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, 2001 Commission File No. 1-12811


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

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


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

                                  845-365-4600
                                  ------------
               (Registrant's telephone number including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months 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 5, 2001
                  ---------------------------------------------------------
                  Common stock, par value            16,709,199
                  $0.01 per share



<PAGE>


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

                                                 TABLE OF CONTENTS

<TABLE>
<CAPTION>


                                                                                                 PAGE NO.
                                                                                                 --------
<S>                                                                                               <C>
PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

                  CONDENSED CONSOLIDATED STATEMENTS OF
                  CONDITION AS OF SEPTEMBER 30, 2001 AND
                  DECEMBER 31, 2000.                                                               1

                  CONDENSED CONSOLIDATED STATEMENTS OF
                  INCOME FOR THE THREE MONTHS ENDED
                  SEPTEMBER 30, 2001 AND 2000.                                                     2

                  CONDENSED CONSOLIDATED STATEMENTS OF
                  INCOME FOR THE NINE MONTHS ENDED
                  SEPTEMBER 30, 2001 AND 2000.                                                     3

                  CONDENSED CONSOLIDATED STATEMENTS OF
                  CASH FLOWS FOR THE NINE MONTHS ENDED
                  SEPTEMBER 30, 2001 AND 2000.                                                     4

                  CONDENSED CONSOLIDATED STATEMENTS OF
                  CHANGES IN STOCKHOLDERS' EQUITY FOR THE
                  NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000.                                   6

                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
                  STATEMENTS.                                                                      8

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS.                                  21
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES
                  ABOUT MARKET RISK.                                                              29

PART II.  OTHER INFORMATION AND SIGNATURES

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.                                                        30


</TABLE>


                                                       - 1 -

<PAGE>


ITEM 1.  PART I - FINANCIAL INFORMATION

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


<TABLE>
<CAPTION>

                                                                       SEPTEMBER 30,             DECEMBER 31,
                                                                           2001                      2000
                                                                    -------------------------------------------
                                                                              (000'S, EXCEPT SHARE DATA)
<S>                                                                   <C>                        <C>
ASSETS
Cash and due from banks                                                $     82,366              $    37,691
Federal funds sold                                                           61,000                   37,200
                                                                         -------------               ---------
Cash and cash equivalents                                                   143,366                   74,891
Interest bearing deposits in other banks                                         26                       21
Securities:
    Available for sale (at estimated fair value)                            529,173                  426,909
    Held to maturity (estimated fair value of
       $241,662 in 2001 and $225,088 in 2000)                               238,561                  225,590
Loans, net of allowance for loan losses of
    $11,963 in 2001 and $11,338 in 2000                                   1,116,206                1,075,443
Premises and equipment, net                                                  11,696                   11,999
Accrued interest receivable                                                  13,896                   14,042
Other real estate owned (OREO)                                                   34                       34
Federal Home Loan Bank of New York stock                                     17,769                   34,139
Other assets                                                                 17,170                   23,197
                                                                       ---------------------------------------
TOTAL ASSETS                                                           $  2,087,897              $ 1,886,265
                                                                       =======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits                                          $    235,257              $   189,417
Interest bearing deposits:
    NOW accounts                                                            122,997                   85,761
    Money market accounts                                                    71,754                   69,924
    Savings deposits                                                        426,763                  380,539
    Time deposits                                                           617,730                  763,846
                                                                       ---------------------------------------
TOTAL DEPOSITS                                                            1,474,501                1,489,487
Accrued interest payable                                                      6,263                    7,710
Accrued expenses and other liabilities                                       15,828                    7,815
Accrued purchases of securities not yet settled                              59,950                       --
Securities sold under agreements to repurchase                              270,266                  225,514
Federal Home Loan Bank of New York advances                                  85,112                   17,730
                                                                       ---------------------------------------
TOTAL                                                                     1,911,920                1,748,256
Corporation-Obligated mandatory redeemable capital
     securities of subsidiary trusts                                         40,000                   20,000
Minority interest-junior preferred stock of consolidated subsidiary             132                      132
Commitments and contingencies (Note 13)
STOCKHOLDERS' EQUITY:
    Common stock, $0.01 par value; authorized shares 50,000,000;
     issued shares of 17,755,778 in 2001 and 17,464,455 in 2000                 178                      175
    Additional paid-in capital                                              113,930                  111,942
    Retained earnings                                                        28,317                   17,116
    Treasury stock at cost; 1,029,129 common shares in 2001 and
       873,344 in 2000                                                      (13,132)                 (11,158)
    Common stock held for benefit plans                                      (1,579)                  (1,431)
    Deferred compensation obligation                                          1,124                      856
    Accumulated other comprehensive income                                    7,007                      377
                                                                       ---------------------------------------
        TOTAL STOCKHOLDERS' EQUITY                                          135,845                  117,877
                                                                       ---------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $  2,087,897             $  1,886,265
                                                                       =======================================

</TABLE>



           See notes to condensed consolidated financial statements.

<PAGE>


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

<TABLE>
<CAPTION>


                                                                                         THREE MONTHS ENDED
                                                                                           SEPTEMBER 30,
                                                                                       2001           2000
                                                                                  ----------------------------
                                                                                  (000's, EXCEPT SHARE DATA)
<S>                                                                               <C>                <C>
INTEREST INCOME:
Interest and fees on loans                                                        $   21,179         $ 22,883
Interest on federal funds sold                                                           428              615
Interest and dividends on securities:
         Mortgage-backed securities                                                    6,001            6,340
         U.S. Treasury and government agencies                                         4,068            3,659
         Obligations of states and political subdivisions                                863              782
         Corporate and other                                                              11               10
Interest on deposits in other banks                                                        2                3
Dividends on Federal Home Loan Bank of New York stock                                    497              594
                                                                                  ----------------------------
TOTAL INTEREST INCOME                                                                 33,049           34,886
                                                                                  ----------------------------
INTEREST EXPENSE:
Interest on deposits                                                                  11,890           15,715
Interest on borrowings                                                                 4,630            3,896
Interest on Corporation - Obligated mandatory redeemable
         capital securities of subsidiary trusts                                         739              488
                                                                                  ----------------------------
TOTAL INTEREST EXPENSE                                                                17,259           20,099
                                                                                  ----------------------------

NET INTEREST INCOME                                                                   15,790           14,787
Provision for loan losses                                                                418              275
                                                                                  ----------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                                   15,372           14,512
                                                                                  ----------------------------
NON-INTEREST INCOME:
Service charges and fees                                                                 883              871
Other                                                                                    688              339
Gains on securities transactions - net                                                    --                6
                                                                                  ----------------------------
TOTAL NON-INTEREST INCOME                                                              1,571            1,216
                                                                                  ----------------------------

NON-INTEREST EXPENSE:
Salaries and employee benefits                                                         5,360            4,842
Occupancy and equipment                                                                1,533            1,385
Advertising and business development                                                     523              525
Professional fees                                                                        255              136
Communications                                                                           228              268
Stationery and printing                                                                  222              145
FDIC insurance                                                                            70               64
Amortization of intangibles                                                              225                2
Other                                                                                    654              646
                                                                                  ----------------------------
TOTAL NON-INTEREST EXPENSE                                                             9,070            8,013
                                                                                  ----------------------------
Income before income taxes                                                             7,873            7,715
Provision for income taxes                                                             2,717            2,669
                                                                                  ----------------------------
NET INCOME                                                                        $    5,156      $     5,046
                                                                                  ============================
BASIC EARNINGS PER COMMON SHARE                                                   $     0.31      $      0.30
                                                                                  ============================
DILUTED EARNINGS PER COMMON SHARE                                                 $     0.30      $      0.30
                                                                                  ============================
</TABLE>

           See notes to condensed consolidated financial statements.

<PAGE>


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

<TABLE>
<CAPTION>

                                                                                       NINE MONTHS ENDED
                                                                                         SEPTEMBER 30,
                                                                                       2001           2000
                                                                                  ----------------------------
                                                                                  (000's, EXCEPT SHARE DATA)
<S>                                                                                <C>             <C>
INTEREST INCOME:
Interest and fees on loans                                                         $ 65,112        $ 64,530
Interest on federal funds sold                                                        1,532           1,434
Interest and dividends on securities:
         Mortgage-backed securities                                                  18,715          19,306
         U.S. Treasury and government agencies                                       11,180          10,475
         Obligations of states and political subdivisions                             2,495           2,274
         Corporate and other                                                             32              25
Interest on deposits in other banks                                                       7               8
Dividends on Federal Home Loan Bank of New York stock                                 1,696           1,739
                                                                                   ---------------------------
TOTAL INTEREST INCOME                                                               100,769          99,791
                                                                                   ---------------------------

INTEREST EXPENSE:
Interest on deposits                                                                 41,529          40,440
Interest on borrowings                                                               12,442          13,096
Interest on Corporation - Obligated mandatory redeemable
         capital securities of subsidiary trusts                                      1,715           1,464
                                                                                   ---------------------------
TOTAL INTEREST EXPENSE                                                               55,686          55,000
                                                                                   ---------------------------
NET INTEREST INCOME                                                                  45,083          44,791
Provision for loan losses                                                               838           1,225
                                                                                   ---------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                                  44,245          43,566
                                                                                   ---------------------------
NON-INTEREST INCOME:
Service charges and fees                                                              2,599           2,610
Other                                                                                 1,659           1,065
Gains (losses) on securities transactions - net                                       1,533             (99)
                                                                                   ---------------------------
TOTAL NON-INTEREST INCOME                                                             5,791           3,576
                                                                                   ---------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits                                                       15,561          14,235
Occupancy and equipment                                                               4,673           4,307
Advertising and business development                                                  1,351           1,471
Professional fees                                                                       674             575
Communications                                                                          737             773
Stationery and printing                                                                 644             494
FDIC insurance                                                                          211             183
Amortization of intangibles                                                             677               8
Other                                                                                 1,970           1,878
                                                                                   ---------------------------
TOTAL NON-INTEREST EXPENSE                                                           26,498          23,924
                                                                                   ---------------------------
Income before income taxes                                                           23,538          23,218
Provision for income taxes                                                            8,144           8,079
                                                                                   ---------------------------
NET INCOME                                                                         $ 15,394       $  15,139
                                                                                   ===========================

BASIC EARNINGS PER COMMON SHARE                                                    $   0.92       $    0.91
                                                                                   ===========================

DILUTED EARNINGS PER COMMON SHARE                                                  $   0.90       $    0.88
                                                                                   ===========================

</TABLE>

           See notes to condensed consolidated financial statements.

<PAGE>


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



<TABLE>
<CAPTION>

                                                                                            NINE MONTHS ENDED
                                                                                              SEPTEMBER 30,
                                                                                          2001             2000
                                                                                     -------------------------------
OPERATING ACTIVITIES                                                                            (000'S)
<S>                                                                                    <C>               <C>
Net income                                                                             $   15,394        $    15,139
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses                                                                     838              1,225
Depreciation and amortization                                                               2,132              1,483
Amortization of premiums on securities - net                                                  937                723
Benefit plan expense                                                                          200                208
Deferred income tax provision (benefit) - net                                               5,955               (576)
(Gains) losses on securities transactions - net                                            (1,533)                99
Proceeds from sale of loans                                                                    --                352
Decrease (increase) in accrued interest receivable                                            146             (3,329)
(Decrease) increase in accrued interest payable                                            (1,447)               533
Other - net                                                                                 3,271             (2,203)
                                                                                      -------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                  25,893             13,654
                                                                                      -------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale                                      162,380             13,090
Proceeds from principal paydowns, redemptions and maturities of:
   Securities available for sale                                                           90,355             28,103
   Securities held to maturity                                                            133,325              7,877
Purchases of securities available for sale                                               (323,411)           (54,815)
Purchases of securities held to maturity                                                 (105,935)           (18,445)
Redemptions of Federal Home Loan Bank of New York stock                                    16,370                --
Net (increase) decrease in interest bearing deposits in other banks                            (5)               520
Increase in loans outstanding - net                                                       (41,601)          (126,870)
Purchases of premises and equipment - net                                                  (1,152)            (1,740)
                                                                                       -------------------------------
NET CASH USED FOR INVESTING ACTIVITIES                                                    (69,674)          (152,280)
                                                                                       -------------------------------
FINANCING ACTIVITIES:
Net increase in non-interest bearing deposits,
   NOW, money market and savings accounts                                                 131,130            126,015
Net (decrease) increase in time deposits, net of
   withdrawals and maturities                                                            (146,116)           145,354
Net decrease in securities sold under agreements
   to repurchase -  short-term                                                               (248)          (111,000)
Net decrease in Federal Home Loan Bank of New York
   advances - short-term                                                                       --            (31,355)
Proceeds from securities sold under agreements to
   repurchase - long-term                                                                  55,000            100,000
Repayment of securities sold under agreements to
    repurchase - long-term                                                                (10,000)           (49,780)

Net proceeds from issuance of Corporation-Obligated mandatory
    redeemable capital securities of subsidiary trust                                      19,364                 --
Proceeds from Federal Home Loan Bank of New York
      advances - long-term                                                                 70,000                 --
Repayment of Federal Home Loan Bank of New York
    advances - long-term                                                                   (2,618)            (2,911)
Cash dividends paid                                                                        (4,193)            (3,751)
Redemption of junior preferred stock of  consolidated subsidiary, net                          --                 (1)
Proceeds from issuance of common stock and related tax benefit of
      stock options                                                                         1,911              1,646
Issuance of treasury stock                                                                    187                 --
Purchases of treasury stock                                                                (2,161)            (4,695)
                                                                                       -------------------------------
NET CASH  PROVIDED BY FINANCING ACTIVITIES                                                112,256            169,522
                                                                                       -------------------------------
</TABLE>

<PAGE>


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


<TABLE>
<CAPTION>

                                                                                            NINE MONTHS ENDED
                                                                                              SEPTEMBER 30,
                                                                                          2001             2000
                                                                                     ------------------------------
                                                                                                (000'S)
<S>                                                                                  <C>             <C>
INCREASE IN CASH AND CASH EQUIVALENTS                                                $   68,475      $    30,896
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           74,891           68,311
                                                                                     ---------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                             $  143,366      $    99,207
                                                                                     ===========================
Supplemental Disclosures:
   Interest paid                                                                     $   57,133      $    54,467
                                                                                     ---------------------------
   Income tax payments                                                               $      129      $     9,637
                                                                                     ---------------------------
   Transfer of held to maturity securities to available for sale securities          $    9,592               --
                                                                                     ---------------------------
   Change in shares held in trust for deferred compensation                          $     (268)      $     (111)
                                                                                     ---------------------------
   Change in deferred compensation obligation                                        $      268       $      111
                                                                                     ---------------------------
   Change in accumulated other comprehensive income                                  $    6,630       $    3,971
                                                                                     ---------------------------
   Purchase of securities not yet settled:

      Available for sale                                                             $   19,981       $       --
                                                                                     ---------------------------
      Held to maturity                                                               $   39,969       $       --
                                                                                     ---------------------------
</TABLE>


           See notes to condensed consolidated financial statements.


<PAGE>


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

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
                           (000's, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>


                                          COMMON STOCK       ADDITIONAL                           COMMON STOCK          DEFERRED
                                         SHARES     PAR         PAID-IN    RETAINED    TREASURY       HELD FOR      COMPENSATION
<S>                                    <C>          <C>        <C>         <C>         <C>            <C>            <C>
Balance at  January 1, 2001            16,591,111   $175       $111,942    $17,116     $(11,158)      $(1,431)       $   856

Net income                                                                  15,394

Other comprehensive income:
   Net unrealized securities
     gains arising during the
     period, net of taxes of $5,243
   Reclassification adjustment of
      net gains for securities sold,
      net of taxes of $536

Other comprehensive income

Total comprehensive income

Cash dividends:
   Common $0.25 per share                                                   (4,182)
   Junior preferred stock                                                      (11)

Common stock options exercised
   and related tax benefit                306,023      3          1,908                     187

Purchases of treasury stock              (170,485)                                       (2,161)

Amortization of RRP awards                                           10                                    21

ESOP shares committed to
   be released                                                       70                                    99

Deferred compensation obligation                                                                         (268)           268
                                       ----------   ----       --------    -------     --------       -------        -------
BALANCE AT
SEPTEMBER 30, 2001                     16,726,649   $178       $113,930    $28,317     $(13,132)      $(1,579)       $ 1,124
                                       ==========   ====       ========    =======     ========       =======        =======








                                         ACCUMULATED
                                               OTHER           TOTAL
                                       COMPREHENSIVE   STOCKHOLDERS'

Balance at  January 1, 2001              $    377        $117,877

Net income                                                 15,394

Other comprehensive income:
   Net unrealized securities
     gains arising during the
     period, net of taxes of $5,243         7,384           7,384
   Reclassification adjustment of
      net gains for securities sold
      net of taxes of $536                   (754)           (754)
                                         --------        --------
Other comprehensive income                  6,630           6,630
                                                         --------
Total comprehensive income                                 22,024

Cash dividends:
   Common $0.25 per share                                  (4,182)
   Junior preferred stock                                     (11)

Common stock options exercised
   and related tax benefit                                  2,098

Purchases of treasury stock                                (2,161)

Amortization of RRP awards                                     31

ESOP shares committed to
   be released                                                169

Deferred compensation obligation                               --
                                         --------        --------
BALANCE AT
SEPTEMBER 30, 2001                       $  7,007        $135,845
                                         ========        ========

</TABLE>

           See notes to condensed consolidated financial statements.

<PAGE>


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

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
                           (000's, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>


                                          COMMON STOCK       ADDITIONAL                           COMMON STOCK          DEFERRED
                                         SHARES     PAR         PAID-IN    RETAINED    TREASURY       HELD FOR      COMPENSATION
<S>                                     <C>         <C>       <C>         <C>         <C>            <C>              <C>
Balance at  January 1, 2000             15,884,273  $164      $ 98,926     $13,875    $ (6,464)      $ (1,490)         $748

Net income                                                                  15,139

Other comprehensive income:
   Net unrealized securities
     gains arising during the
     period, net of taxes of $2,817
   Reclassification adjustment
     of net losses for securities
     sold, net of taxes of $39

   Other comprehensive income

Total comprehensive income

Cash dividends:
   Common $0.23 per share                                                   (3,733)
   Junior preferred stock                                                      (11)

Five percent stock dividend                819,975     8        11,274     (11,289)

Common stock options exercised
    and related tax benefit                260,500     3         1,643

Purchases of treasury stock               (373,737)                                     (4,695)

Amortization  of RRP awards                                                                                28

ESOP shares committed to
   be released                                                      82                                     98

Deferred compensation obligation                                                                         (111)           111
                                        ----------  ----      --------     -------    --------        -------           ----
BALANCE AT
SEPTEMBER 30, 2000                      16,591,011  $175      $111,925     $13,981    $(11,159)       $(1,475)          $859
                                        ==========  ====      ========     =======    ========        =======           ====




                                         ACCUMULATED
                                               OTHER           TOTAL
                                       COMPREHENSIVE   STOCKHOLDERS'

Balance at  January 1, 2000              $ (9,348)       $ 96,411

Net income                                                 15,139

Other comprehensive income:
   Net unrealized securities
     gains arising during the
     period, net of taxes of $2,817         3,916           3,916
   Reclassification adjustment
     of net losses for securities
     sold, net of taxes of $39                 55              55
                                         --------        --------
   Other comprehensive income               3,971           3,971
                                                         --------
Total comprehensive income                                 19,110

Cash dividends:
   Common $0.23 per share                                  (3,733)
   Junior preferred stock                                     (11)

Five percent stock dividend                                    (7)

Common stock options exercised
    and related tax benefit                                 1,646

Purchases of treasury stock                                (4,695)

Amortization  of RRP awards                                    28

ESOP shares committed to
   be released                                                180

Deferred compensation obligation                               --
                                         ---------       --------
BALANCE AT
SEPTEMBER 30, 2000                       $  (5,377)      $108,929
                                         =========       ========


</TABLE>

           See notes to condensed consolidated financial statements.

<PAGE>


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


1.      PRINCIPLES OF CONSOLIDATION
        ---------------------------

        The condensed consolidated financial statements include the accounts of
        U.S.B. Holding Co., Inc. and its wholly-owned subsidiaries (the
        "Company"), Union State Bank (the "Bank") [including its wholly-owned
        subsidiaries, Dutch Hill Realty Corp., U.S.B. Financial Services, Inc.
        and TPNZ Preferred Funding Corporation ("TPNZ")], Union State Capital
        Trust I, Union State Statutory Trust II and Ad Con, Inc. All significant
        intercompany accounts and transactions are eliminated in consolidation.

2.      ACQUISITION OF LA JOLLA BANK BRANCHES
        -------------------------------------

        On December 1, 2000, the Bank completed the acquisition of the Stamford,
        Connecticut, and Manhattan, New York City, branches of La Jolla Bank
        ("La Jolla"). The two branches acquired had approximately $108.6 million
        in deposits that were assumed by the Bank. The Bank paid a premium of
        $7.1 million for the deposits assumed, which was recorded as an
        intangible asset. The premium is being amortized on a straight-line
        basis over an eight year period, which is the estimated average life of
        the core deposits assumed in the transaction. The Bank also acquired
        premises and equipment for $0.2 million and certain other assets
        totaling $0.1 million, and leased the branch offices from a related
        party of La Jolla. La Jolla retained its loan portfolio and lending
        operations in the New York area. Upon completion of the transaction,
        both branches began operating as Bank branches.


3.      CORPORATION-OBLIGATED MANDATORY REDEEMABLE CAPITAL SECURITIES OF
        ----------------------------------------------------------------
        SUBSIDIARY TRUSTS
        -----------------

        On July 31, 2001, the Company completed its second issuance of trust
        capital securities (the "Capital Securities") that raised $20 million of
        regulatory capital (approximately $19.4 million net proceeds after
        issuance costs). The Company previously issued $20 million of 9.58
        percent trust capital securities in 1997. The aggregate amount of trust
        capital securities issued by the Company totals $40 million at September
        30, 2001.

        The Capital Securities issued on July 31, 2001 pay interest on a
        floating rate basis, based on three month LIBOR plus 358 basis points,
        with the initial rate set at 7.29 percent. The Capital Securities, which
        are due July 31, 2031 were issued by Union State Statutory Trust II, a
        Connecticut business trust (the "Trust"), that was formed by the Company
        solely to issue the Capital Securities and related common stock. The
        Trust advanced the proceeds to the Company by purchasing $20,619,000
        principal amount of junior subordinated debt of the Company. The Capital
        Securities may not be redeemed, except under limited circumstances,
        until 2006, and thereafter at a premium which reduces over a five year
        period. The Company may also reduce outstanding Capital Securities
        through open market purchases. Dividends will be paid quarterly in
        October, January, April and July.

        The Capital Securities qualify as Tier I or core capital for the
        Company under the Federal Reserve Board's risk-based capital guidelines
        to the extent such securities equal 25 percent

<PAGE>


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

        or less of Tier I Capital. Amounts in excess of the foregoing amount
        will qualify as Tier II or Total Capital. At September 30, 2001, all
        Capital Securities of the Company qualify as Tier I Capital. The
        proceeds from the sale of the Capital Securities will be used for
        general corporate purposes, including an additional capital contribution
        to the Bank of $17.0 million, which was made on August 15, 2001.
        Payments on the junior subordinated debt, which in turn passed through
        the Trust to the Capital Securities holders, will be serviced through
        existing liquidity and cash flow sources of the Company. The Company is
        permitted to deduct interest payments on the Capital Securities under
        current Federal tax law.

        As long as no default has occurred and is continuing, the Company has
        the right under the junior subordinated indenture to defer the payment
        of interest at any time or from time to time for a period not exceeding
        20 consecutive quarterly periods for any one extension (each such period
        an "Extension Period"); provided, however, that no Extension Period may
        extend beyond the stated maturity of the junior subordinated debt
        securities. During any Extension Period, the Company may not (i) declare
        or pay any dividends or distributions on, or redeem, purchase, acquire
        or make a liquidation payment with respect to, any of the Company's
        capital stock (which includes common and preferred stock), (ii) make any
        payment of principal, interest or premium, if any, on, or repay,
        repurchase or redeem any debt securities of the Company that rank equal
        with or junior in interest to the junior subordinated debt securities,
        or (iii) make any guarantee payments with respect to any guarantee by
        the Company of the debt securities of any subsidiary of the Company if
        such guarantee ranks equal with or junior in interest to the junior
        subordinated debt securities, in each case subject to certain
        exceptions.

        Pursuant to the terms of the documents governing the Company's junior
        subordinated debt and the Capital Securities of the Trust, if the
        Company is in default under such securities, the Company is prohibited
        from repurchasing or making distributions, including dividends, on or
        with respect to its common or preferred stock and from making payments
        on any debt or guarantees which rank equal or junior to such securities.

        In addition, under the terms of the indenture governing its junior
        subordinated debt, the Company may not merge or consolidate with, or
        sell substantially all of its assets to, any other corporation, person
        or entity unless: (a) the surviving corporation is a domestic
        corporation which expressly assumes the Company's obligations with
        respect to the junior subordinated debt and the Capital Securities and
        related documents; (b) there is no, and the merger or other transaction
        would not cause a, default under the junior subordinated debt; and (c)
        certain other conditions are met.

4.      BASIS OF PRESENTATION
        ---------------------

        In the opinion of management, the accompanying unaudited condensed
        consolidated financial statements include all adjustments (comprised of
        only normal recurring accruals) necessary to present fairly the
        financial position of the Company as of September 30, 2001 and its
        operations for the three and nine month periods ended September 30, 2001
        and 2000, and cash flows and changes in stockholders' equity for the
        nine month periods ended September 30, 2001 and 2000. A summary of the
        Company's significant accounting policies is set forth in Note 4 to the
        consolidated financial statements included in the Company's 2000 Annual
        Report to Stockholders.




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

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

        Estimates that are particularly susceptible to significant change relate
        to the determination of the allowance for loan losses and the valuation
        of other real estate acquired in connection with foreclosures ("OREO")
        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.

5.      RECLASSIFICATIONS
        -----------------

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

6.      ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
        ------------------------------------------------------------

        In June 1998, the Financial Accounting Standards Board ("FASB") issued
        Statement 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" and SFAS No. 138, "Accounting for Derivative
        Instruments and Hedging Activities, an Amendment of FASB Statement No.
        133 (collectively, "SFAS No. 133"). SFAS No. 133 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 be
        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 changes in fair value of derivatives to be
        either offset against the changes in fair value of the hedged item
        through earnings or recognized in other comprehensive income until the
        hedged item is recognized in earnings. 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.

        The Company adopted SFAS No. 133 on January 1, 2001. The Company was not
        required to record a transition adjustment upon adoption of this
        statement, or a fair value adjustment as of September 30, 2001, because
        no derivative financial instruments were outstanding as of these dates.


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


7.      ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
        --------------------------------------------------------------
        EXTINGUISHMENTS OF LIABILITIES
        ------------------------------

        In September 2000, the FASB issued SFAS No. 140, "Accounting for
        Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities," ("SFAS No. 140") replacing SFAS No. 125. SFAS No. 140
        provides consistent application of a financial-components approach that
        recognizes the financial and servicing assets it controls and the
        liabilities it has incurred, derecognizes financial assets when control
        has been surrendered and derecognizes liabilities when extinguished.
        SFAS No. 140 provides consistent guidelines for distinguishing transfers
        of financial assets that are sales from transfers that are secured
        borrowings. SFAS No. 140 is effective for transfers, servicing, or
        extinguishments occurring after March 31, 2001, except for certain
        provisions relating to the accounting and disclosure for secured
        borrowings and collateral for which the effective date was December 15,
        2000. The adoption of the effective provisions of this statement as of
        December 15, 2000 and the remaining provisions effective as of April 1,
        2001 did not have a material impact on the Company's consolidated
        financial statements.

8.      RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
        -----------------------------------------

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the
        Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which
        replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived
        Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144
        requires that those long-lived assets be measured at the lower of
        carrying amount or fair value less cost to sell, whether reported in
        continuing operations or in discontinued operations. SFAS No. 144 is
        effective for fiscal years beginning after December 15, 2001. The
        Company does not believe that the adoption of SFAS No. 144 will have a
        significant impact on its financial statements.

        In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
        Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires entities
        to record the fair value of a liability for an asset retirement
        obligation in the period in which it is incurred. When the liability is
        initially recorded, the entity capitalizes a cost by increasing the
        carrying amount of the related long-lived asset. Over time, the
        liability is accreted to its present value each period, and the
        capitalized cost is depreciated over the useful life of the related
        asset. Upon settlement of the liability, an entity either settles the
        obligation for its recorded amount or incurs a gain or loss upon
        settlement. SFAS No. 143 is effective for fiscal years beginning after
        June 15, 2001. The Company does not believe that the adoption of SFAS
        No. 143 will have a significant impact on its financial statements.
        In July 2001, the FASB issued SFAS No. 141, "Business Combinations"
        ("SFAS No. 141"). SFAS No. 141 requires the purchase method of
        accounting for business combinations initiated after June 30, 2001 and
        eliminates the pooling-of-interests method. The Company does not
        believe that the adoption of SFAS No. 141 will have a significant
        impact on its financial statements.

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
        Intangible Assets" ("SFAS No. 142"), which is effective January 1, 2002.
        SFAS No. 142 requires, among other things, the discontinuance of
        goodwill amortization, the reclassification of certain existing
        recognized intangibles as goodwill, the reassessment of useful lives of
        existing recognized intangibles and the identification of reporting
        units for purposes of assessing potential future impairments of
        goodwill. SFAS No. 142 also requires a transitional goodwill impairment





<PAGE>

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

        test six months from the date of adoption. The Company is currently
        assessing the impact of SFAS No. 142 on its financial statements.

9.      EARNINGS PER COMMON SHARE ("EPS")
        ---------------------------------

        The Company computes EPS based upon the provisions of SFAS No. 128,
        "Earning per Share" ("SFAS No. 128"). SFAS No. 128 establishes standards
        for computing and presenting "Basic" and "Diluted" EPS. Basic EPS
        excludes dilution and is computed by dividing net income available to
        common stockholders (net income after preferred stock dividend
        requirements) by the weighted-average number of common shares
        outstanding for the period. Diluted EPS reflects the potential dilution
        that could occur if securities or other contracts to issue common stock
        were exercised or converted into common stock or resulted in the
        issuance of common stock that would then share in the earnings of the
        entity, reduced by common stock that could be repurchased by the Company
        with the assumed proceeds of such exercise or conversion. Diluted EPS is
        based on net income available to common stockholders divided by the
        weighted average number of common shares outstanding and common
        equivalent shares ("adjusted weighted average shares"). Stock options
        granted, but not yet exercised under the Company's stock option plans
        and restricted stock issued under the Company's recognition and
        retention stock plans but not yet vested, are considered common stock
        equivalents for Diluted EPS calculations.

        The computations of basic and diluted earnings per common share for the
        three and nine months ended September 30, 2001 and 2000 are as follows:



<PAGE>

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


<TABLE>
<CAPTION>

                                                           THREE MONTHS ENDED           NINE MONTHS ENDED
                                                            2001        2000            2001         2000
--------------------------------------------------------------------------------------------------------------
        NUMERATOR:                                               (000'S, EXCEPT SHARE DATA)
         <S>                                             <C>            <C>           <C>          <C>
         Net income                                      $     5,156    $     5,046   $    15,394  $   15,139
         Less preferred stock dividends                           --             --            11          11
                                                         -----------------------------------------------------
          Net income for basic and diluted
             earnings per common share - net
             income available to common
             stockholders                                $     5,156    $     5,046   $    15,383  $    15,128
                                                         =====================================================
        DENOMINATOR:
         Denominator for basic earnings
             per common share - weighted
             average shares                               16,712,165     16,554,569    16,636,233   16,547,145

         Effects of dilutive securities:
             Director and employee
                stock options                                403,009        455,930       384,602      552,450
             Restricted stock not vested                         387          1,252         2,521        1,283
                                                         -----------------------------------------------------
             Total effects of dilutive securities            403,396        457,182       387,123      553,733
                                                         -----------------------------------------------------
         Denominator for diluted earnings
             per common share - adjusted
             weighted average shares                      17,115,561     17,011,751    17,023,356   17,100,878
                                                         =====================================================
        Basic earnings per common share                  $      0.31    $      0.30   $      0.92  $      0.91
                                                         =====================================================
        Diluted earnings per common share                $      0.30    $      0.30   $      0.90  $      0.88
                                                         =====================================================

</TABLE>


10.     SECURITIES
        ----------

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




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


        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.

        For the three month period ended September 30, 2000, there were gross
        gains on sales of securities of $6,000. For the nine months ended
        September 30, 2001 and 2000, gross gains were $1,536,000 and $6,000, and
        gross losses were $3,000 and $105,000, respectively.

        Upon adoption of SFAS No. 133 on January 1, 2001, the Company classified
        certain held to maturity securities with a carrying value and fair value
        of approximately $9.6 million to available for sale securities. There
        was no effect on accumulated other comprehensive income as a result of
        the reclassification.


        A summary of the amortized cost, estimated fair values, and related
        gross unrealized gains and losses of securities at September 30, 2001
        and December 31, 2000 is as follows:



<TABLE>
<CAPTION>
===========================================================================================================
                                                                     GROSS         GROSS       ESTIMATED
                                                  AMORTIZED     UNREALIZED    UNREALIZED            FAIR
                                                       COST          GAINS        LOSSES           VALUE
                                                  ---------------------------------------------------------
                                                                         (000'S)
        <S>                                      <C>             <C>             <C>          <C>
        SEPTEMBER 30, 2001:
        AVAILABLE FOR SALE:
        U.S. government agencies                 $  126,452      $   3,451       $    --      $  129,903
        Mortgage-backed securities                  388,778          9,145           741         397,182
        Obligations of states and
            political subdivisions                    1,532             93            --           1,625
        Corporate and other                             361            104             2             463
                                                 ----------      ---------       -------      ----------
        TOTAL SECURITIES AVAILABLE FOR SALE      $  517,123      $  12,793       $   743      $  529,173
                                                 ==========      =========       =======      ==========
        HELD TO MATURITY:
        U.S. government agencies                 $  139,956      $     655       $    14      $  140,597
        Mortgage-backed securities                   34,056             --           300          33,756
        Obligations of states and
            political subdivisions                   64,549          2,806            46          67,309
                                                 ----------      ---------       -------      ----------
        TOTAL SECURITIES HELD TO MATURITY        $  238,561      $   3,461       $   360      $  241,662
                                                 ==========      =========       =======      ==========

</TABLE>

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

<TABLE>
<CAPTION>

===========================================================================================================
                                                                     GROSS         GROSS       ESTIMATED
                                                  AMORTIZED     UNREALIZED    UNREALIZED            FAIR
                                                       COST          GAINS        LOSSES           VALUE
                                                  ---------------------------------------------------------
                                                                         (000'S)
        <S>                                      <C>             <C>             <C>          <C>
        DECEMBER 31, 2000:
        AVAILABLE FOR SALE:
        U.S. government agencies                 $  101,451      $  2,031        $   752      $   102,730
        Mortgage-backed securities                  322,712         1,097          1,845          321,964
        Obligations of states and
            political subdivisions                    1,535            55             --            1,590
        Corporate and other                             564            75             14              625
                                                 ----------      --------        -------      -----------
        TOTAL SECURITIES AVAILABLE FOR SALE      $  426,262      $  3,258        $ 2,611      $   426,909
                                                 ==========      ========        =======      ===========
        HELD TO MATURITY:
        U.S. government agencies                 $  120,743      $      9    $     1,273      $   119,479
        Mortgage-backed securities                   44,358            50          1,081           43,327
        Obligations of states and
            political subdivisions                   60,489         1,800              7           62,282
                                                 ----------      --------        -------      -----------
        TOTAL SECURITIES HELD TO MATURITY        $  225,590      $  1,859        $ 2,361      $   225,088
                                                 ==========      ========        =======      ===========

</TABLE>

11.     LOANS
        -----

        Nonaccrual loans were $19.2 million at September 30, 2001 and $19.7
        million at December 31, 2000. Restructured loans were $0.2 million at
        both September 30, 2001 and December 31, 2000.

        Substantially all of the nonaccruing and restructured loans are
        collateralized by real estate. At September 30, 2001, the Company has no
        commitments to lend additional funds to any customers with nonaccrual or
        restructured loan balances, except as further described below, with
        respect to a real estate construction loan in the amount of $18.6
        million.

        At September 30, 2001, there are loans aggregating approximately
        $667,000 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 September 30, 2001 and December 31, 2000, the recorded investment in
        loans that are considered to be impaired under SFAS No. 114, "Accounting
        for Impairment of a Loan" ("SFAS No. 114"), approximated $19.3 million
        and $19.7 million, respectively, of which $19.1 million and $19.5
        million at September 30, 2001 and December 31, 2000, respectively, 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 $1.1
        million and $1.4 million at September 30, 2001 and December 31, 2000,
        respectively. The average recorded investment in impaired loans for the
        nine months ended September 30, 2001 and year ended December 31, 2000
        was approximately $19.4 million and $5.8 million, respectively. For the
        three and nine months ended September 30, 2001 and 2000, interest income
        recognized by the Company on impaired loans was not material.



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


        Restructured loans in the amounts of $0.2 million for both September 30,
        2001 and December 31, 2000 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 as of September 30, 2001 is immaterial.

        At September 30, 2001, the Bank had $0.3 million of outstanding loans,
        collateralized by cash and lease receivables, to Bennett Funding Group
        ("Bennett"), 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, the Bank
        has collected payments of $2.6 million, reducing the original balance of
        $3.3 million to $0.7 million. A total of $0.4 million was charged-off in
        1999 and 1998, further reducing the recorded balance of the loans to
        $0.3 million as of September 30, 2001. The ruling by the Bankruptcy
        Court was appealed by the Trustee, and in November 2000, the District
        Court reaffirmed the lower Court ruling. The Trustee has appealed the
        decision further to the U.S. Circuit Court of Appeals for the Second
        Circuit. The Bennett loans are on nonaccrual status. In addition, the
        Trustee contends that the Bank received payments from Bennett under the
        theory of fraudulent conveyance. If the Trustee is successful, the Bank
        would be liable for loan payments aggregating $9.5 million received from
        Bennett for the six year period preceding the bankruptcy filing date of
        March 1996. The Bankruptcy Court dismissed a significant portion of the
        Trustee's fraudulent conveyance claims. The Company believes, based on
        advice of legal counsel, that it will prevail with regard to the
        remaining fraudulent conveyance claims.

        On November 9, 2000, the Company reclassified a real estate construction
        loan in the amount of $19.7 million as a non-performing asset and placed
        the loan on nonaccrual status. As a result of the impairment of this
        loan, $2.2 million was charged-off in the fourth quarter of 2000,
        reducing the loan balance to $17.5 million. During the nine month period
        ended September 30, 2001, "protective advances" of $0.6 million were
        made in connection with payments of real estate taxes and common
        charges, which increased the recorded loan balance to $18.1 million. As
        of September 30, 2001, the Bank also advanced $460,000 to be used for
        completion of the project, which further increased the balance to $18.6
        million as of September 30, 2001. The Bank has agreed to lend up to an
        additional $4.1 million to fund the completion of the project and
        facilitate sales, which proceeds will reduce the Bank's loan. In
        accordance with SFAS No. 114, the Company has provided a specific
        allocation of the allowance for loan losses of $1.1 million for this
        loan as of September 30, 2001. The Bank is currently proceeding with a
        foreclosure action on 35 unsold condominium units and other real estate
        which collateralizes the loan, pending sales of the units and repayment
        of the loan. The loan is also personally guaranteed by the principals,
        and such guarantees will be pursued to recover any losses that may be
        incurred in connection with the loan. The personal guarantees have not
        been considered in determining the amount of the charge-off or allowance
        for loan losses applicable to this loan.



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


12.     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. There were no outstanding borrowings under these
        agreements at September 30, 2001. In addition, the Bank has the ability
        to borrow from the FHLB under similar master security sale and
        repurchase agreements and, to a lesser extent, its customers. At
        September 30, 2001 and December 31, 2000, the Bank had short-term
        repurchase agreements of $0.3 million at an interest rate of 3.47
        percent and $0.5 million at an interest rate of 6.02 percent,
        respectively. At both September 30, 2001 and December 31, 2000, these
        borrowings were collateralized by securities with an aggregate carrying
        value and estimated fair value of $0.3 million and $0.5 million,
        respectively.

        Federal funds purchased represent overnight funds. The Bank has federal
        funds purchase lines available with five financial institutions for a
        total of $48.0 million. At September 30, 2001 and December 31, 2000, the
        Bank had no federal funds purchased balances outstanding.

        Short-term FHLB advances are borrowings with original maturities between
        one and 365 days. At September 30, 2001 and December 31, 2000, the Bank
        had no such short-term FHLB advances outstanding.

        Additional information with respect to short-term borrowings as of and
        for the nine months ended September 30, 2001 and 2000 is presented in
        the table below.


<TABLE>
<CAPTION>

        --------------------------------------------------------------------------------------
        SHORT-TERM BORROWINGS                                    2001         2000
        --------------------------------------------------------------------------------------
                                                            (000's, except percentages)
        <S>                                                   <C>          <C>
        Balance at September 30                               $   266      $ 35,000
        Average balance outstanding                             3,389       118,718
        Weighted-average interest rate:
             As of September 30                                  3.47%         6.63%
             Paid during period                                  5.36          6.08
        ======================================================================================
</TABLE>



        The Bank had long-term borrowings, which have original maturities of
        over one year, of $270.0 million and $225.0 million in securities sold
        under agreements to repurchase as of September 30, 2001 and December 31,
        2000, respectively. At September 30, 2001 and December 31, 2000, these
        borrowings have an original term of between five years and ten years at
        interest rates between 4.33 percent and 6.08 percent and 4.52 percent
        and 6.08 percent, respectively, that are callable on certain dates after





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


        an initial noncall period at the option of the counter party to the
        repurchase agreement. As of September 30, 2001 and December 31, 2000,
        these borrowings are collateralized by securities with an aggregate
        carrying value of $286.6 million and $257.1 million and estimated fair
        value of $286.8 million and $254.8 million, respectively.

        At September 30, 2001 and December 31, 2000, long-term FHLB advances
        totaled $85.1 million and $17.7 million at interest rates of between
        4.55 percent and 6.72 percent and 5.12 percent to 6.72 percent,
        respectively. At September 30, 2001, borrowings totaling $15.1 million
        are amortizing advances having scheduled payments and may not be repaid
        in full prior to maturity without penalty. Other borrowings totaling
        $70.0 million have an original term of ten years that are callable on
        certain dates after an initial noncall period at the option of the
        counter party to the advance. At September 30, 2001 and December 31,
        2000, these borrowings were collateralized by a pledge to the FHLB of a
        security interest in certain mortgage-related assets having an aggregate
        book value of $93.8 million and $19.8 million, respectively.

        A summary of long-term, fixed-rate borrowings distributed based upon
        remaining contractual payment date and expected option call date at
        September 30, 2001, with comparative totals for December 31, 2000, is as
        follows:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
                                                         AFTER 1
                                          WITHIN      BUT WITHIN           AFTER         2001
LONG-TERM DEBT                            1 YEAR         5 YEARS         5 YEARS         TOTAL         TOTAL
--------------------------------------------------------------------------------------------------------------------
                                                        (000's, except percentages)
<S>                                    <C>           <C>                <C>           <C>           <C>
Contractual Payment/
        Expected Call Date:
Total long-term debt                   $   3,354     $    29,944        $321,814      $355,112      $242,730
Weighted-average interest rate              5.76%           4.90%           5.21%         5.19%         5.51%
=================================================================================================================
</TABLE>



        At September 30, 2001 and December 31, 2000, the Bank held 177,692
        shares and 341,395 of capital stock, respectively, of the FHLB with a
        carrying value of $17.8 million and $34.1 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 purchase of the prerequisite shares of FHLB stock.
        Any advances made from the FHLB are required to be collateralized by the
        FHLB stock and certain other assets of the Bank.

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




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


        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, 2001,
        the Bank could pay dividends of $33.1 million to the Company without
        having to obtain prior regulatory approval.

        On September 27, 2000, the Company's Board of Directors authorized the
        repurchase of up to 300,000 common shares, or approximately 1.8%, of the
        Company's outstanding common stock at that date. Repurchases of common
        stock are authorized to be made from time to time in open-market and
        private transactions throughout 2001 as, in the opinion of management,
        market conditions may warrant. During the nine month period ended
        September 30, 2001, the Company purchased 61,900 shares under the
        repurchase plan at an aggregate cost of approximately $823,000. The
        repurchased common shares will be held as treasury stock and will be
        available for general corporate purposes.

13.     COMMITMENTS AND CONTINGENCIES
        -----------------------------

        In the normal course of business, various commitments to extend credit
        are made which are not reflected in the accompanying condensed
        consolidated financial statements. At September 30, 2001, formal credit
        line and loan commitments, which are primarily loans collateralized by
        real estate and credit card lines, approximated $376.6 million and
        outstanding letters of credit totaled $42.5 million. Such amounts
        represent the maximum risk of loss on these commitments.

        On October 25, 2001, the Company and Bank amended the employment
        agreements with its Senior Executive Vice President and Chief Financial
        Officer, and Senior Executive Vice President and Chief Credit Officer.
        Under the amendment, the term of the agreements were extended to October
        25, 2004 and base compensation was increased to $225,000 for each
        executive. All other terms of the agreements remain the same.

        Other commitments are described in Note 17 to the consolidated financial
        statements of the Company for the year ended December 31, 2000, which is
        included in the Company's 2000 Annual Report to Stockholders.

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

14.     SEGMENT INFORMATION
        -------------------

        The Company has one reportable segment, "Community Banking." All of the
        Company's activities are interrelated, and each activity is dependent
        and assessed based on how each of the activities of the Company supports
        the others. For example, commercial lending is dependent upon the
        ability of the Bank to fund itself with deposits and other borrowings





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


        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, "Disclosure about Segments
        of an Enterprise and Related Information" ("SFAS No. 131") 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, 2001 and
        2000, there is no customer that accounted for more than ten percent of
        the Company's revenue.





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


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

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, 2001. 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, including changes in interest rates and the
shape of the U.S. Treasury and other yield curves; wartime events; changes in
the credit quality of borrowers; the extent and timing of actions of the Federal
Reserve Board and other regulatory agencies; customer deposit disintermediation;
changes in customers' acceptance of the Company's products and services;
increase 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, including the Gramm-Leach Bliley Act.

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

FINANCIAL CONDITION
-------------------

At September 30, 2001, the Company had total assets of $2,087.9 million, an
increase of $201.6 million or 10.7 percent from December 31, 2000.

The securities portfolio, including investments in Federal Home Loan Bank of New
York ("FHLB") stock, of $785.5 million and $686.6 million at September 30, 2001
and December 31, 2000 consists of securities held to maturity at amortized cost
of $238.5 million and $225.6 million, securities available for sale at estimated
fair value totaling $529.2 million and $426.9 million, and FHLB stock of $17.8
million and $34.1 million at September 30, 2001 and December 31, 2000,
respectively.

During the nine months ended September 30, 2001, U.S. Treasury and government
agencies increased $46.4 million due primarily to purchases of $194.9 million in
callable bonds and $9.0 million in discount notes, and a net increase in the
estimated fair value of available for sale securities of $2.2 million, partially
offset by sales of $20.0 million in callable bonds and redemptions and



                                      106
<PAGE>
U.S.B. HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (cont'd)

maturities of $139.7 million. Mortgage-backed securities increased by $64.9
million primarily due to purchases totaling $269.4 million, and a net increase
in the estimated fair value of available for sale securities of $9.2 million,
partially offset by sales of $140.6 million, principal paydowns of $72.1 million
and net premium amortization of $1.0 million. Mortgage-backed securities
purchased have fixed or variable interest rates. The fixed-rate securities have
expected weighted-average maturities of less than ten years at the time of
purchase. The Bank's investment in obligations of states and political
subdivisions, or municipal securities, increased by $4.1 million principally due
to purchases of $16.0 million that were partially offset by maturities of $11.9
million during the nine month period ended September 30, 2001. Municipal
securities are considered core investments

<PAGE>


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

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.

FHLB stock decreased $16.4 million due to required redemptions of the Bank's
stock investment in proportion to FHLB borrowings.

The Company currently has $0.5 million of holdings in non-U.S. government equity
securities. Equity investments of other publicly traded financial institutions
and medium-term corporate debt securities which are rated investment grade by
nationally recognized credit

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


ITEM 2.  MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
         ----------------------------------------------------------------
         RESULTS OF OPERATIONS (cont'd)
         ------------------------------

rating organizations 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, 2001, loans outstanding were $1,128.2 million, a net increase
of $41.4 million or 3.8 percent over December 31, 2000. The primary increases of
outstanding loan balances were $31.3 million in commercial mortgages, $14.3
million in residential mortgages, $2.5 million in home equity mortgages, $1.0
million in time overdraft loans, and $0.3 million in other loan categories,
partially offset by reductions in personal installment loans of $2.9 million,
time unsecured loans of $2.4 million, commercial installment loans of $1.2
million, land acquisition and construction loans of $0.8 million, and credit
card loans of $0.7 million. The Company had approximately $376.6 million in
formal credit lines and loan commitments outstanding. Management considers its
liquid resources to be adequate to fund loans in the foreseeable future,
principally by utilizing excess funds temporarily placed in federal funds sold,
increases in deposits and borrowings, loan repayments and maturing securities.

The Company's allowance for loan losses increased $0.6 million or 5.5 percent to
$12.0 million at September 30, 2001, from $11.3 million at December 31, 2000.
The allowance for loan losses represents 1.06 percent of gross loans outstanding
at September 30, 2001, compared to 1.04 percent at December 31, 2000. The
allowance reflects a provision of $838,000 and net charge-offs of $213,000
recorded for the nine months ended September 30, 2001.

Management believes that allowance for loan losses at September 30, 2001
reflects the risk elements inherent in the total loan portfolio at that time. In
management's judgment, the allowance is considered appropriate to absorb losses
inherent in the 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.

Total deposits decreased $15.0 million for the nine month period ended September
30, 2001 to $1,474.5 million, which represents a 1.0 percent decrease from
December 31, 2000. The decrease primarily results from a net decrease in
municipal deposits of $51.5 million. During the nine month period ended
September 30, 2001, municipal time deposits, which are used in conjunction with
liquidity management, decreased $127.6 million, while seasonable municipal tax
deposits increased demand and NOW accounts by $31.6 million and $46.3 million,
respectively. Municipal savings deposits increased by $0.8 million, while
municipal money market deposits decreased by $2.6 million. Excluding deposits
from municipals, total deposits increased $36.5 million, or 3.0 percent, as
compared to the balance at December 31, 2000. Demand and money market accounts,
excluding municipal accounts, increased $14.2 million and $4.4 million,
respectively, due to an increased number of accounts and account balances, while
NOW accounts, excluding municipal accounts, decreased $9.0 million due to
customers transferring balances into higher yielding accounts. Retail time
deposits less than $100,000 decreased $27.1 million, due to customers moving




<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
         ----------------------------------------------------------------
         RESULTS OF OPERATIONS (cont'd)
         ------------------------------

account balances into retail savings accounts, which increased $45.5 million.
IRA and KEOGH and retail time deposits greater than $100,000 increased $4.5
million and $4.0 million as compared to December 31, 2000.

As noted above, time deposits greater than $100,000 from local municipalities,
which are obtained on a bidding basis with maturities of 30 to 180 days
decreased $127.6 million during the nine month period ended September 30, 2001.
Depending on rate and term, the Bank utilizes municipal and large time deposits
as an alternative to borrowed funds.

During the nine months ended September 30, 2001, the Company increased the
amount of outstanding short- and long-term advances with the FHLB by $67.4
million and increased borrowings under repurchase agreements by $44.8 million,
as the Bank replaced municipal time deposits greater than $100,000 with FHLB
borrowings at attractive rates with longer terms.

Stockholders' equity increased to $135.8 million at September 30, 2001 from the
December 31, 2000 balance of $117.9 million, an increase of $17.9 million or
15.2 percent. The increase primarily results from: $15.4 million of net income
for the nine month period ended September 30, 2001; $2.1 million of stock
options exercised and the related tax benefit; an increase of $6.6 million in
accumulated other comprehensive income; and an increase of $0.2 million in other
stockholders' equity categories; partially offset by common stock dividends paid
of $4.2 million and treasury stock purchases of $2.2 million.

The Company's leverage ratio at September 30, 2001 was 8.15 percent, compared to
7.12 percent at December 31, 2000. The Company's Tier I and Total Capital ratios
under the risk-based capital guidelines were 13.21 percent and 14.18 percent at
September 30, 2001, and 10.97 percent and 11.93 percent at December 31, 2000,
respectively. In addition, the Bank exceeds all current regulatory capital
requirements and was in the "well-capitalized" category at September 30, 2001
and December 31, 2000.

On July 31, 2001, the Company raised $20 million of additional regulatory
capital through its second issuance of trust capital securities. This capital
qualifies for Tier I or core capital for regulatory purposes and also provides
additional liquidity (See Note 3 to the Notes to Condensed Consolidated
Financial Statements (Unaudited)).

RESULTS OF OPERATIONS
---------------------

EARNINGS
--------

Net income for the three and nine month periods ended September 30, 2001 was
$5.2 million and $15.4 million compared to $5.0 million and $15.1 million for
the three and nine month periods ended September 30, 2000, an increase of 2.2
percent and 1.7 percent, respectively. Diluted earnings per common share were
$0.30 and $0.90 for the three and nine month periods ended September 30, 2001,



<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
         ----------------------------------------------------------------
         RESULTS OF OPERATIONS (cont'd)
         ------------------------------

compared to $0.30 and $0.88 for the three and nine month periods ended September
30, 2000, an increase of 2.3 percent for the nine month period.

The increase in net income for the three month period ended September 30, 2001,
compared to the prior year period, reflects higher net interest income and
higher non-interest income. The increase in net income for the nine month period
ended September 30, 2001, compared to the prior year period, reflects higher net
interest income, a lower provision for loan losses, higher non-interest income
and net security gains, as compared to a net loss on securities transactions in
the comparable 2000 year period. These increases in net income were partially
offset by higher non-interest expenses for both the 2001 periods, as compared to
prior year, and a higher provision for loan losses for the three month ended
September 30, 2001, as compared to the 2000 period. The effective rate for the
provision for income taxes was comparable for all periods.

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

NET INTEREST INCOME
-------------------

Net interest income, the difference between interest income and interest
expense, is a significant component of the Company's consolidated earnings. For
the three and nine month periods ended September 30, 2001, net interest income
increased 6.8 percent and 0.7 percent to $15.8 million and $45.1 million from
$14.8 million and $44.8 million for the three and nine month periods ended
September 30, 2000, respectively. Net interest income increased in the current
periods primarily due to increases in average interest earning assets, partially
offset by decreases in the net interest spread and margin on a tax equivalent
basis.

For the three and nine months ended September 30, 2001, the net interest spread
on a tax equivalent basis (yield on earning assets less cost of funds, including
demand deposits) was 3.31 percent and 3.21 percent, as compared to 3.43 percent
and 3.52 percent for the prior year periods, respectively. The net interest
margin on a tax equivalent basis (net interest income on a tax equivalent basis
divided by average interest earning assets) for the three and nine months ended
September 30, 2001 was 3.44 percent and 3.37 percent, as compared to 3.53
percent and 3.66 percent for the prior periods, respectively. The decline in the
net interest spread and margin reflects a decline in yields on interest earning
assets compared to the prior year, which reflects the 350 basis point reduction
in short-term interest rates by the Federal Reserve Board during the first nine
months of 2001, while rates on interest bearing liabilities did not decline to
the same extent as earning assets. Rates on interest bearing liabilities
decreased, primarily as a result of certificate of deposits and other accounts,
which were impacted by the higher rate environment in 2000 and have not repriced
as quickly as earning assets, as well as the assumption of higher rate deposits
from La Jolla Bank in December 2000.

Average balances of net loans, investments and federal funds sold for the three
and nine month periods ended September 30, 2001, increased $80.1 million (7.8
percent) and $104.7 million (10.6 percent), $70.7 million (10.6 percent) and





<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
         ----------------------------------------------------------------
         RESULTS OF OPERATIONS (cont'd)
         ------------------------------

$41.2 million (6.2 percent), and $12.2 million (32.6 percent) and $15.9 million
(51.8 percent), as compared to the prior year periods, respectively. Total
earning assets for the three and nine month periods ended September 30, 2001
increased $163.0 million (9.4 percent) and $161.8 million (9.6 percent) as
compared to the prior year periods, respectively.

Yields on interest earning assets on a tax equivalent basis decreased from 8.17
percent and 8.01 percent for the three and nine month periods ended September
30, 2000 to 7.06 percent and 7.38 percent for the three and nine month period
ended September 30, 2001, respectively. The decreases for both the three and
nine month periods ended September 30, 2001, as compared to the prior year
periods, consisted of a decrease in the yield on average net loans on a tax
equivalent basis from 8.82 percent to 7.61 percent and from 8.71 percent to 7.97
percent, a decrease in the yield on investments on a tax equivalent basis from
7.09 percent to 6.47 percent and from 7.01 percent to 6.68 percent and a
decrease in the yield on federal funds sold from 6.45 percent to 3.38 percent
and from 6.15 percent to 4.34 percent, respectively.

Average interest bearing liabilities increased $140.2 million (8.4 percent) and
$154.5 million (9.5 percent) for the three and nine months ended September 30,
2001, respectively, as compared to the prior year periods. The increase in
interest bearing liabilities primarily consisted of increases in borrowings for
the three months ended September 30, 2001 of $84.7 million (32.4 percent), and
interest bearing deposits of $127.8 million (11.3 percent) for the nine months
ended September 30, 2001, as compared to the prior year periods.

Yields on interest bearing liabilities (including demand deposits) decreased
from 4.74 percent to 3.75 percent for the three month period ended September 30,
2001, as compared to the prior year period, and from 4.49 percent to 4.17
percent for the nine month period ended September 30, 2001, as compared to the
prior year period, due primarily to a decrease in yields on interest bearing
deposits and borrowings. Yields on interest bearing deposits for the three and
nine months ended September 30, 2001, were 3.82 percent and 4.40 percent,
compared to 5.12 percent and 4.75 percent for the prior year periods,
respectively. The decrease in yields for both 2001 periods was due to higher
yielding certificate of deposits, of which a significant amount was assumed in
December 2000 from the two La Jolla branches acquired, repricing to lower
current market rates as a result of a reduction in short-term interest rates.
Yields on borrowings for the three and nine months ended September 30, 2001 were
5.23 percent and 5.36 percent, compared to 5.83 percent and 5.69 percent for the
prior year periods, respectively. The decrease in yields for both the 2001
periods was due to lower current market rates for long-term interest rates.

The Company's leverage strategy of purchasing government securities funded by
borrowings also impacts net interest income and net interest margins. Although
the leverage strategy results in tighter spreads, the strategy increases net
interest income while managing interest rate risk.




<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
         ----------------------------------------------------------------
         RESULTS OF OPERATIONS (cont'd)
         ------------------------------

During the first nine months of 2001, sales and subsequent repurchases of
investment securities were transacted as opportunities became available to
restructure the "available for sale" security portfolio resulting in increased
yields in over 85 percent of the transactions, a slightly increased weighted
average life of the portfolio and security gains of $1,533,000 (approximately
$900,000 after tax). The increased yields partially offset a reduction in the
overall portfolio yield resulting from the repayment of higher yielding callable
U.S. government agency securities and decreased interest rates on floating rate
securities. The proceeds from the called securities were invested in floating
rate securities to manage interest rate risk, as well as other callable agency
securities.

PROVISION FOR LOAN LOSSES
-------------------------

The provision for loan losses increased $143,000 to $418,000 and decreased
$387,000 to $838,000 for the three and nine month periods ended September 30,
2001, respectively, compared to the same periods in 2000. During the three and
nine month periods ended September 30, 2001, net charge-offs totaled $80,000 and
$213,000, compared to net charge-offs of $73,000 and $252,000 for the three and
nine month periods ended September 30, 2000, respectively. The net charge-offs
in the three and nine month periods ended September 30, 2001 and 2000 primarily
relate to real estate and credit card loans. Nonaccrual loans were $19.2 million
at September 30, 2001 compared to $19.7 million at December 31, 2000. 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
a quarterly basis as an integral part of the credit administration function,
which includes the identification of past due loans, non-performing loans and
impaired loans, assessments of the expected effects of the current economic
environment and industry, geographic and customer concentrations in the loan
portfolio, and review of the historical loan loss experience. Management takes a
prudent and cautious position in evaluating various business and economic
conditions in relation to the Company's loan portfolio. In Management's
judgment, the allowance for loan losses at September 30, 2001 reflects the risk
elements inherent in the total loan portfolio and is considered appropriate to
absorb losses inherent in the portfolio at that time. The amount of the
provision charged to income and changes in the allowance for loan losses
reflects the growth of the loan portfolio, net charge-offs and losses incurred,
and the effect of the real estate market and general economic conditions of the
New York Metropolitan area on the 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.



<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
         ----------------------------------------------------------------
         RESULTS OF OPERATIONS (cont'd)
         ------------------------------

NON-INTEREST INCOME
-------------------

Non-interest income for the three and nine month periods ended September 30,
2001 increased by $355,000 (29.2 percent) to $1,571,000, and increased
$2,215,000 (61.9 percent) to $5,791,000, compared to the same periods in 2000,
respectively. The increase for the three and nine month periods ended September
30, 2001 primarily reflects increases in letter of credit fees of $125,000 and
$292,000, credit card fee income of $71,000 and $26,000, U.S.B. Financial
Services revenue of $28,000 and $50,000, prepayment penalties of $21,000 and
$134,000, and wire transfer fees of $11,000 and $38,000, respectively. The
increase for the nine month period ended September 30, 2001 also reflects net
gains on securities transactions of $1,533,000 compared to a net loss of $99,000
in 2000.

NON-INTEREST EXPENSE
--------------------

Non-interest expense increased $1,057,000 (13.2 percent) to $9,070,000 and
$2,574,000 (10.8 percent) to $26,498,000 for the three and nine month periods
ended September 30, 2001 from the comparable periods in 2000, respectively. The
primary reason for these increases results from higher levels of salaries and
benefits, occupancy and equipment expense, professional fees, stationery and
printing expense and other expense categories related to the La Jolla branch
acquisition, as well as increases in expenses necessary to expand and support
increased business volume and balance sheet growth. These increases were
partially offset by a decrease in advertising and business development expense
and communication expense.

Salaries and employee benefits, the largest component of non-interest expense,
increased by $518,000, or 10.7 percent and $1,326,000 or 9.3 percent during the
three and nine month periods ended September 30, 2001 compared to the prior year
periods. The increase occurred due to additional personnel employed by the
Company primarily from the acquisition of the two La Jolla branches in December
2000 merit increases, and additional expenses related to the cost of medical
coverage. Increases in salaries and employee benefits expense were partially
offset by a decrease in the matching contribution to the retirement plan of
$44,000 for the three month period, and an increase in the deferral of loan
origination costs of $93,000 for the nine month period ended September 30, 2001,
as compared to the prior year periods.

Significant changes in the other components of non-interest expense for the
three and nine month periods ended September 30, 2001 compared to the prior year
periods, were due to the following:

        Increase of $148,000 (10.7 percent) and $366,000 (8.5 percent) in
        occupancy and equipment costs. This increase is primarily due to an
        increase in rent and utilities costs for the two additional locations in
        New York City and Stamford, Connecticut, and higher equipment
        maintenance and repair expenses relating to the Company's other
        facilities and computer related equipment.




<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
         ----------------------------------------------------------------
         RESULTS OF OPERATIONS (cont'd)
         ------------------------------

        Decrease of $2,000 (0.4 percent) and $120,000 (8.2 percent) in
        advertising and business development. The decrease reflects less
        emphasis on marketing programs in the 2001 periods as compared to
        aggressive advertising programs in 2000 to attract retail deposits

<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
         ----------------------------------------------------------------
         RESULTS OF OPERATIONS (cont'd)
         ------------------------------


        during a period of higher loan growth.

        Increase of $119,000 (87.5 percent) and $99,000 (17.2 percent) in
        professional fees. The increase reflects additional legal fees with
        respect to foreclosure and other litigation costs related to a
        nonaccrual real estate construction loan.

        Decrease of $40,000 (14.9 percent) and $36,000 (4.7 percent) in
        communications expense. The decrease relates to closer management
        control of such expenses.

        Increase of $77,000 (53.1 percent) and $150,000 (30.4 percent) in
        stationery and printing. The increase primarily reflects an increase in
        office supplies, customer supplies and equipment necessary to support
        the two new locations in New York City and Stamford, Connecticut.

        Increase of $6,000 (9.4 percent) and $28,000 (15.3 percent) in FDIC
        insurance. The increase is related to the higher level of insured
        deposits during the nine months of 2001 compared to the prior year
        periods.

        The increase in amortization of intangibles to $223,000 and $669,000 for
        the three and nine month periods ended September 30, 2001 compared to
        $2,000 and $8,000 for the prior year periods, respectively, reflects the
        amortization of intangible assets resulting from the assumption of the
        La Jolla deposits.

        Increase of $8,000 (1.2 percent) and increase of $92,000 (4.9 percent)
        in other expenses. The increases are primarily due to increased courier
        fees for the two additional branch locations and Internet set-up fees at
        the corporate headquarters, partially offset by a reduction in insurance
        expense and for the nine month period a reduction in credit card vendor
        reserves.

INCOME TAXES
------------

The effective income tax rates for the three and nine month periods ended
September 30, 2001 were 34.5 percent and 34.6 percent compared to 34.6 percent
and 34.8 percent for the prior periods in 2000, respectively.



<PAGE>



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

Quantitative and qualitative disclosures about market risk at December 31, 2000
were reported in the Company's 2000 Annual Report to Stockholders. There have
been no material changes in the Company's market risk exposures at September 30,
2001 compared to December 31, 2000. Interest rate risk continues to be the
Company's primary market risk exposure since 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 and has not entered
into any derivative financial instruments during the nine months ended September
30, 2001.

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, 2001 as compared to
December 31, 2000. The Company's "Static Gap" at September 30, 2001 was a
positive $132.9 million in the one year time frame compared to a negative $181.7
million at December 31, 2000. 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 twelve month measurement period continues to
be within the Company's policy limit of not declining by more than 5.0 percent.


<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)).

         (4) (d)  Junior Subordinated Indenture, dated July 31, 2001,
                  between Registrant and State Street Bank and Trust Company of
                  Connecticut, National Association, as trustee.*

         (4) (e)  Guarantee Agreement, dated July 31, 2001, by and between
                  Registrant and State Street Bank and Trust Company of
                  Connecticut, National Association, as trustee for the holders
                  of Capital Securities of Union State Statutory Trust II.*

         (4) (f)  Amended and Restated Declaration of Trust of Union State
                  Statutory Trust II.*

        (10) (a)  Agreement of Employment dated as of November 16, 1998, and
                  as amended November 8, 2000, between the Company and the Bank
                  and Thomas E. Hales (incorporated herein by reference to
                  Registrant's Annual Report on Form 10-Q for the quarter ended
                  September 30, 2000 ("2000 Third Quarter 10-Q", Exhibit
                  (10)(a)).

        (10) (b)  Agreement of Employment dated as of November 16, 1998, and
                  as amended November 8, 2000, between the Company and the Bank
                  and Raymond J. Crotty (incorporated herein by reference to
                  Registrant's 2000 Third Quarter 10-Q, Exhibit (10) (b)).



<PAGE>
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K (CONT'D)
---------------------------------------------------

(A)   EXHIBITS (CONT'D)

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

        (10) (c)   Amendment to Employment Agreement as of October 25, 2001
                   between the Company and the Bank and Raymond J. Crotty.*

        (10) (d)   Agreement of Employment dated as of November 16, 1998,
                   and as amended November 8, 2000, between the Company and the
                   Bank and Steven T. Sabatini (incorporated herein by reference
                   to Registrant's 2000 Third Quarter 10-Q, Exhibit (10) (c)).

        (10) (e)   Amendment to Employment Agreement as of October 25, 2001
                   between the Company and the Bank and Steven T. Sabatini.*


        (10) (f)   Registrant's 1993 Incentive Stock Option Plan
                   (incorporated herein by reference from Registrant's Quarterly
                   Report on Form 10-Q for the quarter ended September 30, 1999
                   ("1999 Third Quarter 10-Q"), Exhibit (10)(e)).

        (10) (g)   Registrant's Employee Stock Ownership Plan (With Code
                   Section 401(k) Provisions) (incorporated herein by reference
                   from Registrant's Annual Report on Form 10-K for the year
                   ended December 31, 1993, Exhibit (10)(d)).

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

        (10) (j)   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) (k)   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) (l)   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) (m)   Registrant's 1997 Employee Stock Option Plan
                   (incorporated herein by reference to Registrant's Proxy
                   Statement filed April 18, 1997).

        (10) (n)   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 of Shareholders ("Tappan Zee 1996
                   Proxy Statement")).

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




<PAGE>
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K (CONT'D)
---------------------------------------------------

(A)   EXHIBITS (CONT'D)

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


        (10) (p)   Amendment No. 2 to the Employee Stock Option Plan
                   (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 ("Tappan Zee 1997
                   Proxy Statement")).

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

        (10) (t)   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
                   Financial, Inc.'s Annual Report on Form 10-K for the fiscal
                   year ended March 31, 1996 ("Tappan Zee 1996 10-K"), Exhibit
                   10.7).

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

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

        (10) (w)   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)(ll)).

        (10) (x)   Amendment Number 1 to Registrant's Employee Stock
                   Ownership Plan (with Code Section 401(k) Provisions) dated
                   January 27, 1995 (incorporated herein by reference to the
                   Registrant's Annual Report on Form 10-K for the year ended
                   December 31, 1999 ("1999 10-K"), Exhibit (10)(jj)).




<PAGE>
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K (CONT'D)
---------------------------------------------------

(A)   EXHIBITS (CONT'D)

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


        (10) (y)   Amendment Number 2 to Registrant's Employee Stock
                   Ownership Plan (with Code Section 401(k) Provisions) dated
                   May 17, 1995 (incorporated herein by reference to the
                   Registrant's 1999 10-K, Exhibit (10)(kk)).

        (10) (z)   Amendment Number 3 to Registrant's Employee Stock
                   Ownership Plan (with Code Section 401(k) Provisions) dated
                   January 1, 1996 (incorporated herein by reference to the
                   Registrant's 1999 10-K, Exhibit (10)(ll)).

        (10) (aa)  Amendment Number 4 to Registrant's Employee Stock
                   Ownership Plan (with Code Section 401(k) Provisions) dated
                   November 20, 1996 (incorporated herein by reference to the
                   Registrant's 1999 10-K, Exhibit (10)(mm)).

        (10) (bb)  Amendment Number 5 to Registrant's Employee Stock
                   Ownership Plan (with Code Section 401(k) Provisions)
                   effective as of September 30, 1999 (incorporated herein by
                   reference to the Registrant's 1999 10-K, Exhibit (10)(nn)).

        (10) (cc)  Amendment Number 6 to Registrant's Employee Stock
                   Ownership Plan (with Code Section 401(k) Provisions) dated
                   August 24, 1999 (incorporated herein by reference to the
                   Registrant's 1999 10-K, Exhibit (10)(oo)).

        (10) (dd)  Asset Purchase and Account Assumption Agreement by and
                   between Union State Bank and La Jolla Bank dated May 25, 2000
                   (incorporated herein by reference to the Registrant's
                   Quarterly Report on Form 10-Q for the six months ended June
                   30, 2000 Exhibit (10)(oo).

        (11)       Computation of earnings per share.*

*Filed Herewith.

(B)     REPORTS ON FORM 8-K

        No reports on Form 8-K were filed during the quarter ended September 30,
2001.


<PAGE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K (CONT'D)
---------------------------------------------------

(A)   EXHIBITS (CONT'D)

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



                                   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 9, 2001

                                             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,
Chief Executive Officer and Director            Chief Financial Officer,
                                                Assistant Secretary and Director
                                                (Principal Financial and
                                                Accounting Officer)