STATE BANCORP, INC.

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


<PAGE>

STATE BANCORP, INC. 2001 Annual Report

GROWING
OUR BUSINESS

PORT WASHINGTON * STUDEBAKER-WORTHINGTON * JACKSON HEIGHTS * MASPETH * LI CITY

MEASURED, ORDERLY
GROWTH


<PAGE>

STATE BANK HAS GROWN TO BE THE LARGEST INDEPENDENT
--------------------------------------------------------------------------------

MEASURED,
ORDERLY
GROWTH


COMPANY  PROFILE

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

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

                                Average assets--
                                  5-year trend
                              (dollars in millions)

                   '97      '98      '99      '00       '01

                  678.4    740.2    841.5    947.4    1,004.3


                                Return on Average
                             Stockholders' Equity--
                                  5-year trend
                                    (percent)

                    '97      '98      '99      '00      '01

                   13.76    14.16    17.35    17.91    13.94


                                  Net Income --
                                  10-year trend
                             (dollars in thousands)

 '92     '93     '94     '95     '96     '97     '98     '99      '00      '01

3,463   3,708   4,019   5,039   5,702   7,105   8,203   10,329   10,710   10,821



<PAGE>

COMMERCIAL BANK HEADQUARTERED IN NASSAU COUNTY.
--------------------------------------------------------------------------------

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Fiscal Year Ended December 31,                           2001            2000             1999            1998            1997
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>               <C>             <C>             <C>
Operating Results
Interest income                                     $ 69,937,207    $   72,925,122    $ 61,508,519    $ 54,769,164    $ 50,664,182
Interest expense                                      26,745,029        35,788,522      25,473,096      24,164,086      22,690,197
Net interest income                                   43,192,178        37,136,600      36,035,423      30,605,078      27,973,985
Provision for probable loan losses                     3,600,000         3,250,000       3,000,000       1,800,000       1,950,000
Net interest income after provision
   for probable loan losses                           39,592,178        33,886,600      33,035,423      28,805,078      26,023,985
Other income                                           4,973,313         2,435,755       2,146,042       1,533,111       1,634,299
Operating expenses                                    31,587,765        21,977,203      20,452,093      17,967,483      16,722,436
Net income                                          $ 10,820,834    $   10,709,840    $ 10,328,708    $  8,202,545    $  7,105,490
----------------------------------------------------------------------------------------------------------------------------------
Common Share Data
Basic earnings per common share (1)                        $1.38             $1.35           $1.31           $1.05           $0.92
Diluted earnings per common share (1)                      $1.35             $1.34           $1.29           $1.03           $0.90
Stock dividends/splits                                         5%                8%              6%              5%             20%
Cash dividends per common share (1)                        $0.54             $0.48           $0.44           $0.43           $0.35
----------------------------------------------------------------------------------------------------------------------------------
Financial Position
Total assets                                        $985,770,997    $1,021,223,348    $949,829,410    $732,693,510    $738,088,937
Total loans (2)                                     $551,597,698    $  496,992,446    $488,948,385    $420,636,380    $377,633,267
Total deposits                                      $884,709,462    $  895,107,149    $804,462,926    $597,020,948    $611,227,920
Total stockholders' equity                          $ 76,288,429    $   72,306,737    $ 56,103,097    $ 60,857,892    $ 54,930,263
Weighted average number of
   common shares outstanding (1)                       7,845,659         7,931,842       7,895,783       7,786,334       7,660,298
----------------------------------------------------------------------------------------------------------------------------------
Other Data
Return on average total assets                              1.08%             1.13%           1.23%           1.11%           1.05%
Return on average total stockholders' equity               13.94%            17.91%          17.35%          14.16%          13.76%
Operating efficiency ratio                                  64.5%             52.5%           51.7%           54.4%           54.8%
Dividend payout ratio                                      38.79%            35.28%          33.43%          40.77%          37.56%
----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Retroactive recognition has been given for stock dividends and splits.
(2) Net of unearned income and before allowance for probable loan losses.
</FN>
</TABLE>

DIVIDEND GROWTH

During each of the past twenty years, the Company has paid both cash and stock
dividends to its common stockholders. Cash dividends per common share have grown
at a compound annual growth rate of 15% per year and a total of $30 million has
been paid to stockholders during this period. Stock dividends and splits ranging
from 5% to 100% have also been distributed in each of these years.


                                 CASH DIVIDENDS
                                    PER SHARE

 '82     '83     '84     '85     '86     '87     '88     '89     '90     '91

$0.04   $0.04   $0.05   $0.06   $0.06   $0.07   $0.08   $0.10   $0.11   $0.13


 '92     '93     '94     '95     '96     '97     '98     '99     '00     '01

$0.14   $0.16   $0.18   $0.34   $0.29   $0.35   $0.43   $0.44   $0.48   $0.54

                                       1

<PAGE>

OFFERING THE PEOPLE, BUSINESSES AND MUNICIPALITIES ACROSS
--------------------------------------------------------------------------------

MESSAGE TO OUR STOCKHOLDERS

To Our Stockholders, Customers and Friends:

We are pleased to report that State Bancorp entered 2002 strong and healthy,
following a year of growth in earnings, assets and capital, along with strong
performance in return on equity and return on assets. 2001 was also a year of
Company expansion on a number of fronts and significant investment in future
business growth. Most notably, we integrated Studebaker-Worthington Leasing
Corporation, our latest acquisition, into our organization; added to our branch
network in Nassau County; expanded into Queens County; and strengthened our
relationship with U.S. Trust.

   We are particularly pleased to report that in 2001 we achieved our 31st
consecutive year of record earnings, a record that few--if any--financial
institutions can match. Net income for the year was $10.8 million representing a
1.0% increase over the year 2000. Also, our Company's return on average assets
was 1.08% for the year, and the return on average stockholders' equity was
13.94%. In addition, our growth in commercial loans, commercial mortgages and
the acquisition of Studebaker-Worthington produced a 12% increase in average
loans outstanding. Our asset expansion was funded by growth in deposits,
principally core deposit balances which increased by 23%. Offsetting these
positive results were higher operating expenses and an increase in the provision
for probable loan losses.

   During 2001, our total operating expenditures rose by 44% to $31.6 million.
The principal reasons for this increase were: our investment in new branch
offices in Nassau and Queens; the acquisition of Studebaker-Worthington Leasing
Corporation; and higher legal fees related to the ongoing litigation arising out
of our deposit relationship with Island Mortgage Network, a former deposit
customer, and its affiliates.

   During 2001, our legal fees rose by $3.0 million, due solely to the Island
Mortgage litigations. The Bank has defended and will continue to defend these
lawsuits vigorously, and it is our opinion that we have strong defenses.

   For a more detailed analysis of the Company's consolidated financial
statements, please refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 25 of this report.

   As indicated in our Strategic Plan, we continued, in 2001, our aggressive
branch expansion program into markets that we believe hold opportunity for the
kind of highly personalized banking service we offer. We are pleased to report
the opening of our County Seat Office in Mineola in September 2001. Also, the
first State Bank office opened in Queens County at the Bulova Corporate Center
in Jackson Heights in June 2001, followed by the opening of our Maspeth Office
on Grand Avenue--in the heart of that area's industrial sector. In addition, we
expect to open, early in 2002, two more branches. The first will be in Port
Washington, Nassau County and the second will be in Long Island City, which is
among our region's most rapidly expanding markets.

   Each of our new offices is or will be staffed with managers and office
personnel with considerable experience in their respective markets. Early
indications are that our recently opened offices have been well received in
their communities and they are anticipated to perform ahead of our initial
expectations. With these additional locations, our branch network will include
15 strategically placed offices.

   In 2001, we also expanded our product line with the acquisition of
Studebaker-Worthington Leasing Corporation, a business equipment leasing company
with a 30-year history and a national presence. Studebaker-Worthington has a
strong management team and its leasing expertise is a natural complement to
State Bank's financial services for our commercial, business and municipal
customers.

   Another area of growth has been our ongoing relationship with U.S. Trust. Our
strategic alliance with U.S. Trust expanded throughout 2001 as the demand for
specialized wealth management services continued to grow among our customers.

   Other investments during 2001 included a newly renovated space for our
technology group; a state-of-the-art telecommunications system; a new web
design; and Platform Automation for the future, which we anticipate will
significantly enhance convenience for our customers.

   The tragic events of September 11th will affect all of us for years to come.
We joined New York City, our country and the world in mourning for the many
victims and their families. We also created a victims fund accepting donations
from our employees and our customers. The fund raised nearly $20,000 and the
Bank then tripled employee contributions. A significant

                                       2
<PAGE>

OUR MARKET AREA THE FINEST IN FINANCIAL PRODUCTS AND SERVICES.
--------------------------------------------------------------------------------

                                    [PHOTO]

Standing: Thomas F. Goldrick, Jr.; Seated left to right: Daniel T. Rowe,
Richard W. Merzbacher


part of this fund went directly to the families from a Queens firehouse that
lost several members on September 11th. To support the wave of patriotism that
came across our great country, the Bank offered free American flag lapel pins to
all of our customers. To date, we have given out more than 7,000 of them.

   We would like to take this opportunity to acknowledge and thank the members
of our Board of Directors and our Advisory Board, whose insight and support are
invaluable. At the same time, it is with great sorrow that we note the passing
of Joe Smolenski and George Mead, both long-time Board members, and Marvin
Buchner, a long-standing Advisory Board member. We deeply appreciate the
excellent guidance and support they contributed over many, many years. Also, it
is with great sorrow that we note the unexpected passing of Lucille Jessen, our
good friend and long-time New Hyde Park branch manager. She will be sorely
missed. In her memory, our Employee Spirit Award will hence be called the
Lucille Jessen Spirit Award.

   Lastly, we again would like to bring to the attention of our Stockholders our
Dividend Reinvestment Plan, which continues to provide an opportunity to
reinvest cash dividends into Company stock. Since it began in 1993, this Plan
has been exceptionally well received and has served to contribute nearly $6.2
million in capital toward the growth of our Company. A perforated response card
is attached in this report in the event you would like to receive more
information on or wish to participate in this Plan.

   Looking forward, we are cautiously optimistic about 2002 as we expect the
investment in our branch network and our product line to contribute
significantly to the growth of our Company. Your management is ready to seize
opportunities as they arise and we are most confident that we have the people,
products, stability and infrastructure to make the most of any future
opportunities. We thank you sincerely for your ongoing support.

/s/ Thomas F. Goldrick, Jr.

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


/s/ Richard W. Merzbacher

Richard W. Merzbacher
Vice Chairman


/s/ Daniel T. Rowe

Daniel T. Rowe
President

                                       3

<PAGE>

GROWING OUR BRANCH NETWORK
--------------------------------------------------------------------------------

EXPANDING INTO NEW MARKETS

At a time when many of our competitors have consolidated or contracted their
branch networks, State Bank has continued an aggressive branch expansion program
into new markets that hold opportunity for the kind of highly personalized
banking service we deliver.

   From its beginning, State Bank has understood that its success depended in
large part on its ability to satisfy customer needs and provide quality banking
services. Our staff appreciates the demand for traditional values in banking
such as courtesy, personal attention, accessibility, responsiveness and
competence. These values have remained a cornerstone of our business and have
proven to be key to attracting new relationships and retaining old friends.

   Expanding our branch network makes it easier for us to effectively deliver
quality service and be more responsive to local needs. It also increases the
convenience for the prospective customers we wish to reach.

   In 2001, we added three new offices to our network with two others scheduled
to open early in 2002.

   During September, our County Seat Office in Mineola opened. Located in the
heart of Nassau County's business district, this facility offers customers
state-of-the-art technology and design, the amenities of a multi-channel
delivery system as well as the traditional attentiveness our customers have come
to expect. This office will provide a full range of banking services to the
large legal and accounting communities located in that area.

   Next, our plans included opening three offices in Queens County. The
locations selected included: Jackson Heights, Maspeth and Long Island City. Much
of the economic growth in these areas has been driven by small and mid-size
businesses. These are market segments that we know very well and have
successfully cultivated over the years.

   In June, the first State Bank office in Queens County opened in the Bulova
Corporate Center in Jackson Heights. The office is located on the ground level,
offers extended banking hours to businesses in the Center and has the only ATM
service in the building. In addition to the branch, the Bank opened a Corporate
Lending Office on the fourth floor of the Bulova Center.

                                    [PHOTO]
                  Long Island City, architectural illustration

LONG ISLAND CITY


                                       4
<PAGE>

TO REACH NEW MARKETS.
--------------------------------------------------------------------------------

MASPETH

                                    [PHOTO]
           Our Maspeth office, Grand Avenue, opened in December, 2001


JACKSON HEIGHTS
                                    [PHOTO]
                    Ribbon cutting ceremony in Bulova Center


   Our Maspeth office opened in December on Grand Avenue in the heart of the
industrial sector. This branch also offers extended hours as a convenience to
local merchants, has ample parking and a drive-through window, and is the only
commercial bank in this established business area. The reception by the
community was overwhelmingly positive. Many businesses were pleased to have a
bank move into the neighborhood and several wanted to open accounts before the
office officially opened.

     Two additional offices are expected to open early in 2002. The first is in
Port Washington, Nassau County, on Port Washington Boulevard. Construction is
well underway and should be completed by mid-March. The Port Washington
community includes a unique combination of commercial, small business, consumer
and municipal prospects--which makes it an ideal location for the Bank to build
new relationships.

   The second office to open in 2002 will be on 46th Avenue in Long Island
City--which is considered a booming marketplace. In addition to being the
largest community in Queens, Long Island City has been a magnet for new
commercial enterprises for over ten years. Commercial real estate is at a
premium and its value has soared, outpacing even Manhattan. It is a promising
market in which we expect to do very well.

                                       5

<PAGE>


BRINGING VALUABLE FINANCIAL ALTERNATIVES TO OUR CUSTOMERS.
--------------------------------------------------------------------------------

BUILDING OUR BUSINESS LINES

                                    [PHOTO]
From left to right: Arnold Winitt, Controller; Maxine Blumberg,
National Sales Manager; Kenneth Paston, President; Anthony Campisciano,
Vice President--Operations

Today's fastest growing method of business equipment financing is leasing. Eight
out of ten American firms now lease some or all of their office equipment. Just
about everything used in business--computers, software, medical equipment,
production machinery and telecommunication systems-- can be leased. Leasing is a
cost effective, practical way for businesses to acquire the equipment they need
to manage or expand their business without incurring the up-front cash outlay or
running the risk of getting caught with obsolete equipment. In fact, the
national leasing market is now estimated at over $233 billion.

   In February, the Bank acquired Studebaker-Worthington Leasing Corporation.
Studebaker has provided business equipment leasing nationwide for over thirty
years, specializing in leases up to $100 thousand for computers and office
equipment. However, there is virtually no commercial or professional equipment
for which Studebaker does not offer leasing. Leasing can be for as little as
$5,000 or up to $500,000 or more.

   Studebaker has successfully established a national presence with significant
relationships in California, New York, Florida, Massachusetts and Texas.
Customers of Studebaker-Worthington range from sole proprietors to some of the
largest companies in America. One of the many advantages of leasing often noted
by customers is that with a true lease, 100% of their monthly lease payment is
deductible.

   The Studebaker-Worthington acquisition nicely complements State Bank's
current product offerings and provides a valuable financial alternative to our
commercial, small business and municipal customers.

                                    [PHOTO]
Studebaker has a national presence with significant relationships in California,
New York, Florida, Massachusetts and Texas.

                                       6

<PAGE>

CONTRIBUTING TO A BETTER QUALITY OF LIFE IN THE COMMUNITIES WE SERVE.
--------------------------------------------------------------------------------

INVESTING IN OUR COMMUNITIES

                                    [PHOTO]
      Top: The U.S. Navy Sea Cadets training on a Coast Guard patrol boat

                                    [PHOTO]
Left: Tom Goldrick, Chairman, SBLI presents a grant check to Rick Aimetti, Sea
Cadet Commander. From left to right: Michael O'Leary, VP and Grant Coordinator,
SBLI; Rick Aimetti; Tom Goldrick


As a community bank, State Bank has always understood that investing in the
neighborhoods we serve is good business. Since 1998, State Bank has provided
grants to community organizations throughout Long Island. The program was
established to make funds available to local, tax-exempt organizations engaged
in activities that promote housing, local economic and socioeconomic development
initiatives. To date, the Bank has granted over $92,000 to these organizations.

   In 2001, one of the Bank's grants went to the support of a U.S. Navy Sea
Cadet Corps on Long Island. This nationwide organization is dedicated to helping
American youth realize personal success and achievement through a nautically
oriented program. Young Americans ages 13 through 17 develop skills in basic
seamanship while learning the value of patriotism, courage, self reliance,
teamwork and accountability. Cadets train aboard U.S. Navy and Coast Guard ships
and are authorized by the Secretary of the Navy to wear Navy uniforms. There are
over 800 Sea Cadet units with over 9,000 members supported and sponsored by
Councils of the Navy League and America's Promise.

   After the September 11th attack on the World Trade Center, State Bank
employees organized a WTC Victims Fund to help those in need. The Fund drew an
outpouring of support by State Bank staff, family members and customers.

   When selecting organizations to receive distributions from the Fund, much
care was taken to ensure that the money went to those most in need, while also
honoring the specific requests of several contributors. One of the donations for
$5,000 went to the Firefighters WTC Fund which will go directly to the needy
families of those many firefighters lost from the FDNY Hazardous Materials unit
in Maspeth, Queens. Another donation for $7,500 went to The New York Fire
Department Widows' and Children's Fund which will be distributed directly to the
families of fallen firefighters.


                                    [PHOTO]
Tom Goldrick and State Bankers present a donation check to Captain Stephen Bacci
and the FDNY Haz-Mat Company in Maspeth, Queens.

                                       7


<PAGE>

PROVIDING EXCELLENT GUIDANCE AND SUPPORT.
--------------------------------------------------------------------------------

BOARD OF DIRECTORS

                                    [PHOTO]
Standing from left to right: Joseph F. Munson, J. Robert Blumenthal, Thomas E.
Christman, Arthur Dulik, Jr., Jeffrey S. Wilks, Richard W. Merzbacher, Thomas F.
Goldrick, Jr., Gerald P. Rosenberg (Secretary to the Board)

Seated from left to right: Carl R. Bruno, Daniel T. Rowe, John F. Picciano,
Suzanne H. Rueck, Gary Holman

                                       8


<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
OFFICE LOCATIONS
--------------------------------------------------------------------------------

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

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

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

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

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

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

Port Washington Office*
960 Port Washington Boulevard
Port Washington, NY 11050

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

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

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

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

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

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

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

Long Island City Office*
21-31 46th Avenue
Long Island City, NY 11101

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

LENDING FACILITY
Two Jericho Plaza
Jericho, NY 11753-1683
(516) 465-2300

INTERNET ADDRESS
www.statebankofli.com

TOUCH 24--
24 Hour Telephone Banking
1-866-STATEBK (Toll Free)
1-866-782-8325

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

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

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

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

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

*scheduled to open in 2002


<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                    2001              2000
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>               <C>
ASSETS:
   Cash and due from banks                                                                      $ 25,310,091      $   29,548,865
   Federal funds sold                                                                              2,800,000           1,300,000
   Securities purchased under agreements to resell                                               110,000,000          60,000,000
--------------------------------------------------------------------------------------------------------------------------------
   Total cash and cash equivalents                                                               138,110,091          90,848,865
   Securities held to maturity (estimated fair value
     of $203,770 in 2001 and $258,708 in 2000)                                                       196,200             261,600
   Securities available for sale--at estimated fair value                                        275,213,366         418,329,436
   Loans (net of allowance for probable loan losses of
     $9,255,414 in 2001 and $9,207,243 in 2000)                                                  542,342,284         487,785,203
   Bank premises and equipment--net                                                                6,420,476           4,471,848
   Other assets                                                                                   23,488,580          19,526,396
--------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                                    $985,770,997      $1,021,223,348
--------------------------------------------------------------------------------------------------------------------------------

LIABILITIES:
   Deposits:
     Demand                                                                                     $181,439,730      $  147,807,136
     Savings                                                                                     326,984,662         244,697,890
     Time                                                                                        376,285,070         502,602,123
--------------------------------------------------------------------------------------------------------------------------------
   Total deposits                                                                                884,709,462         895,107,149
   Federal funds purchased                                                                                --           9,700,000
   Securities sold under agreements to repurchase                                                         --             325,000
   Other borrowings                                                                               19,099,591          35,000,000
   Accrued expenses, taxes and other liabilities                                                   5,673,515           8,784,462
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                                909,482,568         948,916,611
--------------------------------------------------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENT LIABILITIES

STOCKHOLDERS' EQUITY:
   Preferred stock, $0.01 par value, authorized 250,000 shares                                            --                  --
   Common stock, $5.00 par value, authorized 20,000,000 shares;
     issued 8,234,119 shares in 2001 and 8,132,141 shares in 2000;
     outstanding 7,735,416 shares in 2001 and 7,903,752 shares in 2000                            41,170,595          38,724,480
   Surplus                                                                                        39,202,494          34,518,406
   Retained earnings                                                                               5,588,315           4,779,837
   Treasury stock (476,700 shares in 2001 and 178,900 shares in 2000)                             (7,071,149)         (2,422,428)
   Accumulated other comprehensive loss, net of taxes                                             (2,427,503)         (2,972,336)
   Unearned compensation                                                                            (174,323)           (321,222)
--------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                                        76,288,429          72,306,737
--------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                      $985,770,997      $1,021,223,348
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       9
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                  2001             2000             1999
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>              <C>              <C>
INTEREST INCOME:
   Loans                                                                      $48,177,441      $46,483,646      $40,339,780
   Federal funds sold and securities purchased
     under agreements to resell                                                 2,650,633        1,436,031        1,258,276
   Securities held to maturity and securities available for sale:
     States and political subdivisions                                          5,049,395        3,617,143        1,766,334
     Mortgage-backed securities                                                 3,205,282        1,084,047        1,692,414
     Government Agency securities                                              10,220,711       19,795,697       16,256,014
     Other                                                                        633,745          508,558          195,701
---------------------------------------------------------------------------------------------------------------------------
Total interest income                                                          69,937,207       72,925,122       61,508,519
---------------------------------------------------------------------------------------------------------------------------

INTEREST EXPENSE:
   Time certificates of deposit of $100,000 or more                            13,121,537       20,774,290       13,897,682
   Other deposits and temporary borrowings                                     13,623,492       15,014,232       11,575,414
---------------------------------------------------------------------------------------------------------------------------
   Total interest expense                                                      26,745,029       35,788,522       25,473,096
---------------------------------------------------------------------------------------------------------------------------
   Net interest income                                                         43,192,178       37,136,600       36,035,423
PROVISION FOR PROBABLE LOAN LOSSES                                              3,600,000        3,250,000        3,000,000
---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for probable loan losses                   39,592,178       33,886,600       33,035,423
---------------------------------------------------------------------------------------------------------------------------

OTHER INCOME:
   Service charges on deposit accounts                                          1,667,687        1,862,990        1,518,212
   Net security gains (losses)                                                  1,964,680         (529,013)        (375,689)
   Other operating income                                                       1,340,946        1,101,778        1,003,519
---------------------------------------------------------------------------------------------------------------------------
Total other income                                                              4,973,313        2,435,755        2,146,042
---------------------------------------------------------------------------------------------------------------------------
Income before operating expenses                                               44,565,491       36,322,355       35,181,465
---------------------------------------------------------------------------------------------------------------------------

OPERATING EXPENSES:
   Salaries and other employee benefits                                        16,611,391       14,205,757       13,028,108
   Occupancy                                                                    2,197,673        1,946,909        1,772,853
   Equipment                                                                    1,126,168          817,718          801,745
   Legal fees                                                                   3,517,769          481,979          174,218
   Marketing and advertising                                                    1,476,335          738,402          595,010
   Other operating expenses                                                     6,658,429        3,786,438        4,080,159
---------------------------------------------------------------------------------------------------------------------------
Total operating expenses                                                       31,587,765       21,977,203       20,452,093
---------------------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES                                                     12,977,726       14,345,152       14,729,372
PROVISION FOR INCOME TAXES                                                      2,156,892        3,635,312        4,400,664
---------------------------------------------------------------------------------------------------------------------------
NET INCOME                                                                    $10,820,834      $10,709,840      $10,328,708
---------------------------------------------------------------------------------------------------------------------------

BASIC EARNINGS PER COMMON SHARE                                                     $1.38            $1.35            $1.31
---------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE                                                   $1.35            $1.34            $1.29
---------------------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                                     7,845,659        7,931,842        7,895,783
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.


                                       10
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2000 and 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 2001             2000             1999
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>              <C>
OPERATING ACTIVITIES:
   Net income                                                               $  10,820,834    $  10,709,840    $  10,328,708
   Adjustments to reconcile net income to net cash provided by
     operating activities:
       Provision for probable loan losses                                       3,600,000        3,250,000        3,000,000
       Depreciation and amortization of bank premises and equipment             1,052,278          818,977          817,083
       Amortization of goodwill and other intangibles                             146,137           36,137           36,137
       Deferred income tax benefit                                                     --         (751,530)        (496,797)
       Accretion of net discount on securities                                 (2,846,929)      (1,647,436)        (500,607)
       Net security (gains) losses                                             (1,964,680)         529,013          375,689
       Net losses (gains) on sale of other real estate owned ("OREO")             607,769               --             (670)
       Amortization of unearned compensation                                      228,515          207,774          255,834
       Increase in other assets, net                                           (5,164,888)      (1,614,296)      (3,223,128)
       (Decrease) increase in accrued expenses, taxes and other liabilities    (3,218,527)       2,788,733          513,729
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                       3,260,509       14,327,212       11,105,978
---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
   Proceeds from maturities of securities held to maturity                         65,400          307,400        2,941,533
   Purchases of securities held to maturity                                            --               --         (994,500)
   Proceeds from sales of securities available for sale                       583,011,481      219,488,608      272,657,870
   Proceeds from maturities of securities available for sale                  313,130,157      111,169,542       84,820,645
   Purchases of securities available for sale                                (747,394,695)    (356,186,236)    (473,684,314)
   Increase in loans, net                                                     (61,682,715)      (9,193,445)     (69,993,818)
   Proceeds from sale of OREO                                                   3,700,000               --          705,004
   Purchases of bank premises and equipment, net                               (3,000,907)      (1,651,144)        (578,751)
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                            87,828,721      (36,065,275)    (184,126,331)
---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
   Increase in demand and savings deposits                                    115,919,366       61,147,036       10,416,472
   (Decrease) increase in time deposits                                      (126,317,053)      29,497,187      197,025,506
   (Decrease) increase in Federal funds purchased                              (9,700,000)      (6,750,000)      16,450,000
   Decrease in securities sold under agreements to repurchase                    (325,000)     (26,563,000)      (7,641,000)
   (Decrease) increase in other borrowings                                    (15,900,409)      (5,000,000)       5,000,000
   Cash dividends paid                                                         (4,089,580)      (3,707,596)      (3,326,924)
   Proceeds from shares issued under the dividend reinvestment plan               891,772          864,647          761,179
   Proceeds from stock options exercised                                          339,266          173,962          219,430
   Proceeds from shares issued under the directors' stock plan                      2,355               --               --
   Purchases of treasury stock                                                 (4,648,721)      (1,503,779)        (730,274)
---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities                           (43,828,004)      48,158,457      218,174,389
---------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                      47,261,226       26,420,394       45,154,036
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                 90,848,865       64,428,471       19,274,435
---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                    $ 138,110,091    $  90,848,865    $  64,428,471
---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
   Interest paid                                                            $  28,469,214    $  35,771,985    $  24,524,372
---------------------------------------------------------------------------------------------------------------------------
   Income taxes paid                                                        $   2,547,000    $   4,481,000    $   5,291,000
---------------------------------------------------------------------------------------------------------------------------
   Transfer from loans to OREO                                              $   3,525,634    $          --    $          --
---------------------------------------------------------------------------------------------------------------------------
   Adjustment to unrealized net loss on securities available for sale       $     819,264    $  14,820,930    $ (18,807,332)
---------------------------------------------------------------------------------------------------------------------------
   Dividends declared but not paid as of year end                           $   1,084,395    $     976,815    $     906,473
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.


                                       11
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 2001, 2000 and 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                   Accumulated
                                                                                      Other      Unearned
                                  Common                  Retained     Treasury   Comprehensive  Compensa-             Comprehensive
                                  Stock       Surplus     Earnings       Stock    (Loss) Income    tion       Total    Income (Loss)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>         <C>          <C>          <C>          <C>        <C>          <C>
Balance, January 1, 1999       $32,966,700  $24,236,479  $ 4,866,852  $  (188,375) $  (364,710) $(659,054) $60,857,892
----------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
   Net income                                             10,328,708                                        10,328,708  $10,328,708
                                                                                                                        -----------
   Other comprehensive loss,
     net of tax:
     Unrealized holding
       losses arising during
       the period                                                                                                       (12,155,511)
     Reclassification adjustment
        for losses included in
        net income                                                                                                           18,751
                                                                                                                        -----------
   Total other comprehensive
     loss                                                                          (12,136,760)            (12,136,760) (12,136,760)
                                                                                                                        -----------
Total comprehensive loss                                                                                                $(1,808,052)
                                                                                                                        -----------
Cash dividend ($.44 per share)                            (3,452,912)                                       (3,452,912)
6% stock dividend
   (398,404 shares at market
   value)                        1,992,020    4,631,447   (6,623,467)                                               --
Shares issued under the
  dividend reinvestment
  plan (50,931 shares at
  95% of market value)             254,655      506,524                                                        761,179
Stock options exercised            177,730       41,700                                                        219,430
Treasury stock purchased                                                 (730,274)                            (730,274)
Amortization of unearned
  compensation                                   76,682                                           179,152      255,834
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999       35,391,105  29,492,832    5,119,181     (918,649) (12,501,470)  (479,902)  56,103,097
----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net income                                             10,709,840                                        10,709,840  $10,709,840
                                                                                                                        -----------
   Other comprehensive income,
     net of tax:
     Unrealized holding gains
       arising during the
       period                                                                                                             9,188,734
     Reclassification
       adjustment for losses
       included in net income                                                                                               340,400
                                                                                                                        -----------
   Total other comprehensive
     income                                                                          9,529,134               9,529,134    9,529,134
                                                                                                                        -----------
Total comprehensive income                                                                                              $20,238,974
                                                                                                                        -----------
Cash dividend ($.48 per share)                            (3,777,938)                                       (3,777,938)
8% stock dividend
   (564,757 shares at market
      value)                     2,823,785    4,447,461   (7,271,246)                                               --
Shares issued under the
  dividend reinvestment
  plan (68,452 shares at
  95% of market value)             342,260      522,387                                                        864,647
Stock options exercised            167,330        6,632                                                        173,962
Treasury stock purchased                                               (1,503,779)                          (1,503,779)
Amortization of unearned
  compensation                                   49,094                                           158,680      207,774
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000      38,724,480   34,518,406    4,779,837   (2,422,428)  (2,972,336)  (321,222)  72,306,737
----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net income                                             10,820,834                                        10,820,834  $10,820,834
                                                                                                                        -----------
   Other comprehensive income,
     net of tax:
     Unrealized holding gains
       arising during the
       period                                                                                                             1,855,312
     Reclassification adjustment
       for gains included in
       net income                                                                                                        (1,310,479)
                                                                                                                        -----------
   Total other comprehensive
     income                                                                            544,833                 544,833      544,833
                                                                                                                        -----------
Total comprehensive income                                                                                              $11,365,667
                                                                                                                        -----------
Cash dividend ($.54 per share)                            (4,197,162)                                       (4,197,162)
5% stock dividend
   (375,416 shares at
   market value)                 1,877,080    3,938,114   (5,815,194)                                               --
Shares issued under the dividend
   reinvestment plan (61,933
   shares at 95% of market value)  309,665      582,107                                                        891,772
Stock options exercised            258,585       80,681                                                        339,266
Stock issued under Directors'
  Plan                                 785        1,570                                                          2,355
Treasury stock purchased                                               (4,648,721)                          (4,648,721)
Amortization of unearned
  compensation                                   81,616                                           146,899      228,515
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001     $41,170,595  $39,202,494  $ 5,588,315  $(7,071,149) $(2,427,503) $(174,323) $76,288,429
----------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.


                                       12
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING AND
   REPORTING POLICIES

   Organization and Nature of Operations--The consolidated financial statements
include the accounts of State Bancorp, Inc. and its wholly owned subsidiary,
State Bank of Long Island (the "Bank"). The Bank's consolidated financial
statements include the accounts of its wholly owned subsidiaries, SB Portfolio
Management Corp. ("SB Portfolio"), SB Financial Services Corp. ("SB Financial"),
SB ORE Corp., Studebaker-Worthington Leasing Corp. ("SWLC") and New Hyde Park
Leasing Corporation. SB Portfolio and SB Financial are Delaware-based
subsidiaries formed in June 1998. SB Portfolio manages a portfolio of fixed
income investments, and SB Financial provides balance sheet management services
with a focus on interest rate risk management. Having provided business
small-ticket equipment leasing nationwide for over thirty years, SWLC is a
leasing subsidiary acquired as of February 1, 2001. State Bancorp, Inc. and
subsidiary are collectively referred to hereafter as the "Company." All
intercompany accounts and transactions have been eliminated.

   The Company was incorporated as a bank holding company under the laws of the
state of New York in 1985 to provide consumer, commercial and municipal banking
services to clients located primarily in the Queens, Nassau and Suffolk County
areas. It offers a full range of deposit and loan products through thirteen
full-service branches. In addition, the Company offers merchant credit card
services, access to mutual fund and annuity products and offers a consumer debit
card with membership in a national ATM network. The Company currently has ATMs
at eleven of its thirteen branch locations.

   Basis of Presentation--The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.

   The accounting and reporting policies of the Company conform with accounting
principles generally accepted in the United States of America and with general
practice within the banking industry. The following is a summary of the more
significant accounting and reporting policies:

   Securities Held to Maturity and Securities Available for Sale--At the time of
purchase of a security, the Bank designates the security as either available for
sale or held to maturity, depending upon investment objectives, liquidity needs
and intent. Securities held to maturity are stated at cost, adjusted for premium
amortized or discount accreted, if any. The Bank has the positive intent and
ability to hold such securities to maturity. Securities available for sale are
stated at estimated fair value. Unrealized gains and losses are excluded from
income and reported net of tax as accumulated other comprehensive income (loss)
as a separate component of stockholders' equity until realized. Trading
securities are purchased and held principally for the purpose of selling them in
the near term. Trading generally reflects active and frequent buying and
selling, and trading securities are generally used with the objective of
generating profits on short-term differences in price. As of December 31, 2001
and 2000, the Bank did not hold any trading securities. Interest earned on
investment securities is included in interest income. Realized gains and losses
on the sale of securities are reported in the consolidated statements of income
and determined using the adjusted cost of the specific security sold.

   Income Recognition--The Bank discontinues the accrual of interest on loans
whenever there is reasonable doubt that interest and/or principal will be
collected, or when either principal or interest is 90 days or more past due and
the loan is not well collateralized or in the process of collection. Income is
not accrued for installment loans which are 90 days past due unless the Bank
holds cash collateral therefor. Interest received on nonaccrual loans is either
applied against principal or reported as income, according to management's
judgment as to the collectibility of the principal.

   Allowance for Probable Loan Losses--The allowance for probable loan losses is
established through a provision for loan losses charged to expense. Loans are
charged against the allowance when management believes that the collectibility
of the principal is unlikely, while recoveries of previously charged-off loans
are credited to the allowance. The balance in the allowance for probable loan
losses is maintained at a level that, in the opinion of management, is
sufficient to absorb probable losses. To determine that level, management
identifies problem loans based on the financial condition of the borrower, the
value of any collateral and/or guarantor support. Based upon the resultant risk
categories assigned to each loan and the procedures regarding impairment
described below, an appropriate reserve level is determined. Management also
evaluates the quality of, and changes in, the portfolio, while also taking into
consideration the Bank's historical loss experience, the existing economic
climate of the service area in which the Bank operates, examinations by
regulatory authorities, internal reviews and other evaluations in determining
the appropriate allowance balance. While management utilizes all available
information to estimate the adequacy of the allowance for probable loan losses,
the ultimate collectibility of a substantial portion of the loan portfolio and
the need for future additions to the allowance will be based upon changes in
economic conditions and other relevant factors.

   Commercial and commercial real estate loans are considered impaired when,
based on current information and events, it is probable that the Company will
not be able to collect all of the principal and interest due under the
contractual terms of the loan. Management considers all nonaccrual loans for
impairment. Large groups of smaller-balance homogeneous loans, such as consumer
and residential mortgages, are collectively evaluated for impairment.

   The allowance for probable loan losses related to loans that are impaired
includes reserves which are based upon the expected future cash flows,
discounted at the loan's effective interest rate, or the fair value of the
underlying collateral for collateral-dependent loans, or the observable market
price. This evaluation is inherently subjective as it requires material
estimates, including the amount and timing of future cash flows expected to be
received on impaired loans, that may be susceptible to significant change.


                                       13
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

   In July 2001, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 102, "Selected Loan Loss Allowance Methodology
and Documentation Issues." SAB No. 102 expresses the SEC staff's views on the
development, documentation, and application of a systematic methodology for
determining the allowance for probable loan losses in accordance with accounting
principles generally accepted in the United States of America. Also in July
2001, the federal banking agencies issued guidance on this topic through the
Federal Financial Institutions Examination Council interagency guidance, "Policy
Statement on Allowance for Loan and Lease Losses Methodologies and Documentation
for Banks and Savings Institutions." In management's opinion, the Company's
methodology and documentation of the allowance for probable loan losses meets
the guidance issued.

   Bank Premises and Equipment--Net--Bank premises and equipment are stated at
cost, less accumulated depreciation and amortization. Depreciation expense is
computed on the straight-line method over the estimated useful lives of the
related assets which range from 3 to 40 years. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the remaining
terms of the leases.

   Loan Origination Fees and Costs--Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment of the yield
on the related loan.

   Income Taxes--The Company recognizes deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
Company's consolidated financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the differences
between the financial accounting and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. As changes in tax laws are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.

   Treasury Stock--Stock held in treasury by the Company is accounted for using
the cost method, which treats stock held in treasury as a reduction to total
stockholders' equity.

   Cash Dividends--Cash dividends per common share have been restated to give
retroactive effect to stock dividends and splits.

   Stock Dividends--Stock dividends issued are recorded by transferring the
aggregate market value of the shares issued from retained earnings to common
stock and surplus. All per share information included in the consolidated
financial statements and the notes thereto has been restated to give retroactive
effect to stock dividends.

   Earnings Per Common Share--Basic earnings per common share is computed based
on the weighted average number of shares outstanding. Diluted earnings per share
is computed based on the weighted average number of shares outstanding,
increased by the number of common shares that are assumed to have been purchased
with the proceeds from the exercise of stock options (treasury stock method).
These purchases were assumed to have been made at the average market price of
the common stock. The average market price is based on the average closing
bid price for the common stock. Retroactive recognition has been given for stock
dividends and splits.

For the Years Ended December 31,          2001           2000           1999
-------------------------------------------------------------------------------
Net income                            $10,820,834    $10,709,840    $10,328,708
Average dilutive stock
   options outstanding                    452,870        267,790        226,911
Average exercise price per share           $10.28         $ 6.08         $ 5.00
Average market price--diluted basis        $15.61         $13.04         $16.00
Average common shares outstanding       7,845,659      7,931,842      7,895,783
Increase in shares due to exercise
   of options--diluted basis              154,629         79,173        112,558
-------------------------------------------------------------------------------
Adjusted shares outstanding--diluted    8,000,288      8,011,015      8,008,341
-------------------------------------------------------------------------------
Net income per share--basic                $ 1.38         $ 1.35         $ 1.31
-------------------------------------------------------------------------------
Net income per share--diluted              $ 1.35         $ 1.34         $ 1.29
-------------------------------------------------------------------------------

   Comprehensive Income (Loss)--The Company presents as a component of
comprehensive income (loss) the amounts from transactions and other events which
currently are excluded from the statements of income and are recorded directly
to retained earnings.

   Statements of Cash Flows--For the purpose of presenting the statements of
cash flows, the Company considers Federal funds sold and securities purchased
under agreements to resell to be cash equivalents because such assets are
convertible into fixed amounts of cash within several days of initial purchase.
The Company may enter into purchase of U.S. Treasury, Government Agency and
mortgage-backed securities under agreements to resell.

   Loans Foreclosed--Property acquired through foreclosure (other real estate
owned or "OREO") is stated at the lower of cost or fair value less estimated
selling costs. Losses arising at the time of foreclosure are charged against the
allowance for probable loan losses. Revenues and expenses from operations or
changes in the carrying value of these assets are included in operating
expenses.

   Intangibles--Intangibles consist of core deposit intangibles and the excess
market value of leases acquired. Intangibles are carried at cost less
accumulated amortization. Amortization is provided over the period of
anticipated benefit (usually 3 to 19 years). Management evaluates the carrying
amount of intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has not recognized an impairment loss based on this
evaluation.

   Goodwill--The excess of cost over fair value of net assets acquired generated
from the acquisition of SWLC in February 2001, is amortized by the straight-line
method over 20 years. Effective January 1, 2002, goodwill will be not be
amortized, but reviewed annually for impairment.

   Accounting for Stock Options--The Company accounts for stock-based
compensation using the intrinsic value method which recognizes as expense the
difference between the market value of the stock and the exercise price at grant
date. The Company discloses the pro forma effects of accounting for stock-based
compensation using the fair value method.

   In 2000, the Company adopted the provisions of Financial Accounting Standards
Board Interpretation ("FIN") No. 44, "Accounting for Certain Transactions
Involving Stock Compensation." Since the issuance of FIN No. 44, the Financial
Accounting Standards Board ("FASB") staff has received a number of questions
related to accounting for stock compensation

                                       14
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

under Accounting Principles Board Opinion ("APB") No. 25 and FIN No. 44. The
Emerging Issues Task Force ("EITF") in EITF 00-23 has reached consensuses on a
number of questions, although some issues and questions are still being
considered. The Company monitors the status of EITF 00-23.

   Recent Accounting Developments--In June 1998, Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," was issued by the FASB. This statement requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the intended use of the derivative and
the resulting designation. This statement, as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," and by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities," was effective
for all fiscal quarters of fiscal years beginning after June 15, 2000, and
should not be applied retroactively to financial statements of prior periods.
The adoption of this statement as of January 1, 2001 did not have a significant
impact on the Company's financial position or results of operations.

   In June 2001, the FASB issued SFAS No. 141, "Business Combinations." The most
significant changes made by SFAS No. 141 are: 1) requiring that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001; and 2) establishing specific criteria for the recognition of
intangible assets separately from goodwill. The Company adopted SFAS No. 141 as
of July 1, 2001, and the impact of such adoption has not had a material effect
on the Company's financial statements.

   Accounting Principles Issued and Not Adopted--In June 2001, the FASB issued
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 primarily
addresses the accounting for acquired goodwill and intangible assets (i.e., the
post-acquisition accounting). The provisions of SFAS No. 142 will be effective
for fiscal years beginning after December 15, 2001. The most significant changes
made by SFAS No. 142 are: 1) goodwill and indefinite-lived intangible assets
will no longer be amortized; 2) goodwill and indefinite-lived intangible assets
will be tested for impairment at least annually; and 3) the amortization period
of intangible assets with finite lives will no longer be limited to forty years.

   The Company adopted SFAS No. 142 effective January 1, 2002. Goodwill and
intangible assets acquired after June 30, 2001 are subject immediately to the
nonamortization and amortization provisions of this statement. In accordance
with SFAS No. 142, existing goodwill was amortized through the remainder of
2001. At such time, amortization ceased and the Company will perform a goodwill
impairment test. The principal effect of SFAS No. 142 is ceasing the
amortization of goodwill, which amounts to approximately $100,000 annually after
taxes. As the goodwill relates to the acquisition of a leasing subsidiary, SWLC,
in February 2001, the effect on the Company's financial statements is not
material.

   In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." The Company does not believe this statement
will have a material impact on the Company's financial position or results of
operations.

   Reclassifications--Certain reclassifications have been made to prior years'
amounts to conform them to the current year's presentation.

2. ACQUISITION OF LEASING COMPANY

   Effective February 1, 2001, the Bank purchased SWLC, a leasing company that
specializes in small-ticket leases for computers and office equipment. The Bank
acquired approximately $20,217,000 in lease receivables net of an allowance for
probable loan losses of $542,000, $1,705,000 in cash and $14,018,000 in notes
payable. The excess of cost over fair value of net assets acquired amounted to
$2,641,000, which is being amortized over 20 years.

3. SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE

   The amortized cost, gross unrealized gains and losses, and estimated fair
value of securities held to maturity and securities available for sale at
December 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                                         Gross         Gross
                                                                         Amortized     Unrealized    Unrealized      Estimated
December 31, 2001                                                          Cost          Gains         Losses        Fair Value
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>             <C>          <C>             <C>
Securities Held to Maturity:
   Obligations of states and political subdivisions                    $    196,200    $   7,570    $         --    $    203,770
--------------------------------------------------------------------------------------------------------------------------------
Total Securities Held to Maturity                                           196,200        7,570              --         203,770
--------------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale:
   Obligations of states and political subdivisions                      80,008,624       30,124      (1,312,606)     78,726,142
   Government Agency securities                                          31,820,328           --      (1,014,156)     30,806,172
   Corporate securities                                                   6,168,150           --         (35,000)      6,133,150
   Mortgage-backed securities and
     collateralized mortgage obligations                                160,973,567       62,631      (1,488,296)    159,547,902
--------------------------------------------------------------------------------------------------------------------------------
Total Securities Available for Sale                                     278,970,669       92,755      (3,850,058)    275,213,366
--------------------------------------------------------------------------------------------------------------------------------
Total Securities                                                       $279,166,869    $ 100,325    $ (3,850,058)   $275,417,136
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       15
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                         Gross         Gross
                                                                         Amortized     Unrealized    Unrealized      Estimated
December 31, 2000                                                          Cost          Gains         Losses        Fair Value
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>             <C>          <C>             <C>
Securities Held to Maturity:
   Obligations of states and political subdivisions                    $    261,600   $    1,960    $     (4,852)$       258,708
--------------------------------------------------------------------------------------------------------------------------------
Total Securities Held to Maturity                                           261,600        1,960          (4,852)        258,708
--------------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale:
   Obligations of states and political subdivisions                     111,678,703    1,807,177         (31,079)    113,454,801
   Government Agency securities                                         293,671,472       90,634      (6,216,907)    287,545,199
   Corporate securities                                                   4,285,950           --              --       4,285,950
   Mortgage-backed securities and
     collateralized mortgage obligations                                 13,269,878       13,454        (239,846)     13,043,486
--------------------------------------------------------------------------------------------------------------------------------
Total Securities Available for Sale                                     422,906,003    1,911,265      (6,487,832)    418,329,436
--------------------------------------------------------------------------------------------------------------------------------
Total Securities                                                       $423,167,603   $1,913,225    $ (6,492,684)   $418,588,144
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   The amortized cost and estimated fair value of securities held to maturity
and securities available for sale at December 31, 2001, by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

                                                 Amortized          Estimated
                                                   Cost             Fair Value
-------------------------------------------------------------------------------
Securities Held to Maturity:
   Due after one year through five years       $    196,200        $    203,770
-------------------------------------------------------------------------------
Total Securities Held to Maturity              $    196,200        $    203,770
-------------------------------------------------------------------------------

Securities Available for Sale:
   Due in one year or less                     $ 32,815,145        $ 32,807,965
   Due after five years
     through ten years                           13,187,834          12,927,782
   Due after ten years                           71,994,123          69,929,717
-------------------------------------------------------------------------------
Subtotal                                        117,997,102         115,665,464
Mortgage-backed securities
   and collateralized
   mortgage obligations                         160,973,567         159,547,902
-------------------------------------------------------------------------------
Total Securities Available for Sale            $278,970,669        $275,213,366
-------------------------------------------------------------------------------

   In 2001, 2000 and 1999, gross gains of $2,637,329, $2,035 and $68,091 and
gross losses of $672,649, $531,048 and $443,780, respectively, were realized
on the sale of securities available for sale.

   At December 31, 2001, the Bank did not own any securities held to maturity or
securities available for sale for any one issuer in excess of ten percent of
stockholder's equity.

   Securities held to maturity and securities available for sale with an
amortized cost of $276,998,719 and $379,047,856 and an estimated fair value of
$273,248,986 and $372,748,593 at December 31, 2001 and 2000, respectively, were
pledged for public deposits, securities sold under agreements to repurchase,
other short-term borrowings and fiduciary purposes.

4. LOANS--NET

   At December 31, 2001 and 2000, net loans consisted of the following:

                                                    2001               2000
-------------------------------------------------------------------------------
Commercial and industrial                      $264,475,460(1)     $229,251,315
Real estate--mortgage                           252,968,406         233,589,158
Real estate--construction                        16,258,014          17,642,412
Loans to individuals                              7,514,365           5,729,130
Tax exempt and other                             10,464,928          10,863,906
-------------------------------------------------------------------------------
Gross loans                                     551,681,173         497,075,921
Less:
   Unearned income                                   83,475              83,475
   Allowance for probable
     loan losses                                  9,255,414           9,207,243
-------------------------------------------------------------------------------
Loans--net                                     $542,342,284        $487,785,203
-------------------------------------------------------------------------------

(1) Includes $17,180,140 of lease receivables of SWLC subsidiary.

   The Bank's real estate loans and loan commitments are primarily for
properties located throughout Long Island, New York. It is the Bank's policy to
spread risk among a broad range of industries and to monitor concentration and
associated levels of risk on an ongoing basis. As of December 31, 2001 and 2000,
the only concentration of loans exceeding 10% of total loans was the Bank's
loans totaling $74,490,000 and $76,456,000, respectively, from real estate
operators, lessors and developers. Repayment of these loans is dependent in part
upon the overall economic health of the Company's market area and current real
estate values. Credit losses arising from lending transactions in this industry
compare favorably with the Bank's credit loss experience on its portfolio as a
whole. The Bank considers the credit circumstances, the nature of the project,
and loan to value ratios for all real estate loans.

   The Bank makes loans to its directors and executive officers, and other
related parties, in the ordinary course of its business. These loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and,
do not bear more than normal credit risk. Loans made to directors

                                       16
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

and executive officers, either directly or indirectly, totaled $2,382,260 and
$2,516,099 at December 31, 2001 and 2000, respectively. New loans totaling
$1,946,269 and $2,942,808 were extended and payments of $2,080,108 and
$2,153,802 were received during 2001 and 2000, respectively, on these loans.

   Activity in the allowance for probable loan losses for the three years ended
December 31, 2001 is as follows:

                                      2001             2000            1999
-------------------------------------------------------------------------------
Balance, January 1,               $ 9,207,243      $ 7,106,627      $ 5,788,440
Adjustments                           542,312(1)            --               --
Provision charged to income         3,600,000        3,250,000        3,000,000
Charge-offs, net of recoveries
   of $161,143, $259,787
   and $443,881                    (4,094,141)      (1,149,384)      (1,681,813)
-------------------------------------------------------------------------------
Balance, December 31,             $ 9,255,414       $9,207,243      $ 7,106,627
-------------------------------------------------------------------------------

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

   As of December 31, 2001, 2000 and 1999, the recorded investment in loans that
are considered to be impaired is summarized below.

                                      2001             2000             1999
-------------------------------------------------------------------------------
Amount measured using the present
   value of expected future cash
   flows, discounted at each
   loan's effective interest rate  $4,226,806      $ 1,125,000       $       --
Impaired collateral-dependent
   loans                            3,857,762        9,057,396        3,981,474
-------------------------------------------------------------------------------
Total amount evaluated as
  impaired                         $8,084,568      $10,182,396       $3,981,474
-------------------------------------------------------------------------------
Average impaired loan balance      $8,378,960      $ 6,704,326       $6,581,068
-------------------------------------------------------------------------------
Interest income recognized
   on impaired loans               $    1,202      $   119,406       $   36,099
-------------------------------------------------------------------------------

   As a result of the Bank's measurement of impaired loans, an allowance for
probable loan losses of approximately $4,143,000 and $2,330,000 was established
for $8,084,568 and $9,656,762 of the total impaired loans at December 31, 2001
and 2000, respectively. No specific allowance was required for the remaining
balance of impaired loans in 2000.

   At December 31, 2001 and 2000, loans with unpaid principal balances on which
the Bank is no longer accruing interest income were $8,920,077 and $10,735,672,
respectively. Interest income would have been approximately $684,000, $537,000
and $423,000 greater in 2001, 2000 and 1999, respectively, had these loans been
current. Interest income on total nonaccrual loans, which is recorded only when
received, amounted to approximately $7,000, $62,000 and $48,000 for 2001, 2000
and 1999, respectively.

   At December 31, 2001 and 2000, loans restructured, and still accruing
interest in accordance with the modified terms, were $284,140 and $405,859,
respectively. Interest income would have been approximately $10,000, $16,000 and
$20,000 greater in 2001, 2000 and 1999, respectively, had the restructured loans
performed according to their original terms.

   At December 31, 2001 and 2000, commercial real estate mortgages of
$87,949,235 and $75,525,715, respectively, were pledged at the Discount Window
of the Federal Reserve Bank of New York.

5. BANK PREMISES AND EQUIPMENT--NET

   At December 31, 2001 and 2000, Bank premises and equipment consisted of the
following:

                                                   Accumulated
                                                   Depreciation/      Net Book
                                      Cost         Amortization         Value
-------------------------------------------------------------------------------
December 31, 2001:
   Building                       $ 1,908,187       $  909,981       $  998,206
   Leasehold improvements           2,913,076          777,881        2,135,195
   Furniture and fixtures           3,415,201        2,276,417        1,138,784
   Computer equipment
     and software                   4,437,173        2,288,882        2,148,291
-------------------------------------------------------------------------------
Total                             $12,673,637       $6,253,161       $6,420,476
-------------------------------------------------------------------------------
December 31, 2000:
   Building                       $ 1,876,122       $  845,085       $1,031,037
   Leasehold improvements           1,564,740          656,820          907,920
   Furniture and fixtures           2,730,555        1,971,957          758,598
   Computer equipment
     and software                   3,296,610        1,522,317        1,774,293
-------------------------------------------------------------------------------
Total                             $ 9,468,027       $4,996,179       $4,471,848
-------------------------------------------------------------------------------

6. OTHER ASSETS

   At December 31, 2001 and 2000, other assets consisted of the following:

                                                    2001                2000
-------------------------------------------------------------------------------
Interest receivable--investments                $ 1,382,546         $ 6,484,545
Interest receivable--loans                        2,573,460           3,398,000
Net deferred income taxes                         4,389,722           6,093,184
Prepaid expenses                                  1,210,938             635,574
Excess market value of leases acquired
   (net of accumulated amortization
   of $331,244 and $295,107)                        291,222             327,359
Goodwill (excess of cost over fair value
   of assets acquired, net of accumulated
   amortization of $110,000)                      2,530,924                  --
Cash surrender value of life insurance
  policies                                        1,674,607           1,672,544
Customer sweep accounts, net balances             3,787,900                  --
Principal receivable--municipal securities        3,297,005                  --
Principal receivable--mortgage-backed
  securities                                         13,191              18,543
Other                                             2,337,065             896,647
-------------------------------------------------------------------------------
Total                                           $23,488,580         $19,526,396
-------------------------------------------------------------------------------

7. LINES OF CREDIT AND BORROWED FUNDS

   At December 31, 2001 and 2000, correspondent banks extended unsecured lines
of credit aggregating $21,450,000 and $17,000,000, respectively, as well as
$10,000,000 in secured lines at December 31, 2001, to the Bank for the purchase
of Federal funds and for foreign exchange transactions. Federal funds purchased
and securities sold under agreements to repurchase generally mature within one
to seven days from the transaction date.

                                       17
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

   In addition to the above, the Bank may use a line of credit with the Federal
Home Loan Bank of New York ("FHLB") for overnight funding or on a term basis to
match fund asset purchases. Based upon a multiple of the FHLB stock that the
Bank currently owns combined with the amount of collateral it currently has on
deposit with FHLB, approximately $35,000,000 of this line may be drawn on a term
or overnight basis. The FHLB line is renewed on an annual basis. In October
1997, the Bank entered into a five-year, callable term borrowing with FHLB under
this line, at an interest rate of 5.49%, which was called in January of 2000 and
was not renewed.

   Also, at December 31, 2001 and 2000, commercial real estate mortgages of
$87,949,235 and $72,525,715, respectively, were pledged at the Discount Window
of the Federal Reserve Bank of New York, enabling the Bank to draw upon a line
of up to $59,909,341 and $47,072,820 at December 31, 2001 and 2000,
respectively. The Discount Window interest rate is generally 50 basis points
less than the Federal funds effective target rate. The Bank has yet to draw upon
its line established during the fourth quarter of 1999.

   As a result of the acquisition of its leasing subsidiary, SWLC, in February
of 2001, another component of the Bank's borrowed funds is obligations under
equipment lease financing that are secured by the underlying collateral.

   The following summarizes the amounts at December 31, 2001 and 2000, and the
average amounts for 2001 and 2000 of borrowed funds outstanding:

<TABLE>
<CAPTION>
                                     Outstanding at                Average Amount
                                      December 31,                  Outstanding
                           -------------------------------------------------------------
                                2001             2000           2001            2000
----------------------------------------------------------------------------------------
<S>                         <C>              <C>            <C>              <C>
Federal funds purchased     $        --      $ 9,700,000    $ 1,108,000      $ 1,428,000
Securities sold under
   agreements
   to repurchase            $        --      $   325,000    $   102,000      $ 8,251,000
FHLB--overnight             $12,000,000      $35,000,000    $ 8,838,000      $13,756,000
FHLB--term                  $        --      $        --    $        --      $ 1,776,000
Obligations under
   equipment lease
   financing                $ 7,099,591      $        --    $10,154,000      $        --
</TABLE>

8. INCOME TAXES

   The components of income tax expense for the years ended December 31, 2001,
2000 and 1999 are as follows:

                                      2001             2000             1999
-------------------------------------------------------------------------------
Federal:
   Current                         $1,008,964       $4,334,564       $4,729,515
   Deferred                         1,685,202         (610,641)        (446,007)
-------------------------------------------------------------------------------
Subtotal                            2,694,166        3,723,923        4,283,508
-------------------------------------------------------------------------------
State:
   Current                           (281,101)          52,278          167,946
   Deferred                          (256,173)        (140,889)         (50,790)
-------------------------------------------------------------------------------
Subtotal                             (537,274)         (88,611)         117,156
-------------------------------------------------------------------------------
Total                              $2,156,892       $3,635,312       $4,400,664
-------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
                                                             2001                       2000                      1999
-------------------------------------------------------------------------------------------------------------------------------
                                                                   % of                        % of                       % of
                                                                  Pretax                      Pretax                     Pretax
                                                     Amount       Income         Amount       Income        Amount       Income
-------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>        <C>              <C>        <C>             <C>
Income tax expense at statutory rate              $ 4,542,204      35.0%      $ 5,020,803      35.0%      $5,155,280      35.0%
Surtax exemption                                     (129,777)     (1.0)         (114,095)     (0.8)        (107,648)     (0.7)
Increase (reduction) in taxes resulting from:
   Tax exempt interest on investments,
     net of interest expense disallowed
     of $169,740, $368,702 and $277,246            (1,715,544)    (13.2)       (1,126,415)     (7.9)        (626,163)     (4.3)
   State income tax, net of Federal tax benefit      (354,601)     (2.7)          (58,302)     (0.4)          77,008       0.5
   Other                                             (185,390)     (1.5)          (86,679)     (0.6)         (97,813)     (0.6)
-------------------------------------------------------------------------------------------------------------------------------
Income tax expense                                $ 2,156,892      16.6%      $ 3,635,312      25.3%      $4,400,664      29.9%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   At December 31, 2001 and 2000, the deferred tax assets and liabilities are
composed of the following:

                                                       2001             2000
-------------------------------------------------------------------------------
Deferred tax assets:
   Allowance for probable loan losses              $ 3,516,523       $3,664,430
   Unrealized holding loss on securities
     available for sale                              1,329,799        1,604,232
   Intangible assets                                   586,327          597,662
   Bank premises and equipment                         109,211          167,981
   AMT credits,  state NOL and other                   539,739           58,879
-------------------------------------------------------------------------------
Subtotal                                             6,081,599        6,093,184
-------------------------------------------------------------------------------
Deferred tax liabilities:
   Leasing activities                               (1,656,955)              --
   Other                                               (34,922)              --
-------------------------------------------------------------------------------
Subtotal                                            (1,691,877)              --
-------------------------------------------------------------------------------
Net deferred tax assets                            $ 4,389,722       $6,093,184
-------------------------------------------------------------------------------

   The deferred tax assets and liabilities are netted and presented in a single
amount, which is included in other assets in the accompanying consolidated
balance sheets. The income tax expense (benefit) associated with net security
gains (losses) amounted to $654,201, $(210,110) and $(157,210) in 2001, 2000 and
1999, respectively.

9. INCENTIVE STOCK OPTION PLANS

   Under the terms of the Company's incentive stock option plans adopted in
January 1987, April 1994 and February 1999, options have been granted to certain
key personnel which entitle each holder to purchase shares of the Company's
common stock. The option price is the higher of the fair market value or the
book value of the shares at the date of grant. Such options are exercisable
commencing one year from the date of grant, at the rate of 25 percent per year,
and expire eight years from the date of grant.

                                       18
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

   At December 31, 2001, 163,252 options for the purchase of 231,857 shares were
exercisable, and 197,458 shares were reserved for possible issuance. A summary
of stock option activity follows after giving retroactive effect to all stock
splits and dividends:

<TABLE>
<CAPTION>
                                                                           Option Price                        Weighted
                                                                           (Approximate                        Average
                                             Number         Number        Fair Value at                     Exercise Price
                                           of Options     of Shares       Date of Grant)          Total        Per Share
--------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>                  <C>               <C>
Outstanding--January 1, 1999                199,675        339,128        $10.60 -$23.00       $3,117,300        $ 9.71
   Granted                                   61,000         73,321                $17.25        1,052,250        $14.35
   Exercised                                (16,888)       (42,548)       $10.60 -$14.25         (219,430)       $ 5.07
   Cancelled or forfeited                    (3,825)        (4,145)       $13.375-$23.00          (70,891)       $14.17
--------------------------------------------------------------------------------------------------------------------------
Outstanding--December 31, 1999              239,962        365,756        $10.60 -$23.00        3,879,229        $10.61
   Granted                                   70,650         80,114                $13.00          918,450        $11.46
   Exercised                                (15,862)       (37,692)       $10.60 -$11.00         (173,962)       $ 4.61
   Cancelled or forfeited                    (2,700)        (3,483)       $13.00 -$23.00          (46,988)       $13.48
--------------------------------------------------------------------------------------------------------------------------
Outstanding--December 31, 2000              292,050        404,695        $10.60 -$23.00        4,576,729        $11.31
   Granted                                  177,750        186,641                $15.00        2,666,250        $14.29
   Exercised                                (28,425)       (53,794)       $10.60 -$14.25         (339,266)       $ 6.31
   Cancelled or forfeited                   (13,300)       (16,317)       $10.60 -$23.00         (205,795)       $12.61
--------------------------------------------------------------------------------------------------------------------------
Outstanding--December 31, 2001              428,075        521,225        $12.625-$23.00       $6,697,918        $12.85
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

   The following summarizes shares subject to purchase from options outstanding
and exercisable as of December 31, 2001:

<TABLE>
<CAPTION>
                                                           Weighted
                                                           Average           Weighted                         Weighted
                                             Shares       Remaining          Average             Shares       Average
Range of Exercise Prices                  Outstanding  Contractual Life   Exercise Price      Exercisable  Exercise Price
--------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>                 <C>               <C>            <C>
$ 6.99-$11.46                               206,578       3.7 years           $ 9.42            149,609        $ 8.64
$14.29                                      182,073       7.2 years           $14.29                 --        $   --
$14.34-$18.25                               132,574       4.6 years           $16.22             82,248        $16.61
--------------------------------------------------------------------------------------------------------------------------
                                            521,225       5.1 years           $12.85            231,857        $11.47
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

   The estimated fair value of options granted during 2001 and 2000 was $2.52
and $2.61 per share, respectively. The Company applies APB No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its incentive stock option plans. Had compensation cost
for the Company's three plans been determined at the fair value on the grant
dates for awards under those plans, consistent with the method in SFAS No. 123,
"Accounting for Stock-based Compensation," the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below.

                                      2001             2000             1999
-------------------------------------------------------------------------------
Net income

   As reported                    $10,820,834      $10,709,840      $10,328,708
   Pro forma                      $10,522,401      $10,506,440      $10,149,458

Basic earnings per common share
   As reported                          $1.38            $1.35            $1.31
   Pro forma                            $1.34            $1.32            $1.29


   The fair value of options granted under the Company's incentive stock option
plans during 2001, 2000 and 1999 were estimated on the date of grant using the
Black-Scholes Single Option Pricing Model with the following weighted average
assumptions used:

                                         2001             2000             1999
-------------------------------------------------------------------------------
Dividend yield                            3.4%             4.0%             3.2%
Expected volatility                      18.5%            23.8%            19.6%
Risk-free interest rate                  4.74%            5.06%            4.31%
Expected life of options              7 years          7 years          7 years

10. EMPLOYEE BENEFIT PLANS

   The Bank has an Employee Stock Ownership Plan (the "ESOP") which is a defined
contribution plan covering substantially all full-time employees. Bank
contributions to the ESOP represent a minimum of three percent of an employee's
annual gross compensation. Employees become 20 percent vested after two
years of employment, with an additional 20 percent vesting each year. Full
vesting takes place upon the completion of six years of employment. Employee
contributions are not permitted. At December 31, 2001, the ESOP had all of its
assets invested in the Company's common stock. The Bank funds all amounts when
due.

   In conjunction with the Rights Offering in July 1996, the ESOP borrowed
$1,200,000 from the Company to purchase 151,457 (adjusted for stock dividends
and splits) of the Company's shares. As such, the Company recorded a deduction
from stockholders' equity to reflect the unearned compensation for the shares.
As the unearned shares are released from collateral and allocated among
participants, the Company recognizes compensation expense equal to the current
market price of the shares released and the shares become outstanding for
earnings per share computations. Contributions under the ESOP charged to
operations amounted to $961,621, $820,294 and $703,165 in 2001, 2000 and 1999,
respectively. Compensation expense of $285,113 and $246,595 is applicable to the
18,540 shares and the 19,422 shares allocated in 2001 and 2000, respectively. As
of December 31, 2001 and 2000, the value of the 22,003 and the 38,613
unallocated shares was $335,549 and $494,250, respectively.

                                       19
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

   The Bank has a 401(k) Retirement Plan and Trust (the "401(k) Plan"), which
covers substantially all full-time employees. Employees may elect to contribute
up to sixteen percent of their annual gross compensation to the 401(k) Plan, and
the Bank will match one-half of the employee's contribution up to a maximum of
three percent of the employee's annual gross compensation. Employees are fully
vested in both their own and Bank contributions. Bank contributions under the
401(k) Plan amounted to $270,394, $235,503 and $209,109 in 2001, 2000 and 1999,
respectively. The Bank funds all amounts when due. At December 31, 2001,
contributions to the 401(k) Plan were invested in either a bond, equity, money
market, capital appreciation, international equity, emerging markets equity, or
diversified fund as directed by each employee.

   During 1995, the Bank adopted non-qualified deferred compensation plans (the
"Plans") for each officer for whom contributions under the ESOP are limited by
the applicable provisions of the Internal Revenue Code. Bank contributions under
the Plans totaled $96,610, $106,269 and $56,432 in 2001, 2000 and 1999,
respectively.

11. COMMITMENTS AND CONTINGENT LIABILITIES

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

2002                                         $1,852,322
2003                                          1,776,942
2004                                          1,777,731
2005                                          1,674,798
2006                                          1,246,235
Remainder to 2011                             1,334,514
-------------------------------------------------------
Total                                        $9,662,542
-------------------------------------------------------

   Rent expense was approximately $1,383,000, $1,136,000 and $1,039,000 for
2001, 2000 and 1999, respectively.

   Directors' Incentive Retirement Plan--The Company has a Directors' Incentive
Retirement Plan for former directors of the Company who elect to retire after
having completed certain minimum service requirements. Under the retirement
plan, directors who elect to retire are entitled to receive, for a period of
five years after such retirement, certain compensation, as defined in the
retirement plan, as long as such director continues to consult with the Company
in an advisory capacity (or, if the director expires prior to the completion of
the consulting period, the beneficiary or estate designated by the director is
entitled to receive such remaining compensation).

   In 1992, the Company adopted a new retirement plan, whereby five individuals
(four directors and the secretary to the Board of Directors), who had been
eligible to receive benefits under the old retirement plan, agreed to cancel and
surrender their rights in the old retirement plan in exchange for the terms of
the new retirement plan. The new retirement plan provides for the payment of
certain compensation annually to these five individuals through March 1, 2007.
These individuals must be available to consult with the Company in an advisory
capacity during this period (or, if the director or secretary expires prior to
the completion of the consulting period, the beneficiary or estate designated by
the director or secretary is entitled to receive such remaining compensation).

   Directors' Stock Plan--The Company approved a Directors' Stock Plan in 1998
for each outside director and the secretary to the Board of Directors. On
January 1 of each year, each participant will be granted an award of 200 share
credits for the preceding year of service. Each participant will also receive
share credits for cash or stock dividends that would have been paid if the share
credits had been actual shares. Awards shall be paid after the participant has
ceased to be a director or secretary. If the participant expires, the shares
will be awarded to his/her beneficiary or estate. There are remaining 122,088
shares reserved for possible issuance. During 2001, 165 shares were distributed
to one retired director. No shares were distributed in 2000.

   During 2001, 2000 and 1999, the Bank charged approximately $125,000, $106,000
and $82,000, respectively, to operations relating to the retirement and stock
plans.

   Severance Commitments--The Company has five Executive Severance Plans (the
"Plans") for certain key executives who are full-time employees with the title
of Senior Vice President and above and who are designated as Plan participants
by the Board of Directors. The Plans provide for certain rights accruing to
participants in the event of a termination of the participant's employment
within one year after a change in control of the Company. These rights include a
cash payment and the continuation of certain employee benefits. In addition, all
stock options held by a participant will become immediately exercisable. In the
event that the participant enters into an employment contract, as defined in the
Plans, all rights to the severance payment and other benefits set forth above
will terminate. No amounts have been paid or accrued under the Plans.

   Pending Claims and Contingent Liabilities--The Bank is involved in a number
of legal proceedings related to Island Mortgage Network, Inc. ("IMN") and
certain related entities, which held deposit accounts at the Bank during
portions of 1999 and 2000. IMN and its related entities were principally engaged
in offering and providing mortgages to consumers. IMN was licensed by the
Banking Department of the State of New York (the "Banking Department"), and
various entities related to IMN were reportedly licensed to operate in a large
number of other jurisdictions across the United States. IMN apparently financed
its operations in significant part through the use of loans and/or revolving
lines of credit provided by lenders ("Warehouse Lenders") that were not related
to the Bank.

   On June 30, 2000, the Banking Department suspended IMN's license to engage in
mortgage banking activities. On July 19, 2000, IMN and its publicly held parent
company, AppOnline.com, Inc. ("AppOnline"), filed a petition under Chapter 11 of
the Bankruptcy Code in the Eastern District of New York. On July 28, 2000,
certain Warehouse Lenders filed an involuntary bankruptcy petition against
Action Abstract, Inc. ("Action Abstract"), an entity to which they apparently
had regularly wired funds in connection with their dealings with IMN. Bankruptcy
cases are also ongoing as to several other entities related or allegedly related
to IMN. The Chapter 11 Trustee of the estates of IMN, AppOnline and Action
Abstract has obtained an order substantively consolidating all of those
bankruptcy cases.

   In the course of the bankruptcy cases, it has been alleged that IMN and its
affiliates engaged in a widespread pattern of fraud directed at the Warehouse
Lenders, title agents, closing companies and others with whom IMN and its
affiliates regularly dealt. The office of the United States Attorney for the

                                       20
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

Eastern District of New York ("USAO") has been conducting an inquiry into the
manner in which IMN and its affiliates conducted their operations, which had
included an examination of the relationship between IMN and its affiliated
entities and the Bank. As the Bank had expected, the USAO has determined that
based on the information it has to date it does not currently intend to seek an
indictment against the Bank or any of its officers or employees for conduct
relating to IMN. The Bank's representatives have also been in contact with the
Banking Department and the Federal Deposit Insurance Corporation and will
continue to work with them to address any questions or concerns they might have.

   The Bank has been named (along with other defendants) in lawsuits related to
the activities of IMN and related companies. In certain of these litigations,
the Bank was named as a defendant merely because monies in dispute were located
in accounts at the Bank. In the remainder, while each complaint is somewhat
different, the principal common allegation against the Bank is that it knew or
should have known that the manner in which IMN and its affiliates were managing
certain accounts was improper, and that the Bank's actions in this regard aided
and abetted a fraudulent scheme by IMN and its affiliates. The six such cases
currently pending against the Bank are as follows:

--   Imperial Warehouse Finance, Inc. v. Action Abstract, Inc., et al.,
     Case No. 00 Civ. 3933, Eastern District of New York.

--   Blanton, et al. v. IMN Financial Corp., et al., Adv. Proc.
     No. 01-8096, Bankruptcy Court for the Eastern District of
     New York.

--   Moritz, et al. v. National Settlement Services Corp., et al.,
     Civil Action No. 3:00 CV 426 MU, Western District of
     North Carolina.

--   Duboff, et al. v. Island Mortgage Network, Inc., et al., Index
     No. 10738/00, Supreme Court of the State of New York.

--   First American Title Insurance Co. v. State Bank of Long

     Island, Index No. 13438/01, Supreme Court of the State
     of New York.

--   Broward Title Co. v. Alan Jacobs, et al., Adv. Proc.
     No. 01-8181, Bankruptcy Court for the Eastern District
     of New York.

   In addition, the Chapter 11 Trustee appointed in the IMN bankruptcy cases and
a number of other Warehouse Lenders have threatened to pursue their own claims
against the Bank related to the Bank's dealings with IMN and its affiliates. The
Bank is defending these lawsuits vigorously, and management believes that the
Bank has substantial defenses to the claims that have been threatened or
asserted to date. However, the ultimate outcome of these lawsuits cannot be
predicted with certainty. The Bank's legal fees and expenses will be
significant, and those costs, in addition to any costs associated with settling
the IMN-related litigations or satisfying any adverse judgments, could have a
material adverse effect on the Bank's results of operations or financial
position. The Bank is continuing to explore the extent to which insurance
coverage may be available to defray some of the costs associated with the
IMN-related litigations, and the Bank is also investigating the extent to which
it may have counterclaims against plaintiffs in those litigations, cross-claims
against co-defendants, and claims against non-parties.

   The Company and the Bank are subject to other legal proceedings and claims
that arise in the ordinary course of business. In the opinion of management, the
amount of ultimate liability, if any, with respect to such matters will not
materially affect future operations.

   Other--The Bank is required to maintain balances with the Federal Reserve
Bank of New York to satisfy reserve requirements. These balances averaged
approximately $432,000 and $1,001,000 in 2001 and 2000, respectively.

12. STATE BANCORP, INC. (PARENT COMPANY ONLY)

   Certain condensed financial information follows (dollars
in thousands):

December 31,                                               2001         2000
------------------------------------------------------------------------------
BALANCE SHEET
Assets:
   Cash                                                  $   583      $   155
   Dividends receivable and other assets                   1,608        1,337
   Investment in the Bank                                 75,474       72,032
------------------------------------------------------------------------------
Total Assets                                             $77,665      $73,524
------------------------------------------------------------------------------
Liabilities                                              $ 1,377      $ 1,217
------------------------------------------------------------------------------
Stockholders' Equity:
   Preferred stock                                            --           --
   Common stock                                           41,171       38,724
   Surplus                                                39,202       34,518
   Retained earnings                                       5,588        4,780
   Treasury stock                                         (7,071)      (2,422)
   Accumulated other comprehensive loss                   (2,428)      (2,972)
   Unearned compensation                                    (174)        (321)
------------------------------------------------------------------------------
Total Stockholders' Equity                                76,288       72,307
------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity               $77,665      $73,524
------------------------------------------------------------------------------


For the Years Ended December 31,              2001         2000         1999
------------------------------------------------------------------------------
INCOME STATEMENT
Dividends from the Bank,
   net of expenses                          $ 9,155      $ 5,274      $ 3,453
Equity in the undistributed
   earnings of the Bank                       1,666        5,436        6,876
------------------------------------------------------------------------------
Net Income                                  $10,821      $10,710      $10,329
------------------------------------------------------------------------------

CASH FLOWS Operating Activities:

   Net income                               $10,821      $10,710      $10,329
   (Increase) decrease in other assets         (271)        (336)          22
   Increase (decrease) in liabilities           159          109           (3)
   Equity in the undistributed
     earnings of the Bank                    (1,666)      (5,436)      (6,876)
------------------------------------------------------------------------------
Net cash provided by
   operating activities                       9,043        5,047        3,472
------------------------------------------------------------------------------
Financing Activities:
   Cash dividends paid                       (4,089)      (3,707)      (3,327)
   Proceeds from issuance of
     common stock                             1,233        1,039          980
   Capital contribution to the Bank          (1,110)        (902)        (849)
   Payment to repurchase
     common stock                            (4,649)      (1,504)        (730)
------------------------------------------------------------------------------
Net cash used in
   financing activities                      (8,615)      (5,074)      (3,926)
------------------------------------------------------------------------------
Net Changes in Cash                         $   428      $   (27)     $  (454)
------------------------------------------------------------------------------

13. FINANCIAL INSTRUMENTS WITH
     OFF-BALANCE SHEET RISK

   The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing

                                       21
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

needs of its customers. These financial instruments include commitments to
extend credit and standby and documentary letters of credit. Those instruments
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated financial statements. The Company has not engaged
in derivatives activities for any of the reported periods.

   The Bank's exposure to credit loss in the event of nonperformance by third
parties for commitments to extend credit and letters of credit is represented by
the contractual notional amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.

   Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer. Collateral required varies, but may include
accounts receivable, inventory, equipment, real estate, and income-producing
commercial properties. At December 31, 2001 and 2000, commitments to originate
loans and commitments under unused lines of credit for which the Bank is
obligated amounted to approximately $153,890,000 and $131,584,000, respectively.

   Letters of credit are conditional commitments issued by the Bank guaranteeing
payments of drafts in accordance with the terms of the letter of credit
agreements. Commercial letters of credit are used primarily to facilitate trade
or commerce and are also issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. Collateral may be required to support letters of credit based upon
management's evaluation of the creditworthiness of each customer. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Most letters of credit
expire within one year. Management does not anticipate any material losses as a
result of these transactions. At December 31, 2001 and 2000, the Bank had
letters of credit outstanding of approximately $6,834,000 and $3,615,000,
respectively.

14. DISCLOSURES ABOUT FAIR VALUE
     OF FINANCIAL INSTRUMENTS

   Fair value estimates are made as of a specific point in time based on the
characteristics of financial instruments and market information. Where
available, quoted market prices are used. However, markets do not exist for a
portion of the Company's financial instruments and, as a result, fair value
estimates require judgments regarding future cash flows. These judgments are
subjective in nature, involve uncertainties and therefore may change
significantly at future measurement dates. The fair value information that
follows is intended to supplement, but not replace, the basic consolidated
financial statements and other traditional financial data presented throughout
this report. The calculation of estimated fair values is based on market
conditions at December 31, 2001 and 2000 and is not reflective of current or
future fair values. Furthermore, the value of long-term relationships with
depositors is not reflected. The value of those relationships is significant.

   The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.

   Cash and Short-Term Investments--For cash and short-term investments (due
from banks, Federal funds sold, securities purchased under agreements to resell,
accrued interest receivable and certain other short-term assets), the carrying
amount is a reasonable estimate of fair value.

   Securities Held to Maturity and Securities Available for Sale--For securities
held to maturity and securities available for sale, the estimated fair value
equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using a quoted market price for similar
securities.

   Loans--The fair value of loans is estimated by discounting the expected
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities.

   Deposits--The fair value of demand deposits, savings accounts and time
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated using the interest rate
swap rates of similar term points.

   Other Short-Term Liabilities--Other short-term liabilities (Federal funds
purchased, securities sold under agreements to repurchase, accrued interest
payable and certain other short-term liabilities) are considered to have fair
values equal to their carrying amounts due to their short-term nature. These
instruments are presented in the table below as other short-term liabilities.

   Commitments to Extend Credit, Standby Letters of Credit and Commercial
Letters of Credit--The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of standby letters of credit and commercial letters of credit is
based on fees currently charged for similar agreements.

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

December 31,                            2001                     2000
-------------------------------------------------------------------------------
                               Carrying   Estimated     Carrying     Estimated
                                Amount    Fair Value     Amount      Fair Value
-------------------------------------------------------------------------------
Financial assets:
   Cash and short-term
     investments               $143,277    $143,277    $  101,368    $  101,368
   Securities held to
     maturity and securities
     available for sale         275,410     275,417       418,591       418,588
   Loans--net of the allowance
     for probable loan losses   542,342     548,576       487,785       499,014
-------------------------------------------------------------------------------
Total                          $961,029    $967,270    $1,007,744    $1,018,970
-------------------------------------------------------------------------------
Financial liabilities:
   Deposits                    $884,709    $823,681    $  895,107    $  896,975
   Other short-term
     liabilities                 12,572      12,572        47,321        47,321
-------------------------------------------------------------------------------
Total                          $897,281    $836,253    $  942,428    $  944,296
-------------------------------------------------------------------------------

                                       22
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

15. REGULATORY MATTERS

   Dividends paid by the Company are subject to restrictions by certain
regulatory agencies. Under these restrictions, approximately $9,842,000 was
available for payment of dividends at December 31, 2001, without prior approval
of those regulatory agencies.

   The Company and the Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Under the capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and the Bank's
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.

   Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
capital and Tier I capital, as defined in the regulations, to risk weighted
assets and of Tier I capital to average assets. Management believes, as of
December 31, 2001, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.

   As of December 31, 2001, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the Bank's
category. The Company's and the Bank's capital amounts and ratios are as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                                                        To Be Well
                                                                              For Capital             Capitalized Under
                                                                               Adequacy               Prompt Corrective
                                                     Actual                    Purposes               Action Provisions
-------------------------------------------------------------------------------------------------------------------------
                                               Amount       Ratio         Amount       Ratio         Amount        Ratio
-------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>           <C>          <C>           <C>            <C>
AS OF DECEMBER 31, 2001:
Tier I Capital to Total Adjusted
   Average Assets (Leverage):
     The Company                               $75,894      7.79%         $38,970      4.00%             N/A         N/A
     The Bank                                  $75,080      7.71%         $38,952      4.00%         $48,690        5.00%
Tier I Capital to Risk Weighted Assets:
     The Company                               $75,894     11.81%         $25,705      4.00%             N/A         N/A
     The Bank                                  $75,080     11.69%         $25,690      4.00%         $38,536        6.00%
Total Capital to Risk Weighted Assets:
     The Company                               $83,942     13.06%         $51,419      8.00%             N/A         N/A
     The Bank                                  $83,125     12.94%         $51,391      8.00%         $64,239       10.00%
-------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2000:
Tier I Capital to Total Adjusted
   Average Assets (Leverage):
     The Company                               $74,952      7.57%         $39,605      4.00%             N/A         N/A
     The Bank                                  $74,677      7.46%         $40,041      4.00%         $50,052        5.00%
Tier I Capital to Risk Weighted Assets:
     The Company                               $74,952     12.53%         $23,927      4.00%             N/A         N/A
     The Bank                                  $74,677     12.40%         $24,089      4.00%         $36,134        6.00%
Total Capital to Risk Weighted Assets:
     The Company                               $82,452     13.78%         $47,868      8.00%             N/A         N/A
     The Bank                                  $82,224     13.66%         $48,155      8.00%         $60,193       10.00%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       23
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------

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

   We have audited the accompanying consolidated balance sheets of State
Bancorp, Inc. and subsidiary (the "Company") as of December 31, 2001 and 2000,
and the related consolidated statements of income, stockholders' equity and
comprehensive income (loss), and cash flows for each of the three years in the
period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

   In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of State Bancorp, Inc. and subsidiary
at December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP

Philadelphia, Pennsylvania
February 1, 2002

                                       24
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
OVERVIEW

   State Bancorp, Inc. (the "Company") is a one-bank holding company, which was
formed on June 24, 1986. The Company operates as the parent for its wholly owned
subsidiary, State Bank of Long Island and subsidiaries (the "Bank"), a New York
State chartered commercial bank founded in 1966. The income of the Company is
derived through the operation of the Bank and its subsidiaries, SB Portfolio
Management Corp. ("SB Portfolio"), SB Financial Services Corp. ("SB Financial"),
Studebaker-Worthington Leasing Corp. ("SWLC"), New Hyde Park Leasing Corp. and
SB ORE Corp.

   The Bank serves its customer base through thirteen full-service branches and
a lending center in Jericho. Of the Bank's branch locations, six are in Nassau
County, five are in Suffolk County and two are in Queens County. The Bank offers
a full range of retail banking services to individuals, corporations,
municipalities and small to medium-sized businesses. Retail products include
checking accounts, NOW accounts, money market accounts, passbook and statement
savings accounts, certificates of deposit, individual retirement accounts,
commercial loans, personal loans, residential, construction, home equity,
commercial mortgage loans, consumer loans, small business lines of credit,
equipment leases and telephone banking. In addition, the Bank also provides
access to annuity products, mutual funds, discount brokerage services, sweep
products and, through its association with U.S. Trust Company, a full range of
wealth management and financial planning services.

   SB Portfolio and SB Financial, based in Wilmington, Delaware, each wholly
owned subsidiaries of the Bank, were formed in 1998. SB Portfolio provides
investment management services to the Bank and the Company while SB Financial
provides balance sheet management services such as interest rate risk modeling,
asset/liability management reporting and general advisory services to the Bank.

   The Company acquired SWLC, based in Jericho, N.Y., in February 2001. SWLC is
a nationwide provider of business equipment leasing that has been conducting
business for over thirty years.

   For the year ended December 31, 2001, the Company recorded record levels of
earnings, loans, core deposits and Tier I capital. The following discussion is
intended to provide the reader with further insight into the principal factors
contributing to the financial results of the Company and its operating
subsidiary for the periods shown. It should be read in conjunction with the
consolidated financial statements and notes thereto for a full understanding of
this analysis.

   The Company's 2001 performance is discussed in detail on the following pages.
Certain statements contained in this discussion are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on management's current expectations
regarding a range of issues that could potentially impact the Company's
performance in future periods. Forward-looking statements are subject to risks
and uncertainties which may cause actual results to differ materially from those
discussed herein. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies, and expectations of the
Company, are generally identified by the use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," "is confident that" or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors that could have a
material adverse effect on the operations of the Company and its subsidiary
include, but are not limited to, changes in: market interest rates, general
economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, the quality and composition of the loan or
investment portfolios, demand for loan products, deposit flows, competition,
demand for financial services in the Company's primary trade area, accounting
principles and guidelines and other economic, competitive, governmental,
regulatory and technological factors affecting the Company's operations, pricing
and services.

RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Summary of Financial Performance
   The Company achieved its thirty-first consecutive year of record earnings
during 2001. Net income improved by 1.0% to $10.8 million or $1.38 basic
earnings per common share in 2001 versus $10.7 million or $1.35 per share in
2000 (per share earnings have been adjusted to reflect the impact of the 5%
stock dividend paid by the Company during 2001). Fully diluted earnings per
common share were $1.35 and $1.34 in 2001 and 2000, respectively. Growth in net
interest income (up 16.3%), greater net security gains and a lower effective
income tax rate were the primary reasons for the earnings growth during 2001.
The increase in net interest income resulted from an expanded interest-earning
asset base, primarily through growth in the loan portfolio, coupled with an
improved net interest margin. Somewhat offsetting the foregoing factors were
increases in operating expenses, principally legal fees related to the
litigations arising out of the Bank's deposit relationship with Island Mortgage
Network and its affiliates, salaries and benefits and occupancy costs, and the
provision for probable loan losses.

   The Company's capital position, by all industry-standard measures, remains
strong. The ratio of average total stockholders' equity to average total assets
was 7.73% and 6.31% in 2001 and 2000, respectively. Excluding adjustments
related to SFAS No. 115, these ratios would have been approximately 7.73% and
7.65% in 2001 and 2000, respectively. Based upon banking industry regulatory
guidelines, a "well capitalized" institution must maintain a Tier I leverage
ratio of at least 5.00% and Tier I and total capital to risk-weighted assets
ratios of at least 6.00% and 10.00%, respectively. At December 31, 2001, the
Company's Tier I leverage ratio was 7.79% while its risk-weighted ratios were
11.81% for Tier I capital and 13.06% for total capital. These ratios are
substantially in excess of the foregoing regulatory guidelines and also compare
favorably to the Company's peers.

   Although net income improved during 2001, the Company's primary measures of
financial performance declined. During 2001, return on average equity decreased
to 13.94% versus 2000's record level of 17.91%. Excluding the impact of
Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"), the
Company's returns on average equity were 13.94% and 14.78% during 2001 and 2000,
respectively. Return on average assets declined slightly to 1.08% from 1.13% a
year ago. The Company's primary expense measurement ratio, the operating
efficiency ratio, rose during 2001 to 64.5% from 52.5% in 2000. The Company's
net interest margin widened substantially during 2001 to 4.79%, a 47 basis point
improvement from a year ago.

   The Company's primary trade area, Nassau and Suffolk Counties on Long Island,
and Queens County in New York City, suffered through its most difficult
twelve-month period in
                                       25
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

2001 since the early 1990s. The events of September 11th exacerbated the
economic slowdown that was already taking place in the Long Island area. Over
the past decade, the Long Island economy has successfully transformed itself
into a dynamic high-tech-driven incubator for cutting edge companies from one
that was primarily dependent on one industry for job creation for many years.
The primary strength of the local economy now is its great diversity. Long
Island has become a fertile growth area for small business creation,
particularly in the high-tech, medical, biotech and services sectors. Queens
County is one of the most diverse counties in the country and is the home to
over 42,500 small businesses and over two million residents. The Company is an
active participant in lending to small businesses in a wide variety of
industries in the tri-county area surrounding its branch network. Loan demand
improved somewhat during 2001. On a year-to-year basis, total gross loans,
excluding the impact of SWLC, grew by 7.4% versus 2000. Although some statistics
seem to point to an economic recovery in 2002, recent economic evidence is
somewhat mixed. Consumer confidence improved during the fourth quarter of 2001,
but that situation is tenuous at best and is largely dependent on worldwide
events. Interest rates are at their lowest level in almost forty years and
future rate reductions, if any, may no longer stimulate the economy.

   The tri-county marketplace is among the most competitive in the country, and
management is well aware that past performance is not indicative of future
results. Intense competition from commercial and savings banks, financial
services conglomerates and insurance companies has created a financial services
industry where consumers and businesses alike can access their investments and
obtain funding online and invest in CDs and mutual funds with institutions
across the country, or around the world, sweep idle balances into a wide variety
of investments, all by the click of a mouse from their homes or offices.
Consumers are no longer impressed by "24/7" service, as they have come to expect
it from their financial service providers. Relationships are no longer of
paramount importance for many businesses or consumers. Convenience, flexibility
and technology have created a new paradigm in banking. The ongoing consolidation
of the banking industry, spurred by both congressional legislation and
competition, has promoted financial convergence among banks, financial services
providers and the insurance industry. Intense competition, along with a keen
sophistication among consumers and corporate treasurers makes management's
outlook cautiously optimistic for 2002.

   Management of the Company has chosen to be very cautious with respect to
granting credit to current and prospective borrowers. For these reasons, it is
expected that 2002 will see loan growth of 4% to 6% in the Company's core
competencies of commercial and industrial credits, commercial mortgages and
equipment leasing at spreads that are expected to narrow somewhat from current
levels as short-term interest rates find their bottom. Lower short-term interest
rates contributed to the improvement in the Company's funding costs during 2001.
Assuming no change in the shape of the yield curve, funding costs are not
expected to decline in 2002. Further reductions in the Company's Prime lending
rate during 2002 may negatively impact the net interest margin during the next
twelve months.

   Additional asset growth in 2002 will likely come from the fixed income
investment portfolio in both the taxable and tax-exempt areas. It is expected
that the recent opening of three branch offices during 2001, and the planned
opening of two additional branches during the first quarter of 2002, will
provide low-cost core deposit funding for any anticipated asset growth. The
Company will continue to aggressively pursue expense reductions and operating
efficiencies along with revenue-generating sales initiatives to improve net
interest income.

   Management expects that the upcoming year will provide significant challenges
for the Company. The planned opening of two branch locations, one of which is
expected to be in Queens County, a market penetrated by the Company for the
first time in 2001, coupled with the continued integration of SWLC and ongoing
technology upgrades, will provide a formidable array of challenges for
management of the Company over the coming year. However, by continuing our
philosophy of Measured, Orderly Growth, maintaining a "Customer First" attitude
and adhering to the ideals contained in our mission statement and our long-term
strategic plan, the Company has been able to apply a consistent standard of
excellence that we feel will produce another productive year during 2002.

NET INTEREST INCOME

2001 versus 2000

   Net interest income, the difference between interest earned on loans and
investments and interest paid on deposits and borrowed funds, is the Company's
primary source of operating earnings. Net interest income is affected by the
level and composition of assets, liabilities and stockholders' equity, as well
as changes in market interest rates. Net interest income increased by 16.3% to
$43.2 million in 2001 as the result of growth in average interest-earning assets
of $59 million (6.6%) coupled with a wider net interest rate margin. Growth in
loans, municipal and mortgage-backed securities and short-term securities
purchased under agreements to resell ("SPUAR") accounted for the asset
expansion. Increases in commercial loans, commercial mortgages and lease
receivables led the $59 million or 12.2% increase in average loans outstanding
in 2001 versus 2000. Average SPUARs, used to collateralize municipal deposits,
increased by $45.2 million during 2001. Average investment securities decreased
by $42 million or 10.8% due to a $133 million decline in Government Agency
paper, resulting from third and fourth quarter asset sales and calls throughout
the year. Somewhat offsetting this decline were increases in mortgage-backed
notes (up $39.9 million) and tax-exempt municipal paper (up $31.8 million). A
majority of the Company's investment portfolio is owned and managed by SB
Portfolio Management Corp., a wholly owned subsidiary of State Bank of Long
Island located in Wilmington, Delaware.

   Average interest-earning assets have grown by 6.6%, 12.2% and 14.0% in 2001,
2000 and 1999, respectively. Primarily funding this asset expansion were
increases in low-cost core deposits, principally demand deposit and money fund
savings accounts. Growth in these deposit categories offset reductions in both
retail and large denomination certificates of deposit.

   Average core deposit balances increased by $86 million or 23.1% to $458
million in 2001. The growth and retention of low-cost core deposit balances is
one of the Company's top strategic priorities since the growth of these deposits
is a key element in the Company's expansion strategy. These low-cost deposits
also are critical to the Company's efforts to improve net income through a wider
net interest margin. During 2001, average core deposit balances represented 51%
of total deposits; up from 43% a year ago. An expanded municipal banking

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department, which continues to develop new relationships throughout Long Island,
new branches opened during the past two years and growth in commercial deposit
relationships, were responsible for growth in all core deposit categories.
Average demand deposit balances grew by 13.7% and 2.3% in 2001 and 2000,
respectively, and have increased by 38.5% since 1998. Average savings deposits
expanded by $67 million or 28.8% on a year-over-year basis. During 2001, the
Company's net interest margin improved to 4.79%, from 4.32% and 4.61% during the
previous two years. The wider margin resulted from several factors, most
notably: the aforementioned shift in the Company's funding mix from CDs to core
deposits; lower short-term interest rates; a liability-sensitive balance sheet,
and a shift in the asset mix to a greater dependence on higher-yielding loans as
a percentage of total earning assets. The increase in low cost sources of
funding during 2001 coupled with the continued decline in short-term interest
rates contributed to a 120 basis point decrease in the average rate paid on the
Company's supporting funds to 2.76% in 2001 from 3.93% in 2000. Management
anticipates a flat net interest margin in 2002 as demand deposit balances and
loan volumes are each projected to increase while short-term interest rates are
expected to moderate. Pricing pressure in the loan portfolio is expected to
offset any improvement in funding costs that will result from continued core
deposit expansion. Management of the Company expects that the continued
maturation of the Suffolk County branch opened in mid-2000, the ongoing growth
of the three branches opened in 2001 and the planned 2002 branch openings will
provide access to additional low-cost sources of funds as well as provide ample
opportunity to expand the Company's loan portfolio in previously under-served
areas of both Queens and Suffolk Counties. As has been the case with recent
branch openings, the Company expects that these new locations will produce
additional commercial and municipal banking relationships, both for
deposits and loans, that will enhance profitability in 2002 and beyond.

   Average total loans grew by 12.2%, 7.8% and 16.7% in 2001, 2000 and 1999,
respectively. This growth has been achieved with little adverse impact on credit
quality. The Company, once again, was able to take advantage of Long Island's
diverse economy in 2001 and generate quality loan growth in a very competitive
marketplace. Excluding leases acquired in the SWLC transaction, average loans
grew at a year-to-year rate of 8.6%. The lower level of interest rates during
2001, which fueled the refinancing boom, coupled with additional industry
consolidation were the primary reasons for the growth in the Company's loan
portfolio during the past year. Additional investments in property, plant and
equipment, in many industries have been put on hold since September 11th.
Management of the Company expects that the combination of low interest rates and
the ongoing expansion of the branch network will provide significant opportunity
for loan growth during the next twelve to twenty-four months. Products such as
Business Direct Access, a commercial cash management product, the Small Business
Line of Credit and Prime For Life home equity loan products, along with a
variety of equipment leasing options offered by SWLC provide commercial lenders
and branch managers with a competitive arsenal of offerings for all types of
relationships. These products, coupled with responsive and personal customer
service that are second to none, will continue to enable the Company to take
advantage of opportunities presented by the ongoing consolidation of the local
banking market and our entree into new markets. Average commercial loans,
commercial mortgages and installment loans grew at rates of 6.5%, 11.2% and
20.2%, respectively, in 2001. At December 31, 2001, total loans outstanding
amounted to $552 million, up 11.0% when compared to the comparable 2000 date.
Excluding SWLC, year-end loans outstanding rose by 7.4% in 2001. The year-end
loan portfolio was comprised of approximately 43% commercial loans, 39%
commercial mortgages, 10% residential mortgages and 8% all other loans and
leases. It is expected that the 2002 loan mix will remain, on a percentage
basis, approximately the same as 2001.

   Based upon recent local and national economic forecasts, management of the
Company is confident that loans outstanding will grow at a rate of 4% to 6% in
2002. The ongoing consolidation of the New York City and Long Island banking
markets still provides the greatest potential for loan growth next year. As
larger money center and regional bank competitors continue to "roll-up" the
local market, many retail, commercial and municipal customers are often left out
in the cold, as their bankers need to wait for headquarters to approve rates and
product terms. A well managed, locally run community bank with an excellent
reputation and a strong capital base will thrive in this environment.

   Management of the Company is committed to quality loan growth. A
comprehensive credit and peer review process provides a quality control tool to
ensure that only high quality loans are brought to credit committee for
consideration. This rigorous process is more important than ever as the Company
enters new geographic markets and offers a wider product array during 2002.

2000 versus 1999

   Net interest income increased by 3.1% to $37.1 million during 2000 as the
result of growth in interest-earning assets of $98 million (up 12.2%). Growth in
loans, municipal securities and taxable Government Agency securities accounted
for the asset expansion. Increases in commercial loans and commercial mortgages
paced the $35 million or 7.8% increase in average loans outstanding in 2000
versus 1999. Average investment securities advanced by $62 million or 19.1% due
to growth in Government Agency paper, primarily callable issues with eight to
ten-year final maturities, coupled with an increase in tax-exempt municipal
notes. Funding the growth in interest-earning assets were paydowns on
mortgage-backed securities, increases in core deposits, and growth in retail and
large denomination certificates of deposit.

   During 2000, the Company's net interest rate margin contracted to 4.32% from
4.61% in 1999. The narrower spread resulted from an increased cost of funds (up
75 basis points to 3.93% in 2000) due principally to higher interest rates and
growth in high-cost interest-bearing sources of funds to support asset growth.
Average time deposits increased by 35.2% while core deposit growth was a more
modest 5.7% in 2000.

INVESTMENT SECURITIES

   SFAS No. 115 requires the Company, at the time of purchase, to designate each
investment security as either "available for sale"("AFS"), "held to maturity" or
"trading," depending upon investment objectives, liquidity needs and ultimate
intent. Securities available for sale are stated at the lower of aggregate cost
or market value, with unrealized gains or losses reported as a separate
component of stockholders' equity until realized.

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Securities held to maturity are stated at cost, adjusted for amortization of
premium or accretion of discount, if any. Trading securities are generally
purchased with the intent of capitalizing on short-term price differences by
selling them in the near term. The Company did not hold any trading securities
at December 31, 2001 and 2000.

   At December 31, 2001, the Company held $275 million in AFS securities (99.9%
of the investment portfolio) at a pretax unrealized net loss of $3.9 million,
down from $6.5 million at year-end 2000. This significant decline resulted from
lower interest rates and a balance sheet restructuring undertaken by the Company
during 2001 whereby some portfolio gains were realized. At year-end 2001, the
AFS portfolio was divided into the following categories: 11% callable U.S.
Government Agency securities; 29% tax-exempt municipal paper, 58%
mortgage-backed securities ("MBS") (mainly FNMA and GNMA obligations); and 2%
all other securities, primarily FHLB stock. The held to maturity portion of the
portfolio which totaled $196 thousand, was comprised solely of local municipal
notes. Agency holdings decreased by $257 million at year-end 2001 to $31 million
versus the same period a year ago. This decline was due to a combination of
rate-related calls and the aforementioned sales. The remaining securities are
all callable within two years, and most have final maturities of less than
twelve years. If rates continue to fall during 2002, it is likely that these
securities will be called in the next twelve months. The notes are AAA credits
that provide a very competitive yield well in excess of the Company's
incremental funding cost and are pledgeable to secure municipal deposits and
other borrowings. The Company's investment policy is conservative and has
liquidity and safety paramount among its objectives. The Company's portfolio of
tax-exempt municipal notes declined by $35 million at year-end 2001 versus the
comparable 2000 date. The Company continues to expand its municipal
relationships and, as a natural outgrowth of that business, purchases short-term
(one year or less) municipal paper. Much of the municipal paper that is
purchased is classified as available for sale and eventually sold into the
secondary market when market conditions are favorable. During 2001, the
Company's holdings of mortgage-backed securities increased by $147 million as
the result of favorable market conditions. In an interest rate environment that
has not been experienced in more than a generation, management of the Company
found significant value in the mortgage-backed market during 2001. The Company
adopted a defensive investment philosophy during 2001 due in large measure to
the belief that interest rates were approaching the bottom of the rate cycle.
The Company purchased premium mortgage-backed securities as such securities
provide better price stability, reinvestment opportunity and lower extension
risk in a rising rate environment. The MBS portfolio also provides monthly cash
flow through principal paydowns. The Company received paydowns of $23 million
and $9 million in 2001 and 2000, respectively. Management expects that this
trend will continue in 2002 at a similar rate due to the current and forecasted
interest rate environment.

   The Company's investment portfolio is low-risk in nature due to its
concentration of U.S. Government Agency, local municipal notes and AAA-rated MBS
balloon and pass-through securities. As of December 31, 2001, the MBS portfolio
had an average life of approximately four years after adjusting for historical
prepayment patterns. Approximately 2% of the MBS portfolio, including
collateralized mortgage obligations ("CMOs"), had final maturities in excess of
five years. In general, principal prepayments on these securities will increase
as interest rates fall and, conversely, prepayments will slow down as interest
rates rise. CMOs accounted for less than 2% of the total investment portfolio as
of year-end 2001. None of the CMOs held by the Company met the regulatory
definition of a high-risk security nor did the Company own any structured notes
as of December 31, 2001. The Government Agency portfolio, callable in 2001 and
2002, had final maturities in the seven- to fifteen-year maturity range.

   The Company's investment subsidiary, SB Portfolio Management Corp. ("SB
Portfolio"), which was initially capitalized in 1998, continued to grow
throughout 2001. Located in Wilmington, Delaware, this subsidiary now holds and
manages approximately 79% of the Company's investment portfolio. The majority of
securities domiciled with SB Portfolio are mortgage-backed issues; however,
portions of its portfolio are also dedicated to Government Agency and tax-exempt
paper as well. SB Portfolio has its own investment policy and Board of
Directors; however, it still adheres to the stringent safety and quality
standards present throughout the Company in its investment evaluation process.
Management of the Company expects that SB Portfolio will continue to grow in
2002 through the reinvestment of its own interest income as well as through
additional capital infusions from the parent Company if market conditions
warrant. The Company did not provide additional capital to SB Portfolio during
2001.

SUMMARY OF LOAN LOSS EXPERIENCE AND
ALLOWANCE FOR PROBABLE LOAN LOSSES

   One of management's main objectives is to maintain a high quality loan
portfolio in all economic climates. This objective is achieved by maintaining
high underwriting standards coupled with regular evaluation of each borrower's
creditworthiness and risk exposure. Management seeks to avoid loan
concentrations within industries and customer segments in order to minimize
credit exposure. The Company's senior lending personnel work in conjunction with
line lenders to determine the level of risk in the Company's loan-related assets
and establish an adequate level for the allowance for probable loan losses. An
outside loan review consultant is also utilized to independently verify the loan
classifications and the adequacy of the allowance for probable loan losses.
Management actively seeks to reduce the level of nonperforming assets, defined
as nonaccrual loans and other real estate owned, through aggressive collection
efforts and, where necessary, litigation and charge-off. Other real estate owned
properties are aggressively marketed for sale utilizing local commercial and
residential realtors, where necessary.

   In management's opinion, the most critical accounting policy impacting the
Company's financial statements is the evaluation of the allowance for probable
loan losses. Management carefully monitors the credit quality of the loan
portfolio and makes estimates about the amount of credit losses that have been
incurred at each financial statement date. Management evaluates the fair value
of collateral supporting the impaired loans using independent appraisals and
other measures of fair value. This process involves subjective judgments and
assumptions and is subject to change based on factors that may be outside the
control of the Company.

   Management of the Company recognizes that, despite its best efforts to
minimize risk through a rigorous credit review process, losses will occur. In
times of economic slowdown, either regional or national, the risk inherent in
the Company's loan

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portfolio will increase. The timing and amount of loan losses that occur is
dependent upon several factors, most notably qualitative and quantitative
factors about both the micro and macro economic conditions as reflected in the
loan portfolio and the economy as a whole. Factors considered in this evaluation
include, but are not limited to, estimated losses from loan and other credit
arrangements, general economic conditions, changes in credit concentrations or
pledged collateral, historical loan loss experience, and trends in portfolio
volume, maturity, composition, delinquencies and nonaccruals. The allowance for
probable loan losses is available to absorb charge-offs from any loan category,
while additions are made through the provision for loan losses, which is a
charge to operating earnings. The adequacy of the provision and the resulting
allowance for probable loan losses is determined by management's continuing
review of the loan portfolio, including identification and review of individual
problem situations that may affect a borrower's ability to repay, delinquency
and nonperforming loan data, collateral values, regulatory examination results
and changes in the size and character of the loan portfolio. Thus, an increase
in the size of the loan portfolio or in any of its components could necessitate
an increase in the allowance even though credit quality and problem loan totals
may be improving.

   As illustrated in Table I, the Company's nonperforming assets decreased by
$2.1 million to $8.9 million at year-end 2001 versus 2000 following a $5.8
million increase in 2000 over 1999. At December 31, 2001, total nonperforming
assets, defined by the Company as nonaccrual loans and other real estate owned,
as a percentage of loans and other real estate owned declined to 1.6% as
compared to 2.2% and 1.1% at year-end 2000 and 1999, respectively. The Company
held no other real estate at year-end 2001. The year-end 2001 decrease in
nonperforming assets, as defined by the Company, resulted primarily from a $1.8
million decrease in nonaccrual loans. The decline in nonaccrual loans during
2001 resulted from the transfer of a large commercial credit totaling $3.5
million to other real estate owned during 2001. That commercial property,
previously described in regulatory filings, was subsequently sold at a loss of
$608 thousand prior to year-end. Partially offsetting this reclassification was
the transfer of a single commercial credit to nonaccrual status during the
fourth quarter of 2001.

   Management of the Company actively reviews the level and composition of
nonperforming assets. During 2001, this meant a continuation of recent years'
strategy of collection through litigation combined with enhanced collateral
positions on virtually all nonperforming assets. During 2001, the Company
experienced a substantial decline in the total level of nonaccrual loans,
restructured, accruing loans and loans 90 days or more past due and still
accruing. The total level of these assets decreased by $5.1 million during 2001
to $9.6 million at year-end. This reduction in nonperforming assets resulted in
enhanced coverage ratios at year-end. The allowance for probable loan losses as
a percentage of nonaccrual loans improved to 104% from 86% at year-end 2000,
while the allowance for probable loan losses as a percentage of nonaccrual
loans, restructured, accruing loans and loans 90 days or more past due and still
accruing increased during 2001 to 96% from 63% in 2000. As outlined in the
Company's recent Form 10-Q filings and previously discussed herein, one
commercial mortgage credit now totaling $1.2 million, after the transfer of the
majority of the credit to other real estate in 2001, was restructured during
1996 to a rate of interest below its contractual rate. This credit will remain
on nonaccrual status until cash flows are sufficient to support a market rate of
interest. At December 31, 2001, the Company's portfolio of restructured,
accruing loans was comprised mainly of loans which have demonstrated performance
in accordance with the terms of their restructure agreements, however, they did
not yield a market rate of interest subsequent to their restructuring.

   Based upon current economic conditions, management has determined that the
current level of the allowance for probable loan losses is adequate in relation
to the risks present in the portfolio. Management considers, among other things,
delinquency trends, concentrations within segments of the loan portfolio as well
as recent charge-off experience when assessing the degree of credit risk in the
portfolio. Collateral appraisals and estimates of current value influence the
estimation of the required allowance balance at any point in time. The Company's
loan portfolio is concentrated in commercial and industrial loans and commercial
mortgages, the majority of which are fully secured by collateral with a market
value in excess of the carrying value of the individual loans. Although overall
loan quality continues to improve, management of the Company increased the level
of the provision for probable loan losses during 2001 in recognition of the
continued growth in the portfolio as well as in recognition of the increased
level of net charge-offs. The provision for probable loan losses totaled $3.6
million in 2001 versus $3.3 million in 2000 and $3.0 million in 1999. The
resulting allowance for probable loan losses balance of $9.3 million at December
31, 2001 amounted to 1.7% of loans outstanding versus 1.9% in 2000 and 1.5% in
1999.

   Net loan charge-offs totaled $4.1 million in 2001 versus $1.2 million and
$1.7 million in 2000 and 1999, respectively. Loan recoveries totaled $155
thousand in 2001 versus $260 thousand in 2000 and $521 thousand in 1999.
Although the local economy continued to grow and expand during the past year,
existing weaknesses in certain sectors of the economy may cause future problems.
The potential consequences of an increase in interest rates or a prolonged
economic slowdown in industries which impact the Company's borrower base, make
it difficult to forecast the impact on asset quality that will result during
2002 or any additional charge-offs that will be required during the year.

   It is the present intent of management to further increase the level of the
allowance for probable loan losses to reflect any exposure represented by
fluctuations in the local real estate market, and the underlying value that that
market provides as collateral to certain segments of the loan portfolio. In
recognition of the economic uncertainties previously elaborated upon, the normal
risks inherent in any credit portfolio and expected growth in the loan
portfolio, management anticipates that the 2002 provision for loan losses will
approximate 2001's level. The provision is continually evaluated relative to
portfolio risk and regulatory guidelines and will continue to be closely
reviewed throughout 2002. In addition, various regulatory agencies, as an
integral part of their examination process, closely review the allowance for
probable loan losses. Such agencies may require the Company to recognize
additions to the allowance based on their judgment of information available to
them at the time of their examinations.

   The Company has no foreign loans outstanding. The only concentration of loans
exceeding 10% of total loans is the Bank's loans totaling $74.5 million from
real estate operators, lessors, and developers. Repayment of these loans is
dependent in part upon

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the overall economic health of the Company's market area and current real
estate values. Management of the Company is not aware of any trends, events or
uncertainties that will have, or that are reasonably likely to have, a material
effect on the Company's liquidity, capital resources or future operating
results. For loans not separately disclosed herein, management is not aware of
information relating to any material credit that would impact the ability of
those borrowers to comply with loan repayment terms.

TABLE I

<TABLE>
<CAPTION>
ANALYSIS OF NONPERFORMING
ASSETS AT DECEMBER 31,                           2001            2000            1999            1998            1997
--------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                            <C>             <C>             <C>             <C>             <C>
Nonaccrual loans                               $  8,920(1)     $ 10,736(1)     $  5,194(1)     $  3,676        $  4,258
Other real estate                                    --             330             115             704             189
--------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets                     $  8,920        $ 11,066        $  5,309        $  4,380        $  4,447
--------------------------------------------------------------------------------------------------------------------------
Restructured, accruing loans                   $    284        $    406        $    422        $  5,545(1)     $  7,289(1)
--------------------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due
   and still accruing interest                 $    405        $  3,542        $      3        $  1,352        $  1,590
--------------------------------------------------------------------------------------------------------------------------
Total loans outstanding                        $551,598        $496,992        $488,948        $420,636        $377,633
Total stockholders' equity                     $ 76,288        $ 72,307        $ 56,103        $ 60,858        $ 54,930
Allowance for loan losses                      $  9,255        $  9,207        $  7,107        $  5,788        $  5,124

KEY RATIOS AT DECEMBER 31,
Allowance for loan losses
   as a percent of total loans                      1.7%            1.9%            1.5%            1.4%            1.4%
Nonaccrual loans as a
   percent of total loans                           1.6%            2.2%            1.1%            0.9%            1.1%
Nonperforming assets (2) as a percent
   of total loans and other real estate             1.6%            2.2%            1.1%            1.0%            1.2%
Allowance for loan losses as a
   percent of nonaccrual loans                    103.8%           85.8%          136.8%          157.5%          120.3%
Allowance for loan losses as a percent
   of nonaccrual loans, restructured,
   accruing loans and loans 90 days or
   more past due and still accruing interest       96.3%           62.7%          126.5%           54.7%           39.0%
<FN>
(1) Includes related credits totaling $1.2 million at December 31, 2001, $4.8
    million at December 31, 2000, $3.5 million at December 31, 1999 and $5.0
    million at December 31, 1998 and 1997.
(2) Excludes restructured, accruing loans and loans 90 days or more past due and
    still accruing interest.
</FN>
</TABLE>

OTHER INCOME

2001 versus 2000

   Other income increased substantially in 2001 when compared to 2000. Total
other income more than doubled in 2001 versus 2000. Excluding the impact of net
security transactions in each year, other income would have totaled $3.0 million
in 2001, up 1.5% over 2000. This increase resulted from $290 thousand in
non-recurring gains realized from the receipt of life insurance proceeds related
to two former Board members. Excluding these gains, other income would have
declined by 8.3% versus 2000. Lower levels of return item charges, Investors
Marketplace mutual fund sales fees, wire transfer fees and cash management fees
and charges accounted for the decline in income. Somewhat offsetting these
negative factors were improvements in letter of credit, sweep account and ATM
transaction fees. The 2001 increase follows growth in other income achieved
during 2000 (up 13.5%). If securities transactions were excluded from other
income, the Company would have recorded a 17.6% increase in other income during
2000.

   Return item charges represent the Company's primary source of other income.
These fees decreased by 14.7% in 2001 versus 2000 as the result of improved
balance management by the Company's commercial customer base in part due to the
lower interest rate environment experienced throughout the year. Service charges
on deposits, another large source of fee revenue to the Company, declined
moderately (down 1.7%) in 2001 as the result of new relationship pricing
products introduced by the Company during 2001.

   During 2001, the Company recorded $2.0 million in net security gains as the
result of selected sales of investment securities, principally longer-term
municipal notes and Government Agency paper, to achieve certain portfolio
restructuring goals. This compares to net losses of $529 thousand and $376
thousand in 2000 and 1999, respectively.

   Other operating income improved by 21.7% in 2001 as the result of the
previously noted non-recurring gains on two former directors' life insurance
policies. Excluding these gains, other operating income declined by 4.6% in
2001. Reductions in several categories, most notably wire transfer fees,
Investors Marketplace mutual fund sales fees and cash management fees and
charges, accounted for the decline. Growth in the Company's demand deposit base
during 2001 allowed many commercial customers to reduce hard dollar charges for
services through "analysis" pricing. Growth in the Company's customer base and
improved sales of products such as letters of credit, sweep accounts and
annuities served to partially offset the aforementioned reduction in fee income.
A third-party

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money market sweep account for business relationships was introduced in 1999
and was enthusiastically received by the Company's customer base during 2001.
This product, as well as the Company's strategic alliance with U.S. Trust
Company for wealth management services, are each expected to more meaningfully
add to other income in 2002 as the Company expands and develops its branch
network throughout Nassau, Suffolk and Queens Counties. Ongoing sales training
conducted for branch and lending staff, coupled with a more mature sales culture
throughout the Company, helped to improve the cross-sell ratio of various
products to existing customers in 2001 as well as to identify prospective
customers through ongoing marketing efforts in local communities. A continuation
of this effort in the new communities served by the Company's expanded branch
network is expected to yield dividends in 2002 and beyond.

2000 versus 1999
   Other income grew by 13.5% in 2000 versus 1999. This increase resulted from
growth in deposit service charges, return item charges, Investors Marketplace
mutual fund sales fees, sweep account fees, wire transfer fees, and cash
management fees and charges. Somewhat offsetting these improvements was a higher
level of net security losses in 2000 coupled with a $122 thousand nonrecurring
gain on the sale of equity securities during 1999. Also aiding the growth in
fees in 2000 was an increase in the statutory ceiling imposed by New York State
on return item charges coupled with the imposition of a surcharge on
non-customers utilizing Company ATMs during late 1999.

OPERATING EXPENSES

2001 versus 2000
   Operating expenses increased by 43.7% to $31.6 million in 2001 when compared
to 2000. The largest component of the increase related to legal fees incurred in
connection with ongoing litigation arising out of the Bank's deposit
relationship with Island Mortgage Network and its affiliates, as previously
disclosed in the Company's 2001 Form 10-Q filings with the Securities and
Exchange Commission. These fees totaled $3.3 million in 2001 versus $387
thousand in 2000. The Company expects to incur additional costs related to this
litigation during 2002; however, these costs are not quantifiable at this point
in time.

   The Bank is involved in a number of legal proceedings related to Island
Mortgage Network, Inc. and certain related entities, which held deposit accounts
at the Bank during portions of 1999 and 2000. IMN and its related entities were
principally engaged in offering and providing mortgages to consumers. IMN was
licensed by the Banking Department of the State of New York (the "Banking
Department"), and various entities related to IMN were reportedly licensed to
operate in a large number of other jurisdictions across the United States. IMN
apparently financed its operations in significant part through the use of loans
and/or revolving lines of credit provided by lenders ("Warehouse Lenders") that
were not related to the Bank.

   On June 30, 2000, the Banking Department suspended IMN's license to engage in
mortgage banking activities. On July 19, 2000, IMN and its publicly held parent
company, AppOnline.com, Inc. ("AppOnline"), filed a petition under Chapter 11 of
the Bankruptcy Code in the Eastern District of New York. On July 28, 2000,
certain Warehouse Lenders filed an involuntary bankruptcy petition against
Action Abstract, Inc. ("Action Abstract"), an entity to which they apparently
had regularly wired funds in connection with their dealings with IMN. Bankruptcy
cases are also ongoing as to several other entities related or allegedly related
to IMN. The Chapter 11 Trustee of the estates of IMN, AppOnline and Action
Abstract has obtained an order substantively consolidating all of those
bankruptcy cases.

   In the course of the bankruptcy cases, it has been alleged that IMN and its
affiliates engaged in a widespread pattern of fraud directed at the Warehouse
Lenders, title agents, closing companies and others with whom IMN and its
affiliates regularly dealt. The office of the United States Attorney for the
Eastern District of New York ("USAO") has been conducting an inquiry into the
manner in which IMN and its affiliates conducted their operations, which had
included an examination of the relationship between IMN and its affiliated
entities and the Bank. As the Bank had expected, the USAO has determined that
based on the information it has to date it does not currently intend to seek an
indictment against the Bank or any of its officers or employees for conduct
relating to IMN. The Bank's representatives have also been in contact with the
Banking Department and the Federal Deposit Insurance Corporation and will
continue to work with them to address any questions or concerns they might have.

   The Bank has been named (along with other defendants) in lawsuits related to
the activities of IMN and related companies. In certain of these litigations,
the Bank was named as a defendant merely because monies in dispute were located
in accounts at the Bank. In the remainder, while each complaint is somewhat
different, the principal common allegation against the Bank is that it knew or
should have known that the manner in which IMN and its affiliates were managing
certain accounts was improper, and that the Bank's actions in this regard aided
and abetted a fraudulent scheme by IMN and its affiliates. The six such cases
currently pending against the Bank are as follows:

--   Imperial Warehouse Finance, Inc. v. Action Abstract, Inc., et al.,
     Case No. 00 Civ. 3933, Eastern District of New York.

--   Blanton, et al. v. IMN Financial Corp., et al., Adv. Proc.
     No. 01-8096, Bankruptcy Court for the Eastern District of New York.

--   Moritz, et al. v. National Settlement Services Corp., et al.,
     Civil Action No. 3:00 CV 426 MU, Western District of North Carolina.

--   Duboff, et al. v. Island Mortgage Network, Inc., et al., Index
     No. 10738/00, Supreme Court of the State of New York.

--   First American Title Insurance Co. v. State Bank of Long

     Island, Index No. 13438/01, Supreme Court of the State of New York.

--   Broward Title Co. v. Alan Jacobs, et al., Adv. Proc.
     No. 01-8181, Bankruptcy Court for the Eastern District of New York.

   In addition, the Chapter 11 Trustee appointed in the IMN bankruptcy cases and
a number of other Warehouse Lenders have threatened to pursue their own claims
against the Bank related to the Bank's dealings with IMN and its affiliates. The
Bank is defending these lawsuits vigorously, and management believes that the
Bank has substantial defenses to the claims that have been threatened or
asserted to date. However, the ultimate outcome of these lawsuits cannot be
predicted with certainty. The Bank's legal fees and expenses will be
significant, and those costs, in addition to any costs associated with settling
the IMN-related litigations or satisfying any adverse

                                       31
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STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

judgments, could have a material adverse effect on the Bank's results of
operations or financial position. The Bank is continuing to explore the extent
to which insurance coverage may be available to defray some of the costs
associated with the IMN-related litigations, and the Bank is also investigating
the extent to which it may have counterclaims against plaintiffs in those
litigations, cross-claims against co-defendants, and claims against non-parties.

   Salaries and other employee benefits also increased significantly during 2001
(up $2.4 million or 16.9%) as the result of the previously noted branch
expansion program undertaken along with the impact of the acquisition of
Studebaker-Worthington Leasing Corp. ("SWLC") in February 2001. SWLC has its
headquarters in Jericho, N.Y. but operates in forty states through an extensive
value-added reseller network. Approximately 25% of the growth in the Company's
total operating expenses during 2001 resulted from the acquisition of SWLC.
Growth in staff count, increased health care costs, higher FICA expenses, and
related increases in 401(k) and employee stock ownership plan (ESOP)
contributions all added to the increase in 2001 expenses. Also contributing to
the growth in expenses during 2001 were advances in occupancy costs (up 12.9%),
equipment expenses (up 37.7%), marketing and advertising costs (up 100.0%) and
other operating expenses (up 75.8%).

   Growth in operating expenses during 2001 accelerated from the level recorded
in 2000 due primarily to the previously noted IMN litigation, SWLC acquisition
and the opening of three new branch offices in 2001 and one to open in 2002.
Although the Company continues to experience growth in its various lines of
business, enhanced utilization of technology has assisted in reducing the level
of staff and infrastructure necessary to support that growth and expansion. The
Company continues to be focused on its goal of lowering the rate of growth in
annual non-staff operating expenses to a level below the prevailing rate of
inflation in addition to reducing the operating efficiency ratio (total
operating expenses divided by the sum of fully taxable equivalent net interest
income and other income) once again to a level below 55%. The ongoing expansion
of staff and branch facilities in recent years, along with growth in both the
lending staff and operational support functions, have resulted in rates of
operating expense growth above corporate targets. This trend will continue in
2002 as the Company expects to open two additional branch offices as well as add
to its Jericho Plaza office space to accommodate the relocation of several
departments from other locations where they could no longer expand to support
the growth of the Company. Excluding the impact of 2002 litigation-related
expenses which are not yet quantifiable, management of the Company expects that
the projected expansion of the Company's asset and revenue bases will offset
expected growth in the Company's expense base. Growth in loans and core deposit
balances are planned for the coming year at levels that will more than offset
the anticipated increase in operating expenses that comes with expansion of
facilities and equipment.

   The Company's primary expense control rates of measurement are the operating
efficiency ratio (total operating expenses divided by fully-taxable equivalent
net interest income plus other income, excluding net security gains or losses)
and the ratio of operating expenses to average assets as its primary yardsticks.
The Company's operating efficiency ratio increased to 64.5% in 2001 versus 52.5%
and 51.7% in 2000 and 1999, respectively. Excluding IMN legal expenses, the
Company's operating efficiency ratio was 57.9%. The second measure of expense
control utilized by the Company is total operating expenses to average assets.
The Company recorded ratios of 3.15% in 2001 and 2.32% and 2.43% in 2000 and
1999, respectively, in this category. Excluding IMN-related legal fees, the 2001
ratio was 2.81%. These ratios all compare quite favorably to the Company's peers
and continually place it in the top 10% to 20% of its industry peer group.
Management of the Company is very cognizant of expense management and places
great emphasis on control of operating expenses, but always in the context of
prudent growth of profitable lines of business and expansion of branch
locations. Management is also aware, however, that the resources necessary to
grow the Company's revenue base must also be made available in order to improve
earnings. Along these lines, management also monitors the ratio of average
assets per employee and, at over $4.1 million per employee, the Company also
ranks in the top 10% of its peer group in this category. This efficient
utilization of staff is another reason behind the Company's excellent record of
growth in earnings and assets.

   Growth in both net interest income and other income are expected to outpace
increases in operating expenses (excluding IMN-related legal fees) during 2002,
thereby resulting in anticipated improvements in each of the foregoing expense
control ratios next year. The Company's long-term goal, as stated in previous
stockholder communications, continues to be to reduce its operating efficiency
ratio to a level of 50% or less and to lower the operating expenses to average
assets ratio to 2.25% or lower. While this is unlikely to occur during 2002, it
remains a long-term objective to continually improve these ratios in both
absolute terms and in relation to the Company's community bank peer group. An
analysis of the components of 2001 operating expenses, by category, follows.

   Occupancy expenses totaled $2.2 million in 2001, an increase of 12.9% when
compared to 2000. This increase resulted principally from an expanded branch
network, the acquisition of SWLC, higher rental costs, increased utility
expenses and higher maintenance and repair costs. The increase in rental costs
resulted from the opening of new branch facilities in East Setauket (2000),
Jackson Heights, Mineola and Maspeth, coupled with the rental cost associated
with SWLC's Jericho headquarters. Normal lease escalations at several facilities
also added to the increase in rental expense during 2001. Somewhat offsetting
these increases was the settlement of three Nassau County certiorari proceedings
during 2001. Occupancy costs are expected to rise in 2002 due to branch
expansion plans in both Nassau and Queens Counties and the expansion of the
Company's Jericho Plaza office space.

   Equipment expenses increased by 37.7% to $1.1 million in 2001 as the result
of equipment purchases and related maintenance costs, principally due to
continued expansion of the Company's technology network. Depreciation expense
grew by 28.5% in 2001 when compared to 2000, due to technology initiatives
undertaken during the year and equipment purchases related to the previously
noted branch openings.

   Legal fees, as previously noted, grew by $3.0 million during 2001. This
increase was solely due to the ongoing IMN litigation previously disclosed in
the Company's Form 10-Q filings. Management of the Company expects that
additional fees will be incurred related to this litigation during 2002 but the
extent of those fees are not quantifiable at this time.

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--------------------------------------------------------------------------------

   Marketing and advertising costs doubled during 2001 versus 2000. This
increase resulted from branch opening expenses, additional image advertising,
product marketing support, trade show sponsorships and the impact of SWLC
marketing expenses. It is expected that this expense category will increase
again in 2002 as the Company expands its advertising budget to support the
additional branch openings previously noted.

   Other operating expenses increased by $2.9 million or 75.8% in 2001 when
compared to 2000. This substantial growth resulted from the acquisition of SWLC
coupled with increases in several categories, most notably credit and collection
fees, computer software maintenance, audits and examination fees, other real
estate expenses and Board of Directors meeting fees. The increase in credit and
collection costs was the direct result of more aggressive litigation efforts
related to nonperforming assets. Computer software maintenance costs rose due to
an increase in vendor pricing coupled with additional software licenses. Audits
and examination fees increased due to higher fees associated with New York State
regulatory examinations. Other real estate expenses increased as the result of
the previously noted loss on the sale of a commercial property that was
foreclosed on in 2001. The Company currently holds no other real estate
property. Board of Directors meeting fees increased during 2001 as the result of
additional meetings related to the IMN litigation. The acquisition of SWLC
accounted for approximately 30% of the increase in other operating expenses in
2001. Somewhat offsetting these negative factors were decreases in several
expense categories, mainly meetings and seminars, Delaware subsidiary operating
expenses and deposit assessment fees. Management of the Company expects that
operating expenses will continue to grow as the Company expands its operations,
the markets it serves and the products it offers. Management anticipates an
overall rate of increase of 12%-15% as a 2002 expense growth estimate.

2000 versus 1999
   Operating expenses grew by 7.5% to $22.0 million in 2000. The largest
component of this increase was growth in salaries and other employee benefits,
up $1.2 million or 9.0%, resulting from a growth in staff count, increased
health care costs, higher supplementary compensation accruals and related
increases in 401(k) and ESOP contributions.

   Occupancy costs increased by 9.8% in 2000 due principally to higher rental
costs, increased utility expenses and increased maintenance and repair costs.
The increase in rental costs resulted from the opening of a new branch facility
coupled with lease escalation costs at several facilities during 2000.

   Equipment expenses grew by a moderate 2.0% when compared to 1999 due to
growth in equipment purchases and related maintenance costs, principally due to
the continued expansion of the Company's personal computer networks.

   Deposit assessment fees increased by 20.5% in 2000 as the result of growth in
the Company's assessable deposit base.

   Marketing and advertising costs rose by 24.1% in 2000 versus 1999. This
increase resulted principally from additional corporate image advertising,
product marketing support and trade show sponsorships.

   Other operating expenses declined by 7.2% to $3.8 million in 2000 when
compared to 1999. This reduction resulted from contraction in several
categories, most notably credit and collection fees, computer software
maintenance and audits and examination fees.

EFFECTIVE INCOME TAX RATE

2001 versus 2000
   Income tax provisions of $2.2 million, $3.6 million and $4.4 million were
recorded in 2001, 2000 and 1999, respectively. The Company is currently subject
to both a statutory incremental federal tax rate of 35% (34% for the first $10
million of taxable income), and a New York State tax rate of 9%, plus a
surcharge of 17%. The Company's overall effective tax rate was 16.6%, 25.3% and
29.9% in 2001, 2000 and 1999, respectively.

   The decline in 2001's effective tax rate was largely due to the continued
activities of the Bank's Delaware subsidiary, SB Portfolio Management Corp. SB
Portfolio provides investment management services to the Bank and the Company.
At year-end 2001, approximately $279 million in assets, primarily Government
Agency, mortgage-backed and tax-exempt municipal securities, were managed by SB
Portfolio in Delaware. The income from these assets is exempt from New York
State income taxes. Management of the Company anticipates that the consolidated
2002 effective tax rate will approximate 23.0%.

   2000 versus 1999 The Company's effective tax rate declined to 25.3% in 2000
from 29.9% in 1999. This decrease was largely due to the activities of SB
Portfolio Management Corp. At year-end 2000, approximately $262 million in
Government Agencies, mortgage-backed and tax-exempt municipal securities were
managed by SB Portfolio.

CAPITAL RESOURCES

   The Company's foundation for successful performance, efficient utilization of
assets and its capacity to grow its assets and earnings largely stem from the
significance of its capital position. The Company strives to maintain an optimal
level of capital, commensurate with its risk profile, on which an attractive
rate of return to stockholders will be realized over both the short and long
term, while serving depositors', creditors' and regulatory needs. In determining
an optimal capital level, the Company also considers the capital levels of its
peers and the evaluations of its primary regulators. During 2001, the Company's
capital foundation was expanded by the amount of its net income earned and
common stock issued net of cash dividends paid to stockholders and shares
repurchased. At December 31, 2001, stockholders' equity totaled $76.3 million,
an increase of $4.0 million from year-end 2000. Total equity at December 31,
1999 was $56.1 million. The application of SFAS No. 115 resulted in a $2.4
million reduction in stockholders' equity at December 31, 2001 and a $3.0
million reduction in equity at December 31, 2000. Excluding the impact of this
adjustment, stockholders' equity would have grown by $3.4 million or 4.6% in
2001. Retention of earnings, net of cash dividends paid on common stock, added
$6.6 million to equity in 2001. Somewhat offsetting this growth was the
repurchase of 297,800 shares of stock as part of the Company's stock repurchase
plan. Approximately $4.6 million in capital was utilized to purchase these
shares at an average price of $15.61 per share. Under the Board of Directors
current share repurchase authorization, management may repurchase up to 523,300
additional shares if market conditions warrant. This action will only occur if
management feels that the purchase will be at prices that are accretive to
earnings per share.

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--------------------------------------------------------------------------------

   Internal capital generation, defined as earnings less cash dividends paid on
common stock, is the primary catalyst supporting the Company's future growth of
assets and, most importantly, stockholder value. Management constantly evaluates
the Company's capital position in light of current and future growth objectives.
Although the Company did not access either the equity or debt markets in 2001,
management continues to monitor these markets closely.

   The Company has no present plans to issue or utilize preferred shares. These
shares, as well as Trust Preferred securities, afford management additional
flexibility with respect to future equity financing to support business
expansion.

   Management strives to provide stockholders with a competitive return on their
investment in the Company. During 2001, the Board of Directors distributed
quarterly cash dividends on the Company's common stock amounting to $0.54 in
addition to paying a 5% stock dividend. The current quarterly cash dividend rate
is $0.14 per share.

   The Company also makes a common stock dividend reinvestment plan available to
its stockholders. This plan allows existing stockholders to reinvest cash
dividends in Company stock and/or to purchase additional shares through optional
cash investments on a quarterly basis. Shares are purchased at a 5% discount
from the current market price under either plan option. During 2001 and 2000,
$892 thousand and $865 thousand, respectively, were added to stockholders'
equity through plan participation. Approximately 17% of the Company's cash
dividends were reinvested in 2001 under this plan, and since inception,
approximately $6.2 million in additional equity has been added through plan
participation. Management anticipates continued future growth in equity through
the program.

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

<TABLE>
<CAPTION>
TABLE II
                                                                                                             Regulatory
                                                                                                               Criteria
                                                                      Ratios as of December 31,               for Well-
                                              Regulatory        --------------------------------------      Capitalized
                                               Minimum          2001             2000             1999      Institution
-----------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                  <C>              <C>              <C>          <C>
Leverage ratio--Tier I Capital
   to Total Adjusted Assets                3.00-5.00%            7.71%            7.46%            7.04%        5.00%
Tier I Capital/Risk Weighted Assets             4.00%           11.69%           12.40%           11.69%        6.00%
Total Capital/Risk Weighted Assets              8.00%           12.94%           13.66%           12.91%       10.00%
</TABLE>

LIQUIDITY

   Liquidity management is defined as the Company's and its subsidiary's ability
to meet their financial obligations on a continuous basis without material loss
or disruption of normal operations. These obligations include the withdrawal of
deposits on demand or at their contractual maturity, the repayment of borrowings
as they mature, the ability to fund new and existing loan commitments and to
take advantage of business opportunities as they arise. Liquidity is composed of
the maintenance of a strong base of core deposits, maturing short-term assets
including cash and due from banks, the ability to sell marketable assets and
access to lines of credit and the capital markets. Liquidity at the Company is
measured and monitored daily, thereby allowing management to better understand
and react to emerging balance sheet trends. After assessing actual and projected
cash flow needs, management seeks to obtain funding at the most economical cost
to the Company. These funds can be obtained by converting liquid assets to cash
or by attracting new deposits or other sources of funding. Many factors affect
the Company's ability to meet its liquidity needs, including variations in the
markets served, loan demand, its asset/liability mix, its reputation and credit
standing in its markets, and general economic conditions.

   The Funds Management Committee and the Asset/Liability Management Committee
(ALCO) are jointly responsible for oversight of the Company's liquidity position
and management of its asset/liability structure. This Committee monitors the
loan and investment portfolios while also examining the maturity structure and
volatility characteristics of the Company's liabilities to develop an optimum
asset/liability mix. Funding sources available to the Company include retail,
commercial and municipal deposits, purchased liabilities and stockholders'
equity. If needed for short-term liquidity purposes, the Company has access to
$21.5 million in unsecured lines of credit extended by correspondent banks. In
addition, the Company can utilize its line of credit with FHLB to access up to
$35.0 million in market rate-funds with maturities of up to thirty years. The
Company did not utilize brokered deposits as a source of funds nor did it engage
in any derivative activities during 2001 or 2000 to manage its liquidity or
interest rate risk.

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--------------------------------------------------------------------------------


   Asset liquidity is provided by short-term investments and the marketability
of securities available for sale. At December 31, 2001, the Company had $388
million in such liquid assets. The Company's loan portfolio and investment
securities held to maturity also provide an excellent source of internal
liquidity through maturities and periodic repayments of principal. At year-end
2001, approximately $229 million of these assets, including mortgage-backed
securities, were due to mature or be repaid within one year. Cash flows provided
by the loan and investment portfolios are typically utilized to reduce the
Company's borrowed funds position and/or to fund loan and investment securities
growth. The Company's operating, investing and financing activities are
conducted within the overall constraints of the Company's liquidity management
policy.

   While past performance does not guarantee future results, management believes
that the Company's funding sources, including dividends from its subsidiary, and
the Bank's funding sources will be adequate to meet their future liquidity
requirements.

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

INTEREST RATE RISK
   Interest rate risk is the risk to earnings or capital arising from movements
in interest rates. This risk can be quantified by measuring the change in net
interest margin relative to changes in market rates. Risk is identified by
reviewing repricing characteristics of interest-earning assets and
interest-bearing liabilities. The Company's Funds Management Committee sets
forth guidelines that limit the level of interest rate risk within specified
tolerance ranges. Management must determine the appropriate level of risk which
will enable the Company to achieve its performance objectives within the
confines imposed by its business objectives and the external environment within
which it operates. Interest rate risk arises from repricing risk, basis risk,
yield curve risk or options risk and is measured using financial modeling
techniques, including quarterly interest rate shock simulations, to measure the
impact of changes in interest rates on earnings for periods up to two years.
These simulations are used to determine whether corrective action may be
warranted or required in order to adjust the overall interest rate risk profile
of the Company. The Company's asset/liability and interest rate risk management
policy limits interest rate risk exposure to +/-12% of base case net income for
net earnings at risk and +/-15% for equity value at risk as a percentage of
market value of portfolio equity. Net earnings at risk is the potential adverse
change in net income arising from a +/-200 basis point change in interest rates,
measured over a one-year time horizon. Equity value at risk is the potential
adverse change in the present value (market value) of total equity arising from
a +/-200 basis point change in interest rates. Simulation results, utilizing the
Sendero asset/liability model, are influenced by a number of estimates and
assumptions with regard to embedded options, prepayment behaviors, pricing
strategies and cash flows. Such assumptions and estimates are inherently
uncertain and, as a consequence, results will neither precisely estimate net
interest income nor precisely measure the impact of higher or lower interest
rates on net interest income.

   To mitigate the impact of changes in interest rates, the balance sheet must
be structured so that repricing opportunities exist for both assets and
liabilities in approximately equivalent amounts at basically the same time
intervals. Imbalances in these repricing opportunities at any point in time
constitute an interest-sensitivity gap, which is the difference between
interest-sensitive assets and interest-sensitive liabilities. These static
measurements do not reflect the results of any projected activity and are best
utilized as early indicators of potential interest rate exposures. The primary
objectives of the Company's asset/ liability management are to continually
evaluate the interest rate risk inherent in the Company's balance sheet; to
determine the level and direction of risk appropriate given the Bank's strategic
focus, operating environment, liquidity requirements and performance objectives;
and to manage this risk in a prudent manner consistent with approved policy.

   The accompanying table sets forth the amounts of assets and liabilities
outstanding as of December 31, 2001 which, based upon certain assumptions, are
expected to reprice or mature in each of the time frames shown. Except as
stated, the amount of assets and liabilities shown to reprice or mature within a
particular time frame was determined in accordance with the earlier of the term
to repricing or the contractual terms of the asset or liability. The Company
bases its deposit decay rates on the results of a core deposit behavior study
performed by an industry consultant during 2001. This study reflects historical
experience over the four years ended December 31, 2001. Thus, the decay rates
for deposit accounts, with the exception of CDs, for which contractual
maturities are readily available, were as follows: 12.5% per year for savings
deposits; 8.3% per year for demand deposits; 10% per year for money fund and NOW
accounts of individuals, partnerships and corporations; and, 20% per year for
money fund and NOW accounts of municipalities. All short-term municipal deposits
are included in the 0-6 months category due to their seasonality and volatility.
These decay assumptions reflect the historical stability of the Company's core
deposit base, which may or may not be indicative of the industry average of its
peers.

   An asset-sensitive gap indicates an excess of interest-
sensitive assets over interest-sensitive liabilities, whereas a
liability-sensitive gap indicates the opposite. At December 31, 2001, the
Company had a one-year cumulative asset-sensitivity gap of $8 million. In a
rising rate environment, an asset-sensitive gap position generally indicates
that increases in income from interest-earning assets will outpace increases in
expenses associated with funding those assets. In addition, the Company's

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STATE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

net interest spread and net income would also improve under this scenario.
Conversely, in a declining interest rate environment, the Company's cost of
funds would decline more slowly than the yield on its rate-sensitive assets and
would likely result in a contraction of net interest income. This risk can be
reduced by various strategies, including the administration of liability costs
and the investment of asset maturities and cash flows in such a way as to
insulate net interest income from the effects of changes in interest rates. As
previously mentioned, a static gap position is best utilized as a tool for early
detection of potential interest rate exposure. Management's goal is to manage
the Company's cumulative one-year gap such that rate-sensitive assets and
liabilities are approximately equal in that time frame. Due to the nature of the
Company's business, primarily the seasonality of its municipal funding function,
an exactly matched one-year gap is unlikely to occur. Rather, management relies
on simulation analysis to manage the Company's asset/ liability position on a
dynamic repricing basis. Simulation modeling applies alternative interest rate
scenarios and periodic forecasts of future business activity to estimate the
related impact on net interest income. The use of simulation modeling assists
management in its continuing efforts to achieve earnings growth in a variety of
interest rate environments. Asset and liability management efforts also may
involve the use of off-balance sheet instruments such as interest rate swaps to
minimize risk. During 2001, the Company did not utilize swaps or other
derivative instruments to manage its asset/liability position.

<TABLE>
<CAPTION>
TABLE III
Sensitivity Time Horizon

                                                    0-6          6-12          1-5         Over    Noninterest-
                                                 Months        Months        Years      5 Years      Sensitive      Total
-------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>          <C>          <C>          <C>          <C>
(Dollars in thousands)
INTEREST-SENSITIVE ASSETS (1)
Loans (net of unearned income) (2)             $281,637      $ 25,460     $167,175     $ 68,406     $  8,920     $551,598
Securities purchased under
   agreements to resell,
   Federal funds sold and
   interest-bearing deposits                    113,646            --           --           --           --      113,646
Securities held to maturity                          --            --          196           --           --          196
Securities available for sale (3)                32,972        38,812       97,293      107,726        2,168      278,971
-------------------------------------------------------------------------------------------------------------------------
     Total interest-earning assets              428,255        64,272      264,664      176,132       11,088      944,411
-------------------------------------------------------------------------------------------------------------------------
Unrealized net loss on securities
   available for sale                            (3,757)           --           --           --           --       (3,757)
Noninterest-bearing cash and due from banks      24,464            --           --           --           --       24,464
All other assets (7)                              7,310         2,639          145          110       10,449       20,653
-------------------------------------------------------------------------------------------------------------------------
     Total Assets                              $456,272      $ 66,911     $264,809     $176,242     $ 21,537     $985,771
-------------------------------------------------------------------------------------------------------------------------

INTEREST-SENSITIVE LIABILITIES (1)
Savings accounts (4)                           $ 14,068      $  8,500     $ 68,002     $ 51,003     $     --     $141,573
Money fund and NOW accounts (5)                  69,635        10,085       80,682       25,010           --      185,412
Time deposits (6)                               348,633        16,871       10,366          415           --      376,285
-------------------------------------------------------------------------------------------------------------------------
     Total interest-bearing deposits            432,336        35,456      159,050       76,428           --      703,270
Other borrowings                                 14,752         1,884        2,464           --           --       19,100
-------------------------------------------------------------------------------------------------------------------------
     Total interest-bearing liabilities         447,088        37,340      161,514       76,428           --      722,370
All other liabilities, equity
   and demand deposits (7)                       13,540         7,923       60,006      105,644       76,288      263,401
-------------------------------------------------------------------------------------------------------------------------
     Total Liabilities and Equity              $460,628      $ 45,263     $221,520     $182,072     $ 76,288     $985,771
-------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitivity gap (8)        $(18,833)     $  8,099     $111,249     $210,953     $222,041
------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitivity ratio (9)          95.8%        101.7%       117.2%       129.2%       130.7%
Cumulative interest-sensitivity
   gap as a % of Total Assets                      (1.9)%         0.8%        11.3%        21.4%        22.5%
<FN>
(1) Allocations to specific interest-sensitivity periods are based on the
    earlier of the repricing or maturity date.

(2) Nonaccrual loans are shown in the noninterest-sensitive category.

(3) Estimated principal reductions have been assumed for mortgage-backed
    securities based upon their current constant prepayment rates.

(4) Savings deposits, excluding short-term municipal deposits, are assumed to
    decline at a rate of 12.5% per year over an eight-year period based upon the
    nature of their historically stable core deposit relationships. Short-term
    municipal deposits are included in the 0-6 months category.


(5) Money fund and NOW accounts of individuals, partnerships and corporations
    are assumed to decline at a rate of 10% per year over a ten-year period
    based upon the nature of their historically stable core deposit
    relationships. Money fund and NOW accounts of municipalities are assumed to
    decline at a rate of 20% per year over a five-year period, except for
    short-term municipal deposits that are included in the 0-6 months category.

(6) Reflected as maturing in each instrument's period of contractual maturity.

(7) Other assets and liabilities are shown according to their contractual
    payment schedule or a reasonable estimate thereof. Demand deposits,
    excluding short-term municipal deposits, are assumed to decline at a rate of
    8.3% per year over a twelve-year period based upon the nature of their
    historically stable core deposit relationships. Short-term municipal
    deposits are included in the 0-6 months category.

(8) Total interest-earning assets minus total interest-bearing liabilities.

(9) Total interest-earning assets as a percentage of total interest-bearing
    liabilities.
</FN>
</TABLE>
                                       36
<PAGE>

STATE BANCORP, INC. AND SUBSIDIARY
Statistical information
-------------------------------------------------------------------------------

DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY:
NET INTEREST INCOME AND RATES
   The following table presents the average daily balances of the Bank's assets,
liabilities and stockholder's equity, together with an analysis of net interest
earnings and average rates, for each major category of interest-earning assets
and interest-bearing liabilities. Interest and average rates are computed on a
fully taxable-equivalent basis, adjusted for certain disallowed interest expense
deductions, using a tax rate of 34% in 2001, 2000 and 1999. Nonaccruing loans
are included in the average balances (dollars in thousands):

<TABLE>
<CAPTION>
For the Years Ended December 31,                  2001                           2000                          1999
--------------------------------------------------------------------------------------------------------------------------------
                                      Average            Average     Average            Average     Average             Average
                                      Balance   Interest    Rate     Balance   Interest    Rate     Balance   Interest     Rate
---------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>        <C>         <C>     <C>        <C>         <C>     <C>        <C>          <C>
ASSETS:
Securities held to maturity and
  securities available for sale:
    Taxable                          $221,935   $ 13,964    6.29%   $297,788   $ 21,182    7.11%   $274,182   $ 18,132     6.61%
    Tax-exempt                        125,379      7,525    6.00      91,800      5,041    5.49      52,868      2,329     4.41
-------------------------------------------------------------------------------------------------------------------------------
Total securities                      347,314     21,489    6.19     389,588     26,223    6.73     327,050     20,461     6.26
Federal funds sold, securities
   purchased under
   agreements to resell and
   interest-bearing deposits           68,252      2,747    4.02      26,011      1,642    6.31      25,543      1,270     4.97
Loans (net of unearned income):
     Taxable                          535,042     47,634    8.90     473,446     45,730    9.66     437,233     39,474     9.03
     Tax-exempt                         9,287        816    8.79      11,669      1,124    9.63      12,845      1,299    10.11
-------------------------------------------------------------------------------------------------------------------------------
Total loans--net                      544,329     48,450    8.90     485,115     46,854    9.66     450,078     40,773     9.06
Total interest-earning assets         959,895   $ 72,686    7.57%    900,714   $ 74,719    8.30%    802,671   $ 62,504     7.79%
Allowance for loan losses              (9,822)                        (8,087)                        (6,648)
-------------------------------------------------------------------------------------------------------------------------------
                                      950,073                        892,627                        796,023
-------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks                30,992                         30,122                         25,803
Bank premises and
   equipment--net                       5,206                          4,213                          3,706
Other assets                           17,434                         21,861                         17,731
-------------------------------------------------------------------------------------------------------------------------------
Total Assets                       $1,003,705                       $948,823                       $843,263
-------------------------------------------------------------------------------------------------------------------------------

LIABILITIES AND
   STOCKHOLDER'S EQUITY:
Savings and time deposits:
   Savings                         $  298,321   $  5,316    1.78%   $231,604   $  4,652    2.01%   $215,085    $ 3,709     1.72%
   Time                               441,962     20,083    4.54     485,261     29,551    6.02     358,699     18,197     5.02
-------------------------------------------------------------------------------------------------------------------------------
Total savings and time deposits       740,283     25,399    3.43     716,865     34,203    4.77     573,784     21,906     3.82
Federal funds purchased                 1,108         48    4.33       1,428         93    6.51       1,474         82     5.53
Securities sold under
   agreements to repurchase               102          4    3.92       8,251        507    6.14      28,161      1,513     5.30
Other borrowed funds                   18,992      1,294    6.81      15,532        985    6.24      36,126      1,972     5.41
-------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities    760,485     26,745    3.52     742,076     35,788    4.82     639,545     25,473     3.98
Demand deposits                       160,043                        140,742                        137,343
Other liabilities                       5,228                          4,404                          5,975
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities                     925,756                        887,222                        782,863
Stockholder's equity                   77,949                         61,601                         60,400
-------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
   Stockholder's Equity            $1,003,705                       $948,823                       $843,263
-------------------------------------------------------------------------------------------------------------------------------
Net interest income/rate--
   tax-equivalent basis                           45,941    4.79%                38,931    4.32%                37,031     4.61%
Less tax-equivalent
   basis adjustment                                2,749                          1,794                            996
-------------------------------------------------------------------------------------------------------------------------------
Net Interest Income                              $43,192                        $37,137                        $36,035
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       37
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
-------------------------------------------------------------------------------

ANALYSIS OF CHANGES IN NET INTEREST INCOME
   The following table presents a comparative analysis of the changes in the
Bank's interest income and interest expense due to the changes in the average
volume and the average rates earned on interest-earning assets and due to the
changes in the average volume and the average rates paid on interest-bearing
liabilities. Interest and average rates are computed on a fully
taxable-equivalent basis, adjusted for certain disallowed interest expense
deductions, using a tax rate of 34% in 2001, 2000 and 1999. Variances in
rate/volume relationships have been allocated proportionately to average volume
and average rate as they compare to each other (in thousands):

<TABLE>
<CAPTION>
                                                        Year 2001 over 2000                  Year 2000 over 1999
----------------------------------------------------------------------------------------------------------------------
                                                  Due to Change in:                    Due to Change in:
----------------------------------------------------------------------------------------------------------------------
                                                  Average     Average   Net Increase   Average    Average  Net Increase
                                                   Volume        Rate     (Decrease)    Volume       Rate    (Decrease)
----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>         <C>         <C>         <C>         <C>         <C>
INTEREST INCOME:
Securities held to maturity and
   securities available for sale:
     Taxable                                      $(4,967)    $(2,251)    $(7,218)    $ 1,624     $ 1,426     $  3,050
     Tax-exempt                                     1,981         503       2,484       2,032         680        2,712
----------------------------------------------------------------------------------------------------------------------
Total securities                                   (2,986)     (1,748)     (4,734)      3,656       2,106        5,762
Federal funds sold, securities purchased
   under agreements to resell and
   interest-bearing deposits                        1,876        (771)      1,105          24         348          372
Loans (net of unearned income):
     Taxable                                        5,659      (3,755)      1,904       3,393       2,863        6,256
     Tax-exempt                                      (215)        (93)       (308)       (115)        (60)        (175)
----------------------------------------------------------------------------------------------------------------------
Total loans--net                                    5,444      (3,848)      1,596       3,278       2,803        6,081
----------------------------------------------------------------------------------------------------------------------
Total Interest Income                               4,334      (6,367)     (2,033)      6,958       5,257       12,215
----------------------------------------------------------------------------------------------------------------------

INTEREST EXPENSE:
Savings and time deposits:
   Savings                                          1,231        (567)        664         300         643          943
   Time                                            (2,463)     (7,005)     (9,468)      7,241       4,113       11,354
----------------------------------------------------------------------------------------------------------------------
Total savings and time deposits                    (1,232)     (7,572)     (8,804)      7,541       4,756       12,297
Federal funds purchased                               (18)        (27)        (45)         (3)         14           11
Securities sold under agreements to repurchase       (368)       (135)       (503)     (1,197)        191       (1,006)
Other borrowed funds                                  213          96         309      (1,253)        266         (987)
----------------------------------------------------------------------------------------------------------------------
Total Interest Expense                             (1,405)     (7,638)     (9,043)      5,088       5,227       10,315
----------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income
   (Tax-equivalent Basis)                         $ 5,739     $ 1,271     $ 7,010     $ 1,870     $    30     $  1,900
----------------------------------------------------------------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
December 31,                                            2001                    2000                    1999
----------------------------------------------------------------------------------------------------------------------
                                                Amortized   Estimated   Amortized   Estimated   Amortized    Estimated
                                                     Cost  Fair Value        Cost  Fair Value        Cost   Fair Value
----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>         <C>          <C>         <C>         <C>         <C>
TYPE:
Obligations of states and political
   subdivisions                                 $  80,205   $  78,930    $111,941    $113,714    $ 89,665    $  89,285
Mortgage-backed securities and
   collateralized mortgage obligations            160,974     159,548      13,270      13,043      23,174       22,420
Government Agency securities                       31,820      30,806     293,671     287,545     279,703      261,437
Corporate securities                                6,168       6,133       4,286       4,286       4,286        4,286
----------------------------------------------------------------------------------------------------------------------
Total                                            $279,167    $275,417    $423,168    $418,588    $396,828     $377,428
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       38
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
-------------------------------------------------------------------------------

   The following table presents the maturity distribution and the weighted
average yield of the Company's investment portfolio at December 31, 2001
(dollars in thousands). The yield information does not give effect to changes in
estimated fair value of investments available for sale that are reflected as a
component of stockholders' equity.

<TABLE>
<CAPTION>

                                                                    Maturing
-------------------------------------------------------------------------------------------------------------------------
                                            Within              After One but       After Five but           After
                                           One Year           Within Five Years    Within Ten Years        Ten Years
-------------------------------------------------------------------------------------------------------------------------
                                       Amount    Yield (1)    Amount    Yield (1) Amount   Yield (1)  Amount    Yield (1)
-------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>      <C>            <C>      <C>        <C>      <C>            <C>
TYPE:
Obligations of states and
   political subdivisions           $ 32,808     2.75%    $    196       7.12%    $  779     7.15%    $ 45,140       8.15%
Mortgage-backed securities
   and collateralized
   mortgage obligations (2)               --       --      156,332       6.65      1,938     6.47        1,278       6.06
Government Agency securities (3)      14,705     5.00        8,184       5.50         --       --        7,917       6.46
Corporate securities                      --       --           --         --      3,965     7.50        2,168       4.20
-------------------------------------------------------------------------------------------------------------------------
Total                               $ 47,513     3.47%    $164,712       6.60%    $6,682     7.16%     $56,503       7.73%
-------------------------------------------------------------------------------------------------------------------------
<FN>

(1) Fully tax-equivalent basis using a tax rate of 34%.
(2) Assumes maturity dates pursuant to average lives as determined by constant
    prepayment rates.
(3) 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.
</FN>
</TABLE>

LOAN PORTFOLIO

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

<TABLE>
<CAPTION>
December 31,                                2001             2000              1999              1998              1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>              <C>               <C>               <C>               <C>
Commercial and industrial               $264,476(1)      $229,251          $220,874          $197,601          $172,524
Real estate--mortgage                    252,968          233,589           216,955           187,740           174,480
Real estate--construction                 16,258           17,642            25,752            17,165            14,713
Loans to individuals                       7,514            5,729             5,738             7,749             7,077
Tax-exempt and other                      10,465           10,864            19,709            10,461             8,920
-----------------------------------------------------------------------------------------------------------------------
Gross loans                              551,681          497,075           489,028           420,716           377,714
Less: unearned income                         83               83                80                80                80
-----------------------------------------------------------------------------------------------------------------------
Loans--net of unearned income           $551,598         $496,992          $488,948          $420,636          $377,634
-----------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes $17,180 of lease receivables of SWLC subsidiary.
</FN>
</TABLE>

   The following table presents the maturities of selected loans and the
sensitivities of those loans to changes in interest rates at December 31, 2001
(in thousands):

<TABLE>
<CAPTION>
                                                          One Year      One Through              Over
                                                           or Less       Five Years        Five Years              Total
------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>               <C>               <C>               <C>
Commercial and industrial                                 $170,063          $66,281           $28,132           $264,476
Real estate--construction                                   10,865            2,527             2,866             16,258
------------------------------------------------------------------------------------------------------------------------
Total                                                     $180,928          $68,808           $30,998           $280,734
------------------------------------------------------------------------------------------------------------------------
Loans maturing after one year with:
   Fixed interest rate                                                      $38,908           $13,668          $  52,576
   Variable interest rate                                                   $29,900           $17,330          $  47,230
</TABLE>


                                       39
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
-------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
December 31,                                2001              2000          1999              1998              1997
---------------------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>            <C>               <C>               <C>
Nonaccrual loans                          $8,920(1)        $10,736(1)     $5,194(1)         $3,676            $4,258
Loans 90 days or more past
   due and still accruing interest        $  405           $ 3,542        $    3            $1,352            $1,590
Restructured, accruing loans              $  284           $   406        $  422            $5,545(1)         $7,289(1)
Interest income on nonaccrual and
   restructured loans which would
   have been recorded under
   original loan terms                    $  720           $   638        $  517            $  910            $1,192
Interest income on nonaccrual and
   restructured loans recorded
   during the period                      $   27           $    85        $   74            $  400            $  476
<FN>

(1) Includes related credits totaling $1.2 million at December 31, 2001, $4.8
    million at December 31, 2000, $3.5 million at December 31, 1999 and $5.0
    million at December 31, 1998 and 1997.
</FN>
</TABLE>

SUMMARY OF LOAN LOSS EXPERIENCE
   The determination of the balance of the allowance for probable loan losses is
based upon a review and analysis of the Company's loan portfolio and reflects an
amount which, in management's judgment, is adequate to provide for probable
future losses. Management's review includes monthly analysis of past due and
nonaccrual loans and detailed, periodic loan by loan analyses.

   The principal factors considered by management in determining the adequacy of
the allowance are the growth and composition of the loan portfolio, historical
loss experience, the level of nonperforming loans, economic conditions, the
value and adequacy of collateral and the current level of the allowance. While
management utilizes all available information to estimate the adequacy of the
allowance for probable loan losses, the ultimate collectibility of a substantial
portion of the loan portfolio and the need for future additions to the allowance
will be based upon changes in economic conditions and other relevant factors.

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

<TABLE>
<CAPTION>
                                            2001            2000          1999          1998          1997
----------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>           <C>           <C>           <C>
Balance, January 1,                       $9,207          $7,107        $5,788        $5,124        $5,009
----------------------------------------------------------------------------------------------------------
Adjustments                                  542(1)           --            --            --            --
Charge-offs:
   Commercial and industrial               4,211             868           593         1,332         1,509
   Real estate--mortgage                      --              21           987           197           379
   Real estate--construction                  --             500           500            --            --
   Loans to individuals                       44              20            45           128           169
----------------------------------------------------------------------------------------------------------
Total charge-offs                          4,255           1,409         2,125         1,657         2,057
----------------------------------------------------------------------------------------------------------
Recoveries:
   Commercial and industrial                 143             237           204           214           189
   Real estate--mortgage                       4               8           223           297            23
   Loans to individuals                       14              14            17            10            10
----------------------------------------------------------------------------------------------------------
Total recoveries                             161             259           444           521           222
----------------------------------------------------------------------------------------------------------
Net charge-offs                            4,094           1,150         1,681         1,136         1,835
Additions charged to operations            3,600           3,250         3,000         1,800         1,950
----------------------------------------------------------------------------------------------------------
Balance at end of period                  $9,255          $9,207        $7,107        $5,788        $5,124
Ratio of net charge-offs during
   the period to average loans
   outstanding during the period            0.75%           0.24%         0.37%         0.29%         0.51%
----------------------------------------------------------------------------------------------------------
<FN>
(1) Opening balance of allowance for probable loan losses of acquired leasing
company.
</FN>
</TABLE>

                                       40
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
-------------------------------------------------------------------------------


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

<TABLE>
<CAPTION>
                                    Percent of          Percent of          Percent of          Percent of         Percent of
                                      Loans to            Loans to            Loans to            Loans to           Loans to
                                         Total               Total               Total               Total              Total
                               2001      Loans     2000      Loans     1999      Loans     1998      Loans     1997     Loans
------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>          <C>    <C>          <C>    <C>          <C>    <C>          <C>    <C>          <C>
Commercial and industrial    $5,938       47.9%  $6,355       46.1%  $3,725       45.2%  $3,320       47.0%  $2,210       45.7%
Real estate--mortgage         2,366       45.9    2,118       47.0    1,572       44.4    1,633       44.6    1,790       46.2
Real estate--construction        98        2.9      282        3.5      644        5.3      675        4.1      499        3.9
Loans to individuals             49        1.4       34        1.2       36        1.1       47        1.8       82        1.9
Tax-exempt and other             63        1.9       62        2.2      144        4.0       67        2.5       50        2.3
Unallocated                     741         --      356         --      986         --       46         --      493         --
------------------------------------------------------------------------------------------------------------------------------
Total                        $9,255      100.0%  $9,207      100.0%  $7,107      100.0%  $5,788      100.0%  $5,124      100.0%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

DEPOSITS

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

<TABLE>
<CAPTION>
                                                         2001                     2000                     1999
----------------------------------------------------------------------------------------------------------------------
                                                  Average  Average         Average   Average        Average   Average
                                                  Balance     Rate         Balance      Rate        Balance      Rate
----------------------------------------------------------------------------------------------------------------------
<S>                                              <C>          <C>        <C>           <C>         <C>           <C>
Demand deposits                                  $160,043       --%       $140,742       --%        $137,343       --%
Interest-bearing transaction accounts              73,828     1.16          57,945     1.09           40,800     1.06
Money market deposit accounts                     105,574     1.81          69,934     1.75           65,952     1.26
Savings deposits                                  118,919     2.15         103,725     2.70          108,333     2.26
Time certificates of deposit
   of $100,000 or more                            306,623     4.28         335,825     6.08          273,141     5.02
Other time deposits                               135,339     5.14         149,436     5.87           85,558     5.02
----------------------------------------------------------------------------------------------------------------------
Total                                            $900,326     2.82%       $857,607     3.95%        $711,127     3.05%
----------------------------------------------------------------------------------------------------------------------
</TABLE>

   The following table sets forth, by time remaining to maturity, the Company's
certificates of deposit of $100,000 or more, at December 31, 2001 (in
thousands):

<TABLE>
<S>                                                                                                          <C>
3 months or less                                                                                             $257,556
Over 3 months through 6 months                                                                                 15,268
Over 6 months through 12 months                                                                                 4,242
Over 12 months                                                                                                  1,949
----------------------------------------------------------------------------------------------------------------------
Total                                                                                                        $279,015
----------------------------------------------------------------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>

                                                                            2001              2000              1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>              <C>
Return on average total assets                                              1.08%             1.13%             1.23%
Return on average total stockholders' equity                               13.94%            17.91%            17.35%
Dividend payout ratio                                                      38.79%            35.28%            33.43%
Average equity to average assets                                            7.73%             6.31%             7.07%
</TABLE>

                                       41

<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
-------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
                                                                             2001          2000          1999
-------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>           <C>           <C>
Balance, December 31--
   Securities sold under agreements to repurchase                        $     --      $    325      $ 26,888
   Federal funds purchased                                               $     --      $  9,700      $ 16,450
   Federal Home Loan Bank advances                                       $ 12,000      $ 35,000      $ 40,000
   Term borrowing--broker                                                $     --      $     --      $     --
-------------------------------------------------------------------------------------------------------------
Weighted average interest rate on balance, December 31--
   Securities sold under agreements to repurchase                              --          5.85%         5.89%
   Federal funds purchased                                                     --          6.60%         6.30%
   Federal Home Loan Bank advances                                           1.85%         6.60%         5.53%
   Term borrowing--broker                                                      --            --            --
-------------------------------------------------------------------------------------------------------------
Maximum outstanding at any month end--
   Securities sold under agreements to repurchase                        $  2,000      $ 41,694      $100,485
   Federal funds purchased                                               $ 14,500      $ 13,300      $ 16,450
   Federal Home Loan Bank advances                                       $ 35,400      $ 35,400      $ 40,000
   Term borrowing--broker                                                $     --      $     --      $ 10,000
-------------------------------------------------------------------------------------------------------------
Average daily amount outstanding--
   Securities sold under agreements to repurchase                        $    102      $  8,251      $ 28,161
   Federal funds purchased                                               $  1,108      $  1,428      $  1,474
   Federal Home Loan Bank advances                                       $  8,838      $ 15,532      $ 27,304
   Term borrowing--broker                                                $     --      $     --      $  8,822
-------------------------------------------------------------------------------------------------------------
Weighted average interest rate on average daily amount outstanding--
   Securities sold under agreements to repurchase                            3.92%         6.14%         5.30%
   Federal funds purchased                                                   4.33%         6.51%         5.53%
   Federal Home Loan Bank advances                                           4.35%         6.14%         5.48%
   Term borrowing--broker                                                      --            --          4.85%
-------------------------------------------------------------------------------------------------------------
</TABLE>

SELECTED QUARTERLY FINANCIAL DATA
(dollars in thousands)

<TABLE>
<CAPTION>
                                                           2001                                     2000
---------------------------------------------------------------------------------------------------------------------------
                                           1st        2nd        3rd        4th        1st        2nd        3rd        4th
                                       Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
---------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest income                        $19,217    $18,107    $17,447    $15,166    $17,599    $17,997    $18,228    $19,101
Interest expense                         9,096      7,136      6,584      3,929      8,207      8,910      9,322      9,350
---------------------------------------------------------------------------------------------------------------------------
Net interest income                     10,121     10,971     10,863     11,237      9,392      9,087      8,906      9,751
Provision for probable loan losses         773        767        890      1,170      1,000        750        750        750
---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
   for probable loan losses              9,348     10,204      9,973     10,067      8,392      8,337      8,156      9,001
Other income                               655        612      2,105      1,601        724        754        449        509
Operating expenses                       6,571      7,241      9,227      8,548      5,304      5,536      5,370      5,767
---------------------------------------------------------------------------------------------------------------------------
Income before income taxes               3,432      3,575      2,851      3,120      3,812      3,555      3,235      3,743
Provision for income taxes                 659        683        320        495      1,096        931        739        869
---------------------------------------------------------------------------------------------------------------------------
Net income                             $ 2,773    $ 2,892    $ 2,531    $ 2,625    $ 2,716    $ 2,624    $ 2,496    $ 2,874
---------------------------------------------------------------------------------------------------------------------------
Basic earnings per
   common share (1)                      $0.35      $0.37      $0.32      $0.34      $0.35      $0.33      $0.31      $0.36
---------------------------------------------------------------------------------------------------------------------------
Diluted earnings per
   common share (1)                      $0.35      $0.36      $0.31      $0.33      $0.34      $0.33      $0.31      $0.36
---------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Retroactive recognition has been given for stock dividends and splits.
</FN>
</TABLE>

                                       42
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
MARKET DATA
-------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
                                                                            2001              2000              1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>               <C>
Annual cash dividends (1)                                                  $0.54             $0.48             $0.44
Annual stock dividends/stock split issued                                      5%                8%                6%
<FN>
(1) Retroactive recognition has been given for stock dividends and splits.
</FN>
</TABLE>

   Effective January 28, 1999, the Company's common stock has been trading on
the American Stock Exchange under the symbol STB. Prior to that date, the
Company's common stock traded on the NASDAQ Small-Cap market under the symbol
STBC. The approximate high and low closing prices for the Company's common stock
for the years ended December 31, 2001, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>
                                                            1st              2nd               3rd               4th
                                                        Quarter          Quarter           Quarter           Quarter
--------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>               <C>               <C>
2001
   High close                                             15.25            18.00             18.00             16.10
   Low close                                              12.94            15.00             15.70             15.13

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

1999
   High close                                             18.50            17.94             16.75             15.33
   Low close                                              16.13            15.63             14.75             14.19
</TABLE>



                                       43
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Effective February 1, 2002
-------------------------------------------------------------------------------

STATE BANCORP, INC. AND
STATE BANK OF LONG ISLAND

Board of Directors

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

Gary Holman
Vice Chairman of the Board
State Bancorp, Inc. and State Bank of Long Island
Partner, Lamb & Barnosky, LLP

J. Robert Blumenthal
President, Harwyn Enterprises, Inc.

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

Thomas E. Christman
Senior Consultant
Quick & Reilly/Fleet Securities, Inc.

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

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

Joseph F. Munson
Managing Member
High Point Partners, LLC

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

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

Suzanne H. Rueck
Manager, New Hyde Park Inn

Jeffrey S. Wilks
Director of New Business Development
Spiegel Associates

STATE BANCORP, INC.

Officers

Office of the Chairman

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

Daniel T. Rowe
President

Richard W. Merzbacher
Vice Chairman

Brian K. Finneran
Secretary/Treasurer

Janice Clark
Assistant Secretary

STATE BANK OF LONG ISLAND

Executive Officers

Office of the Chairman

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

Richard W. Merzbacher
President

Daniel T. Rowe
Vice Chairman

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

Brian K. Finneran
Executive Vice President and
Chief Financial Officer

                                       44
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
STATE BANK OF LONG ISLAND--OFFICERS
Effective March 1, 2002
-------------------------------------------------------------------------------

Financial Group

Theresa DiVittorio, CPA
First Vice President and Comptroller

Philip J. Nardella, CPA
Vice President and Assistant Comptroller

Thomas C. Padden
Vice President

Carol J. Bergmann
Assistant Vice President and
Assistant Secretary

Mary Ann P. DiLorenzo
Assistant Vice President

Steven Karaman
Assistant Manager

Lisa Marie Massa
Administrative Assistant

Bank Operations/Facilities

Raymond D. Wagner
First Vice President

Maureen McTiernan
Assistant Vice President

Jennie DiFilippi
Manager

Valerie Stewart
Manager

Joseph Crispino
Assistant Manager

Management Information Systems and Data Processing

Susanne Pheffer
Senior Vice President

Diane T. Beck
Vice President

Joseph M. McNeill
Vice President

Janine M. Specht
Assistant Vice President

Elizabeth A. Zona
Manager

Nathan Jones
Assistant Manager

Barry K. Horne, Jr.
Administrative Assistant

Human Resources

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

Marketing

John McWhirk
Vice President and Director of
Marketing and Product Development

Scott Burkhardt
Assistant Manager

Natalie Heldt
Assistant Manager

Branch Administration

Thomas A. Arnone
Senior Vice President

Kevin J. Carroll
Assistant Vice President

Ann Marie Tarantino
Assistant Vice President

Karen M. Williams
Assistant Vice President

Sales/New Business Development

Douglas W. Vergith
Vice President

Rocco Reda
Vice President

Deborra Antonucci
Assistant Vice President

Alba Spinelli
Assistant Vice President

Cara Maloney
Manager

Joseph Rainone
Manager

District I

Philip Straub

Vice President and District Manager

New Hyde Park Branch

Raymond DiPresso
Assistant Vice President

Rosemary A. DiMario
Manager

Rina Miletic
Assistant Manager

Helen Kroner
Administrative Assistant

Garden City South Branch

Paul R. Cronen
Assistant Vice President

Dawn White
Assistant Manager

Margherita DiPrima
Administrative Assistant

Rockville Centre Branch

Ann Goulding
Manager

Barbara Nilsen
Assistant Manager

County Seat Branch

Timothy P. McCue
Assistant Vice President

Marciano Itri
Assistant Manager

Port Washington Branch*

Lucy Mazany
Vice President

June Alleyne
Manager

District II

Rosalie Mottola
Vice President and District Manager

Lisa A. Pandolfo
Manager

Farmingdale Branch

Peter J. Yovine
Vice President

Catherine R. Lingstuyl
Assistant Manager

Denise Cummings
Administrative Assistant

Jericho Branch

Stephen N. Pedersen
Assistant Vice President

Eftihia Karachalios
Assistant Manager

Lisa Ramos-Lopez
Assistant Manager

Oyster Bay Branch

Diane E. Grochocki
Manager

Mary Alfo
Assistant Manager

Hauppauge Branch

John J. Kurek
Vice President

Robert Insalaco
Manager

Huntington Branch

Helen M. Gilfedder
Assistant Manager

*scheduled to open in 2002

                                       45
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
-------------------------------------------------------------------------------

Rani Mehrotra
Assistant Manager

MacArthur Branch

Iris Taibbi
Assistant Vice President

Clare M. O'Shaughnessy
Assistant Manager

Sharon Klinkhardt
Administrative Assistant

Three Village Branch

Olga B. Belleau
Assistant Vice President

Stacey Bifano
Assistant Manager

Queens District

James Lacchini
First Vice President

Bulova Center Branch

Bessie Kayafas
Manager

Maspeth Branch

Robert Vollkommer
Assistant Vice President

Carrie Martorana
Assistant Manager

Long Island City Branch*

Traude Kump
Vice President

Municipal Finance

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

Kenneth A. Messina
First Vice President

Michael P. Locorriere
Vice President

John P. Rom
Vice President

Hazel F. McCord
Assistant Manager

Commercial Lending Group

Charles A. Hoffman
Senior Vice President

Robert J. Nicols
Senior Vice President

*scheduled to open in 2002


Kenneth M. Scheriff
Senior Vice President

William H. Tucker
Senior Vice President

Jean-ann Yngstrom
Senior Vice President

Fred A. Heruth
First Vice President

Jeffrey N. Barber
Vice President

James T. Burns
Vice President

Patrick M. Demery
Vice President

Geraldine Harden
Vice President

Kevin T. Hennessy
Vice President

Stephen B. Mischo
Vice President

Richard J. O'Brien
Vice President

Michael O'Leary
Vice President

Thomas Scott Swain
Vice President

William Vrana
Vice President

Maria Billiris
Assistant Vice President

Craig Goldstein
Assistant Vice President

Lori D. Keller
Assistant Vice President

Daniel Lehan
Assistant Vice President

Jeffrey B. Reid
Assistant Vice President

Karyn F. Rodriguez
Assistant Vice President

Frederick Zwikelmaier
Assistant Vice President

David Scott Linfoot
Commercial Loan Manager

Joseph Sacco
Commercial Loan Manager

Christopher Van Bell
Commercial Loan Manager

Michele Klampfer
Assistant Manager

Raffaella Palazzo
Assistant Manager

Karen Previdi
Assistant Manager

Joann Riccobaldi-Cozzani
Assistant Manager

Joan Kuehne
Administrative Assistant

Barbara Paradise
Administrative Assistant

Consumer Loan Department

Jean M. Cassese
Vice President

John J. McEniry
Vice President

Loan Operations Group

Siu Chan
Assistant Vice President

Patricia Salvatore
Administrative Assistant

Office of the Chairman

Janice Clark
Assistant Secretary

Valerie McCarthy
Executive Staff Assistant

Ruth Mineo
Executive Staff Assistant

SB Portfolio Management Corp.

Matthew T. Novak
President and Director

SB Financial Services Corp.

Matthew T. Novak
President and Director

Carl S. Nadwodny
Vice President

Studebaker-Worthington Leasing Corp.

Kenneth M. Paston
President and Director

Anthony Campisciano
Vice President

                                       46

<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
ADVISORY BOARD
-------------------------------------------------------------------------------

Henry Alpert, Secretary
Spartan Petroleum Corp.

Andrew C. Andron, President
Century 21 Andron Realty

Maureen Appel, Headmistress
Connelly School of the Holy Child

Salvatore Catania, Secretary
Murray M. Braunstein, Inc.

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

Monroe Diefendorf, Jr., President
Diefendorf Capital Planning Associates

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

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

Ronald F. Friedenthal
Independent Insurance Broker

Frank Giorgio, Jr., Esq.
Giorgio & DePoto

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

Kermit Gordon
Kermit Enterprises

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

Joseph M. Gunning, President
Gunning Business Machines

Anne S. Hadlock, CPA, Partner
Stanley, Marks & Co., LLP

Jean A. Hegler, Attorney
Brosnan & Hegler, Attorneys

Edward Heil
Independent Network Group

Conrad P. Homler, CPA
Homler & Dalessandro

Seymour Katchen, CPA
Palmetto, Mollo & Co.


Michael Katz, President
Decor Moulding & Supply

Robert F. Kearns, Executive Vice President
B. H. Aircraft Company, Inc.

Owen Kilgannon, CPA
Giambalvo, Kilgannon & Giammarese

Carol Konner, President
Konner Development Corp.

Patrick McAllister
Great Eastern Printing Co.

Gerard J. McKeon, Retired
The New York Racing Association

Frederick J. Meyer, Chairman
Mariculture Technologies, Inc.

Robert E. Meyer
Robert E. Meyer Real Estate Appraisals

Donald Monti, President
Concorde Management Services, Inc.

Dominick Nuzzi
Allegiance Van Lines, Inc.

John J. Nuzzi
Nuzzi Fuel Co.

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

Charles Peluso, CPA
Margolin, Winer & Evens

Charles W. Schwing, Consultant
Schwing Electrical Supply Corp.

Fred Scott, Chairman
State Bank of Long Island
Advisory Board

Ralph Somma, President
Brueton Industries, Inc.

Charles I. Steinberg, President
Financial Pacesetters, Inc.

Jerome Stubenhaus, CLU
Nassau Radiologic Group, P.C.
                                       47
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
CORPORATE INFORMATION
-------------------------------------------------------------------------------

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

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

ANNUAL MEETING OF STOCKHOLDERS
State Bancorp, Inc.'s Annual Stockholders' Meeting will be held on Tuesday,
April 23, 2002 at 10:00 a.m. at the New Hyde Park Inn, New Hyde Park, NY.

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

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

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

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

STOCK LISTING
State Bancorp, Inc. is traded on the American Stock Exchange under the symbol
STB. Price information appears in the Wall Street Journal, New York Times and
other newspapers under StateBcp. At December 31, 2001, the total number of
holders of record of State Bancorp, Inc.'s common stock was 1,422.

STOCKHOLDER ACCOUNT INQUIRIES
To expedite changes of address or registration, consolidation of accounts and
the replacement of stock certificates or dividend checks, stockholders should
contact the Company's registrar and transfer agent directly:

Wells Fargo Shareowner Services
161 North Concord Exchange
South St. Paul, MN 55075
(800) 468-9716

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

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

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


VIEW YOUR COMMON STOCK ACCOUNT ONLINE

   Wells Fargo Shareowner Services, the transfer agent for the Company's common
stock, has introduced a new Internet Service: www.shareowneronline.com

   Shareowner Online is a web-enabled real-time service, available 24 hours a
day, 7 days per week. This service provides shareholders of record with the
ability to:

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

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

   For questions about your account call 1-800-468-9716.

                                       48