No. of pages within this report 62
As filed with the Securities and Exchange Commission on March 29, 1996
Securities and Exchange Commission
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 1995 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 1996
$5.00 Par Value 433,268
The aggregate market value of the Registrant's common stock held by
nonaffiliates was approximately $13,864,576 based on the price at which stock
was sold on 15 March 1996.
DOCUMENTS INCORPORATED BY REFERENCE
1) Portions of the Annual Report for the fiscal year ended 31 December
1995 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 2 April 1996 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 1995, 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
Northport Office
836 Fort Salonga Road
Northport, New York 11768
The Bank owns properties that it 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 21 and 27 of the Registrant's Annual Report for the year ended 31 December
1995 is incorporated herein by reference.
Item 202: Description of Securities or Plan of Operation
695 shareholders of common stock at 15 March 1996.
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 37 through 45, inclusive, of the Registrant's Annual Report for the year
ended 31 December 1995 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 36, inclusive, of the Registrant's Annual Report for the year
ended 31 December 1995 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 51, pages 56 through 59, and page 62, of
the Registrant's Proxy Statement dated 1 March 1996, 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).
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 57, 58 and 62 of the Registrant's Proxy Statement dated 1 March 1996
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 56 of the Registrant's Proxy Statement, dated 1 March 1996 are
incorporated herein by reference.
Item 404: Certain Relationships and Related Transactions
Page 58 of the Registrant's Proxy Statement dated 1 March 1996
and page 27 of the Registrant's Annual Report for the year ended 31
December 1996 are incorporated herein by reference.
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 1995 8 - 47
23 Notice of Annual Meeting and
Proxy Statement 48 - 62
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 48-62
24 Consent of Independent Auditors 7
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.
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: Smithtown Bancorp, Inc.
Registrant
by/s/ -----------------------------------
Bradley E. Rock, President, Chief Executive
Officer and Chairman of the Board
by/s/ -----------------------------------
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, President, Chief Executive Date
Officer and Chairman of the Board
by/s/ -----------------------------------
Augusta Kemper, Director Date
by/s/ -----------------------------------
H.M. Brush, Director Date
by/s/ -----------------------------------
Patrick A. Given, Director Date
by/s/ -----------------------------------
James H. Glamore, Director Date
by/s/ -----------------------------------
Edith Hodgkinson, Director Date
by/s/ -----------------------------------
Barry M. Seigerman, Director Date
by/s/ -----------------------------------
Attmore Robinson, Director Date
by/s/ -----------------------------------
Charles E. Rockwell, Director Date
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, 1996, included in the 1995 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 25, 1996
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, 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 85th year of
operation as an independent commercial bank. The Bank operates seven offices
in the following communities: Smithtown, Commack, Hauppauge, Kings Park,
Centereach, Lake Grove, and Northport.
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.
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 Sheet Data 24
Consolidated Balance Sheets 25
Consolidated Income Statements 26
Per Share Data and Supplementary Information 27
Management's Disussion and Analysis of Financial Condition
and Results of Operations 28
Banking Locations Inside Back Cover
Corporate Directory Inside Back Cover
Financial Highlights
1995 1994 1993
At Year End
Assets $157,528,274 $156,951,687 $153,720,337
Loans 95,984,044 78,421,816 62,450,651
Deposits 143,581,497 135,230,577 141,377,440
Stockholders' Equity 12,837,073 11,605,718 11,243,502
For the Year
Interest Income $ 11,352,368 $ 10,678,437 $ 10,948,073
Net Interest Income 7,987,473 8,145,247 8,248,312
Other Non-Interest
Income 2,164,410 2,099,966 2,276,211
Other Operating
Expense 7,721,712 8,231,202 8,841,415
Net Income 1,471,381 1,231,511 301,696
Per Share
Net Income $ 3.40 $ 2.80 $ 0.69
Cash Dividends
Declared 1.12 1.00 0.75
Stockholders' Equity 29.63 27.14 25.57
MESSAGE FROM THE CHAIRMAN OF THE BOARD
By almost all measures of performance, 1995 was the best year ever for Bank
of Smithtown in its 86-year history.
The Bank posted record earnings of $1,471,381. One of the primary reasons we
achieved these results was that we continued to rebuild the loan portfolio.
For the second year in a row, we grew the portfolio by more than 20%, with
year-end loans finishing at $98,069,261. At the same time, we managed to
maintain a net interest margin of 5.89%, a figure which ranks with the highest
among our peers.
Earnings per share and the market value of our stock moved correspondingly
higher. We earned $3.40 per share and our stock finished the year trading at
a price of $32.00. Return on average equity was 11.98% and return on average
assets finished at 0.94%. Both of these ratios remain below those of our
highest performing peers, but are nonetheless the most positive results
achieved by Bank of Smithtown in many years, and begin to approach the high
standards we have set for ourselves for the future.
While we continue to improve management of our asset quality difficulties
which arose from the last regional recession, those difficulties are not yet
entirely behind us. OREO remains higher than for our peers, and nonperforming
loans increased due to the addition of one large secured loan made more than
six years ago. The downside to these lingering asset quality problems is that
they will continue to be somewhat of a drag on earnings during 1996. What
bodes well for the future, on the other hand, is that we have already made such
substantial improvements in earnings despite these lingering problems, by
selling only a few large properties (several of which are presently under
contract) we could move ahead again dramatically in this area. Loss reserves
against both loans and OREO remain adequate, and our capital ratios remain
strong with a leverage ratio of 8.15% and a risk-based capital ratio of 12.89%
at year-end.
Noninterest expense was another area of improvement during 1995 and will be a
principal focus of our work in 1996. Salary dollars were reduced for the
fourth consecutive year. Total noninterest expense was reduced by more than
$500,000, in addition to last year's reduction of more than $600,000. In spite
of these significant improvements, however, our noninterest expense and
efficiency ratios remain too high and provide opportunities for further
improvement. Therefore, the board of directors and the management team
decided during the fourth quarter of last year to embark upon a major bankwide
reengineering effort in 1996. We will reevaluate and redesign all of our work
processes in order to improve customer service, increase efficiency and reduce
costs. The work is already well underway, and the Bank's staff is enthusiastic
about the project.
The magnitude of the reengineering project being undertaken by us in 1996 will
involve a substantial expenditure of our resources in time, effort and money.
We have no doubt, however, that this effort represents a major investment in
the future of our company. Though our "bottom line" results may be impeded
some during the reengineering effort, we are confident that before year is
through we will begin to feel the substantial benefits of improved effciency.
We believe that our recent past efforts have produced concrete, positive
results and we intend to continue to devote ourselves to maximizing
shareholder value. We appreciate your support, and look forward to an even
brighter future for Bank of Smithtown.
by /s/ Bradley E. Rock
Chairman of the Board, President & Chief Executive Officer
Quality customer service involves the willingness and ability to listen to the
specific needs of your customers. We make sure we understand our customers'
needs and we strive to fit our products and services to what they want. Our
customer service people also consider it an integral part of their jobs to
help our customers with any of their financial problems or difficulties
regardless of how much the particular difficulty may effect Bank of
Smithtown. It is not unusual, for example, for one of our customer service
people to contact another financial institution on behalf of one of our
customers to help rectify a problem or an error at another bank.
From loans to small businesses to investment advice from our Trust Department
to routine daily teller transactions, we get to know our customers in order
to provide them with a level of personal service that larger institutions
cannot provide. For those customers who choose to maintain all of their
banking relationships with us, we have special packages that save them money
as another way of saying "thanks" for their business.
While the huge banks centered in major metropolitan areas continue to merge
with each other and form even larger, more cumbersome institutions, there
will nonetheless always be a place for community-oriented banks. Not only
was 1995 a record year for Bank of Smithtown's performance, but it also marked
the opening of our seventh branch. The Northport community, where this newest
branch is located, is an ideal environment for a community-minded bank such as
ours.
One of the most important reasons for our success is our people. The people
who work for Bank of Smithtown live in the community. We care about our
customers. We care about whether local businesses survive. We care about the
local schools, churches and fire departments. We have to care. We are all
neighbors.
To the Board of Directors
and Stockholders of
Smithtown Bancorp
We have audited the accompanying consolidated balance sheets of Smithtown
Bancorp as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of Smithtown
Bancorp's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Smithtown Bancorp at December 31, 1995 and 1994, and the consolidated results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note A to the consolidated financial statements, Smithtown
Bancorp changed its methods of accounting for impaired loans in 1995 and for
certain investments in debt securities in 1994.
by /s/ Albrecht, Viggiano, Zureck & Company, P.C.
Hauppauge, New York
January 19, 1996
Consolidated Balance Sheets
Smithtown Bancorp
As of December 31,
1995 1994
Assets
Cash and Due from Banks $ 7,003,234 $ 5,955,650
Investment Securities: (Note B)
Investment Securities Held to Maturity:
Obligations of U.S. Government 2,013,739 3,019,956
Obligations of U.S. Government
Agencies 0 2,051,544
Mortgage-Backed Securities 10,226,753 34,761,443
Obligations of State and Political
Subdivisions 4,647,865 6,137,424
------------ -----------
Total (Fair Value $16,975,739 in 1995
and $42,875,195 in 1994) 16,888,357 45,970,367
------------ -----------
Investmexnt Securities
Available for Sale:
Obligations of U.S. Government 3,008,900 10,055,624
Obligations of U.S. Government
Agencies 3,015,900 897,812
Mortgage-Backed Securities 13,155,534 2,045,795
Other Securities 599,000 127,200
------------ -----------
Total (At Fair Value) 19,779,334 13,126,431
------------ -----------
Total Investment Securities 36,667,691 59,096,798
------------ -----------
Federal Funds Sold 6,750,000 200,000
------------ -----------
Loans (Note C) 98,069,261 80,491,254
Less: Unearned Discount 655,323 707,034
Allowance for Possible
Loan Losses (Note D) 1,429,894 1,362,404
------------ -----------
Loans, Net 95,984,044 78,421,816
------------ -----------
Bank Premises and Equipment (Note E) 3,173,036 3,167,149
------------ -----------
Other Assets
Other Real Estate Owned (Note C) 5,046,544 5,589,789
Other 2,903,725 4,520,485
------------ -----------
Total Other Assets 7,950,269 10,110,274
------------ -----------
Total $157,528,274 $156,951,687
============ ============
Liabilities
Deposits:
Demand (Non-Interest Bearing) $ 35,944,658 $ 34,655,348
NOW 13,341,511 13,837,170
Money Market 23,376,214 22,654,018
Savings 46,314,234 49,231,742
Time (Note H) 24,604,880 14,852,299
------------ -----------
Total Deposits 143,581,497 135,230,577
------------ -----------
Dividend Payable 121,315 106,917
Securities Sold Under
Agreements to Repurchase 0 9,003,500
Other Liabilities 988,389 1,004,975
------------ -----------
Total Liabilities 144,691,201 145,345,969
------------ -----------
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 1,993,574 1,993,118
Unrealized Loss on Securities
Available for Sale (28,157) (134,616)
Retained Earnings (Note I) 9,078,520 8,092,029
------------ -----------
Total 13,283,712 12,190,306
Less: Treasury Stock (14,687
and 20,289 Shares at Cost at
December 31, 1995
and 1994, respectively) 446,639 584,588
Total Stockholders' Equity 12,837,073 11,605,718
------------ -----------
Total $157,528,274 $156,951,687
============ ============
See notes to consolidated financial statements
Consolidated Income Statements
Smithtown Bancorp
Year Ended December 31,
1995 1994 1993
Interest Income
Interest and Fees on Loans $ 8,278,027 $ 6,690,095 $ 6,730,657
Interest on Federal Funds Sold 221,857 117,440 167,520
Interest and Dividends on
Investment Securities:
Taxable:
Obligations of U.S.
Government 431,259 1,235,897 2,205,419
Obligations of U.S.
Government Agencies 178,689 177,332 166,526
Mortgage-Backed
Securities 1,901,977 2,080,703 1,314,747
Other Securities 22,385 7,632 7,632
------------ ------------ ------------
Total 2,534,310 3,501,564 3,694,324
Exempt from Federal Income
Taxes:
Obligations of
States and Political
Subdivisions 318,174 369,338 355,572
------------ ------------ ------------
Total Interest Income 11,352,368 10,678,437 10,948,073
------------ ------------ ------------
Interest Expense
Money Market Accounts 716,465 584,242 738,928
Savings 1,387,282 1,269,785 1,479,055
Certificates of Deposit of
$100,000 and Over (Note H) 210,891 113,101 112,961
Other Time Deposits 928,796 438,839 368,817
Interest on Securities Sold Under
Agreements to Repurchase 106,511 127,223 0
Interest on Other Borrowed Money 14,950 0 0
------------ ------------ ------------
Total Interest Expense 3,364,895 2,533,190 2,699,761
------------ ------------ ------------
Net Interest Income 7,987,473 8,145,247 8,248,312
Provision for Possible
Loan Losses (Note D) 110,000 120,000 1,364,329
------------ ------------ ------------
Net Interest Income After
Provision for Possible
Loan Losses 7,877,473 8,025,247 6,883,983
------------ ------------ ------------
Other Non-Interest Income
Trust Department Income 401,811 298,786 330,796
Service Charges on
Deposit Accounts 1,278,668 1,344,754 1,263,371
Other Income 482,538 433,731 441,934
Investment Security Gains 1,393 22,695 240,110
------------ ------------ ------------
Total Other Non-Interest Income 2,164,410 2,099,966 2,276,211
------------ ------------ ------------
Other Operating Expenses
Salaries 3,470,680 3,556,241 3,654,727
Pensions and Other
Employee Benefits (Note F) 761,577 832,603 862,213
Net Occupancy Expense of
Bank Premises 944,571 905,538 848,704
Furniture and Equipment Expense 622,775 582,663 589,701
Other Expenses 1,922,109 2,354,157 2,886,070
------------ ------------ ------------
Total Other Operating Expenses 7,721,712 8,231,202 8,841,415
------------ ------------ ------------
Income Before Income Taxes 2,320,171 1,894,011 318,779
Provision for Income
Taxes (Note G) 848,790 662,500 17,083
------------ ------------ -----------
Net Income $ 1,471,381 $ 1,231,511 $ 301,696
============ ============ ============
Earnings Per Share
Net Income $ 3.40 $ 2.80 $ 0.69
Weighted Average Shares
Outstanding 432,929 439,400 439,365
See notes to consolidated financial statements
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
Smithtown Bancorp
<S> <C> <C> <C> <C> <C> <C> <C>
Net
Common Stock Unrealized
------------------------- Cost of (Loss) Gain on
Common Securities Total
Shares Capital Retained Stock in Available Stockholders'
Outstanding Amount Surplus Earnings Treasury for Sale Equity
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
Net Income 1,471,381 1,471,381
Cash Dividends Declared (484,890) (484,890)
Treasury Stock Sales 5,602 456 137,949 138,405
Unrealized Gain on Securities
Available for Sale 106,459 106,459
---------- ----------- ---------- ---------- --------- ----------- -------------
Balance at December 31, 1995 433,268 $2,239,775 $1,993,574 $9,078,520 $(446,639) $(28,157) $12,837,073
========= =========== ========== ========== ========== ============= ============
<FN>
Cash dividends declared per share were $1.12 in 1995, $1.00 in 1994, and
$0.75 in 1993.
See notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
Smithtown Bancorp
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C>
1995 1994 1993
Cash Flows from Operating Activities
Net Income $ 1,471,381 $ 1,231,511 $ 301,696
Adjustments to reconcile net income to
net cash provided by operating activities:
Valuation Reserve for Other Real Estate Owned 100,000 335,000 715,171
Depreciation on Premises and Equipment 455,199 408,082 401,211
Provision for Possible Loan Losses 110,000 120,000 1,364,329
Net Gain on Sales of Investment Securities (1,393) (22,695) (240,110)
Amortization of Transition Obligation 74,200 74,200 22,153
Increase (Decrease) in Interest Payable 81,546 27,426 (17,219)
Increase (Decrease) in Miscellaneous Payables
and Accrued Expenses (96,232) 23,342 63,797
(Increase) Decrease in Fees and
Commissions Receivable (22,137) 34,595 35,565
Decrease in Interest Receivable 182,437 133,445 263,863
(Increase) Decrease in Prepaid Expenses 160,135 (404,119) (16,213)
(Increase) Decrease in Miscellaneous Receivables 927,357 (107,308) (2,092)
(Increase) Decrease in Income Taxes Receivable 213,595 (54,905) (151,922)
(Increase) Decrease in Deferred Taxes 28,738 (56,376) 68,494
Decrease in Accumulated Postretirement
Benefit Obligation (44,301) (58,157) 0
Amortization of Investment Security Premiums
and Accretion of Discounts 38,790 347,694 49,772
------------- ------------- ------------
Cash Provided by Operating Activities 3,679,315 2,031,735 2,858,495
------------- ------------- ------------
Cash Flows from Investing Activities
Proceeds from Maturities of
Investment Securities Held to Maturity 6,507,835 18,881,792 31,692,492
Proceeds from Sales of Investment
Securities Available for Sale 17,562,125 4,939,590 0
Purchases of Investment Securities
Held to Maturity 0 (12,306,707) (40,101,344)
Purchases of Investment Securities
Available for Sale (1,476,956) 0 0
Net Increase (Decrease) in
Federal Funds Sold (6,550,000) 2,300,000 1,050,000
Net Increase (Decrease) in Loans (17,734,860) (18,176,533) 2,276,498
Purchases of Premises and Equipment (461,086) (265,156) (137,904)
Proceeds from Sale of Other Real Estate Owned 505,877 621,314 2,432,720
------------- ------------- ------------
Cash Used by Investing Activities (1,647,065) (4,005,700) (2,787,538)
------------- ------------- ------------
Cash Flows from Financing Activities
Net Decrease in Demand Deposits,
NOW Accounts and Savings Accounts (1,401,661) (7,300,072) (944,925)
Net Increase (Decrease) in Time Deposits 9,752,581 1,153,210 (152,318)
Cash Dividends Paid (470,491) (329,824) (329,504)
Net Increase (Decrease) in Securities
Sold Under Agreements to Repurchase (9,003,500) 9,003,500 0
Purchase of Treasury Stock 0 (407,938) 0
Proceeds from Sale of Treasury Stock 138,405 110,000 9,798
------------- ------------- ------------
Cash Provided (Used) by Financing Activities (984,666) 2,228,876 (1,416,949)
------------- ------------- ------------
Net Increase (Decrease) in Cash and Due from Banks 1,047,584 254,911 (1,345,992)
Cash and Due from Banks, Beginning of Year 5,955,650 5,700,739 7,046,731
------------- ------------- ------------
Cash and Due from Banks, End of Year $ 7,003,234 $ 5,955,650 $ 5,700,739
============= ============== ============
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest $ 136,012 $ 112,672 $ 0
Income Taxes 774,542 773,781 122,773
Non-cash Investing Activities
Loans Transferred to Other Real Estate Owned $ 87,099 $ 1,235,368 $ 1,477,738
<FN>
See notes to consolidated financial statements.
</TABLE>
Notes to Consolidated Financial Statements
Note A. Summary of Significant Accounting Policies
- -------------------------------------------------------------------------------
The accounting and reporting policies of Smithtown Bancorp (the "Bancorp") and
its subsidiary, Bank of Smithtown (the "Bank") reflect banking industry
practices and conform to generally accepted accounting principles. A summary
of the significant accounting policies followed by the Bancorp in the
preparation of the accompanying consolidated financial statements is set
forth below.
Basis of Consolidation
The consolidated financial statements include the accounts of Smithtown
Bancorp, and its wholly-owned subsidiary, Bank of Smithtown. All material
intercompany transactions have been eliminated.
Nature of Operations
Smithtown Bancorp operates under a state bank charter and provides full banking
services, including trust services. As a state bank, the Bank is subject to
regulation of the State of New York Banking Department and the Federal Reserve
Board. The area served by Smithtown Bancorp is the north central region of
Suffolk County, New York, and services are provided at seven branch offices.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 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 - Bonds, notes, debentures, and certain equity
securities not classified as trading securities nor as securities to be held
to maturity are carried at fair value.
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 are determined using the specific-
identification method.
Loans
Effective January 1, 1995, Bank of Smithtown adopted Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of
a Loan." SFAS 114 applies only to impaired loans, with the exception of groups
of smaller-balance homogeneous loans that are collectively evaluated for
impairment (generally consumer loans). A loan is defined as impaired by SFAS
114 if, based on current information and events, it is probable that a creditor
will be unable to collect all amounts due, both interest and principal,
according to the contractual terms of the loan agreement. Specifically, SFAS
114 requires that a portion of the overall reserve for possible credit losses
related to impaired loans be determined based on the present value of expected
cash flows discounted at the loan's effective interest rate or, as a practical
expedient, the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. Prior to the adoption of SFAS
114, Bank of Smithtown's methodology for determining the adequacy of the
reserve for possible credit losses did not incorporate the concept of the time
value of money and expected future interest cash flows. In addition, SFAS 114
modifies the accounting for insubstance foreclosures (ISF). A collateralized
loan is now considered an ISF and reclassified to Other Assets only when a
creditor has taken physical possession of the collateral regardless of whether
formal foreclosure proceedings have taken place.
Effective January 1, 1995, Bank of Smithtown also adopted SFAS 118, "Accounting
by Creditors forImpairment of a Loan - Income Recognition and Disclosure,"
which amends SFAS 114 to permit a creditor to use existing methods for
recognizing interest revenue on impaired loans. Generally, interest revenue
received on impaired loans continues either to be applied by Bank of Smithtown
against principal or to be realized as interest revenue, according to
Management's judgment as to the collectibility of principal.
Loans are recorded at the principal amount outstanding net of unearned discount
and the reserve for loan losses. Unearned discounts are generally amortized
over the term of the loan using the interest method. 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.
Loan-related fees and costs are recognized as income when received in
accordance with generally accepted accounting principles.
Allowance for Possible Loan Losses
The allowance for possible loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance for
possible loan losses when management believes the collectibility of the
principal is unlikely. The allowance for possible loan losses is based on
management's evaluation of the loan portfolio. Management believes that the
allowance for possible loan losses is adequate. While management uses
available information, including appraisals, to estimate potential losses
on loans, further additions to the allowance 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.
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 todepreciation, 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.
Retirement Benefits
In December 1990, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 106 (SFAS 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 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 expensed 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:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
Securities Held to Maturity:
December 31, 1995
Obligations of
U.S. Government $ 2,013,739 $ 0 $ (14,439) $ 1,999,300
Mortgage-Backed
Securities 10,226,753 8,472 (135,270) 10,099,955
Obligations of State
and Political Sub-
divisions 4,647,865 232,627 (4,008) 4,876,484
----------- ----------- ------------ -----------
Total $16,888,357 $ 241,099 $ (153,717) $16,975,739
=========== =========== ============ ===========
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
----------- ----------- ------------ -----------
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 Sub-
divisions 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
=========== =========== ============ ===========
Securities Available for Sale:
December 31, 1995
Obligations of U.S.
Government $ 3,008,013 $ 1,780 $ (893) $ 3,008,900
Obligations of U.S.
Government Agencies 3,026,634 0 (10,734) 3,015,900
Mortgage-Backed
Securities 13,194,235 23,286 (61,987) 13,155,534
Other Securities 599,000 0 0 599,000
----------- ----------- ------------ -----------
Total $19,827,882 $ 25,066 $ (73,614) $19,779,334
=========== =========== ============ ===========
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
=========== =========== ============ ===========
At December 31, 1993 there were no Investment Securities classified as
Available for Sale.
The following table presents the amortized cost and fair values of investments
in debt securities by scheduled maturity at respective year-ends.
1995 1994
--------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
Type and maturity grouping
Securities Held to Maturity:
Obligations of U.S.
Government
Within 1 year $ 0 $ 0 $ 1,001,100 $ 1,001,100
After 1 year,
but within 5 years 2,013,739 1,999,300 2,018,856 1,844,687
------------- ---------- ------------ -----------
Total Obligations of
U.S. Government $ 2,013,739 $1,999,300 $ 3,019,956 $ 2,845,787
============ ========== ============= ===========
Obligations of U.S.
Government Agencies
After 5 years,
but within 10 years $ 0 $ 0 $ 2,051,544 $ 1,864,375
------------- ---------- ------------ -----------
Total Obligations U.S.
Government Agencies $ 0 $ 0 $ 2,051,544 $ 1,864,375
============ ========== ============= ===========
Mortgage-Backed Securities
After 1 year,
but within 5 years $ 4,219,423 $4,171,205 $ 12,876,365 $11,831,293
After 5 years, but
within 10 years 1,985,791 1,951,600 5,013,439 4,544,382
After 10 years 4,021,539 3,977,150 16,871,639 15,522,299
------------- ---------- ------------ -----------
Total Mortgage-Backed
Securities $10,226,753 $10,099,955 $34,761,443 $31,897,974
============ ========== ============= ===========
Obligations of State
and Political Subdivisions
Within 1 year $ 352,072 $ 354,317 $ 1,471,663 $ 1,477,530
After 1 year, but
within 5 years 2,939,504 3,073,746 3,160,475 3,245,308
After 5 years, but
within 10 years 1,219,539 1,312,194 1,322,786 1,365,491
After 10 years 136,750 136,227 182,500 178,730
------------- ---------- ------------ -----------
Total Obligations of State
and Political Subdivisions $ 4,647,865 $4,876,484 $ 6,137,424 $ 6,267,059
============ ========== ============= ===========
Securities Available for Sale:
Obligations of U.S. Government
Within 1 year $ 3,008,013 $3,008,900 $ 5,015,855 $ 5,037,812
After 1 year, but
within 5 years 0 0 5,070,210 5,017,812
------------- ---------- ------------ -----------
Total Obligations of U.S.
Government $ 3,008,013 $3,008,900 $ 10,086,065 $10,055,624
============ ========== ============= ===========
Obligations of U.S.
Government Agencies
After 1 year, but
within 5 years $ 1,000,000 $ 989,900 $ 0 $ 0
After 5 years, but
within 10 years 2,026,634 2,026,000 1,000,000 897,812
------------- ---------- ------------ -----------
Total Obligations U.S.
Government Agencies $ 3,026,634 $3,015,900 $ 1,000,000 $ 897,812
============ ========== ============= ===========
Mortgage-Backed Securities
After 1 year, but
within 5 years $ 8,852,209 $8,794,617 $ 515,123 $ 514,468
After 5 years, but
within 10 years 0 0 177,370 176,000
After 10 years 4,342,026 4,360,917 1,452,770 1,355,327
------------- ---------- ------------ -----------
Total Mortgage-Backed
Securities $13,194,235 $13,155,534 $ 2,145,263 $ 2,045,795
============ ========== ============= ===========
Mortgage-Backed Securities are classified in the above schedule by their
contractual maturity. Actual maturities can be expected to differ from
scheduled maturities due to prepayment or early call privileges of the issuer.
Gross unrealized gains for the above investments amounted to $266,165 and
$180,147 in 1995 and 1994, respectively, while gross unrealized losses amounted
to $227,331 and $3,507,416 in 1995 and 1994, respectively.
Obligations of the U.S. Government and Mortgage-Backed Securities having an
amortized cost of $9,463,878 and a fair value of $9,449,577 were pledged to
secure public deposits. No municipality maintains deposits exceeding ten
percent of stockholders' equity.
Gross realized gains (losses) on sales of Investment Securities Available for
Sale in 1995 and 1994 were:
1995 1994
U.S. Government and Agency Securities $ 33,508 $22,695
Mortgage-Backed Securities (32,115) 0
Effective November 15, 1995, the Financial Accounting Standards Board permitted
a one-time opportunity for banks to reassess the appropriateness of the
designation of all securities held. Any resulting reclassifications had to be
made no later than December 31, 1995. In accordance with this one time
reclassification consistent with SFAS 115, Bank of Smithtown transferred
securities from the Held to Maturity portfolio to the Available for Sale
portfolio in order to increase its liquidity position. The amortized cost,
related net unrealized loss, and fair value of these transferred securities
were $22,537,536, $206,705, and $22,330,831, respectively.
As a member of the Federal Reserve Bank of New York, the Bank owns Federal
Reserve Bank stock with a book value of $127,200. The stock has no maturity
and has paid dividends at the rate of 6.0% for 1995 and 1994. During 1995, the
Bank became a member of the Federal Home Loan Bank of New York, and now holds
$471,800 of its stock. This stock also has no maturity and has paid average
dividends of 6.0% during second, third and fourth quarters of 1995. Stock of
both the Federal Reserve Bank and the Federal Home Loan Bank are restricted.
Note C. Loans
- -------------------------------------------------------------------------------
Loans as of December 31, consisted of the following:
1995 1994
Real Estate Loans, Construction $ 7,669,120 $ 3,251,180
Real Estate Loans, Other
Commercial 38,986,443 29,829,012
Residential 16,270,758 15,868,020
Commercial and Industrial Loans 19,074,380 14,155,310
Loans to Individuals for Household,
Family and Other Personal Expenditures 15,993,856 17,307,349
All Other Loans (Including Overdrafts) 74,704 80,383
------------ ------------
Total Loans, Gross 98,069,261 80,491,254
Less: Unearned Discount on Loans 655,323 707,034
------------ ------------
Total Loans (Net of Unearned Discount) $97,413,938 $79,784,220
============ ============
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, 1995 totalled $102,607,934.
Bank of Smithtown adopted SFAS 114 and SFAS 118 effective January 1, 1995.
This did not have any impact on Bank of Smithtown's results of operations nor
on its financial position, including the level of reserve for possible loan
losses. All loans considered impaired under SFAS 115 are included in the
Bank's 90-day or more past-due or non-accrual categories. At December 31,
1995, the recorded investment in loans that are considered impaired under SFAS
114 was $2,843,211. No SFAS 114 reserve is required for the $2,843,211 of
recorded investment in impaired loans, since previously taken charge-offs have
reduced the recorded investment values to amounts that are less than the SFAS
114 calculated values. The average recorded investment in impaired loans
during the twelve months ended December 31, 1995 was $1,835,658.
Recognition of interest income on impaired loans, as for all other loans, is
discontinued when reasonable doubt exists as to the full collectibility of
principal or interest. For the twelve months ended December 31, 1995, Bank of
Smithtown recognized no interest revenue on these impaired loans. Any cash
receipts would first be applied to accrued interest on impaired loans, and
then to the principal balance outstanding.
At December 31, 1995 and 1994, loans with unpaid principal balances of
$2,849,175 and $1,213,868, respectively, on which the Bank is no longer
accruing interest income, are included in the total loans listed above. The
Bank expects to recover a portion of the principal balance included in the
nonaccrual category at December 31, 1995 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 $177,261 in 1995 and $25,591 in 1994. Loans
contractually past-due 90 days or more and still accruing interest amounted
to $90,391 and $97,177 in 1995 and 1994, respectively.
During 1995, $87,099 of loans, net of an allocated portion of the Allowance
for Possible Loan Losses, were transferred to Other Real Estate Owned (OREO).
The fair value of OREO as of December 31, 1995 was $5,592,500.
The composition of OREO at December 31, follows:
1995 1994
OREO $5,534,829 $6,349,789
Less: Valuation Reserve 488,285 760,000
---------- ----------
Net $5,046,544 $5,589,789
========== ==========
Provisions for real estate losses totalled $100,000, $335,000, and $715,171 for
the years ended December 31, 1995, 1994, and 1993, respectively. Other net
OREO costs, which include operating revenue and expense, and gains and losses
on the sale or disposition of real estate owned, approximated $121,000,
$275,000, and $537,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
A summary of information concerning interest income on nonaccrual loans and
OREO at December 31, follows:
OREO Nonaccrual
---------------- ----------------
(in thousands) 1995 1994 1993 1995 1994 1993
Gross interest income which would have
been recorded during the year under
original contract terms 635 642 703 177 26 138
Gross interest income recorded
during the year 0 0 0 64 18 16
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 $623,089 and $640,240 at December 31, 1995 and 1994, respectively.
During 1995, $80,915 of new loans were made, and repayments totalled $98,066.
Note D. Allowance for Possible Loan Losses
- ------------------------------------------------------------------------------
Transactions in the allowance for the year ending December 31 were as follows:
1995 1994 1993
Balance, January 1 $1,362,404 $1,500,829 $2,050,445
Add:
Recoveries 33,231 38,958 13,341
Provision Charged to Current Expense 110,000 120,000 1,364,329
---------- ---------- ----------
Total 1,505,635 1,659,787 3,428,115
Less: Charge-Offs 75,741 297,383 1,927,286
---------- ---------- ----------
Balance, December 31 $1,429,894 $1,362,404 $1,500,829
========== ========== ==========
Note E. Bank Premises and Equipment
- ------------------------------------------------------------------------------
Bank premises and equipment as of December 31 at cost is as follows:
1995 1994
Land $ 92,650 $ 92,650
Bank Premises 1,803,836 1,759,371
Leasehold Improvements 1,751,478 1,664,737
Furniture and Equipment 2,802,435 2,472,555
----------- -----------
Total 6,450,399 5,989,313
Less: Accumulated Depreciation
and Amortization 3,277,363 2,822,164
----------- -----------
Total $ 3,173,036 $ 3,167,149
=========== ===========
Note F. Employee Benefits
- ------------------------------------------------------------------------------
A 401(k) defined contribution plan (the "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 1995, 1994, and 1993, amounted to $52,994,
$58,173, and $59,358, respectively.
During 1995, 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 in the form of cash
and made at the discretion of the Board of Directors. The ESOP used the Bank's
contribution of $120,000 to purchase 4,873 shares at $24.625 per share for
eligible employees which represents 3.64% of eligible compensation. The Bank
contributed $110,000 to the Defined Contribution Plan for each of the plan
years in the two-year period ended December 31, 1994.
In 1993 the Bank adopted SFAS 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
accumulated postretirement benefit obligation included in Other Liabilities at
December 31, 1995 and 1994 totalled $607,895 and $609,796, respectively. The
unrecognized transition obligation included in Other Assets at December 31,
1995 and 1994 totalled $539,800 and $571,600, respectively, which is being
amortized using a straight-line method over twenty years.
1995 1994
Net Periodic Post Retirement Benefit Cost
included the following Components:
Service Cost $ 0 $ 0
Interest Cost 42,400 42,400
Amortization of Unrecognized
Transition Obligation 31,800 31,800
---------- ----------
Total $ 74,200 $ 74,200
========== ==========
For each of the years in the two year period ended December 31, 1995, the
weighted-average discount rate used in determining the actuarial present value
of the accumulated benefit obligation was 8.0%.
Note G. Income Taxes
- -------------------------------------------------------------------------------
Federal and State Income Taxes prepaid as of December 31, included in other
assets in 1995 and 1994 are as follows:
1995 1994
Current $ 31,553 $ 245,148
Deferred 341,859 447,688
--------- ---------
Total $ 373,412 $ 692,836
========= =========
Provisions for current income taxes are as follows:
1995 1994 1993
Federal:
Current $627,738 $364,621 $ 40,764
Deferred (32,417) 124,879 (54,838)
-------- -------- ---------
Total Federal 595,321 489,500 (14,074)
-------- -------- ---------
New York State:
Current 261,318 144,025 44,813
Deferred (7,849) 28,975 (13,656)
-------- -------- ---------
Total New York State 253,469 173,000 31,157
-------- -------- ---------
Total $848,790 $662,500 $ 17,083
======== ======== =========
A reconciliation of the federal statutory tax rate to the required tax rate
based on income before income taxes is as follows:
<TABLE>
1995 1994 1993
------------------------ ------------------------ --------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Tax Pretax Tax Pretax Tax Pretax
Amount Income(%) Amount Income(%) Amount Income(%)
Federal Statutory Rate $ 788,858 34.00 $ 643,964 34.00 $ 108,427 34.00
Increase (Reduction) of
Taxes Resulting From:
Tax Exempt Interest (100,501) (4.33) (118,767) (6.27) (113,969) (35.74)
State Income Taxes
Net of Federal
Income Tax Benefit 167,290 7.21 114,180 6.02 20,564 6.45
Other (6,857) (0.30) 23,123 1.22 2,061 0.65
---------- ------- --------- ----- ---------- ------
Total $ 848,790 36.58 $ 662,500 34.97 $ 17,083 5.36
========== ======= ========= ===== ========== ======
</TABLE>
Income taxes on investment securities transactions amounted to approximately
$600 in 1995, $8,000 in 1994, and $13,000 in 1993.
During 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 $341,859 as of the end of 1995.
Deferred tax assets and liabilities that were recognized as of December 31,
1995 for the taxable temporary differences related to loan loss provisions,
depreciation, OREO losses, Accounting for Postretirement Benefits Other than
Pensions (SFAS 106), and Accounting for Investment Securities (SFAS 115), are
presented below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Loan
Loss OREO SFAS SFAS
Provision Depreciation Losses 106 115 Total
December 31, 1995:
Federal Deferred Tax
Asset (Liability) $235,762 $(199,717) $166,016 $23,153 $16,506 $241,720
New York State Deferred
Tax Asset (Liability) 55,313 (3,568) 39,063 5,447 3,884 100,139
--------- ------------ -------- ------- ------- --------
Net Deferred Tax
Asset (Liability) $291,075 $(203,285) $205,079 $28,600 $20,390 $341,859
========= ============ ======== ======= ======= ========
December 31, 1994:
Federal Deferred Tax
Asset (Liability) $212,811 $(226,598) $258,431 $12,987 $78,913 $336,544
New York State Deferred
Tax Asset (Liability) 38,386 (9,671) 60,806 3,055 18,568 111,144
--------- ------------ -------- ------- ------- --------
Net Deferred Tax
Asset (Liability) $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, 1995 and 1994, time deposits in principal amounts of $100,000
or more were $4,986,024 and $3,934,020 respectively. Interest expense on
such deposits for the three years ended December 31, 1995 was $210,891,
$113,101 and $112,961, respectively.
Certificates of Deposit due to major shareholders, officers, directors and
their affiliates aggregated $2,086,540 and $1,541,240 at December 31, 1995
and 1994, respectively.
A schedule of time deposits having a remaining term of more than one year and
the aggregate amount of maturities for each of the four years following the
balance sheet date is set forth as follows:
1997 ..................... $3,784,177
1998 ..................... 2,069,989
1999 ..................... 896,161
2000 ..................... 1,149,117
----------
Total $7,899,444
==========
There are no Certificates of Deposits with maturities greater than five years.
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 $2,565,073 at December 31,
1995.
Note J. Smithtown Bancorp (parent company only)
- -------------------------------------------------------------------------------
Smithtown Bancorp has one wholly-owned subsidiary, Bank of Smithtown.
Balance Sheets
As of December 31,
1995 1994
Assets
Non-Interest-Bearing Deposits with Subsidiary Bank $ 171,824 $ 139,643
Investment in Bank of Smithtown 12,814,722 12,005,546
----------- -----------
Total $12,986,546 $12,145,189
=========== ===========
Liabilities
Cash Dividends Payable $ 121,316 $ 106,917
Loan Payable - Bank of Smithtown 0 297,937
----------- -----------
Total 121,316 404,854
----------- -----------
Stockholders' Equity
Common Stock - $5.00 Par Value (500,000
Shares Authorized; 447,955 Issued) 2,239,775 2,239,775
Capital Surplus 7,859,918 7,859,463
Retained Earnings 3,212,176 2,225,685
Less: Treasury Stock (14,687 and
20,289 Shares at Cost at December
31, 1995 and 1994, respectively) (446,639) (584,588)
----------- -----------
Total Stockholders' Equity 12,865,230 11,740,335
----------- -----------
Total $12,986,546 $12,145,189
=========== ===========
Statements of Income and Retained Earnings
Year Ended December 31,
1995 1994 1993
Income
Dividends from Bank of Smithtown $ 668,564 $ 439,765 $ 329,504
Expenses (6,359) (125) (125)
----------- ------------ ------------
Income Before Equity in Undistributed
Net Earnings of Subsidiary 662,205 439,640 329,379
Equity in Undistributed Net Earnings
of Subsidiary* 809,176 791,871 (27,683)
----------- ------------ ------------
Net Income 1,471,381 1,231,511 301,696
Retained Earnings, Beginning of Year 2,225,685 1,430,914 1,458,722
Dividends Declared (484,890) (436,740) (329,504)
----------- ------------ ------------
Retained Earnings, End of Year $3,212,176 $2,225,685 $1,430,914
=========== =========== ==========
Statements of Cash Flows
Year Ended December 31,
1995 1994 1993
Cash Flows From Operating Activities:
Net Income $1,471,381 $1,231,511 $ 301,696
Adjustments to reconcile net
income to net cash provided by
operating activities:
Equity in Undistributed
Net Earnings of Subsidiary* (809,176) (791,871) 27,683
----------- ------------ ------------
Net Cash Provided by Operating
Activities 662,205 439,640 329,379
----------- ------------ ------------
Cash Flows from Financing Activities:
Advances from (Repayments to)
Bank of Smithtown (297,938) 297,938 0
Dividends Paid (470,491) (329,823) (329,504)
Purchase of Treasury Stock 0 (407,938) 0
Proceeds from Sale of Treasury Stock 138,405 110,000 9,798
----------- ------------ ------------
Net Cash Used by Financing Activities (630,024) (329,823) (319,706)
----------- ------------ ------------
Net Increase in Non-Interest-Bearing
Deposits with Subsidiary Bank 32,181 109,817 9,673
Non-Interest-Bearing Deposits with
Subsidiary Bank, Beginning of Year 139,643 29,826 20,153
----------- ------------ ------------
Non-Interest-Bearing Deposits with
Subsidiary Bank, End of Year $ 171,824 $ 139,643 $ 29,826
========== ========== =========
Supplemental Disclosure of Cash Flow Information
Cash Paid During Year for Interest $ 6,234 $ 0 $ 0
*Represents excess of dividends over net income in 1993.
Note K. Commitments and Contingent Liabilities
- -------------------------------------------------------------------------------
As of December 31, 1995, the minimum rental commitments under non-cancelable
operating leases for premises and equipment with initial terms in excess of
one year are as follows:
1996 ............................... $ 155,348
1997 ............................... 149,973
1998 ............................... 129,267
1999 ............................... 118,930
2000 ............................... 105,398
Subsequent to 2000 ................. 1,401,543
-----------
Total .............................. $ 2,060,459
===========
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 $343,175 in 1995, $394,283 in 1994, and $425,794 in 1993.
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, 1995 was $773,000.
Note L. Fair Value of Financial Instruments
- -------------------------------------------------------------------------------
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 judgments. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumption could significantly affect the estimates.
Fair value estimates do not apply to the value of anticipated future business
and the value of assets and liabilities that are not considered financial
instruments in accordance with generally accepted accounting principles.
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.
Statement of Financial Accounting Standards (SFAS) 107, "Disclosures about Fair
Value of Financial Instruments," requires the Bank to disclose estimated fair
values of its financial instruments. SFAS 107 amended in October, 1994 by SFAS
119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments". Financial instruments are defined as cash, evidence of
an ownership in an entity, or a contract that conveys or imposes on an entity
the contractual right or obligation to either receive or deliver cash or
another financial instrument. Fair value is defined as the amount at which
such financial instruments could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation, and is best
evidenced by a quoted price, if one exists. Fair value estimates, methods
and assumptions are set forth below for the Bank's financial instruments.
Cash and Short-Term Investments
Cash, due from banks, Federal funds sold and interest-bearing deposits with
other banks, because of their short-term nature, have been valued at their
respective carrying vales.
Investment Securities
For securities held-to-maturity and available-for-sale, fair values are
estimated based on quoted market prices or dealer quotes.
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.
Off-Balance-Sheet Financial Instruments
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. The fair
value of the letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date. A more detailed
analysis is disclosed in Note N.
Note M. Securities Sold Under Agreements to Repurchase
- -------------------------------------------------------------------------------
At December 31, 1995, there were no securities sold under agreements to
repurchase. During 1995, securities were delivered into a third-party
custodian's account designated by the Bank under a written custodial agreement
that explicitly recognizes the Bank's interest in the securities. Securities
sold under agreements to repurchase averaged approximately $1,690,000
during 1995, based on daily averages, and the maximum amounts outstanding at
any month-end during 1995 totalled $7,962,000.
Note N. 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 $10,125,314. Standby
letters of credit are written conditional instruments issued by Smithtown
Bancorp to guarantee the financial performance of a customer to a third party.
There were thirteen performance standby letters of credit totalling $402,834
as of December 31, 1995. 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 four correspondent banks totalled $370,018 and
$373,591 at December 31, 1995 and 1994, respectively. The current FDIC
insurance limit is $100,000 per bank.
Note O. 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 $1,231,355 or 10.61% in 1995, 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.
1995 Actual 1994 Actual Required
Tier I 11.63% 12.20% 4.00%
Tier II 1.25% 1.25% **
Total Risk-
Based Capital 12.89% 13.45% 8.00%
Leverage Ratio 8.15% 7.48% 4.00%
**Tier II Capital is limited to maximum of 100% of Tier 1 Capital.
Selected Financial Data
<TABLE>
Consolidated Average Balance Sheet Data
<CAPTION>
As of December 31,
<S> <C> <C> <C> <C> <C>
(in thousands) 1995 1994 1993 1992 1991
Assets
Cash and Due from Banks $ 6,781 $ 6,451 $ 7,050 $ 6,915 $ 6,882
Investment Securities:
Obligations of U.S.
Government and Agencies 10,496 22,387 37,327 40,469 36,777
Mortgage-Backed Securities 33,601 37,604 22,214 14,757 5,682
Obligations of State and
Political Subdivisions 5,259 6,180 5,990 6,121 3,943
Other Investment Securities 331 127 127 127 127
-------- --------- --------- --------- ---------
Total Investment Securities 49,687 66,298 65,658 61,474 46,529
-------- --------- --------- --------- ---------
Federal Funds Sold 3,758 2,962 5,479 6,294 12,425
-------- --------- --------- --------- ---------
Loans (Net of Unearned
Discount) 86,437 71,448 67,675 68,727 74,992
Less: Allowance for Possible
Loan Losses 1,412 1,507 2,115 1,486 842
-------- --------- --------- --------- ---------
Loans, Net 85,025 69,941 65,560 67,241 74,150
-------- --------- --------- --------- ---------
Bank Premises and Equipment 3,133 3,272 3,442 2,960 2,838
-------- --------- --------- --------- ---------
Other Assets
Other Real Estate Owned 5,489 4,902 7,595 5,607 230
Other 2,839 2,623 3,157 2,826 2,502
-------- --------- --------- --------- ---------
Total $156,712 $156,449 $157,941 $153,317 $145,556
======== ======== ======== ========= ========
Liabilities
Deposits:
Demand (Non-Interest
Bearing) $ 35,075 $ 34,872 $ 34,005 $ 32,557 $ 30,159
Money Market 22,965 25,838 31,657 32,823 32,403
Savings (including NOW) 60,404 65,157 66,787 60,781 51,444
Time 22,896 15,796 14,134 15,805 19,659
-------- --------- --------- --------- ---------
Total Deposits 141,340 141,663 146,583 141,966 133,665
Securities Sold Under
Agreements to Repurchase 1,690 2,465 0 0 0
Other Borrowed Money 247 0 0 0 0
Other Liabilities 1,157 708 149 202 559
-------- --------- --------- --------- ---------
Total Liabilities 144,434 144,836 146,732 142,168 134,224
-------- --------- --------- --------- ---------
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 (53) (20) 0 0 0
Retained Earnings 8,579 7,695 7,271 7,217 7,406
-------- --------- --------- --------- ---------
Total 12,759 11,908 11,509 11,457 11,646
Less: Treasury Stock 481 295 300 308 314
-------- --------- --------- --------- ---------
Total Stockholders' Equity 12,278 11,613 11,209 11,149 11,332
-------- --------- --------- --------- ---------
Total $156,712 $156,449 $157,941 $153,317 $145,556
======== ========= ========= ========= =========
</TABLE>
Selected Financial Data
<TABLE>
Consolidated Balance Sheets
<CAPTION>
As of December 31,
<S> <C> <C> <C> <C> <C>
(in thousands) 1995 1994 1993 1992 1991
Assets
Cash and Due from Banks $ 7,003 $ 5,956 $ 5,701 $ 7,047 $ 6,607
Investment Securities Held
to Maturity:
Obligations of U.S.
Government 2,014 3,020 28,159 39,245 34,446
Obligations of U.S.
Government Agencies 0 2,052 2,000 2,022 2,033
Mortgage-Backed Securities 10,227 34,761 34,835 14,910 13,856
Obligations of State and
Political Subdivisions 4,648 6,137 5,768 6,017 6,478
Other Securities 0 0 127 127 127
-------- --------- --------- --------- ---------
Total 16,889 45,970 70,889 62,321 56,940
-------- --------- --------- --------- ---------
Investment Securities
Available for Sale:
Obligations of
U.S. Government 3,009 10,056 0 0 0
Obligations of U.S.
Government Agencies 3,016 898 0 0 0
Mortgage-Backed Securities 13,155 2,046 0 0 0
Other Securities 599 127 0 0 0
-------- --------- --------- --------- ---------
Total 19,779 13,127 0 0 0
-------- --------- --------- --------- ---------
Total Investment Securities 36,668 59,097 70,889 62,321 56,940
-------- --------- --------- --------- ---------
Federal Funds Sold 6,750 200 2,500 3,550 3,750
-------- --------- --------- --------- ---------
Loans 98,069 80,491 64,896 70,008 70,739
Less: Unearned Discount 655 707 944 1,560 1,969
Allowance for
Possible Loan
Losses 1,430 1,362 1,501 2,050 1,497
-------- --------- --------- --------- ---------
Loans, Net 95,984 78,422 62,451 66,398 67,273
-------- --------- --------- --------- ---------
Bank Premises and Equipment 3,173 3,167 3,310 3,573 2,815
Other Assets
Other Real Estate Owned 5,046 5,590 5,309 8,151 5,059
Other 2,904 4,520 3,560 2,887 2,934
-------- --------- --------- --------- ---------
Total $157,528 $156,952 $153,720 $153,927 $145,378
======== ======== ========= ========= =========
Liabilities
Deposits:
Demand (Non-Interest
Bearing) $ 35,945 $ 34,656 $ 35,312 $ 35,424 $ 31,332
Money Market 23,376 22,654 25,369 30,314 29,387
Savings (including NOW) 59,656 63,069 66,997 62,886 55,787
Time 24,605 14,852 13,699 13,851 17,320
-------- --------- --------- --------- ---------
Total Deposits 143,582 135,231 141,377 142,475 133,826
-------- --------- --------- --------- ---------
Dividend Payable 121 107 0 0 439
Securities Sold Under
Agreements to Repurchase 0 9,003 0 0 0
Other Liabilities 988 1,005 1,099 190 300
-------- --------- --------- --------- ---------
Total Liabilities 144,691 145,346 142,476 142,665 134,565
-------- --------- --------- --------- ---------
Stockholders' Equity
Common Stock - $5.00 Par Value 2,240 2,240 2,240 2,240 2,240
Capital Surplus 1,994 1,993 1,993 1,998 2,000
Unrealized Loss on Securities
Available for Sale (28) (135) 0 0 0
Retained Earnings 9,078 8,092 7,298 7,325 6,887
-------- --------- --------- --------- ---------
Total 13,284 12,190 11,531 11,563 11,127
Less: Treasury Stock 447 584 287 301 314
-------- --------- --------- --------- ---------
Total Stockholders' Equity 12,837 11,606 11,244 11,262 10,813
-------- --------- --------- --------- ---------
Total $157,528 $156,952 $153,720 $153,927 $145,378
======== ======== ======== ======== =========
</TABLE>
Selected Financial Data
<TABLE>
Consolidated Income Statements
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
Interest Income
Interest and Fees on Loans $ 8,278,027 $ 6,690,095 $ 6,730,657 $ 7,430,991 $ 8,813,584
Interest on Federal Funds Sold 221,857 117,440 167,520 230,199 695,826
Interest and Dividends on
Investment Securities:
Taxable:
Obligations of U.S.
Government 431,259 1,235,897 2,205,419 2,553,259 2,728,853
Obligations of U.S.
Government Agencies 178,689 177,332 166,526 170,047 100,396
Mortgage-Backed
Securities 1,901,977 2,080,703 1,314,747 1,146,958 544,948
Other Securities 22,385 7,632 7,632 7,632 7,632
------------ ------------ ------------ ------------ ------------
Total 2,534,310 3,501,564 3,694,324 3,877,896 3,381,829
Exempt from Federal Income
Taxes:
Obligations of
States and Political
Subdivisions 318,174 369,338 355,572 362,718 236,865
------------ ------------ ------------ ------------ ------------
Total Interest Income 11,352,368 10,678,437 10,948,073 11,901,804 13,128,104
------------ ------------ ------------ ------------ ------------
Interest Expense
Money Market Accounts 716,465 584,242 738,928 1,133,467 1,686,587
Certificates of Deposit of
$100,000 and Over 210,891 113,101 112,961 179,938 274,704
Other 2,316,078 1,708,624 1,847,872 2,543,814 3,465,968
Interest on Securities Sold Under
Agreements to Repurchase 106,511 127,223 0 0 0
Interest on Other Borrowed Money 14,950 0 0 0 0
------------ ------------ ------------ ------------ ------------
Total Interest Expense 3,364,895 2,533,190 2,699,761 3,857,219 5,427,259
------------ ------------ ------------ ------------ ------------
Net Interest Income 7,987,473 8,145,247 8,248,312 8,044,585 7,700,845
Provision for Possible
Loan Losses 110,000 120,000 1,364,329 1,096,000 1,134,268
------------ ------------ ------------ ------------ ------------
Net Interest Income After
Provision for Possible
Loan Losses 7,877,473 8,025,247 6,883,983 6,948,585 6,566,577
------------ ------------ ------------ ------------ ------------
Other Non-Interest Income
Trust Department Income 401,811 298,786 330,796 279,577 288,005
Service Charges on
Deposit Accounts 1,278,668 1,344,754 1,263,371 1,202,480 1,069,194
Other Income 482,538 433,731 441,934 359,996 251,018
Investment Security Gains 1,393 22,695 240,110 55,161 162,847
------------ ------------ ------------ ------------ ------------
Total Other Non-Interest Income 2,164,410 2,099,966 2,276,211 1,897,214 1,771,064
------------ ------------ ------------ ------------ ------------
Other Operating Expenses
Salaries 3,470,680 3,556,241 3,654,727 3,660,218 3,759,097
Pensions and Other
Employee Benefits 761,577 832,603 862,213 822,934 792,244
Net Occupancy Expense 944,571 905,538 848,704 834,375 781,043
Furniture and Equipment Expense 622,775 582,663 589,701 650,723 655,234
Other Expenses 1,922,109 2,354,157 2,886,070 1,848,735 1,612,793
------------ ------------ ------------ ------------ ------------
Total Other Operating Expenses 7,721,712 8,231,202 8,841,415 7,816,985 7,600,411
------------ ------------ ------------ ------------ ------------
Income Before Income Taxes 2,320,171 1,894,011 318,779 1,028,814 737,230
Provision for Income Taxes 848,790 662,500 17,083 261,259 205,826
------------ ------------ ------------ ------------ ------------
Net Income $ 1,471,381 $ 1,231,511 $ 301,696 $ 767,555 $ 531,404
============ ============ ============ ============ ============
</TABLE>
Selected Financial Data
<TABLE>
Supplementary Information
<CAPTION>
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
Per Share Data
Net Income $ 3.40 $ 2.80 $ 0.69 $ 1.75 $ 1.21
Stockholders' Equity 29.63 27.14 25.57 25.64 24.63
Dividends Declared
Cash Dividends per Share 1.12 1.00 0.75 0.75 1.75
Cash Dividends Declared 484,890 436,741 329,504 329,327 768,224
Year-End Data
Total Assets 157,528,274 156,951,687 153,720,337 153,926,652 145,378,347
Total Deposits 143,581,497 135,230,577 141,377,440 142,474,683 133,826,282
Total Stockholders' Equity 12,837,073 11,605,718 11,243,502 11,261,512 10,812,664
Total Trust Assets 71,304,522 62,452,427 67,128,712 64,416,736 60,514,741
Number of Shares Outstanding 433,268 427,666 439,765 439,339 438,985
Selected Ratios % % % % %
Net Income to:
Total Income 10.89 9.64 2.28 5.56 3.56
Average Total Assets 0.94 0.79 0.19 0.50 0.36
Average Stockholders' Equity 11.98 10.61 2.70 6.88 4.68
Average Stockholders'
Equity to Average Assets 7.84 7.44 7.08 7.27 7.78
Dividend Payout Ratio 32.95 35.46 109.22 99.90 144.56
</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 firms. The following prices are based on estimates
of such sales.
Cash
Dividend
By Quarter High Low Declared
1995
First Quarter $25.250 $24.625 $0.28
Second Quarter 26.500 25.250 0.28
Third Quarter 32.000 25.250 0.28
Fourth Quarter 32.000 29.750 0.28
------
Total $1.12
======
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
======
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 seven full service offices in the north central
region of Suffolk County, and offers a full line of consumer and commercial
products, including a Trust Department. The Bank's balance sheet at year end
1995 appears significantly different than that of year end 1994. Investment
securities, comprised of short term U.S. Treasury Notes, U.S. Government Agency
Securities, Mortgage-Backed Securities and Federal Reserve and Federal Home
Loan Bank stock decreased in volume through maturities and sales, and were
replaced with higher yielding real estate and commercial loans. The
investment portfolio remains a contributor of interest income, but primarily
serves as a source of liquidity for the Bank. These securities also provide
the collateral for the Bank's municipal deposits. Loans remain the largest
source of interest income and are comprised of real estate, commercial and
industrial, and various types of consumer loans. Loan growth was substantial
during 1995 as well as 1994. The loan portfolio contains a high percentage of
adjustable rate products to provide a natural hedge against market interest
rate fluctuations. A majority of the Bank's investments and loans are funded
through its deposits. During short periods of rapid loan growth, the Bank has
relied on alternative sources of funding, such as repurchase agreements or
advances from the Federal Home Loan Bank of New York. These alternative
sources of funds are part of the overall asset liability management function of
the Bank and are short term measures to meet loan demand. Deposit growth was
significant during 1995, partially a result of the opening of the Bank's newest
branch location in Northport, and partially due to several Certificate of
Deposit (CD) campaigns run throughout the year. Although market interest rates
during 1995 stabilized at a higher level than during 1994, the Bank's overall
cost of funds for 1995 remains low by industry standards, and net interest
margin remained high. In light of these facts, as net interest income
continues to be the largest contributor to Bank earnings, net income during
1995 reached a record level of $1,471,381.
Interest Income
Interest income was $11,352,368, $10,678,437 and $10,948,073 for 1995, 1994 and
1993, respectively. The 6.31% increase during 1995 is due to the increased
loan volume. Interest and fee income on loans represent 72.92% of total
interest income in 1995 as compared to 62.65% and 61.48% in 1994 and 1993,
respectively. Other components of interest income are interest on Federal
Funds Sold representing 1.95%, 1.10% and 1.53% of total interest income in
1995, 1994 and 1993 respectively. Interest on securities accounted for 25.12%,
36.25% and 36.99% of total interest income during the same respective years.
Interest Expense
Interest expense for the year 1995 totalled $3,364,895 as compared to
$2,533,190 and $2,699,761 in 1994 and 1993, respectively. This higher level of
expense is a result of the higher rate environment that continued throughout
1995. The largest component of interest expense is interest on savings and
time deposits. In an effort to increase deposits this year, the Bank ran
several aggressive CD campaigns. These campaigns were successful, as CDs still
remain a relatively low cost method of funding and continue to allow for more
than satisfactory margins.
Net Interest Income
Net interest income remains the largest contributor to the Bank's earnings. It
declined minimally from 1994 to 1995 from $8,145,247 to $7,987,473 or 1.94%.
Total interest income increased by 6.31% in 1995 as a result of the
reinvestment and sales of investment securities into higher yielding loans. The
average rate earned on interest-earning assets during 1995 was 8.32% as
compared to 7.81% in 1994. The decline in net interest income is totally a
result of higher interest expense during 1995. Due to the continued effects
of disintermediation throughout the banking industry, and at Bank of Smithtown
in particular, as well as the need for additional funding to support loan
growth, the Bank paid higher rates on deposits during 1995. As can be seen
from the average balance sheet and yield analysis schedule, inclusive of short
term borrowings, the average cost of funds during 1995 was 3.13% as compared to
2.33% in 1994. In spite of this increased interest expense, the Bank's
interest spread on average total interest-earning assets remains well above
peer group standards.
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 the rate.
<TABLE>
Average Balance Sheet and Yield Analysis
<CAPTION>
1995 1994
------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands) Average Average Average Average
Tax Equivalent Basis Balance Interest Rate(%) Balance Interest Rate(%)
Assets
Interest-Earning Assets:
Investment Securities:
Taxable $ 44,428 $ 2,534 5.70 $ 60,118 $ 3,502 5.83
Nontaxable 5,259 482 9.17 6,180 560 9.06
-------- -------- ------- ---------- -------- ------
Total Investment
Securities 49,687 3,016 6.07 66,298 4,062 6.13
-------- -------- ------- ---------- -------- ------
Total Net Loans 85,025 8,278 9.74 69,941 6,690 9.57
Federal Funds Sold 3,758 222 5.91 2,962 117 3.95
-------- -------- ------- ---------- -------- ------
Total Interest-Earning
Assets 138,470 11,516 8.32 139,201 10,869 7.81
Non-Interest-Earning
Assets 18,242 0 0 17,248 0 0
-------- -------- ------- ---------- -------- ------
Total Assets $156,712 $11,516 7.35 $156,449 $10,869 6.94
======== ======== ======= ========== ======== ======
Liabilities
Interest-Bearing Liabilities:
Savings Deposits
(including NOW) $ 60,404 $ 1,387 2.30 $ 65,157 $ 1,270 1.95
Money Market Accounts 22,965 716 3.12 25,838 584 2.26
Certificates of Deposit 22,136 1,140 5.15 15,057 552 3.67
-------- -------- ------- ---------- -------- ------
Total Interest-Bearing
Deposits 105,505 3,243 3.07 106,052 2,406 2.27
Securities Sold Under
Agreements to
Repurchase 1,690 107 6.33 2,465 127 5.15
Other Borrowed Funds 247 15 6.07 0 0 0
-------- -------- ------- ---------- -------- ------
Total Interest-Bearing
Liabilities 107,442 3,365 3.13 108,517 2,533 2.33
Non-Interest-Bearing
Liabilities:
Demand Deposits 35,075 0 0 34,872 0 0.00
Other 1,917 0 0 1,447 0 0.00
-------- -------- ------- ---------- -------- ------
Total Liabilities 144,434 3,365 2.33 144,836 2,533 1.75
Stockholders' Equity 12,278 0 0 11,613 0 0.00
-------- -------- ------- ---------- -------- ------
Total $156,712 $ 3,365 2.15 $156,449 $ 2,533 1.62
======== ======== ======= ========== ======== ======
Interest Margin $ 8,151 $ 8,336
Interest Spread on:
Average Total Assets 5.20% 5.32%
Average Total Interest-
Earning Assets 5.89% 5.99%
</TABLE>
<TABLE>
Rate Volume Relationships of Interest Margin on Earning Assets
<CAPTION>
1995 1994
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
--------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Net Net
(in thousands) Volume Rate Change Volume Rate Change
Interest Income:
Investment Securities:
Taxable $ (914) $ (54) $ (968) $ 28 $(220) $(192)
Nontaxable (83) 5 (78) 17 4 21
-------- ------- -------- ------- ------ ------
Total Investment
Securities (997) (49) (1,046) 45 (216) (171)
Total Net Loans 1,443 145 1,588 450 (491) (41)
Federal Funds Sold 31 74 105 (77) 27 (50)
------- ------- -------- ------- ------ ------
Total Interest-Earning
Assets 477 170 647 418 (680) (262)
------- ------- -------- ------- ------ ------
Interest Expense:
Savings Deposits (93) 210 117 (36) (173) (209)
Money Market Accounts (65) 197 132 (136) (19) (155)
Certificates of
Deposits 260 328 588 85 (15) 70
-------- ------- -------- ------- ------ ------
Total Interest-Bearing
Deposits 102 735 837 (87) (207) (294)
Securities Sold Under
Agreements to
Repurchase (40) 20 (20) 0 127 127
Other Borrowed Funds 0 15 15 0 0 0
-------- ------- -------- ------- ------ ------
Total Interest-Bearing
Liabilities 62 770 832 (87) (80) (167)
-------- ------- -------- ------- ------ ------
Changes in Interest
Margin $ 415 $(600) $ (185) $ 505 $(600) $ (95)
======== ======= ======== ======= ====== ======
</TABLE>
Other Operating Income
The schedule below details items of non-interest income for the years ended
December 31,
1995 1994 1993
Other Operating Income
Trust Department Income $ 401,811 $ 298,786 $ 330,796
Service Charges on Deposit
Accounts 1,278,668 1,344,754 1,263,371
Other Income 482,538 433,731 441,934
Investment Security Gains 1,393 22,695 240,110
---------- ---------- ----------
$2,164,410 $2,099,966 $2,276,211
========== ========== ==========
Other Operating Income increased by 3.07% during 1995 due primarily to
increased trust department income. Investment security gains were smaller
during 1995 than 1994 due to the higher rate environment. Service charge
income remains the largest component of Other Operating Income.
Other Operating Expenses
Detailed below are the components of Other Operating Expenses for the years
ended December 31,
1995 1994 1993
Other Operating Expenses
Salaries $3,470,680 $3,556,241 $3,654,727
Pensions and Other
Employee Benefits 761,577 832,603 862,213
Net Occupancy Expense 944,571 905,538 848,704
Furniture and Equipment
Expense 622,775 582,663 589,701
Other Expenses 1,922,109 2,354,157 2,886,070
---------- ---------- ----------
$7,721,712 $8,231,202 $8,841,415
========== ========== ==========
Other operating expenses represent various non-interest expense items. Such
expenses declined from $8,231,202 in 1994 to $7,721,712 in 1995, a 6.19%
decrease. Salary and benefit expense declined for the second year as a result
of small staff reductions and normal attrition. Net Occupancy Expense and
Furniture and Equipment Expense increased slightly due to the costs associated
with opening the Northport branch. Other expenses declined by 18.35% in 1995
primarily a result of decreased FDIC insurance costs and significantly lower
expenses related to nonperforming loans and Other Real Estate Owned. Expenses
relating to the maintenance of Other Real Estate Owned during 1995 decreased
from $196,263 to $121,444. The "Loss on Other Real Estate Owned," an expense
account used to provide for declining values in Other Real Estate Owned
properties, totalled $100,000 in 1995 as compared to $335,000 in 1994. The
Valuation Reserve Account serves as a 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 the current
appraisals. At year end, through the $100,000 addition to the "Loss on Other
Real Estate Owned" expense account, the Valuation Reserve reached a level of
$488,285, an amount deemed adequate by management to protect the Bank against
any future losses on sales of these properties. An additional source of non-
interest expense for the Bank during 1995 was consulting expenses. In its
ongoing efforts to become a high performance bank, Bank of Smithtown has
retained the services of Alex Sheshunoff Management Services to assist in the
formation of a five year written strategic plan and a re-engineering effort.
The re-engineering project will increase costs early in the year but is
expected to result in greater efficiencies and increased net income later in
the year.
Net Income
Net income for 1995 reached $1,471,381 or $3.40 per share compared to
$1,231,511 and $301,696 and $2.80 and $0.69 per share for 1994 and 1993,
respectively. Net income has increased by 19.48% from 1994 to 1995 and 308.2%
from 1993 to 1994. This record growth in income has been the result of greatly
improved asset quality with corresponding lower expenses related to
nonperforming loans and Other Real Estate Owned as well as significant growth
in the loan portfolio. From year end 1993 to year end 1995, the Bank's loan
portfolio has grown from $62,451,000 to $95,984,000, a 53.69% increase. The
growth has been primarily in the construction, commercial real estate and
commercial and industrial loan areas. Many of these loans are adjustable
rate products and, therefore, protect the Bank against market interest rate
fluctuations. Two highly recognized indicators of 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 1995 and 1994, Bank of Smithtown's ROAA was 0.94% and 0.79%,
respectively. The second ratio is return on average equity (ROAE) which
indicates the degree of capital utilization. ROAE for 1995 and 1994 was
11.98% and 10.61%, respectively. The increase in both of these ratios is
indicative of the Bank's continued improved performance.
Investment Securities
Investments at December 31, 1995 totalled $36,667,691 as compared to
$59,096,798 at year end 1994. During 1995, the funds available from maturing
investment securities as well as the sale of additional securities were
channeled into new loans, as loan demand has been and continues to be very
strong. As a result of the one-time reclassification permitted by the
Financial Accounting Standards Board during 1995, the Bank transferred certain
investments from the Held to Maturity portfolio into the Available for Sale
portfolio. This move provided the Bank with additional liquidity potential as
securities in the available for sale portfolio may be sold if desired.
However, it remains the intention of management to hold most securities to
maturity. As a member of the Federal Reserve Bank of New York, the Bank owns
Federal Reserve Bank stock with a book value of $127,200. The stock has no
maturity and has paid dividends at the rate of 6.0% for 1995 and 1994. During
1995, the Bank became a member of the Federal Home Loan Bank of New York, and
now holds $471,800 of its stock. This stock also has no maturity and has
paid average dividends of 6.0% during the second, third and fourth quarters
of 1995. Stock of both the Federal Reserve Bank and the Federal Home Loan
Bank are restricted.
The following schedule shows the amortized cost of all Held to Maturity
Securities and fair value of Available for Sale Securities as detailed in the
Bank's balance sheet as of December 31,
Securities Held to Maturity 1995 1994
Obligations of U.S. Government $ 2,013,739 $ 3,019,956
Obligations of U.S. Government Agencies 0 2,051,544
Mortgage-Backed Securities 10,226,753 34,761,443
Obligations of State and Political Subdivisions 4,647,865 6,137,424
------------ ------------
Total $ 16,888,357 $ 45,970,367
============ ============
Securities Available for Sale
Obligations of U.S. Government $ 3,008,900 $ 10,055,624
Obligations of U.S. Government Agencies 3,015,900 897,812
Mortgage-Backed Securities 13,155,534 2,045,795
Other Securities 599,000 127,200
------------ ------------
Total $ 19,779,334 $ 13,126,431
============ ============
The tables below set forth the investment securities by portfolio, weighted
average maturity, and weighted average yield as of December 31, 1995 and 1994.
Weighted Average Maturity
Securities Held to Maturity 1995 1994
Obligations of U.S. Government 2 yrs. 6 mos. 2 yrs. 4 mos.
Obligations of U.S. Government Agencies - 7 yrs. 0 mos.
Mortgage-Backed Securities 8 yrs. 7 mos. 11 yrs. 1 mos.
Obligations of State and Political Subdivisions 4 yrs. 0 mos. 3 yrs. 11 mos.
-------------- --------------
Total 6 yrs. 8 mos. 9 yrs. 5 mos.
-------------- --------------
Securities Available for Sale
Obligations of U.S. Government 0 yrs. 3 mos. 0 yrs. 11 mos.
Obligations of U.S. Government Agencies 5 yrs. 7 mos. 5 yrs. 7 mos.
Mortgage-Backed Securities 6 yrs. 0 mos. 10 yrs. 2 mos.
-------------- --------------
Total 5 yrs. 0 mos. 2 yrs. 10 mos.
-------------- --------------
Total Investment Securities 5 yrs. 9 mos. 7 yrs. 11 mos.
============== ===============
Weighted Average Yield
Weighted
Amortized Average
Securities Held to Maturity Cost Fair Value Yield (%)
Obligations of U.S. Government:
After 1 year, but within 5 years $ 2,013,739 $ 1,999,300 5.31
Mortgage-Backed Securities:
After 1 year, but within 5 years 4,219,423 4,171,205 5.82
After 5 years, but within 10 years 1,985,791 1,951,600 5.00
After 10 years 4,021,539 3,977,150 6.50
Obligations of State and Political Subdivisions:
Within 1 year 352,072 354,317 6.37
After 1 year, but within 5 years 2,939,504 3,073,747 6.62
After 5 years, but within 10 years 1,219,539 1,312,194 6.57
After 10 years 136,750 136,226 5.94
------------- ----------- ----
Total $ 16,888,357 $16,975,739 6.03
============= =========== ====
Securities Available for Sale
Obligations of U.S. Government:
Within 1 year $ 3,008,013 $ 3,008,900 7.04
Obligations of U.S. Government Agencies:
After 1 year, but within 5 years 1,000,000 989,900 5.96
After 5 years, but within 10 years 2,026,634 2,026,000 7.20
Mortgage-Backed Securities:
After 1 year, but within 5 years 8,852,209 8,794,617 5.79
After 10 years 4,342,025 4,360,917 6.97
------------- ----------- ----
Total $ 19,228,881 $19,180,334 6.41
============= =========== ====
Loans
The Bank's loan portfolio (net of unearned income) at December 31, 1995 and
1994 was $97,413,938 and $79,784,220, respectively and represents 61.83% and
50.83% of total assets, respectively. The composition of the portfolio at
December 31 is as follows:
1995 % 1994 %
Real Estate Loans, Construction $ 7,669,120 7.82 $ 3,251,180 4.04
Real Estate Loans, Other:
Commercial 38,986,443 39.75 29,829,012 37.06
Residential 16,270,758 16.59 15,868,020 19.71
Commercial and Industrial Loans 19,074,380 19.45 14,155,310 17.59
Loans to Individuals for Household,
Family and Other
Personal Expenditures 15,993,856 16.31 17,307,349 21.50
All Other Loans (including
Overdrafts) 74,704 0.08 80,383 .10
------------ ------ ------------ ------
Total Loans $ 98,069,261 100.00 $ 80,491,254 100.00
============ ====== ============ ======
The largest areas of growth within the portfolio are in the Construction and
Commercial Real Estate loan categories. Average yield on the entire loan
portfolio for 1995 was 9.74%. 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. Although real estate loans comprise a majority of the
portfolio, credit risk has been minimized through low loan-to-value ratios,
thorough credit investigations, current independent appraisals and periodic
review by a loan review consultant.
The following table shows the maturities of loans (excluding real estate
mortgages and installment loans) outstanding as of December 31, 1995. There
are no amounts due after one year which are classified as sensitive to changes
in interest rates.
After One
Within Year but After
One Within Five Five
(in thousands) Year Years Years Total
Commercial (and all
other loans
including overdrafts) $19,149 $ 0 $ 0 $ 19,149
Real Estate -
Construction 7,669 0 0 7,669
------- ------- ------- -----------
Total $26,818 $ 0 $ 0 $ 26,818
======= ======= ======= ===========
Deposits
Average deposits for 1995 were $141,340,000 as compared to $141,663,000 in
1994. Year end 1995 deposits increased by $8,350,920 or 6.18% over year end
1994. The largest increase in 1995 has been in certificates of deposit.
Average Balance
(in thousands) 1995 1994
Demand $ 35,075 $ 34,872
Money Market 22,965 25,838
Savings 60,404 65,157
Time 22,896 15,796
--------- ---------
Total Deposits $ 141,340 $ 141,663
========= =========
At December 31, 1995, the remaining maturities of the Bank's Certificates of
Deposit in amounts of $100,000 or greater were as follows:
(in thousands)
3 months or less ....................... $1,328
Over 3 through 6 months ................ 793
Over 6 through 12 months ............... 561
Over 12 months ......................... 2,304
------
Total .................................. $4,986
======
Short-Term Borrowings
Increased loan demand created the need for funding through additional avenues
other than Bank deposits during 1995 and 1994. This need was addressed during
the year through the use of Repurchase Agreements and Federal Home Bank
advances. Repurchase Agreements involve the sale of a high grade investment
security and simultaneous agreements by the Bank to repurchase the security at
a stated contract date, in most cases 1 to 60 days later, at a stated interest
cost. Advances are loan agreements made with stated maturities and interest
rates. There were no outstanding borrowings at year end 1995. Borrowings at
year end 1994 totalled $9,003,500. The average balances of these borrowings
throughout the year 1995 was $1,690,000 in Repurchase Agreements and $247,000
in Advances. The average rate paid for these borrowings was 6.30%.
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 portfolio is one method employed to
reduce interest rate risk. Laddered maturities ofinvestment 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.
<TABLE>
The following table details the interest rate sensitivity of the Bank over
various periods as of December 31, 1995.
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three One
Months Six Year
Three Through Months Total Through
Months Six Through Within Five Five All
(in thousands) or Less Months One Year One Year Years Years Other(1) Total
Total Interest
Earning Assets $39,404 $ 2,494 $ 6,720 $48,618 $ 63,918 $25,428 $ 3,448 $141,412
Total Interest Bearing
Liabilities and
Demand Deposits (2) 14,348 12,080 21,142 47,570 77,687 0 17,972 143,229
Interest Sensitivity
Gap Per Period 25,056 (9,586) (14,422) 1,048 (13,769) 25,428 (14,524) (1,817)
Cumulative Interest
Sensitivity Gap 25,056 15,470 1,048 1,048 (12,721) 12,707 (1,817) (1,817)
Percent of Cumulative
Gap to Total Assets 15.91% 9.82% 0.67% 0.67% (8.08%) 8.07% (1.15%) (1.15%)
<FN>
(1) Includes interest-earning assets and interest-bearing liabilities that do
not reprice as well as $2,849,175 in non-accrual loans.
(2) NOW and Money Market Accounts assumed to decline over a two year period.
Savings Accounts assumed to decline over a five year period. Demand
Deposits are spread based on historical experience.
</TABLE>
Stockholders' Equity
Shown below are the components of Stockholders' Equity as of December 31,
1995 1994
Common Stock - $5.00 Par Value
(500,000 Shares Authorized,
447,955 Issued) $ 2,239,775 $ 2,239,775
Capital Surplus 1,993,574 1,993,118
Unrealized Loss on Securities
Available for Sale (28,157) (134,616)
Retained Earnings 9,078,520 8,092,029
------------ ------------
Total 13,283,712 12,190,306
Less: Treasury Stock
(14,687 and 20,289
Shares at Cost at
December 31, 1995
and 1994, respectively) 446,639 584,588
------------ ------------
Total Stockholders' Equity $ 12,837,073 $ 11,605,718
============ ============
Stockholder's Equity increased by $1,231,355 or 10.61% during 1995. The
increase in retained earnings was the result of $1,471,381 of net income,
$138,405 of Treasury Stock sales, $106,459 of net Unrealized gains on
Securities Available for Sale, less $484,890 of dividends declared. The number
of shares of Treasury Stock that the Bank had outstanding at year end 1995 was
14,687, a reduction of 5,602 shares from year end 1994. A majority of these
shares were purchased for use by the Bank's ESOP.
Capital ratios are regarded as one of the most important indications of a
banking institution's strength. There are two capital ratios that are most
significant: leverage ratio and total risk based capital ratio. The leverage
ratio at year end 1995 was 8.15% compared to 7.48% at year end 1994. The
required minimum leverage ratio for Bank of Smithtown is 4.00%. Total risk
based capital ratio at year end 1995 was 12.89% compared to 13.45% at year end
1994. 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 1995 was $1,429,894 as
compared to $1,362,404 at year end 1994. The change in the Allowance Account is
the result of net charge-offs totalling $42,510 and a Provision for Possible
Loan Losses of $110,000.
The following tables describe the activity in the Allowance for Possible Loan
Losses Account for the years ended December 31,
(in thousands) 1995 1994 1993
Allowance for Possible Loan Losses
at Beginning of Period $ 1,362 $ 1,501 $ 2,050
-------- -------- -------
Loans Charged Off:
Commercial 0 71 532
Real Estate 73 161 1,171
Consumer 2 66 224
-------- -------- -------
Total Loans Charged-Off 75 298 1,927
-------- -------- -------
Recoveries on Amounts Previously Charged-Off:
Commercial 0 16 1
Real Estate 12 7 0
Consumer 21 16 13
-------- -------- -------
Total Recoveries 33 39 14
-------- -------- -------
Net Charge-Offs 42 259 1,913
-------- -------- -------
Current Year's Provision for Possible Loan Losses 110 120 1,364
-------- -------- -------
Reserve for Possible Loan Losses at End of Period $ 1,430 $ 1,362 $ 1,501
======== ======== =======
Total Loans:
Average (Net of Unearned Discount
and Allowance for Possible
Loan Losses) $ 85,025 $ 69,941 $67,660
End of Period (Net of Unearned Discount) 97,414 79,784 63,951
Ratios: % % %
Net Loans Charged-Off to:
Average Loans 0.05 0.37 2.83
Loans at End of Period 0.04 0.32 2.99
Allowance for Possible Loan Losses 2.97 18.97 127.45
Provision for Possible Loan Losses 38.65 215.00 140.24
Last Year's Charge Off to This Year's Recovery 903.03 4,941.03 3,878.57
Allowance for Possible Loan Losses at Year End To:
Average Loans (Net of Unearned Discount) 1.65 1.95 2.22
End of Period Loans (Net of
Unearned Discount) 1.47 1.71 2.35
The following table shows the Bank's non-accrual and contracually past due
loans:
At December 31,
(in thousands) 1995 1994 1993 1992 1991
Accruing Loans Past Due
90 Days or More $ 90 $ 97 $ 418 $1,257 $2,284
Non-Accrual Loans 2,849 1,214 1,496 2,842 614
------ ------ ------ ------ ------
Total $2,939 $1,311 $1,914 $4,099 $2,898
====== ====== ====== ====== ======
For 1995, 1994 and 1993, the difference between interest income and income that
would have been recognized at original contractual rates and terms is $177,261,
$25,591 and $137,574, respectively.
The composition of Other Real Estate Owned, net of the Valuation Reserve,at
December 31, is as follows:
1995 1994
Commercial $1,026,981 $1,453,357
Commercial Land 3,369,563 3,331,564
Single Family 650,000 804,868
---------- ----------
Total $5,046,544 $5,589,789
========== ==========
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
Cynthia Veranac
Vice President, New Business Development
Edward Benedetto
Vice President & Auditor
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
Andrew J. Enrico, Ass't. Auditor
Judith Barber, Cashier
Managers
Carol Ann Brennan
Ann Elliot
Carmella Impellizzeri
Constance Lynch
Lisa McCulloch
Sylvia Scheck
Carol Schofield
Assistant Managers
Nancy Bradley
Phyllis Kaiserman
Faith Lonieski
Eustacia O'Leary
Constance Ponticello
Jeanne Quortrop
Joyce Saunders
Ardene Signorelli
Bank of Smithtown
Corporate Headquarter's
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
NORTHPORT, NY 11768
836 Fort Salonga Road
(516) 262-1353
Annual Meeting
The Annual Meeting of Stockholders of
Smithtown Bancorp will be held on Tuesday,
April 2, 1996, 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
SMITHTOWN BANCORP, INC.
ONE EAST MAIN STREET
SMITHTOWN, NEW YORK 11787-2801
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held
TUESDAY, APRIL 2, 1996
The Annual Meeting of Shareholders of Smithtown Bancorp, Inc. (the
"Bancorp"), will be held at the Bavarian Inn, 422 Smithtown Boulevard, Lake
Ronkonkoma, New York, on April 2, 1996, at 10:30 AM, for the following
purposes:
1. The election of three directors to serve a term of three years.
2. To approve amendments to the Bancorp's
Certificate of Incorporation: (a) increasing the
number of authorized Common shares, par value
$5.00 per share (the "Common Shares") of the
Bancorp from 500,000 to 1,500,000; and (b)
authorizing a new class of shares consisting of
100,000 preferred shares, par value $.01 per share
(the "Preferred Shares"). The Preferred Shares
would be authorized without any rights and
designations, such rights and designations to be
fixed by the Board of Directors at the time of
issuance of the Preferred Shares.
3. To approve an amendment to the Bancorp's
Certificate of Incorporation deleting Article
FIFTH of the Certificate of Incorporation, and
substituting a new Article FIFTH therefor
indicating that the shareholders do not have
preemptive rights. (Preemptive rights enable
holders of Common Shares, in certain
circumstances, to purchase newly issued capital
stock of the Bancorp to prevent dilution.) See
"AMENDMENT OF CERTIFICATE OF
INCORPORATION TO REPEAL
PREEMPTIVE RIGHTS" and "ANNEX A".
4. To approve the appointment of Albrecht,
Viggiano, Zureck & Company, P.C. as
independent auditors for the year ending
December 31, 1996.
5. To transact such other business as may properly
come before the meeting for any adjournment
thereof.
Pursuant to a resolution of the Board of Directors adopted at the
Board of Directors meeting on January 23, 1996, only shareholders of record
at the close of business on February 26, 1996, shall be entitled to notice of
and to vote at this meeting.
Dated: March 1, 1996
Smithtown, New York
BY ORDER OF THE BOARD OF DIRECTORS
by /s/ Bradley E. Rock
Chairman of the Board,President
SMITHTOWN BANCORP, INC.
ONE EAST MAIN STREET
SMITHTOWN, NEW YORK 11787-2801
PROXY STATEMENT
GENERAL PROXY INFORMATION
This Proxy Statement (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
Shareholders of the Bancorp to be held at the Bavarian Inn, 422 Smithtown
Boulevard, Lake Ronkonkoma, New York, on April 2, 1996, and at any adjournment
thereof. The costs of the proxy solicitation are to be paid by the Bancorp.
Bank of Smithtown (the "Bank" or the "Bank of Smithtown" ) is a wholly-owned
subsidiary of the Bancorp. This Proxy Statement is being mailed on or about
March 1, 1996, to holders of the Common Shares.
Authorized Shares and Voting Rights
Holders of record of Common Shares as of the close of business on
February 26, 1996 (the "Record Date"), will be entitled to vote at the meeting.
Each shareholder is entitled to one vote for each share of stock held by him
or her. There were 433,268 Common Shares 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 shareholder 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 Shareholders, including
financial statements for the fiscal year ended December 31, 1995, has
heretofore been mailed to the shareholders.
Matters To Be Voted On At The Meeting
There are four matters that are scheduled to be voted on at the Annual
Meeting. Shareholders are being asked to vote on (1) the election of three
directors, (2) amendments to the Bancorp's Certificate of Incorporation (a)
increasing the number of authorized Common Shares from 500,000 to 1,500,000
and (b) authorizing 100,000 Preferred Shares, (3) an amendment to the
Bancorp's Certificate of Incorporation deleting the shareholders' preemptive
rights and (4) the approval of Albrecht, Viggiano, Zureck & Co., P.C., as the
Bancorp's independent auditors for the year ending December 31, 1996.
It is intended that the shares of stock represented by the accompanying
form of Proxy will be voted for the election of the director nominees listed
in Table I and in favor of the other proposals, unless a contrary direction is
indicated on the form of Proxy. With respect to the director nominees, if 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 are elected by a plurality of the votes cast at the Annual
Meeting, either in person or by proxy. The approval referred to in (4) above
will be authorized if a majority of the votes cast at the Annual Meeting,
either in person or by proxy, are voted in favor of such approval and with
respect to the amendments to the Bancorp's Certificate of Incorporation
referred to in (2) and (3) above, such amendments will be authorized if a
majority of the outstanding Common Shares vote in favor of the respective
proposals.
Any abstention or broker non-vote with respect to the proposals referred
in (2) or (3) above will have the effect of a negative vote on the respective
proposal. With respect to the proposals referred to in (1) and (4) above,
abstentions and broker non-votes will be counted as not having voted and will
not be counted in determining if the plurality, with respect to (1), or the
majority, with respect to (4), was obtained.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
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
Two of the nominees, James H. Glamore and Augusta Kemper, were elected
to their present term of office by the shareholders. The third, Barry
Seigerman, was elected by the Board of Directors on September 27, 1994,
pursuant to Article 2, Section 1, of the Bancorp's By-Laws to fill the
unexpired term of Frank Radau, who retired on May 1, 1994. All three nominees
are proposed for re-election for terms expiring in 1999.
<TABLE>
TABLE I
<CAPTION>
<S> <C> <C> <C> <C>
Date Experience and Shares of Stock
Directorship Director Principal Occupation Beneficially Owned (2)
Name and Age Term Expires Since (1) During Past 5 Years # %
NOMINEES
James H. Glamore, 76 1996 1979 President, Glamore Motor Sales, Inc.
(automobile sales). 4,755 1.09
Barry Seigerman, 55 1996 1993 Chairman & Chief Executive
Officer Seigerman-Mulvey, Co., Inc.,
Insurance Brokers, located at
31 Research Way, East Setauket,
New York. Active in business
and community non-profit
organizations. 514 .11
Augusta Kemper, 73 1996 1992 Horticulturist and Owner of Kemper
Nurseries until retirement in 1985. 24,933 5.75
DIRECTORS CONTINUING IN OFFICE
Attmore Robinson, Jr., 84 1997 1948 Partner, Elzon & Robinson,
Real Estate Brokers, until
retirement in 1993. 9,763 2.25
Bradley E. Rock, 43 1997 1988 Chairman of the Board, President
& Chief Executive Officer of the
Bancorp and the Bank, January 1992
to Present. President of the Bancorp
and the Bank, October 1990 to January
1992. Partner of Schechter Schechter
Kenney & Rock, Attorneys at Law,
1981 to 1992. 1,757 .40
Charles E. Rockwell, 79 1997 1984 Retired in 1976. Formerly a
commercial airline captain. Active
in community non-profit
organizations. 4,418 1.01
H. Melville Brush, 87 1998 1960 President of Island Asphalt Co.,
Inc. (asphalt sales and construction),
until retirement in 1979. 7,549 1.74
Patrick A. Given, 51 1998 1989 Real Estate Appraiser and
Consultant; Given Associates,
located at 550 Route 111,
Hauppauge, New York. 2,300 .53
Edith Hodgkinson, 73 1998 1979 Restaurateur, active in community
non-profit organizations. 28,203 6.50
<FN>
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 Common Shares owned by family members of directors as to which each of the directors
disclaim any beneficial ownership. Mrs. Hodgkinson's shares include shares held by Bank of Smithtown as Trustee
under the Last Will and Testament of Carlyle Hodgkinson. The amount of Common Shares beneficially owned and
listed in the table above is provided as of December 31, 1995.
</FN>
</TABLE>
Board of Directors
The Board of Directors holds regular monthly meetings. The
Board held twelve regular meetings and one special meeting during 1995. Each
director attended 75% or more of the aggregate number of meetings of the Board
of Directors and the committee or committees thereof on which such director
served during 1995.
Committees of the Board
The Board of Directors has established a number of committees to assist it in
the discharge of its responsibilities.
The Audit Committee, consisting of eight directors, had five meetings in 1995.
The chairman of the committee is Attmore Robinson, Jr. 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 A. Given
and Barry M. Seigerman.
The Compensation Review Committee, consisting of four members, had one
meeting during 1995. The chairman of the committee is Attmore Robinson, Jr.
This committee makes recommendations to the Board of Directors with respect
to the compensation of elected officers. Current members of this committee
are H. Melville Brush, Edith Hodgkinson, Attmore Robinson, Jr. and Charles E.
Rockwell.
The Board of Directors does not have a standing nominating committee.
Director Compensation
Directors of the Bank received a fee of $600 per month during 1995. The
members of the Loan Committee who are not officers of the Bank also received a
monthly fee of $300 for committee membership. The total amount of directors'
fees paid during 1995 was $83,700.
The Board of Directors recommends a vote FOR the election of all Nominees .
(Proposal No. 1 on the proxy).
AMENDMENT TO THE BANCORP'S CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON SHARES AND AUTHORIZE
PREFERRED SHARES
(PROPOSAL NO. 2)
The Board of Directors recommends that Article FOURTH of the Bancorp's
Certificate of Incorporation be amended in order (a) to increase the number of
authorized Common Shares which the Bancorp is authorized to issue, from 500,000
to 1,500,000 and (b) to establish a new class of shares consisting of 100,000
Preferred Shares. The Preferred Shares would be authorized without any rights
and designations; such rights and designations would be fixed by the Bancorp's
Board of Directors at the time of issuance of such Preferred Shares.
The following description of this proposal is qualified in its entirety by
reference to the proposed amendments to Article FOURTH of the Bancorp's
Certificate of Incorporation, set forth below.
At its regularly held meeting on February 27, 1996, the Board of Directors
adopted a resolution recommending to the shareholders amendments to the
Bancorp's Certificate of Incorporation (a) increasing the number of authorized
Common shares from 500,000 to 1,500,000 and (b) authorizing a new class of
shares consisting of 100,000 Preferred Shares.
As of February 26, 1996 the Corporation's authorized capital stock consisted of
500,000 Common Shares of which 433,268 Common Shares were issued and
outstanding on February 26, 1996.
The Preferred Shares would be of the type of shares known as "blank check
preferred." Such Preferred Shares would be available for issuance at any
time, but the terms of such securities would not be established until the time
of issuance. The Board of Directors would, if the proposal is adopted by the
shareholders, have the authority, within its sole discretion, to issue the
Preferred Shares in one or more series, and to fix for each such series the
designations and relative rights and preferences, including conversion rights
and prices, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption and redemption prices, as
are permitted by the New York State Business Corporation Law (the "BCL").
The Board of Directors believes that it is desirable to increase the authorized
capital stock of the Bancorp (including by providing for Preferred Stock) in
order to have such stock available for future use in connection with
acquisitions, financing, employee benefit plans, stock dividends or other
corporate purposes including the possible issuance in reaction to an
unsolicited acquisition proposal (as set forth more fully below). Subject to
the requirements of applicable law and regulations, the Board of Directors
generally will have the sole discretion to issue either Common Shares or
Preferred Shares without further shareholder approval.
Although the Bancorp has no current plans, has made no arrangements and has
not entered into any understandings whereby it would be required to issue any
of the additional shares of stock for which authority now is sought for any
specific purpose, the Board of Directors believes that it is in the best
interests of the Bancorp to increase the capital as stated above in order to
meet possible contingencies and opportunities for which the issuance of
shares may be deemed advisable. From time to time the Bancorp has given, and
in the future is likely to give, consideration to the feasibility of obtaining
funds for appropriate corporate objectives through the public sale of equity
securities. Because questions of timing are always central to whether
or on what basis public financing is to be undertaken, the Bancorp wishes to
obtain maximum flexibility in this regard by increasing its authorized capital
stock at this time, thereby avoiding the need for, and the expense and delay
occasioned by, a special shareholders' meeting to take similar actions at a
later time. Other purposes for which such additional shares could be issued
include: (a) the acquisition of the shares or assets of other corporations; (b)
share distributions to shareholders of the Bancorp; (c) employee benefit plans;
and (d) in reaction to unsolicited acquisition proposals, including the
possible adoption of a poison pill rights plan. In the Board of Directors'
view the additional authorized shares will provide greater flexibility in
achieving these purposes. It is intended that the newly authorized capital
stock would be subject to issuance at the discretion of the Board
of Directors from time to time for any proper corporate purpose without further
action by the shareholders, except as may be required by law or regulation or
by the rules of any stock exchange on which the Bancorp's securities may then
be listed (or by the by-laws of the National Association of Securities
Dealers, Inc., if applicable at such time).
Although the Board is not aware of any effort by any person to acquire control
of the Bancorp and effect a change of control of the Bancorp, the authorized
but unissued shares of the Bancorp could be used to make it more difficult to
effect a change in control of the Bancorp and thereby make it more difficult
for shareholders to obtain an acquisition premium for their shares. Such
shares could be used to create impediments for persons seeking to gain control
of the Bancorp by means of a merger, tender offer, proxy contest or other
means. Such shares could be privately placed with purchasers who might
cooperate with the Board of Directors in opposing such an attempt by a third
party to gain control of the Bancorp. The issuance of new shares of the
Bancorp could be used to dilute the stock ownership of a person or entity
seeking to obtain control of the Bancorp. Additionally, this proposal, if
adopted, would dilute voting powers or equity interests of current stockholders
through the issuance of additional shares of capital stock.
The Bancorp's Certificate of Incorporation currently contains several
provisions that may be deemed to have the effect of discouraging and defeating
certain forms of acquisition proposals. Article SEVENTH of the Certificate of
Incorporation provides for a classified board of directors comprised of three
classes, each of which is elected to a three-year term. Article EIGHTH
provides that certain business combinations involving the Bancorp and holders
of more than 5% of the Bancorp's outstanding shares must be approved by the
affirmative vote of 80% of the outstanding shares unless the Board of
Directors approves the transaction prior to the time the acquiror became a 5%
owner or the Board of Directors unanimously approves the transaction. Each of
these provisions has previously been adopted by the shareholders.
Under the current provisions of the Bancorp's Certificate of Incorporation the
shareholders have the preemptive rights specified in Section 622 of the BCL.
In certain circumstances these preemptive rights will afford shareholders a
right of firstrefusal when the Bancorp issues additional shares of capital
stock. However, as discussed below, the Bancorp is also proposing to amend
its Certificate of Incorporation to repeal the preemptive rights held by the
shareholders. If such proposal is adopted by the shareholders, the
shareholders will not have preemptive rights. The preemptive rights
currently held by the shareholders are described below under "Amendment of
the Certificate of Incorporation to Repeal Preemptive Rights."
The affirmative vote of the holders of a majority of the outstanding Common
Shares is required to adopt the proposed amendments to the Certificate of
Incorporation. If the amendments to Article FOURTH of the Bancorp's
Certificate of Incorporation are authorized, Article FOURTH will read as f
ollows:
"FOURTH: Number of Shares. The aggregate
number of shares which the corporation shall have
authority to issue shall be 1,600,000, of which 1,500,000
shall be designated as Common Shares with a par value
of $5.00 each and 100,000 shall be designated as
Preferred Shares with a par value of one cent ($0.01)
each. Preferred Shares may be issued in series from
time to time by the board of directors, and the board
of directors is expressly authorized to fix by resolution
or resolutions the designations and the powers,
preferences and rights, and the qualifications,
limitations and restrictions thereof, of the Preferred
Shares, including without limitation the following:
(a) the distinctive serial designation of such
series which shall distinguish it from other series;
(b) the number of shares included in such
series, which number may be increased or decreased
from time to time unless otherwise provided by the
board of directors in the resolution or resolutions
providing for the issue of such series;
(c) the dividend rate (or method of
determining such rate) payable to the holders of the
shares of such series, any conditions upon which such
dividends shall be paid and the date or dates upon
which such dividends shall be payable;
(d) whether dividends on the shares of such
series shall be cumulative and, in the case of shares of
any series having cumulative dividend rights, the date
or dates or method of determining the date or dates
from which dividends on the shares of such series shall
be cumulative;
(e) the amount or amounts which shall be
payable out of the assets of the corporation to the
holders of the shares of such series upon voluntary or
involuntary liquidation, dissolution or winding up the
corporation;
(f) the price or prices at which, the period or
periods within which and the terms and conditions
upon which the shares of such series may be redeemed,
in whole or in part, at the option of the corporation or
at the option of the holder or holders thereof or upon
the happening of a specified event or events;
(g) the obligation, if any, of the corporation to
purchase or redeem shares of such series pursuant to
a sinking fund or otherwise and the price or prices at
which, the period or periods within which and the
terms and conditions upon which the shares of such
series shall be redeemed or purchased, in whole or in
part, pursuant to such obligation;
(h) whether or not the shares of such series
shall be convertible or exchangeable, at any time or at
times at the option of the holder or holders thereof or
at the option of the corporation or upon the happening
of a specified event or events, into shares of any other
class or classes or any other series of the same or any
other class or classes of stock of the corporation, and
the price or prices or rate or rates applicable thereto;
and
(i) the voting rights, if any, of the holders of
the shares of such series."
The Board of Directors recommends a vote FOR the proposal to amend the
Bancorp's Certificate of Incorporation (a) to increase the number of
authorized Common Shares from 500,000 to 1,500,000 and (b) to authorize a new
class of shares consisting of 100,000 Preferred Shares (Proposal No. 2 on the
proxy).
AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO
REPEAL PREEMPTIVE RIGHTS (PROPOSAL NO. 3)
The Board of Directors recommends that Article FIFTH of the
Bancorp's Certificate of Incorporation be deleted in its entirety and have
substituted therefor a new Article FIFTH eliminating the preemptive rights of
the Shareholders.
At its regularly held meeting on February 27, 1996, Board of Directors
adopted a resolution recommending to the Shareholders an amendment to the
Bancorp's Certificate of Incorporation amending Article FIFTH of the Bancorp's
Certificate of Incorporation.
The following discussion of preemptive rights is qualified in its entirety by
reference to Section 622 of the BCL which is attached hereto as Annex A and by
the proposed amendment to Article FIFTH set forth below.
Section 622 of the BCL provides that unless specified otherwise in the
Certificate of Incorporation the shareholders of a corporation will have
preemptive rights, The Bancorp's Certificate of Incorporation indicates that
the shareholders have preemptive rights.
Preemptive rights consist of an option to acquire newly issued shares of any
class of a security if the issuance of such security would adversely affect
a shareholder's unlimited dividend rights or voting rights. If the issuance
of the new security wouldnot adversely affect either a shareholder's
unlimited dividend rights or voting rights then the shareholder will not
have a right to purchase such newly issued securities. The preemptive rights
entitle the shareholders to purchase the securities offered for
sale as nearly as practicable in such proportions as would, if all of the
preemptiverights were exercised, preserve the relative unlimited dividend
rights and voting rights of the holders at a price not less favorable than the
price at which such shares are offered for sale to others. The repeal of
preemptive rights may have the effect of increasing or decreasing the value
of a shareholder's Common Shares.
The Board of Directors is of the opinion that the existence of preemptive
rights is a serious impediment to the Bancorp's ability to take advantage of
business opportunities that may arise and for possible future financings and
other corporate purposes. Preemptive rights severely curtail the ability of
a corporation to finance itself by accessing the public markets (and are
nearly universally eliminated in public companies). The existence of
preemptive rights hinders the ability of corporations to engage in offerings
and makes difficult the issuance process due to the additional expenses
involved. Preemptive rights were prevalent at a time when access to public
markets was limited (the shareholders of the Bancorp have always had preemptive
rights pursuant to the Bancorp's Certificate of Incorporation). Companies
require ready access to such markets and the Board believes that elimination
of such an antiquated concept will provide the Board with increased
flexibility in accessing such markets if the Board determines that an issuance
of capital stock is in the best interests of the Bancorp and its shareholders.
The affirmative vote of the holders of a majority of the outstanding Common
Shares is required to adopt the proposed amendment. If the amendment to
Article FIFTH of the Bancorp's Certificate of Incorporation is authorized,
Article FIFTH will read as follows:
"FIFTH: Preemptive Rights.
Notwithstanding anything to the
contrary contained in Section 622 of
the Business Corporation Law, the
shareholders shall not have preemptive
rights."
The Board of Directors recommends a vote FOR the proposal to amend the
Bancorp's Certificate of Incorporation by deleting Article FIFTH and
substituting a new Article FIFTH therefor indicating that the shareholders
do not have preemptive rights. (Proposal No. 3 on the proxy).
APPROVAL OF INDEPENDENT AUDITORS
(PROPOSAL NO. 4)
The Audit Committee has recommended that Albrecht, Viggiano, Zureck & Co.,
P.C., Certified Public Accountants, continue as the independent auditors for
the Bank and the Bancorp for 1996. The firm has served as the independent
auditors for the Bank and the Bancorp since 1992. Representatives of the firm
will be present at the annual meeting to answer questions and are free to make
statements during the course of the meeting.
The Board of Directors recommends a vote FOR the proposal
to approve the independent auditors (Proposal No. 4 on the proxy).
EXECUTIVE OFFICERS AND
PRINCIPAL SHAREHOLDERS
Security Ownership of Certain Beneficial Owners
The persons listed below are beneficial owners of more than 5% of the
outstanding Common Shares of the Bancorp as of February 26, 1996.
Name and Address Common Shares Percent
of Beneficial Owner Beneficially Owned of Class
Elizabeth Radau 30,296 6.99%
43 Edgewood Avenue
Smithtown, New York 11787-2723
Edith Hodgkinson 28,203 6.50%
P.O. Box 756
Bayport, New York 11705-0756
Augusta Kemper 24,933 5.75%
51 Mills Pond Road
St. James, New York 11780-2111
The following table shows stock ownership as of February 26, 1996, of all
directors and officers of the Bancorp as a group:
TABLE II
Amount of Common Shares Percentage of
Beneficially Owned (Note 1) Outstanding Common
Shares
Eleven directors and
executive officers of the
Bancorp as a group 84,185 Common Shares 19.43%
Note 1
Includes Common Shares 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 record
holder or beneficial owner 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 the Bank as of January,
1996.
TABLE III
Name Age Position
Bradley E. Rock 43 Chairman of the Board, President & Chief
Executive Officer of the Bancorp since January
1992. President of the Bancorp and the Bank
October 1990 to January 1992. Director of the
Bancorp and the Bank since 1988.
Anita M. Florek 45 Executive Vice President & Chief Financial
Officer of the Bank since January 1993.
Executive Vice President & Treasurer of the
Bancorp since January 1993. Senior Vice
President & Comptroller of the Bank January 1992
to January 1993. Senior Vice President &
Comptroller of the Bank March 1989 to January
1992. Treasurer of the Bancorp January 1991 to
January 1992.
Marc DeSimone 38 Executive Vice President & Chief Lending Officer
of the Bank since January 1993. Senior Vice
President & Chief Lending Officer of the Bank
January 1992 to January 1993. Vice President &
Chief Lending Officer of the Bank January 1991
to January 1992.
Executive Compensation
The table appearing below sets forth all compensation paid in 1995 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>
<S> <C> <C> <C> <C>
Name and Principal Position Year Salary Incentive Other Compensation
Compensation (1) (2)
Bradley E. Rock 1993 $168,000.00 -0- $16,763.40
Chairman, President & CEO 1994 $176,337.01 -0- $14,353.05
of the Bancorp and the Bank 1995 $185,325.00 $20,021.30 $19,077.76
Anita M. Florek 1993 $80,000.00 -0- $4,710.37
Executive Vice President 1994 $86,000.00 -0- $4,620.31
of the Bancorp and the Bank 1995 $95,000.00 $10,615.79 $6,042.98
Marc DeSimone 1993 $80,000.00 -0- $3,105.57
Executive Vice President 1994 $86,000.00 -0- $2,881.10
of the Bank 1995 $95,000.00 $10,615.79 $7,023.63
<FN>
(1) This amount includes director's fees. These amounts also include employer matching contributions paid in
connection with the Bank's 401(k) plan, amounts accrued during 1995 under the defined contribution plan and
premiums paid on behalf of the officers for a group term life insurance policy.
(2) Amounts reported do not include any amount expended by the Bank which may have provided an incidental
benefit to the persons listed in the table above, but which 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 in the aggregate for any of such persons.
</FN>
</TABLE>
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, 1995, through December 31,
1995.
In 1994, Edith Hodgkinson, a director of the Bancorp and the Bank, sold
16,566 Common Shares to the Bancorp and used the proceeds of the sale to
repay loans from the Bank that were in nonaccrual status. $309,677 from the
sale of Common Shares 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 on the Bank's balance sheet.
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 and/or ownership interest in the Bank
or the Bancorp.
PENSION PLAN
The Employee Stock Ownership Plan ( 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 Common Shares. A participant's allocation is
the total employer contribution multiplied by 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.
SHAREHOLDER PROPOSALS
Shareholder proposals to be presented at the 1997 Annual Meeting must be
received by the Secretary of the Board of Directors by October 4, 1996, 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 1, 1996
SMITHTOWN BANCORP, INC.
by /s/ Bradley E. Rock
Chairman of the Board, President
& Chief Executive Officer
ANNEX A
SECTION 622 OF THE
BUSINESS CORPORATION LAW
622. Preemptive rights
(a) As used in this section, the term:
(1) "Unlimited dividend rights" means the right without limitation as to
amount either to all or to a share of the balance of current or liquidating
dividends after the payment of dividends on any shares entitled to a
preference.
(2) "Equity shares" means shares of any class, whether or not preferred
as to dividends or assets, which have unlimited dividend rights.
(3) "Voting rights" means the right to vote for the election of one or
more directors, excluding a right so to vote which is dependent on the
happening of an event specified in the certificate of incorporation which
would change the voting rights of any class of shares.
(4) "Voting shares" means shares of any class which have voting rights,
but does not include bonds on which voting rights are conferred under section
518 (Corporate bonds).
(5) "Preemptive right" means the right to purchase shares or other
securities to be issued or subject to rights or options to purchase, as such
right is defined in this section.
(b) Except as otherwise provided in the certificate of incorporation, and
except as provided in this section, the holders of equity shares of any class,
in case of the proposed issuance by the corporation of, or the proposed
granting by the corporation of rights or options to purchase, its equity
shares of any class or any shares or other securities convertible into or
carrying rights or options to purchase its equity shares of any class, shall,
if the issuance of the equity shares proposed to be issued or issuable upon
exercise of such rights or options or upon conversion of such other securities
would adversely affect the unlimited dividend rights of such holders, have the
right during a reasonable time and on reasonable conditions, both to be fixed
by the board, to purchase such shares or other securities in such proportions
as shall be determined as provided in this section.
(c) Except as otherwise provided in the certificate of incorporation, and
except as provided in this section, the holders of voting shares of any class,
in case of the proposed issuance by the corporation of, or the proposed
granting by the corporation of rights or options to purchase, its voting
shares of any class or any shares or other securities convertible into or
carrying rights or options to purchase its voting shares of any class, shall,
if the issuance of the voting shares proposed to be issued or issuable upon
exercise of such rights or options or upon conversion of such other securities
would adversely affect the voting rights of such holders, have the
right during a reasonable time and on reasonable conditions, both to be fixed
by the board, to purchase such shares or other securities in such proportions
as shall be determined as provided in this section.
(d) The preemptive right provided for in paragraphs (b) and (c) shall
entitle shareholders having such rights to purchase the shares or other
securities to be offered or optioned for sale as nearly as practicable in such
proportions as would, if such preemptive right were exercised, preserve the
relative unlimited dividend rights and voting rights of such holders and at a
price or prices not less favorable than the price or prices at which such
shares or other securities are proposed to be offered for sale to others,
without deduction of such reasonable expenses of and compensation for the
sale, underwriting or purchase of such shares or other securities by
underwriters or dealers as may lawfully be paid by the corporation. In case
each of the shares entitling the holders thereof to preemptive rights does not
confer the same unlimited dividend right or voting right, the board shall
apportion the shares or other securities to be offered or optioned
for sale among the shareholders having preemptive rights to purchase them in
such proportions as in the opinion of the board shall preserve as far as
practicable the relative unlimited dividend rights and voting rights of the
holders at the time of such offering. The apportionment made by the board
shall, in the absence of fraud or bad faith, be binding upon all shareholders.
(e) Unless otherwise provided in the certificate of incorporation, shares
or other securities offered for sale or subjected to rights or options to
purchase shall not be subject to preemptive rights if they:
(1) Are to be issued by the board to effect a merger or consolidation or
offered or subjected to rights or options for consideration other than cash;
(2) Are to be issued or subjected to rights or options under paragraph
(d) of section 505 (Rights and options to purchase shares; issue of
rights and options to directors, officers and employees);
(3) Are to be issued to satisfy conversion or option rights theretofore
granted by the corporation;
(4) Are treasury shares;
(5) Are part of the shares or other securities of the corporation
authorized in its original certificate of incorporation and are issued, sold
or optioned within two years from the date of filing such certificate; or
(6) Are to be issued under a plan of reorganization approved in a
proceeding under any applicable act of congress relating to reorganization of
corporations.
(f) Shareholders of record entitled to preemptive rights on the record
date fixed by the board under section 604 (Fixing record date), or, if no
record date is fixed, then on the record date determined under section 604,
and no others shall be entitled to the right defined in this section.
(g) The board shall cause to be given to each shareholder entitled to
purchase shares or other securities in accordance with this section, a notice
directed to him in the manner provided in section 605 (Notice of meetings of
shareholders) setting forth the time within which and the terms and conditions
upon which the shareholder may purchase such shares or other securities and
also the apportionment made of the right to purchase among the shareholders
entitled to preemptive rights. Such notice shall be given personally or by
mail at least fifteen days prior to the expiration of the period during which
the shareholder shall have the right to purchase. All shareholders entitled
to preemptive rights to whom notice shall have been given as aforesaid shall
be deemed conclusively to have had a reasonable time in which to exercise
their preemptive rights.
(h) Shares or other securities which have been offered to shareholders
having preemptive rights to purchase and which have not been purchased by them
within the time fixed by the board may thereafter, for a period of not
exceeding one year following the expiration of the time during which
shareholders might have exercised such preemptive rights, be issued, sold or
subjected to rights or options to any other person or persons at a price,
without deduction of such reasonable expenses of and compensation for the
sale, underwriting or purchase of such shares by underwriters or dealers as
may lawfully be paid by the corporation, not less than that at which they
were offered to such shareholders. Any such shares or other securities not
so issued, sold or subjected to rights or options to others during such
one year period shall thereafter again be subject to the preemptive rights of
shareholders.
(i) Except as otherwise provided in the certificate of incorporation
and except as provided in this section, no holder of any shares of any class
shall as such holder have any preemptive right to purchase any other shares
or securities of any class which at any time may be sold or offered for sale
by the corporation. Unless otherwise provided in the certificate of
incorporation, holders of bonds on which voting rights are conferred under
section 518 shall have no preemptive rights.
THIS PROXY IS SOLICITED BY
BOARD OF DIRECTORS OF SMITHTOWN BANCORP, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held
Tuesday, April 2, 1996
The undersigned shareholder of Smithtown Bancorp, Inc., revoking all
proxies heretofore given with respect to the shares represented herewith,
hereby constitutes and appoints BARRY BROWN, DAVID LONG, DORIS MASTERS and
ROBERT SCHERDEL or any of them, the true and lawful attorneys, agents and
proxies of the undersigned, with full power of substitution for and in the
name, place and stead of the undersigned, with all the powers which the
undersigned would possess if personally present, to vote all common shares
of Smithtown Bancorp, Inc., held of record by the undersigned on February 26,
1996, at the Annual Meeting of Shareholders of Smithtown Bancorp, Inc., to be
held at the Bavarian Inn, 422 Smithtown Boulevard, Lake Ronkonkoma, New York,
on April 2, 1996, at 10:30 AM, or any adjournment thereof.
1. ELECTION OF JAMES H. GLAMORE, BARRY SEIGERMAN
AND AUGUSTA KEMPER AS DIRECTORS
The Board recommends a vote FOR All Nominees
/ /For ALL NOMINEES.
/ /Against ALL NOMINEES.
/ /For ALL NOMINEES EXCEPT ________________________________________
/ /Abstain ________________________________________
2. INCREASE AUTHORIZED SHARES
The Board recommends a vote FOR Proposal No 2.
/ /For proposal
/ /Against Proposal
/ /Abstain
3. DELETE PREEMPTIVE RIGHTS (Preemptive rights enable holders of Common
Shares, in certain circumstances, to purchase newly issued capital stock
of the Bancorp to prevent dilution.) See "AMENDMENT OF THE CERTIFICATE
OF INCORPORATION TO REPEAL PREEMPTIVE RIGHTS" and "ANNEX A."
The Board recommends a vote FOR Proposal No 3.
/ /For proposal
/ /Against Proposal
/ /Abstain
4. APPROVAL OF INDEPENDENT AUDITORS
The Board recommends a vote FOR Proposal No 4.
/ /For proposal
/ /Against Proposal
/ /Abstain
5. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
AND ANY ADJOURNMENT THEREOF.
Unless otherwise specified, this proxy will be voted for the election of the
nominated directors, in favor of the other proposals and in the discretion
of the persons in whose favor this proxy is granted, upon matters that may
properly come before the meeting.
Dated: , 1996 L.S.
(Please insert date) Signature of Shareholder
L.S.
Signature if Held Jointly
This proxy should be returned in the enclosed envelope.
Additional Information Set Forth in Response to Item 10:
The Bank has agreements with Bradley Rock, Anita Florek and Marc DeSimone
(the "Executives") which would become effective in the event of a change in
control of the Bank's stock. The agreement provides, in essence, that the
Executives 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 Executives immediately prior to the change in control. It provides that
their 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
Executives'compensation and benefits would not be less than they were
immediately prior to the change in control.
The agreement further provides that if the Executives' employment were
terminated by the Bank subsequent to a change in control, for any reason other
than cause, disability or death, the Executives would continue to receive the
same compensation and benefits they would have received had they 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 Executives elect to terminate
their employment with the Bank for any reason, they will receive a lump sum
severance allowance equivalent to three years' compensation and benefits at the
same rate as payable to the Executives immediately prior to the change in
control.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2843282
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6750000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19779334
<INVESTMENTS-CARRYING> 16888357
<INVESTMENTS-MARKET> 36755073
<LOANS> 98069261
<ALLOWANCE> 1429894
<TOTAL-ASSETS> 157528274
<DEPOSITS> 143581497
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1109704
<LONG-TERM> 0
0
0
<COMMON> 2239775
<OTHER-SE> 10597298
<TOTAL-LIABILITIES-AND-EQUITY> 157528274
<INTEREST-LOAN> 8278027
<INTEREST-INVEST> 3074341
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11352368
<INTEREST-DEPOSIT> 3243434
<INTEREST-EXPENSE> 3364895
<INTEREST-INCOME-NET> 7987473
<LOAN-LOSSES> 110000
<SECURITIES-GAINS> 1393
<EXPENSE-OTHER> 7721712
<INCOME-PRETAX> 2320171
<INCOME-PRE-EXTRAORDINARY> 1471381
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1471381
<EPS-PRIMARY> 3.40
<EPS-DILUTED> 3.40
<YIELD-ACTUAL> 8.32
<LOANS-NON> 2849000
<LOANS-PAST> 90000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1362404
<CHARGE-OFFS> 75741
<RECOVERIES> 33231
<ALLOWANCE-CLOSE> 1429894
<ALLOWANCE-DOMESTIC> 1429894
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 321313
</TABLE>
