**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


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





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


(Mark
      One)




:  Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


For
      the
      quarterly period ended March
      31, 2006 ,
      or




9 Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934


For
      the
      transition period from ____________________ to
      _____________________





Commission
      file Number 1-12811





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


(Exact
      Name of Registrant as Specified in Its Charter)




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





****  **100
                    DUTCH HILL ROAD, ORANGEBURG, NEW
                    YORK**
                
                **10962**(Address
                    of Principal Executive
                    Offices)
                
                (Zip
                    Code)
 **845-365-4600**


(Registrant's
      Telephone Number (including area code)





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


Yes:   x No:  ̈





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


Large
      accelerated filer  ̈   Accelerated
      filer x    Non-accelerated
      filer  ̈




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


Yes:    ̈ No: x





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




**CLASS**
                
                **NUMBER
                      OF SHARES**
                    **OUTSTANDING
                      AT MAY 1, 2006**Common
                    stock, par value
                  $0.01
                    per share
                
                21,753,733




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





**TABLE
      OF CONTENTS**




**PART I. FINANCIAL
                  INFORMATION**
              **PAGE
                  NO.****ITEM 1.**
              FINANCIAL STATEMENTS (UNAUDITED)CONDENSED
                  CONSOLIDATED STATEMENTS OFCONDITIONAS
                  OF MARCH 31, 2006 ANDDECEMBER
                  31, 2005.
              1CONDENSED
                  CONSOLIDATED STATEMENTS OFINCOME
                  FOR THE THREE MONTHS ENDEDMARCH
                  31, 2006 AND 2005.
              2CONDENSED
                  CONSOLIDATED STATEMENTS OFCASH
                  FLOWS FOR THE THREE MONTHS ENDEDMARCH
                  31, 2006 AND 2005.
              3CONDENSED
                  CONSOLIDATED STATEMENTS OFCHANGES
                  IN STOCKHOLDERS’ EQUITY FORTHE
                  THREE MONTHS ENDED MARCH 31, 2006AND
                  2005.
              4NOTES
                  TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS.
              6**ITEM 2.**
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OFFINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS
              20**ITEM
                  3.**
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              30**ITEM 4.**
              CONTROLS AND PROCEDURES
              31**PART II. OTHER
                INFORMATION****ITEM 1A.**
              RISK FACTORS
              32**ITEM 2.**
              UNREGISTERED SALES OF EQUITY SECURITIESAND
                USE OF PROCEEDS
              32**ITEM 6.**
              EXHIBITS
              33SIGNATURES
              
              35





-
          i
          -


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




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




**(000’s,
                except share
                data)****ASSETS**
            
            **March
                31,****2006**
            
            **December
                31,****2005**Cash
                and due from banks
            
            $
            54,257
            
            $
            58,635Federal
                funds sold
            
            
            10,000
            
            
            22,300Cash
                and cash equivalents
            
            
            **64,257**
            
            
            **80,935**Interest
                bearing deposits in other banks
            
            
            128
            
            
            132Securities:Available
                for sale (at estimated fair value)
            
            
            409,940
            
            
            375,990Held
                to maturity (estimated fair value of $732,205 as of 2006and
                $740,269 as of 2005)
            
            
            746,790
            
            
            746,851Loans,
                net of allowance for loan losses of $15,449 as of 2006 and $15,164
                as of
                2005
            
            
            1,483,506
            
            
            1,459,820Premises
                and equipment, net
            
            
            13,841
            
            
            13,762Accrued
                interest receivable
            
            
            17,065
            
            
            18,184Federal
                Home Loan Bank of New York stock
            
            
            34,781
            
            
            30,776Intangible
                assets, net
            
            
            3,517
            
            
            3,826Goodwill
            
            
            1,380
            
            
            1,380Other
                assets
            
            
            24,481
            
            
            26,570**TOTAL
                ASSETS**
            
            **$**
            **2,799,686**
            
            **$**
            **2,758,226****LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Liabilities:**Non-interest
                bearing deposits
            
            $
            298,449
            
            $
            315,156Interest
                bearing deposits:NOW
                accounts
            
            
            177,536
            
            
            163,295Money
                market accounts
            
            
            132,218
            
            
            158,286Savings
                deposits
            
            
            427,286
            
            
            442,386Time
                deposits
            
            
            760,673
            
            
            768,079**Total
                deposits**
            
            
            **1,796,162**
            
            
            **1,847,202**Accrued
                interest payable
            
            
            7,608
            
            
            8,546Accrued
                expenses and other liabilities
            
            
            14,902
            
            
            14,180Securities
                sold under agreements to repurchase
            
            
            590,188
            
            
            550,332Federal
                Home Loan Bank of New York advances
            
            
            121,823
            
            
            71,827Subordinated
                debt issued in connection with corporation-obligatedmandatory
                redeemable capital securities of subsidiary trusts
            
            
            61,858
            
            
            61,858**Total
                liabilities**
            
            
            **2,592,541**
            
            
            **2,553,945**Minority-interest
                junior preferred stock of consolidated subsidiary
            
            
            128
            
            
            128Commitments
                and contingencies (Note 11)**Stockholders’
                equity:**Preferred
                stock, no par valueAuthorized
                shares: 10,000,000; no shares outstanding as of 2006 and
                2005
            
            
            —
            
            
            —Common
                stock, $0.01 par value; authorized shares 50,000,000;issued
                shares of 23,120,733 as of 2006 and 2005
            
            
            231
            
            
            231Additional
                paid-in capital
            
            
            211,722
            
            
            211,686Retained
                earnings
            
            
            26,724
            
            
            21,654Treasury
                stock at cost, common shares 1,367,000 as of 2006 and 1,406,928 as
                of
                2005
            
            
            (21,482
            )
            
            (21,670
            )Common
                stock held for benefit plans
            
            
            (3,035
            )
            
            (2,927
            )Deferred
                compensation obligation
            
            
            3,035
            
            
            2,927Accumulated
                other comprehensive loss
            
            
            (10,178
            )
            
            (7,748
            )**Total
                stockholders’ equity**
            
            
            **207,017**
            
            
            **204,153****TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            **$**
            **2,799,686**
            
            **$**
            **2,758,226**




*See
      notes to condensed consolidated financial statements.*




1




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


**(000’s,
                except share data)**
              **Three
                Months Ended**
              **March
                31,****2006**
            
            **2005****INTEREST
                INCOME:**Interest
                and fees on loans
            
            $
            25,941
            
            $
            23,631Interest
                on federal funds sold
            
            
            231
            
            
            357Interest
                and dividends on securities:U.S.
                government agencies
            
            
            9,935
            
            
            7,686Mortgage-backed
                securities
            
            
            4,216
            
            
            4,271Obligations
                of states and political subdivisions
            
            
            1,112
            
            
            926Corporate
                and other
            
            
            43
            
            
            35Dividends
                on Federal Home Loan Bank of New York stock
            
            
            378
            
            
            315**Total
                interest income**
            
            
            **41,856**
            
            
            **37,221****INTEREST
                EXPENSE:**Interest
                on deposits
            
            
            10,129
            
            
            6,595Interest
                on borrowings
            
            
            7,038
            
            
            6,516Interest
                on subordinated debt issued in connection withcorporation
                - obligated mandatory redeemablecapital
                securities of subsidiary trusts
            
            
            1,327
            
            
            1,122**Total
                interest expense**
            
            
            **18,494**
            
            
            **14,233****NET
                INTEREST INCOME**
            
            
            **23,362**
            
            
            **22,988**Provision
                for credit losses
            
            
            309
            
            
            391**Net
                interest income after provision for credit losses**
            
            
            **23,053**
            
            
            **22,597****NON-INTEREST
                INCOME:**Service
                charges and fees
            
            
            829
            
            
            904Other
                income
            
            
            1,128
            
            
            923**Total
                non-interest income**
            
            
            **1,957**
            
            
            **1,827****NON-INTEREST
                EXPENSES:**Salaries
                and employee benefits
            
            
            8,264
            
            
            8,321Occupancy
                and equipment
            
            
            1,948
            
            
            2,050Advertising
                and business development
            
            
            602
            
            
            575Professional
                fees
            
            
            373
            
            
            668Communications
            
            
            346
            
            
            341Stationery
                and printing
            
            
            153
            
            
            161FDIC
                insurance
            
            
            72
            
            
            76Amortization
                of intangibles
            
            
            285
            
            
            291Other
                expense
            
            
            925
            
            
            861**Total
                non-interest expenses**
            
            
            **12,968**
            
            
            **13,344**Income
                before income taxes
            
            
            12,042
            
            
            11,080Provision
                for income taxes
            
            
            3,927
            
            
            3,689**NET
                INCOME**
            
            **$**
            **8,115**
            
            **$**
            **7,391****BASIC
                EARNINGS PER COMMON SHARE**
            
            **$**
            **0.37**
            
            **$**
            **0.34****DILUTED
                EARNINGS PER COMMON SHARE**
            
            **$**
            **0.36**
            
            **$**
            **0.33****WEIGHTED
                AVERAGE COMMON SHARES**
            
            
            **21,723,833**
            
            
            **21,437,749****ADJUSTED
                WEIGHTED AVERAGE COMMON SHAES**
            
            
            **22,724,986**
            
            
            **22,423,850****DIVIDENDS
                PER COMMON SHARE**
            
            **$**
            **0.14**
            
            **$**
            **0.12**





*See
      notes to condensed consolidated financial statements.*




2




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


**(000’s)**
              **Three
                Months Ended**
              **March
                31,****2006**
            
            **2005****OPERATING
                ACTIVITIES:**Net
                income
            
            $
            8,115
            
            $
            7,391Adjustments
                to reconcile net income to net cash provided by operating
                activities:Provision
                for credit losses
            
            
            309
            
            
            391Depreciation
                and amortization
            
            
            830
            
            
            893Amortization
                of discounts on securities - net
            
            
            (51
            )
            
            (143
            )Deferred
                income tax benefit, net
            
            
            (187
            )
            
            (853
            )Gains
                on securities transactions
            
            
            (5
            )
            
            —Share
                based compensation
            
            
            164
            
            
            —Non-cash
                benefit plan expense
            
            
            7
            
            
            131Decrease
                in accrued interest receivable
            
            
            1,119
            
            
            4,706Decrease
                in accrued interest payable
            
            
            (938
            )
            
            (244
            )Increase
                in accrued income tax payable
            
            
            3,704
            
            
            4,020Other
                - net
            
            
            1,074
            
            
            4,874**Net
                cash provided by operating activities**
            
            
            **14,141**
            
            
            **21,166****INVESTING
                ACTIVITIES:**Proceeds
                from sales of securities available for sale
            
            
            10
            
            
            —Proceeds
                from principal repayments, redemptions and maturities of:Securities
                available for sale
            
            
            12,111
            
            
            122,827Securities
                held to maturity
            
            
            5,255
            
            
            917Purchases
                of securities available for sale
            
            
            (49,950
            )
            
            (14,750
            )Purchases
                of securities held to maturity
            
            
            (4,997
            )
            
            (5,604
            )Net
                (purchases) redemption of Federal Home Loan Bank of New York
                stock
            
            
            (4,005
            )
            
            1,271Net
                decrease in interest bearing deposits in other banks
            
            
            4
            
            
            225Net
                increase in loans outstanding
            
            
            (24,098
            )
            
            (18,655
            )Purchases
                of premises and equipment - net
            
            
            (600
            )
            
            (33
            )**Net
                cash (used for) provided by investing activities**
            
            
            **(66,270**
            **)**
            
            **86,198****FINANCING
                ACTIVITIES:**Net
                decrease in non-interest bearing deposits, NOW, money market and
                savings
                accounts
            
            
            (43,634
            )
            
            (36,926
            )Net
                decrease in time deposits, net of withdrawals and
                maturities
            
            
            (7,406
            )
            
            (24,425
            )Net
                increase (decrease) in securities sold under agreements to repurchase
                -
                short-term
            
            
            74,856
            
            
            (26,327
            )Proceeds
                from Federal Home Loan Bank of New York advances -
                long-term
            
            
            50,000
            
            
            —Repayment
                of securities sold under agreements to repurchase - long
                term
            
            
            (35,000
            )
            
            —Repayment
                of Federal Home Loan Bank of New York advances - long term
            
            
            (4
            )
            
            (434
            )Cash
                dividends paid
            
            
            (3,045
            )
            
            (2,660
            )Proceeds
                from exercise of common stock options
            
            
            1,098
            
            
            395Purchases
                of treasury stock
            
            
            (1,414
            )
            
            (248
            )**Net
                cash provided by (used for) financing activities**
            
            **$**
            **35,451**
            
            **$**
            **(90,625**
            **)****(Decrease)
                Increase in Cash and Cash Equivalents**
            
            **$**
            **(16,678**
            **)**
            **$**
            **16,739****Cash
                and Cash Equivalents, Beginning of Period**
            
            
            **80,935**
            
            
            **65,295****Cash
                and Cash Equivalents, End of Period**
            
            **$**
            **64,257**
            
            **$**
            **82,034****Supplemental
                Disclosures:**Interest
                paid
            
            $
            (19,432
            )
            $
            (14,477
            )Income
                tax payments
            
            $
            (33
            )
            $
            (33
            )Purchases
                of held to maturity securities not yet settled, including interest
                receivable
            
            $
            —
            
            $
            101,366Amortization
                of loss on transfer of available for sale securities to held to maturity
                securities
            
            $
            169
            
            $
            169Change
                in shares held in trust for deferred compensation
            
            $
            108
            
            $
            108Change
                in deferred compensation obligation
            
            $
            (108
            )
            $
            (108
            )Change
                in accumulated other comprehensive loss
            
            $
            (2,430
            )
            $
            (3,433
            )Non-cash
                exercise of stock options and related tax benefit
            
            $
            638
            
            $
            2,996Non-cash
                purchases of treasury stock related to the exercise of stock
                options
            
            $
            78
            
            $
            2,505Issuance
                of treasury stock related to the exercise of stock options
            
            $
            1,680
            
            $
            3,574


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




3




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






**FOR
                THE THREE MONTHS ENDED MARCH 31, 2006**
              **(000’s
                except share
                data)****Common**
              **Stock**
              **Shares**
              **Outstanding**
            
            **Common**
              **Stock**
              **Par**
              **Value**
            
            **Additional**
              **Paid-in**
              **Capital**
            
            **Retained**
              **Earnings**
            
            **Treasury**
              **Stock**
            
            **Common**
              **Stock**
              **Held
                for**
              **Benefit
                Plans**
            
            **Deferred**
              **Compensation**
              **Obligation**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **Loss**
            
            **Total**
              **Stockholders’**
              **Equity**Balance
                at January 1, 2006
            
            
            21,713,805
            
            $
            231
            
            $
            211,686
            
            $
            21,654
            
            $
            (21,670
            )
            $
            (2,927
            )
            $
            2,927
            
            $
            (7,748
            )
            $
            204,153Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            8,115
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8,115Other
                comprehensive loss:
              Net
                unrealized securitiesloss
                arising during the
              period,
                net of tax benefit of$1,307
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,427
            )
            
            (2,427
            )Reclassification
                adjustment ofnet
                gain for securities sold,net
                of tax of $2
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3
            )
            
            (3
            )Other
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,430
            )
            
            (2,430
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,685Cash
                dividends:
              Common
                ($0.14 per share)
            
            
            
            
            
            
            
            
            
            
            
            (3,045
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,045
            )Common
                stock options exercisedand
                related tax benefit
            
            
            108,495
            
            
            
            
            
            56
            
            
            
            
            
            1,680
            
            
            
            
            
            
            
            
            
            
            
            1,736Amortization
                related tostock
                options vestedduring
                the period
            
            
            
            
            
            
            
            
            164
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            164Purchases
                of treasury stock
            
            
            (68,567
            )
            
            
            
            
            (184
            )
            
            
            
            
            (1,492
            )
            
            
            
            
            
            
            
            
            
            
            (1,676
            )Deferred
                compensationobligation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (108
            )
            
            108
            
            
            
            
            
            ―**Balance
                at March 31, 2006**
            
            
            **21,753,733**
            
            **$**
            **231**
            
            **$**
            **211,722**
            
            **$**
            **26,724**
            
            **$**
            **(21,482**
            **)**
            **$**
            **(3,035**
            **)**
            **$**
            **3,035**
            
            **$**
            **(10,178**
            **)**
            **$**
            **207,017**





*See
      notes to condensed consolidated financial statements.*




4




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


**FOR
                THE THREE MONTHS ENDED MARCH 31, 2005**
              **(000’s,
                except share data)****Common**
              **Stock**
              **Shares**
              **Outstanding**
            
            **Common**
              **Stock**
              **Par**
              **Value**
            
            **Additional**
              **Paid-in**
              **Capital**
            
            **Retained**
              **Earnings**
            
            **Treasury**
              **Stock**
            
            **Common**
              **Stock**
              **Held
                for**
              **Benefit
                Plans**
            
            **Deferred**
              **Compensation**
              **Obligation**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **Loss**
            
            **Total**
              **Stockholders’**
              **Equity**Balance
                at January 1, 2005
            
            
            20,346,814
            
            $
            220
            
            $
            184,166
            
            $
            26,336
            
            $
            (22,855
            )
            $
            (2,780
            )
            $
            2,746
            
            $
            (5,787
            )
            $
            182,046Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            7,391
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            7,391Other
                comprehensive loss:
              Net
                unrealized securitiesloss
                arising during theperiod,
                net of tax benefitof
                $1,848
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,433
            )
            
            (3,433
            )Other
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,433
            )
            
            (3,433
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,958Cash
                dividends:
              Common
                ($0.12 per share)
            
            
            
            
            
            
            
            
            
            
            
            (2,660
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,660
            )Common
                stock options exercisedand
                related tax benefit
            
            
            255,079
            
            
            
            
            
            (183
            )
            
            
            
            
            3,574
            
            
            
            
            
            
            
            
            
            
            
            3,391Purchases
                of treasury stock
            
            
            (119,280
            )
            
            
            
            
            
            
            
            
            
            
            (2,753
            )
            
            
            
            
            
            
            
            
            
            
            (2,753
            )ESOP
                shares committed tobe
                released
            
            
            
            
            
            
            
            
            63
            
            
            
            
            
            
            
            
            32
            
            
            
            
            
            
            
            
            95Deferred
                compensationobligation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (108
            )
            
            108
            
            
            
            
            
            ―**Balance
                at March 31, 2005**
            
            
            **20,482,613**
            
            **$**
            **220**
            
            **$**
            **184,046**
            
            **$**
            **31,067**
            
            **$**
            **(22,034**
            **)**
            **$**
            **(2,856**
            **)**
            **$**
            **2,854**
            
            **$**
            **(9,220**
            **)**
            **$**
            **184,077**





*See
      notes to condensed consolidated financial statements.*





5




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


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





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





The
      Company also has four subsidiary trusts, Union State Capital Trust I, Union
      State Statutory Trust II, USB Statutory Trust III, and Union State Statutory
      Trust IV (collectively, the “Trusts”), that are not consolidated with the
      Company for financial reporting purposes in accordance with accounting
      principles generally accepted in the United States of America (“GAAP”). The
      Trusts were established by the Company in 1997, 2001, 2002, and 2004,
      respectively, for the purpose of issuing corporation-obligated mandatory
      redeemable capital securities of subsidiary trusts (“Capital Securities”) and
      acquiring junior subordinated debt from the Company. See Note 10 to the
      Company’s Consolidated Financial Statements included in the Company’s 2005
      Annual Report to Stockholders for a further discussion of the Capital Securities
      and the junior subordinated debt issued by the Company. The Company owns 100
      percent of the voting securities of each of the Trusts. The Company has fully
      and unconditionally guaranteed the Capital Securities along with all obligations
      of the Trusts under the trust agreements relating to the Capital Securities.
      The
      Company’s ability to make interest payments on the subordinated debt is
      primarily dependent on the receipt of dividends from the Bank. See Note 9 of
      these notes to condensed consolidated financial statements for a discussion
      of
      the limits on the Bank’s ability to pay dividends to the Company.





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





In
      the
      opinion of management, the accompanying unaudited condensed consolidated
      financial statements include all adjustments (comprised of only normal and
      recurring adjustments) necessary to present fairly the financial position of
      the
      Company as of March 31, 2006, the Company’s operations for the three months
      ended March 31, 2006 and 2005, and the Company’s cash flows and changes in
      stockholders’ equity for the three months ended March 31, 2006 and 2005. For
      purposes of presenting the condensed consolidated statements of cash flows,
      cash
      and cash equivalents include cash and due from banks, as well as federal funds
      sold.





The
      Company distributed a five percent common stock dividend on September 23, 2005
      to stockholders of record on September 9, 2005. The weighted average common
      shares outstanding and per common share amounts for the 2005 periods have been
      adjusted to reflect the common stock dividend.





The
      condensed consolidated financial statements have been prepared in accordance
      with GAAP and predominant practices used within the banking industry. A summary
      of the Company's significant accounting policies is set forth in Note 3 to
      the
      Consolidated Financial Statements included in the Company's 2005 Annual Report
      to Stockholders. In preparing such financial statements, management is required
      to make estimates and assumptions that affect the reported amounts of actual
      and
      contingent assets and liabilities as of the dates of the condensed consolidated
      statements of condition and the revenues and expenses for the periods reported.
      Actual results could differ significantly from those estimates.




6


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




Estimates
      that are particularly susceptible to significant change relate to the accounting
      for non-performing loans, the allowance for loan losses, reserve for unfunded
      loan commitments and standby letters of credit, and provision for credit losses,
      the classification of securities as either held to maturity or available for
      sale and evaluation of other than temporary impairment of securities, and the
      evaluation of the valuation reserves for net deferred tax assets. In connection
      with the determination of the allowance for loan losses, reserve for unfunded
      loan commitments and standby letters of credit and provision for credit losses,
      management obtains independent appraisals for significant properties that
      collateralize loans with real estate.





These
      condensed consolidated financial statements should be read in conjunction with
      the Company’s Consolidated Financial Statements for the year ended December 31,
      2005 and related notes included in the Company’s 2005 Annual Report to
      Stockholders and Form 10-K.





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





**Accounting
      for Exchanges of Nonmonetary Assets:** In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 153, “Accounting for
      Exchanges of Nonmonetary Assets” (“SFAS No. 153”). SFAS No. 153 amends
      Accounting Principles Board (“APB”) Opinion No. 29, “Accounting for Nonmonetary
      Transactions.” SFAS No. 153 eliminates the exception for nonmonetary exchanges
      of similar productive assets and replaces it with a general exception for
      exchanges of nonmonetary assets that do not have commercial substance. A
      nonmonetary exchange has commercial substance if the future cash flows of the
      entity are expected to change significantly as a result of the exchange. SFAS
      No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods
      beginning after June 15, 2005. The Company’s adoption of SFAS No. 153 effective
      as of January 1, 2006 did not have a material impact on its consolidated
      financial statements.





**Accounting
      Changes and Error Corrections:** In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
(“SFAS No. 154”), which is a replacement of APB Opinion No. 20, “Accounting
      Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial
      Statements.” SFAS No. 154 provides guidance on the accounting for and reporting
      of accounting changes and error corrections. SFAS No. 154 also establishes,
      unless impracticable, retrospective application as the required method for
      reporting a change in accounting principle. SFAS No. 154 is effective for
      accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005.





**Other-Than-Temporary
      Impairment:** On
      November 3, 2005, the FASB issued FASB Staff Position (“FSP”) Nos. FAS 115-1 and
      FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application
      to Certain Investments.” This FSP addresses the determination as to when an
      investment is considered impaired, whether that impairment is other than
      temporary, and the measurement of an impairment loss. This FSP also includes
      accounting considerations subsequent to the recognition of an
      other-than-temporary impairment and requires certain disclosures about
      unrealized losses that have not been recognized as other-than-temporary
      impairments. This FSP nullifies certain requirements of Emerging Issues Task
      Force (“EITF”) Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and
      Its Application to Certain Investments,” and supersedes EITF Topic No. D-44,
“Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a
      Security Whose Cost Exceeds Fair Value.” The guidance of this FSP amends FASB
      Statement No. 115, “Accounting for Certain Investments in Debt and Equity
      Securities.” The FSP is effective for reporting periods beginning after December
      15, 2005. The Company’s adoption of FSP Nos. 115-1 and FAS 124-1 on January 1,
      2006 did not have a material impact on its consolidated financial
      statements.




7


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




**4.** **Accounting
      for Stock Based Compensation**





SFAS
      No.
      123, “Accounting for Stock Based Compensation” (“SFAS No. 123”), was revised in
      December 2004 (“SFAS No. 123R”) to require accounting for stock based
      compensation using a fair value based method in the financial statements for
      the
      first interim or reporting period beginning after June 15, 2005. Under the
      SFAS
      No. 123R transition method, compensation cost is recognized for the portion
      of
      outstanding awards for which the requisite service has not yet been rendered,
      based on the grant-date fair value of those awards calculated under SFAS No.
      123
      for either recognition or pro forma disclosures. Management has decided SFAS
      No.
      123R will be applied prospectively beginning January 1, 2006. Accordingly,
      prior
      period amounts have not been restated.





On
      May
      25, 2005, the stockholders of the Company approved the 2005 Director Stock
      Option Plan (the “Director Plan”) under which an aggregate of 525,000 shares (as
      adjusted for common stock dividends) of the Company’s common stock may be issued
      to non-employee members of the Company’s Board of Directors. The Director Plan
      has a term of ten years. Options may not be exercised prior to the first
      anniversary of the date of grant and expire ten years after the date of grant.
      There have been 94,811 options (as adjusted for common stock dividends) issued
      under this plan. There were 430,189 shares (as adjusted for common stock
      dividends) remaining to be granted at March 31, 2006 under the Director
      Plan.





Under
      the
      terms of the Director Plan, each eligible director will receive, effective
      as of
      the close of each annual meeting of stockholders of the Company, a non-qualified
      option to purchase a fixed number of shares of common stock at an exercise
      price
      equal to the fair market value of such shares on the date of the grant. The
      number of shares subject to the option is based on the number of years of
      service completed by the eligible director. After two years of service, the
      eligible director is entitled to an option covering 1,338 shares (as adjusted
      for common stock dividends). Each additional year of service entitles the
      eligible director to an option covering an additional 1,338 shares, until the
      director has completed 15 years of the eligible service, after which the
      director is entitled to an option covering 24,915 shares (as adjusted for common
      stock dividends).





Under
      the
      Tappan Zee Directors’ Stock Option Plan (the “Tappan Zee Directors’ Plan”),
      which was assumed by the Company, 80,057 shares (as adjusted for common stock
      dividends) were authorized for issuance to outside directors for option
      exercises. Option terms and conditions are similar to those under the Tappan
      Zee
      Stock Option Plan (described below), except that all director options are
      non-qualified options. There have been 66,710 options (as adjusted for common
      stock dividends) issued under this plan. Upon the change in control that
      resulted when Tappan Zee was acquired by the Company, all options under this
      plan became vested. There are 13,347 shares (as adjusted for common stock
      dividends) remaining to be granted at March 31, 2006 under this plan, which
      will
      expire in August 2006.





8


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




A
      summary
      of the Director Plan and the Tappan Zee Directors’ Plan activity and related
      information for the three months ended March 31, 2006 follows:


**2006**
            **($
                in 000’s)****Options**
            **Weighted-Average**
              **Exercise
                Price**
            **Aggregate**
              **Intrinsic
                Value**Vested
                outstanding at January 1,
            558,082
            $13.09
            $5,495Unvested
                outstanding at January 1,
            94,811
            20.14
            265**Outstanding
                at January 1,**
            **652,893**
            **14.11**
            **5,760**Exercised
            (3,242)
            7.06
            (49)**Outstanding
                at March 31,**
            **649,651**
            **14.15**
            **5,711**Unvested
                outstanding at March 31
            (94,811)
            20.14
            (265)**Exercisable
                at March 31,**
            **554,840**
            **$13.12**
            **$5,446**





The
      following table summarizes the range of exercise prices on stock options
      outstanding and exercisable under the Director Plan and the Tappan Zee
      Directors’ Plan at March 31, 2006:


**Options
                Outstanding**
            
            
            **Options
                Exercisable**Range
                of Exercise Price
            
            Number
              Outstanding
            
            Weighted-
              Average
              Remaining
              Contractual
              Life
            
            Weighted-
              Average
              Exercise
              Price
            
            
            Number
              Exercisable
            
            Weighted-
              Average
              Exercise
              Price$4.80
                to $8.80
            
            
            40,852
            
            
            0.91
            
            $
            5.68
            
            
            
            40,852
            
            $
            5.688.81
                to 12.81
            
            
            195,800
            
            
            3.77
            
            
            10.36
            
            
            
            195,800
            
            
            10.3612.82
                to 16.82
            
            
            226,060
            
            
            5.66
            
            
            13.98
            
            
            
            226,060
            
            
            13.9816.83
                to 20.20
            
            
            186,939
            
            
            8.66
            
            
            20.17
            
            
            
            92,128
            
            
            20.20$4.80
                to $20.20
            
            
            649,651
            
            
            5.66
            
            $
            14.15
            
            
            
            554,840
            
            $
            13.12





Under
      the
      2005 Employee Stock Option Plan for key employees of the Company and its
      subsidiaries, and the Tappan Zee Stock Option Plan, which was assumed by the
      Company, the issuance of both incentive and nonqualified stock options up to
      an
      aggregate of 2,076,798 shares (as adjusted for common stock dividends) were
      authorized for grant at prices at least equal to the fair value of the Company’s
      common stock at the time the options are granted (for incentive stock options,
      110 percent of fair value for grants to an employee who, at the time of the
      grant, owns stock aggregating 10 percent or more of the combined voting power
      of
      all classes of Company stock).





For
      option grants prior to January 1, 2006, each option holder may exercise up
      to
      one-half of his or her options after a three month period subsequent to the
      grant date and may exercise the remaining one-half six months after the grant
      date. For option grants after January 1, 2006, excluding option grants related
      to reload grants under employment agreements that will continue to vest in
      accordance with option grants prior to January 1, 2006, options will vest over
      a
      three year period from the date of the grant and be eligible to be exercised
      in
      one-third annual increments from the grant date. The options granted have a
      maximum exercisable term of ten years from the date of grant (not more than
      five
      years in the case of incentive stock options granted to an employee who, at
      the
      time of grant, owns stock aggregating 10 percent or more of the total combined
      voting power of all classes of Company stock). There were 1,766,335 shares
      (as
      adjusted for common stock dividends) remaining to be granted at March 31, 2006
      under the 2005 Employee Stock Option Plan.




9


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




Options
      under the Tappan Zee Stock Option Plan have a ten-year term and vest ratably
      over five years from the date of grant. Each option, however, became fully
      exercisable when Tappan Zee was acquired by the Company. At March 31, 2006,
      shares remaining to be granted totaled 53,368 (as adjusted for common stock
      dividends) for the Tappan Zee Stock Option Plan, which will expire in August
      2006.





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


**2006**
            **($
                in 000’s)********Options**
            **Weighted-Average**
              **Exercise
                Price**
            **Aggregate**
              **Intrinsic
                Value**Vested
                outstanding at January 1,
            2,651,175
            $
                14.16
            $23,190Unvested
                outstanding at January 1,
            1,560
            22.26
            1**Outstanding
                at January 1, 2006**
            **2,652,735**
            **14.16**
            **23,191**Granted
            3,567
            21.83
            4Exercised
            (105,253)
            10.96
            (1,163)**Outstanding
                at March 31, 2006**
            **2,551,049**
            **14.30**
            **22,032**Unvested
                outstanding at March 31,
            (3,567)
            21.83
            (4)**Exercisable
                at March 31, 2006**
            **2,547,482**
            **$
                14.29**
            **$22,028**Weighted
                average fair value of options grantedduring
                the three months ended March 31, 2006
            
            $6.76





The
      following table summarizes the range of exercise prices on stock options
      outstanding and exercisable under the Employee Stock Option Plan and Tappan
      Zee
      Stock Option Plan at March 31, 2006:


**Options
                Outstanding**
            
            
            **Options
                Exercisable**Range
                of Exercise Price
            
            Number
              Outstanding
            
            Weighted-
              Average
              Remaining
              Contractual
              Life
            
            Weighted-
              Average
              Exercise
              Price
            
            
            Number
              Exercisable
            
            Weighted-
              Average
              Exercise
              Price$
                7.06 to $11.06
            
            
            835,603
            
            
            4.06
            
            $
            10.22
            
            
            
            835,603
            
            $
            10.2211.07
                to 15.07
            
            
            1,003,167
            
            
            4.71
            
            
            13.63
            
            
            
            1,003,167
            
            
            13.6315.08
                to 20.08
            
            
            511,423
            
            
            8.52
            
            
            19.58
            
            
            
            511,423
            
            
            19.5820.09
                to 24.34
            
            
            200,856
            
            
            8.73
            
            
            21.24
            
            
            
            197,289
            
            
            21.23$7.06
                to $24.34
            
            
            2,551,049
            
            
            5.58
            
            $
            14.30
            
            
            
            2,547,482
            
            $
            14.29





For
      the
      three months ended March 31, 2006, the adoption of SFAS No. 123R resulted in
      stock based compensation expense of $0.2 million, a decrease in net income
      of
      $0.1 million, a decrease in basic earnings per common share of $0.01 and no
      effect on diluted earnings per common share. The income tax benefit related
      to
      the stock based compensation cost for the three months ended March 31, 2006
      was
      $0.1 million. For the three months ended March 31, 2006 and 2005, $1.1 million
      and $0.4 million was received from the exercise of stock options, and $0.4
      million and $0.5 million was realized on income tax deductions, respectively.
      As
      of March 31, 2006, there was $0.1 million of total unrecognized compensation
      cost related to non-vested share-based compensation awards granted under the
      stock option plans. The cost is expected to be recognized over six months.
      The
      fair value for these options was estimated at the date of grant using a
      Black-Scholes option-pricing model and is recognized over the options’ vesting
      period.





10


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




The
      following weighted average assumptions were used for Director Stock Option
      Plan
      grants for the three months ended March 31, 2006: dividend yield of 2.60
      percent; volatility factor of the expected market price of the Company’s common
      stock of 33.16 percent; risk free interest of 4.04 percent; and expected life
      of
      7.69 years.





The
      following weighted average assumptions were used for Employee Stock Option
      Plan
      grants for the three months ended March 31, 2006: dividend yield of 2.51
      percent; volatility factor of the expected market price of the Company’s common
      stock 31.79 percent; risk free interest rate of 4.54 percent; and expected
      life
      of 7.04 years.





SFAS
      No.
      123 established a fair value based method of accounting for stock-based
      compensation plans and encouraged, but did not require, entities to adopt that
      method in place of the intrinsic value method under APB Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB No. 25”). The following table
      compares the Company’s net income and basic and diluted earnings per common
      share, as reported, to the pro forma results as if the fair value method of
      accounting for options prescribed by SFAS No. 123 had been applied for the
      three
      months ended March 31, 2005. The fair value for these options was estimated
      at
      the date of grant using a Black-Scholes option-pricing model and recognized
      over
      the options’ vesting period.


**(000’s,
                except share data)**
              **Three
                Months Ended**
              **March
                31, 2005**Net
                income, as reported
            $7,391Less:
                total stock based compensation expense determined under thefair
                value based method for all awards, net of related tax
                effects
            180Pro
                forma net income available to common stockholders
            $7,211Earnings
                per common share:Basic
                - as reported
              Basic
                - pro forma
            $
                0.34
              0.34Diluted
                - as reported
              Diluted
                - pro forma
            $
                0.33
              0.32





The
      following weighted average assumptions were used for Director Stock Option
      Plan
      grants for the three months ended March 31, 2005: dividend yield of 1.93
      percent; volatility factor of the expected market price of the Company’s common
      stock of 39.57 percent; risk free interest rate of 3.89 percent; and expected
      life of 7.63 years.





The
      following weighted average assumptions were used for Employee Stock Option
      Plan
      grants for the three months ended March 31, 2005: dividend yield of 2.60
      percent; volatility factor of the expected market price of the Company’s common
      stock of 39.01 percent; risk free interest rate of 4.08 percent; and expected
      life of 7.52 years.





11


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




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





The
      gross
      carrying amount and accumulated amortization of intangible assets acquired
      in
      connection with branch and bank acquisitions and a favorable lease were $9.0
      million and $5.6 million as of March 31, 2006, and $9.0 million and $5.3 million
      as of December 31, 2005, respectively. The intangible amortization expense
      for
      both the three months ended March 31, 2006 and 2005 was $0.3 million. The annual
      amortization expense for the remaining life of all intangibles will vary
      throughout the amortization periods. During such periods, the maximum amount
      of
      amortization will be $1.1 million.





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





The
      computation of basic and diluted earnings per common share for the three months
      ended March 31, 2006 and 2005 is as follows:


**Three
                Months Ended**
              **March
                31,****2006**
            **2005****Numerator:**
              Net
                income for basic and dilutedearnings
                per common share - net incomeavailable
                to common stockholders
            $
                8,115
            $
                7,391**Denominator:**Denominator
                for basic earnings percommon
                share — weighted average shares
            21,723,833
            21,437,749Effects
                of dilutive securities:Director
                and employee ― stock options
            1,001,153
            986,101Denominator
                for diluted earnings percommon
                share — adjusted weighted average shares
            22,724,986
            22,423,850Basic
                earnings per common share
            $
                0.37
            $
                0.34Diluted
                earnings per common share
            $
                0.36
            $
                0.33




**7.** **Securities**





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





12


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




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





The
      Company had gross realized gains of $5,000 and did not have realized losses
      during the three months ended March 31, 2006. There were no gross realized
      gains
      or losses during the three months ended March 31, 2005.





A
      summary
      of the amortized cost, estimated fair values, and related gross unrealized
      gains
      and losses on securities at March 31, 2006 and December 31, 2005 is as
      follows:


**(000’s)****March
                31, 2006**
            
            **Amortized**
              **Cost**
            
            **Gross**
              **Unrealized**
              **Gains**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Estimated**
              **Fair**
              **Value****Available
                for Sale:**U.S.
                government agencies
            
            $
            72,922
            
            $
            ―
            
            $
            2,382
            
            $
            70,540Mortgage-backed
                securities
            
            
            344,026
            
            
            1,915
            
            
            6,929
            
            
            339,012Obligations
                of states and political subdivisions
            
            
            231
            
            
            15
            
            
            ―
            
            
            246Corporate
                securities
            
            
            110
            
            
            32
            
            
            ―
            
            
            142**Total
                securities available for sale**
            
            **$**
            **417,289**
            
            **$**
            **1,962**
            
            **$**
            **9,311**
            
            **$**
            **409,940****Held
                to Maturity:**U.S.
                government agencies
            
            $
            639,295
            
            $
            —
            
            $
            15,526
            
            $
            623,769Obligations
                of states and political subdivisions
            
            
            107,495
            
            
            1,779
            
            
            838
            
            
            108,436**Total
                securities held to maturity**
            
            **$**
            **746,790**
            
            **$**
            **1,779**
            
            **$**
            **16,364**
            
            **$**
            **732,205**


**(000’s)****December
                31, 2005**
            
            **Amortized**
              **Cost**
            
            **Gross**
              **Unrealized**
              **Gains**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Estimated**
              **Fair**
              **Value****Available
                for Sale:**U.S.
                government agencies
            
            $
            72,921
            
            $
            —
            
            $
            1,616
            
            $
            71,305Mortgage-backed
                securities
            
            
            306,166
            
            
            2,053
            
            
            3,930
            
            
            304,289Obligations
                of states and political subdivisions
            
            
            230
            
            
            17
            
            
            ―
            
            
            247Corporate
                securities
            
            
            115
            
            
            34
            
            
            ―
            
            
            149**Total
                securities available for sale**
            
            **$**
            **379,432**
            
            **$**
            **2,104**
            
            **$**
            **5,546**
            
            **$**
            **375,990****Held
                to Maturity:**U.S.
                government agencies
            
            $
            639,111
            
            $
            31
            
            $
            8,702
            
            $
            630,440Obligations
                of states and political subdivisions
            
            
            107,740
            
            
            2,470
            
            
            381
            
            
            109,829**Total
                securities held to maturity**
            
            **$**
            **746,851**
            
            **$**
            **2,501**
            
            **$**
            **9,083**
            
            **$**
            **740,269**




13


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


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




**Securities
              in an Unrealized
              Loss Position that are not Other-Than-Temporarily
              Impaired****March
                31, 2006**
            
            **Less
                Than 12 Months**
            
            **12
                Months or More**
            
            **Total****Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**U.S.
                government agencies
            
            $
            603,530
            
            $
            13,771
            
            $
            90,779
            
            $
            4,137
            
            $
            694,309
            
            $
            17,908Mortgage-backedsecurities
            
            
            150,091
            
            
            4,000
            
            
            58,123
            
            
            2,929
            
            
            208,214
            
            
            6,929Obligations
                of states andpolitical
                subdivisions
            
            
            45,760
            
            
            534
            
            
            6,421
            
            
            304
            
            
            52,181
            
            
            838Total
                temporarily impairedsecurities
            
            $
            799,381
            
            $
            18,305
            
            $
            155,323
            
            $
            7,370
            
            $
            954,704
            
            $
            25,675




**December
                31, 2005**
            
            **Less
                Than 12 Months**
            
            **12
                Months or More**
            
            **Total****Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Fair
                Value**
            
            **Gross**
              **Unrealized**
              **Losses**U.S.
                government agencies
            
            $
            594,442
            
            $
            7,381
            
            $
            91,977
            
            $
            2,937
            
            $
            686,419
            
            $
            10,318Mortgage-backedsecurities
            
            
            116,585
            
            
            2,349
            
            
            49,274
            
            
            1,581
            
            
            165,859
            
            
            3,930Obligations
                of states andpolitical
                subdivisions
            
            
            36,850
            
            
            164
            
            
            6,190
            
            
            217
            
            
            43,040
            
            
            381Total
                temporarily impairedsecurities
            
            $
            747,877
            
            $
            9,894
            
            $
            147,441
            
            $
            4,735
            
            $
            895,318
            
            $
            14,629





The
      Company’s U.S. government agency and mortgage-backed securities that are in an
      unrealized loss position at March 31, 2006 and December 31, 2005 are credit
      rated AAA or Aaa by nationally recognized statistical rating organizations.
      Substantially all obligations of states and political subdivisions are credit
      rated AAA or Aaa due to insurance, which guarantees the obligations against
      default, by private insurance companies. At both March 31, 2006 and December
      31,
      2005, approximately $5.3 million of issuances are not rated, substantially
      all
      of which are bond or tax anticipation notes from local
      municipalities.






At
      March
      31, 2006 the number of securities in an unrealized loss position included 24
      U.S. government agencies, 26 mortgage-backed securities, and 132 obligations
      of
      states and political subdivisions. At December 31, 2005, the number of
      securities in an unrealized loss position included 23 U.S. government agencies,
      23 mortgage-backed securities, and 102 obligations of states and political
      subdivisions. The temporary impairment on securities of less than 12 months
      and
      12 months or more at March 31, 2006 and December 31, 2005 is due to the higher
      interest rate environment, as compared to the periods in which the securities
      were initially purchased. The higher interest rates resulted in a decline in
      the
      market value of the securities. The temporary impairment will fluctuate as
      the
      interest rate environment changes. In a rising interest rate environment, the
      temporary impairment will increase, while a decrease in the temporary impairment
      will occur in a declining interest rate environment. Management does not
      consider the temporary impairment of the securities to be severe due to the
      high
      credit quality or insurance provided by private insurance companies, and the
      intent and ability of the Company to hold such securities until a forecasted
      recovery or maturity occurs.




14


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




**8.** **Loans**





Nonaccrual
      loans were $8.1 million at March 31, 2006 and $9.0 million at December 31,
      2005.
      Total nonaccrual loans at March 31, 2006 primarily consisted of two customer
      relationships of $4.7 million and $2.9 million. The loans related to one
      customer relationship aggregating $4.7 million have been placed on nonaccrual
      status as a result of fraudulent activity by the borrower related to the real
      estate collateral of the loans. The Bank is pursuing collection of the principal
      balance of the loan from a title insurance company, which insured the Bank’s
      first mortgage positions. The loans related to another customer relationship
      aggregating $2.9 million involve a real estate construction project that has
      experienced unexpected delays in completing the construction. The loans are
      also
      supported by personal guarantees. Restructured loans were $0.1 million at both
      March 31, 2006 and December 31, 2005.





Substantially
      all of the nonaccruing and restructured loans are collateralized by real estate.
      At March 31, 2006, the Company had and continues to have no commitments to
      lend
      additional funds to any customers with nonaccrual or restructured loan balances,
      with the exception of one customer relationship involving real estate
      construction loans aggregating $2.9 million on nonaccrual status. Additional
      funds may be used by the customer to complete the real estate project. At March
      31, 2006, there are loans aggregating $7.2 million, which are not on nonaccrual
      status, that are potential problem loans, which may result in the loans being
      placed on nonaccrual status in the near future. Potential problem loans
      aggregating $5.8 million are related to one customer relationship and are well
      collateralized by real estate and supported by personal guarantees. Accruing
      loans that are contractually past due 90 days or more at March 31, 2006 are
      immaterial.





At
      March
      31, 2006 and December 31, 2005, the recorded investment in loans that are
      considered to be impaired approximated $13.6 million and $16.0 million, of
      which
      $7.9 million and $8.7 million were in nonaccrual status, respectively. The
      average recorded investment in impaired loans for the three months ended March
      31, 2006 and 2005, and for the year ended December 31, 2005 was $13.8 million,
      $3.3 million, and $11.4 million, respectively. Interest income recognized by
      the
      Company on impaired loans for both the three months ended March 31, 2006 and
      2005 was $0.1 million. As applicable, each impaired loan has a related allowance
      for loan losses.





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





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





Short-term
      borrowings include securities sold under agreements to repurchase, federal
      funds
      purchased, and short-term Federal Home Loan Bank of New York (“FHLB”) advances.
      Short-term securities sold under agreements to repurchase generally mature
      between one and 365 days. The Bank may borrow, when available, under master
      security sale and repurchase agreements through four primary investment firms,
      the FHLB, and to a lesser extent, its customers. At March 31, 2006, the Bank
      had
      short-term repurchase agreements with the FHLB of $135.0 million at a weighted
      average interest rate of 4.73 percent. At December 31, 2005, the Bank had
      short-term repurchase agreements with the FHLB of $61.0 million at a weighted
      average interest rate of 4.17 percent.




15


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




At
      March
      31, 2006 and December 31, 2005, the Bank had short-term repurchase agreements
      with customers of $2.2 million and $1.3 million at a weighted average interest
      rate of 3.75 percent and 3.31 percent, respectively. These short-term customer
      borrowings were collateralized by securities with an aggregate carrying value
      of
      $2.3 million and estimated fair value of $2.2 million at March 31, 2006 and
      an
      aggregate carrying value and estimated fair value of $1.4 million at December
      31, 2005.





Federal
      funds purchased represent overnight funds. The Bank has federal funds purchase
      lines available with six financial institutions for a total of $75.0 million.
      At
      March 31, 2006 and December 31, 2005, the Bank had no federal funds purchased
      balances outstanding.





Short-term
      FHLB advances are borrowings with original maturities between one and 365 days.
      There were no short-term FHLB advances outstanding at March 31, 2006 and
      December 31, 2005.





Additional
      information with respect to short-term borrowings as of and for the three months
      ended March 31, 2006 and 2005 is presented in the following
      table.


**(000’s
                except percentages)****Short-Term
                Borrowings**
            
            **2006**
            
            **2005**Balance
                at March 31
            
            $
            137,188
            
            $
            996Average
                balance outstanding
            
            $
            62,468
            
            $
            3,539Weighted-average
                interest rate:As
                of March 31
            
            
            4.71
            %
            
            2.45
            %Paid
                during period
            
            
            4.50
            %
            
            2.11
            %





The
      Bank
      had long-term borrowings, which have original maturities of over one year,
      of
      $453.0 million and $488.0 million in securities sold under agreements to
      repurchase at March 31, 2006 and December 31, 2005, respectively. These
      borrowings have an original term of ten years at interest rates of 2.53 percent
      to 6.08 percent and 1.99 percent to 6.08 percent, respectively, which are
      callable on certain dates after an initial noncall period at the option of
      the
      counterparty to the repurchase agreements. The long-term borrowing in securities
      sold under agreements to repurchase may not be repaid in full prior to maturity
      without penalty.





As
      of
      March 31, 2006 and December 31, 2005, both short and long-term repurchase
      agreements with the FHLB were collateralized by securities with an aggregate
      carrying value of $610.2 million and $569.5 million, and an estimated fair
      value
      of $600.8 million and $566.0 million, respectively.





At
      March
      31, 2006 and December 31, 2005, long-term FHLB advances totaled $121.8 million
      and $71.8 million at interest rates of between 4.05 percent to 5.99 percent
      and
      4.55 percent and 5.99 percent, respectively. At March 31, 2006, borrowings
      totaling $1.8 million are amortizing advances having scheduled payments. Other
      borrowings totaling $120.0 million have an original term of ten years that
      are
      callable on certain dates after an initial noncall period at the option of
      the
      counterparty to the advance. Advances at December 31, 2005 include $1.8 million
      of amortizing advances having scheduled periodic payments and $70.0 million
      that
      are callable on certain dates after an initial noncall period at the option
      of
      the issuer. The long-term FHLB advances may not be repaid in full prior to
      maturity without penalty. At March 31, 2006 and December 31, 2005 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 $151.4 million
      and $88.3 million, respectively.




16


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




A
      summary
      of long-term, fixed-rate borrowings distributed based upon remaining contractual
      payment date and expected option call date at March 31, 2006, with comparative
      totals for December 31, 2005, is as follows:


**(000’s
                except percentages)****Long-Term
                Borrowings**
            
            **Within**
              **1
                Year**
            
            **After
                1**
              **But
                Within**
              **5
                Years**
            
            **After**
              **5
                Years**
            
            **2006**
              **Total**
            
            2005
              TotalContractual
                Payment Date:Total
                long-term borrowing
            
            $
            19
            
            $
            245,088
            
            $
            329,716
            
            $
            574,823
            
            $
            559,828Weighted
                average interest rate
            
            
            5.99
            %
            
            5.39
            %
            
            3.75
            %
            
            4.45
            %
            
            4.37
            %Expected
                Call Date:Total
                long-term borrowing
            
            $
            159,519
            
            $
            393,588
            
            $
            21,716
            
            $
            574,823
            
            $
            559,828Weighted
                average interest rate
            
            
            4.09
            %
            
            4.56
            %
            
            5.01
            %
            
            4.45
            %
            
            4.37
            %





At
      March
      31, 2006 and December 31, 2005, the Bank held 347,812 shares and 307,764 shares
      of capital stock of the FHLB with a carrying value of $34.8 million and $30.8
      million, respectively, which is required in order to borrow under the short-
      and
      long-term advances and securities sold under agreements to repurchase programs
      from the FHLB. The FHLB generally limits borrowings up to an aggregate of 50
      percent of total assets, or for collateral pledged by TPNZ, 75 percent of net
      equity, excluding securities sold under agreements to repurchase, upon the
      prerequisite purchase of additional shares of FHLB stock. Any advances made
      from
      the FHLB are required to be collateralized by the FHLB stock and certain other
      assets of the Bank.





The
      ability of the Company and Bank to pay cash dividends in the future is
      restricted by various regulatory requirements. The Company's ability to pay cash
      dividends to its stockholders is primarily dependent upon the receipt of
      dividends from the Bank. The Bank's dividends to the Company may not exceed
      the
      sum of the Bank's undistributed net income for that year and its undistributed
      net income for the preceding two years, less any required transfers to
      additional paid-in capital. In addition, the Bank may not declare and pay
      dividends more often than quarterly, and no dividends may be declared or paid
      if
      there is any impairment of the Bank’s capital stock. At March 31, 2006, the Bank
      could pay dividends of $55.0 million to the Company without having to obtain
      prior regulatory approval.





On
      December 13, 2005, the Company’s Board of Directors authorized the repurchase of
      up to 300,000 common shares, or approximately 1.4 percent 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 2006 as, in the opinion of management, market conditions may warrant.
      The repurchased common shares will be held as treasury stock and will be
      available for general corporate purposes. The December 13, 2005 stock repurchase
      plan replaces the previous March 23, 2005 repurchase plan, which authorized
      the
      repurchase of up to 315,000 common shares (as adjusted for common stock
      dividends). For the three months ended March 31, 2006, the Company purchased
      65,000 shares of common stock under its repurchase plan at an aggregate cost
      of
      $1.4 million. For the three months ended March 31, 2005, the Company purchased
      11,865 shares of common stock (as adjusted for common stock dividends) under
      its
      repurchase plan at an aggregate cost of $0.2 million. There were also 3,567
      and
      113,379 shares of common stock (as adjusted for common stock dividends) for
      the
      three months ended March 31, 2006 and 2005, respectively, acquired in connection
      with stock option exercises.




17


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




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





The
      total
      amount of Capital Securities outstanding as of March 31, 2006 is $60.0 million.
      Capital Securities are generally permitted to be included in Tier I regulatory
      capital in an amount not in excess of 25 percent of Tier I Capital, with the
      remainder included in Total Capital. At March 31, 2006, Tier I Capital totaled
      $272.4 million, which included $60.0 million of Capital Securities.





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





In
      the
      normal course of business, various commitments to extend credit are made that
      are not reflected in the accompanying condensed consolidated financial
      statements. At March 31, 2006, formal credit lines, loan commitments, which
      are
      primarily loans collateralized by real estate, and credit card loans
      approximated $366.9 million, $72.4 million, and $41.0 million, respectively.
      Outstanding standby letters of credit totaled $44.5 million. Such amounts
      represent the maximum risk of loss on these commitments.





Standby
      letters of credit are issued to guarantee financial performance or obligations
      of the Bank’s customers. Generally, standby letters of credit are either
      partially or fully collateralized by cash, real estate, or other assets, and,
      in
      some cases, are not collateralized. In most cases, personal guarantees are
      obtained. Standby letters of credit are considered in the Bank’s evaluation of
      its reserve for unfunded loan commitments.





The
      Company is party to employment agreements with the Company’s Chief Executive
      Officer, Thomas E. Hales, and its President and Chief Operating Officer, Raymond
      J. Crotty, which are described in Note 16 to the Company’s Consolidated
      Financial Statements included in the 2005 Annual Report to
      Stockholders.





Effective
      May 19, 1999, the Company adopted the Retirement Plan for non-employee Directors
      of U.S.B. Holding Co., Inc. and Certain Affiliates (the “Director Retirement
      Plan”). At March 31, 2006 and December 31, 2005, the Company had a recorded
      liability of $556,000 and $549,000, respectively, to provide for the present
      value of payments expected to be made under the Director Retirement Plan. The
      discount rate used to compute the present value obligation is 5.25 percent
      for
      both periods. At March 31, 2006 and December 31, 2005, a net intangible asset
      of
      $116,000 and $140,000, respectively, is recorded, reflecting the unamortized
      prior service cost, which is being amortized over the average remaining service
      period of the current non-employee Directors. Benefit cost for the Director
      Retirement Plan for the three months ended March 31, 2006 and 2005 was
      approximately $31,000 and $36,000, of which $24,000 and $25,000 represents
      amortization of prior service cost, and $7,000 and $11,000 represents current
      service cost, respectively.




18


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




Other
      commitments are also described in Note 16 to the Company’s Consolidated
      Financial Statements included in the Company’s 2005 Annual Report to
      Stockholders.





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





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





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





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





The
      Company operates only in the U.S. domestic market, specifically the lower Hudson
      Valley, which includes the counties of Rockland, Westchester, Orange, Putnam
      and
      Dutchess, New York, as well as New York City and Long Island, New York, and
      Southern Connecticut and the surrounding area. For the three months ended March
      31, 2006 and 2005, there is no customer that accounted for more than ten percent
      of the Company’s revenue.




19


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




***Forward-Looking
      Statements***


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





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





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





**OVERVIEW**





The
      Company’s primary business is obtaining deposits through its retail branch
      system, and commercial and municipal relationships, and lending to both a retail
      and commercial customer base. A substantial amount of loans are collateralized
      by real estate, including construction projects. The Company also acquires
      triple-A credit rated securities and obligations of local municipalities to
      invest deposits in excess of loan production and borrows on a wholesale basis
      to
      leverage capital and manage interest rate risk. The Company operates through
      its
      29 full service branches and its four loan centers in Rockland, Westchester,
      and
      Orange counties, and New York City in New York, and Stamford,
      Connecticut.




20




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


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




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




The
      Company’s core revenue, net interest income, has benefited during the three
      months ended March 31, 2006 from an increase in the net interest margin as
      a
      result of the Federal Reserve increasing short-term interest rates. However,
      the
      Company’s net interest income is under pressure from a relatively flat U.S.
      Treasury yield curve. The current slope of the U.S. Treasury yield curve could
      negatively affect net interest income by causing interest rate margins to
      compress.




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




**Critical
      Accounting Policies**





The
      Company’s financial statements are prepared in accordance with GAAP. The
      Company’s significant accounting policies are more fully described in Note 3 to
      the Company’s Consolidated Financial Statements included in the Company’s 2005
      Annual Report to Stockholders. Certain accounting policies require management
      to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenue and expense during the reporting period. On an on-going basis,
      management evaluates its estimates and assumptions, and the effects of revisions
      are reflected in the financial statements in the period in which they are
      determined to be necessary.





The
      more
      critical policies given the Company’s current business strategy and
      asset/liability structure are accounting for non-performing loans, the allowance
      for loan losses, reserve for unfunded loan commitments and standby letters
      of
      credit, and provision for credit losses, the classification of securities as
      either held to maturity or available for sale and evaluation of other than
      temporary impairment of securities, and the evaluation of the valuation reserves
      for net deferred tax assets. In connection with the determination of the
      allowance for loan losses, reserve for unfunded loan commitments and standby
      letters of credit, and provision for credit losses, management obtains
      independent appraisals for significant properties that collateralize loans
      with
      real estate. These accounting policies are those that most frequently require
      management to make estimates and judgments and, therefore, are critical to
      understanding the Company’s results of operations. The Company’s critical
      accounting policies are described in greater detail under the heading “Critical
      Accounting Policies” in the Management’s Discussion and Analysis of Financial
      Condition and Results of Operations included in the Company’s 2005 Annual Report
      to Stockholders. The Company’s practice on each of these accounting policies is
      further described in the applicable sections of Management’s Discussion and
      Analysis of Financial Condition and Results of Operations included in the
      Company’s 2005 Annual Report to Stockholders.




21


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




**COMPARISON
      OF FINANCIAL CONDITION AS OF MARCH 31, 2006 AND DECEMBER 31,
      2005**





At
      March
      31, 2006, the Company had total assets of $2,799.7 million, an increase of
      $41.5
      million from December 31, 2005. The securities portfolio, including investments
      in Federal Home Loan Bank of New York (“FHLB”) stock, totaled $1,191.5 million
      and $1,153.6 million at March 31, 2006 and December 31, 2005, respectively,
      an
      increase of $37.9 million during the three months ended March 31, 2006. The
      securities portfolio consisted of securities held to maturity at amortized
      cost
      of $746.8 million and $746.9 million, securities available for sale at estimated
      fair value totaling $409.9 million and $376.0 million, and FHLB stock of $34.8
      million and $30.8 million at March 31, 2006 and December 31, 2005,
      respectively.





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





Generally,
      most securities may be used to collateralize borrowings and public deposits.
      As
      a result, the investment portfolio is an integral part of the Company’s funding
      strategy. The weighted average yield on a tax equivalent basis of the investment
      portfolio for the three months ended March 31, 2006 and December 31, 2005 was
      5.53 percent and 5.47 percent, respectively. The weighted average life at March
      31, 2006 and December 31, 2005 of the investment portfolio was 9.36 years and
      8.90 years, respectively. The Company will continue to utilize the investment
      portfolio to invest excess cash flow and leverage capital, while managing
      interest rate risk.





During
      the three months ended March 31, 2006, U.S. government agency securities
      decreased $0.6 million primarily due to a decrease in the estimated fair value
      of available for sale securities of $0.8 million, partially offset by $0.2
      million of amortization of the loss on transfer of available for sale securities
      to held to maturity. U.S. government agency securities of $709.8 million as
      of
      March 31, 2006, consisted of fixed rate securities with longer term maturities
      and call options by the issuer to increase yield. Mortgage-backed securities
      increased by $34.7 million primarily due to purchases of $50.0 million,
      partially offset by principal paydowns of $12.1 million and a decrease in the
      estimated fair value of available for sale securities of $3.2 million. The
      Bank’s investment in obligations of states and political subdivisions, or
      municipal securities, decreased by $0.2 million due primarily to maturities
      and
      redemptions of $5.2 million, partially offset by purchases of $5.0 million.
      Municipal securities are considered core investments having favorable tax
      equivalent yields and diversified maturities. These obligations are principally
      of New York State political subdivisions and substantially all are classified
      as
      held to maturity. Purchases of municipal securities are dependent upon their
      availability in the marketplace and the comparative tax equivalent yields of
      such securities compared to other securities of similar credit risk and
      maturity.




22


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




The
      Company invests in medium-term corporate debt securities, bank and other equity
      securities, and other securities that are rated investment grade by nationally
      recognized credit rating organizations at the time of purchase. The Company
      had
      outstanding balances in corporate securities of $0.1 million at both March
      31,
      2006 and December 31, 2005 consisting of bank and other equity
      securities.





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





At
      March
      31, 2006, loans outstanding were $1,499.0 million, a net increase of $24.0
      million or 1.6 percent compared to December 31, 2005. The increase in the
      outstanding loan balance reflects increases of: $10.6 million in land
      acquisition and construction loans, $10.6 million in time unsecured loans,
      $10.7
      million in time secured loans, $1.3 million in residential mortgage loans,
      and
      $0.7 million in other loans. The increase was partially offset by decreases
      of
      $5.4 million in commercial mortgages, $3.8 million in home equity loans, $0.4
      million in credit cards, and $0.3 million in commercial installment loans.
      The
      Company had approximately $407.9 million in formal credit lines outstanding,
      $72.4 million in loan commitments outstanding, which are loans primarily
      collateralized by real estate, and $44.5 million of standby letters of credit
      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, increasing deposits and borrowings,
      and receiving proceeds from loan repayments and maturing
      securities.





The
      Company's allowance for loan losses increased $285,000 to $15,449,000 at March
      31, 2006, from $15,164,000 at December 31, 2005. The increase in the allowance
      for loan losses (the “allowance”) was due to an increase in the loan portfolio,
      partially offset by a decrease in classified loans. The allowance represents
      1.03 percent of gross loans outstanding at both March 31, 2006 and December
      31,
      2005. The allowance and reserve for unfunded loan commitments and standby
      letters of credit (the “reserve”) reflect a provision of $309,000 and net
      charge-offs of $127,000 recorded for the three months ended March 31, 2006.
      The
      reserve of $1,003,000 at March 31, 2006 and $1,106,000 at December 31, 2005
      is
      included in other liabilities. At March 31, 2006, there are loans of $7.2
      million, which are not on nonaccrual status, that are potential problem loans,
      which may result in the loans being placed on nonaccrual status in the future.
      Potential problem loans aggregating $5.8 million are related to one customer
      relationship and are well collateralized by real estate and supported by
      personal guarantees.




23


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




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





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




The
      provisions for credit losses established for the three months ended March 31,
      2006 and 2005, and the related allowance and reserve, reflect net charge-offs
      incurred and risks with respect to real estate, time and demand, installment,
      credit card, and other loans, as well as the effect of the real estate market
      and general economic conditions of the New York Metropolitan area on the loan
      portfolio. Management believes the allowance and the reserve at March 31, 2006
      appropriately reflect the risk elements inherent in the total credit portfolio
      at that time. There is no assurance that the Company will not be required to
      make future adjustments to the allowance or the reserve in response to changing
      economic conditions or regulatory examinations.




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





Total
      deposits decreased $51.0 million, or 2.8 percent, for the three months ended
      March 31, 2006 to $1,796.2 million from $1,847.2 million at December 31, 2005.
      The total deposit decrease resulted from net decreases in retail and commercial
      deposits of $38.7 million and brokered deposits of $24.8 million, partially
      offset by an increase in municipal deposits of $12.5 million.




24


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




The
      $38.7
      million decrease in retail and commercial deposits at March 31, 2006 was due
      to
      decreases in savings, demand, money market, and NOW deposits of $17.0 million,
      $18.6 million, $23.4 million and $2.7 million, respectively, as compared to
      December 31, 2005. The decreases were primarily due to customers moving deposits
      to more competitive products to better react to a rising short-term interest
      rate environment and increasing competition for such accounts. The decrease
      in
      retail and commercial deposits was partially offset by increases in time
      deposits under $100,000, IRA and KEOGH deposits and time deposits over $100,000
      of $13.8 million, $3.0 million, and $6.2 million, respectively. These increases
      were due to offering products with competitive rates on time deposits with
      maturities of less than 12 months.





The
      decrease in deposits was also due to $24.8 million of brokered deposits maturing
      during the 2006 first quarter. The brokered deposits were not renewed as a
      result of alternative sources of funding (i.e., wholesale borrowings and
      municipal deposits) being more competitive.





For
      the
      three months ended March 31, 2006, municipal deposits increased $12.5 million,
      primarily as a result of offering competitive rates on interest bearing
      products. An increase in municipal deposits occurred in demand, NOW, and savings
      deposits of $1.9 million, $17.0 million, and $1.9 million, respectively. The
      increases were partially offset by decreases in municipal money market and
      time
      deposits of $2.7 million and $5.6 million, respectively, due to increased
      competition for these deposits.





As
      the
      amounts of deposits change and earning assets increase or decrease, the Bank
      will manage its funding with short-term borrowings. Short-term borrowings
      provide management with the ability to react to changes in levels of earning
      assets. As of March 31, 2006, the Bank had $135.0 million of FHLB short-term
      borrowings primarily as a result of a decrease in retail and commercial
      deposits, as well as brokered deposits. Management will continue to evaluate
      the
      interest rate environment in order to determine the most effective combination
      of borrowings and deposits.





Stockholders'
      equity increased to $207.0 million at March 31, 2006 from the December 31,
      2005
      balance of $204.2 million, an increase of 1.4 percent. The increase primarily
      resulted from: $8.1 million of net income for the three months ended March
      31,
      2006; $1.7 million of stock options exercised; and $0.2 million of amortization
      related to stock options vested during the period; partially offset by treasury
      stock purchases of $1.7 million; cash dividends paid of $3.0 million; and an
      increase in other comprehensive loss of $2.4 million.





The
      Company's leverage ratio at March 31, 2006 was 9.79 percent, compared to 9.47
      percent at December 31, 2005. The increase in the Company’s leverage capital
      ratio is due primarily to the increase in stockholders’ equity, excluding
      accumulated other comprehensive loss, for the three months ended March 31,
      2006.
      The Company's Tier I and total capital ratios under applicable risk-based
      capital guidelines were 15.91 percent and 16.87 percent at March 31, 2006,
      and
      16.00 percent and 16.98 percent at December 31, 2005, respectively. In addition,
      the Bank exceeded all current regulatory capital requirements and was in the
      “well-capitalized” category at March 31, 2006 and December 31,
      2005.




25




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


**COMPARISON
      OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND
      2005**





**Earnings**





Net
      income for the three months ended March 31, 2006 was $8.1 million compared
      to
      $7.4 million for the three months ended March 31, 2005, an increase of 9.8
      percent. Diluted earnings per common share were $0.36 for the three months
      ended
      March 31, 2006, compared to $0.33 per common share in the prior year period,
      an
      increase of 9.1 percent. The Company’s net income for the three months ended
      March 31, 2006 resulted in a 15.73 percent return on average common
      stockholders’ equity and a 1.16 percent return on average total assets, as
      compared to 16.03 percent and 1.07 percent, respectively, for the three months
      ended March 31, 2005.





The
      increases in the three months ended March 31, 2006 net income and diluted
      earnings per common share compared to the 2005 period are due to increases
      in
      net interest income and non-interest income, and decreases in the provision
      for
      credit losses, non-interest expenses and the effective rate for the provision
      for income taxes.





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





**Net
      Interest Income**





Net
      interest income, the difference between interest income and interest expense,
      is
      the most significant component of the Company’s consolidated earnings. Net
      interest income is positively impacted by a combination of increases in earning
      assets over interest bearing liabilities, and an increase in the net interest
      spread between earning assets and interest bearing liabilities, as well as
      an
      increase in the volume of interest earning assets. Net interest income is
      adversely impacted by a combination of decreases in earning assets over interest
      bearing liabilities, a decrease in the net interest spread between earning
      assets and interest bearing liabilities, and a decrease in the volume of
      interest earning assets. For the three months ended March 31, 2006, net interest
      income increased 1.6 percent to $23.4 million compared to $23.0 million for
      the
      three months ended March 31, 2005.





The
      increase in net interest income for the three months ended March 31, 2006
      resulted primarily from increases in the net interest spread and margin on
      a tax
      equivalent basis. The net interest spread and margin on a tax equivalent basis
      for the three months ended March 31, 2006 increased to 3.46 percent and 3.59
      percent, compared to 3.41 percent and 3.53 percent for the 2005 period,
      respectively. The increases in the net interest margin and spread on a tax
      equivalent basis were primarily due to a 200 basis point increase in short-term
      interest rates by the Federal Reserve Bank from March 31, 2005 to March 31,
      2006. The short-term interest rate increases resulted in an increase in the
      yields on the Company’s floating rate assets tied to the prime rate and LIBOR,
      which was greater than the increase in the yield on interest bearing liabilities
      during the 2006 first quarter compared to the 2005 prior year period. As of
      March 31, 2006, the Company’s balance sheet is in a liability rate sensitive
      position. As a result, net interest income is under pressure from a relatively
      flat U.S. Treasury yield curve. The current slope of the U.S. Treasury yield
      curve could negatively affect net interest income by causing interest rate
      margins to compress.


For
      the
      three months ended March 31, 2006, tax equivalent yields on interest earning
      assets increased to 6.36 percent from 5.68 percent, and yields on interest
      bearing liabilities increased to 2.90 percent from 2.27 percent, as compared
      to
      the 2005 period, respectively. The increase in tax equivalent yields on interest
      earning assets for the three months ended March 31, 2006 was due to increases
      in
      yields on average securities to 5.53 percent from 5.00 percent, yields on
      average federal funds sold to 4.41 percent from 2.42 percent, and yields on
      average net loans to 7.05 percent from 6.31 percent, as compared to the 2005
      period, respectively. For the three months ended March 31, 2006, the increase
      in
      yields on interest bearing liabilities was due to increases in yields on Capital
      Securities to 8.58 percent from 7.26 percent and yields on deposits to 2.20
      percent from 1.42 percent, as compared to the 2005 period,
      respectively.




26


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




The
      increase in net interest income for the three months ended March 31, 2006 was
      also attributable to an increase in average earning assets of $12.3 million,
      or
      0.5 percent, to $2,676.0 million from $2,663.7 million for the 2005 period.
      The
      increase was due to a $78.0 million, or 7.1 percent, increase in average
      investment securities, primarily from additional leveraging in the 2006 first
      quarter and investment of municipal deposits during the second half of 2005,
      partially offset by decreases in net average loans of $27.5 million, or 1.8
      percent, from prepayments and competition in the Bank’s market area and average
      federal funds sold of $38.1 million, or 64.5 percent.





The
      increase in net interest income was partially offset by an increase in average
      interest bearing liabilities of $40.3 million, or 1.8 percent, for the three
      months ended March 31, 2006, as compared to the 2005 period. The increase in
      average interest bearing liabilities was primarily due to increases in average
      borrowings to fund investment securities of $37.4 million, or 6.2 percent,
      and
      interest bearing deposits of $2.9 million, or 0.2 percent, for the three months
      ended March 31, 2006, as compared to the 2005 period. Average demand deposits
      decreased $18.4 million, or 5.5 percent, for the three months ended March 31,
      2006, as compared to the prior year period. The decrease in average demand
      deposits also partially offset the increase in the net interest income, as
      well
      as the net interest margin and spread on a tax equivalent basis, resulting
      in
      demand deposits being replaced with interest bearing liabilities.





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





**Provision
      for Credit Losses**





The
      provision for credit losses declined to $309,000 for the 2006 first quarter,
      as
      compared to $391,000 for the 2005 period. The decrease for the three months
      ended March 31, 2006 was due to a lower level of loan growth in the 2006 first
      quarter compared to the 2005 first quarter period, primarily as a result of
      prepayments on commercial loans, partially offset by a higher ratio of allowance
      for loan losses to total loans at March 31, 2006 compared to March 31, 2005.
      The
      ratio of non-performing assets to total assets at March 31, 2006 was 0.29
      percent compared to 0.33 percent and 0.03 percent at December 31, 2005 and
      March
      31, 2005, respectively. During the three months ended March 31, 2006, net
      charge-offs totaled $127,000 compared to net recoveries of $34,000 for the
      2005
      period. Net charge-offs during the three months ended March 31, 2006 primarily
      consisted of a standby letter of credit charge-off of $82,000 for a
      non-performing real estate construction project of which the amount was fully
      reserved for during 2005.




27


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




Nonaccrual
      loans were $8.1 million and $1.0 million at March 31, 2006 and 2005,
      respectively, compared to $9.0 million at December 31, 2005. Total nonaccrual
      loans at March 31, 2006 primarily consisted of two customer relationships of
      $4.7 million and $2.9 million. The loans related to one customer relationship
      aggregating to $4.7 million ($4.7 million at December 31, 2005) have been placed
      on nonaccrual status as a result of alleged fraudulent activity by the borrower
      related to the real estate collateral of the loans. The Bank is pursuing
      collection of the principal from a title insurance company, which insured the
      Bank’s first mortgage positions. The loans related to another customer
      relationship aggregating to $2.9 million ($3.9 million at December 31, 2005)
      involve a collateralized real estate construction project that has experienced
      unexpected delays in completing the construction. The loans are also supported
      by personal guarantees.





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





Net
      income is adversely impacted by the level of non-performing assets caused by
      the
      deterioration of borrowers’ ability to meet scheduled interest and principal
      payments. In addition to foregone revenue, the Company must increase the level
      of provisions for credit losses, incur collection costs, and other costs
      associated with the management and disposition of foreclosed properties. A
      substantial portion (87.8 percent at March 31, 2006) of total gross loans of
      the
      Company is collateralized by real estate, primarily located in the New York
      Metropolitan area. Accordingly, the collectibility of the loan portfolio of
      the
      Company is subject to changes in the real estate market in which the Company
      operates.





**Non-Interest
      Income**





Non-interest
      income increased for the three months ended March 31, 2006 to $2.0 million
      from
      $1.8 million compared to the 2005 prior year period. The increase for the three
      months ended March 31, 2006, as compared to the 2005 period was primarily due
      to
      loan prepayment fees and fee income on debit cards, generation gold checking
      account products, and credit cards, as well as an increase in the market value
      on deferred compensation. The increase was partially offset by decreases in
      fee
      income on letters of credit and investment product sales and commission-based
      products.





**Non-Interest
      Expenses**





Non-interest
      expenses decreased $0.4 million, or 2.8 percent, to $13.0 million for the three
      months ended March 31, 2006 compared to the 2005 period. The primary reasons
      for
      the decrease were lower levels of salaries and benefits expense, professional
      fees, and occupancy and equipment expense, partially offset by increases in
      advertising and business development expense and other expense.





28


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




Salaries
      and employee benefits expense, the largest component of non-interest expense,
      decreased by $57,000, or 0.7 percent, during the three months ended March 31,
      2006 compared to the 2005 period. This decrease was due to lower expenses
      related to medical benefit costs, partially offset by higher levels of
      incentive, stock options, and deferred compensation expense, and a decrease
      in
      deferred loan origination costs.





Changes
      in non-interest expense for the three months ended March 31, 2006, compared
      to
      the 2005 period, were also primarily due to the following:





§
            Decrease
                of $102,000 (5.0 percent) in occupancy and equipment expense. The
                decrease
                primarily reflects a reevaluation of maintenance contracts and a
                decrease
                in depreciation expense due to fixed assets being fully depreciated
                during
                the second half of 2005. The decrease was partially offset by higher
                energy costs and an increase in rent expense for the Stamford,
                Connecticut, and Manhattan
                locations.





§
                Increase
                    of $27,000 (4.7 percent) in advertising and business development
                    expense.
                    The increase for the three month period was due to an increase
                    in
                    television, print, and radio
                    advertising.





§
                Decrease
                    of $295,000 (44.2 percent) in professional fees. The decrease
                    is primarily
                    due to higher legal fees during the 2005 period related to a
                    non-performing real estate construction loan and costs related
                    to
                    compliance with Section 404 of the Sarbanes-Oxley
                    Act.





§
                Increase
                    of $64,000 (7.4 percent) in other expenses. The increase was
                    primarily due
                    to an increase in dues paid to the New York State Banking Department,
                    higher expenses related to value added account services, and
                    an increase
                    in consulting costs. The increase was partially offset by a decrease
                    in
                    employee travel and
                    training.





**Income
      Taxes**





The
      effective income tax rate for the three months ended March 31, 2006 was 32.6
      percent compared to 33.3 percent for the 2005 first quarter. The effective
      income tax rate for both the 2006 and 2005 periods reflects nontaxable income
      from municipal bonds, lower state income taxes, and in 2006 the satisfactory
      completion of a Federal tax examination for prior income tax years.





As
      a
      result of a reduction in taxable income for New York State tax purposes, the
      Company has established a valuation allowance at March 31, 2006, December 31,
      2005, and March 31, 2005 in the amount of $3.0 million, $3.0 million, and $2.8
      million, respectively. The valuation allowance reduces the New York State net
      deferred tax asset to the amount management believes will more likely than
      not
      be realized. As of March 31, 2006, the New York State deferred tax asset, net
      of
      state deferred tax liabilities, is fully reserved by the valuation
      allowance.




29


**U.S.B.
                      HOLDING CO., INC.**
                    **ITEM
                      3. **QUANTITATIVE
                      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK****





Market
      risk is the potential for economic losses to be incurred on market risk
      sensitive instruments arising from adverse changes in market indices such as
      interest rates, foreign currency exchange rates, and commodity prices.
      Quantitative and qualitative disclosures about market risk at December 31,
      2005
      were reported in the Company’s 2005 Annual Report to Stockholders. There have
      been no material changes in the Company’s market risk exposures at March 31,
      2006 compared to December 31, 2005. Interest rate risk continues to be the
      Company’s primary market risk exposure since substantially all Company
      transactions are denominated in U.S. dollars with no direct foreign currency
      exchange or changes in commodity price exposures. Substantially all market
      risk
      sensitive instruments continue to be held to maturity or available for sale
      with
      no significant financial instruments entered into or acquired for trading
      purposes. The Company does not use derivative financial instruments such as
      interest rate swaps and caps and has not been party to any derivative financial
      instruments during the three months ended March 31, 2006.





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 March 31, 2006 as compared to
      December 31, 2005. The Company’s “Static Gap” at March 31, 2006 was a negative
      cumulative gap of $373.4 million in the one-year time frame compared to a
      negative cumulative gap of $166.6 million at December 31, 2005. If interest
      rates were to gradually increase 200 basis points or decrease 200 basis points
      from current rates, the percentage change in estimated net interest income
      for
      the subsequent twelve month measurement period continues to be within the
      Company’s policy limit of not changing by more than 5.0 percent.




30




**U.S.B.
                      HOLDING CO., INC.**
                    **ITEM
                      4. **CONTROLS
                      AND PROCEDURES****




The
      Company has evaluated the design and operation of its disclosure controls and
      procedures to determine whether they are effective in ensuring that the
      disclosure of required information is timely made in accordance with the
      Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and forms of
      the Securities and Exchange Commission. This evaluation was made under the
      supervision and with the participation of management, including the Company’s
      Chief Executive Officer and Chief Financial Officer, as of March 31, 2006.
      The
      Chief Executive Officer and Chief Financial Officer have each concluded, based
      on their review, that as of March 31, 2006, the Company’s disclosure controls
      and procedures, as defined by Exchange Act Rules 13a-15(e) and 15d-15(e), are
      effective to ensure that information required to be disclosed by the Company
      in
      reports that it files under the Exchange Act is recorded, processed, summarized,
      and reported within the time period specified in Securities and Exchange
      Commission rules and forms and that such information is accumulated and
      communicated to management as appropriate to allow timely decisions regarding
      required disclosure. There was no change in the Company’s internal control over
      financial reporting that occurred during the fiscal quarter ended March 31,
      2006
      that has materially affected or is reasonably likely to materially affect the
      Company’s internal control over financial reporting.




31





**PART
      II - OTHER INFORMATION**





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





There
      have been no material changes in the risk factors relevant to our operations
      from those disclosed in the Company’s 2005 Annual Report on Form 10-K in
      response to Item 1A to Part I of Form 10-K.





**ITEM
      2.** **UNREGISTERED
      SALES OF EQUITY SECURITIES** **AND
      USE OF PROCEEDS**




The
      following table sets forth information with respect to purchases made by the
      Company of its common stock during the three months ended March 31,
      2006.





**Period**
            **Total
                Number**
              **of
                Shares**
              **Purchased****1**
            **Average**
              **Price
                Paid**
              **Per
                Share**
            **Total
                Number**
              **of
                Shares**
              **Purchased
                as**
              **Part
                of Publicly**
              **Announced**
              **Programs**
            **Maximum**
              **Number
                of**
              **Shares
                that**
              **may
                yet be**
              **Purchased**
              **Under
                the**
              **Programs****2**January
                1 to January 31
            ―
            ―
            ―
            300,000February
                1 to February 28
            35,000
            21.65
            35,000
            265,000March
                1 to March 31
            33,567
            21.88
            30,000
            235,000**Total**
            68,567
            21.76
            65,000
            235,000





1 Includes
      common stock acquired in connection with the exercise of stock
      options.


2 The Company
      authorized a common stock repurchase plan of up to 300,000 shares on December
      13, 2005 to
      expire
      on December 31, 2006.





32


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




**Exhibit
              No.**
            
            **Exhibit**(3)
                (a)
            
            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, 2002 (“2002 Second Quarter 10-Q”), Exhibit
                (3)(a)).
            
            (4)
                (j)
            Registrant’s
                Dividend Reinvestment and Stock Purchase Plan (incorporated herein
                by
                reference to Registrant’s Form S-3 Registration Statement filed December
                14, 1993 (File No. 33-72788)).(3)
                (b)
            
            Bylaws
                of Registrant (incorporated herein by reference to Registrant’s
                Registration Statement on Form S-14 (File No. 2-79734), Exhibit
                (3)(b)).
            
            (4) (k)
            Amended and Restated Declaration
              of Trust of Union State Statutory Trust IV dated March 25, 2004
              (incorporated herein by reference to the Registrant’s Quarterly Report on
              Form 10-Q for the quarter ended March 31, 2004 (“2004 First Quarter
              10-Q”), Exhibit (10)(ad)).(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 (File No. 001-12811) (“1996 10-K”), Exhibit (4)(a)).
            
            (4) (l)
            Indenture
                dated March 25, 2004 between Registrant and Wilmington Trust Company,
                as
                Trustee (incorporated herein by reference to the Registrant’s 2004 First
                Quarter 10-Q, Exhibit (10)(ae)).(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) (m)
            Guarantee Agreement dated
              March
              24, 2004 by and between registrant and Wilmington Trust Company, as
              Trustee for the holders of Capital Securities of Union State Bank
              Statutory Trust IV (incorporated herein by reference to the Registrant’s
              2004 First Quarter 10-Q, Exhibit (10)(af)).(4)
                (c)
            
            Amended
                and Restated Declaration of Trust of Union State Capital Trust I
                (incorporated herein by reference to Registrant’s 1996 10-K, Exhibit
                (4)(c)).
            
            (10) (a)
            Agreement of Employment
              dated as
              of November 16, 2003 between the Company and the Bank and Thomas E.
              Hales
              (incorporated herein by reference to Registrant’s Annual Report on Form
              10-K for the year ended December 31, 2003, Exhibit (10)(a)).(4)
                (d)
            
            Junior
                Subordinated Indenture, dated July 31, 2001, between Registrant and
                State
                Street Bank and Trust Company of Connecticut, National Association,
                as
                trustee (incorporated herein by reference to Registrant’s Quarterly Report
                on Form 10-Q for the quarter ended September 30, 2001 (“2001 Third Quarter
                10-Q”), Exhibit (4)(d)).
            
            (10) (b)
            Agreement of Employment
              dated as
              of July 28, 2004 between the Company and the Bank and Raymond J. Crotty
              (incorporated herein by reference to Registrant’s Quarterly Report on Form
              10-Q for the quarter ended June 30, 2004 (“2004 Second Quarter 10-Q”),
              Exhibit (10)(b)).(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
                (incorporated herein by reference to Registrant’s 2001 Third Quarter 10-Q,
                Exhibit (4)(e)).
            
            (10) (c)
            Registrant’s
                1993 Incentive Stock Option Plan (incorporated herein by reference
                to
                Registrant’s Quarterly Report on Form 10-Q for the quarter ended September
                30, 1999 (File No. 002-79734), Exhibit (10)(e)).(4)
                (f)
            
            Amended
                and Restated Declaration of Trust of Union State Statutory Trust
                II
                (incorporated herein by reference to Registrant’s 2001 Third Quarter 10-Q,
                Exhibit (4)(f)).
            
            (10) (d)
            Registrant’s Employee Stock
              Ownership Plan (With 401(k) Provisions) (incorporated herein by reference
              to Registrant’s Annual Report on Form 10-K for the year ended December 31,
              2001 (“2001 10-K”), Exhibit (10)(g)).(4)
                (g)
            
            Indenture,
                dated June 26, 2002, between Registrant and State Street Bank and
                Trust
                Company of Connecticut, National Association, as trustee, (incorporated
                herein by reference to Registrant’s 2002 Second Quarter 10-Q, Exhibit
                (4)(g)).
            
            (10) (e)
            Registrant’s Director Stock Option
              Plan (incorporated herein by reference to Registrant’s 1996 10-K, Exhibit
              (10)(f)).(4)
                (h)
            
            Guarantee
                Agreement dated June 26, 2002, by and between Registrant and State
                Street
                Bank and Trust Company of Connecticut, National Association, as trustee
                for the holders of Capital Securities of USB Statutory Trust III,
                (incorporated herein by reference to Registrant’s 2002 Second Quarter
                10-Q, Exhibit (4)(h)).
            
            (10) (f)
            Registrant’s 1998 Director Stock
              Option Plan (incorporated herein by reference to Registrant’s Form S-8
              Registration Statement, filed June 5, 1998 (File No. 333-56169), Exhibit
              (99.1)).(4)
                (i)
            
            Amended
                and Restated Declaration of Trust of USB Statutory Trust III,
                (incorporated herein by reference to Registrant’s 2002 Second Quarter
                10-Q, Exhibit (4)(i)).
            
            (10) (g)
            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, (File No. 001-12811), Exhibit
              (10)(j)).




33


**ITEM
          6.**  **EXHIBITS**
  (10)
                  (h)
              
              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 (File No. 001-12811), Exhibit (10)(k)).
              
              (10)
                  (t)
              Form
                  of Director Stock Option Agreement by and
                  between the Registrant and recipients of stock options granted
                  pursuant to
                  the Director Stock Option Plan (incorporated herein by reference
                  to
                  Exhibit 10.2 to the Registrant’s Form 8-K filed on June 16,
                  2005).(10)
                  (i)
              
              Registrant’s
                    1997 Employee Stock Option Plan (incorporated herein by reference
                    to
                    Exhibit A to Registrant’s Proxy Statement filed April 16, 1997 (File No.
                    001-12811)).
              
              (10) (u)
              Forms of Stock Option
                Agreement by
                and between Tappan Zee Financial, Inc., and recipients of stock options
                granted pursuant to the Employees Stock Option Plan and the Outside
                Director Option Plan (incorporated herein by reference to the Tappan
                Zee
                1997 10-K, Exhibit 10.16).(10)
                  (j)
              
              Tappan
                  Zee Financial, Inc. 1996 Stock Option
                  Plan for Officers and Employees (“Employees Stock Option Plan”)
                  (incorporated herein by reference to Exhibit A to Tappan Zee Financial,
                  Inc.’s Proxy Statement for use in connection with its 1996 Annual Meeting
                  of Shareholders (File No. 000-26466) (“Tappan Zee 1996 Proxy
                  Statement”)).
              
              (10) (v)
              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, and as
                    amended
                    March 20, 2002 (incorporated herein by reference to the Registrant’s 2001
                    10-K, Exhibit (10)(w)).(10)
                  (k)
              
              Amendment
                    No. 1 to the Employees 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 (File No. 000-26466) (“Tappan Zee 1997 10-K”),
                    Exhibit 10.1.1).
              
              (10) (w)
              U.S.B. Holding Co., Inc.
                Severance
                Plan dated January 30, 2002 (incorporated herein by reference to
                Registrant’s 2001 10-K, Exhibit (10)(y)).(10)
                  (l)
              
              Amendment
                  No. 2 to the Employees Stock Option
                  Plan (incorporated herein by reference to Appendix A to Tappan
                  Zee
                  Financial, Inc.’s Proxy Statement for use in connection with its 1997
                  Annual Meeting of Shareholders (File No. 000-26466) (“Tappan Zee 1997
                  Proxy Statement”)).
              
              (10) (x)
              U.S.B. Holding Co., Inc.
                Executive
                Incentive Bonus
                Plan as amended February 24, 1999 (incorporated herein by reference
                to
                Exhibit A to Registrant’s Proxy Statement filed April 27, 1999 (File No.
                002-79734)).(10)
                  (m)
              
              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 1996 Proxy
                  Statement).
              
              (10) (y)
              Amendment No. 2 to the
                Key
                Employees’ Supplemental Investment Plan dated September 1, 2003
                (incorporated herein by reference to the Registrant’s Quarterly Report on
                Form 10-Q for the quarter ended September 30, 2003 (“2003 Third Quarter
                10-Q”), Exhibit (10)(ab)).(10)
                  (n)
              
              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) (z)
              Amendment
                  No. 1 to the Key Employees’ Diversified
                  Investment Plan dated September 1, 2003 (incorporated herein by
                  reference
                  to the Registrant’s 2003 Third Quarter 10-Q, Exhibit
                  (10)(ac)).(10)
                  (o)
              
              Amendment
                  No. 2 to the Outside Director Option
                  Plan (incorporated herein by reference to Appendix B to the Tappan
                  Zee
                  1997 Proxy Statement).
              
              (10) (aa)
              Amended and restated
                Key
                Employees’ Supplemental Investment Plan and Key Employees’ Supplemental
                Diversified Investment Plan dated November 30, 2005, effective January
                1,
                2005 (incorporated herein by reference to Registrant’s 2005 Annual Report
                on Form 10-K, Exhibit (10) (cc)).(10)
                  (p)
              
              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, Exhibit 10.7).
              
              (10) (bb)
              Amended and restated
                Retirement
                Plan for Non-Employee Directors of U.S.B. Holding Co., Inc. and Certain
                Affiliates dated December 13, 2005, effective January 1, 2005
                (incorporated herein by reference to Registrant’s 2005 Annual Report on
                Form 10-K, Exhibit (10) (dd)).(10)
                  (q)
              
              Registrant’s
                  2005 Employee Stock Option Plan
                  (incorporated herein by reference to Appendix A to the Registrant’s Proxy
                  Statement filed April 28, 2005).
              
              (31.1)
              Certification of Chief
                Executive
                Officer Pursuant to Exchange Act Rule 13a-14(a).*(10)
                  (r)
              
              Form
                  of Employee Stock Option Agreement by and
                  between the Registrant and recipients of stock options granted
                  pursuant to
                  the Employee Stock Option Plan (incorporated herein by reference
                  to
                  Exhibit 10.1 to the Registrant’s Form 8-K filed on June 16,
                  2005).
              
              (31.2)
              Certification of Chief
                Financial
                Officer Pursuant to Exchange Act Rule 13a-14(a).*(10) (s)
              
              Registrant’s 2005 Director Stock Option Plan
                  (incorporated herein by reference to Appendix B to the Registrant’s Proxy
                  Statement filed April 28, 2005).
              
              (32)
              Certification of Chief
                Executive
                Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section
                1350.**
                Filed Herewith




34


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized on May 9, 2006.





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




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




35