No. of pages within this report 54
As filed with the Securities and Exchange Commission on March 30, 1995
SECURITIES AND EXCHANGE COMMISION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 31 December 1994 Commission File #0 - 13314
SMITHTOWN BANCORP, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-2695037
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
ONE EAST MAIN STREET, SMITHTOWN, NEW YORK 11787-2801
(Address of principal executive office, Zip Code)
Registrant's telephone number, including area code: (516) 360-9300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act
COMMON STOCK, $5.00 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. /X/
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Number of Shares Outstanding
Class of Common Stock as of 15 March 1995
$5.00 Par Value 432,539
The aggregate market value of the Registrant's common stock held by
nonaffiliates was approximately $10,651,273 based on the price at which stock
was sold on 15 March 1995.
1
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1) Portions of the Annual Report for the fiscal year ended 31 December
1994 are incorporated herein by reference into Parts I and II.
2) Portions of the Prospectus dated 26 July 1984 and filed as a part of
the Registrant's Form S-14 Registration Statement under the Securities
Act of 1933, Reg #2-91511, are incorporated by reference into Part I.
3) Portions of the Proxy Statement relating to the annual meeting of
stockholders to be held on 4 April 1995 are incorporated herein by
reference into Part III.
PART I
Item 101: Description of Business
Smithtown Bancorp, Inc. ("Registrant")
Bank of Smithtown ("Bank")
Information regarding the Registrant's formation and business and a description
of the Bank's business is contained on:
Pages 8 through 47, inclusive, of the Registrant's Annual Report for the
year ended 31 December 1994, and
Page 8 of the Registrant's Prospectus dated 26 July 1984, both of which are
incorporated by reference.
Item 102: Description of Properties
The Registrant owns no materially important physical properties. Office
facilities of the Registrant are located at One East Main Street, Smithtown,
New York 11787.
The Bank owns in fee the following locations:
Smithtown Office Hauppauge Office
One East Main Street 548 Route 111
Smithtown, New York 11787 Hauppauge, New York 11788
Trust and Audit Building Consumer Credit Building
17 Bank Avenue 68 North Country Road
Smithtown, New York 11787 Smithtown, New York 11787
The Bank occupies the following locations under lease arrangements:
Commack Office Kings Park Office
2020 Jericho Turnpike 14 Park Drive
Commack, New York 11725 Kings Park, New York 11754
Centereach Office Lake Grove Office
1919 Middle Country Road 2921 Middle Country Road
Centereach, New York 11720 Lake Grove, New York 11755
2
<PAGE>
The Bank owns properties that is has acquired through the foreclosure process.
The majority in this category are vacant commercial properties. The balance
are residential properties.
Item 103: Legal Proceedings
In the opinion of the Registrant and its counsel, there are no material
proceedings pending in which the Registrant or the Bank is a party, or of which
its property is the subject, or any which depart from the ordinary routine
litigation incident to the kind of business conducted by the Registrant and the
Bank; no proceedings are known to be contemplated by government authorities
or others.
PART 2
Item 201: Market for Common Equity and Related Stockholder Matters
Page 28 and 34 of the Registrant's Annual Report for the year ended 31
December 1994 is incorporated herein by reference.
Item 202: Description of Securities or Plan of Operation
707 shareholders of common stock at 15 March 1995.
Preemptive Rights exists whereby the holders of the shares outstanding at that
time shall have the right to subscribe, in proportion to their holdings, for
capital stock to be so issued. The right to subscribe shall only last for such
a period of time as shall be determined by the Board of Directors of the
Registrant.
PART 3
Item 303: Management's Discussion and Analysis or Plan of Operations
Pages 35 through 44, inclusive, of the Registrant's Annual Report for the year
ended 31 December 1994 are incorporated herein by reference.
Item 304: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Form 8-K was filed with the Exchange on September 14, 1992. Form 8
Amendment to Form 8-K was filed on September 24, 1992. Both forms are
incorporated herein by reference.
Item 310: Financial Statements
Pages 18 through 30, inclusive, of the Registrant's Annual Report for the year
ended 31 December 1994 are incorporated herein by reference.
Part 4
Item 401: Directors, Executive Officers, Promoters and Control Persons of the
Registrant
The information with respect to directors, executive officers and control
persons contained on pages 50 through 54, inclusive, of the Registrant's Proxy
Statement dated 3 March 1995, is incorporated herein by reference.
None of the individuals named in the Proxy Statement was selected as a director
or nominee by any arrangement or understanding between him/her and any other
person(s).
3
<PAGE>
There are no family relationships between any director, executive officer, or
person nominated by the Registrant to become a director.
None of the individuals named in the Proxy Statement hold a directorship in any
company with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment Company
Act of 1940.
None of the individuals named in the Proxy Statement are or have been involved
in a material legal proceeding that has effected or would effect his/her
ability or integrity while carrying out his/her term of office.
Item 402: Executive Compensation
Pages 52 through 55, inclusive, of the Registrant's Proxy Statement dated 3
March 1995 are incorporated herein by reference, together with the information
set forth on page 51.
Item 403: Security Ownership of Certain Beneficial Owners and Management
Page 52 of the Registrant's Proxy Statement, dated 3 March 1995 are
incorporated herein by reference.
Item 404: Certain Relationships and Related Transactions
Pages 52 through 53, inclusive, of the Registrant's Proxy Statement dated 3
March 1995 and page 26 of the Registrant's Annual Report for the year ended
31 December 1994 are incorporated herein by reference.
4
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Description Page
3a Articles of Incorporation *
3b By-Laws *
4 By-Laws Page Nos. 2,11,12,13,14 *
Articles of Incorporation Page No. 2 *
9 No voting trust agreements
10 No material contracts
13 Annual Report for the year ended 31 December 1994 8-47
Notice of Annual Meeting and Proxy Statement 48-55
16 Reference to Item 8 in 10-KSB 3
18 No change in accounting principles
19 Reference to Page 1 1
22 Bank of Smithtown
Smithtown, New York 11787
23 Notice of Annual Meeting and Proxy Statement 48-55
24 Consent of Independent Auditors 6
Report of Independent Auditors 17
25 None
28 Prospectus dated 26 July 1984 *
29 N/A
* Incorporated by reference and filed as a part of the Registrant's Form
S-14 Registration Statement under the Securities Act of 1933, Reg
#2-91511, filed on 6 June 1984.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, hereunto duly authorized.
Date: 3/29/95 Smithtown Bancorp, Inc.
Registrant
By /s/ Bradley E. Rock
-------------------------------------------
Bradley E. Rock, President, Chief Executive
Officer and Chairman of the Board
By /s/ Anita M. Florek
-------------------------------------------
Anita M. Florek, Treasurer, Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below, by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By /s/ Bradley E. Rock 3/29/95
------------------------------------------------------------
Bradley E. Rock, President, Chief Executive Date
Officer and Chairman of the Board
By /s/ Augusta Kemper 3/29/95
------------------------------------------------------------
Augusta Kemper, Director Date
By /s/ H.M. Brush 3/29/95
------------------------------------------------------------
H.M. Brush, Director Date
By /s/ Patrick A. Given 3/29/95
------------------------------------------------------------
Patrick A. Given, Director Date
By /s/ James H. Glamore 3/29/95
------------------------------------------------------------
James H. Glamore, Director Date
By /s/ Edith Hodgkinson 3/29/95
------------------------------------------------------------
Edith Hodgkinson, Director Date
By /s/ Barry M. Seigerman 3/29/95
------------------------------------------------------------
Barry M. Seigerman, Director Date
By /s/ Attmore Robinson 3/29/95
------------------------------------------------------------
Attmore Robinson, Director Date
By /s/ Charles E. Rockwell 3/29/95
------------------------------------------------------------
Charles E. Rockwell, Director Date
<PAGE>
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
25 Suffolk Court
Hauppauge, NY 11788
(516) 434-9500
Consent of Independent Auditors
We consent to the incorporation by reference in this Form 10-KSB of Smithtown
Bancorp, Inc. of or report dated January 19, 1995, included in the 1994 Annual
Report to Shareholders of Smithtown Bancorp, Inc.
By /s/ ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C.
Hauppauge, New York
March 16, 1995
<PAGE>
A DESCRIPTION OF OUR BUSINESS
Smithtown Bancorp (the "Bancorp") is a bank holding company incorporated
in the State of New York, subject to the regulation and supervision of
the State of New York Banking Department, the Federal Reserve Board and
the Securities and Exchange Commission. The Bancorp owns all of the
outstanding stock of Bank of Smithtown (the "Bank") and conducts no
business other than holding the stock of Bank of Smithtown. Therefore,
the content of this annual report, as it pertains to the description of
the activities of the Bancorp, is in essence a description of the
activities of Bank of Smithtown.
Bank of Smithtown is chartered under the laws of the State of New York,
is a member of the Federal Reserve System and is insured by the Federal
Deposit Insurance Corporation. The Bank is subject to the supervision
of the State of New York Banking Department and the Federal Reserve Bank
of New York. The Bank has been headquartered in Smithtown since 1910.
It is in its 84th year of operation as an independent commercial bank.
The Bank operates six offices in the following communities: Smithtown,
Commack, Hauppauge, Kings Park, Centereach and Lake Grove.
Bank of Smithtown is a full-service bank offering a complete range of
commercial and consumer financial services. The Bank also extends its
services to local municipalities.
The Bank's Trust Department, introduced in 1970, provides trust
administration, estate administration and fiduciary services, and acts
as a bond and coupon paying agent for local municipalities.
The Bank's intention is to continue to provide individuals, businesses,
and municipalities with a comprehensive array of financial services.
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
AT YEAR END
Assets $ 156,951,687 $ 153,720,337 $ 153,926,652
Loans 78,421,816 62,450,651 66,397,958
Deposits 135,230,577 141,377,440 142,474,683
Stockholders' Equity 11,605,718 11,243,502 11,261,512
FOR THE YEAR
Interest Income $ 10,678,437 $ 10,948,073 $ 11,901,804
Net Interest Income 8,145,247 8,248,312 8,044,585
Other Non-Interest Income 2,099,966 2,276,211 1,897,214
Other Operating Expense 8,231,202 8,841,415 7,816,985
Net Income 1,231,511 301,696 767,555
PER SHARE
Net Income $ 2.80 $ 0.69 $ 1.75
Cash Dividends Declared 1.00 0.75 0.75
Stockholders' Equity 27.14 25.57 25.64
</TABLE>
Table of Contents
Financial Highlights 1
Message from the Chairman of the Board 2
Independent Auditors' Report 8
Consolidated Balance Sheets 9
Consolidated Statements of Income 10
Consolidated Statements of Changes in Stockholders' Equity 11
Consolidated Statements of Cash Flows 12
Notes to Consolidated Financial Statements 13
Selected Financial Data
Consolidated Average Balance Sheets 22
Consolidated Balance Sheets 23
Consolidated Income Statements 24
Per Share Data and Supplementary Information 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations 26
Banking Locations 36
Corporate Directory 36
1
<PAGE>
This past year was a year of many successes for Bank of Smithtown. We
continued to remedy many of the difficulties created by the past
recession in the regional economy and, at the same time, moved ahead
significantly toward building a strong income stream for the future.
Net income for 1994 was $1,231,511, a more than four-fold increase over
the prior year. We achieved these results by continuing to improve
asset quality, rebuilding the loan portfolio and continuing our efforts
to improve the efficiency of our operations.
Nonperforming loans were decreased further from $1.914 million at year-
end 1993 to $1.311 million at year-end 1994. Reserve coverage of these
loans increased to 103.9%. With regard to Other Real Estate Owned,
although we sold four properties and added to the reserve for potential
losses on future sales, some other properties were added to the
portfolio and the net result was that OREO remained about the same,
finishing the year at $5,589,789. Looking to the future of the bank's
asset quality, the largest OREO property is presently under contract to
be sold during 1995, and loans past due 30 to 89 days were more than cut
in half from $1.279 million to $611 thousand.
While nonperforming loans decreased, we simultaneously began to make
substantial strides in rebuilding the loan portfolio. Total loans
increased during 1994 by more than $16 million, from approximately $64
million to $80 million. We gave particular attention to generating more
consumer loans to better balance our overall portfolio and, in so doing,
increased consumer loans by more than $13 million.
Overall operating expenses were reduced. Among other areas of
reduction, we spent fewer salary dollars in 1994 than in any of the
previous four years. We did so by consolidating positions, making a
small staff reduction and with some attrition. We finished the year
with 106 full-time equivalent employees, as compared with 151 during
1990. These figures are indicative of our continuing effort to work
harder and more efficiently.
Our capital remained strong, with our leverage ratio and risk-based
capital ratio at 7.48% and 13.45%, respectively. Another of our
strengths, our net interest margin, was squeezed slightly by the rising
rate environment, but nonetheless finished the year at 5.99%, one of the
best among our peers.
Corresponding with net income, our earnings per share increased more
than four-fold to $2.80 per share. Book value of the stock increased by
more than $1.50 per share, and the market value of each share also
increased by more than $3.00. We resumed level cash dividends of $.25
per share each quarter during 1994, and the Board anticipates those
dividends being increased during 1995.
In short, we have not yet achieved all of our goals, but we are
approaching them. We are becoming the kind of high performing community
bank that will lead the way through the 1990's and into the 21st
century. We thank you for your support during the past year, and we
look forward to an even more prosperous 1995.
By /s/ Bradley E. Rock
Bradley E. Rock
Chairman of the Board, President
& Chief Executive Officer
2
<PAGE>
Net Income
(in thousands)
| -1,500
|
| X -1,200
| X
| X - 900
| X
| X - 600
| X
| X X - 300
| X X
| X X - 0
|____________________
1993 1994
Reserve Coverage
(percent)
| -120
|
| X -100
| X
| X X - 80
| X X
| X X - 60
| X X
| X X - 40
| X X
| X X - 20
| X X
| X X - 0
|____________________
1993 1994
Total Loans
(in millions)
| X - 80
| X
| X - 70
| X X
| X X - 60
| X X
| X X - 50
| X X
| X X - 40
| X X
| X X - 30
| X X
| X X - 20
| X X
| X X - 10
| X X
| X X - 0
|____________________
1993 1994
3
<PAGE>
The Bank's management team is experienced and energetic. Its members
are continuously analyzing ways to serve the Bank's customers better, as
well as exploring new products and services for the Bank to provide
tomorrow. The goal is to carve an even deeper niche in the financial
marketplace for the kinds of products and services that only a small,
community-oriented bank can provide best.
4
<PAGE>
5
<PAGE>
We take pride in the people who serve our customers. They know our
customers, and the customers know them. Our people live locally and
most stay with us throughout their careers. They get to know our
customers' special needs, and they help them find ways to do what's best
for their particular household or business circumstances. Unlike the
huge city banks where "lip service", "come on" advertising and rapid
turnover in personnel are the norm, we deliver on promises to our
customers, just the way we have for more than 85 years.
6
<PAGE>
7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders
Smithtown Bancorp
We have audited the accompanying consolidated balance sheets of
Smithtown Bancorp as of December 31, 1994 and 1993, and the related
statements of income, stockholders' equity, and cash flows for the years
ended December 31, 1994, 1993 and 1992. These financial statements are
the responsibility of Smithtown Bancorp's management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1994 and 1993 financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Smithtown Bancorp at December 31, 1994 and 1993, and the
consolidated results of operations and its cash flows for each of the
years ended December 31, 1994, 1993 and 1992 in conformity with
generally accepted accounting principles.
As discussed in Notes A, F and G to the consolidated financial
statements, Smithtown Bancorp changed its methods of accounting for
certain investments in debt securities in 1994 and for post-retirement
benefits other than pensions and for income taxes in 1993.
By /s/ Albrecht, Viggiano, Zureck & Company, P.C.
Albrecht, Viggiano, Zureck & Company, P.C.
Hauppauge, New York
January 19, 1995
8
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
SMITHTOWN BANCORP
<CAPTION>
As of December 31,
1994 1993
<S>
ASSETS <C> <C>
Cash and Due from Banks $ 5,955,650 $ 5,700,739
Investment Securities: (Note B.)
Investment Securities Held to Maturity:
Obligations of U.S. Government 3,019,956 28,158,418
Obligations of U.S. Government Agencies 2,051,544 2,000,046
Mortgage-Backed Securities 34,761,443 34,835,122
Obligations of State and Political Subdivisions 6,137,424 5,768,253
Other Securities 0 127,200
---------- ----------
Total 45,970,367 70,889,039
---------- ----------
Investment Securities Available for Sale:
Obligations of U.S. Government 10,055,624 0
Obligations of U.S. Government Agencies 897,812 0
Mortgage-Backed Securities 2,045,795 0
Obligations of State and Political Subdivisions 0 0
Other Securities 127,200 0
---------- ----------
Total 13,126,431 0
---------- ----------
Total Investment Securities
(Market Value $56,001,626 in 1994 and
$72,070,058 in 1993) 59,096,798 70,889,039
---------- ----------
Federal Funds Sold 200,000 2,500,000
---------- ----------
Loans (Note C.) 80,491,254 64,895,448
Less: Unearned Discount 707,034 943,968
Allowance for Possible Loan Losses (Note D.) 1,362,404 1,500,829
---------- ----------
Loans, Net 78,421,816 62,450,651
---------- ----------
Bank Premises and Equipment (Note E.) 3,167,149 3,310,075
---------- ----------
Other Assets
Other Real Estate Owned 5,589,789 5,309,127
Other 4,520,485 3,560,706
---------- ----------
Total Other Assets 10,110,274 8,869,833
-------------- --------------
TOTAL $ 156,951,687 $ 153,720,337
============== ==============
LIABILITIES
Deposits:
Demand (Non-Interest Bearing) $ 34,655,348 $ 35,312,599
NOW 13,837,170 16,357,096
Money Market 22,654,018 25,368,983
Savings 49,231,742 50,639,673
Time (Note H.) 14,852,299 13,699,089
----------- -----------
Total Deposits 135,230,577 141,377,440
Dividend Payable 106,917 0
Securities Sold Under Agreements to Repurchase 9,003,500 0
Other Liabilities 1,004,975 1,099,395
----------- -----------
Total Liabilities 145,345,969 142,476,835
----------- -----------
Commitments and Contingent Liabilities (Note K.)
STOCKHOLDERS' EQUITY
Common Stock - $5.00 Par Value:
500,000 Shares Authorized; 447,955 Issued 2,239,775 2,239,775
Capital Surplus 1,993,118 1,993,118
Unrealized Loss on Securities Available for Sale (134,616) 0
Retained Earnings (Note I.) 8,092,029 7,297,259
---------- ----------
Total 12,190,306 11,530,152
Less: Treasury Stock (20,289 and 8,190
Shares at Cost at December 31, 1994 and
1993, respectively) 584,588 286,650
-------------- --------------
Total Stockholders' Equity 11,605,718 11,243,502
-------------- --------------
TOTAL $ 156,951,687 $ 153,720,337
============== ==============
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
SMITHTOWN BANCORP
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 6,690,095 $ 6,730,657 $ 7,430,991
Interest on Federal Funds Sold 117,440 167,520 230,199
Interest and Dividends on:
Obligations of U.S. Government 1,235,897 2,205,419 2,553,259
Obligations of U.S. Government Agencies 177,332 166,526 170,047
Mortgage-Backed Securities 2,080,703 1,314,747 1,146,958
Obligations of State and Political
Subdivisions 369,338 355,572 362,718
Other Securities 7,632 7,632 7,632
----------------- ----------------- -----------------
Total Interest Income 10,678,437 10,948,073 11,901,804
----------------- ----------------- -----------------
INTEREST EXPENSE
Money Market Accounts 584,242 738,928 1,133,467
Savings 1,269,785 1,479,055 2,038,469
Certificates of Deposit of $100,000
and Over (Note H.) 113,101 112,961 179,938
Other Time Deposits 438,839 368,817 505,345
Interest on Securities Sold Under Agreements
To Repurchase 127,223 0 0
----------------- ----------------- -----------------
Total Interest Expense 2,533,190 2,699,761 3,857,219
----------------- ----------------- -----------------
Net Interest Income 8,145,247 8,248,312 8,044,585
Provision for Possible
Loan Losses 120,000 1,364,329 1,096,000
----------------- ----------------- -----------------
Net Interest Income,
After Provision for Possible
Loan Losses 8,025,247 6,883,983 6,948,585
----------------- ----------------- -----------------
OTHER NON-INTEREST INCOME
Trust Department Income 298,786 330,796 279,577
Service Charges on Deposit Accounts 1,344,754 1,263,371 1,202,480
Other Income 433,731 441,934 359,996
Investment Securities Gains 22,695 240,110 55,161
----------------- ----------------- -----------------
Total Other Non-Interest Income 2,099,966 2,276,211 1,897,214
----------------- ----------------- -----------------
OTHER OPERATING EXPENSES
Salaries 3,556,241 3,654,727 3,660,218
Pensions and Other Employee Benefits
(Note F.) 832,603 862,213 822,934
Net Occupancy Expense of Bank Premises 905,538 848,704 834,375
Furniture and Equipment Expense 582,663 589,701 650,723
Other Expenses 2,354,157 2,886,070 1,848,735
----------------- ----------------- -----------------
Total Other Operating Expenses 8,231,202 8,841,415 7,816,985
----------------- ----------------- -----------------
Income Before Income Taxes 1,894,011 318,779 1,028,814
Provision for Income Taxes (Note G.) 662,500 17,083 261,259
----------------- ----------------- -----------------
Net Income $ 1,231,511 $ 301,696 $ 767,555
================= ================= =================
EARNINGS PER SHARE
Net Income $ 2.80 $ 0.69 $ 1.75
Weighted Average Shares Outstanding 439,400 439,365 439,153
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SMITHTOWN BANCORP
<CAPTION>
Net
Unrealized
Common Stock Cost of Loss on
---------------------- Common Securities Total
Shares Capital Retained Stock in Available Stockholders'
Outstanding Amount Surplus Earnings Treasury for Sale Equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1991 438,985 $ 2,239,775 $ 2,000,000 $ 6,886,839 $ (313,950) $ 10,812,664
Net Income 767,555 767,555
Cash Dividends Declared (329,327) (329,327)
Treasury Stock Sales 354 (1,770) 12,390 10,620
------- ----------- ----------- ------------ ---------- ---------- ------------
BALANCE AT
DECEMBER 31, 1992 439,339 $ 2,239,775 $ 1,998,230 $ 7,325,067 $ (301,560) $ 11,261,512
Net Income 301,696 301,696
Cash Dividends Declared (329,504) (329,504)
Treasury Stock Sales 426 (5,112) 14,910 9,798
------- ----------- ----------- ------------ ---------- ---------- ------------
BALANCE AT
DECEMBER 31, 1993 439,765 $ 2,239,775 $ 1,993,118 $ 7,297,259 $ (286,650) $ 11,243,502
Net Income 1,231,511 1,231,511
Cash Dividends Declared (436,741) (436,741)
Treasury Stock Sales 4,467 110,000 110,000
Treasury Stock Purchases (16,566) (407,938) (407,938)
Unrealized Loss on Securities
Available for Sale $ (134,616) (134,616)
------- ----------- ----------- ------------ ----------- ---------- ------------
BALANCE AT
DECEMBER 31, 1994 427,666 $ 2,239,775 $ 1,993,118 $ 8,092,029 $ (584,588) $ (134,616) $ 11,605,718
======= =========== =========== ============ =========== ========== ============
</TABLE>
Cash dividends per share were $1.00 in 1994, $.75 in 1993 and 1992.
See notes to consolidated financial statements.
11
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SMITHTOWN BANCORP
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,231,511 $ 301,696 $ 767,555
Adjustments to reconcile net income to
net cash provided by operating activities:
Valuation Reserve for Other Real Estate Owned 335,000 715,171 0
Depreciation on Premises and Equipment 408,082 401,211 286,456
Provision for Possible Loan Losses 120,000 1,364,329 1,096,000
Gain on Sale of Investment Securities (22,695) (240,110) (55,161)
Amortization of Transition Obligation 74,200 22,153 0
Increase (Decrease) in Interest Payable 27,426 (17,219) (56,500)
Increase in Miscellaneous Payables
and Accrued Expenses 23,342 63,797 9,274
Decrease in Fees and Commissions
Receivable 34,595 35,565 96,272
Decrease in Interest Receivable 133,445 263,863 310,417
(Increase) Decrease in Prepaid Expenses (404,119) (16,213) 94,594
Increase in Miscellaneous Receivables (107,308) (2,092) 0
(Increase) Decrease in Income Taxes
Receivable (54,905) (151,922) 21,111
(Increase) Decrease in Deferred Taxes (56,376) 68,494 (208,575)
Decrease in Accumulated Postretirement
Benefit Obligation (58,157) 0 0
Amortization of Investment Security Premiums
and Accretion of Discounts 347,694 49,772 172,506
----------------- --------------- ---------------
Total Adjustments 800,224 2,556,799 1,766,394
----------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Disposition of Investment
Securities - Held to Maturity 18,881,792 31,692,492 16,959,247
- Available for Sale 4,939,590 0 0
Purchase of Investments Held to Maturity (12,306,707) (40,101,344) (22,723,342)
Federal Funds Sold, Net 2,300,000 1,050,000 200,000
Loans Made to Customers, Net (18,176,533) 2,276,498 (3,312,489)
Purchase of Premises and Equipment (265,156) (137,904) (1,045,211)
Payments for Other Assets 0 0 (14,036)
Proceeds from Sale of Other Real
Estate Owned 621,314 2,432,720 0
----------------- --------------- ---------------
CASH USED IN INVESTING ACTIVITIES (4,005,700) (2,787,538) (9,935,831)
----------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Demand Deposits,
NOW Accounts and Savings Accounts (7,300,072) (944,925) 12,116,619
Net Increase (Decrease) in Time Deposits 1,153,210 (152,318) (3,468,219)
Cash Dividends Paid (329,824) (329,504) (768,312)
Securities Sold Under Agreements to
Repurchase 9,003,500 0 0
Purchase of Treasury Stock (407,938) 0 0
Proceeds from Sale of Treasury Stock 110,000 9,798 10,620
Mortgage Payable 0 0 (49,089)
----------------- --------------- ---------------
CASH PROVIDED BY/(USED) IN
FINANCING ACTIVITIES 2,228,876 (1,416,949) 7,841,619
----------------- --------------- ---------------
Net Increase/(Decrease) in Cash
and Due from Banks 254,911 (1,345,992) 439,737
Cash and Due from Banks, Beginning 5,700,739 7,046,731 6,606,994
----------------- --------------- ---------------
Cash and Due from Banks, Ending $ 5,955,650 $ 5,700,739 $ 7,046,731
================= =============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash Paid During the Year for:
Interest $ 112,672 $ 0 $ 0
Income Taxes 773,781 122,773 448,723
SCHEDULE OF NONCASH INVESTING ACTIVITIES
Loans Transferred to Other Real Estate Owned $ 1,235,368 $ 1,477,738 $ 3,242,937
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of
Smithtown Bancorp (the "Bancorp"), established in November 1984, and its
wholly-owned subsidiary, Bank of Smithtown (the "Bank"). All material
intercompany transactions have been eliminated. The Bank's primary
activities include real estate, commercial and consumer lending in
Suffolk County, New York.
INVESTMENT SECURITIES
On January 1, 1994 the Bank adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt
and Equity Securities" (SFAS 115). In accordance with SFAS 115, prior
years' financial statements have not been restated to reflect the change
in accounting method. There was no cumulative effect as a result of
adopting SFAS 115.
The Bank's investments in securities are classified in two
categories and accounted for as follows:
- SECURITIES TO BE HELD TO MATURITY - Bonds, notes and debentures
for which the Bank has the positive intent and ability to hold to
maturity are reported at cost, adjusted for amortization of premiums and
accretion of discounts which are recognized in interest income using the
interest method over the period to maturity.
- SECURITIES AVAILABLE FOR SALE - Securities available for sale
consist of bonds, notes, debentures, and certain equity securities not
classified as trading securities nor as securities to be held to
maturity.
Unrealized holding gains and losses, net of tax, on securities
available for sale are reported as a net amount in a separate component
of shareholders' equity until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
LOANS
Loans are recorded at the principal amount outstanding from which
unearned discount and the reserves for loan losses are deducted to
obtain net loans.
Interest on loans is credited to income based on the principal
amount outstanding. The accrual of interest on a loan is discontinued
when in the opinion of management there is doubt about the ability of
the borrower to pay interest or principal. Management may continue to
accrue interest when it determines that a loan and related interest are
adequately secured and in the process of collection. Unearned discounts
are generally amortized over the term of the loan using the interest
method.
RESERVE FOR POSSIBLE LOAN LOSSES
The reserve for possible loan losses is established through a
provision for loan losses charged to expense. Loans are charged against
the reserve for possible loan losses when management believes the
collectibility of the principal is unlikely. The reserve for possible
loan losses is based on management's evaluation of the loan portfolio.
Management believes that the reserve for possible loan losses is
adequate. While management uses available information, including
appraisals, to estimate potential losses on loans, further additions to
the reserve may be necessary based on changes in economic conditions.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. The depreciation and amortization are
computed on the straight-line method over the estimated useful lives of
the related assets as follows:
Bank Premises 25-30 years
Leasehold Improvements 5-50 years
Furniture and Equipment 10 years
OTHER REAL ESTATE OWNED
Included in other assets is real estate held for sale which is
acquired principally through foreclosure or a similar conveyance of
title and is carried at the lower of cost or fair value minus estimated
costs to sell the property. Any write-downs at the dates of acquisition
are charged to the Reserve for Possible Loan Losses. Revenues and
expenses associated with holding such assets are recorded through
operations when realized.
OTHER REAL ESTATE OWNED VALUATIONS RESERVE ACCOUNT
The valuation reserve account is established through a Loss on Other
Real Estate Owned charged to expenses. Properties held in Other Real
Estate Owned are periodically valued through appraisals, and are written
down to fair market value based on management's evaluation of these
appraisals. Specific reserves are allocated to the properties as
necessary, and these reserves may be adjusted based on changes in
economic conditions.
13
<PAGE>
INCOME TAXES
The tax provision as shown in the consolidated statements of income
relates to items of income and expense reflected in the statements after
appropriate deduction of tax-free income, principally nontaxable
interest from obligations of state and political subdivisions. Deferred
taxes are provided for timing differences related to depreciation, loan
loss provisions, post retirement benefits, and investment securities
which are recognized for financial accounting purposes in one period and
for tax purposes in another period.
TRUST ASSETS
Assets belonging to trust customers that are held in fiduciary or
agency capacity by the Bank are not included in the financial statements
since they are not assets of the Bank. Deposits held in fiduciary or
agency capacity in the normal course of business are reported in the
applicable deposit categories of the consolidated balance sheets.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number
of shares outstanding.
STATEMENTS OF CASH FLOWS
For the purposes of the Statement of Cash Flows, the Bank considers
Cash and Due from Banks as Cash and Cash Equivalents.
SUMMARY OF RETIREMENT BENEFITS ACCOUNTING
In December 1990, the FASB issued Statement of Financial Accounting
Standards No. 106 (SFAS No. 106) "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which was implemented in
1993. This statement established accounting standards for
postretirement benefits other than pensions (hereinafter referred to as
postretirement benefits). The statement principally focuses on health
care benefits, although it applies to all forms of postretirement
benefits other than pensions. SFAS No. 106 changed the Bank's practice
of accounting for postretirement benefits from a cash basis to an
accrual basis. This statement requires that the estimated costs of
postretirement benefits other than pensions be accrued over the period
earned rather than expenses as incurred.
NOTE B. INVESTMENT SECURITIES
The carrying amounts of investment securities as
shown in the consolidated balance sheets and their fair values at
December 31 were as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
DECEMBER 31, 1994
Obligations of U.S. Government $ 10,086,065 $ 35,012 $ (65,453) $ 10,055,624
Obligations of U.S. Government
Agencies 1,000,000 0 (102,188) 897,812
Mortgage-Backed Securities 2,145,263 520 (99,988) 2,045,795
Other Securities 127,200 0 0 127,200
------------- --------- ----------- -------------
TOTAL $ 13,358,528 $ 35,532 $ (267,629) $ 13,126,431
============= ========= =========== =============
</TABLE>
At December 31, 1993 there were no Investment Securities classified as
Available for Sale.
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
SECURITIES TO BE HELD TO MATURITY:
DECEMBER 31, 1994
Obligations of U.S. Government $ 3,019,956 $ 0 $ (174,169) $ 2,845,787
Obligations of U.S. Government
Agencies 2,051,544 0 (187,169) 1,864,375
Mortgage-Backed Securities 34,761,443 3,033 (2,866,502) 31,897,974
Obligations of State and Political
Subdivisions 6,137,424 141,582 (11,947) 6,267,059
Other Securities 0 0 0 0
------------- ----------- ----------- -------------
TOTAL $ 45,970,367 $ 144,615 $(3,239,787) $ 42,875,195
============= =========== =========== =============
DECEMBER 31, 1993
Obligations of U.S. Government $ 28,158,418 $ 723,821 $ (6,733) $ 28,875,506
Obligations of U.S. Government
Agencies 2,000,046 22,074 0 2,022,120
Mortgage-Backed Securities 34,835,122 189,318 (144,275) 34,880,165
Obligations of State and Political
Subdivisions 5,768,253 397,069 (255) 6,165,067
Other Securities 127,200 0 0 127,200
------------- ----------- ----------- -------------
TOTAL $ 70,889,039 $ 1,332,282 $ (151,263) $ 72,070,058
============= =========== =========== =============
</TABLE>
14
<PAGE>
The book and market value of investment in debt securities by maturity
at December 31, 1994 and December 31, 1993 are as follows:
<TABLE>
1994 1993
Book Market Book Market
Value Value Value Value
<S> <C> <C> <C> <C>
TYPE AND MATURITY GROUPING
SECURITIES HELD TO MATURITY:
Obligations of U.S. Government
Within 1 year $ 1,001,100 $ 1,001,100 $ 15,950,249 $ 16,151,440
After 1 year, but within 5 years 2,018,856 1,844,687 12,208,169 12,724,066
After 5 years, but within 10 years 0 0 0 0
------------ ------------ ------------- ------------
TOTAL OBLIGATIONS OF U.S.
GOVERNMENT $ 3,019,956 $ 2,845,787 $ 28,158,418 $ 28,875,506
============ ============ ============= ============
Obligations of U.S. Government Agencies
Within 1 year $ 0 $ 0 $ 0 $ 0
After 1 year, but within 5 years 0 0 0 0
After 5 years, but within 10 years 2,051,544 1,864,375 2,000,046 2,022,120
------------ ------------ ------------- ------------
TOTAL OBLIGATIONS U.S. GOVERNMENT
AGENCIES $ 2,051,544 $ 1,864,375 $ 2,000,046 $ 2,022,120
============ ============ ============= ============
Mortgage-Backed Securities
Within 1 year $ 0 $ 0 $ 0 $ 0
After 1 year, but within 5 years 12,876,365 11,831,293 9,408,950 9,455,628
After 5 years, but within 10 years 5,013,439 4,544,382 16,505,634 16,536,699
After 10 years 16,871,639 15,522,299 8,920,538 8,887,838
------------ ------------ ------------- ------------
TOTAL MORTGAGE-BACKED SECURITIES $ 34,761,443 $ 31,897,974 $ 34,835,122 $ 34,880,165
============ ============ ============= ============
Obligations of State and Political
Subdivisions
Within 1 year $ 1,471,663 $ 1,477,530 $ 643,030 $ 652,161
After 1 year, but within 5 years 3,160,475 3,245,308 2,355,881 2,474,631
After 5 years, but within 10 years 1,322,786 1,365,491 2,769,342 3,038,275
After 10 years 182,500 178,730 0 0
------------ ------------ ------------- ------------
TOTAL OBLIGATIONS OF STATE AND
POLITICAL SUBDIVISIONS $ 6,137,424 $ 6,267,059 $ 5,768,253 $ 6,165,067
============ ============ ============= ============
SECURITIES AVAILABLE FOR SALE:
Obligations of U.S. Government
Within 1 year $ 5,015,855 $ 5,037,812 $ 0 $ 0
After 1 year, but within 5 years 5,070,210 5,017,812 0 0
After 5 years, but within 10 years 0 0 0 0
------------ ------------ ------------- ------------
TOTAL OBLIGATIONS OF U.S.
GOVERNMENT $ 10,086,065 $ 10,055,624 $ 0 $ 0
============ ============ ============= ============
Obligations of U.S. Government Agencies
Within 1 year $ 0 $ 0 $ 0 $ 0
After 1 year, but within 5 years 0 0 0 0
After 5 years, but within 10 years 1,000,000 897,812 0 0
------------ ------------ ------------- ------------
TOTAL OBLIGATIONS U.S. GOVERNMENT
AGENCIES $ 1,000,000 $ 897,812 $ 0 $ 0
============ ============ ============= ============
Mortgage-Backed Securities
Within 1 year $ 0 $ 0 $ 0 $ 0
After 1 year, but within 5 years 515,123 514,468 0 0
After 5 years, but within 10 years 177,370 176,000 0 0
After 10 years 1,452,770 1,355,327 0 0
------------ ------------ ------------- ------------
TOTAL MORTGAGE-BACKED SECURITIES $ 2,145,263 $ 2,045,795 $ 0 $ 0
============ ============ ============= ============
</TABLE>
At December 31, 1994 and 1993 there were no Obligations of State and
Political Subdivisions included in the Available for Sale portfolio.
15
<PAGE>
Gross unrealized gains for the above investments amounted to
$180,147 and $1,332,282 in 1994 and 1993, respectively while gross
unrealized losses amounted to $3,507,416 and $151,263 in 1994 and 1993,
respectively.
Obligations of the U.S. Government and Mortgage-Backed Securities
having a book value of $11,498,093 and a market value of $10,834,183
were pledged to secure public deposits. No municipality maintains
deposits exceeding ten percent of stockholders' equity.
Gross realized gains on sales of Securities Available for Sale in
1994 and on securities sold in 1993 were:
1994 1993
Gross Realized Gains:
U.S. Government and Agency Securities $ 22,695 $ 240,110
=========== =========
During the year the Bank entered into various repurchase agreements.
These borrowings at December 31, 1994 totalled $9,003,500 at an average
interest cost of 5.15%. These repurchase agreements expire during
January 1995. Repurchase agreements consist of Treasury Notes
($6,172,500) and Mortgage-Backed Securities ($2,831,000).
NOTE C. LOANS
Loans as of December 31, consisted of the following:
<TABLE>
1994 1993
<S> <C> <C>
Real Estate Loans, Construction $ 3,251,180 $ 1,770,510
Real Estate Loans, Other
Commercial 29,829,012 26,207,899
Residential 15,868,020 19,245,096
Commercial and Industrial Loans 14,155,310 11,485,021
Loans to Individuals for Household, Family and Other
Personal Expenditures 17,307,349 6,104,378
All Other Loans (Including Overdrafts) 80,383 82,544
------------- -------------
Total Loans, Gross 80,491,254 64,895,448
Less: Unearned Discount on Loans (707,034) (943,968)
------------- -------------
TOTAL LOANS (NET OF UNEARNED DISCOUNT) $ 79,784,220 $ 63,951,480
============= =============
</TABLE>
Collateral varies, but generally includes residential and income
producing commercial properties as well as automobiles on personal loans.
Fair Value of Loans at December 31, 1994, are as follows:
<TABLE>
Book Value Fair Value
<S> <C> <C>
Construction Loans $ 3,251,180 $ 3,229,141
Residential Adjustable Rate Mortgages 9,090,855 8,638,533
Residential Fixed Rate Mortgages 6,208,929 5,942,087
Commercial Adjustable Rate Mortgages 18,121,894 16,720,423
Commercial Fixed Rate Mortgages 10,014,393 9,900,210
Demand Loans Secured by Real Estate 2,260,961 2,260,509
Commercial Time and Demand Loans 9,610,359 9,494,716
Consumer Time and Demand Loans 1,508,695 1,496,220
Installment and All Other Loans
(Net of Unearned Discount) 19,716,954 18,634,872
------------- -------------
Total $ 79,784,220 $ 76,316,711
============= =============
</TABLE>
Generally, recognition of interest income is discontinued where
reasonable doubt exists as to the full collectibility of principal or
interest. At December 31, 1994 and 1993, loans with unpaid principal
balances of $1,213,868 and $1,496,365 respectively, on which the Bank is
no longer accruing interest income, are included in the amounts listed
above. The Bank expects to recover a portion of the principal balance
included in the nonaccrual category at December 31, 1994 through work-
out arrangements and the liquidation of collateral. If the Bank had
accrued interest income on loans which were in a nonaccrual status at
year-end, its interest income would have increased by approximately
$25,591 in 1994 and $137,574 in 1993. Loans contractually past due 90
days or more and still accruing interest amounted to $97,177 and
$417,636 in 1994 and 1993, respectively. During 1994, $1,235,368 of
loans, net of an allocated portion of the Allowance for Possible Loan
Losses, were transferred to Other Real Estate Owned.
The book value of Other Real Estate Owned net of valuation reserve
of $760,000 is $5,589,789 as of December 31, 1994. The fair value as of
this date was $6,207,500.
16
<PAGE>
Information concerning interest income on nonaccrual loans and Other
Real Estate Owned (OREO) at December 31, is as follows:
<TABLE>
OREO Nonaccrual
(in thousands) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Amount Outstanding $ 6,350 $ 5,814 $ 1,214 $ 1,496
Less: Valuation Reserve 760 505 0 0
--------- --------- -------- --------
Net 5,590 5,309 1,214 1,496
========= ========= ======== ========
Gross interest income which would have
been recorded during the year under
original terms 642 703 26 138
Gross interest income recorded during
the year 0 0 18 16
OREO Operating Expense 275 537 - -
</TABLE>
The Bank has granted loans to officers, directors and principal
shareholders of the Bancorp and to their associates. Related party
loans are made in the ordinary course of business, on substantially the
same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with unrelated persons. The
aggregate dollar amount of these loans was $493,839 and $1,853,426 at
December 31, 1994 and 1993. During 1994, $204,685 of new loans were
made, repayments totalled $442,513, $1,070,000 in principal was
transferred to Other Real Estate Owned, and $51,759 of loans were
reclassified as non-related party loans. During the year, a director of
the Bank, whose loans were in nonaccrual status, sold 16,566 shares of
Smithtown Bancorp stock back to the Bancorp. The proceeds from the sale
were used as a principal reduction of $309,677 and interest payments of
$98,261 on these nonaccrual loans. The balance of the loans were then
moved to Other Real Estate Owned.
NOTE D. ALLOWANCE FOR POSSIBLE LOAN LOSSES
Transactions in the allowance for the year ending December 31 were as follows:
<TABLE>
1994 1993 1992
<S> <C> <C> <C>
BALANCE, JANUARY 1 $ 1,500,829 $ 2,050,445 $ 1,496,624
Add:
Recoveries 38,958 13,341 32,214
Provision Charged to Current Expense 120,000 1,364,329 1,096,000
------------ ------------ ------------
TOTAL 1,659,787 3,428,115 2,624,838
Less: Charge-Offs 297,383 1,927,286 574,393
------------ ------------ ------------
BALANCE, DECEMBER 31 $ 1,362,404 $ 1,500,829 $ 2,050,445
============ ============ ============
</TABLE>
NOTE E. BANK PREMISES AND EQUIPMENT
Bank premises and equipment as of December 31 at cost is as follows:
<TABLE>
1994 1993
<S> <C> <C>
Land $ 92,650 $ 92,650
Bank Premises 1,759,371 1,803,679
Leasehold Improvements 1,664,737 1,611,262
Furniture and Equipment 2,472,555 2,231,744
------------ --------------
TOTAL 5,989,313 5,739,335
Less: Accumulated Depreciation and Amortization 2,822,164 2,429,260
------------ --------------
TOTAL $ 3,167,149 $ 3,310,075
============ ==============
</TABLE>
NOTE F. EMPLOYEE BENEFITS
A 401(k) defined contribution plan was
established by the Bank during 1986. All employees who have attained
age 21 with one continuous year of service may participate in the Plan
through voluntary contributions of up to 14% of their compensation. The
Plan requires that the Bank match 50% of an employee's contribution up
to 2% of the participating employee's compensation. The Bank's 401(k)
contribution for 1994, 1993, and 1992, amounted to $58,173, $59,358 and
$58,613, respectively.
17
<PAGE>
A defined contribution plan was established by the Bank as of
January 1, 1990. During 1994, the Bank established an Employee Stock
Ownership Plan (ESOP) for substantially all of its employees. The ESOP
replaced the Defined Contribution Plan. Eligibility requirements for
the ESOP remain the same as for the Defined Contribution Plan and
include one year of continuous service and attaining an age of 21.
Contributions to the ESOP are made at the discretion of the Board of
Directors. During 1994, the ESOP used the Bank's contribution of
$110,000 to purchase 4,467 shares at $24.63 per share for employees.
During January 1995 the Plan purchased an additional 4,873 shares. The
Bank contributed $110,000 to the Defined Contribution Plan for the 1993
and 1992 plan years, respectively.
In 1993 the Company adopted SFAS No. 106 "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions", which requires a
calculation of the actuarial present value of expected benefits to be
paid to employees after their retirement and an allocation of the cost
of those benefits to the periods for which employees rendered service.
The Bank pays a fixed amount for health insurance coverage that covers
all employees that had retired as of December 31, 1993. There is no
benefit for employees retiring after that date. The accrued post-
retirement benefit recognized during 1994 includes an interest cost of
$42,400 assuming a discount rate of 7% and amortization of $31,800,
which represents the unrecognized transition obligation as of January 1,
1994 amortized using a straight-line method over a twenty year period.
The only benefit available after retirement is participation in Group
Insurance Plans.
NOTE G. INCOME TAXES
Federal and State Income Taxes prepaid as of
December 31, included in other assets in 1994 and 1993 are as follows:
1994 1993
Current $ 245,148 $ 190,243
Deferred 447,688 293,821
--------------- ---------------
TOTAL $ 692,836 $ 484,064
=============== ===============
Provisions for current income taxes are as follows:
1994 1993 1992
Federal:
Current $ 364,621 $ 40,764 $ 389,919
Deferred 124,879 (54,838) (169,750)
----------- ------------ -------------
Total Federal 489,500 (14,074) 220,169
----------- ------------ -------------
New York State:
Current 144,025 44,813 79,915
Deferred 28,975 (13,656) (38,825)
----------- ------------ -------------
Total New York State 173,000 31,157 41,090
----------- ------------ -------------
TOTAL $ 662,500 $ 17,083 $ 261,259
=========== ============ =============
A reconciliation of the federal statutory tax rate to the required tax
rate based on income before income taxes is as follows:
<TABLE>
1994 1993 1992
Tax Pretax Tax Pretax Tax Pretax
Amount Income(%) Amount Income(%) Amount Income(%)
<S> <C> <C> <C> <C> <C> <C>
Federal Statutory Rate $ 643,964 34.00 $ 108,427 34.00 $ 349,797 34.00
Increase (Reduction) of
Taxes Resulting From:
Tax Exempt Interest (118,767) (18.44) (113,969) (35.74) (112,854) (10.97)
State Income Taxes Net
of Federal Income
Tax Benefit 114,180 17.73 20,564 6.45 27,119 2.64
Other 23,123 3.59 2,061 0.65 (2,803) (0.27)
----------- ------ ----------- ------ ---------- ------
TOTAL $ 662,500 36.88 $ 17,083 5.36 $ 261,259 25.40
=========== ====== =========== ====== ========== ======
</TABLE>
Income taxes on investment securities transactions amounted to
approximately $8,000 in 1994, $13,000 in 1993, and $14,000 in 1992.
In 1993, the method of accounting for deferred income taxes was
changed to comply with a change in generally accepted accounting
principles. Under the new method, deferred income tax assets and
liabilities are calculated based on their estimated effect on future
cash flows. The method generally differs from the former method because
sources of taxable income other than reversals of existing taxable
temporary differences are considered in the deferred tax calculations.
The calculations under the new method results in a net deferred tax
asset of $447,688 as of the end of 1994.
18
<PAGE>
As of the end of 1994 deferred tax assets and (liabilities) were
recognized for the taxable temporary differences related to loan loss
provisions, depreciation, Other Real Estate Owned losses, Accounting for
Postretirement Benefits Other than Pensions (SFAS 106), and Accounting
for Investment Securities (SFAS 115), as presented below:
<TABLE>
Other Real
Loan Estate
Loss Owned SFAS SFAS
Provision Depreciation Losses 106 115 Total
<S> <C> <C> <C> <C> <C> <C>
Balance Federal
Deferred Tax $ 212,811 $ (226,598) $ 258,431 $ 12,987 $ 78,913 $ 336,544
Balance New York State
Deferred Tax 38,386 (9,671) 60,806 3,055 18,568 111,144
---------- ------------ ---------- --------- --------- ----------
Total Deferred tax $ 251,197 $ (236,269) $ 319,237 $ 16,042 $ 97,481 $ 447,688
========== ============ ========== ========= ========= ==========
</TABLE>
NOTE H. TIME DEPOSITS IN EXCESS OF $100,000
At December 31, 1994 and 1993, time deposits in
principal amounts of $100,000 or more were approximately $3,934,020 and
$3,040,348 respectively. Interest expense on such deposits for the
three years ended December 31, 1994 was $113,101, $112,961 and $179,938,
respectively.
Certificates of Deposit due to major shareholders, directors and
their affiliates aggregated approximately $1,529,753 and $1,355,551 at
December 31, 1994 and 1993, respectively.
NOTE I. STOCKHOLDERS' EQUITY
The Banking Law of the State of New York and the
Federal Reserve Board regulate the amount of cash dividends that may be
paid without prior approval. Retained Earnings available for cash
dividends were $1,971,685 at December 31, 1994.
During 1993, the Bancorp sold 426 shares of treasury stock. During
1994, 16,566 shares were purchased from a director and 4,467 of these
shares were resold to the Bank's Employee Stock Ownership Plan.
NOTE J. SMITHTOWN BANCORP (PARENT COMPANY ONLY)
Smithtown Bancorp has one wholly-owned
subsidiary, Bank of Smithtown.
<TABLE>
BALANCE SHEETS
<CAPTION>
As of December 31,
1994 1993
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 139,643 $ 29,826
Investment in Bank of Smithtown 12,005,546 11,213,676
------------ ------------
TOTAL $ 12,145,189 $ 11,243,502
============ ============
LIABILITIES
Cash Dividends Payable $ 106,916 $ 0
Loan Payable - Bank of Smithtown 297,938 0
------------ ------------
TOTAL 404,854 0
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock - $5.00 Par Value:
500,000 Shares Authorized; 447,955 Issued;
427,666 Outstanding 2,239,775 2,239,775
Capital Surplus 7,859,463 7,859,463
Retained Earnings 2,225,685 1,430,914
Less: Treasury Stock (20,289 and 8,190 Shares at Cost at
December 31, 1994 and 1993, respectively) (584,588) (286,650)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 11,740,335 11,243,502
------------ ------------
TOTAL $ 12,145,189 $ 11,243,502
============ ============
</TABLE>
19
<PAGE>
<TABLE>
STATEMENTS OF INCOME AND RETAINED EARNINGS
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
INCOME
Dividends from:
Bank of Smithtown $ 439,765 $ 329,504 $ 329,327
Other Expenses (125) (125) (250)
------------ ----------- -----------
Net Income Before Equity in Undistributed
Earnings of Subsidiary 439,640 329,379 329,077
Equity in Undistributed Earnings of
Subsidiary 791,871 (27,683) 438,478
----------- ----------- -----------
NET INCOME 1,231,511 301,696 767,555
Retained Earnings, January 1 1,430,914 1,458,722 1,020,494
Dividends Declared (436,740) (329,504) (329,327)
----------- ----------- -----------
RETAINED EARNINGS, DECEMBER 31 $ 2,225,685 $ 1,430,914 $ 1,458,722
=========== =========== ===========
</TABLE>
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income Before Equity in Undistributed
Earnings of Subsidiary 439,640 329,379 329,077
CASH FLOW (USED)/PROVIDED BY
FINANCING ACTIVITIES:
Dividends Paid (329,823) (329,504) (768,312)
Purchase of Treasury Stock (407,938) 9,798 10,620
Sale of Treasury Stock 110,000 0 0
----------- ----------- -----------
CASH FLOW PROVIDED BY
INVESTING ACTIVITIES:
Loans, Net 297,938 0 0
----------- ----------- -----------
Net Increase (Decrease) in Cash 109,817 9,673 (428,615)
Cash Balance, Beginning 29,826 20,153 448,768
----------- ----------- -----------
Cash Balance, Ending $ 139,643 $ 29,826 $ 20,153
=========== =========== ===========
</TABLE>
NOTE K. COMMITMENTS AND CONTINGENT LIABILITIES
As of December 31, 1994, the minimum rental
commitments under non-cancelable operating leases for premises and
equipment with initial terms in excess of one year are as follows:
1995 $ 84,792
1996 69,850
1997 64,475
1998 45,350
1999 29,100
Subsequent to 1999 1,111,759
--------------
Total $ 1,405,326
==============
A number of leases include escalation provisions relating to real
estate taxes and expenses.
Rental expenses for all leases on premises and equipment amounted to
$394,283 in 1994, $425,794 in 1993, and $569,933 in 1992.
The Bank is required to maintain reserve balances with the Federal
Reserve Bank of New York for reserve and clearing purposes. The average
amount of these reserve balances for the year ended December 31, 1994
was $768,000.
NOTE L. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Bank's entire
holdings of a particular financial instrument. Fair value estimates are
based on many judgements. These estimates are subjective in nature and
involve uncertainties and matters of significant judgement and therefore
cannot be determined with precision. Changes in assumption could
significantly affect the estimates.
Fair value estimates are based on existing and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets and
liabilities that are not considered financial instruments include the
mortgage banking operation, deferred income taxes and premises and
equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in the
estimates.
20
<PAGE>
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," requires that the Bank
disclose estimated fair values for its financial instruments. Fair
value estimates, methods and assumptions are set forth below for the
Bank's financial instruments.
CASH AND SHORT-TERM INVESTMENTS
For cash, due from banks, federal funds sold and interest-bearing
deposits with other banks, the carrying amount is at cost which is a
reasonable estimate of fair value.
INVESTMENT SECURITIES
For securities held to maturity and available for sale, fair values
are based on quoted market prices.
LOANS AND MORTGAGE LOANS
The fair value of fixed rate loans is estimated by discounting the
future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings. For variable rate
loans, the carrying amount is a reasonable estimate of fair value.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable at the reporting date. This
is recorded at cost which approximates the fair value of fixed maturity
certificates of deposit which is estimated using the rates currently
offered for deposits of similar remaining maturities.
NOTE M. FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND
CONCENTRATIONS OF CREDIT RISK
The Bank is a party to financial instruments with off balance sheet risk in
the normal course of business to meet the financing needs of its customers.
The Bank uses the same credit policies in making these commitments 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 may have fixed expiration dates or other
termination clauses. At December 31, 1994 the Bank's total commitments
to extend credit were $5,833,659. There were four performance standby
letters of credit totalling $142,400 as of December 31, 1994. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained by the Bank upon extension of credit is
based on management's credit evaluation of the customer. Collateral
held varies but generally includes residential and income-producing
properties.
The total cash invested with three correspondent banks totalled
$373,591 and $2,846,837 at December 31, 1994 and 1993, respectively.
The current FDIC insurance limit is $100,000 per bank.
NOTE N. REGULATORY MATTERS
In January 1989, the Board of Governors of the
Federal Reserve Bank issued guidelines for the implementation of risk
based capital requirements by U.S. Banks and bank holding companies.
These guidelines have been revised along with minimum leverage ratios
also set by the Federal Reserve Bank. Stockholders' equity increased by
$362,216 or 3.22% in 1994, a result of increased retained earnings. The
Bank's capital remains extremely strong by all regulatory guidelines.
The following is a listing of the Bank's required and actual capital
ratios.
1994 Actual 1993 Actual Required
Tier I 12.20% 14.49% 4.00%
Tier II 1.25% 1.25% **
Total Risk-Based Capital 13.45% 15.78% 8.00%
Leverage Ratio 7.48% 7.31% 4.00%
**Tier II Capital is limited to maximum of 100% of Tier 1 Capital.
21
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
CONSOLIDATED AVERAGE BALANCE SHEET DATA
<CAPTION>
As of December 31,
(in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 6,451 $ 7,050 $ 6,915 $ 6,882 $ 7,283
Investment Securities:
Obligations of U.S. Government and
Agencies 22,387 37,327 40,469 36,777 47,571
Mortgage-Backed Securities 37,604 22,214 14,757 5,682 0
Obligations of State and Political
Subdivisions 6,180 5,990 6,121 3,943 150
Other Investment Securities 127 127 127 127 127
------------- ------------- ------------- ------------- -------------
Total Investment Securities 66,298 65,658 61,474 46,529 47,848
------------- ------------- ------------- ------------- -------------
Federal Funds Sold 2,962 5,479 6,294 12,425 10,439
Loans (Net of Unearned Discount) 71,448 67,675 68,727 74,992 73,289
Less: Allowance for Possible Loan
Losses 1,507 2,115 1,486 842 658
------------- ------------- ------------- ------------- -------------
Loans: Net 69,941 65,560 67,241 74,150 72,631
Bank Premises and Equipment 3,272 3,442 2,960 2,838 2,700
Other Assets
Other Real Estate Owned 4,902 7,595 5,607 230 0
Other 2,623 3,157 2,826 2,502 2,231
------------- ------------- ------------- ------------- -------------
TOTAL $ 156,449 $ 157,941 $ 153,317 $ 145,556 $ 143,132
============= ============= ============= ============= =============
LIABILITIES
Deposits:
Demand (Non-Interest Bearing) $ 34,872 $ 34,005 $ 32,557 $ 30,159 $ 31,300
Money Market 25,838 31,657 32,823 32,403 31,144
Savings (including NOW) 65,157 66,787 60,781 51,444 48,080
Time 15,796 14,134 15,805 19,659 20,676
------------- ------------- ------------- ------------- -------------
Total Deposits 141,663 146,583 141,966 133,665 131,200
Securities Sold Under Agreements to
Repurchase 2,465 0 0 0 0
Other Liabilities 708 149 202 559 483
------------- ------------- ------------- ------------- -------------
Total Liabilities 144,836 146,732 142,168 134,224 131,683
------------- ------------- ------------- ------------- -------------
STOCKHOLDERS' EQUITY
Common Stock - $5.00 Par Value 2,240 2,240 2,240 2,240 2,240
Capital Surplus 1,993 1,998 2,000 2,000 2,000
Unrealized Loss on Securities
Available for Sale (20) 0 0 0 0
Retained Earnings 7,695 7,271 7,217 7,406 7,257
------------- ------------- ------------- ------------- -------------
Total 11,908 11,509 11,457 11,646 11,497
Less: Treasury Stock 295 300 308 314 48
------------- ------------- ------------- ------------- -------------
Total Stockholders' Equity 11,613 11,209 11,149 11,332 11,449
------------- ------------- ------------- ------------- -------------
TOTAL $ 156,449 $ 157,941 $ 153,317 $ 145,556 $ 143,132
============= ============= ============= ============= =============
</TABLE>
22
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
CONSOLIDATED BALANCE SHEETS
<CAPTION>
As of December 31,
(in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 5,956 $ 5,701 $ 7,047 $ 6,607 $ 8,599
Investment Securities Held to Maturity:
Obligations of U.S. Government 3,020 28,159 39,245 34,446 40,978
Obligations of U.S. Government
Agencies 2,052 2,000 2,022 2,033 0
Mortgage-Backed Securities 34,761 34,835 14,910 13,856 0
Obligations of State and Political
Subdivisions 6,137 5,768 6,017 6,478 245
Other Securities 0 127 127 127 127
------------- ------------- ------------- ------------- -------------
Total 45,970 70,889 62,321 56,940 41,350
Investment Securities Available for Sale:
Obligations of U.S. Government 10,056 0 0 0 0
Obligations of U.S. Government
Agencies 898 0 0 0 0
Mortgage-Backed Securities 2,046 0 0 0 0
Obligations of State and Political
Subdivisions 0 0 0 0 0
Other Securities 127 0 0 0 0
------------- ------------- ------------- ------------- -------------
Total 13,127 0 0 0 0
Total Investment Securities 59,097 70,889 62,321 56,940 41,350
Federal Funds Sold 200 2,500 3,550 3,750 10,600
Loans 80,491 64,896 70,008 70,739 78,435
Less: Unearned Discount 707 944 1,560 1,969 2,446
Allowance for Possible Loan
Losses 1,362 1,501 2,050 1,497 860
------------- ------------- ------------- ------------- -------------
Loans, Net 78,422 62,451 66,398 67,273 75,129
Bank Premises and Equipment 3,167 3,310 3,573 2,815 2,795
Other Assets
Other Real Estate Owned 5,590 5,309 8,151 5,059 0
Other 4,520 3,560 2,887 2,934 2,386
------------- ------------- ------------- ------------- -------------
TOTAL $ 156,952 $ 153,720 $ 153,927 $ 145,378 $ 140,859
============= ============= ============= ============= =============
LIABILITIES
Deposits:
Demand (Non-Interest Bearing) $ 34,656 $ 35,312 $ 35,424 $ 31,332 $ 31,919
Money Market 22,654 25,369 30,314 29,387 28,660
Savings (including NOW) 63,069 66,997 62,886 55,787 48,607
Time 14,852 13,699 13,851 17,320 19,636
------------- ------------- ------------- ------------- -------------
Total Deposits 135,231 141,377 142,475 133,826 128,822
Dividend Payable 107 0 0 439 447
Securities Sold Under Agreements to
Repurchase 9,003 0 0 0 0
Other Liabilities 1,005 1,099 190 300 540
------------- ------------- ------------- ------------- -------------
Total Liabilities 145,346 142,476 142,665 134,565 129,809
------------- ------------- ------------- ------------- -------------
STOCKHOLDERS' EQUITY
Common Stock - $5.00 Par Value 2,240 2,240 2,240 2,240 2,240
Capital Surplus 1,993 1,993 1,998 2,000 2,000
Unrealized Loss on Securities
Available for Sale (135) 0 0 0 0
Retained Earnings 8,092 7,298 7,325 6,887 7,124
------------- ------------- ------------- ------------- -------------
Total 12,190 11,531 11,563 11,127 11,364
Less: Treasury Stock 584 287 301 314 314
------------- ------------- ------------- ------------- -------------
Total Stockholders' Equity 11,606 11,244 11,262 10,813 11,050
------------- ------------- ------------- ------------- -------------
TOTAL $ 156,952 $ 153,720 $ 153,927 $ 145,378 $ 140,859
============= ============= ============= ============= =============
</TABLE>
23
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
CONSOLIDATED INCOME STATEMENTS
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 6,690,095 $ 6,730,657 $ 7,430,991 $ 8,813,584 $ 8,767,567
Interest on Federal Funds Sold 117,440 167,520 230,199 695,826 850,800
Interest and Dividends on:
Obligations of U.S. Government 1,235,897 2,205,419 2,553,259 2,728,853 3,812,529
Obligations of U.S. Government
Agencies 177,332 166,526 170,047 100,396 54,442
Mortgage-Backed Securities 2,080,703 1,314,747 1,146,958 544,948 0
Obligations of States and
Political Subdivisions 369,338 355,572 362,718 236,865 9,346
Other Securities 7,632 7,632 7,632 7,632 7,632
------------- ------------ ------------ ------------ ------------
Total Interest Income 10,678,437 10,948,073 11,901,804 13,128,104 13,502,316
INTEREST EXPENSE
Money Market Accounts 584,242 738,928 1,133,467 1,686,587 1,951,812
Certificates of Deposit of
$100,000 and Over 113,101 112,961 179,938 274,704 381,275
Other 1,708,624 1,847,872 2,543,814 3,465,968 3,575,461
Interest on Securities Sold Under
Agreements to Repurchase 127,223 0 0 0 0
------------- ------------ ------------ ------------ ------------
Total Interest Expense 2,533,190 2,699,761 3,857,219 5,427,259 5,908,548
NET INTEREST INCOME 8,145,247 8,248,312 8,044,585 7,700,845 7,593,768
Provision for Possible Loan
Losses 120,000 1,364,329 1,096,000 1,134,268 327,000
------------- ------------ ------------ ------------ ------------
Net Interest Income After Provision
for Possible Loan Losses 8,025,247 6,883,983 6,948,585 6,566,577 7,266,768
OTHER NON-INTEREST INCOME
Trust Department Income 298,786 330,796 279,577 288,005 287,474
Service Charges on Deposit
Accounts 1,344,754 1,263,371 1,202,480 1,069,194 1,102,235
Other Income 433,731 441,934 359,996 251,018 241,792
Investment Security Gains 22,695 240,110 55,161 162,847 0
------------- ------------ ------------ ------------ ------------
Total Other Non-Interest
Income 2,099,966 2,276,211 1,897,214 1,771,064 1,631,501
OTHER OPERATING EXPENSES
Salaries 3,556,241 3,654,727 3,660,218 3,759,097 3,711,181
Pensions and Other Employee
Benefits 832,603 862,213 822,934 792,244 803,596
Net Occupancy Expense 905,538 848,704 834,375 781,043 744,086
Furniture and Equipment Expense 582,663 589,701 650,723 655,234 649,881
Other Expenses 2,354,157 2,886,070 1,848,735 1,612,793 1,374,926
------------- ------------ ------------ ------------ ------------
Total Other Operating
Expenses 8,231,202 8,841,415 7,816,985 7,600,411 7,283,670
------------- ------------ ------------ ------------ ------------
Income Before Income Taxes 1,894,011 318,779 1,028,814 737,230 1,614,599
Provision for Income Taxes 662,500 17,083 261,259 205,826 601,456
------------- ------------ ------------ ------------ ------------
Net Income $ 1,231,511 $ 301,696 $ 767,555 $ 531,404 $ 1,013,143
============= ============ ============ ============ ============
</TABLE>
24
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
SUPPLEMENTARY INFORMATION
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Income $ 2.80 $ 0.69 $ 1.75 $ 1.21 $ 2.31
Book Value 27.14 25.57 25.64 24.63 25.17
DIVIDENDS DECLARED
Cash Dividends per Share 1.00 0.75 0.75 1.75 1.75
Cash Dividends Declared $ 436,741 $ 329,504 $ 329,327 $ 768,224 $ 782,702
Dividend Payout Ratio(%) 35.46 109.22 99.90 144.56 77.25
YEAR-END DATA
Total Assets 156,951,687 153,720,337 153,926,652 145,378,347 140,858,772
Total Deposits 135,230,577 141,377,440 142,474,683 133,826,282 128,822,213
Total Stockholders'
Equity 11,605,718 11,243,502 11,261,512 10,812,664 11,049,484
Total Trust Assets 62,452,427 67,128,712 64,416,736 60,514,741 53,692,687
Number of Shares
Outstanding 427,666 439,765 439,339 438,985 438,985
SELECTED RATIOS % % % % %
Net Income to:
Total Income 9.64 2.28 5.56 3.56 6.69
Average Total Assets 0.79 0.19 0.50 0.36 0.71
Average Stockholders'
Equity 10.61 2.70 6.88 4.68 8.85
Average Stockholders'
Equity to Average Assets 7.44 7.08 7.27 7.78 8.00
</TABLE>
Because the common stock of Smithtown Bancorp is not actively
traded, management is not always aware of sale prices of stock traded
privately or through brokerage firm. The following prices are based on
estimates of such sales.
Cash
Dividend
By Quarter High Low Declared
1994
First Quarter $ 23.000 $ 23.000 $ 0.25
Second Quarter 23.000 23.000 0.25
Third Quarter 23.000 23.000 0.25
Fourth Quarter 24.625 24.000 0.25
-------------- -------------- ------------
Total $ 1.00
============
Cash
Dividend
By Quarter High Low Declared
1993
First Quarter $ 30.000 $ 30.000 $ 0.50
Second Quarter 30.000 30.000 0.25
Third Quarter 30.000 30.000 0.00
Fourth Quarter 23.000 21.500 0.00
-------------- -------------- ------------
Total $ 0.75
============
Cash
Dividend
By Quarter High Low Declared
1992
First Quarter $ 35.000 $ 35.000 $ 0.25
Second Quarter 35.000 35.000 0.25
Third Quarter 35.000 30.000 0.25
Fourth Quarter 35.000 30.000 0.00
-------------- -------------- ------------
Total $ 0.75
============
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY
Smithtown Bancorp is a one-bank holding company formed in 1984.
The majority of its income is derived from the operations of its sole
subsidiary - Bank of Smithtown. The Bank operates six full service
offices in Western Suffolk County, and offers a full line of consumer
and commercial products, including a Trust Department. The Bank's
investment portfolio consists of short-term U.S. Treasury Notes and
short to medium term fixed and adjustable rate Mortgage-Backed
Securities and Municipal Securities. The investment portfolio provides
one source of interest income to the Bank, and serves additionally as a
source of liquidity. The Bank's loan portfolio is the single greatest
contributor of interest income and consists of construction loans,
residential and commercial real estate loans, commercial and industrial
loans and various types of consumer loans including indirect automobile
loans. A significant portion of the portfolio is comprised of
adjustable rate products. Loan growth during 1994 was substantial as
can be seen from the Bank's balance sheet. Although average yield on
the loan portfolio declined slightly from 1993 to 1994, loan income
continues to be the driving force behind earnings. The Bank funds most
of its investment and loan activities through its deposits, which
consist of demand, savings, and money market accounts and certificates
of deposit. Bank of Smithtown as most other banking institutions, felt
the effects of disintermediation during 1994 and consequently saw a
decrease in total deposits. In order to fund the greatly increased loan
demand, the Bank entered into several short-term repurchase agreements
which remained on the books throughout the year. Alternative sources of
funding will be available to the Bank during 1995 if loan demand
continues to increase as anticipated. The Bank's overall cost of
funding remains very low by industry standards.
INTEREST INCOME
Interest income was $10,678,437 for 1994 and $10,948,073 and
$11,901,804 for 1993 and 1992. The decline is a result of lower rates
on interest-earning assets.
INTEREST EXPENSE
Interest expense for the year was $2,533,190 as compared to
$2,699,761 and $3,857,219 for the prior two years. The decline in 1994
is primarily due to decreased level of deposits.
NET INTEREST INCOME
Net interest income is the largest contributor to Bank earnings and
it declined from 1993 by $103,065 or 1.0%, following an additional
decline from 1992 to 1993 of $203,727 or .30%. Although market interest
rates began climbing during 1994, and the banking industry in general
experienced a tightening of margins, Bank of Smithtown's spread on
average total interest earning assets was 5.99%, a level well above our
peers. During 1993, this margin was 6.17%. Average rates on loans
decreased from 10.27% in 1993 to 9.57% in 1994. Average rates on
investment securities also declined from 6.45% to 6.13%. The average
rate earned on interest earning assets declined by 4.05% from 8.14% to
7.81%. Rates on interest bearing deposits decreased from 2.41% to 2.25%
during 1994. Inclusive of short-term repurchase agreements entered into
by the Bank during the year, the average rate paid on interest bearing
liabilities declined from 2.41% to 2.32%. As the rate environment
continues to rise, Bank of Smithtown's net interest margin will
naturally tighten, but due to the higher percentage of adjustable rate
products on the asset side of the balance sheet, the Bank's interest
rate sensitivity has become more controllable.
26
<PAGE>
The tables presented below show a comparative analysis of major
areas of interest income, interest expense and resulting changes in net
interest income. Variances in rate volume relationships have been
allocated to rate.
<TABLE>
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
<CAPTION>
1994 1993
(in thousands) Average Average Average Average
Tax Equivalent Basis Balance Interest Rate(%) Balance Interest Rate(%)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets:
Investment Securities:
Taxable $ 60,118 $ 3,502 5.83 $ 59,668 $ 3,694 6.19
Nontaxable 6,180 560 9.06 5,990 539 9.00
------------- ----------- ---- ---------- ---------- -----
Total Investment Securities 66,298 4,062 6.13 65,658 4,233 6.45
------------- ----------- ---- ---------- ---------- -----
Total Net Loans 69,941 6,690 9.57 65,560 6,731 10.27
Federal Funds Sold 2,962 117 3.95 5,479 167 3.05
------------- ----------- ---- ---------- ---------- -----
Total Interest-Earning Assets 139,201 10,869 7.81 136,697 11,131 8.14
Non-Interest-Earning Assets 17,248 0 0.00 21,244 0 0.00
------------- ----------- ---- ---------- ---------- -----
TOTAL ASSETS $ 156,449 $ 10,869 6.94 $ 157,941 $ 11,131 7.05
============= =========== ==== ========== ========== =====
LIABILITIES
Interest-Bearing Liabilities:
Savings Deposits (including
NOW) $ 65,157 $ 1,270 1.95 $ 66,787 $ 1,479 2.21
Money Market Accounts 25,838 584 2.26 31,657 739 2.33
Certificates of Deposit 15,796 552 3.50 13,421 482 3.59
------------- ----------- ---- ---------- ---------- -----
Total Interest-Bearing
Deposits 106,791 2,406 2.25 111,865 2,700 2.41
Securities Sold Under
Agreements to Repurchase 2,465 127 5.15 0 0 0.00
------------- ----------- ---- ---------- ---------- -----
Total Interest-Bearing
Liabilities 109,256 2,533 2.32 111,865 2,700 2.41
------------- ----------- ---- ---------- ---------- -----
Non-Interest Bearing
Liabilities:
Demand Deposits 34,872 0 0.00 34,005 0 0.00
Other 708 0 0.00 862 0 0.00
------------- ----------- ---- ---------- ---------- -----
TOTAL LIABILITIES 144,836 2,533 1.75 146,732 2,700 1.84
STOCKHOLDERS' EQUITY 11,613 0 0.00 11,209 0 0.00
------------- ----------- ---- ---------- ---------- -----
TOTAL $ 156,449 $ 2,533 1.62 $ 157,941 $ 2,700 1.71
============= =========== ==== ========== ========== ====
INTEREST MARGIN $ 8,336 $ 8,431
Interest Spread on:
Average Total Assets 5.32% 5.34%
Average Total Interest-
Earning Assets 5.99% 6.17%
</TABLE>
Note: Interest and average rates are presented on a fully taxable
equivalent basis. The effective tax rates used were 42% in 1994 and
1993. Nonperforming assets are included in the average balances.
27
<PAGE>
<TABLE>
RATE VOLUME RELATIONSHIPS OF INTEREST MARGIN ON EARNING ASSETS
<CAPTION>
1994/1993 1993/1992
INCREASE(DECREASE) DUE TO CHANGE IN
Net Net
(in thousands) Volume Rate Change Volume Rate Change
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Investment Securities:
Taxable $ 28 $ (220) $ (192) $ 302 $ (486) $ (184)
Nontaxable 17 4 21 (12) 1 (11)
---------- -------- -------- -------- --------- ---------
Total Investment Securities 45 (216) (171) 290 (485) (195)
Total Net Loans 450 (491) (41) (186) (514) (700)
Federal Funds Sold (77) 27 (50) (30) (33) (63)
---------- -------- -------- -------- --------- ---------
Total Interest-Earning Assets 418 (680) (262) 74 (1,032) (958)
---------- -------- -------- -------- --------- ---------
Interest Expense:
Savings Deposits (36) (173) (209) 201 (761) (560)
Money Market Accounts (136) (19) (155) (40) (354) (394)
Certificates of Deposits 85 (15) 70 (74) (129) (203)
---------- -------- -------- -------- --------- ---------
Total Interest-Bearing
Deposits (87) (207) (294) 87 (1,244) (1,157)
Securities Sold Under Agreements
To Repurchase 0 127 127 0 0 0
---------- -------- -------- -------- --------- ---------
Total Interest-Bearing
Liabilities (87) (80) (167) 87 (1,244) (1,157)
---------- -------- -------- -------- --------- ---------
Changes in Interest Margin $ 505 $ (600) $ (95) $ (13) $ 212 $ 199
========== ======== ======== ======== ========= =========
</TABLE>
OTHER OPERATING INCOME
The schedule below details items of non-interest income for the years
ended December 31, 1994, 1993 and 1992.
<TABLE>
1994 1993 1992
<S> <C> <C> <C>
OTHER OPERATING INCOME
Trust Department Income $ 298,786 $ 330,796 $ 279,577
Service Charges on Deposit Accounts 1,344,754 1,263,371 1,202,480
Other Income 433,731 441,934 359,996
Investment Security Gains 22,695 240,110 55,161
--------------- --------------- ---------------
$ 2,099,966 $ 2,276,211 $ 1,897,214
=============== =============== ===============
</TABLE>
The decline for 1994 in this category of income is primarily due
to a lower volume of investment security sales and respective gains.
During 1992 and 1993, the investment portfolio was significantly
restructured in order to better position the Bank for a rising rate
environment. During 1994 there was only a small amount of
restructure necessary, and therefore, diminished sales activity.
Service charge income continues to account for a majority of non-
interest income.
OTHER OPERATING EXPENSES
Detailed below are the components of Other Operating Expenses for
the years ended December 31, 1994, 1993 and 1992.
<TABLE>
1994 1993 1992
<S> <C> <C> <C>
OTHER OPERATING EXPENSES
Salaries $ 3,556,241 $ 3,654,727 $ 3,660,218
Pensions and Other Employee Benefits 832,603 862,213 822,934
Net Occupancy Expense 905,538 848,704 834,375
Furniture and Equipment Expense 582,663 589,701 650,723
Other Expenses 2,354,157 2,886,070 1,848,735
----------------- ----------------- -----------------
$ 8,231,202 $ 8,841,415 $ 7,816,985
================= ================= =================
</TABLE>
This category represents non-interest related expenses, and
declined by $610,213 or 6.90% from 1993 to 1994. Salary and benefit
expense continued to decline from 1993, a result of both a small staff
reduction as well as normal attrition. The major components of Other
Operating Expenses responsible for the significant decline in this
category, are those expenses related
28
<PAGE>
to nonperforming loans and Other Real Estate Owned. The Loss on Other
Real Estate Owned, an expense account used to provide for declining
values in Other Real Estate Owned properties, totalled $335,000 in 1994
as compared to $715,171 in 1993. The Valuation Reserve Account serves
as the cushion for sales of Other Real Estate Owned properties below
their carrying value. The level of this reserve is determined by
management's evaluation of these properties based on current appraisals.
At year end, through the $335,000 Loss on Other Real Estate Owned
expense account, the Valuation Reserve reached a level of $760,080.
Other legal expenses, real estate taxes and property maintenance costs
for nonperforming loans and Other Real Estate Owned properties totalled
$275,106 during 1994 and $537,751 in 1993. Another contributory expense
in the Other Operating Expenses category is FDIC insurance, the cost of
which declined in 1994 due to a greatly improved regulatory examination
rating. FDIC insurance rates for banks are based on a combination of
examination ratings and capital ratios, both of which are now considered
strong for the Bank. An additional source of expense during 1994 for
Bank of Smithtown is related to its re-entrance into the indirect
automobile loan program. A third party servicer provided back office
assistance to the Bank, thereby reducing need for additional staff and
proprietary computer hardware and software. This servicing organization
resulted in $132,659 of additional expense.
NET INCOME
Net income for 1994 was $1,231,511 or $2.80 per share compared to
$301,696 and $767,555 and $.69 and $1.75 per share for 1993 and 1992.
Net income increased by 308.2% from 1993 to 1994 and decreased by 60.7%
from 1992 to 1993. The high level of income attained in 1994 was due to
the aggressive position taken by management during 1993 to greatly
improve asset quality and to provide maximum coverage for future losses.
As a majority of nonperforming loans were charged- off last year, and
asset quality continued to improve this year, it was management's
decision to provide $120,000 as a Provision for Possible Loan Losses
during 1994 compared to $1,364,329 during 1993. The Valuation Reserve
for Other Real Estate Owned properties was also significantly increased
during 1993 as part of the asset quality "cleanup". At that time, all
properties were written down to fair value net of selling expenses.
During 1994, four of these properties were sold, with related losses
charged to the Valuation Reserve. $335,000 was added to this reserve
during 1994 as an additional cushion for any future losses on the sale
of these properties, as compared to $715,171 during 1993. All other
expenses related to nonperforming loans and Other Real Estate Owned
declined significantly during 1994, having a direct impact on increased
earnings. There were many other factors that contributed to the high
level of 1994 income. A further restructured investment portfolio now
comprised of $36,807,238 in higher yielding Mortgage-Backed Securities
was attained through the sale of U.S. Government Treasury Obligations
and repurchase of an adjustable rate Government National Mortgage
Association security. This transaction resulted in a gain of $22,695.
This adjustable rate security serves to better position the Bank for a
rising rate environment. Loan demand also increased significantly
during 1994, as witnessed by an additional $15,832,740 in loan volume.
Although the average yield on loans decreased by .70%, the increased
volume of high quality loans will continue to generate significant
interest income for the Bank. Two of the most significant indicators of
the overall strength of a bank are derived from its net income. The
first is the bank's return on average assets (ROAA) ratio which
indicates how efficiently the bank is employing its assets. For 1994
and 1993, Bank of Smithtown's ROAA was .79 and .19, respectively. The
second ratio is return on average equity (ROAE) which indicates the
degree of capital utilization. ROAE for 1994 and 1993 was 10.61 and
2.70. The large increase in both of these ratios is reflective of the
Bank's greatly improved performance.
INVESTMENT SECURITIES
Investments at December 31, 1994 totalled $59,096,798 as compared
to $70,889,039 at year end 1993. During 1994 funds available from
maturing investment securities were channeled into new loans, as loan
demand has been and continues to be very strong. The restructure of the
portfolio involving the sale of U.S. Government Obligations and purchase
of an adjustable rate Mortgage-Backed Security was effected in light of
rising interest rates. In spite of this restructure, as can be seen
from the percentage of Available for Sale Securities in proportion to
the total portfolio, it remains management's intent to hold most
securities to maturity. Various U.S. Government Obligations and
Mortgage-Backed Securities provide collateral for municipal deposits.
As a member of the Federal Reserve Bank, the Bank owns Federal
Reserve Bank stock with a book value of $127,200. This stock has no
maturity and has paid dividends at the rate of 6.0% for 1994 and 1993.
29
<PAGE>
The following schedule shows the book value of all Held to Maturity
Securities and fair value of Available for Sale Securities as detailed
in the Bank's balance sheet of December 31, 1994 and 1993.
SECURITIES HELD TO MATURITY 1994 1993
Obligations of U.S. Government $ 3,019,956 $ 28,158,418
Obligations of U.S. Government Agencies 2,051,544 2,000,046
Mortgage-Backed Securities 34,761,443 34,835,122
Obligations of State and Political Subdivisions 6,137,424 5,768,253
Other Securities 0 127,200
------------ -------------
Total $ 45,970,367 $ 70,889,039
============ =============
SECURITIES AVAILABLE FOR SALE 1994 1993
Obligations of U.S. Government $ 10,055,624 $ 0
Obligations of U.S. Government Agencies 897,812 0
Mortgage-Backed Securities 2,045,795 0
Obligations of State and Political Subdivisions 0 0
Other Securities 127,200 0
------------ -------------
Total $ 13,126,431 $ 0
============ =============
The tables below break down the investment securities by
portfolio, weighted average maturity, and weighted average yield as of
December 31, 1994 and 1993.
<TABLE>
WEIGHTED AVERAGE MATURITY
SECURITIES HELD TO MATURITY
<CAPTION>
1994 1993
<S> <C> <C>
Obligations of U.S. Government 2 yrs. 4 mos. 1 yr. 4 mos.
Obligations of U.S. Government Agencies 7 yrs. 0 mos. 6 yrs. 11 mos.
Mortgage-Backed Securities 11 yrs. 1 mos. 10 yrs. 7 mos.
Obligations of State and Political Subdivisions 3 yrs. 11 mos. 4 yrs. 3 mos.
Other Securities - -
--------------- ---------------
Total 9 yrs. 5 mos. 6 yrs. 3 mos.
--------------- ---------------
SECURITIES AVAILABLE FOR SALE 1994 1993
Obligations of U.S. Government 0 yrs. 11 mos. -
Obligations of U.S. Government Agencies 5 yrs. 7 mos. -
Mortgage-Backed Securities 10 yrs. 2 mos. -
Obligations of State and Political Subdivisions - -
Other Securities - -
--------------- ---------------
Total 2 yrs. 10 mos. -
--------------- ---------------
Total Investment Securities 7 yrs. 11 mos. 6 yrs. 3 mos.
=============== ===============
</TABLE>
30
<PAGE>
<TABLE>
WEIGHTED AVERAGE YIELD
<CAPTION> Weighted
Amortized Average
Securities Held to Maturity Cost Fair Value Yield (%)
<S> <C> <C> <C>
Obligations of U.S. Government:
Within 1 year $ 1,001,100 $ 1,001,100 7.63
After 1 year, but within 5 years 2,018,856 1,844,687 5.31
Obligations of U.S. Government Agencies:
After 5 years, but within 10 years 2,051,544 1,864,375 7.20
Mortgage-Backed Securities:
After 1 year, but within 5 years 12,876,365 11,831,292 5.85
After 5 years, but within 10 years 5,013,439 4,544,382 5.82
After 10 years 16,871,639 15,522,300 5.87
Obligations of State and Political Subdivisions:
Within 1 year 1,471,663 1,477,530 8.76
After 1 year, but within 5 years 3,160,475 3,245,308 9.81
After 5 years, but within 10 years 1,322,786 1,365,491 9.84
After 10 years 182,500 178,731 8.83
----------------- ----------------- -------
Total $ 45,970,367 $ 42,875,196 6.42
================= ================= =======
SECURITIES AVAILABLE FOR SALE
Obligations of U.S. Government:
Within 1 year 5,015,855 5,037,812 8.50
After 1 year, but within 5 years 5,070,210 5,017,812 7.90
Obligations of U.S. Government Agencies:
After 5 years, but within 10 years 1,000,000 897,812 5.96
Mortgage-Backed Securities:
After 1 year, but within 5 years 515,124 514,468 8.00
After 5 years, but within 10 years 177,370 176,000 8.50
After 10 years 1,452,769 1,355,327 7.13
----------------- ----------------- -------
Total $ 13,231,328 $ 12,999,231 7.89
================= ================= =======
</TABLE>
LOANS
The Bank's loan portfolio (net of unearned income) at December 31,
1994 and 1993 was $79,784,220 and $63,951,480, and represents 50.8% and
41.7% of total assets. The classification of the portfolio is as
follows:
<TABLE>
LOANS AS OF DECEMBER 31, 1994 AND 1993
<CAPTION>
CLASSIFICATION 1994 % 1993 %
<S> <C> <C> <C> <C>
Real Estate Loans, Construction $ 3,251,180 4.04 $ 1,770,510 2.73
Real Estate Loans, Other:
Commercial 29,829,012 37.06 26,207,899 40.38
Residential 15,868,020 19.71 19,245,096 29.65
Commercial and Industrial Loans 14,155,310 17.59 11,485,021 17.70
Loans to Individuals for Household,
Family and Other Personal Expenditures 17,307,349 21.50 6,104,378 9.41
All Other Loans (including Overdrafts) 80,383 .10 82,544 0.13
-------------- ------ ------------- ------
Total Loans $ 80,491,254 100.00 $ 64,895,448 100.00
============== ====== ============= ======
</TABLE>
The largest area of growth within the portfolio during 1994 was in
the consumer loan category. Within this classification, indirect
automobile loans increased in volume by $11,705,312 during the year. At
the end of 1993, the Bank made the decision to re-enter this market, and
has been very successful in its program. Average yield on the entire
automobile loan portfolio for 1994 was 7.19%. The majority of other
loans made by Bank of Smithtown are to residents located within the
Bank's primary lending area. Credit has been extended to a wide
spectrum of borrowers, including individuals, non-profit and religious
organizations and small and middle market businesses. Real estate loans
comprise a majority of the portfolio, although credit risk has been
reduced through low loan to value ratios, thorough credit
investigations, current appraisals and periodic review by a loan review
consultant.
31
<PAGE>
The following table shows the maturities of loans (excluding real
estate mortgages and installment loans) outstanding as of December 31,
1994. There are no amounts due after one year which are classified as
sensitive to changes in interest rates.
<TABLE>
After One
Within Year but After
One Within Five Five
(in thousands) Year Years Years Total
<S> <C> <C> <C> <C>
Commercial (and all other
loans including overdrafts) $ 14,236 $ 0 $ 0 $ 14,236
Real Estate - Construction 3,251 0 0 3,251
-------------- --------- --------- --------------
TOTAL $ 17,487 $ 0 $ 0 $ 17,487
============== ========= ========= ==============
</TABLE>
DEPOSITS
Average deposits for 1994 were $141,663,000 as compared to
$146,583,000 for 1993. As can be seen from the following schedule, the
decline was primarily in interest-bearing Money Market Accounts.
AVERAGE BALANCE
(in thousands) 1994 1993
Demand $ 34,872 $ 34,005
Money Market 25,838 31,657
Savings 65,157 66,787
Time 15,796 14,134
-------------- --------------
Total Deposits $ 141,663 $ 146,583
============== ==============
Balances on Certificates of Deposit increased from $13,699,089 to
$14,852,299 during 1994 with a 29.4% increase in Certificates of
Deposit over $100,000.
At December 31, 1994, the remaining maturities of the Bank's Certificates of
Deposit in amounts of $100,000 or greater were as follows:
December 31, 1994
(in thousands)
3 months or less $ 402
Over 3 through 6 months 996
Over 6 through 12 months 605
Over 12 months 1,931
-----------
Total $ 3,934
===========
SHORT-TERM BORROWINGS
Increased loan demand created the need for funding through additional
avenues other than Bank deposits. This need was addressed through the
use of Repurchase Agreements. Such agreements involve the sale of a
high grade investment security and simultaneous agreement by the Bank to
repurchase the security at a stated contract date, in most cases 30 to
60 days later, at a stated interest cost. These agreements at year end
totalled $9,003,500. The average balance of these borrowings throughout
the year was $2,465,000 with an average interest cost of 5.15%.
32
<PAGE>
LIQUIDITY AND RATE SENSITIVITY
Liquidity provides the source of funds for anticipated or
unanticipated deposit outflows and loan growth. The Bank's primary
sources of liquidity include deposits, repayments of loan principals,
maturities of investment securities, principal reductions on Mortgage-
Backed Securities, overnight federal funds sold and borrowings. The
primary factor effecting these sources of liquidity is the market rate
of interest, which can cause fluctuations in deposits as well as
prepayments on loans and mortgage-backed securities. The method by
which the Bank controls its liquidity and interest rate sensitivity is
through asset/liability management. The goal of asset/liability
management is the combination of maintaining adequate liquidity levels
and matching the maturity of assets and liabilities in a way that takes
advantage of the current and anticipated rate environment.
Asset/liability management is of great concern to management and is
reviewed on an ongoing basis. The addition of adjustable rate products
in the loan and investment portfolios is one method employed to reduce
interest rate risk. Laddered maturities of investment securities is
still another asset/liability management strategy for interest
sensitivity reduction. The President, Chief Financial Officer and Chief
Lending Officer serve on the Asset/Liability Management Committee. The
Committee uses the results of an income simulation model to review the
effects of a predetermined basis point rise and fall on the current and
future net interest income of the Bank. This model is prepared semi-
annually and leads to investment, loan and deposit strategies for
earnings maximization within acceptable risk levels.
The following table details the interest rate sensitivity of the
Bank at December 31, 1994.
<TABLE>
Over
Three Over One
Months Over Six Total Year
Three Through Months Sensitive Through Over
Months Six Through Within Five Five All
or Less Months One Year One Year Years Years Other(1) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Interest
Earning Assets $ 22,150 $ 3,245 $ 8,360 $ 33,755 $ 63,218 $ 41,473 $ 1,341 $ 139,787
Total Interest Bearing
Liabilities and
Demand Deposits (2) 19,560 11,852 18,519 49,931 76,638 0 17,328 143,897
Interest Sensitivity
Gap Per Period 2,590 (8,607) (10,159) (16,176) (13,420) 41,473 (15,987) (4,110)
Cumulative Interest
Sensitivity Gap 2,590 (6,017) (16,176) (16,176) (29,596) 11,877 (4,110) (4,110)
Percent of Cumulative
Gap to Total Assets 1.66% -3.85% -10.34% -10.34% -18.92% 7.59% -2.63% -2.63%
</TABLE>
(1) Includes interest-earning assets and interest-bearing liabilities that do
not reprice as well as $1,213,868 in non-accrual loans.
(2) NOW and Money Market Accounts assumed to decline over a 2 year period.
Savings Accounts assumed to decline over a 5 year period. Demand Deposits are
spread based on historical experience.
STOCKHOLDERS' EQUITY
Shown below are the components of Stockholders' Equity as of
December 31, 1994 and 1993.
<TABLE>
STOCKHOLDERS' EQUITY
<CAPTION>
For the Year Ended December 31,
1994 1993
<S> <C> <C>
Common Stock - $5.00 Par Value $ 2,239,775 $ 2,239,775
500,000 shares authorized
447,955 issued
427,666 outstanding
Capital Surplus 1,993,118 1,993,118
Unrealized Loss on Securities Available for Sale (134,616) 0
Retained Earnings 8,092,029 7,297,259
------------ ------------
Total 12,190,306 11,530,152
Less: Treasury Stock (20,289 and 8,190 Shares at Cost
at December 31, 1994 and 1993, respectively) 584,588 286,650
------------ ------------
Total Stockholders' Equity $ 11,605,718 $ 11,243,502
============ ============
</TABLE>
Stockholders' Equity increased by $362,216, a 3.22% increase from
year end 1993. As a result of SFAS 115, a new component of
Stockholders' Equity was added during 1994. The Unrealized Gain/(Loss)
on Securities Available for Sale Account represents the difference
between amortized cost and fair value of securities held in the
Available for Sale portfolio, net of any deferred taxes.
33
<PAGE>
The increase in retained earnings for 1994 was the result of
$1,231,511 of net income and $436,741 of dividends declared. During the
course of the year, the Bancorp entered into a loan agreement for
$407,938 with Bank of Smithtown. The proceeds of the loan were used to
purchase stock from a director of the Bancorp whose loans were in
nonaccrual status. These nonaccrual loans were later transferred to
Other Real Estate Owned. The Company also adopted a new benefit plan
for its employees; an Employee Stock Ownership Plan. The Bank's
contribution for 1994 to the ESOP was $110,000, which was then paid to
the Bancorp for the purchase of 4,467 shares of stock for the Plan. The
Bancorp used the $110,000 payment for the stock as a principal reduction
on its loan. The number of shares of Treasury Stock that the Bank had
outstanding at year end 1994 was 20,289, a result of the repurchase of
16,566 shares from the director and the resale of 4,467 shares to the
ESOP.
Capital ratios are regarded as one of the most important
indicator's of a banking institution's strength. There are two capital
ratios that are most significant; leverage ratio and total risk based
capital ratio. Leverage ratio at year end 1994 was 7.48% compared to
7.31% at year end 1993. The required minimum leverage ratio for Bank of
Smithtown is 4.00%. Total risk based capital ratio at year end 1994 was
13.45% compared to 15.14% at year end 1993. The minimum required ratio
is 8.00%. By all guidelines, the Bank's capital position is considered
strong.
ANALYSIS OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Allowance for Possible Loan Loss Account at year end 1994 was
$1,362,404 as compared to $1,500,829 at year end 1993. The change in
the Allowance Account is the result of net charge-offs totalling
$258,425 and a Provision for Possible Loan Losses of $120,000. The
Allowance Account represents 1.69% and 2.31% of total loans and 103.89%
and 78.41% of nonperforming loans at year end 1994 and 1993. This
greatly increased loan coverage ratio, as well as management's
evaluation of recognizable credit risk and currently unidentifiable risk
have allowed for a reduction in the level of the Allowance for Possible
Loan Losses Account this year.
The following tables describe the activity in the Allowance Account
for the years ended December 31, 1994 and 1993.
<TABLE>
ANALYSIS OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<CAPTION>
Year Ended December 31,
(in thousands) 1994 1993
<S> <C> <C>
Allowance for Possible Loan Losses at Beginning of
Period $ 1,501 $ 2,050
------------- -------------
Loans Charged-Off:
Commercial 71 532
Real Estate 161 1,171
Consumer 66 224
------------- -------------
Total Loans Charged-Off 298 1,927
------------- -------------
Recoveries on Amounts Previously Charged-Off:
Commercial 16 1
Real Estate 7 0
Consumer 16 13
------------- -------------
Total Recoveries 39 14
------------- -------------
Net Charge-Offs 259 1,913
Current Year's Provision for Possible Loan Losses 120 1,364
Reserve for Possible Loan Losses at End of Period $ 1,362 $ 1,501
Total Loans:
Average (Net of Unearned Discount and Allowance
for Possible Loan Loss) $ 69,941 $ 67,660
------------- -------------
End of Period (Net of Unearned Discount) 79,784 63,951
============= =============
Ratios: % %
Net Loans Charged-Off to:
Average Loans .37 2.83
Loans at End of Period .32 2.99
Allowance for Possible Loan Losses 18.97 127.45
Provision for Possible Loan Losses 215.00 140.24
Last Year's Charge-Off to This Year's Recovery 4,941.03 3,878.57
Allowance for Possible Loan Losses at Year End To:
Average Loans (Net of Unearned Discount) 1.95 2.22
End of Period Loans (Net of Unearned Discount) 1.71 2.35
</TABLE>
34
<PAGE>
The following table shows the Bank's non-accrual and contractually
past due loans:
<TABLE>
At December 31,
(in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Accruing Loans Past Due 90
Days or More $ 97 $ 418 $ 1,257 $ 2,284 $ 963
Non-Accrual Loans 1,214 1,496 2,842 614 871
---------- ----------- ------------- ------------- -----------
Total $ 1,311 $ 1,914 $ 4,099 $ 2,898 $ 1,834
========== =========== ============= ============= ===========
For 1994 and 1993 the difference between interest income on non-
accrual loans and income that would have been recognized at original
contractual rates and terms is approximately $25,591 and $137,574.
The composition of Other Real Estate Owned at December 31, 1994 is as follows:
Commercial $ 1,453,357
Commercial Land 3,331,564
Single Family 804,868
-----------------
$ 5,589,789
=================
The value of Other Real Estate Owned shown above is net of the
Valuation Reserve.
35
<PAGE>
CORPORATE DIRECTORY
SMITHTOWN BANCORP AND
BANK OF SMITHTOWN
DIRECTORS
Bradley E. Rock, Chairman
H.M. Brush
Patrick A. Given
James H. Glamore
Edith Hodgkinson
Augusta Kemper
Attmore Robinson, Jr.
Charles E. Rockwell
Barry M. Seigerman
DIRECTOR EMERITUS
Maude H. Bach
SMITHTOWN BANCORP
OFFICERS
Bradley E. Rock
Chairman, President
& Chief Executive Officer
Anita M. Florek
Executive Vice President
& Treasurer
Judith Barber
Secretary
INDEPENDENT AUDITORS
Albrecht, Viggiano,
Zureck & Company, P.C.
GENERAL COUNSEL
Patricia C. Delaney, Esq.
BANK OF SMITHTOWN
OFFICERS
Bradley E. Rock
Chairman, President
& Chief Executive Officer
Anita M. Florek
Executive Vice President
& Chief Financial Officer
Marc DeSimone
Executive Vice President
& Chief Lending Officer
Rosanna Dill
Vice President & Trust Officer
Thomas J. Stevens
Vice President, Commercial Loans
Sally Ann LaMay
Vice President, Consumer Loans
Ellen Metzger
Vice President, Marketing
& Training
VICE PRESIDENTS
Patricia Guidi
Rose Madonna
Virginia Papp
Raffaela Romanelli
Deanna Varricchio
Robert Williams
Elizabeth Woreth
Colette Masom, Comptroller
John Van Putten, Ass't. Vice
President,
Data Processing
Elizabeth Santini, Ass't. Trust
Officer
Michelle Scalzo, Ass't. Auditor
Judith Barber, Cashier
MANAGERS
Carol Ann Brennan
Ann Elliot
Carmella Impellizzeri
Constance Lynch
Lisa McCulloch
Carol Schofield
ASSISTANT MANAGERS
Michelle Arocho
Ann Marie Bove
Nancy Bradley
Phyllis Kaiserman
Glenn Kata
Eustacia O'Leary
Jeanne Quortrop
Joyce Saunders
Sylvia Scheick
Ardene Signorelli
BANK OF SMITHTOWN
HEADQUARTER'S OFFICE
SMITHTOWN, NY 11787-2801
One East Main Street
(516) 360-9300
CENTEREACH, NY 11720-3501
1919 Middle Country Road
(516) 585-6644
COMMACK, NY 11725-3097
2020 Jericho Turnpike
(516) 543-7400
HAUPPAUGE, NY 11788-4346
548 Route 111
(516) 265-7922
KINGS PARK, NY 11754-3811
14 Park Drive
(516) 269-4900
LAKE GROVE, NY 11755-2107
2921 Middle Country Road
(516) 588-0700
ANNUAL MEETING
The Annual Meeting of Stockholders of Smithtown Bancorp will be held on
Tuesday, April 4, 1995, at 10:30 AM, at the Bavarian Inn, 422 Smithtown
Boulevard, Lake Ronkonkoma, New York.
REGISTRAR AND TRANSFER AGENT
Bank of Smithtown
One East Main Street
Smithtown, New York 11787-2801
10-KSB REPORT
The annual report to the Securities and Exchange Commission, Form 10-KSB, will
be made available upon request by contacting:
JUDITH BARBER, Secretary
Smithtown Bancorp
One East Main Street, Smithtown, New York 11787-2801
Member Federal Reserve System and Federal Deposit Insurance Corporation
<PAGE>
SMITHTOWN BANCORP, INC.
ONE EAST MAIN STREET
SMITHTOWN, NEW YORK 11787-2801
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held
TUESDAY, APRIL 4, 1995
The Annual Meeting of Stockholders of Smithtown Bancorp, Inc., will be
held at the Bavarian Inn, 422 Smithtown Boulevard, Lake Ronkonkoma, New York,
on April 4, 1995, at 10:30 AM, for the following purposes:
1. The election of three directors to serve a term of three years.
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Pursuant to a resolution of the Board of Directors, only stockholders of
record at the close of business on February 3, 1995, shall be entitled to
notice of and to vote at this meeting.
Dated: March 3, 1995
Smithtown, New York
BY ORDER OF THE BOARD OF DIRECTORS
BRADLEY E. ROCK
Chairman of the Board, President
& Chief Executive Officer
<PAGE>
</TABLE>
SMITHTOWN BANCORP, INC.
ONE EAST MAIN STREET
SMITHTOWN, NEW YORK 11787-2801
PROXY STATEMENT
GENERAL PROXY INFORMATION
This Proxy Statement is furnished in connection with THE SOLICITATION BY
AND ON BEHALF OF THE BOARD OF DIRECTORS OF SMITHTOWN BANCORP, INC., (the
"Bancorp") of proxies to be used at the Annual Meeting of Stockholders of the
Bancorp to be held at the Bavarian Inn, 422 Smithtown Boulevard, Lake
Ronkonkoma, New York, on April 4, 1995, and at any adjournment thereof. The
costs of the proxy solicitation are to be paid by the Bancorp. Bank of
Smithtown is a wholly-owned subsidiary of the Bancorp.
AUTHORIZED SHARES AND VOTING RIGHTS
Holders of common stock of record as of the close of business on February
3, 1995, will be entitled to vote at the meeting. Each stockholder is entitled
to one vote for each share of stock held by him or her. There were 432,539
shares of common stock of the Bancorp outstanding on the record date.
REVOCABILITY OF PROXY
If the accompanying form of Proxy is executed and returned, it
nevertheless may be revoked by the stockholder at any time before it is
exercised. But if it is not revoked, the shares represented thereby will be
voted by the persons designated in each such Proxy.
FINANCIAL STATEMENTS
A copy of the Bancorp's Annual Report to Stockholders, including
financial statements for the fiscal year ended December 31, 1994, has
heretofore been mailed to the stockholders.
MATTERS TO BE VOTED ON AT THE MEETING
The only matter scheduled to be voted on at the Annual Meeting is the
election of directors. It is intended that shares of stock represented by the
accompanying Proxy form will be voted for the election of such nominees listed
in Table I unless a contrary direction is indicated. In the event that any of
such nominees should become unavailable for any reason, which the directors do
not now contemplate, it is intended that, pursuant to the accompanying form of
Proxy, votes will be cast for a substitute nominee designated by the Board of
Directors.
DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL SHAREHOLDERS
ELECTION OF DIRECTORS
The Certificate of Incorporation of the Bancorp provides that the Board
of Directors shall consist of 9 members and that the directors shall be
classified into three classes, each of which shall serve for a term of three
years, with the term of office of one class expiring each year.
NOMINEES FOR ELECTION OF DIRECTORS
All nominees who are presently serving as directors were elected to their
present term of office by the shareholders. The following directors whose
terms are expiring this year, are proposed for re-election for terms expiring
in 1998: H. Melville Brush, Patrick A. Given and Edith Hodgkinson.
<PAGE>
<TABLE>
TABLE I
<CAPTION>
SHARES OF
DATE STOCK
DIRECTORSHIP EXPERIENCE AND BENEFICIALLY
TERM DIRECTOR PRINCIPAL OCCUPATION HELD (2)
NAME AND AGE EXPIRES SINCE (1) DURING PAST 5 YEARS # %
NOMINEES
<S> <C> <C> <C> <C> <C>
H. Melville Brush, 86 1995 1960 President of Island 7,749 1.81
Asphalt Co., Inc.
(asphalt sales and
construction),
until retirement in 1979.
Patrick A. Given, 50 1995 1989 Real Estate Appraiser 2,100 .49
and Consultant -
Given Associates.
Edith Hodgkinson, 72 1995 1979 Restaurateur, active 28,203 6.59
in community non-profit
organizations.
DIRECTORS CONTINUING
IN OFFICE
James H. Glamore, 75 1996 1979 President, Glamore 4,755 1.11
Motor Sales, Inc.
(automobile sales).
Barry Seigerman, 54 1996 1993 Chairman & Chief Executive 383 .08
Officer Seigerman-Mulvey,
Co., Inc. Insurance Brokers.
Active in business and
community non-profit
organizations.
Augusta Kemper, 72 1996 1992 Horticulturist and Owner 24,933 5.83
of Kemper Nurseries until
retirement in 1985.
Attmore Robinson, Jr., 83 1997 1948 Partner, Elzon & Robinson, 9,763 2.28
Real Estate Brokers,
until retirement in 1993.
Bradley E. Rock, 42 1997 1988 Chairman of the Board, 1,725 .40
President & Chief Executive
Officer, January 1992
to Present. President,
Bank of Smithtown, October
1990 to January 1992.
Special Assistant to the
President, 1988 to 1990.
Partner of Schechter
Schechter Kenney & Rock,
Attorneys at Law,
1981 to 1992.
Charles E. Rockwell, 78 1997 1984 Retired in 1976. Formerly 4,018 .93
a commercial airline
captain. Active in
community non-profit
organizations.
</TABLE>
(1) Each director of the Bancorp is also a director of Bank of Smithtown.
The dates given are the dates on which the director first served as a
director of Bank of Smithtown.
(2) These figures include shares of stock owned by family members of
directors as to which the directors disclaim any interest. Mrs.
Hodgkinson's shares include shares held by Bank of Smithtown as Trustee
under the Last Will and Testament of Carlyle Hodgkinson. These figures
are current as of December 31, 1994.
<PAGE>
BOARD OF DIRECTORS
The Board of Directors holds regular monthly meetings. The
Board held twelve regular meetings and one special meeting during 1994. Each
incumbent director, with the exception of H. Melville Brush, attended 75% or
more of the aggregate number of meetings of the Board of Directors and the
committee thereof on which such director served during 1994. Mr. Brush's
absence was excused due to an illness.
COMMITTEES OF THE BOARD
The Board has established a number of committees to assist it in the
discharge of its responsibilities.
The Examining Committee or "Audit" Committee, consisting of eight
directors, met twice in 1994. The committee reviews results of regulatory
examinations, internal audits and audits of the independent auditor in
conformance with regulations of the New York State Banking Department and the
laws of the State of New York. Current members of this committee are H.
Melville Brush, James H. Glamore, Edith Hodgkinson, Augusta Kemper,
Attmore Robinson, Jr., Charles E. Rockwell, Patrick Given and Barry M.
Seigerman.
The Salary Review Committee or "Compensation" Committee, consisting of
four members, met twice during 1994. This committee makes recommendations to
the Board of Directors with respect to the salaries of elected officers.
Current members of this committee are H. Melville Brush, Edith Hodgkinson,
Attmore Robinson, Jr. and Charles E. Rockwell.
The Board does not have a standing nominating committee.
DIRECTOR COMPENSATION
Directors of the Bank of Smithtown received a fee of $500 per month
during 1994. The members of the Loan Committee who are not officers also
received a monthly fee of $300 for committee membership. The total amount of
directors' fees paid during 1994 was $70,300.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The persons listed below are beneficial owners of more than 5% of the
outstanding stock of the Bancorp as of December 31, 1994.
<TABLE>
NAME AND ADDRESS SHARES PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
--------------------------------------------------------------------------
<S> <C> <C>
Elizabeth Radau 30,296 7.08%
43 Edgewood Avenue
Smithtown, New York 11787-2723
Edith Hodgkinson 28,203 6.59%
P.O. Box 756
Bayport, New York 11705-0756
Augusta Kemper 24,933 5.83%
51 Mills Pond Road
St. James, New York 11780-2111
</TABLE>
<PAGE>
The following table shows stock ownership as of December 31, 1994, of all
directors and officers of the Bancorp as a group:
<TABLE>
TABLE II
<CAPTION>
AMOUNT OF BENEFICIAL PERCENTAGE
OWNERSHIPS (NOTE 1) OF OWNERSHIP
------------------------------------------------------------------
<S> <C> <C>
Twelve directors and officers
of the Bancorp as a group 83,654 19.56%
</TABLE>
Note 1
Includes shares of stock owned by spouses and children of directors as to
which the directors disclaim any interest.
MATERIAL PROCEEDINGS
There are no material proceedings to the best of management's knowledge to
which any director, officer or affiliate of the Bancorp or any owner of record
or beneficially of more than five percent of the Bancorp's stock, or any
associate of any such director, officer, affiliate of the Bancorp, or security
holder is a party adverse to the Bancorp or any of its subsidiaries or has a
material interest adverse to the Bancorp.
EXECUTIVE OFFICERS
The following table sets forth information as to each executive officer
of the Bancorp who is also an executive officer of Bank of Smithtown as of
January, 1995.
<TABLE>
TABLE III
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Bradley E. Rock 42 Chairman of the Board, President &
Chief Executive Officer. President
October 1990 - January 1992.
Special Assistant to the President
1988 - 1990. Director since 1988.
</TABLE>
<PAGE>
EXECUTIVE COMPENSATION
The table appearing below sets forth all compensation paid in 1994 to each
executive officer whose total compensation exceeded $100,000 for such year.
All remuneration was paid by Bank of Smithtown.
<TABLE>
TABLE IV
SUMMARY COMPENSATION TABLE
<CAPTION>
NAME AND PRINCIPAL ALL OTHER ANNUAL
POSITION YEAR ANNUAL SALARY ($) COMPENSATION ($)(1)(2)
------------------------------------------------------------------------
<S> <C> <C> <C>
Bradley E. Rock 1993 $168,000.00 $16,763.40
Chairman, President & CEO 1994 $176,337.01 $14,353.05
</TABLE>
(1) This amount includes director's fees. It also includes employer match
paid in connection with the Bank's 401(k) plan, amounts accrued during
1994 under the Bank's defined contribution plan and premiums paid on
behalf of Mr. Rock for a group term life insurance policy.
(2) Amounts reported do not include any amount expended by the Bank which may
have had value as incidental benefits to such individuals, but were made
by the Bank in connection with its business. While the specific amounts
of such incidental benefits cannot be precisely determined, after due
inquiry, management does not believe that such value would exceed $5,000
for any individual.
CERTAIN TRANSACTIONS
Some of the directors and officers of the Bancorp, and some of the
corporations and firms with which these individuals are associated, are also
customers of Bank of Smithtown in the ordinary course of business, or are
indebted to the Bank in respect of loans of $60,000.00 or more. It is
anticipated that some of these individuals, corporations and firms will
continue to be customers of and indebted to the Bank on a similar basis in the
future. All loans extended to such individuals, corporations and firms were
made in the ordinary course of business, did not involve more than the normal
risk of collectability or present other unfavorable features, and were made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the same time for comparable Bank transactions with
unaffiliated persons.
No director of the Bank or the Bancorp had an aggregate amount of
unsecured indebtedness to the Bank in excess of 15 percent of the Bank's equity
capital account during the period of January 1, 1994, through December 31,
1994.
In 1994, Edith Hodgkinson, a director of the Bank, sold 16,566 shares of
stock to Smithtown Bancorp and used the proceeds of the sale to repay loans
that were in nonaccrual status. $309,677 from the sale of the stock was used
to decrease the principal and $98,261 was used to pay interest on these loans.
She also deeded two properties to the Bank which were placed in Other Real
Estate Owned.
Outside of normal customer relationships, none of the directors or
officers of the Bank or the Bancorp, or the corporations or firms with which
such individuals are associated, currently maintains or has maintained within
the last fiscal year any significant business or personal relationship with the
Bank or the Bancorp other than such as arises by virtue of such individual's or
entity's position with or ownership interest in the Bank or the Bancorp.
<PAGE>
PENSION PLAN
During 1994 the Bank of Smithtown amended its defined contribution plan to
become an Employee Stock Ownership Plan. Both the ESOP and the 401(k) plans
cover full-time employees who have attained the age of 21 years and who have
completed 1,000 hours of employment during the year they are eligible to
participate in the plan.
Benefits under the ESOP are based solely on the amount contributed to the
ESOP which is used to purchase Smithtown Bancorp stock. A participant's al
location is the total employer contribution times the ratio of that
participant's applicable compensation over the amount of such compensation for
all participants for that year. Benefits are not subject to deduction of
social security or other offset amounts.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANT
Albrecht, Viggiano, Zureck & Co., P.C., Certified Public Accountants, were
the independent auditors for the Bank and the Bancorp for the year ended
December 31, 1994.
Representatives of Albrecht, Viggiano, Zureck, & Co., P.C., are expected
to be present at the Annual Meeting and will have an opportunity to make a
statement if they desire to do so. Their representatives are expected to be
available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Stockholder proposals to be presented at the 1996 Annual Meeting must be
received by the Secretary of the Board of Directors by October 4, 1995, to be
included in the proxy statement.
OTHER BUSINESS
So far as the Board of Directors of the Bancorp now knows, no business
other than that referred to above will be transacted at the Annual Meeting.
The persons named in the Board of Directors' Proxies may, in the absence of
instructions to the contrary, vote upon all matters presented for action at the
Meeting according to their best judgment.
Dated: March 3, 1995
SMITHTOWN BANCORP, INC.
BRADLEY E. ROCK
Chairman of the Board, President
& Chief Executive Officer
<PAGE>
Additional Information Set Forth in Response to Item 10:
The Bank has an agreement with Mr. Rock (the "Executive") which would
become effective in the event of a change in control of the Bank's stock.
The agreement provides, in essence, that the Executive would continue to
be employed for a period of five years from the date of the change in
control in a position with duties and authority commensurate with the
duties being performed and the authority being exercised by the Executive
immediately prior to the change in control. It provides that his
compensation and benefits would be commensurate with those of other
executives in similar positions at the Bank or in similar positions with the
organization which has acquired control of the Bank. In any event, the
Executive's compensation and benefits would not be less than they were
immediately prior to the change in control.
The agreement further provides that if the Executive's employment were
terminated by the Bank subsequent to a change in control, for any reason
other than cause, disability or death, the Executive would continue to
receive the same compensation and benefits he would have received had he
remained employed for a period of five years. It also provides that at any
time within one year after the change in control, if the Executive elects to
terminate his employment with the Bank for any reason, he will receive a
lump sum severance allowance equivalent to three years' compensation and
benefits at the same rate as payable to the Executive immediately prior to
the change in control.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,298,785
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,126,431
<INVESTMENTS-CARRYING> 45,970,367
<INVESTMENTS-MARKET> 10,031,259
<LOANS> 80,491,254
<ALLOWANCE> 1,362,404
<TOTAL-ASSETS> 156,951,687
<DEPOSITS> 135,230,577
<SHORT-TERM> 9,003,500
<LIABILITIES-OTHER> 1,111,892
<LONG-TERM> 0
<COMMON> 2,239,775
0
0
<OTHER-SE> 9,365,943
<TOTAL-LIABILITIES-AND-EQUITY> 156,951,687
<INTEREST-LOAN> 6,690,095
<INTEREST-INVEST> 3,988,342
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,678,437
<INTEREST-DEPOSIT> 2,405,967
<INTEREST-EXPENSE> 2,533,190
<INTEREST-INCOME-NET> 8,145,247
<LOAN-LOSSES> 120,000
<SECURITIES-GAINS> 22,695
<EXPENSE-OTHER> 8,231,202
<INCOME-PRETAX> 1,894,011
<INCOME-PRE-EXTRAORDINARY> 1,231,511
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,231,511
<EPS-PRIMARY> 2.80
<EPS-DILUTED> 2.80
<YIELD-ACTUAL> 7.81
<LOANS-NON> 1,214,000
<LOANS-PAST> 97,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,500,829
<CHARGE-OFFS> 297,383
<RECOVERIES> 38,958
<ALLOWANCE-CLOSE> 1,362,404
<ALLOWANCE-DOMESTIC> 1,362,404
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 629,495
</TABLE>
