[LOGO] STATE BANCORP, INC.
                                                             2002 ANNUAL REPORT

            S T R E N G T H
           S T A B I L I T Y
              S E R V I C E

                               [GRAPHICS OMITTED]

<PAGE>

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Fiscal Year Ended December 31,                           2002            2001              2000            1999            1998
-------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>             <C>               <C>             <C>
Operating Results
Interest income                                $   67,132,444    $ 69,937,207    $   72,925,122    $ 61,508,519    $ 54,769,164
Interest expense                                   15,239,307      26,745,029        35,788,522      25,473,096      24,164,086
Net interest income                                51,893,137      43,192,178        37,136,600      36,035,423      30,605,078
Provision for probable loan losses                  3,560,000       3,600,000         3,250,000       3,000,000       1,800,000
Net interest income after provision
   for probable loan losses                        48,333,137      39,592,178        33,886,600      33,035,423      28,805,078
Other income                                        4,477,615       4,973,313         2,435,755       2,146,042       1,533,111
Operating expenses                                 37,477,362      31,587,765        21,977,203      20,452,093      17,967,483
Net income                                     $   11,302,611    $ 10,820,834    $   10,709,840    $ 10,328,708    $  8,202,545
-------------------------------------------------------------------------------------------------------------------------------
Common Share Data
Basic earnings per common share (1)            $         1.40    $       1.31    $         1.29    $       1.25    $       1.00
Diluted earnings per common share (1)          $         1.37    $       1.29    $         1.27    $       1.23    $       0.98
Stock dividends/splits                                      5%              5%                8%              6%              5%
Cash dividends per common share (1)            $         0.55    $       0.51    $         0.45    $       0.42    $       0.41
-------------------------------------------------------------------------------------------------------------------------------
Financial Position
Total assets                                   $1,362,282,184    $985,770,997    $1,021,223,348    $949,829,410    $732,693,510
Total loans (2)                                $  620,383,873    $551,597,698    $  496,992,446    $488,948,385    $420,636,380
Total deposits                                 $1,147,026,508    $884,709,462    $  895,107,149    $804,462,926    $597,020,948
Total stockholders' equity                     $   87,682,631    $ 76,288,429    $   72,306,737    $ 56,103,097    $ 60,857,892
Weighted average number of
   common shares outstanding (1)                    8,096,290       8,237,942         8,328,434       8,290,573       8,175,651
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Other Data
Return on average total assets                           0.95%           1.08%             1.13%           1.23%           1.11%
Return on average total stockholders' equity            13.66%          13.94%            17.91%          17.35%          14.16%
Operating efficiency ratio                               66.0%           64.5%             52.5%           51.7%           54.4%
Dividend payout ratio                                   39.06%          38.79%            35.28%          33.43%          40.77%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Retroactive recognition has been given for stock dividends and splits.
(2) Net of unearned income and before allowance for probable loan losses.

STRENGTH o STABILITY o SERVICE

Strength: Your Company completed another year of solid financial performance.
This is our 32nd consecutive year of record earnings growth. We know of no other
commercial bank in New York State that can match our record.

Stability: We remained focused throughout 2002 on our long-term strategic plan
even though the general economy wavered. Also, the officer corps of State Bank
has an average of over 20 years experience in their respective fields and our
lenders have expertise in almost every industry type.

Service: Customer service continues to be our first priority. Our entire staff
understands the merits of traditional values in banking such as courtesy,
personal attention, accessibility, responsiveness and competence. In fact, in a
recent survey, 97% of our customers ranked the Bank as good to excellent for
prompt problem resolution, professionalism and courtesy.

<PAGE>

                                 COMPANY PROFILE

          State Bank of Long Island was founded in 1966 by an energetic
            group of civic-minded businessmen seeking to enhance the
           quality of banking services on Long Island. They succeeded
         perhaps beyond their fondest expectations -- and for many years
          now State Bank has ranked among the highest performing banks
                               in New York State.

             Over the years, the Bank has adhered to a philosophy of
             "MEASURED, ORDERLY GROWTH." By doing so, State Bank has
          grown to be the largest independent commercial bank headquar-
        tered in Nassau County. We have built a reputation for providing
       high-quality personal service and have specialized in meeting the
           needs of commercial, small business, municipal and consumer
                         markets throughout Long Island.

AVERAGE ASSETS
(dollars in million)
[TABULAR REPRESENTATION OF BAR CHART]

                                 98   $  740.2
                                 99   $  841.5
                                 00   $  947.4
                                 01   $1,004.3
                                 02   $1,193.0

RETURN ON AVERAGE STOCKHOLDERS' EQUITY
(percent)
[TABULAR REPRESENTATION OF BAR CHART]

                                 98     14.16%
                                 99     17.35%
                                 00     17.91%
                                 01     13.94%
                                 02     13.66%

NET INCOME
(dollars in thousands)
[TABULAR REPRESENTATION OF BAR CHART]

                                 93    $ 3,708
                                 94    $ 4,019
                                 95    $ 5,039
                                 96    $ 5,702
                                 97    $ 7,105
                                 98    $ 8,203
                                 99    $10,329
                                 00    $10,710
                                 01    $10,821
                                 02    $11,303

<PAGE>

TO OUR STOCKHOLDERS, CUSTOMERS AND FRIENDS:

We are pleased to report that State Bancorp, Inc. achieved another successful
year in 2002. Your Company completed its 32nd consecutive year of record
earnings growth, which likely cannot be matched by any other bank in New York
State. Some of the factors that contributed to these results were a 7.3%
increase in average loans and a 13.1% increase in average deposits. Of
particular interest is that our new branch openings over the last eighteen
months have generated over $125 million in deposit balances, mostly low-cost
core deposits. In addition, the total assets of our Company reached an all time
high of $1.36 billion. This success is attributable, in large measure, to the
development and continuing implementation of a comprehensive strategic plan, and
our determined adherence to the philosophy of measured, orderly growth.
     Over the past several years, our Company has established and pursued a
number of initiatives that were outlined in our strategic plan. We are pleased
with the progress we have made in achieving those initiatives during 2002.
Specifically, we have:

o    Expanded our branch network by opening five de novo branches during the
     last eighteen months that have, as noted earlier, generated over $125
     million in deposits for the Company. Three of those branches are in a new
     market area for us, Queens County. Our tradition of making customer service
     our first priority, has attracted many new relationships in the Queens
     marketplace. Two additional branches were opened in Nassau County, one in
     Mineola and the other in Port Washington, both of which have been well
     received in their respective communities. During 2003, the Company will
     continue exploring new potential sites across our market area.

o    Broadened our range of services by introducing a State Bank MasterMoney(TM)
     Card. Our MasterMoney(TM) Card can be used to perform any ATM transaction,
     such as cash withdrawals, deposits, transfers, etc., and can also be used
     to make purchases at over 16 million MasterCard(R) locations worldwide
     without having to write a check. It provides our customers with access to
     their balances where and when they need it. In addition, customers have the
     option of requesting an ATM only card which is limited to cash withdrawals
     at ATMs.

o    Enhanced our technological capabilities. As the Bank's customer base has
     continued to embrace technology, it has and will continue to expect
     additional service delivery methods. In the Fall of 2002, we launched a
     business Internet banking service called BDA Online. Customers who had the
     opportunity to test run the system prior to its official introduction were
     very pleased with BDA Online's simplicity and cash management features. As
     of December 2002, personal inter-net banking with bill paying capabilities
     was being tested and should be ready for rollout during the next several
     months. Both of these services will help our customers manage their money
     more efficiently.

Summarizing our financial highlights for 2002, net income for the year was $11.3
million, representing a 4.5% increase over the comparable 2001 period. Basic
earnings per common share were $1.40 in 2002, an increase of 6.9%, versus $1.31
a year ago. Fully diluted earnings per common share were $1.37 and $1.29
respectively for the same periods. The per share amounts have been restated to
reflect a 5% stock dividend paid on July 12, 2002. As noted earlier, we are very
proud that our level of earnings in 2002 represented our 32nd consecutive year
of record earnings growth. Also, our Company's returns on average assets and
stockholders' equity were 0.95% and 13.66% respectively in 2002. During the
fourth quarter, our Company raised $10 million from a pooled trust preferred
securities offering. The securities were issued by a newly established
subsidiary, State Bancorp Capital Trust I and qualify as Tier I capital for
regulatory purposes. The Company's capital ratios continue at levels well in
excess of Federal regulatory guidelines for well-capitalized institutions.
     During July 2002, our Company was added to the Russell 2000 index, a
leading benchmark of small-cap stocks.


2
<PAGE>

CASH DIVIDENDS PER SHARE

                                [CHART OMITTED]

     We are further pleased to report on the continued success of
Studebaker-Worthington Leasing Corporation which the Company acquired in 2001.
Their leasing expertise has served many of our current commercial, business and
municipal customers well. During 2003, the management of Studebaker Worthington
will expand their vendor cooperative programs and begin cultivating new market
segments that have considerable leasing potential.
     We would also like to acknowledge the ongoing contribution of our Delaware
subsidiaries, SB Portfolio Management and SB Financial Services, for the
consulting services they render in portfolio management, asset and liability
management, and advanced financial modeling techniques. The services these
subsidiaries provide make a valuable contribution to the success of our Company.
     Offsetting these positive results were higher operating expenses, which
rose 18.6% to $37.5 million, due to growth in salaries and benefits, occupancy
expenses, marketing costs and legal fees.
     For a more detailed analysis of the Company's consolidated financial
statements, please refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations beginning on page 29 of this report.
     Once again, we would like to thank the members of our Board of Directors
and our Advisory Board for their contribution to the success of our Company. We
especially want to acknowledge the retirement of Gary Holman from our Board. He
has served with great distinction since 1968 in numerous capacities including:
Chairman of the Executive Committee, Chairman of the Loan Committee and Vice
Chairman of the Board. His professionalism, dedication, wisdom and counsel
during the past 36 years have contributed immeasurably to the success of the
Company. Upon his retirement, the Board of Directors conferred on him the
honorary title of Vice Chairman Emeritus.
     We would also like to bring to your attention once again, our Dividend
Reinvestment Plan, which continues to afford shareholders the opportunity to
reinvest their dividends into Company stock. Since it began in 1993, the Plan
has contributed over $8.6 million in capital toward the growth of our Company. A
card is attached to this report should you wish to become a participant in this
program.
     Looking forward to 2003, we are cautiously optimistic that we can continue
to grow our Company in spite of uncertain economic conditions. The national
economy continues to be anemic with unemployment drifting higher and consumer
spending slipping due in part to concern over potential conflict in the Middle
East and elsewhere and broad concern about the equity market. The Long Island
area appears to have escaped the fallout from the national recession and is
still showing modest employment growth, rising home prices and strong demand in
the area of new home construction. It is our conviction that we continue to have
the people, services, infrastructure and motivation to take advantage of
opportunities as they arise in 2003.
     We look forward to the year ahead and the opportunity to offer the retail,
business and government sectors across our market area, the finest in financial
services.

/s/ Thomas F. Goldrick, Jr.

Thomas F. Goldrick, Jr.
Chairman and Chief Executive Officer

/s/ Richard W. Merzbacher

Richard W. Merzbacher
Vice Chairman

/s/ Daniel T. Rowe

Daniel T. Rowe
President

Since 1979, the Company has paid both cash and stock dividends to its common
stockholders. Cash dividends per common share have grown at a compound annual
growth rate of 14% per year and a total of $35 million has been paid to
stockholders during this period. Stock dividends and splits ranging from 5% to
100% have been distributed in each of these years.

[PHOTO OMITTED]

Thomas F. Goldrick, Jr.
Chairman and Chief Executive Officer

[PHOTO OMITTED]

Richard W. Merzbacher
Vice Chairman

[PHOTO OMITTED]

Daniel T. Rowe
President

<PAGE>

BOARD OF DIRECTORS

[PHOTO OMITTED]

Thomas F. Goldrick, Jr.
Chairman and Chief Executive
Officer, State Bancorp, Inc. and State
Bank of Long Island

[PHOTO OMITTED]

Richard W. Merzbacher
President, State Bank of Long Island
Vice Chairman, State Bancorp, Inc.

[PHOTO OMITTED]

Daniel T. Rowe
President, State Bancorp, Inc.
Vice Chairman, State Bank
of Long Island

[PHOTO OMITTED]

Arthur Dulik, Jr.
Chief Financial Officer,
Altana, Inc.

[PHOTO OMITTED]

Joseph F. Munson
Managing Member,
High Point Partners, LLC

[PHOTO OMITTED]

John F. Picciano
Senior Partner,
Picciano & Scahill, P.C.

[PHOTO OMITTED]

Gerald P. Rosenberg
Secretary to the Board


4
<PAGE>

[PHOTO OMITTED]

J. Robert Blumenthal
President,
Harwyn Enterprises, Inc.

[PHOTO OMITTED]

Carl R. Bruno
Chief Financial Officer,
DiFazio Electric, Inc.

[PHOTO OMITTED]

Thomas E. Christman
Adjunct Professor of Finance,
St. John's University

[PHOTO OMITTED]

Suzanne H. Rueck
Director,
New Hyde Park Inn

[PHOTO OMITTED]

Jeffrey S. Wilks
Director of New Business Development,
Spiegel Associates

Gary Holman, Vice Chairman Emeritus, State Bancorp, Inc. and State Bank of Long
Island; Partner, Lamb & Barnosky, LLP, with Thomas F. Goldrick, Jr., Chairman
and Chief Executive Officer, State Bancorp, Inc. and State Bank of Long Island.

A Special Thanks for Distinguished Service

Gary Holman was a founder of State Bank of Long Island. Since 1968, he served as
a Director of State Bank of Long Island and State Bancorp, Inc. His wisdom and
counsel as Chairman of the Executive Committee, Chairman of the Loan Committee
as well as Vice Chairman of the Board, have been invaluable in helping to
provide strategic direction for the Bank. His professionalism, his dedication
and his unwavering sincerity of purpose, have benefited all of us. Upon his
retirement on February 25th, 2003, the Board of Directors conferred on him the
honorary title of Vice Chairman Emeritus.


                                                                               5
<PAGE>

                               [GRAPHICS OMITTED]

(above left) Lucy Mazany, Vice President, State Bank meets with Dr. Kenneth R.
Goodman, Physicians Diagnostics Imaging, P.C., St. Francis Hospital, at the Port
Washington branch, (right), and with Richard N. Adonailo, Chief Financial
Officer & Vice Chairman, Arizona Beverages.

"Successful banking relationships are built on service, mutual trust and
confidence. State Bank understands the importance of satisfying customer needs
as well as providing quality banking services. At State Bank, customer service
is our first priority."

[PHOTO OMITTED]       Lucy Mazany
                      Vice President

<PAGE>

[GRAPHIC OMITTED]

                              STATE BANK "SAILS"
                              INTO PORT WASHINGTON

When State Bank "steamed" into Port on March 25th, 2002, we drew a lot of
curious attention from our new neighbors with a fully rigged sailboat set up in
our branch lobby and fish bowls placed on the teller stations. The nautical
promotion which included a Grand Opening Sweepstakes with the sailboat as 1st
prize, gave Lucy Mazany, Vice President and Officer in Charge, and June Alleyne,
Manager, the opportunity to "Welcome Aboard" many old friends and to introduce
new customers to a better banking experience at State Bank. Both Lucy and June
command a wealth of hands-on banking experience and have worked among the
residents and businesses of Port Washington for many years.

Our goal is to provide the best products available from any commercial bank with
an unwavering commitment to personal service.

     The branch, located on the block of Port Washington Blvd. and Main Street,
was newly renovated and now offers ample parking in the back lot, drive up
facilities, a 24 hour ATM, a night drop, safety deposit boxes, a customer
financial center featuring free Internet access with a link to the Bank's
website and CNN coverage. The branch has state-of-the-art technology in place to
support rather than replace, customer service by our staff. Like other State
Bank facilities, this branch has a team of seasoned professionals in place that
are prepared to meet all of our customers' banking and financial service needs,
including cash management, cost efficient equipment leasing, professional
services support, commercial and small business credit, investment planning and
transaction processing. Our goal is to provide the best products available from
any commercial bank with an unwavering commitment to personal service.
     Personal service at State Bank means taking that extra step to know our
customers by name; it means having a relationship manager who knows the nuances
of your industry; it means open access when you need to contact your manager; it
means problems, when they arise, are resolved promptly; and above all, it means
we will treat you with the courtesy and respect you deserve.
     During the relatively short time that Port Washington has been in
operation, Lucy and June have demonstrated their commitment to the community by
actively participating in and sponsoring local charities, the chamber of
commerce and civic groups in events such as the Harbor Festival, the Port
Washington Octoberfest and the North Shore Animal League promotion.


                                                                               7
<PAGE>

[GRAPHIC OMITTED]

INTRODUCING THE STATE BANK
ATM CARD WITH PURCHASING
POWER...

Debit cards are rapidly becoming the payment option of choice in the United
States. During the past decade, debit card use has increased dramatically
especially among younger consumers who are beginning to appreciate its
convenience. Today, more than 100 million people have debit cards which account
for over $300 billion in purchases of goods and services. In fact, during the
first half of 2002, debit card purchases outpaced purchases made with credit
cards even though consumers carried twice as many credit cards as debit cards.
In addition, over 60 percent of consumers preferred to pay for items with their
debit card rather than cash or a check.
     Debit cards are typically used to pay for everyday items such as gasoline,
groceries, restaurant meals and department store purchases, but they can also be
used for hotels, airlines and other expenditures worldwide. With the debit card
in your wallet, you don't have to carry cash or checks, and since it's not a
credit card, you don't run up interest charges.
     The State Bank MasterMoney(TM) Card is designed to make your life a little
easier by giving you better control of your everyday finances. When a purchase
is made using your State Bank MasterMoney(TM) Card, the amount of the purchase
is automatically deducted from your checking account and will appear on your
monthly statement-just the way ATM transactions do now. So, unlike paying with
cash, you will have a record of everything you buy. And, it eliminates the
common hassles and procedures involved in getting a check approved- especially
if you are out of state.

The State Bank MasterMoney(TM) Card is designed to make your life a little
easier by giving you better control of your everyday finances.

     In addition to being a versatile financial tool that can help you keep
track of your cash flow, your State Bank MasterMoney(TM) Card caN be used to get
cash at any ATM machine where you see the NYCE(R), Cirrus(R) or MasterCard(R)
logos simply by inserting your card and entering your Personal Identification
Number (PIN).
     A State Bank MasterMoney(TM) Card is the wallet-size solution to making
your life a little easier.


8
<PAGE>

                               [GRAPHICS OMITTED]

The new State Bank MasterMoney(TM) Card is easy and convenient to use. With it,
you can get cash at thousands of ATM machines, AND, shop at any store,
restaurant or merchant- worldwide- that accepts MasterCard(R).

"Our MasterMoney(TM) Card gives our customers easier access to their money. It's
safer than carrying cash and faster to use than writing a check. Now, customers
can make purchases at over 16 million locations worldwide- wherever they see the
MasterCard(R) logo, knowing that the money will be automatically deducted from
their checking account."

Thomas A. Arnone
Senior Vice President             [PHOTO OMITTED]
Branch Administration

<PAGE>

                               [GRAPHICS OMITTED]

(top right) State Bank customers testing the new personal Internet banking
service. (right) Pictured (l-r) are State Bank employees Catherine Lingstuyl,
Manager, State Bank Farmingdale Branch and Peter J. Yovine, Business Development
Officer, with Thomas Haddock, President, H.T. Steel, Inc. and Susan Arato,
Office Manager, H.T. Steel, Inc.

"It's an exciting time for State Bank of Long Island. Using the power of the
Internet, we are able to provide quality, state-of-the-art on-line banking
services to all our customers."

                         Diane Beck
[PHOTO OMITTED]          Vice President
                         Management Information Systems

<PAGE>

[GRAPHIC OMITTED]

                                ON-LINE SERVICES

This year the Bank initiated an innovative program to provide convenient on-line
Internet banking services to all of our customers. Based in part on customer
feedback, we created user-friendly electronic banking services that offer
customers fast, safe and easy access from their homes and offices.

We created user-friendly electronic banking services that offer customers fast,
safe and easy access from their homes and offices.

Business On-line Banking
In September 2002, we completed a two-phase upgrade to our electronic business
banking system Business Direct Access (BDA).
     The first phase was a conversion to a true "on-line" Internet based format
- BDA Online, making it much faster for our customers to access their accounts
via our website www.statebankofli.com.
     In the second phase, we focused on not only improving the system's current
features, but added additional ones - making BDA Online one of the most powerful
electronic banking tools available. Satisfied customers like H.T. Steel, Inc.
(picture at left), rate highly the improved system and additional features that
include:

o    Check Imaging - customers can view and print both front and back images of
     cancelled checks.

o    Recurring transfers - both internal and external, can be set up (in
     addition to customer initiated transfers).

o    Process multiple transfers simultaneously.

Personal On-line Banking
In September 2002, we also began designing a state-of-the-art personal on-line
banking service called PAM, or Personal Account Manager.
     Using the on-line personal banking system, customers will have the ability
to manage their money faster and more conveniently than ever before, 24 hours a
day, seven days a week, through the State Bank homepage.
     Utilizing a PC with Internet access, this service grants our customers
quick and safe access to all their checking, savings, mortgage and loan
information. Features include the ability to obtain account balance information,
transfer funds, make bank loan payments, view and print images of checks and
more.
     In addition, our customers will have the opportunity to upgrade their
on-line personal banking system with EZ-Pay, our convenient electronic bill
payment system. This product will help our customers save money and time by
eliminating the need to pay monthly bills by writing checks. Other features
include the ability to view payment history, set up repetitive payments, create
and store a list of payees.
     The on-line personal banking service and EZ-Pay are currently in the final
testing stages, and we expect a bank-wide roll-out in the second quarter of
2003.
     For more information on BDA Online or PAM, or to experience a free
demonstration, please visit www.statebankofli.com.

                                                                              11
<PAGE>

[GRAPHIC OMITTED]

FINANCIAL CONTENTS

Consolidated Balance Sheets ..............................................   13

Consolidated Statements of Income ........................................   14

Consolidated Statements of Cash Flows ....................................   15

Consolidated Statements of Stockholders' Equity
   and Comprehensive Income ..............................................   16

Notes to Consolidated Financial Statements ...............................   17

Independent Auditors' Report .............................................   28

Management' s Discussion and Analysis of Financial
   Condition and Results of Operations ...................................   29

Statistical Information ..................................................   42

Board of Directors and Executive Officers ................................   49

State Bank of Long Island -- Officers ....................................   50

Advisory Board ...........................................................   52

Corporate Information ....................................................   IBC


12
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                         2002            2001
-------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>               <C>
ASSETS:
   Cash and due from banks                                                     $   50,586,855    $ 25,310,091
   Federal funds sold                                                                      --       2,800,000
   Securities purchased under agreements to resell                                 48,000,000     110,000,000
-------------------------------------------------------------------------------------------------------------
   Total cash and cash equivalents                                                 98,586,855     138,110,091
   Securities held to maturity (estimated fair value
      of $26,713,300 in 2002 and $203,770 in 2001)                                 26,711,314         196,200
   Securities available for sale--at estimated fair value                         582,899,187     275,213,366
   Loans (net of allowance for probable loan losses of
      $10,045,516 in 2002 and $9,255,414 in 2001)                                 610,338,357     542,342,284
   Bank premises and equipment--net                                                 7,879,767       6,420,476
   Net receivable--securities sales                                                14,173,044       3,297,005
   Other assets                                                                    21,693,660      20,191,575
-------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                   $1,362,282,184    $985,770,997
-------------------------------------------------------------------------------------------------------------

LIABILITIES:
   Deposits:
     Demand                                                                    $  215,876,137    $181,439,730
     Savings                                                                      498,767,318     326,984,662
     Time                                                                         432,383,053     376,285,070
-------------------------------------------------------------------------------------------------------------
   Total deposits                                                               1,147,026,508     884,709,462
   Federal funds purchased                                                          4,800,000              --
   Securities sold under agreements to repurchase                                  49,983,000              --
   Other borrowings                                                                52,665,644      19,099,591
   Net payable--securities purchases                                                2,009,000              --
   Accrued expenses, taxes and other liabilities                                    8,115,401       5,673,515
-------------------------------------------------------------------------------------------------------------
Total liabilities                                                               1,264,599,553     909,482,568
-------------------------------------------------------------------------------------------------------------
GUARANTEED PREFERRED BENEFICIAL INTEREST IN SUBORDINATED DEBT                      10,000,000              --

COMMITMENTS AND CONTINGENT LIABILITIES

STOCKHOLDERS' EQUITY:
   Preferred stock, $0.01 par value, authorized 250,000 shares                             --              --
   Common stock, $5.00 par value, authorized 20,000,000 shares;
      issued 8,763,679 shares in 2002 and 8,645,825 shares in 2001;
      outstanding 7,979,862 shares in 2002 and 8,145,290 shares in 2001            43,818,395      41,170,595
   Surplus                                                                         45,714,829      39,202,494
   Retained earnings                                                                5,419,517       5,588,315
   Treasury stock (783,817 shares in 2002 and 476,700 shares in 2001)             (12,444,116)     (7,071,149)
   Accumulated other comprehensive income (loss), net of taxes                      5,218,101      (2,427,503)
    Unearned compensation                                                             (44,095)       (174,323)
-------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                         87,682,631      76,288,429
-------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $1,362,282,184    $985,770,997
-------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.


                                                                              13
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                            2002           2001           2000
--------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>            <C>
INTEREST INCOME:
   Loans                                                            $ 43,491,358   $ 48,177,441   $ 46,483,646
   Federal funds sold and securities purchased
     under agreements to resell                                          532,335      2,650,633      1,436,031
   Securities held to maturity and securities available for sale:
     States and political subdivisions                                 3,620,202      5,049,395      3,617,143
     Mortgage-backed securities                                       11,771,292      3,205,282      1,084,047
     Government Agency securities                                      6,585,093     10,220,711     19,795,697
     Other                                                             1,132,164        633,745        508,558
--------------------------------------------------------------------------------------------------------------
Total interest income                                                 67,132,444     69,937,207     72,925,122
--------------------------------------------------------------------------------------------------------------

INTEREST EXPENSE:
   Time certificates of deposit of $100,000 or more                    5,247,854     13,121,537     20,774,290
   Other deposits and temporary borrowings                             9,886,464     13,623,492     15,014,232
   Guaranteed preferred beneficial interest in subordinated debt         104,989             --             --
--------------------------------------------------------------------------------------------------------------
Total interest expense                                                15,239,307     26,745,029     35,788,522
--------------------------------------------------------------------------------------------------------------
Net interest income                                                   51,893,137     43,192,178     37,136,600
PROVISION FOR PROBABLE LOAN LOSSES                                     3,560,000      3,600,000      3,250,000
--------------------------------------------------------------------------------------------------------------
Net interest income after provision for probable loan losses          48,333,137     39,592,178     33,886,600
--------------------------------------------------------------------------------------------------------------

OTHER INCOME:
   Service charges on deposit accounts                                 1,478,932      1,667,687      1,862,990
   Net security gains (losses)                                         1,696,450      1,964,680       (529,013)
   Other operating income                                              1,302,233      1,340,946      1,101,778
--------------------------------------------------------------------------------------------------------------
Total other income                                                     4,477,615      4,973,313      2,435,755
--------------------------------------------------------------------------------------------------------------
Income before operating expenses                                      52,810,752     44,565,491     36,322,355
--------------------------------------------------------------------------------------------------------------

OPERATING EXPENSES:
   Salaries and other employee benefits                               19,917,969     16,611,391     14,205,757
   Occupancy                                                           3,312,111      2,197,673      1,946,909
   Equipment                                                           1,366,314      1,126,168        817,718
   Legal fees                                                          3,546,470      3,517,769        481,979
   Marketing and advertising                                           2,123,772      1,476,335        738,402
   Other operating expenses                                            7,210,726      6,658,429      3,786,438
--------------------------------------------------------------------------------------------------------------
Total operating expenses                                              37,477,362     31,587,765     21,977,203
--------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES                                            15,333,390     12,977,726     14,345,152
PROVISION FOR INCOME TAXES                                             4,030,779      2,156,892      3,635,312
--------------------------------------------------------------------------------------------------------------
NET INCOME                                                          $ 11,302,611   $ 10,820,834   $ 10,709,840
--------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE                                     $       1.40   $       1.31   $       1.29
--------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE                                   $       1.37   $       1.29   $       1.27
--------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                            8,096,290      8,237,942      8,328,434
--------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.


14
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                          2002             2001             2000
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                <C>              <C>
OPERATING ACTIVITIES:
   Net income                                                                  $    11,302,611    $  10,820,834    $  10,709,840
   Adjustments to reconcile net income to net cash provided by
     operating activities:
        Provision for probable loan losses                                           3,560,000        3,600,000        3,250,000
        Depreciation and amortization of bank premises and equipment                 1,302,171        1,052,278          818,977
        Amortization of goodwill and other intangibles                                  36,137          146,137           36,137
        Deferred income tax (benefit) expense                                         (325,625)       1,429,029         (751,530)
        Amortization (accretion) of net premium (discount) on securities             4,589,186       (2,846,929)      (1,647,436)
        Net security (gains) losses                                                 (1,696,450)      (1,964,680)         529,013
        Net losses on sale of other real estate owned ("OREO")                              --          607,769               --
        Amortization of unearned compensation                                          228,307          228,515          207,774
        Increase in other assets, net                                               (5,534,137)      (6,593,917)      (1,614,296)
        Increase (decrease) in accrued expenses, taxes and other liabilities         2,412,334       (3,218,527)       2,788,733
--------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                           15,874,534        3,260,509       14,327,212
--------------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
   Proceeds from maturities of securities held to maturity                              65,400           65,400          307,400
   Purchases of securities held to maturity                                        (26,425,500)              --               --
   Proceeds from sales of securities available for sale                            530,598,586      583,011,481      219,488,608
   Proceeds from maturities of securities available for sale                       172,346,644      313,130,157      111,169,542
   Purchases of securities available for sale                                   (1,010,578,695)    (747,394,695)    (356,186,236)
   Increase in loans, net                                                          (71,556,073)     (61,682,715)      (9,193,445)
   Proceeds from sale of OREO                                                               --        3,700,000               --
   Purchases of bank premises and equipment, net                                    (2,761,462)      (3,000,907)      (1,651,144)
--------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities                               (408,311,100)      87,828,721      (36,065,275)
--------------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
   Increase in demand and savings deposits                                         206,219,063      115,919,366       61,147,036
   Increase (decrease) in time deposits                                             56,097,983     (126,317,053)      29,497,187
   Increase (decrease) in Federal funds purchased                                    4,800,000       (9,700,000)      (6,750,000)
   Increase (decrease) in securities sold under agreements to repurchase            49,983,000         (325,000)     (26,563,000)
   Increase (decrease) in other borrowings                                          33,566,053      (15,900,409)      (5,000,000)
   Guaranteed preferred beneficial interest in subordinated debt                    10,000,000               --               --
   Cash dividends paid                                                              (4,384,828)      (4,089,580)      (3,707,596)
   Proceeds from shares issued under the dividend reinvestment plan                  1,782,382          891,772          864,647
   Proceeds from stock options exercised                                               222,644          339,266          173,962
   Proceeds from shares issued under the directors' stock plan                              --            2,355               --
   Purchases of treasury stock                                                      (5,372,967)      (4,648,721)      (1,503,779)
--------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                                352,913,330      (43,828,004)      48,158,457
--------------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                               (39,523,236)      47,261,226       26,420,394
--------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                     138,110,091       90,848,865       64,428,471
--------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                       $    98,586,855    $ 138,110,091    $  90,848,865
--------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:

   Interest paid                                                               $    15,218,785    $  28,469,214    $  35,771,985
--------------------------------------------------------------------------------------------------------------------------------
   Income taxes paid                                                           $     3,361,200    $   2,547,000    $   4,481,000
--------------------------------------------------------------------------------------------------------------------------------
   Transfer from loans to OREO                                                 $            --    $   3,525,634    $          --
--------------------------------------------------------------------------------------------------------------------------------
   Adjustment to unrealized net gain on securities available for sale          $    11,967,144    $     819,264    $  14,820,930
--------------------------------------------------------------------------------------------------------------------------------
   Dividends declared but not paid as of year end                              $     1,113,946    $   1,084,395    $     976,815
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.


                                                                              15
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
For the Years Ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                     Common                   Retained       Treasury
                                                      Stock      Surplus      Earnings          Stock
------------------------------------------------------------------------------------------------------
<S>                                             <C>          <C>           <C>           <C>
Balance, January 1, 2000                        $35,391,105  $29,492,832   $ 5,119,181   $   (918,649)
------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net income                                                               10,709,840

   Other comprehensive income, net of tax:
     Unrealized holding gains
        during the period
     Reclassification for losses included
        in net income

   Total other comprehensive income

Total comprehensive income

Cash dividend ($.45 per share)                                              (3,777,938)
8% stock dividend
   (564,757 shares at market value)               2,823,785    4,447,461    (7,271,246)
Shares issued under the dividend reinvestment
   plan (68,452 shares at 95% of market value)      342,260      522,387
Stock options exercised                             167,330        6,632
Treasury stock purchased                                                                   (1,503,779)
Amortization of unearned compensation                             49,094
------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                       38,724,480   34,518,406     4,779,837     (2,422,428)
------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net income                                                               10,820,834

   Other comprehensive income, net of tax:
     Unrealized holding gains
        during the period
     Reclassification for gains
        included  in net income

   Total other comprehensive income

Total comprehensive income

Cash dividend ($.51 per share)                                              (4,197,162)
5% stock dividend
   (375,416 shares at market value)               1,877,080    3,938,114    (5,815,194)
Shares issued under the dividend reinvestment
   plan (61,933 shares at 95% of market value)      309,665      582,107
Stock options exercised                             258,585       80,681
Stock issued under Directors' Stock Plan                785        1,570
Treasury stock purchased                                                                   (4,648,721)
Amortization of unearned compensation                             81,616
------------------------------------------------------------------------------------------------------
Balance, December 31, 2001                       41,170,595   39,202,494     5,588,315     (7,071,149)
------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net income                                                               11,302,611

   Other comprehensive income, net of tax:
     Unrealized holding gains
        during the period
     Reclassification for gains included
        in net income

   Total other comprehensive income

Total comprehensive income

Cash dividend ($.55 per share)                                              (4,414,379)
5% stock dividend
   (389,246 shares at market value)               1,946,230    5,110,800    (7,057,030)
Shares issued under the dividend
   reinvestment plan (111,296 shares
   at 95% of market value)                          556,480    1,225,902
Stock options exercised                             145,090       77,554
Treasury stock purchased                                                                   (5,372,967)
Amortization of unearned compensation                             98,079
------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002                      $43,818,395   $45,714,82    $5,419,517   $(12,444,116)
------------------------------------------------------------------------------------------------------

<CAPTION>
                                                 Accumulated
                                                       Other                          Total
                                               Comprehensive        Unearned  Stockholders'   Comprehensive
                                               (Loss) Income    Compensation         Equity          Income
-----------------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>           <C>            <C>
Balance, January 1, 2000                        $(12,501,470)      $(479,902)    56,103,097
-------------------------------------------------------------------------------------------
Comprehensive income:
   Net income                                                                    10,709,840     $10,709,840
                                                                                                -----------
   Other comprehensive income, net of tax:
     Unrealized holding gains
        during the period                                                                         9,188,734
     Reclassification for losses included
        in net income                                                                               340,400
                                                                                                -----------
   Total other comprehensive income                9,529,134                      9,529,134       9,529,134
                                                                                                -----------
Total comprehensive income                                                                      $20,238,974
                                                                                                ===========
Cash dividend ($.45 per share)                                                   (3,777,938)
8% stock dividend
   (564,757 shares at market value)                                                      --
Shares issued under the dividend reinvestment
   plan (68,452 shares at 95% of market value)                                      864,647
Stock options exercised                                                             173,962
Treasury stock purchased                                                         (1,503,779)
Amortization of unearned compensation                                158,680        207,774
-------------------------------------------------------------------------------------------
Balance, December 31, 2000                        (2,972,336)       (321,222)    72,306,737
-------------------------------------------------------------------------------------------
Comprehensive income:
   Net income                                                                    10,820,834     $10,820,834
                                                                                                -----------
   Other comprehensive income, net of tax:
     Unrealized holding gains
        during the period                                                                         1,855,312
     Reclassification for gains
        included  in net income                                                                  (1,310,479)
                                                                                                -----------
   Total other comprehensive income                  544,833                        544,833         544,833
                                                                                                -----------
Total comprehensive income                                                                      $11,365,667
                                                                                                ===========
Cash dividend ($.51 per share)                                                   (4,197,162)
5% stock dividend
   (375,416 shares at market value)                                                      --
Shares issued under the dividend reinvestment
   plan (61,933 shares at 95% of market value)                                      891,772
Stock options exercised                                                             339,266
Stock issued under Directors' Stock Plan                                              2,355
Treasury stock purchased                                                         (4,648,721)
Amortization of unearned compensation                                146,899        228,515
-------------------------------------------------------------------------------------------
Balance, December 31, 2001                        (2,427,503)       (174,323)    76,288,429
-------------------------------------------------------------------------------------------
Comprehensive income:
   Net income                                                                    11,302,611     $11,302,611
                                                                                                -----------
   Other comprehensive income, net of tax:
     Unrealized holding gains
        during the period                                                                         8,756,480
     Reclassification for gains included
        in net income                                                                            (1,110,876)
                                                                                                -----------
   Total other comprehensive income                7,645,604                      7,645,604       7,645,604
                                                                                                -----------
Total comprehensive income                                                                      $18,948,215
                                                                                                ===========
Cash dividend ($.55 per share)                                                   (4,414,379)
5% stock dividend
   (389,246 shares at market value)                                                      --
Shares issued under the dividend
   reinvestment plan (111,296 shares
   at 95% of market value)                                                        1,782,382
Stock options exercised                                                             222,644
Treasury stock purchased                                                         (5,372,967)
Amortization of unearned compensation                                130,228        228,307
-------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002                        $5,218,101        $(44,095)    $87,682,631
-------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.


16
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
     Organization and Nature of Operations--The consolidated financial
statements include the accounts of State Bancorp, Inc. and its wholly owned
subsidiaries, State Bank of Long Island (the "Bank") and State Bancorp Capital
Trust I. The Bank's consolidated financial statements include the accounts of
its wholly owned subsidiaries, SB Portfolio Management Corp. ("SB Portfolio"),
SB Financial Services Corp. ("SB Financial"), SB ORE Corp.,
Studebaker-Worthington Leasing Corp. ("SWLC") and New Hyde Park Leasing
Corporation and its subsidiary, P.W.B. Realty, L.L.C. SB Portfolio and SB
Financial are Delaware-based subsidiaries formed in June 1998. SB Portfolio
manages a portfolio of fixed income investments, and SB Financial provides
balance sheet management services with a focus on interest rate risk management.
Having provided business small-ticket equipment leasing nationwide for over
thirty years, SWLC is a leasing subsidiary acquired as of February 1, 2001.
State Bancorp, Inc. and subsidiaries are collectively referred to hereafter as
the "Company." All intercompany accounts and transactions have been eliminated.
     The Company was incorporated as a bank holding company under the laws of
the state of New York in 1985 to provide consumer, commercial and municipal
banking services to clients located primarily in the Queens, Nassau and Suffolk
County areas. It offers a full range of deposit and loan products through
fifteen full-service branches. In addition, the Company offers merchant credit
card services, access to mutual fund and annuity products and offers a consumer
debit card with membership in a national ATM network. The Company currently has
ATMs at thirteen of its fifteen branch locations.
     Basis of Presentation--The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of income and expenses during the reporting period. Actual results could differ
from those estimates.
     The accounting and reporting policies of the Company conform with
accounting principles generally accepted in the United States of America and
with general practice within the banking industry. The following is a summary of
the more significant accounting and reporting policies:
     Securities Held to Maturity and Securities Available for Sale--At the time
of purchase of a security, the Bank designates the security as either available
for sale or held to maturity, depending upon investment objectives, liquidity
needs and intent. Securities held to maturity are stated at cost, adjusted for
premium amortized or discount accreted, if any. The Bank has the positive intent
and ability to hold such securities to maturity. Securities available for sale
are stated at estimated fair value. Unrealized gains and losses are excluded
from income and reported net of tax as accumulated other comprehensive income
(loss) as a separate component of stockholders' equity until realized. Trading
securities are purchased and held principally for the purpose of selling them in
the near term. Trading generally reflects active and frequent buying and
selling, and trading securities are generally used with the objective of
generating profits on short-term differences in price. As of December 31, 2002
and 2001, the Bank did not hold any trading securities. Interest earned on
investment securities is included in interest income. Realized gains and losses
on the sale of securities are reported in the consolidated statements of income
and determined using the adjusted cost of the specific security sold.
     Income Recognition--The Bank discontinues the accrual of interest on loans
whenever there is reasonable doubt that interest and/or principal will be
collected, or when either principal or interest is 90 days or more past due and
the loan is not well collateralized or in the process of collection. Income is
not accrued for installment loans which are 90 days past due unless the Bank
holds cash collateral therefor. Interest received on nonaccrual loans is either
applied against principal or reported as income, according to management's
judgment as to the collectibility of the principal.
     Allowance for Probable Loan Losses--The allowance for probable loan losses
is established through a provision for loan losses charged to expense. Loans are
charged against the allowance when management believes that the collectibility
of the principal is unlikely, while recoveries of previously charged-off loans
are credited to the allowance. The balance in the allowance for probable loan
losses is maintained at a level that, in the opinion of management, is
sufficient to absorb probable losses. To determine that level, management
identifies problem loans based on the financial condition of the borrower, the
value of any collateral and/or guarantor support. Based upon the resultant risk
categories assigned to each loan and the procedures regarding impairment
described below, an appropriate reserve level is determined. Management also
evaluates the quality of, and changes in, the portfolio, while also taking into
consideration the Bank's historical loss experience, the existing economic
climate of the service area in which the Bank operates, examinations by
regulatory authorities, internal reviews and other evaluations in determining
the appropriate allowance balance. While management utilizes all available
information to estimate the adequacy of the allowance for probable loan losses,
the ultimate collectibility of a substantial portion of the loan portfolio and
the need for future additions to the allowance will be based upon changes in
economic conditions and other relevant factors.
     Commercial, and commercial real estate, loans are considered impaired when,
based on current information and events, it is probable that the Company will
not be able to collect all of the principal and interest due under the
contractual terms of the loan. Management considers all nonac-crual loans for
impairment. Large groups of smaller-balance homogeneous loans, such as consumer
and residential mortgages, are collectively evaluated for impairment.
     The allowance for probable loan losses related to loans that are impaired
includes reserves which are based upon the expected future cash flows,
discounted at the loan's effective interest rate, or the fair value of the
underlying collateral for collateral-dependent loans, or the observable market
price. This evaluation is inherently subjective as it requires material
estimates, including the amount and timing of future cash flows expected to be
received on impaired loans, that may be susceptible to significant change.
     In July 2001, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 102, "Selected Loan Loss Allowance Methodology
and Documentation Issues." SAB No. 102 expresses the SEC staff's views on the
development, documentation, and application of a systematic methodology for
determining the allowance for probable loan losses in accordance with accounting
principles gener-


                                                                              17
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

ally accepted in the United States of America. Also in July 2001, the federal
banking agencies issued guidance on this topic through the Federal Financial
Institutions Examination Council interagency guidance, "Policy Statement on
Allowance for Loan and Lease Losses Methodologies and Documentation for Banks
and Savings Institutions." In management's opinion, the Company's methodology
and documentation of the allowance for probable loan losses meets the guidance
issued.
   Bank Premises and Equipment--Net--Bank premises and equipment are stated at
cost, less accumulated depreciation and amortization. Depreciation expense is
computed on the straight-line method over the estimated useful lives of the
related assets which range from 3 to 40 years. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the remaining
terms of the leases.
   Loan Origination Fees and Costs--Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment of the yield
on the related loan.
   Income Taxes--The Company recognizes deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
Company's consolidated financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the differences
between the financial accounting and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. As changes in tax laws are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
   Treasury Stock--Stock held in treasury by the Company is accounted for using
the cost method, which treats stock held in treasury as a reduction to total
stockholders' equity.
   Cash Dividends--Cash dividends per common share have been restated to give
retroactive effect to stock dividends and splits.
   Stock Dividends--Stock dividends issued are recorded by transferring the
aggregate market value of the shares issued from retained earnings to common
stock and surplus. All per share information included in the consolidated
financial statements and the notes thereto has been restated to give retroactive
effect to stock dividends.
   Earnings Per Common Share--Basic earnings per common share is computed based
on the weighted average number of shares outstanding. Diluted earnings per share
is computed based on the weighted average number of shares outstanding,
increased by the number of common shares that are assumed to have been purchased
with the proceeds from the exercise of stock options (treasury stock method).
These purchases were assumed to have been made at the average market price of
the common stock. The average market price is based on the average closing price
for the common stock. Retroactive recognition has been given for stock dividends
and splits.

For the Years Ended December 31,              2002          2001          2000
------------------------------------------------------------------------------
Net income                             $11,302,611   $10,820,834   $10,709,840
Average dilutive stock
  options outstanding                      579,336       475,514       281,179
Average exercise price per share       $     12.85   $      9.79   $      5.51
Average market price--diluted basis    $     17.04   $     14.87   $     11.83
Average common shares outstanding        8,096,290     8,237,942     8,328,434
Increase in shares due to exercise
  of options--diluted basis                142,309       162,361        83,132
------------------------------------------------------------------------------
Adjusted shares outstanding--diluted     8,238,599     8,400,303     8,411,566
------------------------------------------------------------------------------
Net income per share--basic            $      1.40   $      1.31   $      1.29
==============================================================================
Net income per share--diluted          $      1.37   $      1.29   $      1.27
==============================================================================

   Comprehensive Income (Loss)--The Company presents as a component of
comprehensive income (loss) the amounts from transactions and other events which
currently are excluded from the statements of income and are recorded directly
to retained earnings.
   Statements of Cash Flows--For the purpose of presenting the statements of
cash flows, the Company considers Federal funds sold and securities purchased
under agreements to resell to be cash equivalents because such assets are
convertible into fixed amounts of cash within several days of initial purchase.
The Company may enter into purchases of U.S. Treasury, Government Agency and
mortgage-backed securities under agreements to resell.
   Loans Foreclosed--Property acquired through foreclosure (other real estate
owned or "OREO") is stated at the lower of cost or fair value less estimated
selling costs. Losses arising at the time of foreclosure are charged against the
allowance for probable loan losses. Revenues and expenses from operations or
changes in the carrying value of these assets are included in operating
expenses.
   Intangibles--Intangibles consist of core deposit intangibles and the excess
market value of leases acquired. Intangibles are carried at cost less
accumulated amortization. Amortization is provided over the period of
anticipated benefit (usually 3 to 19 years). Management evaluates the carrying
amount of intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has not recognized an impairment loss based on this
evaluation.
   Goodwill--The excess of cost over fair value of net assets acquired generated
from the acquisition of SWLC in February 2001, is amortized by the straight-line
method over 20 years. Effective January 1, 2002, goodwill has not been
amortized, but is reviewed annually for impairment.
   Accounting for Stock Options--The Company accounts for stock-based
compensation using the intrinsic value method which recognizes as expense the
difference between the market value of the stock and the exercise price at grant
date. The Company discloses the pro forma effects of accounting for stock-based
compensation using the fair value method.
   In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation --Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS No. 148 amends SFAS No. 123 to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. This statement is effective for financial statements
for fiscal years ending after December 15, 2002. The Company adopted SFAS No.
148 as of December 31, 2002, and the impact of such adoption did not have a
material impact on the Company's financial statements.
   The estimated fair value of options granted during 2002 and 2001 was $3.10
and $2.52 per share, respectively. The Company applies Accounting Principles
Board Opinion ("APB") No. 25 and related interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for its incentive
stock option plans. Had compensation cost for the Company's four plans been
determined at the fair value


18
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

on the grant dates for awards under those plans, consistent with the method in
SFAS No. 123, "Accounting for Stock-based Compensation," the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below.

                                             2002           2001           2000
-------------------------------------------------------------------------------
Net income
As reported                           $11,302,611    $10,820,834    $10,709,840
Deduct: Total stock-based
   employee compensation expense
   determined under fair value
   based method for all awards,
   net of related tax effects            (309,397)      (298,433)      (203,400)
-------------------------------------------------------------------------------
Pro forma                             $10,993,214    $10,522,401    $10,506,440
===============================================================================

Basic earnings per common share
     As reported                      $      1.40    $      1.31    $      1.29
     Pro forma                        $      1.36    $      1.28    $      1.26

Diluted earnings per common share
     As reported                      $      1.37    $      1.29    $      1.27
     Pro forma                        $      1.33    $      1.25    $      1.25

   The fair value of options granted under the Company's incentive stock option
plans during 2002, 2001 and 2000 were estimated on the date of grant using the
Black-Scholes Single Option Pricing Model with the following weighted-average
assumptions used:

                                 2002            2001        2000
-----------------------------------------------------------------
Dividend yield                    3.4%            3.4%        4.0%
Expected volatility              17.7%           18.5%       23.8%
Risk-free interest rate          4.77%           4.74%       5.06%
Expected life of options    7.3 YEARS       7.0 years   7.0 years

   Accounting for Derivatives--In June 1998, SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued by the FASB. This
statement requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. This statement, as
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," and by
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," was effective for all fiscal quarters of fiscal years beginning
after June 15, 2000, and was not to be applied retroactively to financial
statements of prior periods. The adoption of this statement as of January 1,
2001 did not have a significant impact on the Company's financial statements.
   Recent Accounting Developments--In June 2001, the FASB issued SFAS No. 141,
"Business Combinations." The most significant changes made by SFAS No. 141 are:
(1) requiring that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001; and (2) establishing specific
criteria for the recognition of intangible assets separately from goodwill. The
Company adopted SFAS No. 141 as of July 1, 2001, and the impact of such adoption
did not have a material effect on the Company's financial statements.
   In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 primarily addresses the accounting for acquired goodwill
and intangible assets (i.e., the postacquisition accounting). The provisions of
SFAS No. 142 are effective for fiscal years beginning after December 15, 2001.
The most significant changes made by SFAS No. 142 are: (1) goodwill and
indefinite-lived intangible assets are no longer amortized; (2) goodwill and
indefinite-lived intangible assets are tested for impairment at least annually;
and (3) the amortization period of intangible assets with finite lives is no
longer limited to forty years. The Company adopted SFAS No. 142 effective
January 1, 2002. The principal effect of SFAS No. 142 was ceasing the
amortization of goodwill, which amounted to approximately $100,000 annually
after taxes for the year ended December 31, 2001. The goodwill, which relates to
the acquisition of a leasing subsidiary, Studebaker-Worthington Leasing Corp.,
in February 2001, equals approximately $2.4 million. In accordance with SFAS No.
142, the Company completed the transitional goodwill impairment test in the
second quarter of 2002, and no evidence of impairment was identified.
   In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." The Company adopted SFAS No. 144 as of
January 1, 2002, and the impact of such adoption did not have a material impact
on the Company's financial statements.
   On October 1, 2002, the Company adopted SFAS No. 147, "Acquisitions of
Certain Financial Institutions," which allows financial institutions meeting
certain criteria to reclassify their unidentifiable intangible asset balances to
goodwill and retroactively cease amortization beginning as of January 1, 2002.
The adoption of this statement did not have a material effect on the Company's
financial statements.
   In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others." This Interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. This Interpretation also incorporates, without change, the guidance
in FIN No. 34, "Disclosure of Indirect Guarantees of Indebtedness of Others,"
which is being superseded. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in this Interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company's adoption of this Interpretation as of December
31, 2002, did not have a material impact on the Company's financial statements.
   Reclassifications--Certain reclassifications have been made to prior years'
amounts to conform them to the current year's presentation.

2. ACQUISITION OF LEASING COMPANY
   Effective February 1, 2001, the Bank purchased SWLC, a leasing company that
specializes in small-ticket leases for computers and office equipment. The Bank
acquired approximately $20,217,000 in lease receivables net of an allowance for
probable loan losses of $542,000, $1,705,000 in cash and $14,018,000 in notes
payable. The excess of cost over fair value of net assets acquired amounted to
$2,641,000, which was being amortized over 20 years. The remaining goodwill of
$2,391,000 is no longer amortized, but is evaluated annually for impairment in
accordance with SFAS No. 142.


                                                                              19
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

3. SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE
   The amortized cost, gross unrealized gains and losses, and estimated fair
value of securities held to maturity and securities available for sale at
December 31, 2002 and 2001, are as follows:

<TABLE>
<CAPTION>
                                                                                            Gross         Gross
                                                                           Amortized   Unrealized    Unrealized       Estimated
DECEMBER 31, 2002                                                               Cost        Gains        Losses      Fair Value
-------------------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity:
<S>                                                                     <C>            <C>          <C>            <C>
   Obligations of states and political subdivisions                     $    130,800   $       --   $        --    $    130,800
   Government Agency securities                                           26,580,514       12,500       (10,514)     26,582,500
-------------------------------------------------------------------------------------------------------------------------------
Total Securities Held to Maturity                                         26,711,314       12,500       (10,514)     26,713,300
-------------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale:
   Obligations of states and political subdivisions                       79,988,136    2,934,825        (8,721)     82,914,240
   Government Agency securities                                          177,887,760    2,081,548        (2,092)    179,967,216
   Corporate securities                                                   28,732,864      164,686       (14,450)     28,883,100
   Mortgage-backed securities and collateralized mortgage obligations    288,080,586    3,359,258      (305,213)    291,134,631
-------------------------------------------------------------------------------------------------------------------------------
Total Securities Available for Sale                                      574,689,346    8,540,317      (330,476)    582,899,187
===============================================================================================================================
Total Securities                                                        $601,400,660   $8,552,817   $  (340,990)   $609,612,487
===============================================================================================================================

<CAPTION>
                                                                                            Gross         Gross
                                                                           Amortized   Unrealized    Unrealized       Estimated
DECEMBER 31, 2001                                                               Cost        Gains        Losses      Fair Value
-------------------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity:
<S>                                                                     <C>            <C>          <C>            <C>
   Obligations of states and political subdivisions                     $    196,200   $    7,570   $        --    $    203,770
-------------------------------------------------------------------------------------------------------------------------------
Total Securities Held to Maturity                                            196,200        7,570            --         203,770
-------------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale:
   Obligations of states and political subdivisions                       80,008,624       30,124    (1,312,606)     78,726,142
   Government Agency securities                                           31,820,328           --    (1,014,156)     30,806,172
   Corporate securities                                                    6,168,150           --       (35,000)      6,133,150
   Mortgage-backed securities and collateralized mortgage obligations    160,973,567       62,631    (1,488,296)    159,547,902
-------------------------------------------------------------------------------------------------------------------------------
Total Securities Available for Sale                                      278,970,669       92,755    (3,850,058)    275,213,366
===============================================================================================================================
Total Securities                                                        $279,166,869   $  100,325   $(3,850,058)   $275,417,136
===============================================================================================================================
</TABLE>

   The amortized cost and estimated fair value of securities held to maturity
and securities available for sale at December 31, 2002, by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

                                               Amortized      Estimated
                                                    Cost     Fair Value
-----------------------------------------------------------------------
Securities Held to Maturity:
   Due after one year through five years    $    130,800   $    130,800
   Due after ten years                        26,580,514     26,582,500
-----------------------------------------------------------------------
Total Securities Held to Maturity           $ 26,711,314   $ 26,713,300
=======================================================================

Securities Available for Sale:
   Due in one year or less                  $ 15,496,306   $ 15,491,414
   Due after one year through five years       5,398,450      5,384,000
   Due after five years through ten years     42,019,284     42,747,902
   Due after ten years                       223,694,720    228,141,240
-----------------------------------------------------------------------
Subtotal                                     286,608,760    291,764,556
Mortgage-backed securities and
   collateralized mortgage obligations       288,080,586    291,134,631
-----------------------------------------------------------------------
Total Securities Available for Sale         $574,689,346   $582,899,187
=======================================================================

   In 2002, 2001 and 2000, gross gains of $2,244,632, $2,637,329 and $2,035 and
gross losses of $548,182, $672,649 and $531,048, respectively, were realized on
the sale of securities available for sale.
   At December 31, 2002, the Bank did not own any securities held to maturity or
securities available for sale for any one issuer in excess of ten percent of
stockholder's equity.
   Securities held to maturity and securities available for sale with an
amortized cost of $491,749,129 and $276,998,719 and an estimated fair value of
$497,003,182 and $273,248,986 at December 31, 2002 and 2001, respectively, were
pledged for public deposits, securities sold under agreements to repurchase,
other short-term borrowings and fiduciary purposes.

4. LOANS--NET
   At December 31, 2002 and 2001, net loans consisted of the following:

                                                2002           2001
-------------------------------------------------------------------
Commercial and industrial               $243,625,776   $246,244,807
Real estate--mortgage                    298,187,463    252,968,406
Real estate--construction                 42,828,627     16,258,014
Lease receivables                         20,040,793     18,230,653
Loans to individuals                       7,385,523      7,514,365
Tax exempt and other                       8,331,166     10,464,928
-------------------------------------------------------------------
Gross loans                              620,399,348    551,681,173
Less:
   Unearned income                            15,475         83,475
   Allowance for probable loan losses     10,045,516      9,255,414
-------------------------------------------------------------------
Loans--net                              $610,338,357   $542,342,284
===================================================================


20
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

   The Bank's real estate loans and loan commitments are primarily for
properties located throughout Long Island, New York. It is the Bank's policy to
spread risk among a broad range of industries and to monitor concentration and
associated levels of risk on an ongoing basis. As of December 31, 2002 and 2001,
the only concentration of loans exceeding 10% of total loans was the Bank's
loans totaling $89,905,000 and $74,490,000, respectively, from real estate
operators, lessors and developers. Repayment of these loans is dependent in part
upon the overall economic health of the Company's market area and current real
estate values. Credit losses arising from lending transactions in this industry
compare favorably with the Bank's credit loss experience on its portfolio as a
whole. The Bank considers the credit circumstances, the nature of the project,
and loan to value ratios for all real estate loans.
   The Bank makes loans to its directors and executive officers, and other
related parties, in the ordinary course of its business. These loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not bear more than normal credit risk. Loans made to directors and executive
officers, either directly or indirectly, totaled $1,008,047 and $2,382,260 at
December 31, 2002 and 2001, respectively. New loans totaling $1,885,995 and
$1,946,269 were extended and payments of $3,260,208 and $2,080,108 were received
during 2002 and 2001, respectively, on these loans.
   Activity in the allowance for probable loan losses for the three years ended
December 31, 2002 is as follows:

                                        2002           2001              2000
-----------------------------------------------------------------------------
Balance, January 1               $ 9,255,414    $ 9,207,243       $ 7,106,627
Adjustments                               --        542,312(1)             --
Provision charged to income        3,560,000      3,600,000         3,250,000
Charge-offs, net of recoveries
   of $201,645, $ 161,143
   and $ 259,787                  (2,769,898)    (4,094,141)       (1,149,384)
-----------------------------------------------------------------------------
Balance, December 31             $10,045,516    $ 9,255,414       $ 9,207,243
=============================================================================

(1) Opening balance of allowance for probable loan losses of acquired leasing
company.

    As of December 31, 2002, 2001 and 2000, the recorded investment in loans
that are considered to be impaired is summarized below.

                                             2002          2001          2000
-----------------------------------------------------------------------------
Amount measured using the present
   value of expected future cash
   flows, discounted at each loan's
   effective interest rate            $ 3,352,079   $ 4,226,806   $ 1,125,000
Impaired collateral-dependent loans     1,602,115     3,857,762     9,057,396
-----------------------------------------------------------------------------
Total amount evaluated as impaired    $ 4,954,194   $ 8,084,568   $10,182,396
=============================================================================
Average impaired loan balance         $ 6,486,261   $ 8,378,960   $ 6,704,326
=============================================================================
Interest income recognized
   on impaired loans                  $     7,903   $     1,202   $   119,406
=============================================================================

   As a result of the Bank's measurement of impaired loans, an allowance for
probable loan losses of approximately $2,027,000 and $4,143,000 was established
for $4,954,194 and $8,084,568 of the total impaired loans at December 31, 2002
and 2001, respectively.
   At December 31, 2002 and 2001, loans with unpaid principal balances on which
the Bank is no longer accruing interest income were $6,317,415 and $8,920,077,
respectively. Interest income would have been approximately $358,000, $684,000
and $537,000 greater in 2002, 2001 and 2000 respectively, had these loans been
current. Interest income on total nonaccrual loans, which is recorded only when
received, amounted to approximately $80, $7,000 and $62,000 for 2002, 2001 and
2000, respectively.
   At December 31, 2002 and 2001, loans restructured, and still accruing
interest in accordance with the modified terms, were $106,691 and $284,140,
respectively. Interest income would have been approximately $3,000, $10,000 and
$16,000 greater in 2002, 2001 and 2000, respectively, had the restructured loans
performed according to their original terms.
   At December 31, 2002 and 2001, commercial real estate mortgages of
$123,433,121 and $87,949,235, respectively, were pledged at the Federal Home
Loan Bank of New York and the Discount Window of the Federal Reserve Bank of New
York, respectively.

5. BANK PREMISES AND EQUIPMENT--NET
   At December 31, 2002 and 2001, Bank premises and equipment consisted of the
following:

                                             Accumulated
                                            Depreciation/      Net Book
                                   Cost     Amortization          Value
-----------------------------------------------------------------------
DECEMBER 31, 2002:
   Building                 $ 2,501,955       $  986,839     $1,515,116
   Leasehold improvements     3,806,537          983,495      2,823,042
   Furniture and fixtures     4,319,385        2,450,676      1,868,709
   Computer equipment
     and software             4,541,905        2,869,005      1,672,900
-----------------------------------------------------------------------
Total                       $15,169,782       $7,290,015     $7,879,767
=======================================================================
December 31, 2001:
   Building                 $ 1,908,187       $  909,981     $  998,206
   Leasehold improvements     2,913,076          777,881      2,135,195
   Furniture and fixtures     3,415,201        2,276,417      1,138,784
   Computer equipment
     and software             4,437,173        2,288,882      2,148,291
-----------------------------------------------------------------------
Total                       $12,673,637       $6,253,161     $6,420,476
=======================================================================

6. OTHER ASSETS
   At December 31, 2002 and 2001, other assets consisted of the following:

                                                          2002          2001
----------------------------------------------------------------------------
Interest receivable--investments                   $ 5,316,707   $ 1,382,546
Interest receivable--loans                           2,265,298     2,573,460
Net deferred income taxes                              393,808     4,389,722
Prepaid expenses                                     1,259,311     1,210,938
Excess market value of leases acquired
   (net of accumulated amortization
   of $367,381 and $331,244)                           255,085       291,222
Goodwill (excess of cost over fair value
   of assets acquired, net of accumulated
   amortization of $110,000)                         2,390,924     2,530,924
Cash surrender value of life insurance policies      1,771,925     1,674,607
Customer sweep accounts, net balances                5,903,450     3,787,900
Principal receivable--mortgage-backed securities            --        13,191
Other                                                2,137,152     2,337,065
----------------------------------------------------------------------------
Total                                              $21,693,660   $20,191,575
============================================================================

7. LINES OF CREDIT AND BORROWED FUNDS
   At December 31, 2002 and 2001, correspondent banks extended unsecured lines
of credit aggregating $36,450,000 and $21,450,000, respectively, as well as
$10,000,000 and $10,000,000, respectively, in secured


                                                                              21
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

lines, to the Bank for the purchase of Federal funds and for foreign exchange
transactions. Federal funds purchased and securities sold under agreements to
repurchase generally mature within one to seven days from the transaction date.
   In addition to the above, the Bank may use a line of credit with the Federal
Home Loan Bank of New York ("FHLB") for overnight funding or on a term basis to
match fund asset purchases. Based upon a multiple of the FHLB stock that the
Bank currently owns combined with the amount of collateral, including
approximately $123,000,000 in commercial real estate mortgages, it currently has
on deposit with FHLB, approximately $70,000,000 of this line may be drawn on a
term or overnight basis. The FHLB line is renewed annually.
   Also, at December 31, 2001, commercial real estate mortgages of $87,949,235
were pledged at the Discount Window of the Federal Reserve Bank of New York,
enabling the Bank to draw upon a line of up to $59,909,341. The Discount Window
interest rate is generally 50 basis points less than the Federal funds effective
target rate. The Bank had yet to draw upon its line established during the
fourth quarter of 1999 when the Bank withdrew its line on May 1, 2002.
   As a result of the acquisition of its leasing subsidiary, SWLC, in February
of 2001, another component of the Bank's borrowed funds is obligations under
equipment lease financing that are secured by the underlying collateral.
   The following summarizes the amounts at December 31, 2002 and 2001, and the
average amounts for 2002 and 2001 of borrowed funds outstanding:

                               Outstanding at             Average Amount
                                 December 31,               Outstanding
                          -----------------------------------------------------
                                 2002          2001          2002          2001
-------------------------------------------------------------------------------
Federal funds purchased   $ 4,800,000   $        --   $ 3,716,000   $ 1,108,000
Securities sold under
   agreements
   to repurchase          $49,983,000   $        --   $46,104,000   $   102,000
FHLB--overnight           $50,000,000   $12,000,000   $23,056,000   $ 8,838,000
Obligations under
   equipment lease
   financing              $ 2,665,644   $ 7,099,591   $ 5,283,000   $10,154,000

8. GUARANTEED PREFERRED BENEFICIAL INTEREST IN
   SUBORDINATED DEBT
   On October 29, 2002, State Bancorp Capital Trust I (the "Trust"), a statutory
trust created under the Delaware Statutory Trust Act that is a subsidiary of the
Company, issued $10,000,000 of Capital Securities ("Capital Securities"). The
coupon rate is three-month LIBOR plus 345 basis points and is reset quarterly.
The Trust's obligations under the Capital Securities issued are fully and
unconditionally guaranteed by the Company.
   The proceeds from the sale of the Capital Securities of the Trust were
utilized by the Trust to invest in $10,000,000 of Junior Subordinated Debentures
(the "Debentures") of the Company. The Debentures bear a coupon rate of
three-month LIBOR plus 345 basis points and is reset quarterly. The Debentures
are unsecured and rank subordinate and junior in right of payment to all
indebtedness, liabilities and obligations of the Company. The Debentures
represent the sole assets of the Trust. The Company has the right to optionally
redeem the Debentures prior to the maturity date of November 7, 2032, on or
after November 7, 2007, at par. Under the occurrence of certain events, the
Company may redeem the Debentures in whole or in part prior to November 7, 2007.
   The Trust is a wholly owned subsidiary of the Company, has no independent
operations and issued securities that contained the full and unconditional
guarantee of its parent, the Company.

9. INCOME TAXES
   The components of income tax expense for the years ended December 31, 2002,
2001 and 2000, are as follows:

                                     2002               2001               2000
-------------------------------------------------------------------------------
Federal:
   Current                    $ 3,877,081        $ 1,008,964        $ 4,334,564
   Deferred                      (156,556)         1,685,202           (610,641)
-------------------------------------------------------------------------------
Subtotal                        3,720,525          2,694,166          3,723,923
-------------------------------------------------------------------------------
State:
   Current                        479,323           (281,101)            52,278
   Deferred                      (169,069)          (256,173)          (140,889)
-------------------------------------------------------------------------------
Subtotal                          310,254           (537,274)           (88,611)
-------------------------------------------------------------------------------
Total                         $ 4,030,779        $ 2,156,892        $ 3,635,312
===============================================================================

   Total income tax expense was different from the amounts computed by applying
the statutory Federal income tax rate to income before income taxes due to the
following:

<TABLE>
<CAPTION>
                                                             2002                    2001                    2000
------------------------------------------------------------------------------------------------------------------------
                                                                    % OF                    % of                    % of
                                                                  PRETAX                  Pretax                  Pretax
                                                       AMOUNT     INCOME       Amount     Income       Amount     Income
------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>    <C>              <C>    <C>              <C>
Income tax expense at statutory rate              $ 5,366,687      35.0%  $ 4,542,204      35.0%  $ 5,020,803      35.0%
Surtax exemption                                     (153,334)     (1.0)     (129,777)     (1.0)     (114,095)     (0.8)
Increase (reduction) in taxes resulting from:
   Tax exempt interest on investments,
     net of interest expense disallowed
     of $55,927, $169,740 and $368,702             (1,312,877)     (8.6)   (1,715,544)    (13.2)   (1,126,415)     (7.9)
   State income tax, net of Federal tax benefit       204,768       1.3      (354,601)     (2.7)      (58,302)     (0.4)
   Other                                              (74,465)     (0.4)     (185,390)     (1.5)      (86,679)     (0.6)
------------------------------------------------------------------------------------------------------------------------
Income tax expense                                $ 4,030,779      26.3%  $ 2,156,892      16.6%  $ 3,635,312      25.3%
========================================================================================================================
</TABLE>


22
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

At December 31, 2002 and 2001, the deferred tax assets and liabilities are
composed of the following:

<TABLE>
<CAPTION>
                                                                     2002           2001
----------------------------------------------------------------------------------------
<S>                                                           <C>            <C>
Deferred tax assets:
   Allowance for probable loan losses                         $ 3,910,798    $ 3,516,523
   Unrealized holding loss on securities available for sale            --      1,329,799
   Intangible assets                                              432,491        586,327
   Bank premises and equipment                                         --        109,211
   AMT credits, state NOL and other                               768,298        539,739
----------------------------------------------------------------------------------------
Subtotal                                                        5,111,587      6,081,599
----------------------------------------------------------------------------------------
Deferred tax liabilities:
   Unrealized holding gain on securities available for sale    (2,991,740)            --
   Leasing activities                                          (1,687,722)    (1,656,955)
   Other                                                          (38,317)       (34,922)
----------------------------------------------------------------------------------------
Subtotal                                                       (4,717,779)    (1,691,877)
----------------------------------------------------------------------------------------
Net deferred tax assets                                       $   393,808    $ 4,389,722
========================================================================================
</TABLE>

   The deferred tax assets and liabilities are netted and presented in a single
amount, which is included in other assets in the accompanying consolidated
balance sheets. The income tax expense (benefit) associated with net security
gains (losses) amounted to $585,574, $654,201 and $(210,110) in 2002, 2001 and
2000, respectively.

10. INCENTIVE STOCK OPTION PLANS
   Under the terms of the Company's incentive stock option plans adopted in
January 1987, April 1994, February 1999 and February 2002, options have been
granted to certain key personnel that entitle each holder to purchase shares of
the Company's common stock. The option price is the higher of the fair market
value or the book value of the shares at the date of grant. Such options are
exercisable commencing one year from the date of grant, at the rate of 25
percent per year, and expire eight years from the date of grant.
   At December 31, 2002, 232,629 options for the purchase of 315,231 shares were
exercisable, and 655,378 shares were reserved for possible issuance. A summary
of stock option activity follows after giving retroactive effect to all stock
splits and dividends:

<TABLE>
<CAPTION>
                                                                      Option Price                  Weighted Average
                                      Number       Number        (Approximate Fair                    Exercise Price
                                  of Options    of Shares   Value at Date of Grant)        Total           Per Share
--------------------------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>              <C>                <C>                     <C>
Outstanding--January 1, 2000         239,962      383,888          $10.60 --$23.00    $3,879,229              $10.11
   Granted                            70,650       84,078                   $13.00       918,450              $10.92
   Exercised                         (15,862)     (39,555)         $10.60 --$11.00      (173,962)             $ 4.39
   Cancelled or forfeited             (2,700)      (3,657)         $13.00 --$23.00       (46,988)             $12.83
--------------------------------------------------------------------------------------------------------------------
Outstanding-December 31, 2000        292,050      424,754          $10.60 --$23.00     4,576,729              $10.78
   Granted                           177,750      195,940                   $15.00     2,666,250              $13.61
   Exercised                         (28,425)     (56,458)         $10.60 --$14.25      (339,266)             $ 6.01
   Cancelled or forfeited            (13,300)     (17,122)         $10.60 --$23.00      (205,795)             $12.01
--------------------------------------------------------------------------------------------------------------------
Outstanding--December 31, 2001       428,075      547,114          $12.625--$23.00     6,697,918              $12.24
   Granted                           126,850      133,186                   $17.30     2,194,505              $16.48
   Exercised                         (17,093)     (29,954)         $12.625--$17.25      (222,644)             $ 7.43
   Cancelled or forfeited             (3,250)      (3,547)         $13.00 --$17.30       (51,359)             $14.47
--------------------------------------------------------------------------------------------------------------------
Outstanding-December 31, 2002        534,582      646,799          $12.625--$23.00    $8,618,420              $13.32
====================================================================================================================
</TABLE>

   The following summarizes shares subject to purchase from options outstanding
and exercisable as of December 31, 2002:

<TABLE>
<CAPTION>
                                         Weighted Average
                                Shares          Remaining   Weighted Average        Shares   Weighted Average
Range of Exercise Prices   Outstanding   Contractual Life     Exercise Price   Exercisable     Exercise Price
-------------------------------------------------------------------------------------------------------------
<C>                            <C>              <C>                   <C>          <C>                  <C>
$ 6.66--$13.61                 376,273          4.6 years             $11.43       194,179             $ 9.94
$13.66--$17.38                 270,526          5.3 years             $15.95       121,052             $15.71
-------------------------------------------------------------------------------------------------------------
                               646,799          4.9 years             $13.32       315,231             $12.16
=============================================================================================================
</TABLE>


                                                                              23
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

11. EMPLOYEE BENEFIT PLANS
   The Bank has an Employee Stock Ownership Plan (the "ESOP") which is a defined
contribution plan covering substantially all full-time employees. Bank
contributions to the ESOP represent a minimum of three percent of an employee's
annual gross compensation. Employees become 20 percent vested after two years of
employment, with an additional 20 percent vesting each year. Full vesting takes
place upon the completion of six years of employment. Employee contributions are
not permitted. At December 31, 2002, the ESOP had all of its assets invested in
the Company's common stock. The Bank funds all amounts when due.
   In conjunction with the Rights Offering in July 1996, the ESOP borrowed
$1,200,000 from the Company to purchase 159,030 (adjusted for stock dividends
and splits) of the Company's shares. As such, the Company recorded a deduction
from stockholders' equity to reflect the unearned compensation for the shares.
As the unearned shares are released from collateral and allocated among
participants, the Company recognizes compensation expense equal to the current
market price of the shares released. Contributions under the ESOP charged to
operations amounted to $1,144,799, $961,621 and $820,294 in 2002, 2001 and 2000,
respectively. Compensation expense of $294,488 and $285,113 is applicable to the
17,258 shares and the 18,540 shares allocated in 2002 and 2001, respectively. As
of December 31, 2002 and 2001, the value of the 5,845 and 22,003 unallocated
shares was $105,210 and $335,549, respectively.
   The Bank has a 401(k) Retirement Plan and Trust (the "401(k) Plan"), which
covers substantially all full-time employees. Employees may elect to contribute
up to sixteen percent of their annual gross compensation to the 401(k) Plan, and
the Bank will match one-half of the employee's contribution up to a maximum of
three percent of the employee's annual gross compensation. Employees are fully
vested in both their own and the Bank's contributions. Bank contributions under
the 401(k) Plan amounted to $322,564, $270,394 and $235,503 in 2002, 2001 and
2000, respectively. The Bank funds all amounts when due. At December 31, 2002,
contributions to the 401(k) Plan were invested in bond, equity, money market,
capital appreciation, international equity, emerging markets equity, or
diversified funds as directed by each employee.
   During 1995, the Bank adopted nonqualified deferred compensation plans (the
"Plans") for each officer for whom contributions under the ESOP are limited by
the applicable provisions of the Internal Revenue Code. Bank contributions under
the Plans totaled $70,773, $96,610 and $106,269 in 2002, 2001 and 2000,
respectively.

12. COMMITMENTS AND CONTINGENT LIABILITIES
   Leases--The Bank is obligated under various leases covering certain
equipment, branches, office space and the land on which its head office is
built. The minimum payments under these leases, certain of which contain
escalation clauses, are:

2003                                          $ 2,232,129
2004                                            2,244,990
2005                                            2,148,553
2006                                            1,720,469
2007                                            1,605,535
Remainder to 2012                               6,093,846
---------------------------------------------------------
Total                                         $16,045,522
=========================================================

   Rent expense was approximately $2,099,000, $1,383,000 and $1,136,000 for
2002, 2001 and 2000, respectively.
   Directors' Incentive Retirement Plan--The Company has a Directors' Incentive
Retirement Plan for former directors of the Company who elect to retire after
having completed certain minimum service requirements. Under the retirement
plan, directors who elect to retire are entitled to receive, for a period of
five years after such retirement, certain compensation, as defined in the
retirement plan, as long as such director continues to consult with the Company
in an advisory capacity (or, if the director expires prior to the completion of
the consulting period, the beneficiary or estate designated by the director is
entitled to receive such remaining compensation).
   In 1992, the Company adopted a new retirement plan, whereby five individuals
(four directors and the secretary to the Board of Directors), who had been
eligible to receive benefits under the old retirement plan, agreed to cancel and
surrender their rights in the old retirement plan in exchange for the terms of
the new retirement plan. The new retirement plan provides for the payment of
certain compensation annually to these five individuals through March 1, 2007.
These individuals must be available to consult with the Company in an advisory
capacity during this period (or, if the director or secretary expires prior to
the completion of the consulting period, the beneficiary or estate designated by
the director or secretary is entitled to receive such remaining compensation).
   Directors' Stock Plan--The Company approved a Directors' Stock Plan in 1998
for each outside director and the secretary to the Board of Directors. On
January 1 of each year, each participant will be granted an award of 200 share
credits for the preceding year of service. Each participant will also receive
share credits for cash or stock dividends that would have been paid if the share
credits had been actual shares. Awards shall be paid after the participant has
ceased to be a director or secretary. If the participant expires, the shares
will be awarded to his/her beneficiary or estate. There are remaining 125,790
shares reserved for possible issuance. During 2001, 173 shares were distributed
to one retired director. No shares were distributed in 2002.
   During 2002, 2001 and 2000, the Bank charged approximately $128,000, $125,000
and $106,000, respectively, to operations relating to the retirement and stock
plans.
   Severance Commitments--The Company has five Executive Severance Plans (the
"Plans") for certain key executives who are full-time employees with the title
of Senior Vice President and above and who are designated as Plan participants
by the Board of Directors. The Plans provide for certain rights accruing to
participants in the event of a termination of the participant's employment
within one year after a change in control of the Company. These rights include a
cash payment and the continuation of certain employee benefits. In addition, all
stock options held by a participant will become immediately exercisable. In the
event that the participant enters into an employment contract, as defined in the
Plans, all rights to the severance payment and other benefits set forth above
will terminate. No amounts have been paid or accrued under the Plans.
   Pending Claims and Contingent Liabilities--As previously reported, the Bank
has been named (along with other defendants) in lawsuits related to


24
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

the activities of Island Mortgage Network, Inc. and certain related companies
("IMN"). The cases pending against the Bank as of March 17, 2003 are as follows:

--  Blanton, et al. v. IMN Financial Corp., et al., Adv. Proc. No. 01-8096,
    Bankruptcy Court for the Eastern District of New York.
--  Moritz, et al. v. National Settlement Services Corp., et al., Civil Action
    No. 3:00 CV 426 MU, Western District of North Carolina.
--  First American Title Insurance Co. v. State Bank of Long Island, Index No.
    13438/01, Supreme Court of the State of New York.
--  Broward Title Co. v. Alan Jacobs, et al., Adv. Proc. No. 01-8181, Bankruptcy
    Court for the Eastern District of New York.
--  Household Commercial Financial Services, Inc., et al. v. Action Abstract,
    Inc., et al., Adv. Proc. No. 02-8167, Bankruptcy Court for the Eastern
    District of New York.
--  Alan M. Jacobs, as Chapter 11 Trustee v. State Bank of Long Island, Adv.
    Proc. No. 02-8157, Bankruptcy Court for the Eastern District of New York.

   The Bank has recently settled the previously reported litigation filed by
David Duboff and David Duboff, P.C. (together, the "Duboff Entities") for an
immaterial amount. Pursuant to the settlement agreement all claims,
counterclaims and cross-claims between the Bank and the Duboff Entities in that
litigation as well as in the Broward adversary proceeding will be dismissed with
prejudice.
   The Bank is defending these lawsuits vigorously, and management believes that
the Bank has substantial defenses to the claims that have been asserted.
However, the ultimate outcome of these lawsuits cannot be predicted with
certainty. It also remains possible that other parties may pursue additional
claims against the Bank related to the Bank's dealings with IMN and its
affiliates. The Bank's legal fees and expenses will be significant, and those
costs, in addition to any costs associated with settling the IMN-related
litigations or satisfying any adverse judgments, could have a material adverse
effect on the Bank's results of operations or financial position. The Bank is
continuing to explore the extent to which insurance coverage may be available to
defray some of the costs associated with the IMN-related litigations, as well
as, in certain of the litigations, the pursuit of cross-claims against
codefendants and claims against various third parties.
   In addition to the litigation noted above, the Company and the Bank are
subject to other legal proceedings and claims that arise in the ordinary course
of business. In the opinion of management, the amount of ultimate liability, if
any, with respect to such matters will not materially affect future operations.
   Other--The Bank is required to maintain balances with the Federal Reserve
Bank of New York to satisfy reserve requirements. These balances averaged
approximately $341,000 and $432,000 in 2002 and 2001, respectively.

13. STATE BANCORP, INC. (PARENT COMPANY ONLY)
     Certain condensed financial information follows (dollars in
     thousands):

December 31,                                                   2002        2001
-------------------------------------------------------------------------------
BALANCE SHEET
Assets:
   Cash                                                    $    635    $    583
   Dividends receivable and other assets                      1,802       1,608
   Investment in the Bank                                    96,784      75,474
   Investment in the Trust                                      313          --
-------------------------------------------------------------------------------
Total Assets                                               $ 99,534    $ 77,665
===============================================================================
Liabilities:
   Dividends payable and other liabilities                 $  1,541    $  1,377
-------------------------------------------------------------------------------
Total Liabilities                                             1,541       1,377
===============================================================================
Guaranteed preferred beneficial
   interest in subordinated debt                             10,310          --
Stockholders' Equity:
   Preferred stock                                               --          --
   Common stock                                              43,818      41,171
   Surplus                                                   45,715      39,202
   Retained earnings                                          5,420       5,588
   Treasury stock                                           (12,444)     (7,071)
   Accumulated other comprehensive
      income (loss)                                           5,218      (2,428)
   Unearned compensation                                        (44)       (174)
-------------------------------------------------------------------------------
Total Stockholders' Equity                                   87,683      76,288
-------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity                 $ 99,534    $ 77,665
===============================================================================

For the years ended December 31,                   2002        2001        2000
-------------------------------------------------------------------------------
INCOME STATEMENT
Dividends from the Bank,
   net of expenses                             $  8,301    $  9,155    $  5,274
Equity in the undistributed earnings
   of the Bank and the Trust                      3,002       1,666       5,436
-------------------------------------------------------------------------------
Net Income                                     $ 11,303    $ 10,821    $ 10,710
-------------------------------------------------------------------------------

CASH FLOWS
Operating Activities:
   Net income                                  $ 11,303    $ 10,821    $ 10,710
   Increase in other assets                        (194)       (271)       (336)
   Increase in other liabilities                    164         159         109
   Equity in the undistributed earnings
      of the Bank and the Trust                  (3,002)     (1,666)     (5,436)
-------------------------------------------------------------------------------
Net cash provided by
   operating activities                           8,271       9,043       5,047
-------------------------------------------------------------------------------
Financing Activities:
   Cash dividends paid                           (4,385)     (4,089)     (3,707)
   Guaranteed preferred beneficial
      interest in subordinated debt              10,310          --          --
   Proceeds from issuance of
      common stock                                2,005       1,233       1,039
   Capital contribution to the Bank             (10,463)     (1,110)       (902)
   Capital contribution to the Trust               (313)         --          --
   Payment to repurchase
      common stock                               (5,373)     (4,649)     (1,504)
-------------------------------------------------------------------------------
Net cash used in financing activities            (8,219)     (8,615)     (5,074)
-------------------------------------------------------------------------------
Net Changes in Cash                            $     52    $    428    $    (27)
===============================================================================


                                                                              25
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

14. FINANCIAL INSTRUMENTS WITH
    OFF-BALANCE SHEET RISK
   The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby and
documentary letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the consolidated
financial statements. The Company has not engaged in derivatives activities for
any of the reported periods.
   The Bank's exposure to credit loss in the event of nonperformance by third
parties for commitments to extend credit and letters of credit is represented by
the contractual notional amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
   Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer. Collateral required varies, but may include
accounts receivable, inventory, equipment, real estate, and income-producing
commercial properties. At December 31, 2002 and 2001, commitments to originate
loans and commitments under unused lines of credit for which the Bank is
obligated amounted to approximately $190,489,000 and $153,890,000, respectively.
   Letters of credit are conditional commitments issued by the Bank guaranteeing
payments of drafts in accordance with the terms of the letter of credit
agreements. Commercial letters of credit are used primarily to facilitate trade
or commerce and are also issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. Collateral may be required to support letters of credit based upon
management's evaluation of the creditworthiness of each customer. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Most letters of credit
expire within one year. Management does not anticipate any material losses as a
result of these transactions. At December 31, 2002 and 2001, the Bank had
letters of credit outstanding of approximately $7,783,000 and $6,834,000,
respectively.

15. DISCLOSURES ABOUT FAIR VALUE
    OF FINANCIAL INSTRUMENTS
   Fair value estimates are made as of a specific point in time based on the
characteristics of financial instruments and market information. Where
available, quoted market prices are used. However, markets do not exist for a
portion of the Company's financial instruments and, as a result, fair value
estimates require judgments regarding future cash flows. These judgments are
subjective in nature, involve uncertainties and therefore may change
significantly at future measurement dates. The fair value information that
follows is intended to supplement, but not replace, the basic consolidated
financial statements and other traditional financial data presented throughout
this report. The calculation of estimated fair values is based on market
conditions at December 31, 2002 and 2001 and is not reflective of current or
future fair values. Furthermore, the value of long-term relationships with
depositors is not reflected. The value of those relationships is significant.
   The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
   Cash and Short-Term Investments--For cash and short-term investments (due
from banks, Federal funds sold, securities purchased under agreements to resell,
accrued interest receivable and certain other short-term assets), the carrying
amount is a reasonable estimate of fair value.
   Securities Held to Maturity and Securities Available for Sale--For securities
held to maturity and securities available for sale, the estimated fair value
equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using a quoted market price for similar
securities.
   Loans--The fair value of loans is estimated by discounting the expected
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities.
   Deposits--The fair value of demand deposits, savings accounts and time
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated using the interest rate
swap rates of similar term points.
   Other Short-Term Liabilities--Other short-term liabilities (Federal funds
purchased, securities sold under agreements to repurchase, accrued interest
payable and certain other short-term liabilities) are considered to have fair
values equal to their carrying amounts due to their short-term nature. These
instruments are presented in the table below as other short-term liabilities.
   Commitments to Extend Credit, Standby Letters of Credit and Commercial
Letters of Credit--The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit-worthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of standby letters of credit and commercial letters of credit is
based on fees currently charged for similar agreements, which are not material
to the financial statements.


26
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

   The estimated fair values of the Company's financial instruments are as
follows (in thousands):

December 31,                             2002                      2001
--------------------------------------------------------------------------------
                                 Carrying    Estimated     Carrying    Estimated
                                   Amount   Fair Value       Amount   Fair Value
--------------------------------------------------------------------------------
Financial assets:
   Cash and short-term
      investments              $  107,428   $  107,428   $  143,277   $  143,277
   Securities held to
      maturity and
      securities available
      for sale                    609,611      609,612      275,410      275,417
   Loans--net of the
      allowance for
      probable loan losses        610,338      622,092      542,342      548,576
--------------------------------------------------------------------------------
Total                          $1,327,377   $1,339,132   $  961,029   $  967,270
================================================================================
Financial liabilities:
   Deposits                    $1,147,027   $1,090,334   $  884,709   $  823,681
   Other short-term
   liabilities                    105,376      105,376       12,572       12,572
--------------------------------------------------------------------------------
Total                          $1,252,403   $1,195,710   $  897,281   $  836,253
================================================================================

16. REGULATORY MATTERS
   Dividends paid by the Company are subject to restrictions by certain
regulatory agencies. Under these restrictions, approximately $10,308,000 was
available for payment of dividends at December 31, 2002, without prior approval
of those regulatory agencies.

   The Company and the Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Under the capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and the Bank's
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
   Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
capital and Tier I capital, as defined in the regulations, to risk weighted
assets and of Tier I capital to average assets. Management believes, as of
December 31, 2002, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
   As of December 31, 2002, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the Bank's
category. The Company's and the Bank's capital amounts and ratios are as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                                    To Be Well-
                                                                  For Capital    Capitalized Under
                                                                   Adequacy      Prompt Corrective
                                                  Actual           Purposes      Action Provisions
--------------------------------------------------------------------------------------------------
                                             Amount    Ratio    Amount   Ratio    Amount    Ratio
--------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>     <C>       <C>     <C>        <C>
AS OF DECEMBER 31, 2002:
Tier I Capital to Total Adjusted
   Average Assets (Leverage):
     The Company                            $89,819    6.95%   $51,694   4.00%       N/A      N/A
     The Bank                               $88,920    6.88%   $51,698   4.00%   $64,622    5.00%
Tier I Capital to Risk-Weighted Assets:
     The Company                            $89,819   11.36%   $31,626   4.00%       N/A      N/A
     The Bank                               $88,920   11.26%   $31,588   4.00%   $47,382    6.00%
Total Capital to Risk-Weighted Assets:
     The Company                            $99,700   12.62%   $63,201   8.00%       N/A      N/A
     The Bank                               $98,793   12.51%   $63,177   8.00%   $78,971   10.00%
--------------------------------------------------------------------------------------------------
As of December 31, 2001:
Tier I Capital to Total Adjusted
   Average Assets (Leverage):
     The Company                            $75,894    7.79%   $38,970   4.00%       N/A      N/A
     The Bank                               $75,080    7.71%   $38,952   4.00%   $48,690    5.00%
Tier I Capital to Risk-Weighted Assets:
     The Company                            $75,894   11.81%   $25,705   4.00%       N/A      N/A
     The Bank                               $75,080   11.69%   $25,690   4.00%   $38,536    6.00%
Total Capital to Risk-Weighted Assets:
     The Company                            $83,942   13.06%   $51,419   8.00%       N/A      N/A
     The Bank                               $83,125   12.94%   $51,391   8.00%   $64,239   10.00%
--------------------------------------------------------------------------------------------------
</TABLE>


                                                                              27
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
State Bancorp, Inc. New Hyde Park, New York

   We have audited the accompanying consolidated balance sheets of State
Bancorp, Inc. and subsidiaries (the "Company") as of December 31, 2002 and 2001,
and the related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
   We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
   In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of State Bancorp, Inc. and
subsidiaries at December 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2002 in conformity with accounting principles generally accepted in the
United States of America.


/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania
January 31, 2003


28
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW
   State Bancorp, Inc. (the "Company") is a one-bank holding company, which was
formed on June 24, 1986. The Company operates as the parent for its wholly owned
subsidiaries, State Bank of Long Island and subsidiaries (the "Bank"), a New
York State chartered commercial bank founded in 1966 and State Bancorp Capital
Trust I (the "Trust"), an entity formed in 2002 to issue Trust Preferred
securities. The income of the Company is principally derived through the
operation of the Bank and its subsidiaries, SB Portfolio Management Corp. ("SB
Portfolio"), SB Financial Services Corp. ("SB Financial"),
Studebaker-Worthington Leasing Corp. ("SWLC"), New Hyde Park Leasing Corp. and
SB ORE Corp.
   The Bank serves its customer base through fifteen full-service branches and a
lending center in Jericho. Of the Bank's branch locations, seven are in Nassau
County, five are in Suffolk County and three are in Queens County. The Bank
offers a full range of retail banking services to individuals, corporations,
municipalities and small to medium-sized businesses. Retail products include
checking accounts, NOW accounts, money market accounts, passbook and statement
savings accounts, certificates of deposit, individual retirement accounts,
commercial loans, personal loans, residential, construction, home equity,
commercial mortgage loans, consumer loans, small business lines of credit,
equipment leases and telephone banking. In addition, the Bank also provides
access to annuity products, mutual funds, discount brokerage services, sweep and
lock box products and, through its association with U.S. Trust Company, a full
range of wealth management and financial planning services.
   SB Portfolio and SB Financial, based in Wilmington, Delaware, each wholly
owned subsidiaries of the Bank, were formed in 1998. SB Portfolio provides
investment management services to the Bank and the Company while SB Financial
provides balance sheet management services such as interest rate risk modeling,
asset/liability management reporting and general advisory services to the Bank.
   The Company acquired SWLC, based in Jericho, N.Y., in 2001. SWLC is a
nationwide provider of business equipment leasing that has been conducting
business for over thirty years.
   For the year ended December 31, 2002, the Company recorded record levels of
earnings, loans, investment securities, total assets, core deposits and Tier I
capital. The following discussion is intended to provide the reader with further
insight into the principal factors contributing to the financial results of the
Company and its operating subsidiary for the periods shown. It should be read in
conjunction with the consolidated financial statements and notes thereto for a
full understanding of this analysis.
   The Company's 2002 performance is discussed in detail on the following pages.
Certain statements contained in this discussion are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on management's current expectations
regarding a range of issues that could potentially impact the Company's
performance in future periods. Forward-looking statements are subject to risks
and uncertainties which may cause actual results to differ materially from those
discussed herein. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies, and expectations of the
Company, are generally identified by the use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," "is confident that," or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors that could have a
material adverse effect on the operations of the Company and its subsidiary
include, but are not limited to, changes in: market interest rates, general
economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, the quality and composition of the loan or
investment portfolios, demand for loan products, deposit flows, competition,
demand for financial services in the company's primary trade area, accounting
principles and guidelines and other economic, competitive, governmental,
regulatory and technological factors affecting the Company's operations, pricing
and services.

RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Summary of Financial Performance
   The Company achieved its thirty-second consecutive year of record earnings
during 2002. Net income improved by 4.5% to $11.3 million in 2002 versus $10.8
million in 2001. Basic earnings per common share increased by 6.9% in 2002 to
$1.40 per share from $1.31 a year ago (per share earnings have been adjusted to
reflect the impact of a 5% stock dividend paid by the Company during 2002).
Fully diluted earnings per common share were $1.37 and $1.29 in 2002 and 2001,
respectively. Growth in net interest income (up 20.1%) was the primary reason
for the earnings improvement during 2002. The increase in net interest income
resulted from an expanded interest-earning asset base, primarily through growth
in the loan and investment portfolios. Somewhat offsetting the foregoing factors
were increases in operating expenses, principally salaries and benefits,
occupancy costs and marketing and advertising expenses.
   The Company's capital position, by all industry-standard measures, remains
strong. The ratio of average total stockholders' equity to average total assets
was 6.94% and 7.73% in 2002 and 2001, respectively. Excluding adjustments
related to SFAS No. 115, these ratios would have been approximately 6.81% and
7.73% in 2002 and 2001, respectively. Based upon banking industry regulatory
guidelines, a "well capitalized" institution must maintain a Tier I leverage
ratio of at least 5.00% and Tier I and total capital to risk-weighted assets
ratios of at least 6.00% and 10.00%, respectively. At December 31, 2002, the
Company's Tier I leverage ratio was 6.95% while its risk-weighted ratios were
11.36% for Tier I capital and 12.62% for total capital. These ratios are
substantially in excess of the foregoing regulatory guidelines and also compare
favorably to the Company's peers.
   Although net income improved during 2002, the Company's primary measures of
financial performance declined nominally. During 2002, return on average equity
decreased to 13.66% versus 2001's level of 13.94%. Excluding the impact of
Statement of Financial Accounting Standards No. 115 ("SFAS 115"), the Company's
returns on average equity were 13.92% and 13.94% during 2002 and 2001,
respectively. Return on average assets declined to 0.95% from 1.08% a year ago.
The Company's primary expense measurement ratio, the operating efficiency ratio,
rose during 2002 to 66.0% from 64.5% in 2001. Despite the continued reduction in
interest rates during 2002, the Company's net interest margin narrowed by only 2
basis points to 4.77% from 4.79% a year ago.
   The Company's primary trade area, Nassau and Suffolk Counties on Long Island
and Queens County in New York City, continued to be caught in an economic
malaise during 2002 that began after the horrific events of September 11th.
Those events exacerbated the economic slowdown that


                                                                              29
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STATE BANCORP, INC. AND SUBSIDIARIES

was already taking place in the Long Island area. Although job creation has
stagnated of late, the Long Island economy has successfully transformed itself
into a dynamic high-tech-driven incubator for cutting edge companies during the
past ten years. From an area that was primarily dependent on one industry for
job creation for many years, the primary strength of the new local economy is
its great diversity. Due to its highly educated work force, Long Island has
become a fertile growth area for small business creation, particularly in the
high-tech, medical, biotech and services sectors. Queens County is one of the
most diverse counties in the country and is the home to over 42,500 small
businesses and over two million residents. The Company is an active participant
in lending to small businesses in a wide variety of industries in the tri-county
area surrounding its branch network. Loan demand improved somewhat during 2002.
On a year to year basis, total gross loans and leases grew, on average, by 7.3%
versus 2001. Due to the volatile nature of current world events, consumer
confidence has declined and efforts at fiscal stimulus by all levels of
government have been largely unsuccessful. Interest rates are at their lowest
level in nearly fifty years and future rate reductions, though unlikely, will
probably not stimulate the economy. It is into this economic headwind that
management of the Company begins 2003.
   The tri-county marketplace is among the most competitive in the country and
management is well aware that past performance is not indicative of future
results. Intense competition from commercial and savings banks, credit unions,
financial services conglomerates and insurance companies has created a financial
services industry where consumers and businesses alike can access their
investments and obtain funding online and invest in CDs and mutual funds and
sweep idle balances into a wide variety of investments, with institutions across
the country, or around the world, all by the click of a mouse from their homes
or offices. Consumers routinely expect "24/7" service excellence from their
financial service providers. Relationships are no longer of paramount importance
for many businesses or consumers. Convenience, flexibility and technology have
created a new paradigm in banking. The ongoing consolidation of the banking
industry, spurred by both congressional legislation and competition, has
promoted financial convergence among banks, financial services providers and the
insurance industry. Intense competition, along with a keen sophistication among
consumers and corporate treasurers makes management's outlook cautiously
optimistic for 2003. World events are expected to be the primary driver of the
economy for the next twelve months. War in the Middle East, record deficits at
home and an anxious populous not yet fully recovered from 9/11 make 2003 one of
the most difficult years to predict in a generation.
   Management of the Company, as always, is very cautious with respect to
granting credit to current and prospective borrowers. For these reasons,
management expects that 2003 will see loan growth of 4% to 6% in the Company's
core competencies of commercial and industrial credits, commercial mortgages and
equipment leasing at spreads that are expected to narrow moderately from current
levels as short-term interest rates have probably hit bottom. Assuming no change
in the shape of the yield curve, funding costs are not expected to decline
further in 2003. Further reductions in the Company's Prime lending rate during
2003 may negatively impact the net interest margin during the next twelve
months.
   Additional asset growth in 2003 will likely come from the fixed income
investment portfolio in both the taxable and tax-exempt areas. It is expected
that the maturation of the five branch offices opened during the past two years
will provide low-cost core deposit funding for any anticipated asset growth. The
Company will continue to aggressively pursue expense reductions and operating
efficiencies along with revenue-generating sales initiatives to improve net
interest income.
   Management expects that the upcoming year will provide the most difficult
challenges that the Company has ever faced. Competition continues to intensify
from an array of competitors that continues to expand as banks from across the
country and across the Hudson River stake their claim via acquisition and de
novo branching strategies in the Long Island region. While no specific branch
sites have been identified for 2003, technology upgrades and new products such
as consumer Internet banking coupled with internal programs to dramatically
enhance branch deposit growth and product cross-sell ratios will provide a
formidable array of challenges for management of the Company over the coming
year. This, of course, will all take place under the highest level of regulatory
scrutiny ever directed at public companies. However, by continuing our
philosophy of Measured, Orderly Growth, maintaining a "Customer First" attitude
and adhering to the ideals contained in our mission statement and continually
reinforced by our Board of Directors, the Company has been able to apply a
consistent standard of excellence that management feels will produce another
productive year during 2003.

NET INTEREST INCOME

2002 versus 2001
   Net interest income, the difference between interest earned on loans and
investments and interest paid on deposits and borrowed funds, continues to be
the Company's primary source of operating earnings. Net interest income is
affected by the level and composition of assets, liabilities and stockholders'
equity, as well as changes in market interest rates. Net interest income
increased by 20.1% to $51.9 million in 2002 as the result of growth in average
interest-earning assets of $172 million (17.9%). Growth in loans and
mortgage-backed securities accounted for the asset expansion. Increases in
commercial mortgages, consumer installment loans and lease receivables led the
$39 million or 7.3% increase in average loans outstanding in 2002 versus 2001.
Average investment securities grew by $167 million or 48.1% due to a $198
million increase in mortgage-backed securities. Somewhat offsetting this growth
were declines in tax-exempt municipal paper (down $32 million) and Government
agency securities (down $2 million). Approximately 48% of the Company's
investment portfolio is owned and managed by SB Portfolio Management Corp., a
wholly owned subsidiary of State Bank of Long Island located in Wilmington,
Delaware.
   Average interest-earning assets have grown by 17.9%, 6.6% and 12.2% in 2002,
2001 and 2000, respectively. Primarily funding this asset expansion were
increases in low-cost core deposits, principally demand and savings deposits and
money market accounts. Growth in these deposit categories offset reductions in
both retail and large denomination certificates of deposit.
   Average core deposit balances increased by $152 million or 33.2% to $610
million in 2002. The growth and retention of low-cost core deposit balances is
one of the Company's top strategic priorities since the growth of these deposits
is a key element in the Company's expansion strategy. These low-cost deposits
also are critical to the Company's efforts to improve net income through the
widest possible net interest margin. During 2002, average core deposit balances
represented 60% of total deposits; up from 51% last year and 43% in 2000. The
new branches


30
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STATE BANCORP, INC. AND SUBSIDIARIES

opened in 2001 and 2002 coupled with an increase in municipal and commercial
deposit relationships were responsible for growth in all core deposit
categories. Average demand deposit balances grew by 24.2% and 13.7% in 2002 and
2001, respectively, and have increased by nearly 50% since 1999. Average savings
deposits expanded by $113 million or 38.0% on a year over year basis. During
2002, the Company's net interest margin declined nominally to 4.77%, from 4.79%
a year ago. The narrower margin resulted from several factors, most notably:
lower short-term interest rates coupled with a moderately asset-sensitive
balance sheet. A shift in the asset mix to a greater dependence on investment
securities as a percentage of total earning assets coupled with lower interest
rates during 2002 served to reduce the Company's yield on average
interest-earning assets by 145 basis points to 6.12%. The substantial increase
in low cost sources of funding during 2002 contributed to a 142 basis point
decrease in the average rate paid on the Company's supporting funds to 1.34% in
2002 from 2.76% in 2001. Management anticipates a flat net interest margin in
2003 as low-cost core deposit balances and loan volumes are each projected to
increase while short-term interest rates are expected to stabilize at current
levels. Pricing pressure in the loan portfolio is expected to offset any
improvement in funding costs that will result from continued core deposit
expansion. Management expects that the continued maturation of the Company's new
branches will provide access to additional low-cost sources of funds as well as
provide ample opportunity to expand the Company's loan portfolio in previously
underserved areas of Queens County and the north shore peninsula of Nassau
County. As has been the case with all recent branch openings, the Company
expects that these new locations will continue to produce additional commercial
and municipal banking relationships, both for deposits and loans, that will
enhance profitability in 2003 and beyond.
   Average total loans grew by 7.3%, 12.2% and 7.8% in 2002, 2001 and 2000,
respectively. This growth has been achieved with little adverse impact on credit
quality. The Company, once again, was able to take advantage of Long Island's
diverse economy in 2002 and generate quality loan growth in a very competitive
marketplace. The continued reduction in interest rates during 2002, which has
fueled the ongoing residential and commercial refi-nancing boom, additional
industry consolidation and an intensified calling effort, including a Queens
loan blitz, were the primary reasons for the growth in the Company's loan
portfolio during the past year. Additional investments in property, plant and
equipment in many industries are on hold since 9/11. Management of the Company
expects that the combination of low interest rates and the expanded branch
network will provide significant opportunity for loan growth during the next
twelve to twenty-four months. Competitive products, including an Internet-based
commercial cash management system, along with a variety of equipment leasing
options offered by SWLC, provide commercial lenders and branch managers with a
competitive product arsenal for all types of relationships. These products,
coupled with responsive and personal customer service, will continue to enable
the Company to take advantage of opportunities presented by the ongoing
consolidation of the local banking market and any entree into new markets.
Average mortgages and installment loans grew at rates of 15.4% and 14.6%,
respectively, in 2002. At December 31, 2002, total loans outstanding amounted to
$620 million, up 12.5% when compared to the comparable 2001 date. The year-end
loan portfolio was composed of approximately 43% commercial mortgages, 37%
commercial loans, 11% residential mortgages and home equity lines of credit, and
9% all other loans and leases. It is expected that the 2003 loan mix will
remain, on a percentage basis, approximately the same as 2002.
   Based upon recent local and national economic forecasts, management of the
Company anticipates that loans outstanding will grow at a rate of 4% to 6% in
2003. The ongoing consolidation of the New York City and Long Island banking
markets still provides the greatest potential for loan growth next year. As
larger money center and regional bank competitors continue to "roll up" the
local market, many retail, commercial and municipal customers are often left out
in the cold, as their bankers need to wait for headquarters to approve rates and
product terms. A well-managed, locally run community bank with an excellent
reputation and a strong capital base will thrive in this environment.
   Management of the Company is committed to quality loan growth. A
comprehensive credit and peer review process provides a quality control tool to
ensure that only high quality loans are brought to credit committee for
consideration. This rigorous process has never been more important as the
Company expands into new geographic markets and combats the competition by
offering an ever wider product array during 2003.

2001 versus 2000
   Net interest income increased by 16.3% to $43.2 million during 2001 as the
result of growth in interest-earning assets of $59 million (up 6.6%). Growth in
loans, municipal securities and mortgage-backed securities and short-term
securities purchased under agreements to resell ("SPUAR") accounted for the
asset expansion. Increases in commercial loans and commercial mortgages paced
the $59 million or 12.2% increase in average loans outstanding in 2001 versus
2000. Average SPUARs, used to collateralize municipal deposits, increased by $45
million during 2001. Average investment securities decreased by $42 million or
10.8% due to a $133 million decline in Government Agency paper, resulting from
assets sales and calls throughout the year. Somewhat offsetting this decline was
an increase in mortgage-backed notes (up $40 million) and tax-exempt municipal
paper (up $32 million). Funding the growth in interest-earning assets was an $86
million (23.1%) increase in core deposits, which provided 51% of total deposits
in 2001 versus 43% in 2000.
   During 2001, the Company's net interest rate margin widened to 4.79% from
4.32% in 2000. The improved spread resulted from a lower cost of funds (down 120
basis points to 2.76% in 2001) due principally to a shift in the Company's
funding mix from CDs to core deposits; lower short-term interest rates; a shift
in the asset mix to a greater dependence on high-yielding loans as a percentage
of interest-earning assets; and a moderately liability sensitive balance sheet
structure.

INVESTMENT SECURITIES
   SFAS No. 115 requires the Company, at the time of purchase, to designate each
investment security as either "available for sale"("AFS"), "held to maturity" or
"trading," depending upon investment objectives, liquidity needs and ultimate
intent. Securities available for sale are stated at the lower of aggregate cost
or market value, with unrealized gains or losses reported as a separate
component of stockholders' equity until realized. Securities held to maturity
are stated at cost, adjusted for amortization of premium or accretion of
discount, if any. Trading securities are generally purchased with the intent of
capitalizing on short-term price differences by selling them in the near term.
The Company did not hold any trading securities at December 31, 2002 and 2001.
   At December 31, 2002, the Company held $583 million in AFS securities (96% of
the investment portfolio) at a pre-tax unrealized net gain of


                                                                              31
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

$8.2 million, versus a net loss of $3.9 million at year-end 2001. This
significant improvement resulted from continued reductions in interest rates
throughout 2002 coupled with purchases of defensive, high-coupon MBS product
during 2002. At year-end 2002, the AFS portfolio was divided into the following
categories: 5% corporate and other securities (including FHLB stock); 14%
tax-exempt municipal paper; 31% callable U.S. Government Agency securities; and
50% mortgage-backed securities ("MBS") (mainly FNMA and GNMA obligations). The
held to maturity portion of the portfolio, which totaled $27 million, was
composed almost entirely of Agency securities.
   All categories of investment securities increased during 2002. In particular,
MBS holdings grew by $132 million to $291 million at year-end 2002 while Agency
securities increased by $176 million at the same date. The MBS securities
purchased during 2002 are primarily medium-term (average life) in nature with
most final maturities less than fifteen years. The Agency issues held by the
Company are all callable within two years and most have final maturities of less
than twelve years. If rates continue to fall during 2003, it is likely that
these securities will be called in the next twelve months. The notes are AAA
credits that provide a very competitive yield well in excess of the Company's
incremental funding cost and are pledgeable to secure municipal deposits and
other borrowings and, therefore, are an integral part of the Company's funding
strategy. The Company's investment policy is conservative in nature and has
liquidity and safety paramount among its objectives. The Company's portfolio of
tax-exempt municipal notes increased by $4 million at year-end 2002 versus the
comparable 2001 date. The Company continues to expand its municipal
relationships and, as a natural outgrowth of that business, purchases short-term
(one year or less) municipal paper. Much of the municipal paper that is
purchased is classified as available for sale and eventually sold into the
secondary market when market conditions are favorable.
   During 2002, the Company's holdings of mortgage-backed securities increased
as the result of favorable market conditions. In an interest rate environment
that has not been experienced in nearly fifty years, management of the Company
found significant value in the mortgage-backed market during 2002. The Company
adopted a defensive investment philosophy during the latter part of 2001 due in
large measure to the belief that interest rates were approaching the bottom of
the rate cycle. The Company purchased premium mortgage-backed securities as such
securities provide better price stability, reinvestment opportunity and lower
extension risk in a rising rate environment. The MBS portfolio also provides
monthly cash flow through principal paydowns. The Company received paydowns of
$102 million and $23 million in 2002 and 2001, respectively. Management expects
that this trend will continue in 2003 at a similar rate due to the current and
forecasted interest rate environment.
   The Company's investment portfolio is low-risk in nature due to its
concentration of U.S. Government Agency, local municipal notes and AAA-rated MBS
balloon and pass-through securities. As of December 31, 2002, the MBS portfolio
had an average life of approximately 2.3 years after adjusting for historical
prepayment patterns. Approximately 98% of the MBS portfolio, including
collateralized mortgage obligations ("CMOs"), had final maturities in excess of
ten years. In general, principal prepayments on these securities will increase
as interest rates fall and, conversely, prepayments will slow down as interest
rates rise. CMOs accounted for less than 1% of the total investment portfolio as
of year-end 2002. The CMOs held by the Company did not meet the regulatory
definition of a high-risk security nor did the Company own any structured notes
as of December 31, 2002. The Government Agency portfolio, callable in 2003 and
2004, has final maturities in the seven- to fifteen-year maturity range.
   The Company's investment subsidiary SB Portfolio, which was initially
capitalized in 1998, continued to contribute significantly to the success of the
Company throughout 2002. Located in Wilmington, Delaware, this subsidiary now
holds and manages approximately 48% of the Company's investment portfolio. The
majority of securities domiciled with SB Portfolio are mortgage-backed issues;
however, portions of its portfolio are also dedicated to Government Agency and
tax-exempt paper as well. SB Portfolio has its own investment policy and Board
of Directors; however, it still adheres to the stringent safety and quality
standards present throughout the Company in its investment evaluation process.
Management of the Company expects that SB Portfolio will continue to grow in
2003 through the reinvestment of its own interest income as well as through
additional capital infusions from the parent Company if market conditions
warrant. The Company did not provide additional capital to SB Portfolio during
2002.

SUMMARY OF LOAN LOSS EXPERIENCE AND ALLOWANCE FOR PROBABLE LOAN LOSSES
   One of management's main objectives is to maintain a high quality loan
portfolio in all economic climates. This objective is achieved by maintaining
high underwriting standards coupled with regular evaluation of each borrower's
creditworthiness and risk exposure. Management seeks to avoid loan
concentrations within industries and customer segments in order to minimize
credit exposure. The Company's senior lending personnel work in conjunction with
line lenders to determine the level of risk in the Company's loan-related assets
and establish an adequate level for the allowance for probable loan losses. An
outside loan review consultant is also utilized to independently verify the loan
classifications and the adequacy of the allowance for probable loan losses.
Management actively seeks to reduce the level of nonperforming assets, defined
as nonaccrual loans and other real estate owned, through aggressive collection
efforts and, where necessary, litigation and charge-off. Other real estate owned
properties are aggressively marketed for sale utilizing local commercial and
residential realtors where necessary.
   In management's opinion, the most critical accounting policy impacting the
Company's financial statements is the evaluation of the allowance for probable
loan losses. Management carefully monitors the credit quality of the loan
portfolio and makes estimates about the amount of credit losses that have been
incurred at each financial statement date. Management evaluates the fair value
of collateral supporting the impaired loans using independent appraisals and
other measures of fair value. This process involves subjective judgments and
assumptions and is subject to change based on factors that may be outside the
control of the Company.
   Management of the Company recognizes that, despite its best efforts to
minimize risk through a rigorous credit review process, losses will occur. In
times of economic slowdown, either regional or national, the risk inherent in
the Company's loan portfolio will increase. The timing and amount of loan losses
that occur is dependent upon several factors, most notably qualitative and
quantitative factors about both the micro and macro economic


32
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STATE BANCORP, INC. AND SUBSIDIARIES

conditions as reflected in the loan portfolio and the economy as a whole.
Factors considered in this evaluation include, but are not limited to, estimated
losses from loan and other credit arrangements, general economic conditions,
changes in credit concentrations or pledged collateral, historical loan loss
experience, and trends in portfolio volume, maturity, composition, delinquencies
and nonaccruals. The allowance for probable loan losses is available to absorb
charge-offs from any loan category, while additions are made through the
provision for probable loan losses, which is a charge to operating earnings. The
adequacy of the provision and the resulting allowance for probable loan losses
is determined by management's continuing review of the loan portfolio, including
identification and review of individual problem situations that may affect a
borrower's ability to repay, delinquency and nonperforming loan data, collateral
values, regulatory examination results and changes in the size and character of
the loan portfolio. Thus, an increase in the size of the loan portfolio or in
any of its components could necessitate an increase in the allowance even though
credit quality and problem loan totals may be improving.
   As illustrated in Table I, the Company's nonperforming assets decreased by
$2.6 million to $6.3 million at year-end 2002 versus 2001 following a $2.1
million decline in 2001 versus 2000. At December 31, 2002, total nonperforming
assets as a percentage of loans and other real estate owned declined to 1.0% as
compared to 1.6% and 2.2% at year-end 2001 and 2000, respectively. The Company
held no other real estate owned at year-end 2002. The year-end 2002 reduction in
nonperforming assets, as defined by the Company, resulted from a $2.6 million
decrease in nonac-crual loans. The decline in nonaccrual loans during 2002
resulted from current year charge-off activity coupled with principal
repayments.
   Management of the Company actively reviews the level and composition of
nonperforming assets. During 2002, this meant a continuation of recent years'
strategy of collection through litigation combined with enhanced collateral
positions on virtually all nonperforming assets. During 2002, the Company
experienced a substantial decline in the total level of nonaccrual loans,
restructured, accruing loans and loans 90 days or more past due and still
accruing. The total level of these assets decreased by $3.1 million during 2002
to $6.6 million at year-end. This reduction in nonperforming assets resulted in
enhanced coverage ratios at year-end. The allowance for probable loan losses as
a percentage of nonaccrual loans improved to 159% from 104% at year-end 2001,
while the allowance for probable loan losses as a percentage of nonaccrual
loans, restructured, accruing loans and loans 90 days or more past due and still
accruing increased during 2002 to 153% from 96% in 2001. At December 31, 2002,
the Company's portfolio of restructured, accruing loans was composed mainly of
loans which have demonstrated performance in accordance with the terms of their
restructure agreements, however, they did not yield a market rate of interest
subsequent to their restructuring.
   Based upon current economic conditions, management has determined that the
current level of the allowance for probable loan losses is adequate in relation
to the risks present in the portfolio. Management considers, among other things,
delinquency trends, concentrations within segments of the loan portfolio as well
as recent charge-off experience when assessing the degree of credit risk in the
portfolio. Collateral appraisals and estimates of current value influence the
estimation of the required allowance balance at any point in time. The Company's
loan portfolio is concentrated in commercial and industrial loans and commercial
mortgages, the majority of which are fully secured by collateral with a market
value in excess of the carrying value of the individual loans. Although overall
loan quality continues to improve, management of the Company held the level of
the provision for probable loan losses relatively constant during 2002 in
recognition of the continued growth in the portfolio. The provision for probable
loan losses totaled $3.6 million in 2002 and 2001 and $3.3 million in 2000. The
resulting allowance for probable loan losses balance of $10.0 million at
December 31, 2002 amounted to 1.6% of loans outstanding versus 1.7% in 2001 and
1.9% in 2000.
   Net loan charge-offs totaled $2.8 million in 2002 versus $4.1 million and
$1.2 million in 2001 and 2000, respectively. Recoveries totaled $202 thousand in
2002 versus $161 thousand in 2001 and $260 thousand in 2000. Although the local
economy continued to grow moderately during the past year, existing weaknesses
in certain sectors of the economy may cause future problems. The potential
consequences of a sharp increase in interest rates or a prolonged economic
slowdown in industries which impact the Company's borrower base make it
difficult to forecast the impact on asset quality that will result during 2003
or any additional charge-offs that will be required during the year.
   It is the present intent of management to further increase the level of the
allowance for probable loan losses to reflect any exposure represented by
fluctuations in the local real estate market and the underlying value that that
market provides as collateral to certain segments of the loan portfolio. In
recognition of the economic uncertainties previously elaborated upon, the normal
risks inherent in any credit portfolio and expected growth in the loan
portfolio, management anticipates that the 2003 provision for loan losses will
approximate 2002's level. The provision is continually evaluated relative to
portfolio risk and regulatory guidelines and will continue to be closely
reviewed throughout 2003. In addition, various regulatory agencies, as an
integral part of their examination process, closely review the allowance for
probable loan losses. Such agencies may require the Company to recognize
additions to the allowance based on their judgment of information available to
them at the time of their examinations.
   The Company has no foreign loans outstanding. The only concentration of loans
exceeding 10% of total loans is the Bank's loans totaling $89.9 million from
real estate operators, lessors, and developers. Repayment of these loans is
dependent in part upon the overall economic health of the Company's market area
and current real estate values. Management of the Company is not aware of any
trends, events or uncertainties that will have, or that are reasonably likely to
have, a material effect on the company's liquidity, capital resources or future
operating results. For loans not separately disclosed herein, management is not
aware of information relating to any material credit that would impact the
ability of those borrowers to comply with loan repayment terms.


                                                                              33
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STATE BANCORP, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
TABLE I
ANALYSIS OF NONPERFORMING ASSETS AT DECEMBER 31,                 2002        2001          2000          1999          1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>         <C>           <C>           <C>           <C>
(Dollars in thousands)
Nonaccrual loans                                             $  6,317    $  8,920(1)   $ 10,736(1)   $  5,194(1)   $  3,676
Other real estate                                                  --          --           330           115           704
---------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets                                   $  6,317    $  8,920      $ 11,066      $  5,309      $  4,380
===========================================================================================================================
Restructured, accruing loans                                 $    107    $    284      $    406      $    422      $  5,545(1)
===========================================================================================================================
Loans 90 days or more past due and still accruing interest   $    129    $    405      $  3,542      $      3      $  1,352
===========================================================================================================================
Total loans outstanding                                      $620,384    $551,598      $496,992      $488,948      $420,636
Total stockholders' equity                                   $ 87,683    $ 76,288      $ 72,307      $ 56,103      $ 60,858
Allowance for probable loan losses                           $ 10,046    $  9,255      $  9,207      $  7,107      $  5,788

KEY RATIOS AT DECEMBER 31:
Allowance for probable loan losses
   as a percent of total loans                                    1.6%        1.7%          1.9%          1.5%          1.4%
Nonaccrual loans as a percent of total loans                      1.0%        1.6%          2.2%          1.1%          0.9%
Nonperforming assets (2) as a percent of total
   loans and other real estate                                    1.0%        1.6%          2.2%          1.1%          1.0%
Allowance for probable loan losses as a
   percent of nonaccrual loans                                  159.0%      103.8%         85.8%        136.8%        157.5%
Allowance for probable loan losses as a
   percent of nonaccrual loans, restructured,
   accruing loans and loans 90 days or more
   past due and still accruing interest                         153.3%       96.3%         62.7%        126.5%         54.7%
</TABLE>

(1) Includes related credits totaling $1.2 million at December 31, 2001, $4.8
million at December 31, 2000, $3.5 million at December 31, 1999 and $5.0 million
at December 31, 1998.
(2) Excludes restructured, accruing loans and loans 90 days or more past due and
still accruing interest.

OTHER INCOME

2002 versus 2001
   Other income declined by 10.0% in 2002 when compared to 2001. Excluding the
impact of net security transactions in each year, other income totaled $2.8
million in 2002, down 7.6% from 2001. This decrease resulted from the receipt of
$290 thousand in nonrecurring gains realized from the receipt of life insurance
proceeds related to two former Board members during 2001. Excluding these gains,
other income improved by 2.4% versus 2001. Higher levels of deposit service
charges, sweep account fees, ATM transaction fees, Investors Marketplace mutual
fund sales fees, wire transfer fees and annuity commissions accounted for the
improvement in income. Somewhat offsetting these positive factors were lower
overdraft fees and the aforementioned life insurance proceeds received in 2001.
Other income more than doubled during 2001 when compared to 2000. If securities
transactions were excluded from other income, the Company would have recorded a
1.5% increase in other income during 2001.
   Return item charges represent the Company's primary source of other income.
These fees decreased by 23.0% in 2002 versus 2001 as the result of improved
balance management by the Company's commercial customer base in part due to the
current interest rate environment experienced throughout the year. Other service
charges on deposits, another large source of fee revenue to the Company improved
by 9.9% in 2002 as the result of new relationships developed during 2002 and
product pricing that more accurately reflects customer profitability.
   During 2002, the Company recorded $1.7 million in net security gains as the
result of selected sales of investment securities, principally mortgage-backed
securities and Government Agency paper, to achieve certain portfolio
restructuring goals. This compares to a net gain of $2.0 million in 2001 and a
net loss of $529 thousand in 2000.
   Other operating income declined by 2.9% in 2002 as the result of the
previously noted non-recurring gains on two former directors' life insurance
policies. Excluding these gains, other operating income improved by 23.9% in
2002. Growth in several categories, most notably sweep account fees, annuity
commissions, ATM fees, wire transfer fees and letter of credit income accounted
for the improvement. Continued growth in the Company's demand deposit base
during 2002 allowed many commercial customers to reduce hard dollar charges for
services through "analysis" pricing. Growth in the Company's customer base and
improved sales of products such as letters of credit, sweep accounts and
annuities served to partially offset the aforementioned reduction in deposit
service charge fee income. The prevailing interest rate environment has made the
Company's money market sweep account product popular for businesses looking to
maximize their return on idle cash. This product, as well as the Company's sales
of various annuity instruments are each expected to more meaningfully add to
other income in 2003 as the Company develops its branch network throughout
Nassau, Suffolk and Queens Counties. Ongoing sales training conducted for branch
and lending staff, coupled with the maturation of the Company's sales culture,
helped to enhance the cross-sell ratio of various products to existing customers
in 2002 as well as to identify prospective customers through ongoing marketing
efforts in local communities. A continuation of this effort in the communities
served by the Company's branch network is expected to enhance other operating
income in 2003 and subsequent years.


34
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

2001 versus 2000
   Other income increased by $2.5 million in 2001 versus 2000. This increase
resulted from higher net security gains and $290 thousand in nonrecurring gains
recognized during 2001. Excluding each of these items, other income would have
declined by 8.3% in 2001 versus 2000. Lower levels of return item charges,
Investors Marketplace mutual fund sales fees, wire transfer fees and cash
management fees and charges accounted for the decline. Somewhat offsetting these
negative factors were improvements in letter of credit, sweep account and ATM
transaction fees. Net security gains of $2.0 million were recorded in 2001
versus a net loss of $529 thousand in 2000.

OPERATING EXPENSES

2002 versus 2001
   Operating expenses increased by 18.6% to $37.5 million in 2002 when compared
to 2001. Operating expenses rose in all categories during 2002. The primary
reasons for the growth in expenses were higher levels of salaries and employee
benefits, increased occupancy costs and growth in marketing and advertising
expenses. Legal fees, a significant component of total operating expenses,
increased by less than 1% during 2002. The largest component of the Company's
legal fees relate to ongoing litigation arising out of the Bank's deposit
relationship with Island Mortgage Network and its affiliates, as previously
disclosed in the Company's Form 10-Q and 10-K filings with the Securities and
Exchange Commission. These fees totaled $3.3 million in both 2002 and 2001. The
Company expects to incur additional costs related to this litigation during
2003; however, these costs are not quantifiable at this point in time.
   The Bank is involved in a number of legal proceedings related to Island
Mortgage Network, Inc. ("IMN") and certain related entities, which held deposit
accounts at the Bank during portions of 1999 and 2000. IMN and its related
entities were principally engaged in offering and providing mortgages to
consumers. IMN was licensed by the Banking Department of the State of New York
(the "Banking Department"), and various entities related to IMN were reportedly
licensed to operate in a large number of other jurisdictions across the United
States. IMN apparently financed its operations in significant part through the
use of loans and/or revolving lines of credit provided by lenders ("Warehouse
Lenders") that were not related to the Bank.
   On June 30, 2000, the Banking Department suspended IMN's license to engage in
mortgage banking activities. On July 19, 2000, IMN and its publicly held parent
company, AppOnline.com, Inc. ("AppOnline"), filed a petition under Chapter 11 of
the Bankruptcy Code in the Eastern District of New York. On July 28, 2000,
certain Warehouse Lenders filed an involuntary bankruptcy petition against
Action Abstract, Inc. ("Action Abstract"), an entity to which they apparently
had regularly wired funds in connection with their dealings with IMN. Bankruptcy
cases are also ongoing as to several other entities related or allegedly related
to IMN. The Chapter 11 Trustee of the estates of IMN, AppOnline and Action
Abstract has obtained an order substantively consolidating all of those
bankruptcy cases.
   In the course of the bankruptcy cases, it has been alleged that IMN and its
affiliates engaged in a widespread pattern of fraud directed at the Warehouse
Lenders, title agents, closing companies and others with whom IMN and its
affiliates regularly dealt. The office of the United States Attorney for the
Eastern District of New York ("USAO") has been conducting an inquiry into the
manner in which IMN and its affiliates conducted their operations, which had
included an examination of the relationship between IMN and its affiliated
entities and the Bank. As the Bank had expected, the USAO has determined that
based on the information it has to date it does not currently intend to seek an
indictment against the Bank or any of its officers or employees for conduct
relating to IMN. The Bank's representatives have also been in contact with the
Banking Department and the Federal Deposit Insurance Corporation and will
continue to work with them to address any questions or concerns they might have.
   The Bank has been named (along with other defendants) in lawsuits related to
the activities of IMN and related companies. In certain of these litigations,
the Bank was named as a defendant merely because monies in dispute were located
in accounts at the Bank. In the remainder, while each complaint is somewhat
different, the principal common allegation against the Bank is that it knew or
should have known that the manner in which IMN and its affiliates were managing
certain accounts was improper, and that the Bank's actions in this regard aided
and abetted a fraudulent scheme by IMN and its affiliates. The cases currently
pending against the Bank are as follows:

-- Blanton, et al. v. IMN Financial Corp., et al., Adv. Proc. No. 01-8096,
   Bankruptcy Court for the Eastern District of New York.
-- Moritz, et al. v. National Settlement Services Corp., et al., Civil Action
   No. 3:00 CV 426 MU, Western District of North Carolina.
-- First American Title Insurance Co. v. State Bank of Long Island, Index No.
   13438/01, Supreme Court of the State of New York.
-- Broward Title Co. v. Alan Jacobs, et al., Adv. Proc. No. 01-8181, Bankruptcy
   Court for the Eastern District of New York.
-- Household Commercial Financial Services, Inc., et al. v. Action Abstract,
   Inc., et al., Adv. Proc. No. 02-8167, Bankruptcy Court for the Eastern
   District of New York.
-- Alan M. Jacobs, as Chapter 11 Trustee v. State Bank of Long Island, Adv.
   Proc. No. 02-8157, Bankruptcy Court for the Eastern District of New York.

   During 2002 and early 2003, the Bank settled two previously reported
litigations. In May 2002, the Bank resolved the Imperial litigation, paying
$125,000 in settlement plus reimbursement to Imperial for certain of its legal
fees arising out of its dealings with IMN. In February 2003, the Bank resolved
the Duboff litigation for an immaterial amount. All of Imperial's claims against
the Bank, as well as all claims, counterclaims and cross-claims between the Bank
and the plaintiffs in the Duboff litigation, were dismissed with prejudice.
   The Bank is defending these lawsuits vigorously, and management believes that
the Bank has substantial defenses to the claims that have been asserted.
However, the ultimate outcome of these lawsuits cannot be predicted with
certainty. It also remains possible that other parties may pursue additional
claims against the Bank related to the Bank's dealings with IMN and its
affiliates. The Bank's legal fees and expenses will be significant, and those
costs, in addition to any costs associated with settling the IMN-related
litigations or satisfying any adverse judgments, could have a material adverse
effect on the Bank's results of operations or financial position. The Bank is
continuing to explore the extent to which insurance coverage may be available to
defray some of the costs associated with the IMN-related litigations, as well
as, in certain of the litigations, the pursuit of cross-claims against


                                                                              35
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

codefendants and claims against various third parties. In addition to the
litigation noted above, the Company and the Bank are subject to other legal
proceedings and claims that arise in the ordinary course of business. In the
opinion of management, the amount of ultimate liability, if any, with respect to
such matters will not materially affect future operations.
   Salaries and other employee benefits increased during 2002 (up $3.3 million
or 19.9%) as a result of the Company's branch expansion program coupled with
growth in staff count in various sales and support areas throughout the Company.
Increased supplementary compensation costs, health care and FICA expenses, and
related increases in 401(k) and employee stock ownership plan (ESOP)
contributions all added to the increase in 2002 expenses. Also contributing to
the growth in expenses during 2002 were higher levels of occupancy costs (up
50.7%), equipment expenses (up 21.3%), marketing and advertising costs (up
43.9%) and other operating expenses (up 8.3%).
   Growth in operating expenses during 2001 and 2002 accelerated from levels
recorded in prior years due primarily to the previously noted IMN litigation,
the Studebaker-Worthington Leasing Corp. acquisition in 2001 and the opening of
five new branch offices in the past eighteen months. Productivity improvements
achieved through the enhanced utilization of technology have assisted in
reducing the level of staff and infrastructure necessary to support the growth
and expansion of the Company's business. The Company continues to be focused on
its goal of lowering the rate of growth in annual nonstaff operating expenses to
a level that approximates the prevailing rate of inflation in addition to
reducing the operating efficiency ratio (total operating expenses divided by the
sum of fully taxable equivalent net interest income and other income) once again
to a level below 55%. The ongoing expansion of staff and branch facilities in
recent years along with growth in both the lending staff and operational support
functions have resulted in rates of operating expense growth above corporate
targets. This trend will moderate in 2003 as the Company has no current plans to
open additional branches, nor does it expect to expand the amount of space that
it currently occupies. Excluding the impact of 2003 litigation-related expenses
which are not yet quantifiable, management of the Company expects that the
projected expansion of the Company's asset and revenue bases will offset
expected growth in the Company's expense base. Growth in loans and core deposit
balances are planned for the coming year at levels that will more than offset
the anticipated increase in operating expenses that comes with normal growth and
expansion.
   The Company's primary expense control rates of measurement are the operating
efficiency ratio (total operating expenses divided by fully taxable equivalent
net interest income plus other income, excluding net security gains or losses)
and the ratio of operating expenses to average assets. The Company's operating
efficiency ratio increased to 66.0% in 2002 versus 64.5% and 52.5% in 2001 and
2000, respectively. Excluding IMN legal expenses, the Company's operating
efficiency ratio was 63.7% in 2002 versus 57.9% in 2001. The second measure of
expense control utilized by the Company is total operating expenses to average
assets. The Company recorded ratios of 3.14% in 2002 and 3.15% and 2.32% in 2001
and 2000, respectively, in this category. Excluding IMN-related legal fees, the
2002 and 2001 ratios were 2.87% and 2.81%, respectively. These ratios all
compare favorably to the Company's peers and continually place it in the top 25%
of its industry peer group. Management of the Company is very cognizant of
expense management and places great emphasis on control of operating expenses,
but always in the context of prudent growth of profitable lines of business and
expansion of branch locations. Management is also aware, however, that the
resources necessary to grow the Company's revenue base must also be made
available in order to improve earnings. Along these lines, management also
monitors the ratio of average assets per employee and, at over $4.2 million per
employee, the Company also ranks in the top 10% of its peer group in this
category. This efficient utilization of staff is another reason behind the
Company's excellent record of growth in earnings and assets.
   Growth in both net interest income and other income are expected to outpace
increases in operating expenses (excluding IMN-related legal fees) during 2003,
thereby resulting in anticipated improvements in each of the foregoing expense
control ratios next year. The Company's long-term goal, as stated in previous
stockholder communications, continues to be to reduce its operating efficiency
ratio to a level of 50% or less and to lower the operating expenses to average
assets ratio to 2.25% or lower. While this is unlikely to occur during 2003, it
remains a long-term objective to continually improve these ratios in both
absolute terms and in relation to the Company's community bank peer group. An
analysis of the components of 2002 operating expenses, by category, follows.
   Occupancy expenses totaled $3.3 million in 2002, an increase of 50.7% when
compared to 2001. This increase resulted principally from an expanded branch
network, additional space occupied by support areas during 2002, higher real
estate taxes, increased utility expenses and higher maintenance and repair
costs. The increase in rental costs resulted from the opening of new branch
facilities in Jackson Heights, Mineola, Maspeth, Port Washington and Long Island
City coupled with the rental cost associated with additional space occupied at
the Jericho Plaza facility in mid-2002. Somewhat offsetting these increases was
the settlement of two Nassau County certiorari proceedings during 2002.
Occupancy costs are expected to rise at a far more moderate rate in 2003 in as
much as no facilities expansion is currently contemplated during the next twelve
months.
   Equipment expenses increased by 21.3% to $1.4 million in 2002 as the result
of equipment purchases and related maintenance costs, principally due to
continued expansion of the Company's technology network. Depreciation expense
grew by 23.8% in 2002 when compared to 2001, due to ongoing technology
initiatives undertaken and equipment purchases related to the previously noted
facilities expansion.
   Legal fees, as previously noted, grew by only $29 thousand during 2002. In
excess of ninety percent of the Company's legal expenses relate to the ongoing
IMN litigation previously disclosed in the Company's Securities and Exchange
Commission filings. Management of the Company expects that additional fees will
be incurred related to this litigation during 2003 but the extent of those fees
is not quantifiable at this time.
   Marketing and advertising costs grew by $647 thousand in 2002 versus 2001.
This increase resulted primarily from expenses related to a corporate
sponsorship of the U.S. Open golf event held on Long Island during 2002 coupled
with promotions related to the Company's new branch locations. It is expected
that this expense category will decrease significantly in 2003, as the primary
drivers of 2002's costs are not expected to reoccur this year.


36
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

   Other operating expenses increased by 8.3% to $7.2 million in 2002 when
compared to 2001. This growth resulted from increases in several expense
categories, most notably credit and collection fees, telecommunications
expenses, computer software maintenance, amortization of branch preopening costs
and ATM expenses. The increase in credit and collection costs was the direct
result of more aggressive litigation efforts related to nonperforming assets.
Computer software maintenance costs rose due to an increase in vendor pricing
coupled with a significant amount of additional software licenses. Beginning in
2002, certain expenses associated with the opening of several of the Bank's
branches are being amortized over a three-year period. No such expenses were
recorded in 2001. ATM expenses increased in 2002 as the result of a greater
number of transactions coupled with conversion expenses related to the move to a
new processing vendor. Somewhat offsetting these negative factors were decreases
in several expense categories, mainly other real estate expenses, SWLC
subsidiary operating costs, amortization of goodwill related to the SWLC
acquisition and dues and membership expenses. Management of the Company expects
that operating expenses will continue to grow as the Company expands its
operations, the markets it serves and the products it offers. Management
anticipates an overall rate of increase of 10%-12% as a 2003 expense growth
estimate.

2001 versus 2000
   Operating expenses grew by 43.7% to $31.6 million in 2001. The largest
component of the increase related to legal fees incurred in connection with
ongoing litigation arising out of the Bank's deposit relationship with IMN and
affiliates. These fees totaled $3.3 million in 2001 versus $387 thousand in
2000. Salaries and other employee benefits also increased significantly in 2001
(up $2.4 million or 16.9%) resulting from the previously noted branch expansion
coupled with the impact of the SWLC acquisition in February 2001.
   Occupancy costs increased by 12.9% in 2001 due principally to an expanded
branch network, the acquisition of SWLC, higher rental costs, increased utility
expenses and higher maintenance and repair costs. The increase in rental costs
resulted from the opening of three new branches coupled with lease escalations
at several facilities during 2001. Somewhat offsetting these increases was the
settlement of three Nassau County cer-tiorari proceedings during 2001.
   Equipment expenses expanded by 37.7% to $1.1 million when compared to 2000
due to growth in equipment purchases and related maintenance costs, principally
due to the continued expansion of the Company's personal computer networks.
   Legal fees, solely related to the IMN litigation, grew by $3.0 million during
2001.
   Marketing and advertising costs doubled during 2001 versus 2000. This
increase resulted principally from branch opening expenses, additional image
advertising, product marketing support, trade show sponsorships and the impact
of SWLC marketing expenses.
   Other operating expenses increased by $2.9 million or 75.8% in 2001 when
compared to 2000. This substantial growth resulted from the acquisition of SWLC
coupled with increases in several categories, most notably credit and collection
fees, computer software maintenance, audits and examinations, other real estate
expenses and Board of Directors meeting fees.

EFFECTIVE INCOME TAX RATE

2002 versus 2001
   Income tax provisions of $4.0 million, $2.2 million and $3.6 million were
recorded in 2002, 2001 and 2000, respectively. The Company is currently subject
to both a statutory incremental federal tax rate of 35% (34% for the first $10
million of taxable income), and a New York State tax rate of 8.5%, plus a
surcharge of 17%. The Company's overall effective tax rate was 26.3%, 16.6% and
25.3% in 2002, 2001 and 2000, respectively.
   The increase in 2002's effective tax rate was largely due to a lower level of
tax-exempt income coupled with growth in taxable income resulting from expansion
of the Bank's balance sheet. SB Portfolio Management Corp., the Bank's Delaware
subsidiary, provides investment management services to the Bank and the Company.
At year-end 2002, approximately $293 million in assets, primarily
mortgage-backed and tax-exempt municipal securities, were managed by SB
Portfolio in Delaware. The income from these assets is exempt from New York
State income taxes. Management of the Company anticipates that the consolidated
2003 effective tax rate will approximate 25.0%.

2001 versus 2000
   The Company's effective tax rate declined to 16.6% in 2001 from 25.3% in
2000. This decrease was largely due to the activities of SB Portfolio Management
Corp. At year-end 2001, approximately $279 million in Government Agencies,
mortgage-backed and tax-exempt municipal securities were managed by SB
Portfolio.

OFF-BALANCE SHEET ARRANGEMENTS
   The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby and
documentary letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the consolidated
financial statements. The Company has not engaged in derivatives activities in
either 2002 or 2001.
   The Bank's exposure to credit loss in the event of nonperformance by third
parties for commitments to extend credit and letters of credit is represented by
the contractual notional amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
   Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer. Collateral required varies, but may include
accounts receivable, inventory, equipment, real estate and income-producing
commercial properties. At December 31, 2002 and 2001, commitments to originate
loans and commitments under unused lines of credit for which the Bank is
obligated amounted to approximately $190 million and $154 million, respectively.


                                                                              37
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

   Letters of credit are conditional commitments issued by the Bank guaranteeing
payments of drafts in accordance with the terms of the letter of credit
agreements. Commercial letters of credit are used primarily to facilitate trade
or commerce and are also issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. Collateral may be required to support letters of credit based upon
management's evaluation of the creditworthiness of each customer. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Most letters of credit
expire within one year. Management does not anticipate any material losses as a
result of these transactions. At December 31, 2002 and 2001, the Bank had
letters of credit outstanding of approximately $8 million and $7 million,
respectively.
   The Company is obligated under various leases covering certain equipment,
branches, office space and the land on which its head office is built. The
minimum payments under these leases, certain of which contain escalation
clauses, are as follows: in 2003, $2.2 million; in 2004, $2.2 million; in 2005,
$2.1 million; in 2006, $1.7 million; in 2007, $1.6 million; and the remainder to
2012, $6.1 million.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Shown below are the amounts of payments due under specified contractual
obligations, aggregated by category of contractual obligation, for specified
time periods. All information is as of December 31, 2002.

<TABLE>
<CAPTION>
                                                                              Payments due by period
                                                                                  (in thousands)
                                                                ----------------------------------------------------
                                                                          Less than                        More than
Contractual Obligations                                            Total     1 year  1-3 years  3-5 years    5 years
--------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>        <C>          <C>        <C>       <C>
Leases covering various Bank equipment, branches,
   office space and land                                        $ 16,046   $  2,232     $4,394     $3,326    $ 6,094
Federal funds purchased                                            4,800      4,800         --         --         --
Securities sold under agreements to repurchase                    49,983     49,983         --         --         --
Federal Home Loan Bank of New York overnight funding              50,000     50,000         --         --         --
Obligations under equipment lease financing                        2,666      2,032        634         --         --
Guaranteed preferred beneficial interest in subordinated debt     10,000         --         --         --     10,000
--------------------------------------------------------------------------------------------------------------------
Total                                                           $133,495   $109,047     $5,028     $3,326    $16,094
====================================================================================================================
</TABLE>

CAPITAL RESOURCES
   The Company's foundation for successful performance, efficient utilization of
assets and its capacity to grow its assets and earnings largely stem from the
strength of its capital position. The Company strives to maintain an efficient
level of capital, commensurate with its risk profile, on which an attractive
rate of return to stockholders will be realized over both the short and long
term, while serving depositors', creditors' and regulatory needs. In determining
an optimal capital level, the Company also considers the capital levels of its
peers and the evaluations of its primary regulators. During 2002, the Company's
capital foundation was expanded by the amount of its net income earned and
common stock issued net of cash dividends paid to stockholders and shares
repurchased. At December 31, 2002, stockholders' equity totaled $87.7 million,
an increase of $11.4 million or 14.9% from year-end 2001. Total equity at
December 31, 2000 was $72.3 million. The application of SFAS No. 115 resulted in
a $5.2 million increase in stockholders' equity at year-end 2002, and reductions
in stockholders' equity of $2.4 million and $3.0 million at December 31, 2001
and 2000, respectively. Excluding the impact of SFAS No. 115, stockholders'
equity would have grown by $3.7 million or 4.8% in 2002. Retention of earnings,
net of cash dividends paid on common stock, added $6.9 million to equity in
2002. Somewhat offsetting this growth was the repurchase of 307,117 shares of
stock as part of the Company's stock repurchase plan. Approximately $5.4 million
in capital was utilized to purchase these shares at an average price of $17.49
per share. Under the Board of Directors current share repurchase authorization,
management may repurchase up to 216,183 additional shares if market conditions
warrant. This action will only occur if management feels that the purchase will
be at prices that are accretive to earnings per share.
   Internal capital generation, defined as earnings less cash dividends paid on
common stock, is the primary catalyst supporting the Company's future growth of
assets and, most importantly, stockholder value. Management constantly evaluates
the Company's capital position in light of current and future growth objectives.
   During the fourth quarter of 2002, the Company raised $10 million from its
participation in a pooled trust preferred securities offering. The trust
preferred securities, which qualify as Tier I capital for regulatory capital
purposes, were issued by a newly established subsidiary, State Bancorp Capital
Trust I. The securities bear an interest rate tied to three-month LIBOR and are
redeemable by the Company in whole or in part after five years or earlier under
certain circumstances. The initial rate on the securities was 5.27%.
   The Company has no present plans to issue or utilize preferred stock. These
shares afford management additional flexibility with respect to future equity
financing to support business expansion.
   Management strives to provide stockholders with a competitive return on their
investment in the Company. During 2002, the Board of Directors distributed
quarterly cash dividends on the Company's common stock amounting to $0.56 in
addition to paying a 5% stock dividend. The current quarterly cash dividend rate
is $0.14 per share.
   The Company also makes a common stock dividend reinvestment plan available to
its stockholders. This plan allows existing stockholders to reinvest cash
dividends in Company stock and/or to purchase additional shares through optional
cash investments on a quarterly basis.


38
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

Shares are purchased at a 5% discount from the current market price under either
plan option. During 2002 and 2001, $1.8 million and $892 thousand, respectively,
were added to stockholders' equity through plan participation. Approximately 17%
of the Company's cash dividends were reinvested in 2002 under this plan, and
since inception, approximately $8.0 million in additional equity has been added
through plan participation. Management anticipates continued future growth in
equity through the program.
   State Bancorp, Inc. and its subsidiary are subject to various regulatory
capital requirements administered by the Federal Reserve Board and the Federal
Deposit Insurance Corporation. These regulatory authorities measure capital
adequacy on a risk-weighted assets basis. Their guidelines provide a method of
monitoring capital adequacy that is sensitive to the risk factors inherent in a
bank's asset base, including off-balance sheet exposures. The guidelines assign
various weights to different asset types depending upon their risk profile.
Generally speaking, assets with greater risk require more capital support than
do less risky assets. In addition, a leverage standard has been established to
supplement the risk-based ratios in assessing an institution's overall capital
adequacy. Failure to maintain the Bank's capital ratios in excess of minimum
regulatory guidelines requires bank regulatory authorities to take prompt
corrective action in accordance with the provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). The regulations
arising from FDI-CIA established five categories of capitalization for
depository institutions: (1) well-capitalized, (2) adequately capitalized, (3)
undercapitalized, (4) significantly undercapitalized and (5) critically
undercapitalized. Based upon its December 31, 2002 capital position as outlined
in Table II, the Bank's capital ratios exceed the minimums established for a
well-capitalized institution and exceed, by a significant margin, the minimum
requirements under FDICIA. Failure to meet minimum capital requirements can
initiate certain actions by regulators that could have a direct effect on the
Company's and the Bank's operations and financial statements. The Company has no
plans or commitments for capital utilization or expenditures that would affect
its current capital position or would impact its future financial performance.

<TABLE>
<CAPTION>
TABLE II                                                                                                  Regulatory
                                                                                                        Criteria for
                                                                             Ratios as of December 31,         Well-
                                                               Regulatory    ------------------------    Capitalized
                                                                  Minimum     2002     2001     2000     Institution
---------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>      <C>      <C>             <C>
Leverage ratio--Tier I Capital to Total Adjusted Assets         3.00-5.00%    6.88%    7.71%    7.46%           5.00%
Tier I Capital/Risk-Weighted Assets                                  4.00%   11.26%   11.69%   12.40%           6.00%
Total Capital/Risk-Weighted Assets                                   8.00%   12.51%   12.94%   13.66%          10.00%
</TABLE>

LIQUIDITY
   Liquidity management is defined as the Company's and its subsidiary's ability
to meet their financial obligations on a continuous basis without material loss
or disruption of normal operations. These obligations include the withdrawal of
deposits on demand or at their contractual maturity, the repayment of borrowings
as they mature, the ability to fund new and existing loan commitments and to
take advantage of business opportunities as they arise. Liquidity is composed of
the maintenance of a strong base of core deposits, maturing short-term assets
including cash and due from banks, the ability to sell marketable assets and
access to lines of credit and the capital markets.
   Liquidity at the Company is measured and monitored daily, thereby allowing
management to better understand and react to emerging balance sheet trends.
After assessing actual and projected cash flow needs, management seeks to obtain
funding at the most economical cost to the Company. These funds can be obtained
by converting liquid assets to cash or by attracting new deposits or other
sources of funding. Many factors affect the Company's ability to meet its
liquidity needs, including variations in the markets served, loan demand, its
asset/liability mix, its reputation and credit standing in its markets, and
general economic conditions.
   The Funds Management Committee and the Asset/Liability Management Committee
(ALCO) are jointly responsible for oversight of the Company's liquidity position
and management of its asset/liability structure. The ALCO establishes specific
policies and operating procedures governing the Company's liquidity levels and
develops plans to address future liquidity needs. This Committee monitors the
loan and investment portfolios while also examining the maturity structure and
volatility characteristics of the Company's liabilities to develop an optimum
asset/liability mix. Funding sources available to the Company include retail,
commercial and municipal deposits, purchased liabilities and stockholders'
equity. If needed for short-term liquidity purposes, the Company has access to
$36.5 million in unsecured lines of credit extended by correspondent banks. In
addition, the Company can utilize its line of credit with FHLB to access up to
$70.0 million in market rate funds with maturities of up to thirty years. The
Company did not utilize brokered deposits as a source of funds nor did it engage
in any derivative activities during 2002 or 2001 to manage its liquidity or
interest rate risk.
   Asset liquidity is provided by short-term investments and the marketability
of securities available for sale. At December 31, 2002, the Company had $489
million in such liquid assets. The Company's loan portfolio and investment
securities held to maturity are of high quality and mixed maturity, providing an
excellent source of internal liquidity through maturities and periodic
repayments of principal. At year-end 2002, approximately $407 million of these
assets, including mortgage-backed securities, were due to mature or be repaid
within one year. Cash flows provided by the loan and investment portfolios are
typically utilized to reduce the Company's borrowed funds position and/or to
fund loan and investment securities growth. The Company's operating, investing
and financing activities are conducted within the overall constraints of the
Company's liquidity management policy.
   While past performance does not guarantee future results, management believes
that the Company's funding sources, including dividends from its


                                                                              39
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

subsidiary, and the Bank's funding sources will be adequate to meet their future
liquidity requirements.

ASSET/LIABILITY MANAGEMENT AND MARKET RISK
   The process by which financial institutions manage interest-earning assets
and funding sources under different interest rate environments is called
asset/liability management. The primary goal of asset/liability management is to
increase net interest income within an acceptable range of overall risk
tolerance. Management must ensure that liquidity, capital, interest rate and
market risk are prudently managed. Asset/liability and interest rate risk
management are governed by policies reviewed and approved annually by the
Company's Board of Directors. The Board has delegated responsibility for
asset/liability and interest rate risk management to the ALCO. The ALCO meets
quarterly and sets strategic directives that guide the day to day
asset/liability management activities of the Company as well as reviewing and
approving all major funding, capital and market risk management programs. The
ALCO, in conjunction with a noted industry consultant, also focuses on current
market conditions, balance sheet management strategies, deposit and loan pricing
issues and interest rate risk measurement and mitigation.

INTEREST RATE RISK
   Interest rate risk is the risk to earnings or capital arising from movements
in interest rates. This risk can be quantified by measuring the change in net
interest margin relative to changes in market rates. Reviewing repricing
characteristics of interest-earning assets and interest-bearing liabilities
identifies risk. The Company's Funds Management Committee sets forth guidelines
that limit the level of interest rate risk within specified tolerance ranges.
Management must determine the appropriate level of risk which will enable the
Company to achieve its performance objectives within the confines imposed by its
business objectives and the external environment within which it operates.
Interest rate risk arises from repricing risk, basis risk, yield curve risk or
options risk and is measured using financial modeling techniques, including
quarterly interest rate shock simulations, to measure the impact of changes in
interest rates on earnings for periods up to two years. These simulations are
used to determine whether corrective action may be warranted or required in
order to adjust the overall interest rate risk profile of the Company. The
Company's asset/liability and interest rate risk management policy limits
interest rate risk exposure to +/-12% of base case net income for net earnings
at risk at the one-year time horizon. The policy also monitors equity value at
risk as a percentage of market value of portfolio equity. Net earnings at risk
is the potential adverse change in net income arising from a +/- 200 basis point
change in interest rates, measured over a one-year time horizon. Equity value at
risk is the potential adverse change in the present value (market value) of
total equity arising from a +/- 200 basis point change in interest rates.
Simulation results, utilizing the Sendero asset/liability model, are influenced
by a number of estimates and assumptions with regard to embedded options,
prepayment behaviors, pricing strategies and cash flows. Such assumptions and
estimates are inherently uncertain and, as a consequence, results will neither
precisely estimate net interest income nor precisely measure the impact of
higher or lower interest rates on net interest income.
   To mitigate the impact of changes in interest rates, the balance sheet must
be structured so that repricing opportunities exist for both assets and
liabilities in approximately equivalent amounts at basically the same time
intervals. Imbalances in these repricing opportunities at any point in time
constitute an interest-sensitivity gap, which is the difference between
interest-sensitive assets and interest-sensitive liabilities. These static
measurements do not reflect the results of any projected activity and are best
utilized as early indicators of potential interest rate exposures. The primary
objectives of the Company's asset/liability management are to continually
evaluate the interest rate risk inherent in the Company's balance sheet; to
determine the level and direction of risk appropriate given the Bank's strategic
focus, operating environment, liquidity requirements and performance objectives;
and to manage this risk in a prudent manner consistent with approved policy.
   The accompanying table sets forth the amounts of assets and liabilities
outstanding as of December 31, 2002 which, based upon certain assumptions, are
expected to reprice or mature in each of the time frames shown. Except as
stated, the amount of assets and liabilities shown to reprice or mature within a
particular time frame was determined in accordance with the earlier of the term
to repricing or the contractual terms of the asset or liability. The Company
bases its deposit decay rates on the results of a recent core deposit behavior
study performed by an independent industry consultant. This study reflects
historical experience over the four years ended December 31, 2001. Thus, the
decay rates for deposit accounts, with the exception of CDs, for which
contractual maturities are readily available, were as follows: 12.5% per year
for savings deposits over an eight-year period; 9.1% per year for demand
deposits over an eleven-year period; 16.7% per year over a six-year period for
money fund accounts and 5.9% over a seventeen-year period for NOW accounts of
individuals, partnerships and corporations; and 20% per year over a five-year
period for money fund and NOW accounts of municipalities. All short-term
municipal deposits are included in the 0-6 months category due to their
seasonality and volatility. These decay assumptions reflect the historical
stability of the Company's core deposit base, which may or may not be indicative
of the industry average of its peers.
   An asset-sensitive gap indicates an excess of interest-sensitive assets over
interest-sensitive liabilities, whereas a liability-sensitive gap indicates the
opposite. At December 31, 2002, the Company had a one-year cumulative
liability-sensitivity gap of $17 million. In a rising rate environment, a
liability-sensitive gap position generally indicates that increases in expense
from interest-bearing liabilities will outpace increases in income associated
with the assets that are being funded. In addition, the Company's net interest
margin and net income would decline under this scenario. Conversely, in a
declining interest rate environment, the Company's cost of funds would decline
more rapidly than the yield on its rate-sensitive assets and would likely result
in an expansion of net interest income. This risk can be reduced by various
strategies, including the administration of liability costs and the investment
of asset maturities and cash flows in such a way as to insulate net interest
income from the effects of changes in interest rates. As previously mentioned, a
static gap position is best utilized as a tool for early detection of potential
interest rate exposure. Management's goal is to manage the Company's cumulative
one-year gap such that rate-sensitive assets and liabilities are approximately
equal in that time frame. Due to the nature of the Company's


40
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

business, primarily the seasonality of its municipal funding function, an
exactly matched one-year gap is unlikely to occur. Rather, management relies on
simulation analysis to manage the Company's asset/liability position on a
dynamic repricing basis. Simulation modeling applies alternative interest rate
scenarios and periodic forecasts of future business activity to estimate the
related impact on net interest income. The use of simulation modeling assists
management in its continuing efforts to achieve earnings growth in a variety of
interest rate environments. Asset and liability management efforts also may
involve the use of off-balance sheet instruments such as interest rate swaps to
minimize risk. During 2002, the Company did not utilize swaps or other
derivative instruments to manage its asset/liability position.

<TABLE>
<CAPTION>
TABLE III
Sensitivity Time Horizon
                                                                    0-6        6-12         1-5       Over  Noninterest-
                                                                 Months      Months       Years    5 Years     Sensitive       Total
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                                            <C>         <C>         <C>        <C>          <C>        <C>
INTEREST-SENSITIVE ASSETS (1)
Loans (net of unearned income) (2)                             $321,311    $ 22,086    $200,651   $ 70,019     $  6,317   $  620,384
Securities purchased under agreements to resell
   and interest-bearing deposits                                 49,217          --          --         --           --       49,217
Securities held to maturity                                      26,580          --         131         --           --       26,711
Securities available for sale (3)                               131,953      88,360     256,807     94,202        3,368      574,690
------------------------------------------------------------------------------------------------------------------------------------
      Total interest-earning assets                             529,061     110,446     457,589    164,221        9,685    1,271,002
------------------------------------------------------------------------------------------------------------------------------------
Unrealized net gain on securities available for sale              8,210          --          --         --           --        8,210
Noninterest-bearing cash and due from banks                      49,370          --          --         --           --       49,370
Net receivable--securities sales                                 14,173          --          --         --           --       14,173
All other assets (7)                                             10,016       5,113         145         74        4,179       19,527
------------------------------------------------------------------------------------------------------------------------------------
      Total Assets                                             $610,830    $115,559    $457,734   $164,295     $ 13,864   $1,362,282
------------------------------------------------------------------------------------------------------------------------------------

INTEREST-SENSITIVE LIABILITIES(1)
Savings accounts (4)                                           $ 17,606    $ 12,607    $100,851   $ 75,638     $     --   $  206,702
Money fund and NOW accounts (5)                                 119,870      14,922     119,487     37,786           --      292,065
Time deposits (6)                                               360,758      13,479      57,727        419           --      432,383
------------------------------------------------------------------------------------------------------------------------------------
      Total interest-bearing deposits                           498,234      41,008     278,065    113,843           --      931,150
Securities sold under agreements to repurchase,
   Federal funds purchased and other borrowings                 106,019         796         634         --           --      107,449
Guaranteed preferred beneficial interest in subordinated debt    10,000          --          --         --           --       10,000
------------------------------------------------------------------------------------------------------------------------------------
      Total interest-bearing liabilities                        614,253      41,804     278,699    113,843           --    1,048,599
Net payable--securities purchases                                 2,009          --          --         --           --        2,009
All other liabilities, equity and demand deposits (7)            16,409      11,263      78,667    117,652       87,683      311,674
------------------------------------------------------------------------------------------------------------------------------------
      Total Liabilities and Equity                             $632,671    $ 53,067    $357,366   $231,495     $ 87,683   $1,362,282
------------------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitivity gap (8)                        $(85,192)   $(16,550)   $162,340   $212,718     $222,403
====================================================================================================================================
Cumulative interest-sensitivity ratio (9)                          86.1%       97.5%      117.4%     120.3%       121.2%
Cumulative interest-sensitivity gap as a % of Total Assets         (6.3)%      (1.2)%      11.9%      15.6%        16.3%
</TABLE>

(1) Allocations to specific interest-sensitivity periods are based on the
    earlier of the repricing or maturity date.
(2) Nonaccrual loans are shown in the noninterest-sensitive category.
(3) Estimated principal reductions have been assumed for mortgage-backed
    securities based upon their current constant prepayment rates.
(4) Savings deposits, excluding short-term municipal deposits, are assumed to
    decline at a rate of 12.5% per year over an eight-year period based upon the
    nature of their historically stable core deposit relationships. Short-term
    municipal deposits are included in the 0-6 months category.
(5) Money fund and NOW accounts of individuals, partnerships and corporations
    are assumed to decline at a rate of 16.7% per year over a six-year period
    and 5.9% per year over a seventeen-year period, respectively, based upon the
    nature of their historically stable core deposit relationships. Money fund
    and NOW accounts of municipalities are assumed to decline at a rate of 20%
    per year over a five-year period, except for short-term municipal deposits
    that are included in the 0-6 months category.
(6) Reflected as maturing in each instrument's period of contractual maturity.
(7) Other assets and liabilities are shown according to their contractual
    payment schedule or a reasonable estimate thereof. Demand deposits,
    excluding short-term municipal deposits, are assumed to decline at a rate of
    9.1% per year over an eleven-year period based upon the nature of their
    historically stable core deposit relationships. Short-term municipal
    deposits are included in the 0-6 months category.
(8) Total interest-earning assets minus total interest-bearing liabilities.
(9) Total interest-earning assets as a percentage of total interest-bearing
    liabilities.


                                                                              41
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
STATISTICAL INFORMATION

DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY: NET INTEREST
INCOME AND RATES
   The following table presents the average daily balances of the Bank's assets,
liabilities and stockholder's equity, together with an analysis of net interest
earnings and average rates, for each major category of interest-earning assets
and interest-bearing liabilities. Interest and average rates are computed on a
fully taxable-equivalent basis, adjusted for certain disallowed interest expense
deductions, using a tax rate of 34% in 2002, 2001, and 2000. Nonaccruing loans
are included in the average balances (dollars in thousands):

<TABLE>
<CAPTION>
For the Years Ended December 31,                   2002                            2001                          2000
---------------------------------------------------------------------------------------------------------------------------------
                                        Average            Average      Average            Average    Average            Average
                                        Balance  Interest     Rate      Balance  Interest     Rate    Balance  Interest     Rate
---------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>         <C>    <C>          <C>         <C>    <C>        <C>         <C>
ASSETS:
Securities held to maturity and
   securities available for sale:
      Taxable                        $  421,171   $19,469     4.62%  $  221,935   $13,964     6.29%  $297,788   $21,182     7.11%
      Tax-exempt                         93,321     5,492     5.89      125,379     7,525     6.00     91,800     5,041     5.49
---------------------------------------------------------------------------------------------------------------------------------
Total securities                        514,492    24,961     4.85      347,314    21,489     6.19    389,588    26,223     6.73
Federal funds sold, securities
   purchased under
   agreements to resell and
   interest-bearing deposits             33,762       552     1.63       68,252     2,747     4.02     26,011     1,642     6.31
Loans (net of unearned income):
      Taxable                           575,975    43,060     7.48      535,042    47,634     8.90    473,446    45,730     9.66
      Tax-exempt                          7,835       656     8.37        9,287       816     8.79     11,669     1,124     9.63
---------------------------------------------------------------------------------------------------------------------------------
Total loans--net                        583,810    43,716     7.49      544,329    48,450     8.90    485,115    46,854     9.66
Total interest-earning assets         1,132,064   $69,229     6.12%     959,895   $72,686     7.57%   900,714   $74,719     8.30%
Allowance for loan losses                (9,920)                         (9,822)                       (8,087)
---------------------------------------------------------------------------------------------------------------------------------
                                      1,122,144                         950,073                       892,627
---------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks                  38,740                          30,992                        30,122
Bank premises and
   equipment--net                         7,482                           5,206                         4,213
Other assets                             23,814                          17,434                        21,861
---------------------------------------------------------------------------------------------------------------------------------
Total Assets                         $1,192,180                      $1,003,705                      $948,823
=================================================================================================================================

LIABILITIES AND
   STOCKHOLDER'S EQUITY:
Savings and time deposits:
   Savings                           $  411,630   $ 3,704     0.90%  $  298,321   $ 5,316     1.78%  $231,604   $ 4,652     2.01%
   Time                                 408,176     9,600     2.35      441,962    20,083     4.54    485,261    29,551     6.02
---------------------------------------------------------------------------------------------------------------------------------
Total savings and time deposits         819,806    13,304     1.62      740,283    25,399     3.43    716,865    34,203     4.77
Federal funds purchased                   3,716        69     1.86        1,108        48     4.33      1,428        93     6.51
Securities sold under
   agreements to repurchase              46,104       864     1.87          102         4     3.92      8,251       507     6.14
Other borrowed funds                     28,339       897     3.17       18,992     1,294     6.81     15,532       985     6.24
---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities      897,965    15,134     1.69      760,485    26,745     3.52    742,076    35,788     4.82
Demand deposits                         198,793                         160,043                       140,742
Other liabilities                        11,581                           5,228                         4,404
---------------------------------------------------------------------------------------------------------------------------------
Total liabilities                     1,108,339                         925,756                       887,222
Stockholder's equity                     83,841                          77,949                        61,601
---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
   Stockholder's Equity              $1,192,180                      $1,003,705                      $948,823
=================================================================================================================================
Net interest income/rate--
   tax-equivalent basis                            54,095     4.78%                45,941     4.79%              38,931     4.32%
Less tax-equivalent
   basis adjustment                                 2,097                           2,749                         1,794
---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income                               $51,998                         $43,192                       $37,137
=================================================================================================================================

</TABLE>


42
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

ANALYSIS OF CHANGES IN NET INTEREST INCOME
   The following table presents a comparative analysis of the changes in the
Bank's interest income and interest expense due to the changes in the average
volume and the average rates earned on interest-earning assets and due to the
changes in the average volume and the average rates paid on interest-bearing
liabilities. Interest and average rates are computed on a fully
taxable-equivalent basis, adjusted for certain disallowed interest expense
deductions, using a tax rate of 34% in 2002, 2001 and 2000. Variances in
rate/volume relationships have been allocated proportionately to average volume
and average rate as they compare to each other (in thousands):

<TABLE>
<CAPTION>
                                                        Year 2002 Over 2001                    Year 2001 Over 2000
---------------------------------------------------------------------------------------------------------------------------
                                                   Due to Change In:                      Due to Change In:
---------------------------------------------------------------------------------------------------------------------------
                                                  Average     Average   Net Increase     Average     Average   Net Increase
                                                   Volume        Rate      (Decrease)     Volume        Rate     (Decrease)
---------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>         <C>            <C>         <C>         <C>           <C>
INTEREST INCOME:
Securities held to maturity and
     securities available for sale:
   Taxable                                       $  9,969    $ (4,464)      $  5,505    $ (4,967)   $ (2,251)     $ (7,218)
   Tax-exempt                                      (1,889)       (144)        (2,033)      1,981         503         2,484
---------------------------------------------------------------------------------------------------------------------------
Total securities                                    8,080      (4,608)         3,472      (2,986)     (1,748)       (4,734)
Federal funds sold, securities purchased
   under agreements to resell and
   interest-bearing deposits                       (1,009)     (1,186)        (2,195)      1,876        (771)        1,105
Loans (net of unearned income):
     Taxable                                        3,455      (8,029)        (4,574)      5,659      (3,755)        1,904
     Tax-exempt                                      (123)        (37)          (160)       (215)        (93)         (308)
---------------------------------------------------------------------------------------------------------------------------
Total loans--net                                    3,332      (8,066)        (4,734)      5,444      (3,848)        1,596
---------------------------------------------------------------------------------------------------------------------------
Total Interest Income                              10,403     (13,860)        (3,457)      4,334      (6,367)       (2,033)
===========================================================================================================================

INTEREST EXPENSE:
Savings and time deposits:
   Savings                                          1,585      (3,197)        (1,612)      1,231        (567)          664
   Time                                            (1,434)     (9,049)       (10,483)     (2,463)     (7,005)       (9,468)
---------------------------------------------------------------------------------------------------------------------------
Total savings and time deposits                       151     (12,246)       (12,095)     (1,232)     (7,572)       (8,804)
Federal funds purchased                                61         (40)            21         (18)        (27)          (45)
Securities sold under agreements to repurchase        863          (3)           860        (368)       (135)         (503)
Other borrowed funds                                  474        (871)          (397)        213          96           309
---------------------------------------------------------------------------------------------------------------------------
Total Interest Expense                              1,549     (13,160)       (11,611)     (1,405)     (7,638)       (9,043)
---------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income
   (Tax-equivalent Basis)                        $  8,854    $   (700)      $  8,154    $  5,739    $  1,271      $  7,010
===========================================================================================================================
</TABLE>

INVESTMENT PORTFOLIO
   The following table presents the amortized cost and estimated fair value of
   held to maturity and available for sale securities held by the Company
for each period (in thousands):

<TABLE>
<CAPTION>
December 31,                                     2002                     2001                     2000
----------------------------------------------------------------------------------------------------------------
                                        Amortized    Estimated   Amortized    Estimated   Amortized    Estimated
                                             Cost   Fair Value        Cost   Fair Value        Cost   Fair Value
----------------------------------------------------------------------------------------------------------------
<S>                                      <C>          <C>         <C>          <C>         <C>          <C>
TYPE:
Obligations of states and political
   subdivisions                          $ 80,119     $ 83,045    $ 80,205     $ 78,930    $111,941     $113,714
Mortgage-backed securities and
   collateralized mortgage obligations    288,081      291,135     160,974      159,548      13,270       13,043
Government Agency securities              204,468      206,549      31,820       30,806     293,671      287,545
Corporate securities                       28,733       28,883       6,168        6,133       4,286        4,286
----------------------------------------------------------------------------------------------------------------
Total                                    $601,401     $609,612    $279,167     $275,417    $423,168     $418,588
================================================================================================================
</TABLE>


                                                                              43
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

   The following table presents the maturity distribution and the weighted
average yield of the Company's investment portfolio at December 31, 2002
(dollars in thousands). The yield information does not give effect to changes in
estimated fair value of investments available for sale that are reflected as a
component of stockholders' equity.

<TABLE>
<CAPTION>
                                                                               Maturing
----------------------------------------------------------------------------------------------------------------------------
                                               Within             After One but        After Five but          After
                                              One Year          Within Five Years     Within Ten Years       Ten Years
----------------------------------------------------------------------------------------------------------------------------
                                          Amount   Yield (1)    Amount   Yield (1)   Amount   Yield (1)   Amount   Yield (1)
----------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>     <C>           <C>     <C>          <C>     <C>          <C>
TYPE:
Obligations of states and
   political subdivisions               $ 15,491      2.27%   $    340      4.04%   $ 3,475      7.03%   $63,739      8.08%
Mortgage-backed securities
   and collateralized
   mortgage obligations (2)               21,749      5.80     244,859      4.05     24,527      4.82         --        --
Government Agency securities (3)         118,141      4.09      88,407      4.56         --        --         --        --
Corporate securities                                   --        5,175      6.10      3,331      8.15     20,377      4.06
----------------------------------------------------------------------------------------------------------------------------
Total                                   $155,381      4.15%   $338,781      4.21%   $31,333      5.42%   $84,116      7.11%
============================================================================================================================
</TABLE>

(1) Fully tax-equivalent basis using a tax rate of 34%.
(2) Assumes maturity dates pursuant to average lives as determined by constant
    prepayment rates.
(3) Excluding zero-coupon securities, assumes coupon yields for securities past
    their call dates and not bought at a discount; yields to call for securities
    not past their call dates and not bought at a discount; and yields to
    maturity for securities purchased at a discount. For zero-coupon securities,
    assumes yields to call.


LOAN PORTFOLIO
   The following table categorizes the Company's loan portfolio for each period
(in thousands):

<TABLE>
<CAPTION>
December 31,                        2002       2001       2000       1999       1998
------------------------------------------------------------------------------------
<S>                             <C>        <C>        <C>        <C>        <C>
Commercial and industrial       $243,626   $246,245   $229,251   $220,874   $197,601
Real estate--mortgage            298,187    252,968    233,589    216,955    187,740
Real estate--construction         42,829     16,258     17,642     25,752     17,165
Lease receivables (1)             20,041     18,231         --         --         --
Loans to individuals               7,385      7,514      5,729      5,738      7,749
Tax-exempt and other               8,331     10,465     10,864     19,709     10,461
------------------------------------------------------------------------------------
Gross loans                      620,399    551,681    497,075    489,028    420,716
Less: unearned income                 15         83         83         80         80
------------------------------------------------------------------------------------
Loans--net of unearned income   $620,384   $551,598   $496,992   $488,948   $420,636
====================================================================================
</TABLE>

(1) Included in total commercial and industrial loans prior to 2001.

   The following table presents the maturities of selected loans and the
sensitivities of those loans to changes in interest rates at December 31, 2002
(in thousands):

                                    One Year  One Through        Over
                                     or Less   Five Years  Five Years      Total
--------------------------------------------------------------------------------
Commercial and industrial           $163,576     $ 56,942    $ 23,108   $243,626
Real estate--construction             23,684       18,645         500     42,829
--------------------------------------------------------------------------------
Total                               $187,260     $ 75,587    $ 23,608   $286,455
================================================================================
                                             Loans maturing after one year with:
   Fixed interest rate                           $ 32,946    $  5,526   $ 38,472
   Variable interest rate                        $ 42,641    $ 18,082   $ 60,723


44
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

   The following table presents the Company's nonaccrual, past due and
restructured loans for each period (in thousands):

<TABLE>
<CAPTION>
December 31,                            2002      2001         2000         1999         1998
---------------------------------------------------------------------------------------------
<S>                                  <C>       <C>          <C>          <C>          <C>
Nonaccrual loans                     $ 6,317   $ 8,920(1)   $10,736(1)   $ 5,194(1)   $ 3,676
Loans 90 days or more past
   due and still accruing interest   $   129   $   405      $ 3,542      $     3      $ 1,352
Restructured, accruing loans         $   107   $   284      $   406      $   422      $ 5,545(1)
Interest income on nonaccrual and
   restructured loans which would
   have been recorded under
   original loan terms               $   371   $   720      $   638      $   517      $   910
Interest income on nonaccrual and
   restructured loans recorded
   during the period                 $     9   $    27      $    85      $    74      $   400
</TABLE>

(1) Includes related credits totaling $1.2 million at December 31, 2001, $4.8
    million at December 31, 2000, $3.5 million at December 31, 1999 and $5.0
    million at December 31, 1998.

SUMMARY OF LOAN LOSS EXPERIENCE
   The determination of the balance of the allowance for probable loan losses is
based upon a review and analysis of the Company's loan portfolio and reflects an
amount which, in management's judgment, is adequate to provide for probable
future losses. Management's review includes monthly analyses of past due and
nonaccrual loans and detailed, periodic loan-by-loan analyses.
   The principal factors considered by management in determining the adequacy of
the allowance are the growth and composition of the loan portfolio, historical
loss experience, the level of nonperforming loans, economic conditions, the
value and adequacy of collateral and the current level of the allowance. While
management utilizes all available information to estimate the adequacy of the
allowance for probable loan losses, the ultimate collectibility of a substantial
portion of the loan portfolio and the need for future additions to the allowance
will be based upon changes in economic conditions and other relevant factors.
   The following table presents an analysis of the Company's allowance for
probable loan losses for each period (dollars in thousands):

<TABLE>
<CAPTION>
                                      2002       2001         2000       1999       1998
----------------------------------------------------------------------------------------
<S>                                <C>        <C>          <C>        <C>        <C>
Balance, January 1                 $ 9,255    $ 9,207      $ 7,107    $ 5,788    $ 5,124
----------------------------------------------------------------------------------------
Adjustments                             --        542(1)        --         --         --
Charge-offs:
   Commercial and industrial         2,721      4,021          868        593      1,332
   Real estate--mortgage                --         --           21        987        197
   Real estate--construction            --         --          500        500         --
   Lease receivables                   237        190           --         --         --
   Loans to individuals                 13         44           20         45        128
----------------------------------------------------------------------------------------
Total charge-offs                    2,971      4,255        1,409      2,125      1,657
----------------------------------------------------------------------------------------
Recoveries:
   Commercial and industrial           196        137          237        204        214
   Real estate--mortgage                 1          4            8        223        297
   Lease receivables                     2          6           --         --         --
   Loans to individuals                  3         14           14         17         10
----------------------------------------------------------------------------------------
Total recoveries                       202        161          259        444        521
----------------------------------------------------------------------------------------
Net charge-offs                      2,769      4,094        1,150      1,681      1,136
Additions charged to operations      3,560      3,600        3,250      3,000      1,800
========================================================================================
Balance at end of period           $10,046    $ 9,255      $ 9,207    $ 7,107    $ 5,788
Ratio of net charge-offs during
   the period to average loans
   outstanding during the period      0.47%      0.75%        0.24%      0.37%      0.29%
========================================================================================
</TABLE>

(1) Opening balance of allowance for probable loan losses of acquired leasing
    company.


46
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

The following table presents the allocation of the Company's allowance for
probable loan losses for each period (dollars in thousands):

<TABLE>
<CAPTION>
                                   Percent of          Percent of           Percent of           Percent of           Percent of
                                    Loans to             Loans to             Loans to             Loans to             Loans to
                                       Total                Total                Total                Total                Total
                              2002     Loans      2001      Loans      2000      Loans      1999      Loans      1998      Loans
--------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>          <C>    <C>           <C>    <C>           <C>    <C>           <C>    <C>           <C>
Commercial and industrial  $ 5,370      39.3%  $ 5,828       44.6%  $ 6,355       46.1%  $ 3,725       45.2%  $ 3,320       47.0%
Real estate--mortgage        3,327      48.1     2,366       45.9     2,118       47.0     1,572       44.4     1,633       44.6
Real estate--construction      241       6.9        98        2.9       282        3.5       644        5.3       675        4.1
Lease receivables (1)          113       3.2       110        3.3        --         --        --         --        --         --
Loans to individuals            46       1.2        49        1.4        34        1.2        36        1.1        47        1.8
Tax-exempt and other            47       1.3        63        1.9        62        2.2       144        4.0        67        2.5
Unallocated                    902        --       741         --       356         --       986         --        46         --
--------------------------------------------------------------------------------------------------------------------------------
Total                      $10,046     100.0%  $ 9,255      100.0%  $ 9,207      100.0%  $ 7,107      100.0%  $ 5,788       100.0%
================================================================================================================================
</TABLE>

(1) Included in total commercial and industrial loans prior to 2001.

DEPOSITS
   The following table presents the average balance and the average rate paid on
   the Company's deposits for each period (dollars in thousands):

<TABLE>
<CAPTION>
                                                     2002                  2001                  2000
------------------------------------------------------------------------------------------------------------
                                               Average   Average     Average   Average     Average   Average
                                               Balance      Rate     Balance      Rate     Balance      Rate
------------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>   <C>             <C>   <C>             <C>
Demand deposits                             $  198,793        --%   $160,043        --%   $140,742        --%
Interest-bearing transaction accounts          119,854      0.52      73,828      1.16      57,945      1.09
Money market deposit accounts                  122,302      0.93     105,574      1.81      69,934      1.75
Savings deposits                               169,474      1.14     118,919      2.15     103,725      2.70
Time certificates of deposit of
   $100,000 or more                            274,215      1.91     306,623      4.28     335,825      6.08
Other time deposits                            133,961      3.25     135,339      5.14     149,436      5.87
------------------------------------------------------------------------------------------------------------
Total                                       $1,018,599      1.31%   $900,326      2.82%   $857,607      3.95%
============================================================================================================
</TABLE>

   The following table sets forth, by time remaining to maturity, the Company's
certificates of deposit of $100,000 or more at December 31, 2002 (in thousands):

3 months or less                                                        $264,384
Over 3 months through 6 months                                            19,587
Over 6 months through 12 months                                            2,433
Over 12 months                                                             8,378
--------------------------------------------------------------------------------
Total                                                                   $294,782
================================================================================

RETURN ON EQUITY AND ASSETS
   The following table presents the Company's return on average stockholders'
equity and assets, the dividend payout ratio and the average equity to average
assets ratio for each period. The calculations are based on recorded assets and
give effect to the changes in fair value of securities available for sale.

                                                   2002     2001     2000
--------------------------------------------------------------------------
Return on average total assets                     0.95%    1.08%    1.13%
Return on average total stockholders' equity      13.66%   13.94%   17.91%
Dividend payout ratio                             39.06%   38.79%   35.28%
Average equity to average assets                   6.94%    7.73%    6.31%


46
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

SHORT-TERM BORROWINGS
   The following information is provided on the Bank's short-term borrowings for
each period (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                2002      2001      2000
--------------------------------------------------------------------------------------------------------
<S>                                                                         <C>        <C>       <C>
Balance, December 31--
   Securities sold under agreements to repurchase                           $ 49,983   $    --   $   325
   Federal funds purchased                                                  $  4,800   $    --   $ 9,700
   Federal Home Loan Bank advances                                          $ 50,000   $12,000   $35,000
--------------------------------------------------------------------------------------------------------
Weighted average interest rate on balance, December 31--
   Securities sold under agreements to repurchase                              1.45%        --     5.85%
   Federal funds purchased                                                     1.13%        --     6.60%
   Federal Home Loan Bank advances                                             1.35%     1.85%     6.60%
--------------------------------------------------------------------------------------------------------
Maximum outstanding at any month end--
   Securities sold under agreements to repurchase                           $158,365   $ 2,000   $41,694
   Federal funds purchased                                                  $ 24,300   $14,500   $13,300
   Federal Home Loan Bank advances                                          $ 94,000   $35,400   $35,400
--------------------------------------------------------------------------------------------------------
Average daily amount outstanding--
   Securities sold under agreements to repurchase                           $ 46,104   $   102   $ 8,251
   Federal funds purchased                                                  $  3,716   $ 1,108   $ 1,428
   Federal Home Loan Bank advances                                          $ 23,056   $ 8,838   $15,532
--------------------------------------------------------------------------------------------------------
Weighted average interest rate on average daily amount outstanding--
   Securities sold under agreements to repurchase                              1.87%     3.92%     6.14%
   Federal funds purchased                                                     1.86%     4.33%     6.51%
   Federal Home Loan Bank advances                                             1.81%     4.35%     6.14%
========================================================================================================
</TABLE>

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(dollars in thousands)

<TABLE>
<CAPTION>
                                                       2002                                    2001
-------------------------------------------------------------------------------------------------------------------
                                          1st       2nd       3rd       4th       1st       2nd       3rd       4th
                                      Quarter   Quarter   Quarter   Quarter   Quarter   Quarter   Quarter   Quarter
-------------------------------------------------------------------------------------------------------------------
<S>                                   <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Interest income                       $15,494   $17,105   $17,116   $17,417   $19,217   $18,107   $17,447   $15,166
Interest expense                        3,419     4,096     4,016     3,708     9,096     7,136     6,584     3,929
-------------------------------------------------------------------------------------------------------------------
Net interest income                    12,075    13,009    13,100    13,709    10,121    10,971    10,863    11,237
Provision for probable loan losses        959       963       816       822       773       767       890     1,170
-------------------------------------------------------------------------------------------------------------------
Net interest income after provision
   for probable loan losses            11,116    12,046    12,284    12,887     9,348    10,204     9,973    10,067
Other income                              632     2,180       748       918       655       612     2,105     1,601
Operating expenses                      8,906     9,545     9,542     9,484     6,571     7,241     9,227     8,548
-------------------------------------------------------------------------------------------------------------------
Income before income taxes              2,842     4,681     3,490     4,321     3,432     3,575     2,851     3,120
Provision for income taxes                663     1,265       883     1,220       659       683       320       495
-------------------------------------------------------------------------------------------------------------------
Net income                            $ 2,179   $ 3,416   $ 2,607   $ 3,101   $ 2,773   $ 2,892   $ 2,531   $ 2,625
===================================================================================================================
Basic earnings per
   common share (1)                   $  0.27   $  0.42   $  0.32   $  0.39   $  0.33   $  0.35   $  0.31   $  0.32
===================================================================================================================
Diluted earnings per
   common share (1)                   $  0.27   $  0.41   $  0.31   $  0.38   $  0.33   $  0.35   $  0.29   $  0.32
===================================================================================================================
</TABLE>

(1) Retroactive recognition has been given for stock dividends and splits.


                                                                              47
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
MARKET DATA

   The following is a three-year comparison of dividends and stock prices:

                                                           2002    2001    2000
-------------------------------------------------------------------------------
Annual cash dividends (1)                                 $0.55   $0.51   $0.45
Annual stock dividends/stock split issued                     5%      5%      8%

(1) Retroactive recognition has been given for stock dividends and splits.

   The Company's common stock is traded on the American Stock Exchange under the
symbol STB. The approximate high and low closing prices for the Company's common
stock for the years ended December 31, 2002, 2001 and 2000, were as follows:

                                      1st          2nd          3rd          4th
                                  Quarter      Quarter      Quarter      Quarter
--------------------------------------------------------------------------------
2002
   HIGH CLOSE                       17.82        19.20        18.35        19.70
   LOW CLOSE                        15.25        16.95        15.61        16.75

2001
   High close                       15.25        18.00        18.00        16.10
   Low close                        12.94        15.00        15.70        15.13

2000
   High close                       14.25        14.88        14.38        14.00
   Low close                        12.75        12.31        12.00        12.63


48
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Effective March 1, 2003

STATE BANCORP, INC. AND
STATE BANK OF LONG ISLAND

Board of Directors

Thomas F. Goldrick, Jr.
Chairman and Chief Executive Officer
State Bancorp, Inc. and State Bank of Long Island

J. Robert Blumenthal
President, Harwyn Enterprises, Inc.

Carl R. Bruno
Chief Financial Officer, DiFazio Electric, Inc.

Thomas E. Christman
Adjunct Professor of Finance
St. John's University

Arthur Dulik, Jr.
Chief Financial Officer, Altana, Inc.

Richard W. Merzbacher
President, State Bank of Long Island
Vice Chairman, State Bancorp, Inc.

Joseph F. Munson
Managing Member
High Point Partners, LLC

John F. Picciano
Senior Partner
Picciano & Scahill, P.C.

Daniel T. Rowe
President, State Bancorp, Inc.
Vice Chairman, State Bank of Long Island

Suzanne H. Rueck
Director, New Hyde Park Inn

Jeffrey S. Wilks
Director of New Business Development
Spiegel Associates

Directors Emeritus

Dr. Frank E. Picciano
Chairman Emeritus

John A. McAuley
Chairman Emeritus

Gary Holman
Vice Chairman Emeritus

STATE BANCORP, INC.

Officers

Office of the Chairman

Thomas F. Goldrick, Jr.
Chairman and Chief Executive Officer

Daniel T. Rowe
President

Richard W. Merzbacher
Vice Chairman

Brian K. Finneran
Secretary/Treasurer

Janice Clark
Assistant Secretary

STATE BANK OF LONG ISLAND

Executive Officers

Office of the Chairman

Thomas F. Goldrick, Jr.
Chairman and Chief Executive Officer

Richard W. Merzbacher
President

Daniel T. Rowe
Vice Chairman

Frederick C. Braun, III
Executive Vice President and
Senior Lending Officer

Brian K. Finneran
Executive Vice President and
Chief Financial Officer


                                                                              49
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
STATE BANK OF LONG ISLAND--OFFICERS
Effective March 1, 2003

Financial Group

Theresa DiVittorio, CPA
First Vice President and Comptroller

Philip J. Nardella, CPA
Vice President and Assistant Comptroller

Thomas C. Padden
Vice President

Carol J. Bergmann
Assistant Vice President and
Assistant Secretary

Mary Ann P. DiLorenzo
Assistant Vice President

Steven Karaman
Manager

Lisa Marie Massa
Administrative Assistant

Carrie Roach
Administrative Assistant

Bank Operations/Facilities

Raymond D. Wagner
First Vice President

Maureen McTiernan
Assistant Vice President

Joseph Crispino
Manager

Jennie DiFilippi
Manager

Valerie Stewart
Manager

Management Information
Systems and Data Processing

Susanne Pheffer
Senior Vice President

Diane T. Beck
Vice President

Joseph M. McNeill
Vice President

Janine M. Specht
Assistant Vice President

Nathan Jones
Manager

Elizabeth A. Zona
Manager

Barry K. Horne, Jr.
Assistant Manager

Human Resources

Mary E. Durkin
First Vice President and Director
of Human Resources and Training

Marketing

John McWhirk
Vice President and Director of
Marketing and Product Development

Scott Burkhardt
Assistant Manager

Natalie Heldt
Assistant Manager

Branch Administration

Thomas A. Arnone
Senior Vice President

Kevin J. Carroll
Assistant Vice President

Ann Marie Tarantino
Assistant Vice President

Karen M. Williams
Assistant Vice President

Sales/New Business
Development

Douglas W. Vergith
First Vice President

Rocco Reda
Vice President

Peter J. Yovine
Vice President

Deborra Antonucci
Assistant Vice President

Alba Spinelli
Assistant Vice President

Brian Katzman
Manager

Cara Maloney
Manager

Joseph Rainone
Manager

Branch Network

Rosalie Mottola
First Vice President
and District Manager

New Hyde Park Branch

Richard A. DeMartino
Vice President

Rosemary A. DiMario
Manager

Rina Miletic
Assistant Manager

D. Shantie Singh
Assistant Manager

Helen Kroner
Administrative Assistant

Garden City South Branch

Paul R. Cronen
Assistant Vice President

Dawn White
Assistant Manager

Margherita DiPrima
Administrative Assistant

Rockville Centre Branch

Ann Goulding
Manager

Barbara Nilsen
Assistant Manager

County Seat Branch

Timothy P. McCue
Assistant Vice President

Marciano Itri
Assistant Manager

Maria Kellner
Administrative Assistant

Port Washington Branch

Lucy Mazany
Vice President

June Alleyne
Manager

Mark Hartley
Administrative Assistant

Anjana Mohan
Administrative Assistant

Farmingdale Branch

Catherine R. Lingstuyl
Manager

Lisa Ramos-Lopez
Assistant Manager

Denise Cummings
Administrative Assistant

Jericho Branch

Stephen N. Pedersen
Assistant Vice President

Eftihia Karachalios
Assistant Manager

Rani Mehrotra
Assistant Manager

Oyster Bay Branch

Diane E. Grochocki
Assistant Vice President

Mary Alfo
Assistant Manager

Hauppauge Branch

John J. Kurek
Vice President

Robert Insalaco
Manager

Huntington Branch

Kevin Asher
Assistant Vice President

Lisa A. Pandolfo
Manager

Helen M. Gilfedder
Assistant Manager

MacArthur Branch

Iris Taibbi
Assistant Vice President

Clare M. O'Shaughnessy
Assistant Manager

Sharon Klinkhardt
Administrative Assistant

Three Village Branch

Olga B. Belleau
Assistant Vice President

Donna Allen
Assistant Manager

Bulova Center Branch

Donna Gerard
Assistant Manager

Maspeth Branch

Robert Vollkommer
Assistant Vice President

Carrie Martorana
Assistant Manager

Long Island City Branch

Traude Kump
Vice President

Patricia Blanco
Assistant Manager

Municipal Finance

Robert J. Valli
Senior Vice President and
Director of Municipal Finance and
Community Relations

Michael P. Locorriere
First Vice President

Kenneth A. Messina
First Vice President

John P. Rom
Vice President

Hazel F. McCord
Manager


50
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES

Commercial Lending Group

Charles A. Hoffman
Senior Vice President

Robert J. Nicols
Senior Vice President

Kenneth M. Scheriff
Senior Vice President

William H. Tucker
Senior Vice President

Jean-ann Yngstrom
Senior Vice President

Jeffrey N. Barber
First Vice President

James T. Burns
First Vice President

Kevin T. Hennessy
First Vice President

Fred A. Heruth
First Vice President

Richard J. O'Brien
First Vice President

Michael O'Leary
First Vice President

Thomas Scott Swain
First Vice President

Patrick M. Demery
Vice President

John Governale
Vice President

Philip Leone
Vice President

Stephen B. Mischo
Vice President

William Vrana
Vice President

Maria Billiris
Assistant Vice President

Craig Goldstein
Assistant Vice President

Lori D. Keller
Assistant Vice President

Daniel G. Lehan
Assistant Vice President

David Scott Linfoot
Assistant Vice President

Jeffrey B. Reid
Assistant Vice President

Karyn F. Rodriguez
Assistant Vice President

Joseph Sacco
Assistant Vice President

Frederick Zwikelmaier
Assistant Vice President

Karen DaRocha
Commercial Loan Manager

Raffaella Palazzo
Commercial Loan Manager

Christopher Van Bell
Commercial Loan Manager

Michele Klampfer
Assistant Manager

Joan Kuehne
Administrative Assistant

Barbara Paradise
Administrative Assistant

Angel Berber
Administrative Assistant

Consumer Loan Department

Jean M. Cassese
Vice President

John J. McEniry
Vice President

Loan Operations Group

Geraldine Harden
Vice President

Siu Chan
Assistant Vice President

Joann Riccobaldi-Cozzani
Assistant Manager

Patricia Salvatore
Administrative Assistant

Office of the Chairman

Janice Clark
Assistant Secretary

Valerie McCarthy
Executive Staff Assistant

Ruth Mineo
Executive Staff Assistant

SB Portfolio Management Corp.

Matthew T. Novak
President and Director

SB Financial Services Corp.

Matthew T. Novak
President and Director

Carl S. Nadwodny
Vice President

Studebaker-Worthington Leasing Corp.

Kenneth M. Paston
President and Director

Anthony Campisciano
Vice President

OFFICE LOCATIONS
Main Office

699 Hillside Avenue
New Hyde Park, NY 11040-2512
(516) 465-2200

Nassau County

County Seat Office
222 Old Country Road
Mineola, NY 11501
(516) 240-6200

Garden City South Office
339 Nassau Boulevard
Garden City South, NY 11530-5313
(516) 481-3900

Jericho Office
501 North Broadway
Jericho, NY 11753-2107
(516) 822-4000

Oyster Bay Office
135 South Street
Oyster Bay, NY 11771-2283
(516) 922-0200

Rockville Centre Office
2 Lincoln Avenue
Rockville Centre, NY 11570-5724
(516) 678-6000

Port Washington Office
960 Port Washington Boulevard
Port Washington, NY 11050
(516) 495-7600

Suffolk County

Farmingdale Office
27 Smith Street
Farmingdale, NY 11735-1022
(631) 847-3900

Hauppauge Office
740 Veterans Memorial Highway
Hauppauge, NY 11788-1231
(631) 979-0700

Huntington Office
580 East Jericho Turnpike
Huntington Station, NY 11746-7378
(631) 271-5900

MacArthur Airport Office
4250 Veterans Memorial Highway
Holbrook, NY 11741-4001
(631) 630-0500

Three Village Office
234 Route 25A
East Setauket, NY 11733-2890
(631) 941-3000

Queens County

Maspeth Office
49-01 Grand Avenue
Maspeth, NY 11378
(718) 416-1400

Bulova Corporate Center
75-20 Astoria Boulevard
Jackson Heights, NY 11370
(718) 426-2200

Long Island City Office
21-31 46th Avenue
Long Island City, NY 11101
(718) 361-9800

Queens Regional Office
75-20 Astoria Boulevard
Jackson Heights, NY 11370
(718) 426-4600

Lending Facility
Two Jericho Plaza
Jericho, NY 11753-1683
(516) 465-2300

Internet Address

www.statebankofli.com

Touch 24-
24 Hour Telephone Banking

1-866-STATEBK (Toll Free)
1-866-782-8325

Subsidiary Locations

SB Portfolio Managment Corp.
1403 Foulk Road, Suite 102
Wilmington, DE 19803
(302) 479-5936

SB Financial Services Corp.
1403 Foulk Road, Suite 102
Wilmington, DE 19803
(302) 479-7534

SB ORE Corp.
699 Hillside Avenue
New Hyde Park, NY 11040
(516) 465-2200

New Hyde Park Leasing Corporation
699 Hillside Avenue
New Hyde Park, NY 11040
(516) 465-2200

Studebaker-Worthington Leasing Corp.
100 Jericho Quadrangle
Jericho, NY 11753
(516) 938-5460


                                                                              51
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
ADVISORY BOARD

Henry Alpert, Secretary
Spartan Petroleum Corp.

Andrew C. Andron, President
Century 21 Andron Realty

Maureen Appel, Headmistress
Connelly School of the Holy
Child

Salvatore Catania, Secretary
Murray M. Braunstein, Inc.

Anthony J. Demasco, CPA, Partner
Demasco, Sena & Jahelka LLP

Monroe Diefendorf, Jr., President
Diefendorf Capital Planning Associates

Debbie C. Eichen, CPA
Eichen & DiMeglio, P.C.

Fred H. Fellows, President
Fibre Materials Co., Inc.

Ronald F. Friedenthal
Independent Insurance Broker

Frank Giorgio, Jr., Esq.
Giorgio, DePoto & Principe, LLP

George Goettelmann, Jr., President
A. E. Goettelmann & Co.

Kermit Gordon
Kermit Enterprises

Henry P. Greve, CPA
Cohen, Greve & Co., CPA, P.C.

Joseph M. Gunning, President
Gunning Business Machines

Anne S. Hadlock, CPA
Consultant

Jean A. Hegler, Attorney
Brosnan & Hegler, LLP

Edward Heil
Independent Network Group

Conrad P. Homler, CPA
Homler & Dalessandro

Seymour Katchen, CPA
Palmetto, Mollo & Co.

Michael Katz, President
Decor Moulding & Supply

Robert F. Kearns, Chairman
Suppress X-S

Owen Kilgannon, CPA
Giambalvo, Kilgannon & Giammarese

Carol Konner, President
Konner Development Corp.

Patrick McAllister
Great Eastern Printing Co.

Gerard J. McKeon, Retired
The New York Racing Association

Frederick J. Meyer
Selective Estates

Robert E. Meyer
Robert E. Meyer Real Estate Appraisals

Donald Monti, President
Concorde Management Services, Inc.

Dominick Nuzzi
Allegiance International, Inc.

John J. Nuzzi
Nuzzi Fuel Co.

Peter N. Paternostro, CPA, Partner
Paternostro & DeFreitas & Co., LLP

Charles Peluso, CPA
Margolin, Winer & Evens

Charles W. Schwing, Consultant
Schwing Electrical Supply Corp.

Fred Scott, Chairman
State Bank of Long Island
Advisory Board

Ralph Somma, President
Brueton Industries, Inc.

Charles I. Steinberg, President
Financial Pacesetters, Inc.


52
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARIES
CORPORATE INFORMATION

EXECUTIVE OFFICES
699 Hillside Avenue
New Hyde Park, NY 11040-2512
Tel: (516) 437-1000
     (516) 465-2200
Fax: (516) 437-1032

2 Jericho Plaza
Jericho, NY 11753-1683
Tel: (516) 465-2300
Fax: (516) 465-6700

ANNUAL MEETING OF STOCKHOLDERS
State Bancorp, Inc.'s Annual Stockholders' Meeting will be held on Tuesday,
April 29, 2003 at 10:00 a.m. at the New Hyde Park Inn, New Hyde Park, NY.

INVESTOR RELATIONS
Stockholders, security analysts and others seeking information about State
Bancorp, Inc. should contact:

Brian K. Finneran
Chief Financial Officer
(516) 465-2251
e-mail: Bfinneran@statebankofli.com

Deborah A. Kendric, CPA
Director of Corporate Communications
(516) 495-5050
e-mail: Dkendric@statebankofli.com

Copies of the Company's earnings releases and other financial publications,
including the Annual Report on Form 10-K filed with the Securities and Exchange
Commission, are available without charge upon written request to:

Theresa DiVittorio
First Vice President and Comptroller
State Bank of Long Island
699 Hillside Avenue
New Hyde Park, NY 11040-2512

STOCK LISTING
State Bancorp, Inc. is traded on the American Stock Exchange under the symbol
STB. Price information appears in the Wall Street Journal, New York Times and
other newspapers under StateBcp. At December 31, 2002, the total number of
holders of record of State Bancorp, Inc.'s common stock was 1,435.

STOCKHOLDER ACCOUNT INQUIRIES
To expedite changes of address or registration, consolidation of accounts and
the replacement of stock certificates or dividend checks, stockholders should
contact the Company's registrar and transfer agent directly:
Wells Fargo Shareowner Services
161 North Concord Exchange
South St. Paul, MN 55075
(800) 468-9716

FDIC RULES AND REGULATIONS,
PART 350.4(d)
This statement has not been reviewed, or confirmed for accuracy or relevance, by
the Federal Deposit Insurance Corporation.

INDEPENDENT AUDITORS
Deloitte & Touche LLP
1700 Market Street
Philadelphia, PA 19103-3984

COUNSEL
Lamb & Barnosky, LLP
534 Broadhollow Road
Melville, NY 11747-9034

--------------------------------------------------------------------------------
VIEW YOUR COMMON STOCK ACCOUNT ONLINE

Wells Fargo Shareowner Services, the transfer agent for the Company's common
stock, has introduced a new Internet Service: www.shareowneronline.com.
Shareowner Online is a web-enabled real-time service, available 24 hours a day,
7 days per week. This service provides shareholders of record with the ability
to:

o   View account balances
o   View certificate, book-entry and payment history
o   View, print or request Form 1099
o   Request duplicate statements
o   Perform address changes

Activating your account is easy. Go to www.shareowneronline.com and click on the
"First Time Visitor New Member Registration" page. You will be prompted to
select a Personal Identification Number (PIN) and you will also need your
account number, which is found on your dividend check or dividend reinvestment
statement.

For questions about your account, call 1-800-468-9716.
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Design: RWI (rwidesign.com)

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[LOGO] STATE BANCORP, INC.
       CORPORATE OFFICE
       699 HILLSIDE AVENUE
       NEW HYDE PARK, NY 11040-2512
       (516) 465-2200