available,
      estimated fair values are based on quoted market prices of comparable
      instruments. The Company does not acquire securities for the purpose of
      engaging in trading activities.

      A summary of the gross gains and gross losses on the sales of securities
      for the three months and nine months ended September 30, 1999 and 1998
      follows:

                            Three Months Ended            Nine Months Ended
                              September 30,                 September 30,
                           1999           1998          1999           1998
                        ---------      ---------      ---------      ---------
                                               (000's)
      Gross Gains       $      --      $      31      $     552      $   1,104
                        =========      =========      =========      =========

      Gross Losses      $      --      $      --      $      25      $      13
                        =========      =========      =========      =========


                                       14
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

      A summary of the amortized cost and estimated fair values of securities
      and related gross unrealized gains and losses at September 30, 1999 and
      December 31, 1998, follows:

<TABLE>
<CAPTION>
      ===========================================================================================
                                                               Gross        Gross       Estimated
                                               Amortized     Unrealized   Unrealized      Fair
                                                 Cost          Gains        Losses        Value
      September 30, 1999:                      =========     ==========   ==========    =========
                                                                     (000's)
      <S>                                      <C>           <C>           <C>           <C>
      Available for Sale:
      U.S. Treasury and
        government agencies                    $ 79,453      $     68      $  1,674      $ 77,847
      Mortgage-backed securities                331,748           306         8,206       323,848
      Obligations of states and
        political subdivisions                    1,539            40            --         1,579
      Corporate securities                          492            --            --           492
      Other                                         401            --            --           401
                                               --------      --------      --------      --------
      Total securities available for sale      $413,633      $    414      $  9,880      $404,167
                                               ========      ========      ========      ========

      Held to Maturity:
      U.S. Treasury and
        government agencies                    $ 95,736      $     22      $  3,788      $ 91,970
      Mortgage-backed securities                 45,134           187         1,999        43,322
      Obligations of states and
        political subdivisions                   54,876         1,434            17        56,293
                                               --------      --------      --------      --------
      Total securities held to maturity        $195,746      $  1,643      $  5,804      $191,585
                                               ========      ========      ========      ========

<CAPTION>
                                                               Gross        Gross       Estimated
                                               Amortized     Unrealized   Unrealized      Fair
                                                 Cost          Gains        Losses        Value
      December 31, 1998:                       =========     ==========   ==========    =========
                                                                     (000's)
      <S>                                      <C>           <C>           <C>           <C>
      Available for Sale:
      U.S. Treasury and
        government agencies                    $ 54,532      $  1,110      $      4      $ 55,638
      Mortgage-backed securities                319,345         2,277            30       321,592
      Obligations of states and
        political subdivisions                    1,539           101            --         1,640
      Corporate securities                          472            --            --           472
      Other                                         172            --            --           172
                                               --------      --------      --------      --------
      Total securities available for sale      $376,060      $  3,488      $     34      $379,514
                                               ========      ========      ========      ========
      Held to Maturity:
      Mortgage-backed securities               $  9,774      $    118      $      7      $  9,885
      Obligations of states and
        political subdivisions                   57,245         3,154            --        60,399
                                               --------      --------      --------      --------
      Total securities held to maturity        $ 67,019      $  3,272      $      7      $ 70,284
                                               ========      ========      ========      ========
</TABLE>


                                       15
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

9.    Loans

      Nonaccrual loans were $1.9 million at September 30, 1999 and $2.3 million
      at December 31, 1998. Restructured loans were $0.6 million and $0.7
      million at September 30, 1999 and December 31, 1998, respectively.

      Substantially all of the nonaccruing and restructured loans are
      collateralized by real estate, except for certain loans made by the Bank
      to Bennett Funding Group ("Bennett") which are collateralized by cash and
      lease receivables. At September 30, 1999, the Company has no commitments
      to lend additional funds to any customers with nonaccrual or restructured
      loan balances.

      At September 30, 1999, there are loans aggregating approximately $0.4,
      which are not on nonaccrual status, that were potential problem loans
      which may result in their being placed on nonaccrual status in the future.

      At both the September 30, 1999 and December 31, 1998 periods, the recorded
      investment in loans that are considered to be impaired under SFAS No. 114,
      "Accounting by Creditors for Impairment of a Loan," approximated $1.6
      million of which $1.2 million were in nonaccrual status. Where warranted,
      each impaired loan has a related allowance for loan losses determined in
      accordance with SFAS No. 114. The total allowance for loan losses related
      to impaired loans was $0.4 million and $0.5 million as of September 30,
      1999 and December 31, 1998, respectively. The average recorded investment
      in impaired loans for the nine months ended September 30, 1999 and year
      ended December 31, 1998 was approximately $1.3 million and $3.4 million,
      respectively. For the three and nine months ended September 30, 1999 and
      1998, interest income recognized by the Company on impaired loans was not
      material.

      Restructured loans in the amounts of $0.4 million at September 30, 1999
      and December 31, 1998, that are considered to be impaired due to a
      reduction in the contractual interest rate, are on accrual status because
      the collateral securing these loans is sufficient to protect the
      contractual principal and interest of the restructured loans. These loans
      have been performing for a reasonable period of time. Interest accrued on
      these loans and not yet collected as of September 30, 1999 is immaterial.

      At September 30, 1999, the Bank had $0.5 million of outstanding loans,
      collateralized by cash and lease receivables, to Bennett, a lease finance
      company, which filed for bankruptcy protection during the first quarter of
      1996. Collection of the Bank's loans continues to be delayed by the
      bankruptcy proceedings. However, as a result of a favorable ruling in the
      second quarter of 1998 by the Bankruptcy Court with jurisdiction over
      Bennett, the Bank collected an initial payment of $1.4 million, reducing
      the original balance of $3.3 million to $1.9 million. Additional
      collections of $1.1 million were received through September 30, 1999, and
      $0.3 million was charged off during 1998, reducing the balance of the
      loans to $0.5 million. Further collections are anticipated. The ruling by
      the Bankruptcy Court is subject to appeal by the Trustee. In addition, the
      Trustee contends that the Company received payments from Bennet under the
      theory of a fraudulent conveyance. If the Trustee


                                       16
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

      is successful, the Company would be liable for loan payments received from
      Bennet for a six year period from the bankruptcy filing date of March,
      1996. The Company's legal counsel has advised that the Company has a
      meritorious defense and should prevail on this matter.

10.   Borrowings and Stockholders' Equity

      The Company utilizes borrowings primarily to meet the funding requirements
      for its asset growth and to manage its interest rate risk. Borrowings
      include securities sold under agreements to repurchase, federal funds
      purchased, and Federal Home Loan Bank of New York ("FHLB") advances.

      Short-term securities sold under agreements to repurchase generally mature
      between one and 365 days. The Bank may borrow up to $50.0 million from two
      primary investment firms under master security sale and repurchase
      agreements (of which $9.8 million was long term and outstanding at
      September 30, 1999). In addition, the Bank also has the ability to borrow
      under similar master security sale and repurchase agreements from the FHLB
      and, to a lesser extent, its customers. At September 30, 1999 and December
      31, 1998, the Company had $112.4 million and $1.0 million of such
      short-term borrowings outstanding with terms of between 30 days and 365
      days, and at interest rates of between 5.31 percent and 5.88 percent,
      respectively. At September 30, 1999 and December 31, 1998, the borrowings
      were collateralized by securities with an aggregate amortized cost of
      $127.4 million and $1.0 million and estimated fair value of $124.2 million
      and $1.0 million, respectively.

      Federal funds purchased represent overnight funds. The Bank has federal
      funds purchase lines available with six financial institutions totaling
      $46.0 million. At September 30, 1999 and December 31, 1998, the Bank had
      no federal funds purchased balances outstanding.

      Short-term FHLB advances are borrowings with original maturities of
      between one and 365 days. At September 30, 1999 and at December 31, 1998,
      the Company had no such borrowings outstanding.

      Additional information with respect to short-term borrowings as of and for
      the nine months ended September 30, 1999 and 1998 is presented in the
      table below.

      --------------------------------------------------------------------------
      Short-Term Borrowings                              1999         1998
      --------------------------------------------------------------------------
                                                    (000's except percentages)
      Balance at September 30                        $112,355       $  1,000
      Average balance outstanding                    $ 40,239       $ 12,602
      Weighted-average interest rate
        As of September 30                               5.38%          5.75%*
        Paid during period                               5.26%          6.07%*
      ==========================================================================
      *The weighted-average interest rates have been adjusted to reflect the
      effect of an interest rate swap used to convert a variable rate borrowing
      to a fixed rate.


                                       17
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

      At September 30, 1999 and December 31, 1998, long-term FHLB advances
      totaled $27.6 million and $34.3 million, respectively. At September 30,
      1999, long-term FHLB advances aggregating $5.0 million were single
      principal payments and are not repayable prior to maturity without
      penalty. Long-term FHLB advances aggregating $22.6 million were amortizing
      advances having scheduled payments, but may not be repaid in full prior to
      maturity without penalty.

      The Bank also had long-term borrowings of $204.8 million and $164.8
      million in securities sold under agreements to repurchase as of September
      30, 1999 and December 31, 1998, respectively. At September 30, 1999, these
      borrowings included $9.8 million having an original term of three years at
      an interest rate of 6.08 percent, and $195.0 million having original terms
      of between five and ten years at interest rates between 4.13 percent and
      5.67 percent that are callable on certain dates after an initial non-call
      period at the option of the counterparty to the repurchase agreement. As
      of September 30, 1999 and December 31, 1998, these borrowings were
      collateralized by securities with an aggregate amortized cost of $199.1
      million and $147.9 million and estimated fair value of $192.6 million and
      $149.5 million, and certain mortgage related assets having an outstanding
      balance of $27.5 million and $24.4 million and an estimated fair value of
      $24.8 million and $22.0 million, respectively.

      At September 30, 1999 and December 31, 1998, the Company held 280,377
      shares and 178,485 shares of capital stock in the FHLB with a carrying
      value of $28.0 million and $17.8 million, respectively, which is required
      in order to borrow under the short and long-term advance and securities
      sold under agreements to repurchase programs from the FHLB. The FHLB
      generally limits borrowings up to an aggregate of 30 percent of total
      assets, excluding securities sold under agreements to repurchase, upon the
      prerequisite purchase of additional shares of FHLB stock. Any advances
      made from the FHLB are required to be collateralized by the FHLB stock
      purchased and certain other assets.

      The following tables are a summary of long-term debt, all of which are
      fixed rate, distributed based upon remaining contractual maturity and
      estimated expected option call date at September 30, 1999, with a
      comparative total for December 31, 1998:

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------------------------
                                                            After 1
                                             Within        But Within           After             1999              1998
      Long Term Debt                         1 Year          5 Years           5 Years            Total             Total
      ----------------------------------------------------------------------------------------------------------------------
                                                                  (000's, except percentages)
      <S>                                 <C>              <C>               <C>               <C>               <C>
      Contractual Maturity:
      Total long-term debt                $    18,635      $    25,595       $   188,134       $   232,364       $   199,115
      Weighted-average interest rate            6.05%            5.49%             5.13%             5.24%             5.30%

      Estimated Call Date:
      Total long-term debt                $    88,635      $   140,595       $     3,134       $   232,364       $   199,115
      Weighted-average interest rate            5.10%            5.31%             6.01%             5.24%             5.30%
      ======================================================================================================================
</TABLE>


                                       18
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

      On December 21, 1998, the Company distributed a ten percent stock dividend
      to shareholders of record on December 7, 1998. The weighted average shares
      outstanding and per share amounts for the three and nine months ended
      September 30, 1998 have been adjusted to reflect the stock dividend
      declared in the fourth quarter of 1998.

      At the Company's annual meeting of shareholders held on May 19, 1999, an
      amendment to the Company's Certificate of Incorporation was approved by
      the shareholders of the Company. This amendment increased the authorized
      number of shares of common stock from 30,000,000 to 50,000,000.

      In accordance with regulatory requirements, Tarrytowns established a
      liquidation account at the time of its conversion to a stock company
      ("Conversion") in the amount of $7.8 million, equal to its equity at March
      31, 1995. The liquidation account is maintained for the benefit of
      eligible account holders who continue to maintain their accounts at
      Tarrytowns (or its successor) after the Conversion. The liquidation
      account is reduced annually to the extent that eligible account holders
      have reduced their qualifying deposits as of each anniversary date.
      Subsequent increases do not restore an eligible account holder's interest
      in the liquidation account. In the event of a complete liquidation of
      Tarrytowns (or its successor) each eligible account holder and
      supplemental eligible account holder will be entitled to receive a
      distribution from the liquidation account in an amount proportionate to
      the current adjusted qualifying balances for accounts then held.

      The ability of the Company and the Bank to pay cash dividends in the
      future is restricted by various regulatory requirements. The Company's
      ability to pay cash dividends to its shareholders is primarily dependent
      upon the receipt of dividends from the Bank.

      The Bank's dividends to the Company may not exceed the sum of the Bank's
      net income for that year and its undistributed net income for the
      preceding two years, less any required transfers to additional paid-in
      capital. At September 30, 1999, the Bank could pay dividends of $29.8
      million to the Company without having to obtain prior regulatory approval.

      On April 21, 1999, the Company's Board of Directors authorized the
      repurchase of up to 350,000 shares, or approximately 2.2%, of the
      Company's outstanding common stock at that time. Repurchases of common
      stock are authorized to be made from time to time in open-market and
      private transactions throughout 1999 as, in the opinion of management,
      market conditions may warrant. The Board of Directors approved the common
      stock repurchase program in view of the strong capital position of the
      Company and its bank subsidiary, Union State Bank, and to effectively
      manage and utilize its capital. Through September 30, 1999, the Company
      purchased 292,400 shares of treasury stock under the repurchase plan at an
      aggregate price of approximately $4.2 million.

11.   Income Taxes

      Tarrytowns, as a thrift institution, was subject to special provisions in
      the Federal and New York State tax laws regarding its allowable tax bad
      debt deductions and related tax bad


                                       19
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

      debt reserves. These deductions historically have been determined using
      methods based on loss experience or a percentage of taxable income. Tax
      bad debt reserves represent the excess of allowable deductions over actual
      bad debt losses and other reserve reductions. These reserves consist of a
      defined base-year amount, plus additional amounts accumulated after the
      base year. Under the tax law, as amended, events that would result in
      taxation of these reserves include (i) redemptions of Tarrytowns' stock or
      certain excess distributions, (ii) failure of Tarrytowns to maintain a
      specified qualifying assets ratio or meet other thrift definition tests
      for New York State tax purposes, and (iii) a change in the tax law. As a
      result of the merger of Tarrytowns with and into the Bank that occurred on
      April 30, 1999, the reserves for New York State tax purposes are taxable.
      Accordingly, a tax liability of $0.6 million was recorded during 1998 as
      part of the merger related expenses.

12    Commitments and Contingencies

      At September 30, 1999, the Company and Bank are committed under employment
      agreements with the Chairman, President and Chief Executive Officer
      ("CEO"), Senior Executive Vice President and Chief Credit Officer, and
      Senior Executive Vice President and Chief Financial Officer currently
      requiring an annual salary of $590,000, $185,000 and $185,000,
      respectively, annual bonus payments equal to six, one and one percent of
      net income (as defined) of the Company, respectively, under the Executive
      Incentive Bonus Plan; and annual stock option grants of 106,480 shares,
      39,930 shares and 39,930 shares, respectively, issued at fair value (110
      percent of fair value for incentive stock options if the key officer's
      ownership of the Company equals or exceeds 10 percent at the date of
      grant); and other benefits for the terms of the respective agreements. The
      CEO's employment agreement is for a five year term, expiring November 16,
      2003, while the Senior Executive Vice Presidents' agreements are for three
      year terms, expiring November 16, 2001.

      The CEO's contract also requires minimum annual salary increases of
      $30,000. All of the agreements include change in control provisions,
      requiring certain payments, including three times annual salary and
      average bonus payments (as defined), in the event of a voluntary or
      involuntary termination connected with a change in control of the Company
      or Bank.

      At September 30, 1999, the Bank is committed under an employment agreement
      and consulting agreement with a Senior Vice President of the Bank and
      former Executive Vice President of Tarrytowns, and the former President of
      Tarrytowns, respectively. Under the employment agreement, the Bank will
      make payments of $165,000 per year for services to be performed for a
      period of three years. Under the consulting agreement, payments of $77,000
      per year for services to be performed will be made for a period of three
      years. Both agreements were effective as of August 31, 1998. Payments
      under these agreements accelerate in the event of a change in control of
      the Company or Bank.

      Effective May 19, 1999, the Company adopted the Retirement Plan for
      Non-Employee Directors of U.S.B. Holding Co., Inc. and Certain Affiliates
      (the "Plan"). A Board member who has served for a period of fifteen years
      is eligible to receive benefits. The retiree shall be paid $2,000 per
      month for a period not to exceed ten years. In the event of death, after


                                       20
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

      commencement of retirement payments but prior to the conclusion of the ten
      year payment period, the payments shall be paid to his or her spouse at a
      rate of 50% of the retirement payment over the remaining term of the
      retirement payment period, or through the date of the spouse's' death if
      it occurs prior to completion of his/her payment period. Alternatively,
      the retiree may choose a lump sum payment equivalent to the present value
      of $200,000, discounted based on an interest rate equal to the average
      ten-year advance rate from the Federal Home Loan Bank, for the thirty days
      prior to the said election. The Company has recorded a liability to
      provide the actuarial present value of payments expected to be made under
      the Plan. As of September 30, 1999, substantially all of the recorded
      liability relates to unamortized prior service cost, which is being
      amortized over the average remaining service period of the current
      directors. Benefit cost for the Plan for the period May 19, 1999 through
      September 30, 1999 was approximately $50,000.

      In the normal course of business, various commitments to extend credit are
      made which are not reflected in the accompanying consolidated financial
      statements. At September 30, 1999, formal credit line and loan
      commitments, which are primarily loans collateralized by real estate and
      credit card lines, approximated $275.3 million and outstanding letters of
      credit totaled $27.4 million. Such amounts represent the maximum risk of
      loss on these commitments.

      In connection with its asset and liability management program, the Bank
      entered into a protected rate agreement ("cap") which has a remaining
      aggregate notional amount of $2.0 million at September 30, 1999. The
      premium paid in the amount of $85,000 was deferred and is being amortized
      over the five year life of the cap which expires in October 1999. Under
      the terms of the cap, the Bank will be reimbursed for increases in
      one-month LIBOR for any month during the term of the agreement in which
      such rate exceeds the "strike level" of 8.1875 percent. Interest rate cap
      agreements allow the Company to limit its exposure to unfavorable interest
      rate fluctuations over and above the "capped" rate. The purchased cap
      hedges income payments on floating rate mortgage-backed securities that
      have maximum lifetime interest rate caps. The Bank's risk of loss on the
      interest rate cap is equal to the unamortized premium paid to enter into
      this agreement.

      The Company also has the ability to enter into forward commitments to sell
      residential fixed mortgage loans to reduce market risk associated with
      originating and holding loans for sale. A risk associated with these
      commitments arises from the Company's potential inability to generate
      loans to fulfill the contracts. To control the risk associated with
      changes in interest rates, the Company may also use options to hedge loans
      closed and expected to close. No such contracts were outstanding at
      September 30, 1999.

      In the ordinary course of business, the Company is party to various legal
      proceedings, none of which, in the opinion of management, will have a
      material effect on the Company's consolidated financial position or
      results of operations.


                                       21
<PAGE>

U.S.B HOLDING CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(cont'd)

13.   Segment Information

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

      General information required by SFAS No. 131, "Disclosures about Segments
      of an Enterprise and Related Information," is disclosed in the
      consolidated financial statements and accompanying notes thereto. The
      Company operates only in the U.S. domestic market, specifically the lower
      Hudson Valley, which includes the counties of Rockland, Westchester,
      Orange, Putnam and Dutchess, New York, as well as New York City and Long
      Island, New York, northern New Jersey and southern Connecticut. For the
      three and nine months ended September 30, 1999 and 1998, there is no
      customer that accounted for more than ten percent of the Company's
      revenue.


                                       22
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION

FINANCIAL CONDITION

At September 30, 1999 the Company had total assets of $1,629.3 million, an
increase of $340.5 million or 26.4% from December 31, 1998.

Total deposits increased $194.2 million for the nine month period ended
September 30, 1999 to $1,152.8 million, which represents an 20.3 percent
increase from December 31, 1998. Time deposits increased $100.2 million
accounting for the greatest component of deposit increases. Time deposits
greater than $100,000 from local municipalities, which are obtained on a bidding
basis with maturities of 30 to 180 days, increased by $94.6 million as part of
the Bank's overall leveraging strategy. Retail time deposits under $100,000
increased by $16.2 million, other time deposits over $100,000 decreased by $8.2
million and IRA and Keogh time deposit accounts decreased by $2.4 million.
Savings deposits increased by $19.8 million, as the Company's "Golden Statement"
and "Liquid Gold" accounts, which provide attractive yields for high balance
accounts, continued to attract additional deposits. Demand deposits and money
market accounts increased by $73.4 million and $2.0 million, respectively, due
to increasing commercial relationships, advertising and promotions for retail
business, and a temporary demand deposit of $35.2 million at September 30, 1999,
while NOW accounts decreased by $1.2 million as customers utilized or moved
funds into higher yielding accounts.

The securities portfolio, including investments in Federal Home Loan Bank of New
York ("FHLB") stock, of $628.0 million and $464.4 million at September 30, 1999
and December 31, 1998, respectively, consists of securities held to maturity at
amortized cost of $195.7 million and $67.0 million, securities available for
sale at estimated fair value totaling $404.2 million and $379.5 million, and
FHLB stock of $28.0 million and $17.8 million at September 30, 1999 and December
31, 1998, respectively.

During the nine months ended September 30, 1999, U.S. Treasury and government
agency obligations increased $117.9 million primarily due to purchases of U.S.
Treasury notes of $13.0 million and $132.6 million in callable bonds, partially
offset by sales and redemptions of securities totaling $25.0 million and a net
decrease in the fair value of available for sale securities of $2.7 million.
Mortgage-backed securities increased by $37.6 million primarily due to purchases
of $107.7 million in fixed-rate and $36.8 million in floating-rate securities,
which were partially offset by sales totaling $15.7 million, principal paydowns
of $80.1 million, a net decrease in fair value of available for sale securities
of $10.1 million and net premium amortization and discount accretion of $1.0
million. Mortgage-backed securities that are fixed-rate securities have expected
weighted-average lives of less than ten years at the time of purchase. The
Company's investment in obligations of states and political subdivisions, or
municipal securities, decreased by $2.4 million principally due to maturities of
$4.8 million that were partially offset by purchases of $2.4 million during the
nine month period ended September 30, 1999. Municipal securities are considered
core investments which are high yielding on a tax equivalent basis and have
diversified maturities. Purchases of municipal securities are dependent upon
their availability in the marketplace and the comparative tax equivalent yield
of such securities to other securities of comparable credit risk and maturity.
The Company currently has $0.5 million in short-term corporate money market
mutual funds and $0.4 million of equity investments mostly in financial
institutions. Short-term to medium-term corporate debt securities, which are
rated investment grade by nationally recognized credit rating organizations


                                       23
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION (Cont'd)

FINANCIAL CONDITION (Cont'd)

and other equity investments have been and will continue to be evaluated for
investment in the future.

The Company continues to exercise its conservative approach to investing by
making high quality investments and controlling interest rate risk by purchasing
both fixed and floating rate securities and through the averaging of investments
in medium-term maturities.

At September 30, 1999, loans were $885.4 million, a net increase of $154.0
million or 21.1 percent over December 31, 1998. The primary increases of
outstanding loan balances were $87.7 million in commercial mortgages, $21.1
million in time unsecured loans, $21.0 million in land acquisition and
construction loans, $15.5 million in residential mortgages, and $12.5 million in
time secured loans, offset by a net reduction of $3.8 million in all other loan
categories. The Bank has approximately $275.3 million in formal credit lines and
loan commitments outstanding at September 30, 1999. Management considers its
liquid resources to be currently adequate to fund loans, principally by
utilizing excess funds temporarily placed in federal funds sold, increases in
deposits and borrowings, loan repayments and participations, maturing
securities, and principle payments of mortgage-backed securities.

The Bank's allowance for loan losses increased $1.3 million or 14.5 percent to
$10.2 million at September 30, 1999, from $8.9 million at December 31, 1998. The
allowance for loan losses represents 1.15 percent of gross loans outstanding at
September 30, 1999, compared to 1.22 percent at December 31, 1998. The allowance
reflects a provision of $1,610,000 and net charge-offs of $318,000 recorded thus
far in 1999. Management takes a prudent and cautious position in evaluating
various business and economic uncertainties in relation to the Bank's loan
portfolio. In management's judgment, the allowance is considered adequate to
absorb potential losses inherent in the loan portfolio.

During the nine months ended September 30, 1999, the Bank decreased the amount
of outstanding short- and long-term advances with the Federal Home Loan Bank of
New York by $6.8 million, while borrowings under repurchase agreements increased
by $151.4 million. Overall, borrowings, as well as municipal deposits, increased
to fund loan growth in excess of retail deposit growth and to fund leveraging
strategies.

Stockholders' equity decreased to $96.3 million at September 30, 1999 from the
December 31, 1998 balance of $97.4 million. The decrease primarily results from
a reduction in accumulated other comprehensive income (loss) of $7.5 million,
treasury stock purchases of $4.2 million, and common and preferred stock cash
dividends of $3.2 million, partially offset by net income of $11.9 million for
the nine month period ended September 30, 1999, and other equity transactions of
$1.9 million. During the nine months ended September 30, 1999, the Company
repurchased 295,279 shares of treasury stock, of which 292,400 shares were
purchased under a repurchase plan authorized by the Company's Board of Directors
on April 21, 1999.


                                       24
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION (Cont'd)

FINANCIAL CONDITION (Cont'd)

The Company's leverage ratio at September 30, 1999 was 7.38 percent, compared to
9.13 percent at December 31, 1998. The Company's Tier I and Total Capital Ratios
under the risk-based capital guidelines were 12.61 percent and 13.66 percent at
September 30, 1999 and 14.97 percent and 16.12 percent at December 31, 1998,
respectively. In addition, the Bank exceeds all current regulatory capital
requirements and was in the "well-capitalized" category at September 30, 1999
and December 31, 1998.

RESULTS OF OPERATIONS

Earnings

Net income for the three and nine month periods ended September 30, 1999 was
$4,428,000 and $11,886,000, or $0.27 and $0.72 per diluted common share,
respectively. This compares to $10,000, or break-even per diluted common share,
and $8,549,000, or $0.51 per diluted common share, for the three and nine month
periods ended September 30, 1998, respectively. The three and nine month 1998
periods include expenses and a tax benefit, net of associated expenses, of $0.1
million and $1.9 million, respectively, as a result of the decision to liquidate
U.S.B. Realty Corp., the Bank's real estate investment trust, in the second
quarter of 1998, and merger related expenses, net of tax, of $3.2 million for
both periods ("non-recurring items"). Excluding the effects of the non-recurring
items in 1998, net income for the three and nine month periods ended September
30, 1999 increased $1.2 million or 35.5 percent and $2.1 million or 20.9
percent, respectively. On this basis, diluted earnings per common share
increased $0.07 or 35.0 percent and $0.13 or 22.0 percent, respectively. The
overall increase in earnings, excluding non-recurring items in 1998, primarily
reflects an increase in net interest income and other income, partially offset
by higher non-interest expenses, lower security gains, and a higher provision
for loan losses. A discussion of the impact in the changes in the various
components of net income follows.

Net Interest Income

Net interest income, the difference between interest income and interest
expense, is a significant component of the Company's consolidated earnings. For
the three and nine month periods ended September 30, 1999, net interest income
increased 30.2 percent to $14.3 million from $11.0 million, and 21.1 percent to
$38.6 million from $31.9 million, respectively, compared to the prior year
periods. Net interest income increased in the current year period due to both
volume increases of net average earning assets, and an increase in the net
interest spread (yield on earning assets less cost of funds). For the three and
nine months ended September 30, 1999, the net interest spread was 3.80 percent
and 3.61 percent, respectively, compared to 3.64 and 3.57 percent in the same
periods of 1998, respectively. On a tax equivalent basis, the net interest
spread was 3.89 percent and 3.71 percent for the three and nine month periods
ended September 30, 1999, compared to 3.75 percent and 3.70 percent for the
comparable periods in 1998, respectively. Overall yields on interest earning
assets decreased during the three and nine month periods ended September 30,
1999, as compared to the respective periods in 1998, while the cost


                                       25
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION (Cont'd)

of funds decreased at a higher rate, resulting in a widening of the net interest
spread. The decrease in asset yields is partially as a result of lower yields
available on security investments and redemptions of callable agency and other
securities at higher yields, as well as declining yields on loans due to
increased competition and a decline in interest rates through the second quarter
of 1999, before interest rates began to increase in the third quarter of 1999,
as compared to respective periods in 1998. The cost of funds decreased due to
the cost of deposits and interest rates on borrowings decreasing and
non-interest bearing deposit accounts increasing in both periods, compared to
the respective periods in 1998. The net interest margin increased to 3.88
percent from 3.75 percent and to 3.77 percent from 3.74 percent for the three
and nine month periods ended September 30, 1999 and 1998, respectively, as a
result of the widening net interest spread. On a tax equivalent basis, the net
interest margin increased to 3.97 percent from 3.86 percent and to 3.87 percent
from 3.86 percent for the three and nine months ended September 30, 1999 and
1998, respectively. The increase in the net interest margin on a tax equivalent
basis in both the three and nine months comparable periods is partially offset
by a lower proportion of tax exempt securities in the 1999 periods.

Provision for Loan Losses

The provision for loan losses increased $389,000 to $700,000 and increased
$679,000 to $1,610,000 for the three and nine month periods ended September 30,
1999, respectively, compared to the same periods in 1998. Net charge-offs in the
three and nine month periods ended September 30, 1999 totaled $152,000 and
$318,000, respectively, compared to net charge-offs of $109,000 and $189,000 for
the three and nine month periods ended September 30, 1998. The net charge-offs
in all periods primarily relate to credit card loans. Nonaccrual loans were $1.9
million and $4.9 million, respectively, at September 30, 1999 and 1998, compared
to $2.3 million at December 31, 1998. The increase in the provision for loan
losses in the three and nine months ended September 30, 1999 primarily reflects
the increasing loan portfolio, while credit quality has improved and
non-performing assets decreased from prior year periods. It is the Company's
policy to discontinue the accrual of interest on loans when, in the opinion of
management, a reasonable doubt exists as to the timely collectibility of the
amounts due. Net income is adversely impacted by the level of non-performing
assets of the Company since, in addition to foregone revenue, the Company must
increase the level of provision for loan losses, and incur other costs
associated with collections of past due balances.

An evaluation of the quality of the loan portfolio is performed by management on
an ongoing basis as an integral part of the loan function, which includes the
identification of past due loans, the recognition of the current economic
environment and the review of the historical loan loss experience. Management
has taken a prudent and cautious position in evaluating various business and
economic uncertainties in relation to the Company's loan portfolio and believes
that the allowance for loan losses at September 30, 1999 reflects the risk
elements inherent in the total loan portfolio at that time. The changes in the
provision charged to income and the allowance for loan losses reflects such
uncertainties on an increasing loan portfolio. There is no assurance that the
Company will not be required to make future adjustments to the allowance in
response to changing economic conditions or regulatory examinations.


                                       26
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION (Cont'd)

Non-Interest Income

Non-interest income for the three and nine months ended September 30, 1999
increased by $51,000 to $1,211,000 and decreased $94,000 to $3,961,000,
respectively, compared to the same periods of 1998. The increase for the
comparable three month period is primarily related to higher service charges and
fees of $150,000, partially offset by a $68,000 decrease in other income and
lower security gains of $31,000. The decrease for the comparable nine month
periods is primarily related to a $564,000 decrease in security gains, partially
offset by an increase of $371,000 in service charges and fees and other income
of $99,000. Other income consists primarily of credit card fees, loan servicing
income, letter of credit fees, loan prepayment penalties, wire transfer fees,
safe deposit, and other fees.

Non-Interest Expense

Non-interest expense decreased $3,378,000 to $7,742,000 and $2,843,000 to
$21,997,000 for the three and nine month periods ended September 30, 1999,
respectively, from the comparable periods in 1998. The primary reason for the
decrease in non-interest expense results from the merger related expenses
($4,190,000 in the three and nine months ended September 30, 1998) related to
the acquisition of Tappan Zee and expenses related to the liquidation of U.S.B.
Realty Corp. ($100,000 and $513,000 in the three and nine months ended September
30, 1998, respectively) incurred in the 1998 periods. Excluding the merger
related and liquidation expenses, non-interest expense increased $912,000
(13.4%) and $1,860,000 (9.2%) due to increases in the cost of salaries and
benefits, occupancy costs and business development expense to support the Bank's
growth and expenses incurred in connection with the Company's Y2K project.
Expense increases were partially offset by savings of approximately $0.4 million
and $1.0 million for the three and nine months ended September 30, 1999,
respectively, related to the merger of Tappan Zee and Tarrytowns Bank. The
following discusses each component of non-interest expense.

Salaries and benefits, the largest component of non-interest expense, increased
by $735,000, or 18.9 percent and $1,401,000 or 12.1 percent during the three and
nine month periods ended September 30, 1999, compared to the previous year
periods. The increases are partially offset by estimated merger related savings
of $190,000 and $580,000 for the three and nine months ended September 30, 1999,
respectively. The increases occurred due to additional personnel employed by the
Bank to accommodate the increases in deposits and loans and their related
services, and annual merit increases. In addition, employee benefits increased
because of higher incentive compensation programs which are based upon the
Company's net income and overall financial performance, higher payroll taxes
during 1999 due to the higher salary base and increases in the cost of other
employee benefit programs such as medical coverage, and tuition reimbursement.

Significant changes (in excess of 5 percent) in the other components of
non-interest expense for the three and nine month periods ended September 30,
1999 compared to September 30, 1998, were due to the following:

o     Increase of $72,000 (5.6%), and $384,000 (10.7%), respectively, in
      occupancy and


                                       27
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION (Cont'd)

      equipment expense. This increase is due principally to higher maintenance
      and depreciation expenses relating to the Bank's building and equipment
      facilities and computer related equipment to accommodate increased
      business volume, as well as additional space for corporate and
      administrative offices.

o     Increase of $64,000 (18.7%), and $206,000 (20.6%), respectively, in
      advertising and business development. The increase reflects increased
      emphasis on marketing, and the introduction of the Bank's ad campaign, "Do
      business with us, do better with us," as well as increased advertising
      expense for deposit and loan products and new branch promotions and other
      business development efforts.

o     Decrease of $67,000 (19.1%), and $472,000 (39.3%), respectively, in
      professional fees. The decrease results partially from merger related
      savings, lower loan related legal fees due to the improvement in credit
      quality of the loan portfolio, as well as a reduction in professional fees
      associated with the liquidation of U.S.B. Realty Corp. in 1998, partially
      offset by an increase in examination fees.

o     Increase of $23,000 (11.9%), and $11,000 (1.8%), respectively, in
      communications is due to an increase in telephone expenses resulting from
      increases in telephone lines and usage due to increases in office space
      and postage expense due to increased business volume.

o     Increase of $2,000 and $14,000, respectively, in FDIC insurance premiums
      results from higher deposit balances.

o     Decrease of $32,000 (4.7%) and $184,000 (8.8%), respectively, in other
      expenses, primarily results from lower foreclosure related expenses and
      branch charge-offs, as well as reductions due to efficiencies resulting
      from merger related savings.

Income Taxes

The effective tax rates for the three and nine month periods ended September 30,
1999 and 1998 were 37.4 and 98.6 percent, and 37.3 and 15.9 percent,
respectively. Due to the non-recurring nature of the tax benefit associated with
the U.S.B. Realty Corp. liquidation and merger related expenses incurred in
connection with the acquisition of Tappan Zee, the tax provisions for the 1998
periods are computed based on the actual provision that would be incurred as of
periods reported. The higher effective tax rate for the three months ended
September 30, 1998 reflects a significant portion of merger related expenses
that are not anticipated to be deductible for Federal and state income tax
purposes. The lower effective tax rate for the nine months ended September 30,
1998 reflects lower Federal and state taxes as a result of tax benefits
associated with the liquidation of U.S.B. Realty Corp., partially offset by the
effects of non-deductible merger related expenses.


                                       28
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION (Cont'd)

Year 2000 Issue

The Company continues to monitor the Year 2000 ("Y2K") issue. The Company has
identified all information technology ("IT") systems and non-IT systems
(primarily telephone, vault and security systems that include micro-processes)
and evaluated their status as to Y2K readiness. The Company's Y2K Committee
reports progress to the Company's Board of Directors on at least a quarterly
basis.

All significant IT and non-IT systems are vendor supported. Vendors have
represented to the Company that all significant systems are or will be Y2K
compliant. In particular, the Company's major core system software vendor has
certified that its software is Y2K compliant. The Company has further determined
which systems are mission critical, i.e., those systems that are critical to the
Company's ability to operate and provide service to its customers without any
interruption to the Company's normal business operations. Each of these systems
have been certified or represented by its vendors that they are Y2K compliant.
These systems include the IBM AS-400 computer, Kirchman D-3000 (core banking)
system, ATM systems, Automated Clearing House (ACH) system, and CR
(communications) system. The Company has completed a successful test of each
mission critical system according to an overall Y2K testing plan. An additional
IBM AS-400 computer has been leased to facilitate testing in a controlled
production environment. As of September 30, 1999, all mission critical systems
are Y2K compliant.

Testing of systems identified as significant but not mission critical, i.e.
systems for which alternative processes are available but provide a significant
level of efficiency have also been tested successfully for Y2K compliance.

The Company has also evaluated significant customers' Y2K readiness and/or
progress toward Y2K compliance to evaluate the potential impact on the Company
for their failure to remediate their Y2K issues. In this connection, the Company
has designed a Y2K risk assessment process. Customers with potential Y2K issues
have been identified and the Company has taken steps to mitigate the impact of
such issues to the Company. In addition, the Company has implemented a loan
policy which requires an evaluation of the Y2K status for each loan customer
prior to approving a new loan or renewal of an existing loan. To the extent that
these processes identified customers with potential Year 2000 issues, the
Company estimated a range of appropriate reserves. As a result, the Company has
allocated $500,000 to $1,000,000 of the allowance for loan losses at September
30, 1999 to provide for any loan losses that may occur as a consequence of the
Y2K issue. The Company will continue to evaluate the impact of loan customers'
Y2K status on the allowance for loan losses.

The Company has also evaluated the potential impact of the Y2K readiness of
other significant vendors, particularly utility companies. To the Company's
knowledge, the major utility companies serving the Company have made
representations in their public documents that they believe the possibility of
significant Y2K problems will be significantly reduced with the implementation
of their Y2K plans. To mitigate a loss of electricity in any situation at its
headquarters facility, the Company will have a generator installed, tested and
operational before year end. The generator will have sufficient capacity to
operate the entire headquarters facility at


                                       29
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION (Cont'd)

full power.

The Company has engaged in a customer awareness program since the beginning of
its Y2K project in 1997. The Company has conducted customer awareness seminars,
provided numerous media messages and Year 2000 Readiness Disclosures through
customer mailings, newspaper ads and quotes, the Bank's web site, customer and
vendor mailings and branch distribution channels.

The worst case Y2K scenario would involve no utility service, mission critical
system failure and Federal Reserve, Clearing House and ACH failure. In this
circumstance, the Company would be required to significantly curtail its
operations. Preparation of paper reports prior to year end 1999 will allow the
Company to monitor limited business activity. However, processing of accruals,
customer statements and the like would not be practical. It is expected that
mission critical systems will be compliant or are not date sensitive, based on
completed Y2K remediation, Y2K testing and the vendors' certification and
representations regarding Y2K compliance. A contingency plan has been prepared
to guide operations in the event that a mission critical system is not Y2K
compliant in the Company's operating environment and cannot be immediately
remediated or for Federal Reserve, Clearing House, ACH and major vendor and/or
utility service failure. For other significant systems, an alternative process
exists and such process will be utilized as a contingent process if such a
system fails to be Y2K compliant. The Company is also monitoring liquidity needs
in the event of increased deposit withdrawals or loan commitment usage and a
liquidity contingency plan has been prepared.

There can be no guarantee that the systems of other entities on which the
Company's systems rely will be timely converted, or that a failure to convert by
another entity, or a conversion that is incompatible with the Company's systems,
would not have a material adverse effect on the Company.

Excluding the allocation of the allowance for loan losses at September 30, 1999
for the potential impact of Y2K related issues on the loan portfolio, the
Company's Y2K project costs expensed have been approximately $215,000 to date,
including capital expenditures of approximately $140,000. The estimate of total
expenditures for the Y2K project is approximately $0.5 million, of which $0.2
million are capital expenditures. Other than capital expenditures, costs are
expensed as incurred. Y2K project costs will be funded through normal operating
cash flow. The cost of the project and the date on which the Company plans to
complete the Y2K modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. No major
IT projects have been deferred due to the Company's Y2K efforts.

The Company will continue to evaluate all issues with respect to the Y2K problem
to minimize the impact on its operations and financial condition.


                                       30
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about market risk at December 31, 1998
were previously reported in the Company's 1998 Annual Report and Form 10-K.
There have been no material changes in the Company's market risk exposures at
September 30, 1999 compared to December 31, 1998. Interest rate risk continues
to be the Company's primary market risk exposure since substantially all Company
transactions are denominated in U.S. dollars with no direct foreign currency
exchange or changes in commodity price exposures. All market risk sensitive
instruments continue to be held to maturity or available for sale with no
financial instruments entered into for trading purposes. The Company does not
use derivative financial instruments such as interest rate swaps and caps
extensively. However, as disclosed in the Notes to Consolidated Financial
Statements (Unaudited), an interest rate contract is in place to manage the
Company's interest rate exposure. The Company has not entered into any new
derivative financial instruments during the nine months ended September 30,
1999.

The Company continues to use two methods to evaluate its market risk to changes
in interest rates, a "Static Gap" evaluation and a simulation analysis of the
impact of changes in interest rates on the Company's net interest income and
cash flow. There have been no changes in the Company's policy limit of
acceptable variances to net interest income at September 30, 1999 as compared to
December 31, 1998. The changes in the composition of the Company's assets and
liabilities for the nine months ended September 30, 1999 as reported in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations have not materially affected the Company's overall interest rate risk
profile at September 30, 1999 as compared to December 31, 1998. The Company's
"Static Gap" at September 30, 1999 has not changed materially from December 31,
1998. If interest rates were to gradually ramp up or down 200 basis points from
current rates, the percentage change in estimated net interest income for the
subsequent 12 month measurement period continues to be within the Company's
policy limit of not declining by more than 5.0 percent.


                                       31
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits

Exhibit No.   Exhibit
-----------   -------

(3)(a)        Amended and Restated Certificate of Incorporation of Registrant
              (incorporated herein by reference to Registrant's Quarterly Report
              on Form 10-Q for the quarter ended June 30, 1998, Exhibit (3)(a)).

(3)(b)        Bylaws of Registrant (incorporated herein by reference from
              Registrant's Registration Statement on Form S-14 (file no.
              2-79734), Exhibit 3(b)).

(4)(a)        Junior Subordinated Indenture, dated February 5, 1997, between
              Registrant and The Chase Manhattan Bank, as trustee (incorporated
              herein by reference to Registrant's Annual Report on Form 10-K for
              the year ended December 31, 1996 ("1996 10-K"), Exhibit (4)(a)).

(4)(b)        Guarantee Agreement, dated February 5, 1997, by and between
              Registrant and The Chase Manhattan Bank, as trustee for the
              holders of 9.58% Capital Securities of Union State Capital Trust I
              (incorporated herein by reference to Registrant's 1996 10-K,
              Exhibit (4)(b)).

(4)(c)        Amended and Restated Declaration of Trust of Union State Capital
              Trust I (incorporated herein by reference to Registrant's 1996
              10-K, Exhibit (4)(c)).

(10)(a)       Agreement of Employment dated as of November 16, 1998 between the
              Company and the Bank and Thomas E. Hales (incorporated herein by
              reference to Registrant's Annual Report on Form 10-K for the year
              ended December 31, 1998 ("1998 10-K"), Exhibit (10)(a)).

(10)(b)       Agreement of Employment dated as of November 16, 1998 between the
              Company and the Bank and Raymond J. Crotty (incorporated herein by
              reference to Registrant's 199810-K, Exhibit (10)(b)).

(10)(c)       Agreement of Employment dated as of November 16, 1998 between the
              Company and the Bank and Steven T. Sabatini (incorporated herein
              by reference to Registrant's 1998 10-K, Exhibit (10)(c)).

(10)(d)       Registrant's 1984 Incentive Stock Option Plan (incorporated herein
              by reference from Form S-8 Registration Statement, file No.
              2-90674, Exhibit 28 (b)).

(10)(e)       Registrant's 1993 Incentive Stock Option Plan.*

(10)(f)       Registrant's Employee Stock Ownership Plan (With Code Section
              401(k) Provisions) (incorporated herein by reference from
              Registrant's 1993 10-K, Exhibit (10)(d )).


                                       32
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (cont'd)

(A) Exhibits (cont'd)

Exhibit No.   Exhibit
-----------   -------

(10)(g)       Registrant's Dividend Reinvestment and Stock Purchase Plan
              (incorporated herein by reference from Registrant's Form S-3
              Registration Statement, file No. 33-72788).

(10)(h)       Registrant's Director Stock Option Plan (incorporated herein by
              reference to Registrant's 1996 10-K, Exhibit (10)(f)).

(10)(i)       Registrant's 1998 Director Stock Option Plan (incorporated herein
              by reference to Registrant's Form S-8 Registration Statement,
              filed June 5, 1998, Exhibit (10)(d)).

(10)(j)       Registrant's Key Employees' Supplemental Investment Plan, as
              amended July 1, 1997 and September 1, 1998 (incorporated herein by
              reference to the Plan's Annual Report on Form 11-K for the year
              ended December 31, 1998).

(10)(k)       Registrant's Key Employees' Supplemental Diversified Investment
              Plan dated September 1, 1998 (incorporated herein by reference to
              the Plan's Annual Report on Form 11-K for the year ended December
              31, 1998).

(10)(l)       Registrant's 1997 Employee Stock Option Plan (incorporated herein
              by reference to Registrant's proxy statement filed April 18,
              1997).

(10)(m)       Agreement and Plan of Merger, dated as of March 6, 1998, between
              U.S.B. Holding Co., Inc. and Tappan Zee Financial, Inc.
              (incorporated herein by reference to Registrant's Current Report
              on Form 8-K dated as of March 6, 1998).

(10)(n)       Stock Option Agreement, dated as of March 6, 1998, between U.S.B.
              Holding Co., Inc. and Tappan Zee Financial, Inc. (incorporated
              herein by reference to Registrant's Current Report on Form 8-K
              dated as of March 6, 1998).

(10)(o)       Tappan Zee Financial, Inc. 1996 Stock Option Plan for Officers and
              Employees ("Employee Stock Option Plan") (incorporated herein by
              reference to Exhibit B to Tappan Zee Financial, Inc.'s Proxy
              Statement for use in connection with its 1996 Annual Meeting (the
              "Tappan Zee 1996 Proxy Statement").

(10)(p)       Amendment No. 1 to the Tappan Zee Financial, Inc. Employee Stock
              Option Plan for Officers and Employees (incorporated herein by
              reference to Tappan Zee Financial, Inc.'s Annual Report on Form
              10-K for the fiscal year ended March 31, 1997 (the "Tappan Zee
              1997 10-K"), Exhibit 10.1.1).

(10)(q)       Amendment No. 2 to the Tappan Zee Financial, Inc. Employee Stock
              Option Plan for Officers and Employees (incorporated herein by
              reference to Exhibit A to Tappan Zee Financial, Inc.'s Proxy
              Statement for use in connection with its 1997 Annual Meeting of
              Shareholders (the " Tappan Zee 1997 Proxy Statement").


                                       33
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (cont'd)

(A) Exhibits (cont'd)

Exhibit No.   Exhibit
-----------   -------

(10)(r)       Tappan Zee Financial, Inc. 1996 Stock Option Plan for Outside
              Directors ("Outside Director Option Plan") (incorporated herein by
              reference to Exhibit B to the Tappan Zee 1997 Proxy Statement).

(10)(s)       Amendment No. 1 to the Outside Director Option Plan (incorporated
              herein by reference to the Tappan Zee 1997 10-K, Exhibit 10.2.1).

(10)(t)       Amendment No. 2 to the Outside Director Option Plan (incorporated
              herein by reference to Exhibit B to the Tappan Zee 1997 Proxy
              Statement).

10)(u)        Tappan Zee Financial, Inc. 1996 Recognition and Retention Plan for
              Officers and Employees ("Employee RRP") (incorporated herein by
              reference to Exhibit B to the Tappan Zee 1996 Proxy Statement).

(10)(v)       Amendment No. 1 to the Employee RRP (incorporated herein by
              reference to the Tappan Zee 1997 10-K, Exhibit 10.3.1 ).

(10)(w)       Amendment No. 2 to the Employee RRP (incorporated herein by
              reference to Exhibit C to the Tappan Zee 1997 Proxy Statement).

(10)(x)       Tappan Zee Financial, Inc. 1996 Recognition and Retention Plan for
              Outside Directors ("Outside Director RRP") (incorporated herein by
              reference to Exhibit D to the Tappan Zee 1997 Proxy Statement).

(10)(y)       Amendment No. 1 to the Outside Director RRP (incorporated herein
              by reference to the Tappan Zee 1997 10-K, Exhibit 10.4.1).

(10)(z)       Amendment No. 2 to the Outside Director RRP (incorporated herein
              by reference to Exhibit D to the Tappan Zee 1997 Proxy Statement).

(10)(aa)      Employee Stock Ownership Plan of Tappan Zee Financial, Inc. and
              Certain Affiliates, as amended (incorporated herein by reference
              to Tappan Zee Financial Inc.'s Annual Report on Form 10-K for the
              fiscal year ended March 31, 1996 (the "Tappan Zee 1996 10-K"),
              Exhibit 10.6).

(10)(bb)      Loan Agreement to the Employee Stock Ownership Plan Trust of
              Tappan Zee Financial, Inc. and Certain Affiliates (incorporated
              herein by reference to the Tappan Zee 1996 10-K, Exhibit 10.7).

(10)(cc)      Deferred Compensation Plan for Directors of Tarrytowns Bank, FSB
              (Incorporated herein by reference to the Registration Statement on
              Form S-1, No. 33-94128, filed on June 30, 1995, as amended (the
              "Tappan Zee Registration Statement"), Exhibit 10.7).


                                       34
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (cont'd)

(A) Exhibits (cont'd)

Exhibit No.   Exhibit
-----------   -------

(10)(dd)      Retirement Plan for Board Members of Tappan Zee Financial, Inc.
              and Certain Affiliates, adopted effective as of October 5, 1995
              (incorporated herein by reference to the Tappan Zee 1996 10-K,
              Exhibit 10.9).

(10)(ee)      Consulting Agreement by and between Tarrytowns Bank, FSB and
              Stephen C. Byelick, dated effective as of August 31, 1998
              (incorporated herein by reference to the Registrant's Quarterly
              Report on Form 10-Q for the quarter ended September 30, 1998 (the
              "September 30, 1998 10-Q"), Exhibit (10)(dd)).

10)(ff)       Employment Agreement by and between Tarrytowns Bank, FSB and Harry
              G. Murphy, dated effective as of August 31, 1998 (incorporated
              herein by reference to the September 30, 1998 10-Q, Exhibit
              (10)(cc)).

(10)(gg)      Employee Retention Agreement by and among Tappan Zee Financial,
              Inc. Tarrytowns Bank, FSB and Christina Vidal, effective as of
              October 5, 1995 (incorporated herein by reference to the Tappan
              Zee 1996 10-K, Exhibit 10.15).

(10)(hh)      Employee Retention Agreement by and among Tappan Zee Financial,
              Inc., Tarrytowns Bank, FSB and Margaret E. Sampson, effective as
              of October 5, 1995 (incorporated herein by reference to the Tappan
              Zee 1996 10-K, Exhibit 10.16).

(10)(ii)      Employee Retention Agreement by and among Tappan Zee Financial,
              Inc., Tarrytowns Bank, FSB and James D. Haralambie, effective as
              of June 23, 1997 (incorporated herein by reference to the U.S.B.
              Holding Co., Inc. 1998 10-K, Exhibit (10)(17)).

(10)(jj)      Forms of Stock Option Agreement by and between Tappan Zee
              Financial, Inc. and recipients of stock options granted pursuant
              to the Tappan Zee Financial, Inc. Employee Option Plan for
              Officers and Employees and the Tappan Zee Financial, Inc. Stock
              Option Plan for Outside Directors (incorporated herein by
              reference to the Tappan Zee 1997 10-K, Exhibit 10.16).

(10)(kk)      Forms of Restricted Stock Award Notices to award recipients,
              pursuant to the Employee RRP and the Outside Director RRP
              (incorporated herein by reference to the Tappan Zee 1997 10-K,
              Exhibit 10.16).

(10)(ll)      Registrant's Retirement Plan for Non-Employee Directors of U.S.B.
              Holding Co., Inc. and Certain Affiliates dated effective as of May
              19, 1999 (incorporated herein by reference to the Registrant's
              Quarterly Report on Form 10-Q for the quarter ended June 30, 1999,
              Exhibit (10) (11)).


                                       35
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (cont'd)

(A) Exhibits (cont'd)

Exhibit No.   Exhibit
-----------   -------

(11)          Computation of earnings per share.*

(27)          Financial Data Schedule.*

*Filed Herewith.

(B) Reports on Form 8-K

      No reports on Form 8-K were filed by the Company during the quarter ended
      September 30, 1999.

                                   SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on November 12, 1999.

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


/s/ Thomas E. Hales                     /s/ Steven T. Sabatini
------------------------------------    ----------------------------------------
Thomas E. Hales                         Steven T. Sabatini
Chairman of the Board, President,       Senior Executive Vice President Finance,
Chief Executive Officer and Director    Chief Financial Officer and
                                        Assistant Secretary
                                        (Principal Financial and
                                          Accounting Officer)


                                       36