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|          |     | Documents Incorporated by Reference                                                                                          | Page   3 |
|---------------|----------|------------------------------------------------------------------------------------------------------------------------------|-------------------------|
|          |     |                                                                                                                         |                    |
| PART      I   | Item 1.  | Business                                                                                                                     | 3                       |
|          | Item 1A. | Risk      Factors                                                                                                            | 18                      |
|          | Item 1B. | Unresolved      Staff Comments                                                                                               | 21                      |
|          | Item 2.  | Properties                                                                                                                   | 22                      |
|          | Item 3.  | Legal      Proceedings                                                                                                       | 23                      |
|          | Item 4.  | Submission      of Matters to a Vote of Security Holders                                                                     | 24                      |
|          |     |                                                                                                                         |                    |
| PART      II  | Item 5.  | Market      for Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities | 24                      |
|          | Item 6.  | Selected      Financial Data                                                                                                 | 26                      |
|          | Item 7.  | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                        | 27                      |
|          | Item 7A. | Quantitative      and Qualitative Disclosures About Market Risk                                                              | 50                      |
|          | Item 8.  | Financial      Statements and Supplementary Data                                                                             | 53                      |
|          | Item 9.  | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure                               | 86                      |
|          | Item 9A. | Controls      and Procedures                                                                                                 | 86                      |
|          | Item 9B. | Other      Information                                                                                                       | 88                      |
|          |     |                                                                                                                         |                    |
| PART      III | Item 10. | Directors,      Executive Officers and Corporate Governance                                                                  | 88                      |
|          | Item 11. | Executive      Compensation                                                                                                  | 88                      |
|          | Item 12. | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                     | 88                      |
|          | Item 13. | Certain      Relationships and Related Transactions, and Director      Independence                                          | 89                      |
|          | Item 14. | Principal      Accountant Fees and Services                                                                                  | 89                      |
|          |     |                                                                                                                         |                    |
| PART      IV  | Item 15. | Exhibits      and Financial Statement Schedules                                                                              | 89                      |
|          |     |                                                                                                                         |                    |
|          |     | Signatures                                                                                                                   | 93                      |

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DOCUMENTS INCORPORATED BY REFERENCE

BUSINESS

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| ·   | Strong      Net Interest Margin.  Prior to 2005, the Company's strong      historical earnings had been driven by its impressive net interest      margin.  For the year ended December 31, 2007 and the year ended      December 31, 2006, the Company’s net interest margin was 3.82% and 4.01%,      respectively.  The Company’s strong margin results from its      relatively stable low-cost deposit base coupled with a business mix which      emphasizes high-yielding commercial and industrial loans and commercial      mortgages. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Successful Repositioning in      2007.  The      Company’s 2007 earnings amounted to $6.2 million versus $11.5 million in      2006.  Earnings in 2007 were negatively impacted by several      strategic actions intended to improve the Company’s future earnings      potential. In the second quarter, a $3.1 million pre-tax charge was      recognized in connection with the previously disclosed Voluntary Exit      Window program. This cost-control program resulted in the early retirement      of 18 officers and employees.  In the fourth quarter, a non-cash      goodwill impairment accounting charge of $2.4 million was recorded as a      result of the Company’s decision to exit the leasing business with      the intent to sell substantially all of the assets of      SWLC.  Additionally in the fourth quarter, the Company recorded      a reduction in the provision for income taxes resulting from the final and      conclusive settlement of the previously disclosed audit by the New York      State Tax Department.  See “Legal      Proceedings.” |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Largest Independent Commercial      Bank Headquartered on Long Island.  The Bank is the      largest independent commercial bank headquartered on Long Island, with a      network of branches stretching from the Three Village area, located      in Suffolk County, to Manhattan.  According to data published by      the Federal Deposit Insurance Corporation (the “FDIC”),  based on      total deposits as of  June 30, 2007, the Company’s market share      in Nassau, Suffolk and Queens Counties was 1.69%, 1.23% and 0.19%,      respectively. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Stable Credit      Quality.  The Company emphasizes a credit culture      based on traditional credit measures and underwriting      standards.  The results of the Company’s continued focus on      credit quality are evidenced by a ratio of non-performing assets to total      loans and leases of 0.56% at December 31, 2007 and 0.22% at December 31,      2006 and a net charge-offs to average total loans and leases ratio of      0.61% for the year ended December 31, 2007 and 0.19% for the year ended      December 31, 2006. At December 31, 2007 and December 31, 2006, the Company      held no other real estate owned (“OREO”) and there were no restructured,      accruing loans and leases. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Strong Capital Base.  The      Company’s capital ratios exceeded all regulatory requirements at December      31, 2007.  The Bank’s Tier I leverage ratio was 7.43% at      December 31, 2007 and 6.69% at December 31, 2006. The Bank’s Tier I      risk-weighted ratio was 10.62% at December 31, 2007 and 10.07% at December      31, 2006. The Bank’s total risk-weighted capital ratio was 11.85% at      December 31, 2007 and 11.32% at December 31, 2006. Each of these ratios is      substantially in excess of the regulatory guidelines, as established by      federal banking regulatory agencies, for a “well capitalized” institution,      the highest regulatory capitalcategory. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Realignment of Organizational      Structure.  During      2007, the Company has strengthened its corporate governance and internal      controls through the appointment of a General Counsel, Chief Auditor,      Comptroller, BSA Officer, Information Security Officer and Security      Director.  Additionally the Company has appointed a Chief      Marketing and Corporate Planning Officer, a Director of Credit Review      and a Chief InformationOfficer. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Establishment      of anti-money laundering programs. |
|--------------------|-------------------------------------------------------|

| ·   | Establishment      of a program specifying procedures for obtaining identifying information      from customers seeking to open new accounts (“Customer Identification      Programs”). |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Establishment      of enhanced due diligence policies, procedures and controls designed to      detect and report money laundering. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Prohibition      on correspondent accounts for foreign shell banks and compliance with      recordkeeping obligations with respect to correspondent accounts of      foreign banks. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Establishment      of policies and procedures relating to foreign private banking customers      and politically exposed persons. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------|

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| At      December 31,                     |   | 2007      |    |   | 2006            |   |    | 2005      |   |
|------------------------------------------|--------|-----------|---------|--------|-----------------|--------|---------|-----------|--------|
|                                     |   | Amortized |    |   | Estimated       |   |    | Amortized |   |   | Estimated |   |   | Amortized |   |   | Estimated |   |
|                                     |   | Cost      |    |   | Fair      Value |   |    | Cost      |   |   | Fair      Value |   |   | Cost |   |   | Fair      Value |   |
|                                     |   |      |    |   |            |   |    |      |   |   |   |   |   |   |   |   |   |   |
| Securities      held to maturity:        |   |      |    |   |            |   |    |      |   |   |   |   |   |   |   |   |   |   |
| Government      Agency securities        |   | $         | -       |   |            | $      | -       |      |   | $ | 6,372 |   |   | $ | 6,361 |   |   | $ | 15,993 |   |   | $ | 15,944 |   |
|                                     |   |      |    |   |            |   |    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale:      |   |      |    |   |            |   |    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Obligations      of states and political |   |      |    |   |            |   |    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| subdivisions                             |   |      | 18,140  |   |            |   | 18,095  |      |   |   | 14,328 |   |   |   | 14,251 |   |   |   | 18,729 |   |   |   | 18,638 |   |
| Mortgage-backed      securities and      |   |      |    |   |            |   |    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| collateralized      mortgage obligations |   |      | 217,016 |   |            |   | 218,100 |      |   |   | 192,770 |   |   |   | 188,922 |   |   |   | 199,537 |   |   |   | 195,603 |   |
| Government      Agency securities        |   |      | 149,639 |   |            |   | 150,534 |      |   |   | 294,793 |   |   |   | 293,209 |   |   |   | 291,550 |   |   |   | 288,956 |   |
| Corporate      securities                |   |      | 15,087  |   |            |   | 14,500  |      |   |   | 15,179 |   |   |   | 15,027 |   |   |   | 19,307 |   |   |   | 19,049 |   |
| Total      securites available for sale  |   |      | 399,882 |   |            |   | 401,229 |      |   |   | 517,070 |   |   |   | 511,409 |   |   |   | 529,123 |   |   |   | 522,246 |   |
| Total      securites                     |   | $         | 399,882 |   |            | $      | 401,229 |      |   | $ | 523,442 |   |   | $ | 517,770 |   |   | $ | 545,116 |   |   | $ | 538,190 |   |

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|                                                                                                                                                                 |                                         |                                                  | 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) |
| Securities      held to maturity:                                                                                                                                    |                                         |                                                  |          |   |   |   |   |   |   |   |   |   |
| None                                                                                                                                                                 |                                         |                                                  |          |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                 |                                         |                                                  |          |   |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale:                                                                                                                                  |                                         |                                                  |          |   |   |   |   |   |   |   |   |   |
| Obligations      of states and political                                                                                                                             |                                         |                                                  |          |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                 |  subdivisions                           |  $   11,839                       | 6.66          | % |  $        625 | 5.39 | % |  $      900 | 5.88 | % |  $   4,731 | 6.34 | % |
| Mortgage-backed      securities and                                                                                                                                  |                                         |                                                  |          |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                 | collateralized      mortgage obligations (2) |         4,542 | 3.77          |   |     173,443 | 5.04 |   |     40,115 | 5.47 |   |              - |            - |   |
| Government      Agency securities (3)                                                                                                                                |     122,242              | 4.98                                                  |          |       28,292 | 5.14 |   |              - |            - |   |              - |            - |   |
| Corporate      securities                                                                                                                                            |       11,500   |       4.96              |          |         3,000 | 3.79 |   |              - |            - |   |              - |            - |   |
| Total      securites available for sale                                                                                                                              |     150,123              | 5.07                                                  |          |     205,360 | 5.04 |   |     41,015 | 5.48 |   |       4,731 | 6.34 |   |
| Total      securites                                                                                                                                                 |  $      150,123                         | 5.07                                                  | %             |  $      205,360 | 5.04 | % |  $      41,015 | 5.48 | % |  $   4,731 | 6.34 | % |
|                                                                                                                                                                 |                                         |                                                  |          |   |   |   |   |   |   |   |   |   |   |   |
| (1)  Fully      taxable-equivalent basis using a tax rate of 34%.                                                                                          |
| (2)  Assumes      maturity dates pursuant to average lives as determined by constant      prepayment rates.                                                |
| (3)  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.                                                         |

| At      December 31,                           |   | 2007   |      |   | 2006   |   |    | 2005   |   |   | 2004    |   |   | 2003   |    |
|------------------------------------------------|--------|--------|-----------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|
| Commercial      and industrial                 |   | $      | 322,575   |   |   | $      | 297,256 |   |   | $      | 297,887 |   |   | $      | 277,172 |   |   | $ | 278,216 |   |
| Real      estate - commercial mortgage         |   |   | 383,960   |   |   |   | 392,454 |   |   |   | 344,465 |   |   |   | 277,798 |   |   |   | 244,646 |   |
| Real      estate - residential mortgage        |   |   | 102,468   |   |   |   | 105,476 |   |   |   | 101,539 |   |   |   | 96,509  |   |   |   | 90,300 |   |
| Real      estate - commercial construction     |   |   | 50,483    |   |   |   | 25,207  |   |   |   | 27,491  |   |   |   | 26,647  |   |   |   | 18,862 |   |
| Real      estate - residential construction    |   |   | 95,002    |   |   |   | 80,513  |   |   |   | 51,709  |   |   |   | 47,001  |   |   |   | 35,431 |   |
| Lease      receivables                         |   |   | 66,476    |   |   |   | 62,649  |   |   |   | 49,151  |   |   |   | 34,844  |   |   |   | 23,962 |   |
| Loans      to individuals                      |   |   | 11,724    |   |   |   | 11,315  |   |   |   | 9,401   |   |   |   | 8,724   |   |   |   | 7,843 |   |
| Tax-exempt      and other                      |   |   | 8,321     |   |   |   | 8,855   |   |   |   | 10,379  |   |   |   | 9,496   |   |   |   | 11,956 |   |
| Loans      and leases - net of unearned income |   | $      | 1,041,009 |   |   | $      | 983,725 |   |   | $      | 892,022 |   |   | $      | 778,191 |   |   | $ | 711,216 |   |

----

|                                        |   | One      Year |    |   | One      Through |   |    | Over            |   |   |   |   |
|---------------------------------------------|--------|---------------|---------|--------|------------------|--------|---------|-----------------|--------|--------|--------|--------|
|                                        |   | or      Less  |    |   | Five      Years  |   |    | Five      Years |   |   | Total  |   |
| Commercial      and industrial              |   | $             | 214,598 |   |             | $      | 73,946  |            |   | $      | 34,031 |   |   | $ | 322,575 |   |
| Real      estate - commercial construction  |   |          | 19,363  |   |             |   | 30,729  |            |   |   | 391    |   |   |   | 50,483 |   |
| Real      estate - residential construction |   |          | 61,386  |   |             |   | 33,616  |            |   |   | -      |   |   |   | 95,002 |   |
| Total                                       |   | $             | 295,347 |   |             | $      | 138,291 |            |   | $      | 34,422 |   |   | $ | 468,060 |   |
| Loans      maturing after one year with:    |   |          |    |   |             |   |    |            |   |   |   |   |   |   |   |   |
| Fixed      interest rate                    |   |          |    |   |             | $      | 90,521  |            |   | $      | 12,220 |   |   | $ | 102,741 |   |
| Variable      interest rate                 |   |          |    |   |             | $      | 47,770  |            |   | $      | 22,202 |   |   | $ | 69,972 |   |

| December      31,                                                                                          |   | 2007   |   |   | 2006   |   |   | 2005   |   |   | 2004   |   |   | 2003   |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Non-accrual      loans and leases                                                                          |   | $      | 5,792  |   |   | $      | 2,177  |   |   | $      | 3,069  |   |   | $      | 5,274  |   |   | $ | 8,666 |   |
| Loans      and leases 90 days or more past due and stillaccruing      interest                             |   | $      | 28     |   |   | $      | 13     |   |   | $      | 281    |   |   | $      | 89     |   |   | $ | 149 |   |
| Restructured      accruing loans and leases                                                                |   | $      | -      |   |   | $      | -      |   |   | $      | -      |   |   | $      | -      |   |   | $ | - |   |
| Interest      income on non-accrual and restructured loans                                                 |   |
|        and leases which would have been recorded under         original loan or lease terms |   | $      | 459    |   |   | $      | 78     |   |   | $      | (5     | )      |   | $      | 137    |   |   | $ | 372 |   |
| Interest      income on non-accrual and restructured                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         loans and leases recorded during the period                                              |   | $      | 19     |   |   | $      | 117    |   |   | $      | 122    |   |   | $      | 31     |   |   | $ | 24 |   |

----

|                                                                                                                |   | 2007   |   |   | 2006   |   |   | 2005   |   |   | 2004   |   |   | 2003   |   |
|---------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Balance,      January 1                                                                                             |   | $      | 16,412 |   |   | $      | 15,717 |   |   | $      | 12,020 |   |   | $      | 10,732 |   |   | $ | 10,046 |   |
| Charge-offs:                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial      and industrial                                                                                      |   |   | 3,129  |   |   |   | 773    |   |   |   | 505    |   |   |   | 2,957  |   |   |   | 1,960 |   |
| Real      estate - commercial mortgage                                                                              |   |   | 2,965  |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 1,244 |   |
| Real      estate - residential mortgage                                                                             |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 7 |   |
| Real      estate - commercial construction                                                                          |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 193    |   |   |   | - |   |
| Lease      receivables                                                                                              |   |   | 404    |   |   |   | 1,382  |   |   |   | 280    |   |   |   | 250    |   |   |   | 292 |   |
| Loans      to individuals                                                                                           |   |   | 57     |   |   |   | 18     |   |   |   | 13     |   |   |   | 5      |   |   |   | 50 |   |
| Total      charge-offs                                                                                              |   |   | 6,555  |   |   |   | 2,173  |   |   |   | 798    |   |   |   | 3,405  |   |   |   | 3,553 |   |
| Recoveries:                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial      and industrial                                                                                      |   |   | 158    |   |   |   | 343    |   |   |   | 816    |   |   |   | 171    |   |   |   | 293 |   |
| Real      estate - commercial mortgage                                                                              |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 3      |   |   |   | 3 |   |
| Real      estate - residential mortgage                                                                             |   |   | -      |   |   |   | 12     |   |   |   | 16     |   |   |   | -      |   |   |   | - |   |
| Lease      receivables                                                                                              |   |   | 220    |   |   |   | 13     |   |   |   | 10     |   |   |   | 8      |   |   |   | 1 |   |
| Loans      to individuals                                                                                           |   |   | 6      |   |   |   | 10     |   |   |   | 3      |   |   |   | 5      |   |   |   | 7 |   |
| Total      recoveries                                                                                               |   |   | 384    |   |   |   | 378    |   |   |   | 845    |   |   |   | 187    |   |   |   | 304 |   |
| Net      charge-offs (recoveries)                                                                                   |   |   | 6,171  |   |   |   | 1,795  |   |   |   | (47    | )      |   |   | 3,218  |   |   |   | 3,249 |   |
| Provision      charged to income                                                                                    |   |   | 4,464  |   |   |   | 2,490  |   |   |   | 3,650  |   |   |   | 4,506  |   |   |   | 3,935 |   |
| Balance      at end of period                                                                                       |   | $      | 14,705 |   |   | $      | 16,412 |   |   | $      | 15,717 |   |   | $      | 12,020 |   |   | $ | 10,732 |   |
|                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio      of net charge-offs (recoveries) during the periodto      average loans and leases outstanding during the |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        period                                                                                                  |   |   | 0.61   | %      |   |   | 0.19   | %      |   |   | (0.01  | %)     |   |   | 0.44   | % |   |   | 0.50 | % |
|                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                                                                                                                                   |                                                                  | Percent                                                                                                                   |    |                                                                                        |  Percent                                                                                                             |    |                                                                                        |  Percent                                                                                                             |    |                                                                                        |  Percent                                                                                                             |    |                                                                                        |  Percent                                                                                                             |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|---------|
|                                                                                                                                                                   |                                                                  | of                                                                                                                        |    |                                                                                        | of                                                                                                                        |    |                                                                                        | of                                                                                                                        |    |                                                                                        | of                                                                                                                        |    |                                                                                        | of                                                                                                                        |    |
|                                                                                                                                                                   |                                                                  | Loans                                                                                                                     |    |                                                                                        |  Loans                                                                                                               |    |                                                                                        | Loans                                                                                                                     |    |                                                                                        |  Loans                                                                                                               |    |                                                                                        |  Loans                                                                                                               |    |
|                                                                                                                                                                   |                                                                  |  and                                                                                                                 |    |                                                                                        | and                                                                                                                       |    |                                                                                        | and                                                                                                                       |    |                                                                                        | and                                                                                                                       |    |                                                                                        | and                                                                                                                       |    |
|                                                                                                                                                                   |                                                                  |  Leases                                                                                                              |    |                                                                                        |  Leases                                                                                                              |    |                                                                                        |  Leases                                                                                                              |    |                                                                                        |  Leases                                                                                                              |    |                                                                                        |  Leases                                                                                                              |    |
|                                                                                                                                                                   |                                                                  | to                                                                                                                        |    |                                                                                        | to                                                                                                                        |    |                                                                                        | to                                                                                                                        |    |                                                                                        | to                                                                                                                        |    |                                                                                        | to                                                                                                                        |    |
|                                                                                                                                                                   |                                                                  | Total                                                                                                                     |    |                                                                                        | Total                                                                                                                     |    |                                                                                        | Total                                                                                                                     |    |                                                                                        | Total                                                                                                                     |    |                                                                                        | Total                                                                                                                     |    |
|                                                                                                                                                                   |                                                                  |  Loans                                                                                                               |    |                                                                                        |  Loans                                                                                                               |    |                                                                                        |  Loans                                                                                                               |    |                                                                                        |  Loans                                                                                                               |    |                                                                                        |  Loans                                                                                                               |    |
|                                                                                                                                                                   |                                                                  |  and                                                                                                                 |    |                                                                                        |  and                                                                                                                 |    |                                                                                        |  and                                                                                                                 |    |                                                                                        |  and                                                                                                                 |    |                                                                                        |  and                                                                                                                 |    |
|                                                                                                                                                                   | 2007                                                                  | Leases                                                                                                                    |    | 2006                                                                                        | Leases                                                                                                                    |    | 2005                                                                                        | Leases                                                                                                                    |    | 2004                                                                                        | Leases                                                                                                                    |    | 2003                                                                                        | Leases                                                                                                                    |    |
| Commercial      andindustrial                                                                                                                                          | $5,000                                                                | 31.1                                                                                                                      | %  | $7,965                                                                                      | 30.2                                                                                                                      |  % | $6,929                                                                                      | 33.4                                                                                                                      | %  | $5,071                                                                                      | 35.6                                                                                                                      | %  | $5,781                                                                                      | 39.1                                                                                                                      | %  |
| Real      estate - commercial      mortgage (1)                                                                                                                        | 5,000                                                                 |                36.9                            |    | 5,357                                                                                       |                50.6                            |    | 4,733                                                                                       | 50.0                                                                                                                      |    | 3,694                                                                                       | 48.1                                                                                                                      |    | 3,157                                                                                       | 47.1                                                                                                                      |    |
| Real      estate -residential      mortgage (1)                                                                                                                        |            225 |                  9.8                 |    |                - |                     - |    |                - |                     - |    |                - |                     - |    |                - |                     - |    |
| Real      estate - commercial      construction (2)                                                                                                                    | 318                                                                   |                  4.8                 |    | 577                                                                                         |                10.7                            |    | 542                                                                                         | 8.9                                                                                                                       |    | 523                                                                                         | 9.5                                                                                                                       |    | 306                                                                                         | 7.6                                                                                                                       |    |
| Real      estate - residential      construction (2)                                                                                                                   |         1,200                 |                  9.1                 |    |                - |                     - |    |                - |                     - |    |                - |                     - |    |                - |                     - |    |
| Lease      receivables                                                                                                                                                 | 1,547                                                                 |                  6.4                 |    | 1,072                                                                                       |                  6.4                 |    | 1,578                                                                                       | 5.5                                                                                                                       |    | 900                                                                                         | 4.5                                                                                                                       |    | 142                                                                                         | 3.4                                                                                                                       |    |
| Loans      to individuals                                                                                                                                              | 134                                                                   |                  1.1                 |    | 73                                                                                          |                  1.2                 |    | 77                                                                                          | 1.1                                                                                                                       |    | 38                                                                                          | 1.1                                                                                                                       |    | 44                                                                                          | 1.1                                                                                                                       |    |
| Tax-exempt      andother                                                                                                                                               | 31                                                                    |                  0.8                 |    | 34                                                                                          |                  0.9                 |    | 47                                                                                          | 1.1                                                                                                                       |    | 47                                                                                          | 1.2                                                                                                                       |    | 67                                                                                          | 1.7                                                                                                                       |    |
| Unallocated                                                                                                                                                            | 1,250                                                                 |                     - |    | 1,334                                                                                       |                     - |    | 1,811                                                                                       |                     - |    | 1,747                                                                                       |                     - |    | 1,235                                                                                       |                     - |    |
| Total                                                                                                                                                                  | $14,705                                                               | 100.0                                                                                                                     | %  | $16,412                                                                                     | 100.0                                                                                                                     | %  | $15,717                                                                                     | 100.0                                                                                                                     | %  | $12,020                                                                                     | 100.0                                                                                                                     | %  | $10,732                                                                                     | 100.0                                                                                                                     | %  |
|                                                                                                                                                                   |                                                                  |                                                                                                                      |    |                                                                                        |                                                                                                                      |    |                                                                                        |                                                                                                                      |    |                                                                                        |                                                                                                                      |    |                                                                                        |                                                                                                                      |    |
| (1)      Prior to 2007, no breakdown between commercial and residential mortgage      was available.  Thus, all such real estate - mortgage amounts      are |
| included      in real estate - commercial mortgage.                                                                                                                    |                                                                  |                                                                                                                      |    |                                                                                        |                                                                                                                      |    |                                                                                        |
| (2)      Prior to 2007, no breakdown between commercial and residential      construction was available.  Thus, all such real estate -      construction     |
| amounts      are      included in real estate - commercial  construction.                                                                                              |

----

|                                                  |                 |                                                                                                                                                    | 2007    |                 | 2006                                                                                                                                                    |    | 2005                 |                                                                                                                                                    |
|-------------------------------------------------------|----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|---------|----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|---------|----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                  |                 |                                                                                                                                                    | Average | Average              |                                                                                                                                                    | Average | Average              |                                                                                                                                                    | Average | Average |   |
|                                                  |                 |                                                                                                                                                    | Balance | Rate                 |                                                                                                                                                    | Balance | Rate                 |                                                                                                                                                    | Balance | Rate |   |
| Non-interest      bearing demand deposits             | $       319,655 |                          - |    | $       324,551 |                          - |    | $       310,720 |                          - |   |
| Interest-bearing      transaction accounts            | 219,423              | 2.83                                                                                                                                                    | %  | 220,001              | 2.65                                                                                                                                                    | %  | 223,101              | 1.53                                                                                                                                                    | %  |
| Money      market deposit accounts                    | 162,252              | 3.74                                                                                                                                                    |    | 164,325              | 3.14                                                                                                                                                    |    | 158,746              | 1.69                                                                                                                                                    |   |
| Savings      deposits                                 | 238,379              | 2.61                                                                                                                                                    |    | 272,476              | 2.43                                                                                                                                                    |    | 321,326              | 1.99                                                                                                                                                    |   |
| Time      certificates of deposit of $100,000 or more | 226,953              | 4.84                                                                                                                                                    |    | 219,723              | 4.52                                                                                                                                                    |    | 175,495              | 2.85                                                                                                                                                    |   |
| Other      time deposits                              | 258,547              | 4.95                                                                                                                                                    |    | 289,645              | 4.73                                                                                                                                                    |    | 114,402              | 3.27                                                                                                                                                    |   |
| Total                                                 | $1,425,209           | 2.96                                                                                                                                                    | %  | $1,490,721           | 2.76                                                                                                                                                    | %  | $1,303,790           | 1.63                                                                                                                                                    | %  |

| 3      months or less                |   | $      | 180,793 |   |
|--------------------------------------|--------|--------|---------|--------|
| Over      3 months through 6 months  |   |   | 25,212  |   |
| Over      6 months through 12 months |   |   | 13,545  |   |
| Over      12 months                  |   |   | 6,424   |   |
| Total                                |   | $      | 225,974 |   |

----

|                                                                      |   | 2007   |    |   | 2006   |   |   | 2005   |   |
|---------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|
|  Balance,      December 31 -                                         |   |   |    |   |   |   |   |   |   |
|  Securities      sold under agreements to repurchase                 |   |   | -       |   |   |   | -      |   |   |   | - |   |
|  Federal      funds purchased                                        |   |   | -       |   |   |   | -      |   |   |   | - |   |
|  Federal      Home Loan Bank advances                                |   | $      | 139,000 |   |   |   | -      |   |   | $ | 18,500 |   |
|                                                                      |   |   |    |   |   |   |   |   |   |   |   |   |
| Weighted-average      interest rate on balance, December 31 -             |   |   |    |   |   |   |   |   |   |   |   |   |
|  Securities      sold under agreements to repurchase                 |   |   | -       |   |   |   | -      |   |   |   | - |   |
|  Federal      funds purchased                                        |   |   | -       |   |   |   | -      |   |   |   | - |   |
|  Federal      Home Loan Bank advances                                |   |   | 4.43    | %      |   |   | -      |   |   |   | 4.30 | % |
|                                                                      |   |   |    |   |   |   |   |   |   |   |   |   |
| Maximum      outstanding at any month end -                               |   |   |    |   |   |   |   |   |   |   |   |   |
|  Securities      sold under agreements to repurchase                 |   |   | -       |   |   |   | -      |   |   | $ | 118,215 |   |
|  Federal      funds purchased                                        |   | $      | 22,500  |   |   | $      | 15,500 |   |   | $ | 17,000 |   |
|  Federal      Home Loan Bank advances                                |   | $      | 222,000 |   |   | $      | 44,000 |   |   | $ | 95,000 |   |
|                                                                      |   |   |    |   |   |   |   |   |   |   |   |   |
| Average      daily amount outstanding -                                   |   |   |    |   |   |   |   |   |   |   |   |   |
|  Securities      sold under agreements to repurchase                 |   |   | -       |   |   |   | -      |   |   | $ | 16,092 |   |
|  Federal      funds purchased                                        |   | $      | 7,196   |   |   | $      | 2,997  |   |   | $ | 6,341 |   |
|  Federal      Home Loan Bank advances                                |   | $      | 103,093 |   |   | $      | 8,241  |   |   | $ | 47,397 |   |
|                                                                      |   |   |    |   |   |   |   |   |   |   |   |   |
| Weighted-average      interest rate on average daily amount outstanding - |   |   |    |   |   |   |   |   |   |   |   |   |
|  Securities      sold under agreements to repurchase                 |   |   | -       |   |   |   | -      |   |   |   | 3.18 | % |
|  Federal      funds purchased                                        |   |   | 5.31    | %      |   |   | 5.01   | %      |   |   | 3.28 | % |
|  Federal      Home Loan Bank advances                                |   |   | 5.13    | %      |   |   | 4.76   | %      |   |   | 3.17 | % |

|                                                                                                                                             |   | 2007    |   |   | 2006    |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|---------|--------|
|                                                                                                                                             |   | 1st     |   |   | 2nd     |   |   | 3rd |   |   | 4th |   |   | 1st |   |   | 2nd |   |   | 3rd |   |   | 4th |   |
|                                                                                                                                             |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |
| Interest      income                                                                                                                             |   | $       | 27,708 |   |    | $      | 27,864 |   |   | $ | 27,472 |   |   | $ | 27,836 |   |   | $ | 24,082 |   |   | $ | 27,199 |   |   | $ | 26,272 |   |   | $ | 28,936 |   |
| Interest      expense                                                                                                                            |   |    | 13,119 |   |    |   | 12,820 |   |   |   | 12,539 |   |   |   | 12,236 |   |   |   | 9,063 |   |   |   | 10,994 |   |   |   | 11,003 |   |   |   | 13,193 |   |
| Net      interest income                                                                                                                         |   |    | 14,589 |   |    |   | 15,044 |   |   |   | 14,933 |   |   |   | 15,600 |   |   |   | 15,019 |   |   |   | 16,205 |   |   |   | 15,269 |   |   |   | 15,743 |   |
| Provision      for loan and leaselosses                                                                                                          |   |    | 1,574  |   |    |   | 627 |   |   |   | 653 |   |   |   | 1,610 |   |   |   | 592 |   |   |   | 815 |   |   |   | 788 |   |   |   | 295 |   |
| Net      interest income after provision                                                                                                         |   |    |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        for loan and lease losses                                                                                                            |   |    | 13,015 |   |    |   | 14,417 |   |   |   | 14,280 |   |   |   | 13,990 |   |   |   | 14,427 |   |   |   | 15,390 |   |   |   | 14,481 |   |   |   | 15,448 |   |
| Other      income                                                                                                                                |   |    | 1,357  |   |    |   | 1,431 |   |   |   | 1,305 |   |   |   | 1,284 |   |   |   | 1,476 |   |   |   | 1,433 |   |   |   | 1,409 |   |   |   | 1,373 |   |
| Operating      expenses (1) (2)(3)                                                                                                               |   |    | 11,815 |   |    |   | 14,566 |   |   |   | 10,832 |   |   |   | 14,700 |   |   |   | 11,873 |   |   |   | 12,476 |   |   |   | 12,481 |   |   |   | 796 |   |
| Income      before income taxes(1)      (2) (3)                                                                                                  |   |    | 2,557  |   |    |   | 1,282 |   |   |   | 4,753 |   |   |   | 574 |   |   |   | 4,030 |   |   |   | 4,347 |   |   |   | 3,409 |   |   |   | 16,025 |   |
| Provision      for income taxes(1)      (2)                                                                                                      |   |    | 810    |   |    |   | 352 |   |   |   | 1,670 |   |   |   | 104 |   |   |   | 1,264 |   |   |   | 1,383 |   |   |   | 1,024 |   |   |   | 12,646 |   |
| Net      income (1) (2) (3)                                                                                                                      |   | $       | 1,747  |   |    | $      | 930 |   |   | $ | 3,083 |   |   | $ | 470 |   |   | $ | 2,766 |   |   | $ | 2,964 |   |   | $ | 2,385 |   |   | $ | 3,379 |   |
| Basic      earnings per commonshare                                                                                                              |   | $       | 0.13   |   |    | $      | 0.07 |   |   | $ | 0.22 |   |   | $ | 0.03 |   |   | $ | 0.25 |   |   | $ | 0.27 |   |   | $ | 0.21 |   |   | $ | 0.29 |   |
| Diluted      earnings percommon      share                                                                                                       |   | $       | 0.13   |   |    | $      | 0.07 |   |   | $ | 0.22 |   |   | $ | 0.03 |   |   | $ | 0.24 |   |   | $ | 0.27 |   |   | $ | 0.20 |   |   | $ | 0.29 |   |
|                                                                                                                                             |   |    |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) 4th      quarter 2006 amounts were impacted by settlement of previously disclosed      litigation and accrual of estimated state taxes. |   |
| (2) 2007      amounts were impacted by Voluntary Exit Window program expenses (2nd      quarter) and legal fees related to the purported    |   |
|            shareholder derivative lawsuit (3rd and 4th quarters).                                                       |   |    |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (3) 4th      quarter 2007 amounts were impacted by the goodwill impairment accounting      charge.                                          |   |    |   |   |    |   |   |   |   |   |   |   |   |

----

RISK FACTORS

----

----

----

UNRESOLVED 

----

| ITEM      2.  PROPERTIES                                                                                                            |                             |                       |                                   |
|------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|----------------------------|----------------------------------------|
| The      following table sets forth certain information relating to properties      owned or used in the Company's banking activities at |
| December      31, 2007:                                                                                                                  |                             |                       |                                   |
|                                                                                                                                     |                             |                       |                                   |
| Location                                                                                                                                 | Owned      or Leased             | Lease      Expiration Date | Renewal      Terms                     |
| Main      Office:                                                                                                                        |                             |                       |                                   |
| 699      Hillside Avenue                                                                                                                 | Building      owned, land leased | 3/27/2009                  | One      ten-year renewal option       |
| New      Hyde Park, NY                                                                                                                   |                             |                       |                                   |
| Executive,      Lending and                                                                                                              |                             |                       |                                   |
| Administrative      Facilities:                                                                                                          |                             |                       |                                   |
| Two      Jericho Plaza                                                                                                                   | Leased                           | 3/31/2012                  | None                                   |
| Jericho,      NY                                                                                                                         |                             |                       |                                   |
| Nassau      County Branch Offices:                                                                                                       |                             |                       |                                   |
| 222      Old Country Road                                                                                                                | Leased                           | 4/30/2010                  | One      ten-year renewal option       |
| Mineola,      NY                                                                                                                         |                             |                       | and      two five-year renewal options |
| 339      Nassau Boulevard                                                                                                                | Owned                            | N/A                        | N/A                                    |
| Garden      City South, NY                                                                                                               |                             |                       |                                   |
| 501      North Broadway                                                                                                                  | Leased                           | 10/31/2011                 | Two      twelve-year renewal options   |
| Jericho,      NY                                                                                                                         |                             |                       |                                   |
| 135      South Street                                                                                                                    | Owned                            | N/A                        | N/A                                    |
| Oyster      Bay, NY                                                                                                                      |                             |                       |                                   |
| 2      Lincoln Avenue                                                                                                                    | Leased                           | 5/31/2009                  | None                                   |
| Rockville      Centre, NY                                                                                                                |                             |                       |                                   |
| 960      Port Washington Boulevard                                                                                                       | Leased                           | 4/24/2012                  | Four      five-year renewal options    |
| Port      Washington, NY                                                                                                                 |                             |                       |                                   |
| 1055      Old Country Road                                                                                                               | Leased                           | 6/30/2015                  | Two      five-year renewal options     |
| Westbury,      NY                                                                                                                        |                             |                       |                                   |
| Suffolk      County Branch Offices:                                                                                                      |                             |                       |                                   |
| 27      Smith Street                                                                                                                     | Leased                           | 10/31/2012                 | One      five-year renewal option      |
| Farmingdale,      NY                                                                                                                     |                             |                       |                                   |
| 740      Veterans Memorial Highway                                                                                                       | Leased                           | 6/30/2010                  | One      ten-year renewal option       |
| Hauppauge,      NY                                                                                                                       |                             |                       |                                   |
| 580      East Jericho Turnpike                                                                                                           | Leased                           | 12/31/2008                 | None                                   |
| Huntington      Station, NY                                                                                                              |                             |                       |                                   |
| 4250      Veterans Memorial Highway                                                                                                      | Leased                           | 12/31/2008                 | Two      five-year renewal options     |
| Holbrook,      NY                                                                                                                        |                             |                       |                                   |
| 234      Route 25A                                                                                                                       | Leased                           | 5/31/2010                  | One      five-year renewal option      |
| East      Setauket, NY                                                                                                                   |                             |                       |                                   |
| Queens      County Branch Offices:                                                                                                       |                             |                       |                                   |
| 49-01      Grand Avenue                                                                                                                  | Leased                           | 4/30/2011                  | One      five-year renewal option      |
| Maspeth,      NY                                                                                                                         |                             |                       |                                   |
| 75-20      Astoria Boulevard                                                                                                             | Leased                           | 5/30/2011                  | One      five-year renewal option      |
| Jackson      Heights, NY                                                                                                                 |                             |                       |                                   |
| 21-31      46th Avenue                                                                                                                   | Leased                           | 1/31/2011                  | None                                   |
| Long      Island City, NY                                                                                                                |                             |                       |                                   |
| New      York County Branch Office:                                                                                                      |                             |                       |                                   |
| 780      Third Avenue                                                                                                                    | Leased                           | 12/31/2017                 | None                                   |
| New      York, NY                                                                                                                        |                             |                       |                                   |
| Subsidiary      and Other Facilities:                                                                                                    |                             |                       |                                   |
| 501      Silverside Road                                                                                                                 | Leased                           | 7/31/2008                  | One-year      renewal options          |
| Wilmington,      DE                                                                                                                      |                             |                       |                                   |
| 100      Jericho Quadrangle                                                                                                              | Leased                           | 12/31/2009                 | None                                   |
| Jericho,      NY                                                                                                                         |                             |                       |                                   |
| 716      N. Bethlehem Pike                                                                                                               | Leased                           | 8/31/2008                  | One-year      renewal options          |
| Lower      Gwynedd, PA                                                                                                                   |                             |                       |                                   |

----

 LEGAL 

----

SUBMISSION 

MARKET 

|             |   | 2007            |   |   | 2006           |   |
|------------------|--------|-----------------|--------|--------|----------------|--------|
|             |   | High      Close |   |   | Low      Close |   |   | High      Close |   |   | Low      Close |   |
| 1st      Quarter |   | $               | 22.19  |   |           | $      | 18.60 |   |   | $ | 19.02 |   |   | $ | 14.17 |   |
| 2nd      Quarter |   | $               | 20.34  |   |           | $      | 16.67 |   |   | $ | 17.26 |   |   | $ | 14.25 |   |
| 3rd      Quarter |   | $               | 16.83  |   |           | $      | 15.00 |   |   | $ | 20.90 |   |   | $ | 17.23 |   |
| 4th      Quarter |   | $               | 16.65  |   |           | $      | 12.92 |   |   | $ | 20.10 |   |   | $ | 17.20 |   |

----

| Record      Date       | Dividend      Payment Date |   | Cash      Dividends Paid Per Common Share |   |
|------------------------|----------------------------|--------|-------------------------------------------|--------|
| November      16, 2007 | December      10, 2007     |   | $                                         | 0.15   |   |
| August      17, 2007   | September      10, 2007    |   | $                                         | 0.15   |   |
| March      23, 2007    | April      9, 2007         |   | $                                         | 0.15   |   |
|                   |                       |   |                                      |   |   |
| December      4, 2006  | December      22, 2006     |   | $                                         | 0.15   |   |
| August      25, 2006   | September      8, 2006     |   | $                                         | 0.15   |   |
| May      8, 2006       | June      9, 2006          |   | $                                         | 0.15   |   |
| December      16, 2005 | January      6, 2006       |   | $                                         | 0.15   |   |

----

|                     | 2002                                              | 2003                                              | 2004                                              | 2005                                              | 2006                                              | 2007                                              |
|--------------------------|---------------------------------------------------|---------------------------------------------------|---------------------------------------------------|---------------------------------------------------|---------------------------------------------------|---------------------------------------------------|
| State      Bancorp, Inc. |        $100.00 |        $145.61 |        $177.66 |        $133.52 |        $155.94 |        $109.19 |
| Peer      group index    |        100.00  |        132.19  |        148.50  |        137.85  |        151.32  |        123.97  |
| NASDAQ      market index |        100.00  |        150.36  |        163.00  |        166.58  |        183.68  |        201.91  |

SELECTED

----

| As      of or for the Fiscal Year Ended December 31,                                                                                                           |   | 2007   |          |   | 2006   |   |   | 2005   |   |          | 2004   |   | 2003   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------|--------|--------|--------|--------|--------|--------|---------------|--------|--------|--------|
| OPERATING      RESULTS                                                                                                                                         |   |   |          |   |   |   |   |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                                                                                                                           |   | $      | 110,880,378   |   |   |   |   |   | $      | 106,489,337   |   |   |   |   |   | $ | 83,420,469 |   |   |   |   |   | $ | 70,037,106 |   |   | $ | 64,682,876 |   |
| Interest      expense                                                                                                                                          |   | $      | 50,714,997    |   |   |   |   |   | $      | 44,252,825    |   |   |   |   |   | $ | 24,901,496 |   |   |   |   |   | $ | 12,800,553 |   |   | $ | 11,534,977 |   |
| Net      interest income                                                                                                                                       |   | $      | 60,165,381    |   |   |   |   |   | $      | 62,236,512    |   |   |   |   |   | $ | 58,518,973 |   |   |   |   |   | $ | 57,236,553 |   |   | $ | 53,147,899 |   |
| Provision      for loan and lease losses                                                                                                                       |   | $      | 4,463,500     |   |   |   |   |   | $      | 2,489,998     |   |   |   |   |   | $ | 3,650,000 |   |   |   |   |   | $ | 4,506,000 |   |   | $ | 3,935,004 |   |
| Net      interest income after provision                                                                                                                       |   |   |          |   |   |   |   |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  for      loan and lease losses                                                                                                                           |   | $      | 55,701,881    |   |   |   |   |   | $      | 59,746,514    |   |   |   |   |   | $ | 54,868,973 |   |   |   |   |   | $ | 52,730,553 |   |   | $ | 49,212,895 |   |
| Other      income                                                                                                                                              |   | $      | 5,376,000     |   |   |   |   |   | $      | 5,690,766     |   |   |   |   |   | $ | 5,810,464 |   |   |   |   |   | $ | 7,050,925 |   |   | $ | 9,142,923 |   |
| Operating      expenses                                                                                                                                        |   | $      | 51,912,861    |   |   |   |   |   | $      | 37,626,469    |   |   |   |   |   | $ | 124,640,683 |   |   |   |   |   | $ | 41,043,230 |   |   | $ | 41,089,081 |   |
| Net      income (loss)                                                                                                                                         |   | $      | 6,229,478     |   |   |   |   |   | $      | 11,493,879    |   |   |   |   |   | $ | (36,548,251 | ) |   |   |   |   | $ | 13,376,009 |   |   | $ | 12,015,173 |   |
| COMMON      SHARE DATA                                                                                                                                         |   |   |          |   |   |   |   |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      earnings (loss) per common share(1)                                                                                                                 |   | $      | 0.45          |   |   |   |   |   | $      | 1.02          |   |   |   |   |   | $ | (3.32 | ) |   |   |   |   | $ | 1.24 |   |   | $ | 1.13 |   |
| Diluted      earnings (loss) per commonshare      (1)                                                                                                          |   | $      | 0.45          |   |   |   |   |   | $      | 1.00          |   |   |   |   |   | $ | (3.32 | ) |   |   |   |   | $ | 1.20 |   |   | $ | 1.10 |   |
| Stock      dividends/splits                                                                                                                                    |   |   | -             |   |   |   |   |   |   | -             |   |   |   |   |   |   | 20 | % |   |   | (2 | ) |   |   | 5 | % |   |   | 5 | % |
| Cash      dividends per common share (1)                                                                                                                       |   | $      | 0.45          |   |   |   |   |   | $      | 0.45          |   |   |   |   |   | $ | 0.55 |   |   |   |   |   |   | $ | 0.48 |   |   | $ | 0.44 |   |
| FINANCIAL      POSITION                                                                                                                                        |   |   |          |   |   |   |   |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                                                                                              |   | $      | 1,628,014,414 |   |   |   |   |   | $      | 1,788,722,476 |   |   |   |   |   | $ | 1,598,152,513 |   |   |   |   |   |   | $ | 1,437,290,967 |   |   | $ | 1,441,000,363 |   |
| Total      loans and leases (3)                                                                                                                                |   | $      | 1,041,009,396 |   |   |   |   |   | $      | 983,724,774   |   |   |   |   |   | $ | 892,021,546 |   |   |   |   |   |   | $ | 778,191,228 |   |   | $ | 711,216,134 |   |
| Total      deposits                                                                                                                                            |   | $      | 1,329,939,116 |   |   |   |   |   | $      | 1,566,183,479 |   |   |   |   |   | $ | 1,411,573,946 |   |   |   |   |   |   | $ | 1,269,634,078 |   |   | $ | 1,216,286,903 |   |
| Total      stockholders' equity                                                                                                                                |   | $      | 113,637,668   |   |   |   |   |   | $      | 104,140,510   |   |   |   |   |   | $ | 56,422,118 |   |   |   |   |   |   | $ | 101,049,842 |   |   | $ | 94,711,522 |   |
| Weighted      average number of common                                                                                                                         |   |   |          |   |   |   |   |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  shares      outstanding (1) (4)                                                                                                                          |   |   | 13,738,101    |   |   |   |   |   |   | 11,227,278    |   |   |   |   |   |   | 10,996,601 |   |   |   |   |   |   |   | 10,827,816 |   |   |   | 10,678,935 |   |
| OTHER      DATA                                                                                                                                                |   |   |          |   |   |   |   |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return      on average total assets                                                                                                                            |   |   | 0.37          | %      |   |   |   |   |   | 0.68          | %      |   |   |   |   |   | (2.41 | %) |   |   |   |   |   |   | 0.90 | % |   |   | 0.89 | % |
| Return      on average total stockholders'equity                                                                                                               |   |   | 5.70          | %      |   |   |   |   |   | 18.39         | %      |   |   |   |   |   | (36.35 | %) |   |   |   |   |   |   | 13.75 | % |   |   | 13.18 | % |
| Tier      I leverage ratio                                                                                                                                     |   |   | 7.03          | %      |   |   |   |   |   | 6.30          | %      |   |   |   |   |   | 4.30 | % |   |   |   |   |   |   | 7.82 | % |   |   | 8.08 | % |
| Net      interest margin                                                                                                                                       |   |   | 3.82          | %      |   |   |   |   |   | 4.01          | %      |   |   |   |   |   | 4.17 | % |   |   |   |   |   |   | 4.22 | % |   |   | 4.31 | % |
| Operating      efficiency ratio (5)                                                                                                                            |   |   | 77.9          | %      |   |   | (6     | )      |   |          | 54.6   | %      |   |   | (7 | ) |   |   | 192.5 | % |   |   | (8 | ) |   |   | 64.2 | % |   |   | 70.7 | % |
| Dividend      payout ratio                                                                                                                                     |   |   | 100.09        | %      |   |   |   |   |   |          | 43.94  | %      |   |   |   |   |   |   | N/M |   |   |   | * |   |   |   | 38.98 | % |   |   | 38.68 | % |
| Average      equity to average assets                                                                                                                          |   |   | 6.63          | %      |   |   |   |   |   |          | 3.71   | %      |   |   |   |   |   |   | 6.62 | % |   |   |   |   |   |   | 6.56 | % |   |   | 6.73 | % |
|                                                                                                                                                           |   |   |          |   |   |   |   |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                           |
| (1) Retroactive      recognition has been given for stock dividends and  splits.                                                                          |
| (2) 6      for 5 stock split in 2005 effected in a manner similar to a 20% stock      dividend.                                                           |
| (3) Net      of unearned income and before allowance for loan and lease      losses.                                                                      |   |
| (4) Amount      used for earnings per common share computation.                                                                                           |   |
| (5) Operating      expenses divided by the sum of net interest income and other income      (excluding net security gains/losses).                   |   |
| (6) Ratio      includes $3.1 million of Voluntary Exit Window program expenses, $2.4      million goodwill impairment charge and $1.9 million of    legal |
| fees      related to the purported shareholder derivative lawsuit.                                                                                             |   |
| (7) Ratio      includes $12.1 million reversal of previously accrued IMN-related      expenses.                                                           |
| (8) Ratio      includes $74.2 million expense accrual related to IMN adverse jury      verdict.                                                           |   |
| * N/M      - denotes not meaningful.                                                                                                                      |   |

MANAGEMENT’S

----

| FINANCIAL      PERFORMANCE OF STATE BANCORP, INC.                           |   |   |   |   |   |   |   |         |   |
|-----------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|---------|--------|
| (dollars      in thousands, except per share data)                          |   |   |   |   |   |   |   | Over/   |   |
|                                                                        |   |   |   |   |   |   |   | (under) |   |
| As      of or for the years ended December 31,                              |   | 2007   |   |   | 2006   |   |   | 2006    |   |
| Revenue      (1)                                                            |   | $      | 65,541 |   |   | $      | 67,928 |    |   |   | (4 | )% |
| Operating      expenses                                                     |   | $      | 51,913 |   |   | $      | 37,626 |    |   |   | 38 |  % |
| Provision      for loan and lease losses                                    |   | $      | 4,464  |   |   | $      | 2,490  |    |   |   | 79 |  % |
| Net      income                                                             |   | $      | 6,229  |   |   | $      | 11,494 |    |   |   | (46 | )% |
| Net      income per share - diluted                                         |   | $      | 0.45   |   |   | $      | 1.00   |    |   |   | (55 | )% |
| Dividend      payout ratio                                                  |   |   | 100.09 | %      |   |   | 43.94  | %       |   |   | 5,615 |  bp |
| Return      on average total stockholders' equity                           |   |   | 5.70   | %      |   |   | 18.39  | %       |   |   | (1,269 | )bp |
| Tier      I leverage ratio                                                  |   |   | 7.03   | %      |   |   | 6.30   | %       |   |   | 73 |  bp |
| Tier      I risk-based capital ratio                                        |   |   | 10.04  | %      |   |   | 9.48   | %       |   |   | 56 |  bp |
| Total      risk-based capital ratio                                         |   |   | 12.11  | %      |   |   | 11.58  | %       |   |   | 53 |  bp |
|                                                                        |   |   |   |   |   |   |   |    |   |   |   |   |
| bp      - denotes basis points; 100 bp equals 1%.                           |   |   |   |   |   |   |   |    |   |   |   |   |
| (1)  Represents      net interest income plus total other income. |   |   |   |   |   |   |   |    |   |   |   |   |

----

----

| REVENUE      OF STATE BANCORP, INC.        |   |   |   |    |   |   |    |   |                                                                                                                  |
|--------------------------------------------|--------|--------|--------|---------|--------|--------|---------|--------|-----------------------------------------------------------------------------------------------------------------------|
| (dollars      in thousands)                |   |   |   |    |   |   |    | Over/  |                                                                                                                  |
|                                       |   |   |   |    |   |   | (under) |   |
| For      the years ended December 31,      |   |   | 2007   |    |   | 2006   | 2006    |   |
| Net      interest income                   |   |   |   | $       | 60,165 |   | $  | 62,237 | (3)                                                                                                                   | % |
| Service      charges on deposit accounts   |   |   | 2,099  |    |   | 2,399  | (13)    | %      |
| Net      security losses                   |   |   |   |    | (219)  |   |    | (69)   |  N/M                                                                                                             | (1) |
| Income      from bank owned life insurance |   |   | 1,116  |    |   | 1,011  | 10      | %      |
| Other      operating income                |   |   |   | 2,380   |   |   | 2,350   | 1      | %                                                                                                                     |
| Total      revenue                         |   |   |   | $  | 65,541 |   | $  | 67,928 |                    (4) | % |
|                                       |   |   |   |    |   |   |    |   |                                                                                                                  |   |   |
| (1)      N/M - denotes not meaningful.     |   |   |   |    |   |   |    |   |

----

----

----

----

| For      the Years Ended December 31,                    |   | 2007    |      |   | 2006     |   |    | 2005    |   |
|----------------------------------------------------------|--------|---------|-----------|--------|----------|--------|---------|---------|--------|
|                                                     |   | Average |      |   |     |   |    | Average |   |   | Average |   |   |   |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |
|                                                     |   | Balance |      |   | Interest |   |    | Rate    |   |   | Balance |   |   | Interest |   |   | Rate |   |   | Balance |   |   | Interest |   |   | Rate |   |
| ASSETS:                                                  |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      held tomaturity      and                 |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| securities      available for sale:                      |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                  |   | $       | 489,444   |   |     | $      | 23,913  |    |   |   | 4.89 | % |   | $ | 518,940 |   |   | $ | 23,745 |   |   |   | 4.58 | % |   | $ | 472,663 |   |   | $ | 18,028 |   |   |   | 3.81 | % |
| Tax-exempt                                               |   |    | 15,265    |   |     |   | 708     |    |   |   | 4.64 |   |   |   | 15,653 |   |   |   | 733 |   |   |   | 4.68 |   |   |   | 54,692 |   |   |   | 2,240 |   |   |   | 4.10 |   |
| Total      securities                                    |   |    | 504,709   |   |     |   | 24,621  |    |   |   | 4.88 |   |   |   | 534,593 |   |   |   | 24,478 |   |   |   | 4.58 |   |   |   | 527,355 |   |   |   | 20,268 |   |   |   | 3.84 |   |
| Federal      HomeLoan      Bank and                      |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| other      restricted stock                              |   |    | 6,414     |   |     |   | 488     |    |   |   | 7.61 |   |   |   | 2,073 |   |   |   | 109 |   |   |   | 5.26 |   |   |   | 4,139 |   |   |   | 181 |   |   |   | 4.37 |   |
| Federal      fundssold,      securities                  |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| purchased      under agreements to                       |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| resell      and interest-bearing deposits                |   |    | 70,629    |   |     |   | 3,491   |    |   |   | 4.94 |   |   |   | 87,675 |   |   |   | 4,377 |   |   |   | 4.99 |   |   |   | 59,000 |   |   |   | 1,740 |   |   |   | 2.95 |   |
| Loans      and leases(net      of unearned income): |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                  |   |    | 998,948   |   |     |   | 82,238  |    |   |   | 8.23 |   |   |   | 931,798 |   |   |   | 77,447 |   |   |   | 8.31 |   |   |   | 824,210 |   |   |   | 61,499 |   |   |   | 7.46 |   |
| Tax-exempt                                               |   |    | 4,559     |   |     |   | 367     |    |   |   | 8.05 |   |   |   | 5,223 |   |   |   | 426 |   |   |   | 8.16 |   |   |   | 6,120 |   |   |   | 500 |   |   |   | 8.17 |   |
| Total      loans andleases      - net                    |   |    | 1,003,507 |   |     |   | 82,605  |    |   |   | 8.23 |   |   |   | 937,021 |   |   |   | 77,873 |   |   |   | 8.31 |   |   |   | 830,330 |   |   |   | 61,999 |   |   |   | 7.47 |   |
| Total      interest-earning      assets                  |   |    | 1,585,259 |   |     | $      | 111,205 |    |   |   | 7.01 | % |   |   | 1,561,362 |   |   | $ | 106,837 |   |   |   | 6.84 | % |   |   | 1,420,824 |   |   | $ | 84,188 |   |   |   | 5.93 | % |
| Allowance      forloan      and lease losses             |   |    | (16,057   | )      |     |   |    |    |   |   |   |   |   |   | (16,579 | ) |   |   |   |   |   |   |   |   |   |   | (14,198 | ) |   |   |   |   |   |   |   |   |
| Cash      and duefrom      banks                         |   |    | 42,115    |   |     |   |    |    |   |   |   |   |   |   | 46,215 |   |   |   |   |   |   |   |   |   |   |   | 48,295 |   |   |   |   |   |   |   |   |   |
| Bank      premisesand      equipment - net               |   |    | 5,847     |   |     |   |    |    |   |   |   |   |   |   | 6,305 |   |   |   |   |   |   |   |   |   |   |   | 6,196 |   |   |   |   |   |   |   |   |   |
| Other      assets                                        |   |    | 81,131    |   |     |   |    |    |   |   |   |   |   |   | 85,337 |   |   |   |   |   |   |   |   |   |   |   | 56,530 |   |   |   |   |   |   |   |   |   |
| Total      Assets                                        |   | $       | 1,698,295 |   |     |   |    |    |   |   |   |   |   | $ | 1,682,640 |   |   |   |   |   |   |   |   |   |   | $ | 1,517,647 |   |   |   |   |   |   |   |   |   |
|                                                     |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES      AND STOCKHOLDERS' EQUITY:               |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings      and timedeposits:                           |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings                                                  |   | $       | 620,054   |   |     | $      | 18,486  |    |   |   | 2.98 | % |   | $ | 656,802 |   |   | $ | 17,600 |   |   |   | 2.68 | % |   | $ | 703,173 |   |   | $ | 12,476 |   |   |   | 1.77 | % |
| Time                                                     |   |    | 485,500   |   |     |   | 23,769  |    |   |   | 4.90 |   |   |   | 509,368 |   |   |   | 23,630 |   |   |   | 4.64 |   |   |   | 289,897 |   |   |   | 8,739 |   |   |   | 3.01 |   |
| Total      savings and      time deposits                |   |    | 1,105,554 |   |     |   | 42,255  |    |   |   | 3.82 |   |   |   | 1,166,170 |   |   |   | 41,230 |   |   |   | 3.54 |   |   |   | 993,070 |   |   |   | 21,215 |   |   |   | 2.14 |   |
| Federal      fundspurchased                              |   |    | 7,196     |   |     |   | 382     |    |   |   | 5.31 |   |   |   | 2,997 |   |   |   | 150 |   |   |   | 5.01 |   |   |   | 6,341 |   |   |   | 208 |   |   |   | 3.28 |   |
| Securities      soldunder                                |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| agreements      to repurchase                            |   |    | -         |   |     |   | -       |    |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 16,092 |   |   |   | 512 |   |   |   | 3.18 |   |
| Other      temporaryborrowings                           |   |    | 103,138   |   |     |   | 5,334   |    |   |   | 5.17 |   |   |   | 10,392 |   |   |   | 570 |   |   |   | 5.48 |   |   |   | 47,626 |   |   |   | 1,533 |   |   |   | 3.22 |   |
| Subordinatednotes                                        |   |    | 10,000    |   |     |   | 922     |    |   |   | 9.22 |   |   |   | 5,671 |   |   |   | 516 |   |   |   | 9.10 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Juniorsubordinated      debentures                       |   |    | 20,620    |   |     |   | 1,822   |    |   |   | 8.84 |   |   |   | 20,620 |   |   |   | 1,787 |   |   |   | 8.67 |   |   |   | 20,620 |   |   |   | 1,434 |   |   |   | 6.95 |   |
| Total      interest-bearing      liabilities             |   |    | 1,246,508 |   |     |   | 50,715  |    |   |   | 4.07 |   |   |   | 1,205,850 |   |   |   | 44,253 |   |   |   | 3.67 |   |   |   | 1,083,749 |   |   |   | 24,902 |   |   |   | 2.30 |   |
| Demand      deposits                                     |   |    | 319,655   |   |     |   |    |    |   |   |   |   |   |   | 324,551 |   |   |   |   |   |   |   |   |   |   |   | 310,720 |   |   |   |   |   |   |   |   |   |
| Other      liabilities                                   |   |    | 22,894    |   |     |   |    |    |   |   |   |   |   |   | 89,751 |   |   |   |   |   |   |   |   |   |   |   | 22,644 |   |   |   |   |   |   |   |   |   |
| Total      liabilities                                   |   |    | 1,589,057 |   |     |   |    |    |   |   |   |   |   |   | 1,620,152 |   |   |   |   |   |   |   |   |   |   |   | 1,417,113 |   |   |   |   |   |   |   |   |   |
| Stockholders'equity                                      |   |    | 109,238   |   |     |   |    |    |   |   |   |   |   |   | 62,488 |   |   |   |   |   |   |   |   |   |   |   | 100,534 |   |   |   |   |   |   |   |   |   |
| Total      Liabilitiesand                                |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stockholders'      Equity                                |   | $       | 1,698,295 |   |     |   |    |    |   |   |   |   |   | $ | 1,682,640 |   |   |   |   |   |   |   |   |   |   | $ | 1,517,647 |   |   |   |   |   |   |   |   |   |
| Net      interestincome/margin                           |   |    |      |   |     |   | 60,490  |    |   |   | 3.82 | % |   |   |   |   |   |   | 62,584 |   |   |   | 4.01 | % |   |   |   |   |   |   | 59,286 |   |   |   | 4.17 | % |
| Less      tax-equivalent      basis                      |   |    |      |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| adjustment                                               |   |    |      |   |     |   | (325    | )       |   |   |   |   |   |   |   |   |   |   | (347 | ) |   |   |   |   |   |   |   |   |   |   | (767 | ) |   |   |   |   |
| Net      InterestIncome                                  |   |    |      |   |     | $      | 60,165  |    |   |   |   |   |   |   |   |   |   | $ | 62,237 |   |   |   |   |   |   |   |   |   |   | $ | 58,519 |   |   |   |   |   |

----

|                                                                              |   | Year      2007 over 2006 |   |   | Year      2006 over 2005 |   |
|-----------------------------------------------------------------------------------|--------|--------------------------|--------|--------|--------------------------|--------|
|                                                                              |   | Due      to Change in:   |   |   |                     |   |   | Due      to Change in: |   |   |   |   |
|                                                                              |   | Average                  |   |   | Average                  |   |   | Net      Increase |   |   | Average |   |   | Average |   |   | Net      Increase |   |
|                                                                              |   | Volume                   |   |   | Rate                     |   |   | (Decrease) |   |   | Volume |   |   | Rate |   |   | (Decrease) |   |
| INTEREST      INCOME:                                                             |   |                     |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      held to maturity andsecurities      available for sale:           |   |                     |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                           |   | $                        | (1,391 | )      |                     | $      | 1,559 |   |   | $ | 168 |   |   | $ | 1,881 |   |   | $ | 3,836 |   |   | $ | 5,717 |   |
| Tax-exempt                                                                        |   |                     | (18    | )      |                     |   | (7 | ) |   |   | (25 | ) |   |   | (1,790 | ) |   |   | 283 |   |   |   | (1,507 | ) |
| Total      securities                                                             |   |                     | (1,409 | )      |                     |   | 1,552 |   |   |   | 143 |   |   |   | 91 |   |   |   | 4,119 |   |   |   | 4,210 |   |
| Federal      Home Loan Bank and otherrestricted      stock                        |   |                     | 312    |   |                     |   | 67 |   |   |   | 379 |   |   |   | (103 | ) |   |   | 31 |   |   |   | (72 | ) |
| Federal      funds sold, securitiespurchased      under agreements                |   |                     |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         to resell and interest-bearing          deposits |   |                     | (843   | )      |                     |   | (43 | ) |   |   | (886 | ) |   |   | 1,087 |   |   |   | 1,550 |   |   |   | 2,637 |   |
| Loans      and leases (net of unearned income):                                   |   |                     |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                           |   |                     | 5,534  |   |                     |   | (743 | ) |   |   | 4,791 |   |   |   | 8,516 |   |   |   | 7,432 |   |   |   | 15,948 |   |
| Tax-exempt                                                                        |   |                     | (54    | )      |                     |   | (5 | ) |   |   | (59 | ) |   |   | (73 | ) |   |   | (1 | ) |   |   | (74 | ) |
| Total      loans and leases - net                                                 |   |                     | 5,480  |   |                     |   | (748 | ) |   |   | 4,732 |   |   |   | 8,443 |   |   |   | 7,431 |   |   |   | 15,874 |   |
| Total      Interest Income                                                        |   |                     | 3,540  |   |                     |   | 828 |   |   |   | 4,368 |   |   |   | 9,518 |   |   |   | 13,131 |   |   |   | 22,649 |   |
| INTEREST      EXPENSE:                                                            |   |                     |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings      and time deposits:                                                   |   |                     |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings                                                                           |   |                     | (1,022 | )      |                     |   | 1,908 |   |   |   | 886 |   |   |   | (871 | ) |   |   | 5,995 |   |   |   | 5,124 |   |
| Time                                                                              |   |                     | (1,135 | )      |                     |   | 1,274 |   |   |   | 139 |   |   |   | 8,699 |   |   |   | 6,192 |   |   |   | 14,891 |   |
| Total      savings and time deposits                                              |   |                     | (2,157 | )      |                     |   | 3,182 |   |   |   | 1,025 |   |   |   | 7,828 |   |   |   | 12,187 |   |   |   | 20,015 |   |
| Federal      funds purchased                                                      |   |                     | 222    |   |                     |   | 10 |   |   |   | 232 |   |   |   | (139 | ) |   |   | 81 |   |   |   | (58 | ) |
| Securities      sold under agreements to repurchase                               |   |                     | -      |   |                     |   | - |   |   |   | - |   |   |   | (256 | ) |   |   | (256 | ) |   |   | (512 | ) |
| Other      borrowed funds                                                         |   |                     | 4,798  |   |                     |   | (34 | ) |   |   | 4,764 |   |   |   | (1,642 | ) |   |   | 679 |   |   |   | (963 | ) |
| Subordinated      notes                                                           |   |                     | 399    |   |                     |   | 7 |   |   |   | 406 |   |   |   | 258 |   |   |   | 258 |   |   |   | 516 |   |
| Junior      subordinated debentures                                               |   |                     | -      |   |                     |   | 35 |   |   |   | 35 |   |   |   | - |   |   |   | 353 |   |   |   | 353 |   |
| Total      Interest Expense                                                       |   |                     | 3,262  |   |                     |   | 3,200 |   |   |   | 6,462 |   |   |   | 6,049 |   |   |   | 13,302 |   |   |   | 19,351 |   |
| Change      in Net Interest Income (Tax-equivalent      Basis)                    |   | $                        | 278    |   |                     | $      | (2,372 | ) |   | $ | (2,094 | ) |   | $ | 3,469 |   |   | $ | (171 | ) |   | $ | 3,298 |   |

----

| The      following table summarizes the components of net interest margin on a      quarterly basis for 2007. |   |         |   |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------------|--------|--------|
|                                                                                                          |   |         |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | 4th      Qtr |   |   | 3rd      Qtr |   |   | 2nd      Qtr |   |   | 1st      Qtr |   |
| Interest-earning      assets:                                                                                 |   |         |   |   |   |   |   |   |   |   |   |   |
| Securities                                                                                                    |   |         | 4.97   | %      |   |   | 4.95 | % |   |   | 4.84 | % |   |   | 4.76 | % |
| Federal      Home Loan Bank and other restricted stock                                                        |   |         | 7.69   |   |   |   | 10.79 |   |   |   | 4.11 |   |   |   | 5.34 |   |
| Federal      funds sold                                                                                       |   |         | 3.84   |   |   |   | - |   |   |   | 4.94 |   |   |   | 5.20 |   |
| Securities      purchased under agreements to resell                                                          |   |         | 4.49   |   |   |   | 4.91 |   |   |   | 5.30 |   |   |   | 5.30 |   |
| Interest-bearing      deposits                                                                                |   |         | 4.47   |   |   |   | 4.92 |   |   |   | 4.96 |   |   |   | 4.82 |   |
| Loans      and leases                                                                                         |   |         | 8.05   |   |   |   | 8.23 |   |   |   | 8.34 |   |   |   | 8.31 |   |
| Total      interest-earning assets                                                                            |   |         | 6.90   | %      |   |   | 7.13 | % |   |   | 7.07 | % |   |   | 6.97 | % |
| Interest-bearing      liabilities:                                                                            |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings      deposits                                                                                         |   |         | 2.82   | %      |   |   | 2.98 | % |   |   | 3.04 | % |   |   | 3.09 | % |
| Time      deposits                                                                                            |   |         | 4.71   |   |   |   | 4.91 |   |   |   | 4.88 |   |   |   | 5.03 |   |
| Total      savings and time deposits                                                                          |   |         | 3.58   |   |   |   | 3.82 |   |   |   | 3.81 |   |   |   | 4.05 |   |
| Federal      funds purchased                                                                                  |   |         | 4.83   |   |   |   | 5.38 |   |   |   | 5.52 |   |   |   | 5.59 |   |
| Other      temporary borrowings                                                                               |   |         | 4.76   |   |   |   | 5.28 |   |   |   | 5.52 |   |   |   | 5.91 |   |
| Subordinated      notes                                                                                       |   |         | 9.16   |   |   |   | 9.16 |   |   |   | 9.19 |   |   |   | 9.37 |   |
| Junior      subordinated debentures                                                                           |   |         | 8.47   |   |   |   | 8.99 |   |   |   | 8.93 |   |   |   | 8.95 |   |
| Total      interest-bearing liabilities                                                                       |   |         | 3.84   | %      |   |   | 4.15 | % |   |   | 4.11 | % |   |   | 4.18 | % |
|                                                                                                          |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest margin - tax-equivalent basis                                                               |   |         | 3.87   | %      |   |   | 3.89 | % |   |   | 3.82 | % |   |   | 3.68 | % |

----

----

----

----

| TABLE      I                                                                                                                                                     |   | Analysis      of Non-Performing Assets at December 31, |      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|-----------|
| (Dollars      in thousands)                                                                                                                                      |   | 2007                                                   |      |   | 2006 |   |   | 2005 |   |   | 2004 |   |   | 2003 |   |
| Non-accrual      loans and leases                                                                                                                                |   | $                                                      | 5,792     |   |   | $ | 2,177 |   |   | $ | 3,069 |   |   | $ | 5,274 |   |   | $ | 8,666 |   |
| Other      real estate                                                                                                                                           |   |                                                   | -         |   |   |   | - |   |   |   | - |   |   |   | 2,650 |   |   |   | 2,650 |   |
| Total      non-performing assets                                                                                                                                 |   | $                                                      | 5,792     |   |   | $ | 2,177 |   |   | $ | 3,069 |   |   | $ | 7,924 |   |   | $ | 11,316 |   |
| Loans      and leases 90 days or more past due and stillaccruing      interest                                                                                   |   | $                                                      | 28        |   |   | $ | 13 |   |   | $ | 281 |   |   | $ | 89 |   |   | $ | 149 |   |
| Total      loans and leases outstanding                                                                                                                          |   | $                                                      | 1,041,009 |   |   | $ | 983,725 |   |   | $ | 892,022 |   |   | $ | 778,191 |   |   | $ | 711,216 |   |
| Allowance      for loan and lease losses                                                                                                                         |   | $                                                      | 14,705    |   |   | $ | 16,412 |   |   | $ | 15,717 |   |   | $ | 12,020 |   |   | $ | 10,732 |   |
| Key      ratios:                                                                                                                                                 |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance      for loan and lease losses as a percent of totalloans      and leases                                                                              |   |                                                   | 1.4       | % |   |   | 1.7 | % |   |   | 1.8 | % |   |   | 1.5 | % |   |   | 1.5 | % |
| Non-accrual      loans and leases as a percent of total loansand      leases                                                                                     |   |                                                   | 0.6       | % |   |   | 0.2 | % |   |   | 0.3 | % |   |   | 0.7 | % |   |   | 1.2 | % |
| Non-performing      assets as a percent of total                                                                                                                 |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   loans and leases and other      real estate (1)                                                                                                           |   |                                                   | 0.6       | % |   |   | 0.2 | % |   |   | 0.3 | % |   |   | 1.0 | % |   |   | 1.6 | % |
| Allowance      for loan and lease losses as a percent of non-accrual                                                                                             |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        loans and leases                                                                                                                                     |   |                                                   | 254       | % |   |   | 754 | % |   |   | 512 | % |   |   | 228 | % |   |   | 124 | % |
| Allowance      for loan and lease losses as a percent ofnon-accrual      loans                                                                                   |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  and      leases, and loans and leases 90 days or more past due                                                                                             |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        and still accruing interest                                                                                                                          |   |                                                   | 253       | % |   |   | 749 | % |   |   | 469 | % |   |   | 224 | % |   |   | 122 | % |
|                                                                                                                                                             |   |                                                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)      For purposes of calculating this ratio, non-performing assets excludes      loans and leases 90 days or more past due and still accruing      interest. |

----

----

| OPERATING      EXPENSES OF STATE BANCORP, INC. |   |   |    |   |    |    |    |
|------------------------------------------------|--------|--------|---------|--------|---------|---------|---------|
| (dollars      in thousands)                    |   |   |    |   |    |    |    | Over/ |   |
|                                           |   |   |    |   |    |    | (under) |   |
| For      the years ended December 31,          |   |   | 2007    |   |    | 2006    | 2006    |   |
| Salaries      and other employee benefits      |   | $      | 30,404  |   | $  | 27,095  | 12      | % |
| Occupancy                                      |   |   |    |   | 5,395   |    |    | 4,968 | 9 | % |
| Equipment                                      |   |   |    |   | 1,346   |    |    | 1,227 | 10 | % |
| Legal                                          |   |   |    |   |    | 2,738   |    |   | (5,544) |  N/M | (1) |
| Marketing      and advertising                 |   |   |    | 1,257  |    |    | 1,743   | (28) | % |
| Credit      and collection                     |   |   |    | 903    |    |    | 829     | 9 | % |
| Audit      and assessment                      |   |   |    | 1,252  |    |    | 1,558   | (20) | % |
| Goodwill      impairment                       |   |   |    |   | 2,391   |    |    |                      - |  N/M | (1) |
| Other      operating expenses                  |   |   |    | 6,227  |    |    | 5,750   | 8 | % |
| Total      operating expenses                  |   |   | $  | 51,913 |    | $  | 37,626  | 38 | % |
|                                           |   |   |    |   |    |    |    |   |   |   |   |
| (1)      N/M - denotes not meaningful.         |   |   |    |   |    |    |    |   |

----

----

----

----

| 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, 2007.           |   |                                       |    |   |
|                                                                                                                     |   |                                       |    |   |           |   |    |           |   |   |           |   |   |           |   |   |      |   |
|                                                                                                                     |   | Payments      due by period (in thousands) |    |   |           |   |
|                                                                                                                     |   |                                       |    |   | Less      than |   |    |           |   |   |           |   |   | More      than |   |   | Footnote  |   |
| Contractual      Obligations                                                                                             |   | Total                                      |    |   | 1      year    |   |    | 1-3      years |   |   | 3-5      years |   |   | 5      years   |   |   | reference |   |
| Leases      covering various equipment,                                                                                  |   |                                       |    |   |           |   |    |           |   |   |           |   |   |           |   |   |      |   |
| branches,      office space and land                                                                                     |   | $                                          | 14,251  |   |           | $      | 3,242   |           |   | $      | 5,651          |   |   | $              | 3,032  |   |      | $      | 2,326 |   |   |   | 12 |   |
| Time      deposits                                                                                                       |   |                                       | 430,475 |   |           |   | 393,024 |           |   |   | 22,275         |   |   |           | 15,176 |   |      |   | - |   |   |   | 6 |   |
| FHLB      borrowings                                                                                                     |   |                                       | 139,000 |   |           |   | 139,000 |           |   |   | -              |   |   |           | -      |   |      |   | - |   |   |   | 7 |   |
| Obligations      under equipment lease                                                                                   |   |                                       |    |   |           |   |    |           |   |   |           |   |   |           |   |   |      |   |   |   |   |   |   |   |
| financing                                                                                                                |   |                                       | 31      |   |           |   | 25      |           |   |   | 6              |   |   |           | -      |   |      |   | - |   |   |   | 7 |   |
| Subordinated      notes                                                                                                  |   |                                       | 10,000  |   |           |   | -       |           |   |   | -              |   |   |           | -      |   |      |   | 10,000 |   |   |   | 8 |   |
| Junior      subordinated debentures                                                                                      |   |                                       | 20,620  |   |           |   | -       |           |   |   | -              |   |   |           | -      |   |      |   | 20,620 |   |   |   | 8 |   |
| Total                                                                                                                    |   | $                                          | 614,377 |   |           | $      | 535,291 |           |   | $      | 27,932         |   |   | $              | 18,208 |   |      | $      | 32,946 |   |   |   |   |   |

----

| TABLE      II                            |   |       |             |   |                                         |   |             |   |   |   |   |   |        |
|------------------------------------------|--------|------------|------------------|--------|----------------------------------------------|--------|------------------|--------|--------|--------|--------|--------|-------------|
|                                     |   |       |             |   |                                         |   |             |   |   |   |   |   |        |
|                                     |   | Regulatory |             |   | The      Company's Ratios as of December 31, |   |             |
|                                     |   | Minimum    |             |   | 2007                                         |   |             | 2006   |   |   | 2005   |   |        |
| Tier      I Leverage                     |   |       | 3.00      - 4.00 | %      |                                         |   | 7.03             | %      |   |   | 6.30   | %      |        |   | 4.30 | % |   |
| Tier      I Capital/Risk-Weighted Assets |   |       | 4.00             | %      |                                         |   | 10.04            | %      |   |   | 9.48   | %      |        |   | 6.00 | % |   |
| Total      Capital/Risk-Weighted Assets  |   |       | 8.00             | %      |                                         |   | 12.11            | %      |   |   | 11.58  | %      |        |   | 7.25 | % |   |
|                                     |   |       |             |   |                                         |   |             |   |   |   |   |   |        |   |   |   |   |
|                                     |   |       |             |   |                                         |   |             |   |   |   |   |   |        |   |   |   |   |
|                                     |   |       |             |   |                                         |   |             |   |   |   |   |   |        |   |   |   | Regulatory |
|                                     |   |       |             |   |                                         |   |             |   |   |   |   |   |        |   |   |   | Criteria      for a |
|                                     |   | Regulatory |             |   | The      Bank's Ratios as of December 31,    |   | Well-Capitalized |
|                                     |   | Minimum    |             |   | 2007                                         |   |             | 2006   |   |   | 2005   |   | Institution |
| Tier      I Leverage                     |   |       | 3.00      - 5.00 | %      |                                         |   | 7.43             | %      |   |   | 6.69   | %      |        |   | 4.27 | % | 5.00% |
| Tier      I Capital/Risk-Weighted Assets |   |       | 4.00             | %      |                                         |   | 10.62            | %      |   |   | 10.07  | %      |        |   | 5.96 | % | 6.00% |
| Total      Capital/Risk-Weighted Assets  |   |       | 8.00             | %      |                                         |   | 11.85            | %      |   |   | 11.32  | %      |        |   | 7.21 | % | 10.00% |

----

----

----

QUANTITATIVE 

----

| %      Change in Net Interest Income |
|--------------------------------------|
| 12      Month Interest Rate Changes  |
| Basis      Points                    |
|                                 |   |   |   |   |   |   |   |   |   |   |   |   |
|                                 |   | December      31, 2007 |   | December      31, 2006 |
| Time      Horizon                    |   | Down      200 | Down      100 | Base      Flat | Up      100 | Up      200 |   | Down      200 | Down      100 | Base      Flat | Up      100 | Up      200 |
| Year      One                        |   | -1.1% | -0.6% | 0.0% | 0.8% | 0.8% |   | 0.4% | 0.7% | 0.0% | -0.8% | -2.5% |
| Year      Two                        |   | -4.3% | -3.5% | -1.9% | -0.3% | -0.3% |   | 6.0% | 6.9% | 6.2% | 5.6% | 3.6% |

----

| MVPE      Variability                   |
|-----------------------------------------|
| Immediate      Interest Rate Shocks     |
| Basis      Points                       |
|                                    |   |   |   |   |   |   |   |   |   |   |   |   |
|                                    |   | December      31, 2007 |   | December      31, 2006 |
|                                    |   | Down      200 | Down      100 | Base      Flat | Up      100 | Up      200 |   | Down      200 | Down      100 | Base      Flat | Up      100 | Up      200 |
| %      Change in MVPE (1)               | -3.7% | -0.9% | 0.0% | -2.6% | -3.8% |   | -0.4% | 0.6% | 0.0% | -2.0% | -5.1% |
| MVPE      Ratio                         |   | 14.1% | 14.9% | 15.3% | 14.8% | 14.8% |   | 13.0% | 13.3% | 13.4% | 13.1% | 12.6% |
|                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)      Assumes 40% marginal tax rate. |   |   |   |   |   |   |   |   |   |

----

FINANCIAL STATEMENTS 

----

| CONSOLIDATED      BALANCE SHEETS                                                       |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |
|----------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| December      31, 2007 and 2006                                                        |                                                                                                                                                                                                          |          | 2007                                                                                                                                                                                                          |                                                                                                                                                                                                          |          | 2006                                                                                                                                                                                                          |
| ASSETS:                                                                                |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |
| Cash      and due from banks                                                           |                                                                                                                                                                                                          | $             | 35,380,214                                                                                                                                                                                                    |                                                                                                                                                                                                          | $             | 46,210,873                                                                                                                                                                                                    |
| Federal      funds sold                                                                |                                                                                                                                                                                                          |          |                                   - |                                                                                                                                                                                                          |          |                  29,000,000                                                                                              |
| Securities      purchased under agreements to resell                                   |                                                                                                                                                                                                          |          |                  61,000,000                                                                                              |                                                                                                                                                                                                          |          | 131,000,000                                                                                                                                                                                                   |
| Total      cash and cash equivalents                                                   |                                                                                                                                                                                                          |          | 96,380,214                                                                                                                                                                                                    |                                                                                                                                                                                                          |          | 206,210,873                                                                                                                                                                                                   |
| Securities      held to maturity (estimated fair value of $6,361,036 in    2006)       |                                   - |          |                                                                                                                                                                                                          | 6,372,080                                                                                                                                                                                                     |
| Securities      available for sale - at estimated fair value                           |                                                                                                                                                                                                          |          | 401,229,235                                                                                                                                                                                                   |                                                                                                                                                                                                          |          | 511,408,685                                                                                                                                                                                                   |
| Federal      Home Loan Bank and other restricted stock                                 |                                                                                                                                                                                                          |          | 8,053,643                                                                                                                                                                                                     |                                                                                                                                                                                                          |          | 1,708,343                                                                                                                                                                                                     |
| Loans      and leases (net of allowance for loan and lease losses of                   |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |          |
| $14,704,864      in 2007 and $16,411,925 in 2006)                                      |                                                                                                                                                                                                          |          | 1,026,304,532                                                                                                                                                                                                 |                                                                                                                                                                                                          |          | 967,312,849                                                                                                                                                                                                   |
| Bank      premises and equipment - net                                                 |                                                                                                                                                                                                          |          | 5,777,493                                                                                                                                                                                                     |                                                                                                                                                                                                          |          | 6,043,450                                                                                                                                                                                                     |
| Bank      owned life insurance                                                         |                                                                                                                                                                                                          |          | 29,006,619                                                                                                                                                                                                    |                                                                                                                                                                                                          |          | 27,891,017                                                                                                                                                                                                    |
| Net      deferred income taxes                                                         |                                                                                                                                                                                                          |          | 17,494,843                                                                                                                                                                                                    |                                                                                                                                                                                                          |          | 36,665,263                                                                                                                                                                                                    |
| Receivable      - current income taxes                                                 |                                                                                                                                                                                                          |          | 14,034,377                                                                                                                                                                                                    |                                                                                                                                                                                                          |          |                                   - |
| Receivable      - securities sales/calls                                               |                                                                                                                                                                                                          |          | 14,822,820                                                                                                                                                                                                    |                                                                                                                                                                                                          |          |                    5,068,750                                                                                   |
| Other      assets                                                                      |                                                                                                                                                                                                          |          | 14,910,638                                                                                                                                                                                                    |                                                                                                                                                                                                          |          | 20,041,166                                                                                                                                                                                                    |
| TOTAL      ASSETS                                                                      |                                                                                                                                                                                                          | $             | 1,628,014,414                                                                                                                                                                                                 |                                                                                                                                                                                                          | $             | 1,788,722,476                                                                                                                                                                                                 |
| LIABILITIES:                                                                           |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |
| Deposits:                                                                              |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |
| Demand                                                                                 |                                                                                                                                                                                                          | $             | 332,464,460                                                                                                                                                                                                   |                                                                                                                                                                                                          | $             | 316,618,448                                                                                                                                                                                                   |
| Savings                                                                                |                                                                                                                                                                                                          |          | 566,999,841                                                                                                                                                                                                   |                                                                                                                                                                                                          |          | 621,969,615                                                                                                                                                                                                   |
| Time                                                                                   |                                                                                                                                                                                                          |          | 430,474,815                                                                                                                                                                                                   |                                                                                                                                                                                                          |          | 627,595,416                                                                                                                                                                                                   |
| Total      deposits                                                                    |                                                                                                                                                                                                          |          | 1,329,939,116                                                                                                                                                                                                 |                                                                                                                                                                                                          |          | 1,566,183,479                                                                                                                                                                                                 |
| Other      temporary borrowings                                                        |                                                                                                                                                                                                          |          | 139,031,328                                                                                                                                                                                                   |                                                                                                                                                                                                          |          | 56,400                                                                                                                                                                                                        |
| Subordinated      notes                                                                |                                                                                                                                                                                                          |          |                  10,000,000                                                                                              |                                                                                                                                                                                                          |          |                  10,000,000                                                                                              |
| Junior      subordinated debentures                                                    |                                                                                                                                                                                                          |          | 20,620,000                                                                                                                                                                                                    |                                                                                                                                                                                                          |          | 20,620,000                                                                                                                                                                                                    |
| Accrued      legal expenses                                                            |                                                                                                                                                                                                          |          | 700,839                                                                                                                                                                                                       |                                                                                                                                                                                                          |          | 66,050,208                                                                                                                                                                                                    |
| Other      accrued expenses and liabilities                                            |                                                                                                                                                                                                          |          | 14,085,463                                                                                                                                                                                                    |                                                                                                                                                                                                          |          | 21,671,879                                                                                                                                                                                                    |
| Total      liabilities                                                                 |                                                                                                                                                                                                          |          | 1,514,376,746                                                                                                                                                                                                 |                                                                                                                                                                                                          |          | 1,684,581,966                                                                                                                                                                                                 |
| COMMITMENTS      AND CONTINGENT LIABILITIES                                            |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |          |
| STOCKHOLDERS'      EQUITY:                                                             |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |
| Preferred      stock, $0.01 par value, authorized 250,000 shares; 0 shares      issued |                                   - |          |                                                                                                                                                                                                          |                                   - |
| Common      stock, $5.00 par value, authorized 20,000,000 shares;                      |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |          |
| issued      14,996,348 shares in 2007 and 14,604,203 shares in 2006;                   |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |
| outstanding      14,008,696 shares in 2007 and 13,616,551 shares in 2006               | 74,981,740                                                                                                                                                                                                    |          |                                                                                                                                                                                                          | 73,021,015                                                                                                                                                                                                    |
| Surplus                                                                                |                                                                                                                                                                                                          |          | 86,654,142                                                                                                                                                                                                    |                                                                                                                                                                                                          |          | 83,767,505                                                                                                                                                                                                    |
| Retained      deficit                                                                  |                                                                                                                                                                                                          |          | (32,164,263)                                                                                                                                                                                                  |                                                                                                                                                                                                          |          | (32,158,439)                                                                                                                                                                                                  |
| Treasury      stock (987,652 shares in 2007 and 2006)                                  |                                                                                                                                                                                                          |          | (16,646,426)                                                                                                                                                                                                  |                                                                                                                                                                                                          |          | (16,646,426)                                                                                                                                                                                                  |
| Accumulated      other comprehensive income (loss) (net of taxes of                    |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |          |
| $534,913      in 2007 and ($2,118,436) in 2006)                                        |                                                                                                                                                                                                          |          | 812,475                                                                                                                                                                                                       |                                                                                                                                                                                                          |          | (3,843,145)                                                                                                                                                                                                   |
| Total      stockholders' equity                                                        |                                                                                                                                                                                                          |          | 113,637,668                                                                                                                                                                                                   |                                                                                                                                                                                                          |          | 104,140,510                                                                                                                                                                                                   |
| TOTAL      LIABILITIES AND STOCKHOLDERS' EQUITY                                        | $                                                                                                                                                                                                             | 1,628,014,414 |                                                                                                                                                                                                          | $                                                                                                                                                                                                             | 1,788,722,476 |
|                                                                                   |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |
| See      Notes to Consolidated Financial Statements.                                   |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |          |                                                                                                                                                                                                          |

----

| CONSOLIDATED      STATEMENTS OF INCOME                                         |   |   |        |   |   |   |        |   |   |
|--------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|-------------|--------|--------|
| For      the Years Ended December 31, 2007, 2006 and 2005                      |   | 2007   |        |   | 2006   |   |        | 2005   |   |
| INTEREST      INCOME:                                                          |   |   |        |   |   |   |        |   |   |
| Interest      and fees on loans and leases                                     |   | $      | 82,489,409  |   |   | $      | 77,737,172  |   |   | $ | 61,836,169 |   |
| Federal      funds sold and securities purchased under agreements to    resell |   |   | 3,388,753   |   |   |   | 4,319,772   |   |   |   | 1,613,849 |   |
| Securities      held to maturity - taxable                                     |   |   | 80,541      |   |   |   | 412,737     |   |   |   | 537,926 |   |
| Securities      available for sale - taxable                                   |   |   | 23,816,124  |   |   |   | 23,314,553  |   |   |   | 17,561,509 |   |
| Securities      available for sale - tax-exempt                                |   |   | 498,961     |   |   |   | 500,617     |   |   |   | 1,614,016 |   |
| Securities      available for sale - dividends                                 |   |   | 119,000     |   |   |   | 95,861      |   |   |   | 76,500 |   |
| Dividends      on Federal Home Loan Bank and other restricted stock            |   |   | 487,590     |   |   |   | 108,625     |   |   |   | 180,500 |   |
| Total      interest income                                                     |   |   | 110,880,378 |   |   |   | 106,489,337 |   |   |   | 83,420,469 |   |
| INTEREST      EXPENSE:                                                         |   |   |        |   |   |   |        |   |   |   |   |   |
|        Deposits                                                           |   |   | 42,254,508  |   |   |   | 41,230,176  |   |   |   | 21,214,704 |   |
| Temporary      borrowings                                                      |   |   | 5,716,361   |   |   |   | 719,720     |   |   |   | 2,253,112 |   |
| Subordinated      notes                                                        |   |   | 922,449     |   |   |   | 515,764     |   |   |   | - |   |
| Junior      subordinated debentures                                            |   |   | 1,821,679   |   |   |   | 1,787,165   |   |   |   | 1,433,680 |   |
| Total      interest expense                                                    |   |   | 50,714,997  |   |   |   | 44,252,825  |   |   |   | 24,901,496 |   |
| Net      interest income                                                       |   |   | 60,165,381  |   |   |   | 62,236,512  |   |   |   | 58,518,973 |   |
| Provision      for loan and lease losses                                       |   |   | 4,463,500   |   |   |   | 2,489,998   |   |   |   | 3,650,000 |   |
| Net      interest income after provision for loan and lease losses             |   |   | 55,701,881  |   |   |   | 59,746,514  |   |   |   | 54,868,973 |   |
| OTHER      INCOME:                                                             |   |   |        |   |   |   |        |   |   |   |   |   |
|  Service      charges on deposit accounts                                 |   |   | 2,098,697   |   |   |   | 2,398,992   |   |   |   | 2,107,546 |   |
| Net      security (losses) gains                                               |   |   | (218,607    | )      |   |   | (69,475     | )      |   |   | 867,208 |   |
|  Income      from bank owned life insurance                               |   |   | 1,115,603   |   |   |   | 1,011,081   |   |   |   | 1,000,755 |   |
| Other      operating income                                                    |   |   | 2,380,307   |   |   |   | 2,350,168   |   |   |   | 1,834,955 |   |
| Total      other income                                                        |   |   | 5,376,000   |   |   |   | 5,690,766   |   |   |   | 5,810,464 |   |
| Income      before operating expenses                                          |   |   | 61,077,881  |   |   |   | 65,437,280  |   |   |   | 60,679,437 |   |
| OPERATING      EXPENSES:                                                       |   |   |        |   |   |   |        |   |   |   |   |   |
|        Salaries and other employee benefits                               |   |   | 30,404,429  |   |   |   | 27,094,530  |   |   |   | 26,204,886 |   |
|        Occupancy                                                          |   |   | 5,395,273   |   |   |   | 4,968,083   |   |   |   | 4,733,005 |   |
|        Equipment                                                          |   |   | 1,346,002   |   |   |   | 1,226,505   |   |   |   | 1,388,794 |   |
|        Legal                                                              |   |   | 2,737,900   |   |   |   | (5,543,603  | )      |   |   | 83,583,980 |   |
|         Marketing and advertising                                    |   |   | 1,256,736   |   |   |   | 1,743,341   |   |   |   | 1,232,172 |   |
| Credit      and collection                                                     |   |   | 903,490     |   |   |   | 829,521     |   |   |   | 660,022 |   |
| Audit      and assessment                                                      |   |   | 1,251,695   |   |   |   | 1,557,693   |   |   |   | 1,346,064 |   |
| Goodwill      impairment                                                       |   |   | 2,390,924   |   |   |   | -           |   |   |   | - |   |
| Other      operating expenses                                                  |   |   | 6,226,412   |   |   |   | 5,750,399   |   |   |   | 5,491,760 |   |
| Total      operating expenses                                                  |   |   | 51,912,861  |   |   |   | 37,626,469  |   |   |   | 124,640,683 |   |
| INCOME      (LOSS) BEFORE INCOME TAXES                                         |   |   | 9,165,020   |   |   |   | 27,810,811  |   |   |   | (63,961,246 | ) |
| PROVISION      (BENEFIT) FOR INCOME TAXES                                      |   |   | 2,935,542   |   |   |   | 16,316,932  |   |   |   | (27,412,995 | ) |
| NET      INCOME (LOSS)                                                         |   | $      | 6,229,478   |   |   | $      | 11,493,879  |   |   | $ | (36,548,251 | ) |
|                                                                           |   |   |        |   |   |   |        |   |   |   |   |   |
| BASIC      EARNINGS (LOSS) PER COMMON SHARE                                    |   | $      | 0.45        |   |   | $      | 1.02        |   |   | $ | (3.32 | ) |
| DILUTED      EARNINGS (LOSS) PER COMMON SHARE                                  |   | $      | 0.45        |   |   | $      | 1.00        |   |   | $ | (3.32 | ) |
| WEIGHTED      AVERAGE NUMBER OF SHARES - BASIC                                 |   |   | 13,738,101  |   |   |   | 11,227,278  |   |   |   | 10,996,601 |   |
| WEIGHTED      AVERAGE NUMBER OF SHARES - DILUTED                               |   |   | 13,867,477  |   |   |   | 11,486,982  |   |   |   | 10,996,601 |   |
|                                                                           |   |   |        |   |   |   |        |   |   |   |   |   |
| See      Notes to Consolidated Financial Statements.                           |   |   |        |   |   |   |        |   |   |   |   |   |

----

| CONSOLIDATED      STATEMENTS OF CASH FLOWS                                                         |   |   |         |   |   |   |         |   |   |
|----------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|--------|--------|--------------|--------|--------|
| For      the Years Ended December 31, 2007, 2006 and 2005                                          |   | 2007   |         |   | 2006   |   |         | 2005   |   |
| OPERATING      ACTIVITIES:                                                                         |   |   |         |   |   |   |         |   |   |
|  Net      income (loss)                                                                       |   | $      | 6,229,478    |   |   | $      | 11,493,879   |   |   | $ | (36,548,251 | ) |
| Adjustments      to reconcile net income (loss) to net cash provided by operating      activities: |   |   |         |   |   |   |         |   |   |   |   |   |
| Provision      for loan and lease losses                                                           |   |   | 4,463,500    |   |   |   | 2,489,998    |   |   |   | 3,650,000 |   |
| Depreciation      and amortization of bank premises and equipment                                  |   |   | 1,322,902    |   |   |   | 1,130,716    |   |   |   | 1,429,278 |   |
|             Amortization of intangibles and goodwill impairment      |   |   | 2,427,061    |   |   |   | 36,137       |   |   |   | 36,137 |   |
| Deferred      income tax expense (benefit)                                                         |   |   | 16,517,127   |   |   |   | 224,670      |   |   |   | (31,005,600 | ) |
| Amortization      of net premium on securities                                                     |   |   | 1,418,363    |   |   |   | 1,129,688    |   |   |   | 3,435,779 |   |
|             Net security losses (gains)                              |   |   | 218,607      |   |   |   | 69,475       |   |   |   | (867,208 | ) |
| Net      gains on sales of other real estate owned ("OREO")                                        |   |   | -            |   |   |   | -            |   |   |   | (43,903 | ) |
| Income      from bank owned life insurance                                                         |   |   | (1,115,603   | )      |   |   | (1,011,081   | )      |   |   | (1,000,755 | ) |
| Stock-based      compensation expense                                                              |   |   | 604,149      |   |   |   | 119,584      |   |   |   | 36,389 |   |
| Shares      issued under the directors' stock plan                                                 |   |   | -            |   |   |   | 43,530       |   |   |   | - |   |
| Decrease      (increase) in other assets                                                           |   |   | 3,003,411    |   |   |   | (3,354,256   | )      |   |   | (4,452,463 | ) |
| Increase      in receivable - current income taxes                                                 |   |   | (14,034,377  | )      |   |   | -            |   |   |   | (1,832,138 | ) |
| (Decrease)      increase in accrued legal expenses                                                 |   |   | (65,349,369  | )      |   |   | (11,678,929  | )      |   |   | 77,333,889 |   |
| (Decrease)      increase in other accrued expenses and other liabilities                           |   |   | (7,586,416   | )      |   |   | 10,135,114   |   |   |   | (428,246 | ) |
| Net      cash (used in) provided by operating activities                                           |   |   | (51,881,167  | )      |   |   | 10,828,525   |   |   |   | 9,742,908 |   |
| INVESTING      ACTIVITIES:                                                                         |   |   |         |   |   |   |         |   |   |   |   |   |
| Proceeds      from maturities of securities held to maturity                                       |   |   | 6,375,996    |   |   |   | 16,000,000   |   |   |   | 19,997,544 |   |
| Purchases      of securities held to maturity                                                      |   |   | -            |   |   |   | (6,355,173   | )      |   |   | (5,992,500 | ) |
| Proceeds      from sales of securities available for sale                                          |   |   | 141,868,886  |   |   |   | 162,149,456  |   |   |   | 311,306,545 |   |
| Proceeds      from maturities of securities available for sale                                     |   |   | 325,017,422  |   |   |   | 139,493,132  |   |   |   | 179,411,568 |   |
| Purchases      of securities available for sale                                                    |   |   | (361,092,844 | )      |   |   | (290,812,672 | )      |   |   | (513,364,937 | ) |
| (Increase)      decrease in Federal Home Loan Bank and other restricted    stock                   |   |   | (6,345,300   | )      |   |   | 808,400      |   |   |   | 1,474,600 |   |
| Increase      in loans and leases - net                                                            |   |   | (63,455,183  | )      |   |   | (93,498,261  | )      |   |   | (113,783,801 | ) |
| Proceeds      from sales of OREO                                                                   |   |   | -            |   |   |   | -            |   |   |   | 2,693,903 |   |
| Purchases      of bank premises and equipment - net                                                |   |   | (1,056,945   | )      |   |   | (1,003,162   | )      |   |   | (1,108,917 | ) |
| Net      cash provided by (used in) investing activities                                           |   |   | 41,312,032   |   |   |   | (73,218,280  | )      |   |   | (119,365,995 | ) |
| FINANCING      ACTIVITIES:                                                                         |   |   |         |   |   |   |         |   |   |   |   |   |
| (Decrease)      increase in demand and savings deposits                                            |   |   | (39,123,762  | )      |   |   | (88,307,654  | )      |   |   | 74,667,252 |   |
| (Decrease)      increase in time deposits                                                          |   |   | (197,120,601 | )      |   |   | 242,917,187  |   |   |   | 67,272,616 |   |
| Increase      (decrease) in other temporary borrowings                                             |   |   | 138,974,928  |   |   |   | (18,557,896  | )      |   |   | (13,652,193 | ) |
| Proceeds      from issuance of subordinated notes                                                  |   |   | -            |   |   |   | 10,000,000   |   |   |   | - |   |
| Cash      dividends paid                                                                           |   |   | (6,235,302   | )      |   |   | (6,706,859   | )      |   |   | (5,766,476 | ) |
| Proceeds      from shares issued under private placement                                           |   |   | -            |   |   |   | 36,542,406   |   |   |   | - |   |
| Private      placement expenses                                                                    |   |   | (252,735     | )      |   |   | -            |   |   |   | - |   |
| Proceeds      from shares issued under the dividend reinvestment plan                              |   |   | 2,984,149    |   |   |   | 3,313,558    |   |   |   | 2,841,412 |   |
| Proceeds      from shares issued pursuant to compensation awards                                   |   |   | 1,511,799    |   |   |   | 247,768      |   |   |   | 655,516 |   |
| Purchases      of treasury stock                                                                   |   |   | -            |   |   |   | -            |   |   |   | (1,177,898 | ) |
| Net      cash (used in) provided by financing activities                                           |   |   | (99,261,524  | )      |   |   | 179,448,510  |   |   |   | 124,840,229 |   |
| NET      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                          |   |   | (109,830,659 | )      |   |   | 117,058,755  |   |   |   | 15,217,142 |   |
| CASH      AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                                |   |   | 206,210,873  |   |   |   | 89,152,118   |   |   |   | 73,934,976 |   |
| CASH      AND CASH EQUIVALENTS AT END OF YEAR                                                      |   | $      | 96,380,214   |   |   | $      | 206,210,873  |   |   | $ | 89,152,118 |   |
| SUPPLEMENTAL      DATA:                                                                            |   |   |         |   |   |   |         |   |   |   |   |   |
| Interest      paid                                                                                 |   | $      | 50,856,474   |   |   | $      | 43,227,466   |   |   | $ | 24,619,835 |   |
| Income      taxes paid                                                                             |   | $      | 9,452,122    |   |   | $      | 5,231,690    |   |   | $ | 5,459,406 |   |
| Adjustment      to unrealized net gain or loss on securities available for      sale               |   | $      | 7,008,969    |   |   | $      | 1,216,175    |   |   | $ | (6,533,252 | ) |
| Dividends      declared but not paid as of year-end                                                |   | $      | -            |   |   | $      | -            |   |   | $ | 1,656,251 |   |
|                                                                                               |   |   |         |   |   |   |         |   |   |   |   |   |
| See      Notes to Consolidated Financial Statements.                                               |   |   |         |   |   |   |         |   |   |   |   |   |

----

| CONSOLIDATED      STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME      (LOSS)                 |
|-----------------------------------------------------------------------------------------------------------|
| For      the Years Ended December 31, 2007, 2006 and 2005                                                 |   |   |   |   |   |   | Accumulated |   |   |   |   |
|                                                                                                      |   |   |   |   |   |   |   | Retained |   |   |   |   |   | Other |   |   | Total |   |   |   |   |
|                                                                                                      |   | Common |   |   |   |   |   | Earnings |   |   | Treasury |   |   | Comprehensive |   |   | Stockholders' |   |   | Comprehensive |   |
|                                                                                                      |   | Stock |   |   | Surplus |   |   | (Deficit) |   |   | Stock |   |   | (Loss)      Income |   |   | Equity |   |   | (Loss)      Income |   |
| Balance,      January 1, 2005                                                                             |   | $ | 49,974,110 |   |   | $ | 63,014,247 |   |   | $ | 4,008,970 |   |   | $ | (15,468,528 | ) |   | $ | (478,957 | ) |   | $ | 101,049,842 |   |   |   |   |
| Comprehensive      loss:                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                                             |   |   | - |   |   |   | - |   |   |   | (36,548,251 | ) |   |   | - |   |   |   | - |   |   |   | (36,548,251 | ) |   | $ | (36,548,251 | ) |
| Other      comprehensive loss, net of tax:                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized      holding losses during the period (1)                                                      |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | (3,686,286 | ) |
| Reclassification      for gains included in net income (2)                                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | (565,118 | ) |
| Cash      flow hedges (3)                                                                                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | (121,060 | ) |
| Total      other comprehensive loss                                                                       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (4,372,464 | ) |   |   | (4,372,464 | ) |   |   | (4,372,464 | ) |
| Total      comprehensive loss                                                                             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   | $ | (40,920,715 | ) |
| Cash      dividend ($.55 per share)                                                                       |   |   | - |   |   |   | - |   |   |   | (6,062,428 | ) |   |   | - |   |   |   | - |   |   |   | (6,062,428 | ) |   |   |   |   |
| 6      for 5 stock split (1,832,949 shares)                                                               |   |   | 9,164,745 |   |   |   | (9,164,745 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |
| Shares      issued under the dividend reinvestment                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| plan      (131,901 shares at 95% of market value)                                                         |   |   | 659,505 |   |   |   | 2,181,907 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,841,412 |   |   |   |   |   |
| Stock      options exercised (59,754 shares)                                                              |   |   | 298,770 |   |   |   | 356,746 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 655,516 |   |   |   |   |   |
| Accelerated      vesting of stock options                                                                 |   |   | - |   |   |   | 36,389 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 36,389 |   |   |   |   |   |
| Treasury      stock purchased (61,657 shares)                                                             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (1,177,898 | ) |   |   | - |   |   |   | (1,177,898 | ) |   |   |   |   |
| Balance,      December 31, 2005                                                                           |   |   | 60,097,130 |   |   |   | 56,424,544 |   |   |   | (38,601,709 | ) |   |   | (16,646,426 | ) |   |   | (4,851,421 | ) |   |   | 56,422,118 |   |   |   |   |   |
| Comprehensive      income:                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                           |   |   | - |   |   |   | - |   |   |   | 11,493,879 |   |   |   | - |   |   |   | - |   |   |   | 11,493,879 |   |   | $ | 11,493,879 |   |
| Other      comprehensive income, net of tax:                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized      holding gains during the period (1)                                                       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | 748,973 |   |
| Reclassification      for losses included in net income (2)                                               |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | 43,159 |   |
| Cash      flow hedges (3)                                                                                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | 216,144 |   |
| Total      other comprehensive income                                                                     |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,008,276 |   |   |   | 1,008,276 |   |   |   | 1,008,276 |   |
| Total      comprehensive income                                                                           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   | $ | 12,502,155 |   |
| Shares      issued under private placement (2,250,000 shares)                                             |   |   | 11,250,000 |   |   |   | 25,292,406 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 36,542,406 |   |   |   |   |   |
| Cash      dividend ($.45 per share)                                                                       |   |   | - |   |   |   | - |   |   |   | (5,050,609 | ) |   |   | - |   |   |   | - |   |   |   | (5,050,609 | ) |   |   |   |   |
| Shares      issued under the dividend reinvestment                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| plan      (203,167 shares at 95% of market value)                                                         |   |   | 1,015,835 |   |   |   | 2,297,723 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 3,313,558 |   |   |   |   |   |
| Stock      options exercised (21,223 shares)                                                              |   |   | 106,115 |   |   |   | 141,653 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 247,768 |   |   |   |   |   |
| Stock-based      compensation expense                                                                     |   |   | - |   |   |   | 29,800 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 29,800 |   |   |   |   |   |
| Restricted      stock awards (107,540 shares)                                                             |   |   | 537,700 |   |   |   | (447,916 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 89,784 |   |   |   |   |   |
| Stock      issued under Directors' Stock Plan (2,847 shares)                                              |   |   | 14,235 |   |   |   | 29,295 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 43,530 |   |   |   |   |   |
| Balance,      December 31, 2006                                                                           |   |   | 73,021,015 |   |   |   | 83,767,505 |   |   |   | (32,158,439 | ) |   |   | (16,646,426 | ) |   |   | (3,843,145 | ) |   |   | 104,140,510 |   |   |   |   |   |
| Comprehensive      income:                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                           |   |   | - |   |   |   | - |   |   |   | 6,229,478 |   |   |   | - |   |   |   | - |   |   |   | 6,229,478 |   |   | $ | 6,229,478 |   |
| Other      comprehensive income, net of tax:                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized      holding gains during the period (1)                                                       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | 4,340,114 |   |
| Reclassification      for losses included in net income (2)                                               |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | 135,386 |   |
| Cash      flow hedges (3)                                                                                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | 180,120 |   |
| Total      other comprehensive income                                                                     |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 4,655,620 |   |   |   | 4,655,620 |   |   |   | 4,655,620 |   |
| Total      comprehensive income                                                                           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   | $ | 10,885,098 |   |
| Cash      dividend ($.45 per share)                                                                       |   |   | - |   |   |   | - |   |   |   | (6,235,302 | ) |   |   | - |   |   |   | - |   |   |   | (6,235,302 | ) |   |   |   |   |
| Shares      issued under the dividend reinvestment                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| plan      (178,099 shares at 95% of market value)                                                         |   |   | 890,495 |   |   |   | 2,093,654 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,984,149 |   |   |   |   |   |
| Stock      options exercised (218,304 shares)                                                             |   |   | 1,091,520 |   |   |   | 420,279 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,511,799 |   |   |   |   |   |
| Stock-based      compensation expense (includes the                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| forfeiture      of 4,258 shares of restricted stock)                                                      |   |   | (21,290 | ) |   |   | 625,439 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 604,149 |   |   |   |   |   |
| Private      placement expenses                                                                           |   |   | - |   |   |   | (252,735 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (252,735 | ) |   |   |   |   |
| Balance,      December 31, 2007                                                                           |   | $ | 74,981,740 |   |   | $ | 86,654,142 |   |   | $ | (32,164,263 | ) |   | $ | (16,646,426 | ) |   | $ | 812,475 |   |   | $ | 113,637,668 |   |   |   |   |   |
|                                                                                                      |   |   |   |   |
| (1)      Net of taxes of ($1,979,758), $397,727 and $2,450,248 in 2005, 2006 and      2007, respectively. |   |   |   |   |
| (2)      Net of taxes of $302,090, ($26,316) and $83,221 in 2005, 2006 and 2007,      respectively.       |   |   |   |   |   |   |   |   |
| (3)      Net of taxes of ($80,572), $143,856 and $119,880 in 2005, 2006 and 2007,      respectively.      |   |   |   |   |   |   |   |   |   |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See      Notes to Consolidated Financial Statements.                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

----

----

| For      the Years Ended December 31,                              |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|--------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
| Net      income (loss)                                             |   | $      | 6,229,478  |   |   | $      | 11,493,879 |   |   | $ | (36,548,251 | ) |
| Average      market price                                          |   | $      | 17.49      |   |   | $      | 17.29      |   |   |   | N/A | * |
| Weighted      average common shares outstanding                    |   |   | 13,738,101 |   |   |   | 11,227,278 |   |   |   | 10,996,601 |   |
| Dilutive      effect of stock options and restricted stock grants  |   |   | 129,376    |   |   |   | 259,704    |   |   |   | N/A | * |
| Adjusted      common shares outstanding - diluted                  |   |   | 13,867,477 |   |   |   | 11,486,982 |   |   |   | 10,996,601 |   |
| Net      income (loss) per share - basic                           |   | $      | 0.45       |   |   | $      | 1.02       |   |   | $ | (3.32 | ) |
| Net      income (loss) per share - diluted                         |   | $      | 0.45       |   |   | $      | 1.00       |   |   | $ | (3.32 | ) |
| Antidilutive      potential shares not included in the calculation |   |   | 454,923    |   |   |   | 314,965    |   |   |   | N/A | * |
|                                                               |   |   |       |   |   |   |       |   |   |   |   |   |
| *  N/A      - denotes not applicable.                    |   |   |       |   |   |   |       |   |   |   |   |   |

----

|                                                                                                                             |   | 2005   |        |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|
|  Net      loss, as reported                                                                                                 |   | $      | (36,548,251 | ) |
|  Deduct:  Total      stock-based employee compensation expense determined under fair      value based method |   |   |        |   |
|  for      all awards, net of related tax effects                                                                            |   |   | (1,141,636  | ) |
|  Pro      forma net loss                                                                                                    |   | $      | (37,689,887 | ) |
|                                                                                                                             |   |   |        |   |
|  LOSS      PER SHARE:                                                                                                       |   |   |        |   |
|  Basic      - as reported                                                                                                   |   | $      | (3.32       | ) |
|  Basic      - pro forma                                                                                                     |   | $      | (3.43       | ) |
|  Diluted      - as reported                                                                                                 |   | $      | (3.32       | ) |
|  Diluted      - pro forma                                                                                                   |   | $      | (3.43       | ) |

----

----

----

|                                                  |   |      |        |   | Gross      |   |      | Gross      |   |   |            |   |
|-------------------------------------------------------|--------|-----------|-------------|--------|------------|--------|-----------|------------|--------|--------|-----------------|--------|
|                                                  |   | Amortized |        |   | Unrealized |   |      | Unrealized |   |   | Estimated       |   |
|                                                  |   | Cost      |        |   | Gains      |   |      | Losses     |   |   | Fair      Value |   |
| December      31, 2007                                |   |      |        |   |       |   |      |       |   |   |            |   |
| Securities      Available for Sale:                   |   |      |        |   |       |   |      |       |   |   |            |   |
| Obligations      of states and political subdivisions |   | $         | 18,140,263  |   |       | $      | 4,528     |       |   | $      | (49,634         | )      |   | $ | 18,095,157 |   |
| Government      Agency securities                     |   |      | 149,638,982 |   |       |   | 930,453   |       |   |   | (35,148         | )      |   |   | 150,534,287 |   |
|  Corporate      securities                       |   |      | 15,086,740  |   |       |   | -         |       |   |   | (586,741        | )      |   |   | 14,499,999 |   |
| Mortgage-backed      securities and                   |   |      |        |   |       |   |      |       |   |   |            |   |   |   |   |   |
| collateralized      mortgage obligations:             |   |      |        |   |       |   |      |       |   |   |            |   |   |   |   |   |
| FHLMC                                                 |   |      | 135,674,183 |   |       |   | 1,502,606 |       |   |   | (403,665        | )      |   |   | 136,773,124 |   |
| FNMA                                                  |   |      | 72,766,460  |   |       |   | 581,887   |       |   |   | (538,432        | )      |   |   | 72,809,915 |   |
| GNMA                                                  |   |      | 7,361,553   |   |       |   | 14,123    |       |   |   | (38,856         | )      |   |   | 7,336,820 |   |
| Other                                                 |   |      | 1,213,666   |   |       |   | -         |       |   |   | (33,733         | )      |   |   | 1,179,933 |   |
| Total      Securities Available for Sale              |   | $         | 399,881,847 |   |       | $      | 3,033,597 |       |   | $      | (1,686,209      | )      |   | $ | 401,229,235 |   |
|                                                  |   |      |        |   |       |   |      |       |   |   |            |   |   |   |   |   |
| December      31, 2006                                |   |      |        |   |       |   |      |       |   |   |            |   |   |   |   |   |
| Securities      Held to Maturity:                     |   |      |        |   |       |   |      |       |   |   |            |   |   |   |   |   |
| Government      Agency securities                     |   | $         | 6,372,080   |   |       | $      | -         |       |   | $      | (11,044         | )      |   | $ | 6,361,036 |   |
| Securities      Available for Sale:                   |   |      |        |   |       |   |      |       |   |   |            |   |   |   |   |   |
| Obligations      of states and political subdivisions |   |      | 14,327,627  |   |       |   | 194       |       |   |   | (76,533         | )      |   |   | 14,251,288 |   |
| Government      Agency securities                     |   |      | 294,793,218 |   |       |   | 201,199   |       |   |   | (1,785,614      | )      |   |   | 293,208,803 |   |
|  Corporate      securities                       |   |      | 15,179,296  |   |       |   | -         |       |   |   | (152,776        | )      |   |   | 15,026,520 |   |
| Mortgage-backed      securities and                   |   |      |        |   |       |   |      |       |   |   |            |   |   |   |   |   |
| collateralized      mortgage obligations:             |   |      |        |   |       |   |      |       |   |   |            |   |   |   |   |   |
| FHLMC                                                 |   |      | 79,296,160  |   |       |   | 28,229    |       |   |   | (1,228,223      | )      |   |   | 78,096,166 |   |
| FNMA                                                  |   |      | 78,089,467  |   |       |   | 41,797    |       |   |   | (1,973,405      | )      |   |   | 76,157,859 |   |
| GNMA                                                  |   |      | 28,136,853  |   |       |   | 26,239    |       |   |   | (657,070        | )      |   |   | 27,506,022 |   |
| Other                                                 |   |      | 7,247,645   |   |       |   | -         |       |   |   | (85,618         | )      |   |   | 7,162,027 |   |
| Total      Securities Available for Sale              |   |      | 517,070,266 |   |       |   | 297,658   |       |   |   | (5,959,239      | )      |   |   | 511,408,685 |   |
| Total      Securities                                 |   | $         | 523,442,346 |   |       | $      | 297,658   |       |   | $      | (5,970,283      | )      |   | $ | 517,769,721 |   |

----

|                                                     |   | Amortized |        |   | Estimated       |   |
|----------------------------------------------------------|--------|-----------|-------------|--------|-----------------|--------|
|                                                     |   | Cost      |        |   | Fair      Value |   |
| Securities      Available for Sale:                      |   |      |        |   |            |   |
| Due      in one year or less                             |   | $         | 61,458,965  |   |            | $      | 61,509,299 |   |
|         Due after one year through five years  |   |      | 60,624,414  |   |            |   | 61,145,121 |   |
|         Due after five years through ten years |   |      | 30,917,058  |   |            |   | 31,244,249 |   |
| Due      after ten years                                 |   |      | 29,865,548  |   |            |   | 29,230,774 |   |
| Subtotal                                                 |   |      | 182,865,985 |   |            |   | 183,129,443 |   |
| Mortgage-backed      securities and                      |   |      |        |   |            |   |   |   |
| collateralized      mortgage obligations                 |   |      | 217,015,862 |   |            |   | 218,099,792 |   |
| Total      Securities Available for Sale                 |   | $         | 399,881,847 |   |            | $      | 401,229,235 |   |

----

|                                      |   | Less      than 12 Months     |     |   | 12      Months or Longer  |   |       | Total                        |   |
|-------------------------------------------|--------|------------------------------|----------|--------|---------------------------|--------|------------|------------------------------|--------|
|                                      |   | Gross      Unrealized Losses |     |   | Estimated      Fair Value |   |       | Gross      Unrealized Losses |   |   | Estimated Fair      Value |   |   | Gross      Unrealized Losses |   |   | Estimated Fair      Value |   |
| December      31, 2007                    |   |                         |     |   |                      |   |       |                         |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale:       |   |                         |     |   |                      |   |       |                         |   |   |   |   |   |   |   |   |   |   |
| Obligations      of states and political  |   |                         |     |   |                      |   |       |                         |   |   |   |   |   |   |   |   |   |   |
| subdivisions                              |   | $                            | (48,137  | )      |                      | $      | 4,770,744  |                         |   | $ | (1,497 | ) |   | $ | 124,943 |   |   | $ | (49,634 | ) |   | $ | 4,895,687 |   |
| Government      Agency securities         |   |                         | (11,748  | )      |                      |   | 11,987,830 |                         |   |   | (23,400 | ) |   |   | 14,976,600 |   |   |   | (35,148 | ) |   |   | 26,964,430 |   |
| Corporate      securities                 |   |                         | (9,981   | )      |                      |   | 3,000,000  |                         |   |   | (576,760 | ) |   |   | 11,500,000 |   |   |   | (586,741 | ) |   |   | 14,500,000 |   |
| Mortgage-backed      securities and       |   |                         |     |   |                      |   |       |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| collateralized      mortgage obligations: |   |                         |     |   |                      |   |       |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FHLMC                                     |   |                         | (752     | )      |                      |   | 721,991    |                         |   |   | (402,913 | ) |   |   | 30,873,800 |   |   |   | (403,665 | ) |   |   | 31,595,791 |   |
| FNMA                                      |   |                         | (16,645  | )      |                      |   | 1,437,042  |                         |   |   | (521,787 | ) |   |   | 38,756,472 |   |   |   | (538,432 | ) |   |   | 40,193,514 |   |
| GNMA                                      |   |                         | (1,718   | )      |                      |   | 341,934    |                         |   |   | (37,138 | ) |   |   | 5,261,228 |   |   |   | (38,856 | ) |   |   | 5,603,162 |   |
| Other                                     |   |                         | -        |   |                      |   | -          |                         |   |   | (33,733 | ) |   |   | 1,179,933 |   |   |   | (33,733 | ) |   |   | 1,179,933 |   |
| Total      securities available for sale  |   | $                            | (88,981  | )      |                      | $      | 22,259,541 |                         |   | $ | (1,597,228 | ) |   | $ | 102,672,976 |   |   | $ | (1,686,209 | ) |   | $ | 124,932,517 |   |
|                                      |   |                         |     |   |                      |   |       |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December      31, 2006                    |   |                         |     |   |                      |   |       |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      held to maturity:         |   |                         |     |   |                      |   |       |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Government      Agency securities         |   | $                            | (11,044  | )      |                      | $      | 6,361,036  |                         |   | $ | - |   |   | $ | - |   |   | $ | (11,044 | ) |   | $ | 6,361,036 |   |
| Securities      available for sale:       |   |                         |     |   |                      |   |       |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Obligations      of states and political  |   |                         |     |   |                      |   |       |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| subdivisions                              |   |                         | (27,791  | )      |                      |   | 7,203,512  |                         |   |   | (48,742 | ) |   |   | 4,732,582 |   |   |   | (76,533 | ) |   |   | 11,936,094 |   |
| Government      Agency securities         |   |                         | (65,247  | )      |                      |   | 46,013,294 |                         |   |   | (1,720,367 | ) |   |   | 217,008,389 |   |   |   | (1,785,614 | ) |   |   | 263,021,683 |   |
| Corporate      securities                 |   |                         | (1       | )      |                      |   | 2,012,780  |                         |   |   | (152,775 | ) |   |   | 12,011,740 |   |   |   | (152,776 | ) |   |   | 14,024,520 |   |
| Mortgage-backed      securities and       |   |                         |     |   |                      |   |       |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| collateralized      mortgage obligations: |   |                         |     |   |                      |   |       |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FHLMC                                     |   |                         | (41,687  | )      |                      |   | 23,135,291 |                         |   |   | (1,186,536 | ) |   |   | 47,745,529 |   |   |   | (1,228,223 | ) |   |   | 70,880,820 |   |
| FNMA                                      |   |                         | (8,703   | )      |                      |   | 1,152,276  |                         |   |   | (1,964,702 | ) |   |   | 64,133,820 |   |   |   | (1,973,405 | ) |   |   | 65,286,096 |   |
| GNMA                                      |   |                         | (4,801   | )      |                      |   | 568,351    |                         |   |   | (652,269 | ) |   |   | 22,524,099 |   |   |   | (657,070 | ) |   |   | 23,092,450 |   |
| Other                                     |   |                         | -        |   |                      |   | -          |                         |   |   | (85,618 | ) |   |   | 7,162,027 |   |   |   | (85,618 | ) |   |   | 7,162,027 |   |
| Total      securities available for sale  |   |                         | (148,230 | )      |                      |   | 80,085,504 |                         |   |   | (5,811,009 | ) |   |   | 375,318,186 |   |   |   | (5,959,239 | ) |   |   | 455,403,690 |   |
| Total      securities                     |   | $                            | (159,274 | )      |                      | $      | 86,446,540 |                         |   | $ | (5,811,009 | ) |   | $ | 375,318,186 |   |   | $ | (5,970,283 | ) |   | $ | 461,764,726 |   |

----

|                                                      |   |          |          |   | 2007        |        |   | 2006 |
|-----------------------------------------------------------|--------|---------------|---------------|--------|-------------|-------------|--------|------|
| Commercial      and industrial                            |   | $        | 322,574,801   |   | $      | 297,255,659 |
| Real      estate - commercial mortgage                    |   | 383,960,210   |          |   | 392,454,404 |
| Real      estate - residential mortgage                   |   | 102,467,899   |          |   | 105,475,643 |
| Real      estate - commercial construction                |   | 50,483,504    |          |   | 25,207,499  |
| Real      estate - residential construction               |   | 95,002,071    |          |   | 80,513,035  |
| Lease      receivables                                    |   |          | 66,476,136    |   |        | 62,648,964  |
| Loans      to individuals                                 |   |          | 11,723,882    |   |        | 11,314,608  |
| Tax      exempt and other                                 |   |          | 8,320,893     |   |        | 8,854,962   |
| Loans      and leases - net of unearned income            |   | 1,041,009,396 |          |   | 983,724,774 |
| Less:  Allowance      for loan and lease losses |   | 14,704,864    |          |   | 16,411,925  |
| Loans      and leases - net                               |   | $        | 1,026,304,532 |   | $      | 967,312,849 |

----

|                                |                       |       |        | 2007    |       |        | 2006    |       |   | 2005 |
|-------------------------------------|----------------------------|------------|-------------|---------|------------|-------------|---------|------------|--------|------|
| Balance,      January 1             | $                     | 16,411,925 |        | $  | 15,716,960 |        | $  | 12,020,443 |
| Provision      charged to income    |                       | 4,463,500  |        |    | 2,489,998  |        |    | 3,650,000  |
| Charge-offs,      net of recoveries |                       |       |        |    |       |        |    |       |
|                                | of      $384,835, $377,680 |       |        |    |       |        |    |       |   |
|                                | and      $844,750          |       | (6,170,561) |    |       | (1,795,033) |    |       | 46,517 |
| Balance,      December 31           | $                     | 14,704,864 |        | $  | 16,411,925 |        | $  | 15,716,960 |

|                                                              |   | 2007   |      |   | 2006   |   |      | 2005   |   |
|-------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
| Amount      measured using the                                    |   |   |      |   |   |   |      |   |   |
|  present      value of expected future cash                  |   |   |      |   |   |   |      |   |   |
|  flows,      discounted at each loan's and lease's effective |   |   |      |   |   |   |      |   |   |
|  interest      rate                                          |   | $      | -         |   |   | $      | -         |   |   | $ | - |   |
| Impaired      collateral-dependent loans and leases               |   |   | 4,021,934 |   |   |   | 1,490,677 |   |   |   | 1,471,128 |   |
| Total      amount evaluated as impaired                           |   | $      | 4,021,934 |   |   | $      | 1,490,677 |   |   | $ | 1,471,128 |   |
| Average      impaired loan and lease balance                      |   | $      | 5,746,758 |   |   | $      | 3,035,134 |   |   | $ | 2,012,540 |   |
| Interest      income recognized                                   |   |   |      |   |   |   |      |   |   |   |   |   |
|  on      impaired loans and leases                           |   | $      | 16,198    |   |   | $      | 236,499   |   |   | $ | 115,623 |   |

----

|                              |   |   |       |   | Accumulated   |   |       |          |   |
|-----------------------------------|--------|--------|------------|--------|---------------|--------|------------|---------------|--------|
|                              |   |   |       |   | Depreciation/ |   |       | Net      Book |   |
|                              |   | Cost   |       |   | Amortization  |   |       | Value         |   |
|  December      31, 2007:     |   |   |       |   |          |   |       |          |   |
|  Building                    |   | $      | 2,770,101  |   |          | $      | 1,444,596  |          |   | $ | 1,325,505 |   |
|  Leasehold      improvements |   |   | 4,922,028  |   |          |   | 2,631,826  |          |   |   | 2,290,202 |   |
|  Furniture      and fixtures |   |   | 5,144,318  |   |          |   | 3,993,128  |          |   |   | 1,151,190 |   |
|  Computer      equipment     |   |   |       |   |          |   |       |          |   |   |   |   |
|  and      software           |   |   | 5,219,043  |   |          |   | 4,208,447  |          |   |   | 1,010,596 |   |
| Total                             |   | $      | 18,055,490 |   |          | $      | 12,277,997 |          |   | $ | 5,777,493 |   |
|                              |   |   |       |   |          |   |       |          |   |   |   |   |
|  December      31, 2006:     |   |   |       |   |          |   |       |          |   |   |   |   |
|  Building                    |   | $      | 2,697,059  |   |          | $      | 1,334,994  |          |   | $ | 1,362,065 |   |
|  Leasehold      improvements |   |   | 4,764,904  |   |          |   | 2,227,467  |          |   |   | 2,537,437 |   |
|  Furniture      and fixtures |   |   | 5,167,936  |   |          |   | 3,717,139  |          |   |   | 1,450,797 |   |
|  Computer      equipment     |   |   |       |   |          |   |       |          |   |   |   |   |
|  and      software           |   |   | 4,615,487  |   |          |   | 3,922,336  |          |   |   | 693,151 |   |
| Total                             |   | $      | 17,245,386 |   |          | $      | 11,201,936 |          |   | $ | 6,043,450 |   |

|                                                                                                                     |    |                                                                                                                                                                |      | 2007       |      |      | 2006       |
|--------------------------------------------------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|------------|-----------|-----------|------------|
| Interest      receivable - investments                                                                                   | $  | 3,902,034                                                                                                                                                           |      | $     | 5,113,015 |
| Interest      receivable - loans and leases                                                                              |    | 4,478,798                                                                                                                                                           |      |       | 5,306,326 |
| Prepaid      expenses                                                                                                    |    |                                                                                                                                                                | 1,631,413 |       |      | 1,958,081 |
| Excess      market value of leases acquired (net of accumulated      amortization of $548,065 and $511,928)         |    | 74,401                                                                                                                                                              |      |       | 110,538   |
| Goodwill      (excess of cost over fair value of assets acquired, net of      accumulated amortization of $110,000) |    |                            - |      |       | 2,390,924 |
| Cash      surrender value of life insurance policies                                                                     |    |                            - |      |       | 1,650,581 |
| Other                                                                                                                    |    |                                                                                                                                                                |      | 4,823,992  |      |      | 3,511,701  |
| Total                                                                                                                    |    |                                                                                                                                                                | $    | 14,910,638 |      | $    | 20,041,166 |

----

| 2008  |   | $      | 393,024,258 |   |
|-------|--------|--------|-------------|--------|
| 2009  |   |   | 11,432,625  |   |
| 2010  |   |   | 10,841,537  |   |
| 2011  |   |   | 13,209,910  |   |
| 2012  |   |   | 1,966,485   |   |
| Total |   | $      | 430,474,815 |   |

| Maximum      Ratio of non-performing assets to Loans plus other real estate      owned | 1.35% |
|----------------------------------------------------------------------------------------|-------|
| Minimum      Ratio of Loan Loss Reserves to Gross Loans                                | 1.25% |
| Minimum      Tier I Capital Ratio                                                      | 4.00% |
| Minimum      Total Risk-weighted Capital Ratio                                         | 8.00% |
| Minimum      Tier I Leverage Ratio                                                     | 4.00% |

|                                  |   |                             |        |   |                            |   |   |                               |   |   |        |   |   | Weighted-Average      Interest Rate |      |
|---------------------------------------|--------|----------------------------------|-------------|--------|---------------------------------|--------|--------|------------------------------------|--------|--------|-------------|--------|--------|-------------------------------------|-----------|
|                                  |   | Outstanding      at December 31, |        |   | Average      Amount Outstanding |   |   | on      Average Amount Outstanding |   |
|                                  |   | 2007                             |        |   | 2006                            |   |   | 2007                               |   |   | 2006        |   |   | 2007                                |      |   | 2006 |   |
| Federal      funds purchased          |   |                             | -           |   |                            |   | -      |                               |   | $      | 7,196,000   |   |   | $                                   | 2,997,000 |   |   |   | 5.31 | % |   |   | 5.01 | % |
| Securities      sold under            |   |                             |        |   |                            |   |   |                               |   |   |        |   |   |                                |      |   |   |   |   |   |   |   |   |   |
| agreements                            |   |                             |        |   |                            |   |   |                               |   |   |        |   |   |                                |      |   |   |   |   |   |   |   |   |   |
|  to      repurchase              |   |                             | -           |   |                            |   | -      |                               |   |   | -           |   |   |                                | -         |   |   |   | - |   |   |   | - |   |
| FHLB      - overnight and term        |   | $                                | 139,000,000 |   |                            |   | -      |                               |   | $      | 103,093,000 |   |   | $                                   | 8,241,000 |   |   |   | 5.13 | % |   |   | 4.76 | % |
| Secured      revolving line of credit |   |                             | -           |   |                            |   | -      |                               |   |   | -           |   |   | $                                   | 2,060,000 |   |   |   | - |   |   |   | 8.02 | % |
| Obligations      under                |   |                             |        |   |                            |   |   |                               |   |   |        |   |   |                                |      |   |   |   |   |   |   |   |   |   |
| equipment      lease                  |   |                             |        |   |                            |   |   |                               |   |   |        |   |   |                                |      |   |   |   |   |   |   |   |   |   |
| financing                             |   | $                                | 31,328      |   |                            | $      | 56,400 |                               |   | $      | 45,000      |   |   | $                                   | 91,000    |   |   |   | 11.52 | % |   |   | 13.74 | % |

----

|                                      |                                                                                                                                                                      |                                                                                                                                                                                                                            | 2007                                                                                                                                                                                                                            | 2006   |
|-------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Maximum      outstanding at any month end |                             - |                                      - |
|                                      |                                                                                                                                                                      |                                                                                                                                                                                                                            |                                                                                                                                                                                                                            |   |
| Weighted-average      interest rate on    |                                                                                                                                                                      |                                                                                                                                                                                                                            |
|                                      | balance,      December 31,                                                                                                                                                |                             -                                                       |                                      - |

----

|           |   | 2007   |        |   | 2006   |   |       | 2005   |   |
|----------------|--------|--------|-------------|--------|--------|--------|------------|--------|--------|
|  Federal: |   |   |        |   |   |   |       |   |   |
|  Current  |   | $      | (13,204,782 | )      |   | $      | 5,572,340  |   |   | $ | 6,083,611 |   |
|  Deferred |   |   | 18,287,655  |   |   |   | (594,418   | )      |   |   | (26,407,049 | ) |
|  Subtotal |   |   | 5,082,873   |   |   |   | 4,977,922  |   |   |   | (20,323,438 | ) |
|  State:   |   |   |        |   |   |   |       |   |   |   |   |   |
|  Current  |   |   | (376,803    | )      |   |   | 10,519,922 |   |   |   | (2,491,006 | ) |
|  Deferred |   |   | (1,770,528  | )      |   |   | 819,088    |   |   |   | (4,598,551 | ) |
|  Subtotal |   |   | (2,147,331  | )      |   |   | 11,339,010 |   |   |   | (7,089,557 | ) |
| Total          |   | $      | 2,935,542   |   |   | $      | 16,316,932 |   |   | $ | (27,412,995 | ) |

|                                                          |   | 2007   |      | 2006   |      | 2005   |
|---------------------------------------------------------------|--------|--------|-----------|--------|-----------|--------|
|                                                          |   |   |      |   | %      of |   |   |   |   |   | %      of |   |   |   |   |   | %      of |   |
|                                                          |   |   |      |   | Pretax    |   |   |   |   |   | Pretax |   |   |   |   |   | Pretax |   |
|                                                          |   | Amount |      |   | Income    |   |   | Amount |   |   | Income |   |   | Amount |   |   | Income |   |
| Income      tax expense at statutory rate                     |   | $      | 3,207,757 |   |      |   | 35.0 | % |   | $ | 9,733,784 |   |   |   | 35.0 | % |   | $ | (22,386,436 | ) |   |   | (35.0 | %) |
| Surtax      exemption                                         |   |   | (91,650   | )      |      |   | (1.0 | ) |   |   | (278,108 | ) |   |   | (1.0 | ) |   |   | 639,612 |   |   |   | 1.0 |   |
| (Reduction)      increase in taxes resultingfrom:             |   |   |      |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tax-exempt      interest on investments,                      |   |   |      |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net      of interest expense disallowed                       |   |   | (214,525  | )      |      |   | (2.3 | ) |   |   | (250,115 | ) |   |   | (0.9 | ) |   |   | (507,109 | ) |   |   | (0.8 | ) |
| Bank      owned life insurance                                |   |   | (379,305  | )      |      |   | (4.1 | ) |   |   | (343,768 | ) |   |   | (1.2 | ) |   |   | (340,257 | ) |   |   | (0.5 | ) |
| State      income tax - net of Federal tax       benefit |   |   | (248,690  | )      |      |   | (2.7 | ) |   |   | 7,483,746 |   |   |   | 26.9 |   |   |   | (4,679,108 | ) |   |   | (7.3 | ) |
| Goodwill      impairment                                      |   |   | 812,880   |   |      |   | 8.9 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other                                                         |   |   | (150,925  | )      |      |   | (1.8 | ) |   |   | (28,607 | ) |   |   | (0.1 | ) |   |   | (139,697 | ) |   |   | (0.2 | ) |
| Income      tax expense                                       |   | $      | 2,935,542 |   |      |   | 32.0 | % |   | $ | 16,316,932 |   |   |   | 58.7 | % |   | $ | (27,412,995 | ) |   |   | (42.8 | %) |

----

| December      31,                                |   | 2007   |       |   | 2006   |   |
|--------------------------------------------------|--------|--------|------------|--------|--------|--------|
|  Deferred      tax assets:                  |   |   |       |   |   |   |
|  Net      operating loss carryforward       |   | $      | 11,948,717 |   |   | $      | - |   |
|  Allowance      for loan and lease losses   |   |   | 5,858,637  |   |   |   | 6,352,892 |   |
|  Accrued      expenses                      |   |   | 400,558    |   |   |   | 297,803 |   |
|  Bank      premises and equipment           |   |   | 291,547    |   |   |   | 266,982 |   |
| Deferred      fees                               |   |   | 178,916    |   |   |   | 212,597 |   |
|  Litigation      judgment                   |   |   | -          |   |   |   | 25,131,905 |   |
|  Franchise      tax audit                   |   |   | -          |   |   |   | 3,400,000 |   |
|  Unrealized      holding loss on securities |   |   |       |   |   |   |   |   |
|  available      for sale                    |   |   | -          |   |   |   | 2,118,436 |   |
| Other                                            |   |   | 307,475    |   |   |   | 399,623 |   |
|  Subtotal                                   |   |   | 18,985,850 |   |   |   | 38,180,238 |   |
|  Deferred      tax liabilities:             |   |   |       |   |   |   |   |   |
|  Leasing      activities                    |   |   | (498,171   | )      |   |   | (1,076,736 | ) |
|  Equity      compensation plans             |   |   | (311,409   | )      |   |   | (305,529 | ) |
|  Unrealized      holding gain on securities |   |   |       |   |   |   |   |   |
|  available      for sale                    |   |   | (534,913   | )      |   |   | - |   |
|  Prepaid      expenses                      |   |   | (146,514   | )      |   |   | (132,710 | ) |
|  Subtotal                                   |   |   | (1,491,007 | )      |   |   | (1,514,975 | ) |
| Net      deferred tax assets                     |   | $      | 17,494,843 |   |   | $      | 36,665,263 |   |

----

|                                |                 | 2005 |
|-------------------------------------|----------------------|------|
|  Dividend      yield           | 2.4%                 |
|  Expected      volatility      | 28.3%                |
|  Risk-free      interest rate  | 3.88%                |
|  Expected      life of options |  7.3      years |

----

|                        |   |           |      |   | Weighted-Average    |   |
|-----------------------------|--------|----------------|-----------|--------|---------------------|--------|
|                        |   | Number         |      |   | Exercise      Price |   |
|                        |   | of      Shares |      |   | Per      Share      |   |
| Outstanding      -          |   |           |      |   |                |   |
| January      1, 2007        |   |           | 1,039,715 |   |                | $      | 14.25 |   |
| Granted                     |   |           | -         |   |                |   | - |   |
| Exercised                   |   |           | (351,713  | )      |                |   | 11.61 |   |
| Cancelled      or forfeited |   |           | (94,865   | )      |                |   | 20.19 |   |
| Outstanding      -          |   |           |      |   |                |   |   |   |
| December      31, 2007      |   |           | 593,137   |   |                | $      | 14.89 |   |

|                          |              |  Weighted-Average      |   |                      |              |   |                      |
|-------------------------------|-------------------|-----------------------------|--------|---------------------------|-------------------|--------|---------------------------|
|                          |  Shares      |  Remaining             |   |  Weighted-Average    |  Shares      |   |  Weighted-Average    |
| Range      of Exercise Prices |  Outstanding |  Contractual      Life |   |  Exercise      Price |  Exercisable |   |  Exercise      Price |
| $8.25      - $10.33           | 175,320           |  2.5      years        | $      | 9.88                      | 175,320           | $      | 9.88                      |
| $12.45      - $13.61          | 210,016           |  4.0      years        |   | 13.06                     | 210,016           |   | 13.06                     |
| $19.16                        | 100,341           |  6.2      years        |   | 19.16                     | 100,341           |   | 19.16                     |
| $22.63                        | 107,460           |  7.1      years        |        | 22.63                     | 107,460           |   | 22.63                     |
|                          | 593,137           |  4.5      years        | $      | 14.89                     | 593,137           | $      | 14.89                     |

----

|                               |   | Number         |   |   | Weighted-Average           |   |
|------------------------------------|--------|----------------|--------|--------|----------------------------|--------|
|                               |   | of      Shares |   |   | Grant-Date      Fair Value |   |
| Nonvested      - January 1, 2007   |   |           | 23,928 |   |                       | $      | 19.95 |   |
| Granted                            |   |           | -      |   |                       |   | - |   |
| Vested                             |   |           | -      |   |                       |   | - |   |
| Cancelled      or forfeited        |   |           | (4,258 | )      |                       |   | 19.95 |   |
| Nonvested      - December 31, 2007 |   |           | 19,670 |   |                       | $      | 19.95 |   |

|                               |   | Number         |    |   | Weighted-Average           |   |
|------------------------------------|--------|----------------|---------|--------|----------------------------|--------|
|                               |   | of      Shares |    |   | Grant-Date      Fair Value |   |
| Nonvested      - January 1, 2007   |   |           | 79,431  |   |                       | $      | 17.94 |   |
| Granted                            |   |           | -       |   |                       |   | - |   |
| Vested                             |   |           | (16,724 | )      |                       |   | 17.94 |   |
| Cancelled      or forfeited        |   |           | -       |   |                       |   | - |   |
| Nonvested      - December 31, 2007 |   |           | 62,707  |   |                       | $      | 17.94 |   |

----

| 2008                   |   | $      | 3,242,346  |   |
|------------------------|--------|--------|------------|--------|
| 2009                   |   |   | 3,029,321  |   |
| 2010                   |   |   | 2,621,449  |   |
| 2011                   |   |   | 2,106,571  |   |
| 2012                   |   |   | 925,519    |   |
| Remainder      to 2017 |   |   | 2,325,449  |   |
| Total                  |   | $      | 14,250,655 |   |

----

----

----

| December      31,                                   |   | 2007   |    |   | 2006   |   |
|-----------------------------------------------------|--------|--------|---------|--------|--------|--------|
| BALANCE      SHEET                                  |   |   |    |   |   |   |
| Assets:                                             |   |   |    |   |   |   |
| Cash                                                |   | $      | 1,678   |   |   | $      | 2,581 |   |
| Receivable      - current income taxes              |   |   | 13,938  |   |   |   | - |   |
| Dividends      receivable and other assets          |   |   | 1,179   |   |   |   | 1,467 |   |
| Investment      in the Bank                         |   |   | 140,313 |   |   |   | 131,002 |   |
| Investment      in the Trusts                       |   |   | 629     |   |   |   | 629 |   |
| Total      Assets                                   |   | $      | 157,737 |   |   | $      | 135,679 |   |
| Liabilities:                                        |   |   |    |   |   |   |   |   |
| Subordinated      notes                             |   | $      | 10,000  |   |   | $      | 10,000 |   |
| Junior      subordinated debentures                 |   |   | 20,620  |   |   |   | 20,620 |   |
| Dividends      payable and other liabilities        |   |   | 13,479  |   |   |   | 918 |   |
| Total      Liabilities                              |   |   | 44,099  |   |   |   | 31,538 |   |
| Stockholders'      Equity:                          |   |   |    |   |   |   |   |   |
| Preferred      stock                                |   |   | -       |   |   |   | - |   |
| Common      stock                                   |   |   | 74,982  |   |   |   | 73,021 |   |
| Surplus                                             |   |   | 86,654  |   |   |   | 83,767 |   |
| Retained      deficit                               |   |   | (32,164 | )      |   |   | (32,158 | ) |
| Treasury      stock                                 |   |   | (16,646 | )      |   |   | (16,646 | ) |
| Accumulated      other comprehensive income (loss), |   |   |    |   |   |
| net      of taxes                                   |   |   | 812     |   |   |   | (3,843 | ) |
| Total      Stockholders' Equity                     |   |   | 113,638 |   |   |   | 104,141 |   |
| Total      Liabilities and Stockholders' Equity     |   | $      | 157,737 |   |   | $      | 135,679 |   |

----

| For      the years ended December 31,                             |   | 2007    |        |   | 2006   |    |        | 2005   |   |
|-------------------------------------------------------------------|--------|---------|-------------|--------|--------|---------|-------------|--------|--------|
| INCOME      STATEMENT                                             |   |    |        |   |   |    |        |   |   |
| Dividends      from the Bank, net of expenses                     |   | $       | 3,584       |   |   | $       | 5,083       |   |   | $ | 8,557 |   |
| Interest      expense on temporary borrowings                     |   |    | 37          |   |   |    | 165         |   |   |   | - |   |
| Interest      expense on subordinated notes                       |   |    | 922         |   |   |    | 516         |   |   |   | - |   |
| Interest      expense on junior subordinated                      |   |    |        |   |   |    |        |   |   |
| debentures                                                        |   |    | 1,875       |   |   |    | 1,839       |   |   |   | 1,474 |   |
| Benefit      for income taxes                                     |   |    | (949        | )      |   |    | -           |   |   |   | - |   |
| Equity      in the undistributed earnings (loss)                  |   |    |        |   |   |    |        |   |   |
| of      the Bank and the Trusts                                   |   |    | 4,530       |   |   |    | 8,931       |   |   |   | (43,631 | ) |
| Net      Income (Loss)                                            |   | $       | 6,229       |   |   | $       | 11,494      |   |   | $ | (36,548 | ) |
|                                                              |   |    |        |   |   |    |        |   |   |   |   |   |
| CASH      FLOWS                                                   |   |    |        |   |   |    |        |   |   |   |   |   |
| Operating      Activities:                                        |   |    |        |   |   |    |        |   |   |   |   |   |
| Net      income (loss)                                            |   | $       | 6,229       |   |   | $       | 11,494      |   |   | $ | (36,548 | ) |
| Adjustments      to reconcile net income (loss) to                |   |    |        |   |   |    |        |   |   |
|    net      cash provided by operating activities: |   |    |        |   |   |    |        |   |   |
|  Stock-based      compensation expense                       |   |    | 604         |   |   |    | 120         |   |   |   | - |   |
| Increase      in receivable - current income taxes                |   |    | (13,938     | )      |   |    |        |   |   |   |   |   |
| Decrease      (increase) in other assets                          |   |    | 288         |   |   |    | 917         |   |   |   | (234 | ) |
| Increase      in other liabilities                                |   |    | 12,382      |   |   |    | 195         |   |   |   | 425 |   |
| Equity      in the undistributed (earnings) loss                  |   |    |        |   |   |    |        |   |   |
| of      the Bank and the Trusts                                   |   |    | (4,530      | )      |   |    | (8,931      | )      |   |   | 43,631 |   |
| Net      cash provided by operating activities                    |   |    | 1,035       |   |   |    | 3,795       |   |   |   | 7,274 |   |
| Financing      Activities:                                        |   |    |        |   |   |    |        |   |   |   |   |   |
| Proceeds      from issuance of                                    |   |    |        |   |   |    |        |   |   |   |   |   |
| subordinated      notes                                           |   |    | -           |   |   |    | 10,000      |   |   |   | - |   |
| Cash      dividends paid                                          |   |    | (6,235      | )      |   |    | (6,707      | )      |   |   | (5,766 | ) |
| Proceeds      from issuance of                                    |   |    |        |   |   |    |        |   |   |   |   |   |
| common      stock                                                 |   |    | 4,243       |   |   |    | 40,147      |   |   |   | 3,497 |   |
| Capital      contribution to the Bank                             |   |    | -           |   |   |    | (45,188     | )      |   |   | (3,794 | ) |
| Capital      contribution from the Trusts                         |   |    | 54          |   |   |    | 51          |   |   |   | 39 |   |
| Payment      to repurchase common stock                           |   |    | -           |   |   |    | -           |   |   |   | (1,178 | ) |
| Net      cash used in financing activities                        |   |    | (1,938      | )      |   |    | (1,697      | )      |   |   | (7,202 | ) |
| Net      changes in cash                                          |   |    | (903        | )      |   |    | 2,098       |   |   |   | 72 |   |
| Cash      at beginning of year                               |   |    | 2,581       |   |   |    |  483   |   |   |   |  411 |   |
| Cash      at End of Year                                     |   |  $ |  1,678 |   |   |  $ |  2,581 |   |   |  $ |  483 |   |

----

----

| At      December 31,                                         |   | 2007     |      |   | 2006            |   |
|--------------------------------------------------------------|--------|----------|-----------|--------|-----------------|--------|
|                                                         |   | Carrying |      |   | Estimated       |   |   | Carrying |   |   | Estimated |   |
|                                                         |   | Amount   |      |   | Fair      Value |   |   | Amount |   |   | Fair      Value |   |
|  Financial      assets:                                 |   |     |      |   |            |   |   |   |   |   |   |   |
|  Cash      and cash                                     |   |     |      |   |            |   |   |   |   |   |   |   |
|  equivalents                                            |   | $        | 96,380    |   |            | $      | 96,380 |   |   | $ | 206,211 |   |   | $ | 206,211 |   |
|  Short-term      assets and accrued interest receivable |   |     | 9,427     |   |            |   | 9,427 |   |   |   | 11,570 |   |   |   | 11,570 |   |
|  Securities      held to maturity                       |   |     | -         |   |            |   | - |   |   |   | 6,372 |   |   |   | 6,361 |   |
|  Securities      available for sale                     |   |     | 401,229   |   |            |   | 401,229 |   |   |   | 511,409 |   |   |   | 511,409 |   |
|  Federal      Home Loan Bank and                        |   |     |      |   |            |   |   |   |   |   |   |   |   |   |   |   |
|  other      restricted stock                            |   |     | 8,054     |   |            |   | 8,054 |   |   |   | 1,708 |   |   |   | 1,708 |   |
|  Loans      and leases - net of the                     |   |     |      |   |            |   |   |   |   |   |   |   |   |   |   |   |
| allowance      for                                           |   |     |      |   |            |   |   |   |   |   |   |   |   |   |   |   |
| loan      and lease                                          |   |     |      |   |            |   |   |   |   |   |   |   |   |   |   |   |
| losses                                                       |   |     | 1,026,305 |   |            |   | 1,031,151 |   |   |   | 967,313 |   |   |   | 956,463 |   |
| Total                                                        |   | $        | 1,541,395 |   |            | $      | 1,546,241 |   |   | $ | 1,704,583 |   |   | $ | 1,693,722 |   |
| Financial      liabilities:                                  |   |     |      |   |            |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                     |   | $        | 1,329,939 |   |            | $      | 1,331,154 |   |   | $ | 1,566,183 |   |   | $ | 1,565,924 |   |
| Subordinated      notes                                      |   |     | 10,000    |   |            |   | 10,996 |   |   |   | 10,000 |   |   |   | 10,308 |   |
| Junior      subordinated debentures                          |   |     | 20,620    |   |            |   | 20,636 |   |   |   | 20,620 |   |   |   | 20,947 |   |
| Accrued      interest payable                                |   |     | 2,070     |   |            |   | 2,070 |   |   |   | 2,212 |   |   |   | 2,212 |   |
| Temporary      borrowings                                    |   |     | 139,000   |   |            |   | 139,000 |   |   |   | - |   |   |   | - |   |
| Total                                                        |   | $        | 1,501,629 |   |            | $      | 1,503,856 |   |   | $ | 1,599,015 |   |   | $ | 1,599,391 |   |

----

|                                         |   |   |    |   |                   |   |   | For      Capital |   |   | To      Be Considered |   |
|----------------------------------------------|--------|--------|---------|--------|------------------------|--------|--------|------------------|--------|--------|-----------------------|--------|
|                                         |   | Actual |    |   | Adequacy      Purposes |   |   | Well-Capitalized |   |
|                                         |   | Amount |    |   | Ratio                  |   |   | Amount           |   |   | Ratio                 |   |   | Amount |   |   | Ratio |   |
| As      of December 31, 2007:                |   |   |    |   |                   |   |   |             |   |   |                  |   |   |   |   |   |   |   |
| Tier      I Capital to Total Adjusted        |   |   |    |   |                   |   |   |             |   |   |                  |   |   |   |   |   |   |   |
|  Average      Assets (Leverage):        |   |   |    |   |                   |   |   |             |   |   |                  |   |   |   |   |   |   |   |
| The      Company                             |   | $      | 119,900 |   |                   |   | 7.03   | %                |   | $      | 68,210                |   |   |   | 4.00 | % |   |   | N/A |   |   |   | N/A |   |
| The      Bank                                |   | $      | 126,575 |   |                   |   | 7.43   | %                |   | $      | 68,168                |   |   |   | 4.00 | % |   | $ | 85,209 |   |   |   | 5.00 | % |
| Tier      I Capital to Risk-Weighted Assets: |   |   |    |   |                   |   |   |             |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The      Company                             |   | $      | 119,900 |   |                   |   | 10.04  | %                |   | $      | 47,775                |   |   |   | 4.00 | % |   |   | N/A |   |   |   | N/A |   |
| The      Bank                                |   | $      | 126,575 |   |                   |   | 10.62  | %                |   | $      | 47,673                |   |   |   | 4.00 | % |   | $ | 71,510 |   |   |   | 6.00 | % |
| Total      Capital to Risk-Weighted Assets:  |   |   |    |   |                   |   |   |             |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The      Company                             |   | $      | 144,605 |   |                   |   | 12.11  | %                |   | $      | 95,551                |   |   |   | 8.00 | % |   |   | N/A |   |   |   | N/A |   |
| The      Bank                                |   | $      | 141,280 |   |                   |   | 11.85  | %                |   | $      | 95,347                |   |   |   | 8.00 | % |   | $ | 119,183 |   |   |   | 10.00 | % |
| As      of December 31, 2006:                |   |   |    |   |                   |   |   |             |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier      I Capital to Total Adjusted        |   |   |    |   |                   |   |   |             |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Average      Assets (Leverage):        |   |   |    |   |                   |   |   |             |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The      Company                             |   | $      | 111,764 |   |                   |   | 6.30   | %                |   | $      | 70,953                |   |   |   | 4.00 | % |   |   | N/A |   |   |   | N/A |   |
| The      Bank                                |   | $      | 118,625 |   |                   |   | 6.69   | %                |   | $      | 70,904                |   |   |   | 4.00 | % |   | $ | 88,629 |   |   |   | 5.00 | % |
| Tier      I Capital to Risk-Weighted Assets: |   |   |    |   |                   |   |   |             |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The      Company                             |   | $      | 111,764 |   |                   |   | 9.48   | %                |   | $      | 47,166                |   |   |   | 4.00 | % |   |   | N/A |   |   |   | N/A |   |
| The      Bank                                |   | $      | 118,625 |   |                   |   | 10.07  | %                |   | $      | 47,111                |   |   |   | 4.00 | % |   | $ | 70,666 |   |   |   | 6.00 | % |
| Total      Capital to Risk-Weighted Assets:  |   |   |    |   |                   |   |   |             |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The      Company                             |   | $      | 136,524 |   |                   |   | 11.58  | %                |   | $      | 94,333                |   |   |   | 8.00 | % |   |   | N/A |   |   |   | N/A |   |
| The      Bank                                |   | $      | 133,368 |   |                   |   | 11.32  | %                |   | $      | 94,221                |   |   |   | 8.00 | % |   | $ | 117,777 |   |   |   | 10.00 | % |

----

----

CHANGES IN 

CONTROLS 

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| ·   | Pertain      to the maintenance of records that, in reasonable detail, accurately and      fairly reflect the transactions and dispositions of the assets of the      Company. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Provide      reasonable assurance that the transactions are recorded as necessary to      permit preparation of financial statements in accordance with the      generally accepted accounting principles in the United States of America,      and that our receipts and expenditures are being made only in accordance      with authorizations of the Company’s management and directors;      and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Provide      reasonable assurance regarding prevention or timely detection of      unauthorized acquisition, use or disposition of our assets that could have      a material effect on the financialstatements. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

OTHER INFORMATION

DIRECTO

XECUTI

SECURITY OWNERSHIP

----

|        Plan      Category        |   |    Number      of securities to be issued upon exercise of outstanding options, warrants      and rights (a) |          |   |   Weighted-average      exercise price of outstanding options, warrants and rights($) (b) |   |   |  Number      of securities remaining available for future issuance under equity      compensation plans (excluding securities reflected in column      (a)) (c) |   |
|---------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------|---------------|--------|----------------------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Equity      compensation plans approved by security holders         |   |                                                                                                                             | 593,137       |   |                                                                                                     |   | 14.89  |                                                                                                                                                                      |   |   | 490,588 |   |
| Equity      compensation plans not approved by security holders (1) |   |                                                                                                                             |  193,136 |   |                                                                                                     |   | 17.84  |                                                                                                                                                                      |   |   | 137,453 |   |
| Total                                                               |   |                                                                                                                             | 786,273       |   |                                                                                                     |   | 14.97  |                                                                                                                                                                      |   |   | 628,041 |   |

TIONSHIP

PRINCIPAL ACCOUNTANT 

EXHIBITS AND 

----

| No.    | Item                                                                                                                        | Method of Filing                                                                                                         |
|--------|-----------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|
| (3)    | Articles      of incorporation and By-Laws                                                                                  |                                                                                                                     |
|   | a)      Certificate      of Incorporation                                                     | Incorporated      by reference from Exhibit 3.1.1 to the Company’s June 30, 2006 Form      10-Q.                   |
|   | a)   (i)      Certificate of Correction                                                                      | Incorporated      by reference from Exhibit 3.1.2 to the Company’s June 30, 2006 Form      10-Q.                   |
|   | a)   (ii)      Certificate of Amendment                                                                      | Incorporated      by reference from Exhibit 3.1.3 to the Company’s June 30, 2006 Form      10-Q.                   |
|   | b)      By-Laws,      as amended                                                              | Incorporated      by reference from Exhibit 3b to the Company’s June 30, 2003 Form      10-Q.                      |
| (4)    | Instruments      defining the rights ofsecurity      holders                                                                | Pages      22-28 of the above referenced Registration Statement.                                                         |
|   | a)   Form      of Registration Rights Agreement                                                              | Incorporated      by reference from Exhibit 4.1 to the Company’s December 21, 2006 Form      8-K.                  |
| (10)   | Material      contracts                                                                                                     |                                                                                                                     |
|   | a)Deferred      Compensation Arrangements                                                                                   | Incorporated      by reference from exhibit 10a to the Company’s December 31, 2004      Form 10-K.       |
|   | a)   (i)      Form of April 2004 Agreement Relating to Deferred Compensation      Agreements                 | Incorporated      by reference from exhibit 10a (i) to the Company’s      December 31, 2004 Form 10-K.   |
|   | a)   (ii)      Form of Supplemental Employee Retirement Agreement                                            | Incorporated      by reference from exhibit 10a (ii) to the Company’s      December 31, 2004 Form 10-K.  |
|   | a)   (iii)      Form of Deferred Compensation Agreement                                                      | Incorporated      by reference from exhibit 10a (iii) to the Company’s      December 31, 2004 Form 10-K. |
|   | a)   (iv)      Form of Deferred Compensation Agreement                                                       | Incorporated      by reference from exhibit 10a (iv) to the Company’s      December 31, 2004 Form 10-K.  |
|   | b)(i)      Directors’ Incentive Retirement Plan                                                                       | Incorporated      by reference from exhibit 10c to the Company’s December 31, 1986      Form 10-K.       |
|   | b)(ii)      Agreements of participants surrendering their rights under the directors’      incentive retirement plan. | Incorporated      by reference from exhibit 10b (ii) to the Company’s December 31, 1992 Form      10-K.            |
|   | b)(iii)      Agreements of participants modifying agreements described in item b)      (ii)                                 | Incorporated      by reference from exhibit 10b (iii) to the Company’s December 31, 1995      Form 10-K.           |
|   | c)1987      Incentive Stock Option Plan, as amended                                                                         | Incorporated      by reference from exhibit 10c to the Company’s December 31, 1991      Form 10-K.       |
|   | d)(i)      1994 Incentive Stock Option Plan                                                                                 | Incorporated      by reference from exhibit 10d to the Company’s December 31, 1993 Form      10-K.                 |

----

| No.    | Item                                                                                                                         | Method of Filing                                                                                                     |
|--------|------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------|
|   | d)(ii)      Amendment No. 1 to 1994 Incentive Stock Option Plan                                                              | Incorporated      by reference from exhibit 10.1 to the Company’s December 19, 2005 Form      8-K.             |
|   | e)(i)      Change of control agreement no. 1, as amended                                                                     | Incorporated      by reference from exhibit 99.1 to the Company’s October 3, 2006 Form      8-K.               |
|   | e)(ii)      Change of control agreement no. 2, as amended                                                                    | Incorporated      by reference from exhibit 99.2 to the Company’s October 3, 2006 Form      8-K.               |
|   | e)(iii)      Change of control agreement no. 3, as amended                                                                   | Incorporated      by reference from exhibit 99.3 to the Company’s October 3, 2006 Form      8-K.               |
|   | e)(iv)      Change of control agreement no. 4, as amended                                                                    | Incorporated      by reference from exhibit 99.4 to the Company’s October 3, 2006 Form      8-K.               |
|   | e)(v)      Change of control agreement no. 5, as amended                                                                     | Incorporated      by reference from exhibit 99.5 to the Company’s October 3, 2006 Form      8-K.               |
|   | e)(vi)      Form of amended and restated change of control employment    agreement                                           | Incorporated      by reference from exhibit 10.1 to the Company’s September 30, 2007 Form      10-Q.           |
|   | f)State      Bank of Long Island 401(k)Retirement      Plan and Trust                                                        | Incorporated      by reference from exhibit 10g to the Company’s December 31, 1987      Form 10-K.   |
|   | g)State      Bancorp, Inc. Employee Stock Ownership Plan                                                                     | Incorporated      by reference from exhibit 10g to the Company’s December 31, 1987      Form 10-K.   |
|   | h)Deferred      Compensation Agreement                                                                                       | See      Exhibit (10) a).                                                                                            |
|   | i)    (i)      1999 Incentive Stock Option Plan                                                          | Incorporated      by reference from exhibit 10i to the Company’s December 31, 1998 Form      10-K.             |
|   | i)(ii)      Amendment No. 1 to 1999 Incentive Stock Option Plan                                                              | Incorporated      by reference from exhibit 10.2 to the Company’s December 19, 2005 Form      8-K.             |
|   | j)    (i)      1998 Directors’ Stock Plan                                                          | Incorporated      by reference from exhibit 10j to the Company’s December 31,      1999Form      10-K.         |
|   | j)    (ii)      1998 Directors’ Stock Plan Amendment      No.      1 | Incorporated      by reference from exhibit 10j to the Company’s December 31,      2000Form      10-K.         |
|   | j)    (iii)      1998 Directors’ Stock Plan Amendment No. 2                                        | Incorporated      by reference from exhibit 10j (iii) to the Company’s June 30, 2003 Form      10-Q.           |
|   | k)   Stock      Option Plan (2002)                                                                            | Incorporated      by reference from exhibit 10k to the Company’s December 31, 2002 Form      10-K.             |
|   | l)   Incentive      Award Plan                                                                                | Incorporated      by reference from exhibit 10  l) to the Company’s February 18,      2005 Form 8-K. |
|   | m)  Employment      Agreement                                                                                      | Incorporated      by reference from exhibit 10 (m) to the Company’s November 7, 2006 Form      8-K.            |
|   | m)(i)   Nonqualified      Stock Option Agreement                                                              | Incorporated      by reference from exhibit 10 (m)(i) to the Company’s November 15, 2006      Form 8-K.        |
|   | m)(ii)  Restricted      Stock Award Agreement                                                                      | Incorporated      by reference from exhibit 10 (m)(ii) to the Company’s November 21, 2006      Form 8-K/A.     |

----

| No.    | Item                                                                                                                                                                                                                 | Method of Filing                                                                                                    |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|
|   | m)(iii)       Amended and Restated Employment Agreement                                                                                                                                                         | Filed herein.                                                                                                       |
|   | n)   2006      Equity Compensation Plan                                                                                                                                                               | Incorporated      by reference from appendix 1 to the Company’s Proxy Statement filed on      March 23, 2006. |
| (14)   | a)   Code      of Ethics for Chief Executive  and      Senior Financial Officers                                                                                                            | Incorporated      by reference from exhibit 14a to the Company’s December 31, 2003 Form      10-K.            |
|   | b)   Code      of Business Conduct and Ethics, as amended                                                                                                                                             | Incorporated      by reference from exhibit 14b to the Company’s December 31, 2005 Form      10-K.            |
| (16.1) | Letter      re change in certifying accountant                                                                                                                                                                       | Incorporated      by reference from exhibit 16.1 to the Company’s August 18, 2005 Form      8-K.              |
| (23)   | Consent      of Independent Registered Public Accounting Firm                                                                                                                                                        | Filed herein.                                                                                                       |
| (24)   | Power      of Attorney                                                                                                                                                                                               | Filed herein.                                                                                                       |
| (31.1) | Certification      of principal executive officer pursuant to Rule 13a-14(a) or 15d-14(a)      of the Securities Exchange Act      of 1934, as adopted pursuantto      Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herein.                                                                                                       |
| (31.2) | Certification      of principal financial officer pursuant to Rule 13a-14(a) or15d-14(a)      of the Securities Exchange Act      of 1934, as adopted pursuantto      Section 302 of the Sarbanes-Oxley Act of 2002  | Filed herein.                                                                                                       |
| (32)   | Certification      pursuant to 18 U.S.C. Section      1350, as adopted pursuantto      Section 906 of the Sarbanes-Oxley Act      of 2002                                                                            | Filedherein.                                                                                                        |

----

IGNAT

|  Signature                           |  Title                                      |  Date    |
|-------------------------------------------|--------------------------------------------------|---------------|
|                                      |                                             |          |
|  /s/      Thomas M. O’Brien    |  President and      Chief Executive Officer |  3/17/08 |
|  Thomas M.      O’Brien        |                                             |          |
|                                      |                                             |          |
|  /s/      Brian K. Finneran          |  Chief      Financial Officer               |  3/17/08 |
|  Brian      K. Finneran              |                                             |          |
|                                      |                                             |          |
|  Thomas E.      Christman*           |  Director                                   |          |
|  Arthur Dulik,      Jr.*             |  Director                                   |          |
|  Thomas F.      Goldrick, Jr.*  |  Chairman of      the Board                 |          |
|  Nicos      Katsoulis*               |  Director                                   |          |
|  John J.      LaFalce*               |  Director                                   |          |
|  K. Thomas      Liaw*                |  Director                                   |          |
|  Gerard J.      McKeon*              |  Director                                   |          |
|  Richard W.      Merzbacher*         |  Director                                   |          |
|  Joseph F.      Munson*              |  Director                                   |          |
|  John F.      Picciano*              |  Director                                   |          |
|  Daniel T.      Rowe*                |  Director                                   |          |
|  Suzanne H.      Rueck*         |  Director                                   |          |
|  Andrew J.      Simons*              |  Director                                   |          |
|  Jeffrey S.      Wilks*              |  Director                                   |          |

----