<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997
Commission file number 2-91511
SMITHTOWN BANCORP
(Exact name of registrant as specified in its charter)
NEW YORK 11-2695037
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or Number)
organization)
ONE EAST MAIN STREET, SMITHTOWN, NEW YORK 11787-2801
(Address of principal executive offices)
516-360-9300
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
433,268 Shares of Common stock ($5.00 Par Value) Outstanding as of
September 30, 1997.
<PAGE> 2
SMITHTOWN BANCORP
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997 and December 31, 1996
Consolidated Statements of Income - Three months ended September 30,
1997 and 1996
Consolidated Statements of Income - Nine months ended September 30,
1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity - Nine
months ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows - Three months ended September
30, 1997 and 1996
Consolidated Statements of Cash Flows - Nine months ended September 30,
1997 and 1996
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Notes to Consolidated Financial Statements
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Change in Securities - None
Item 3. Defaults under Senior Securities - None
Item 4. Submission of Matters to Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (A) Exhibits - None
<PAGE> 3
SMITHTOWN BANCORP
CONSOLIDATED INCOME STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $2,447,188 $2,367,435
Interest and Dividends on:
Obligations of U.S. Government 69,114 30,270
Obligations of U.S. Government Agencies 279,053 191,176
Mortgage - Backed Securities 730,856 496,620
Obligations of State & Political Subdivisions 76,010 76,850
Other Securities 2,809 1,908
Interest on Federal Funds Sold 129,915 110,551
Interest on Balances Due From Depository Institutions 11,313 0
---------- ----------
Total Interest Income 3,746,258 3,274,810
---------- ----------
INTEREST EXPENSE
Money Market Accounts 305,462 205,324
Savings 231,489 326,198
Certificates of Deposit $100,000 and Over 33,343 30,233
Other Time Deposits 390,791 329,335
Interest on Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase 43,278 43,201
Interest on Demand Notes Issued by U. S. Treasury 34,874 12,057
Interest on Other Borrowed Money 42,627 0
---------- ----------
Total Interest Expense 1,081,864 946,348
---------- ----------
Net Interest Income 2,664,394 2,328,462
Provision for Possible Loan Losses 210,000 150,000
---------- ----------
Net Interest Income After Provision for Possible
Loan Losses 2,454,394 2,178,462
---------- ----------
OTHER NON - INTEREST INCOME
Trust Department Income 42,298 92,431
Service Charges on Deposit Accounts 374,635 322,117
Other Income 226,652 101,693
---------- ----------
Total Other Non - Interest Income 643,585 516,241
---------- ----------
OTHER OPERATING EXPENSES
Salaries 746,835 839,420
Pension and Other Employee Benefits 157,787 119,045
Net Occupancy Expense of Bank Premises 223,395 241,122
Furniture and Equipment Expense 144,759 158,085
Miscellaneous Operating Expense 402,433 503,627
---------- ----------
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Total Other Operating Expense 1,675,209 1,861,299
---------- ----------
Income Before Income Taxes 1,422,770 833,404
Provision for Income Taxes 541,846 313,476
---------- ----------
NET INCOME $ 880,924 $ 519,928
========== ==========
Earnings Per Share
Net Income $ 2.03 $ 1.20
Cash Dividends Paid $ 0.35 $ 0.32
Weighted Average Shares Outstanding 433,268 433,268
</TABLE>
<PAGE> 5
SMITHTOWN BANCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 8,128,707 $ 7,689,964
Investment Securities:
Investment Securities Held to Maturity
Obligations of U.S. Government 2,004,186 2,008,366
Mortgage - Backed Securities 7,697,232 9,003,335
Obligations of State and Political Subdivisions 5,167,730 4,996,750
------------- -------------
Total 14,869,148 16,008,451
------------- -------------
Investment Securities Available for Sale
Obligations of U.S. Government 6,176,280 0
Obligations of U.S. Government Agencies 15,251,518 13,563,700
Mortgage - Backed Securities 37,939,195 34,218,784
Other Securities 826,800 599,800
------------- -------------
Total 60,193,793 48,382,284
------------- -------------
Total Investment Securities 75,062,941 64,390,735
------------- -------------
(Fair value $75,138,477 at 9/30/97 and
$64,285,417 at 12/31/96)
Federal Funds Sold 12,400,000 0
Loans
Real Estate 67,848,354 65,326,210
Mortgage Loans Held for Sale 0 495,000
Commercial and Industrial 23,762,934 23,458,052
Loans to Individuals for Household, Family and
Other Personal Expenditures 9,021,882 11,543,331
Other 264,844 328,078
------------- -------------
Total 100,898,014 101,150,671
Less: Unearned Discount (694,412) (572,731)
Reserve for Possible Loan Losses (1,709,526) (1,622,572)
------------- -------------
Loans, Net 98,494,076 98,955,368
------------- -------------
Bank Premises and Equipment 2,446,960 2,618,863
Other Assets
Other Real Estate Owned 4,126,333 5,087,707
Other 2,832,396 2,886,412
------------- -------------
TOTAL ASSETS $ 203,491,413 $ 181,629,049
============= =============
LIABILITIES
Deposits:
Demand $ 45,185,876 $ 42,562,809
Money Market 35,072,537 27,412,325
NOW 16,846,150 14,466,688
Savings 41,628,138 45,729,259
Certificates of Deposit $100,000 and Over 9,665,688 6,392,848
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
Other Time Deposits 23,579,256 22,364,526
------------- -------------
Total 171,977,645 158,928,455
Dividend Payable 151,644 138,646
Securities Sold Under Agreements to Repurchase 2,800,000 2,800,000
Demand Notes Issued to the U.S. Treasury 8,000,000 1,485,724
Other Borrowed Funds 3,000,000 3,000,000
Other Liabilities 1,181,640 1,178,985
------------- -------------
Total 187,110,929 167,531,810
------------- -------------
STOCKHOLDERS' EQUITY
Common Stock - $5.00 Par Value, 1,500,000 Shares 2,239,775 2,239,775
Authorized; 447,955 Shares Issued
Unrealized Gain on Investment Securities
Available for Sale 281,543 81,093
Surplus 1,993,574 1,993,574
Retained Earnings 12,312,231 10,229,436
------------- -------------
Total 16,827,123 14,543,878
Less: Treasury Stock (446,639) (446,639)
------------- -------------
Total 16,380,484 14,097,239
------------- -------------
TOTAL LIABILITIES AND CAPITAL $ 203,491,413 $ 181,629,049
============= =============
</TABLE>
<PAGE> 7
SMITHTOWN BANCORP
CONSOLIDATED INCOME STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 7,201,676 $7,043,785
Interest and Dividends on:
Obligations of U.S. Government 117,982 115,977
Obligations of U.S. Government Agencies 767,952 365,666
Mortgage - Backed Securities 2,169,832 1,221,261
Obligations of State & Political Subdivisions 228,362 218,209
Other Securities 27,699 20,509
Interest on Federal Funds Sold 250,127 372,751
Interest on Balances Due From Depository Institutions 13,606 332
----------- ----------
Total Interest Income 10,777,236 9,358,490
----------- ----------
INTEREST EXPENSE
Money Market Accounts 804,107 620,758
Savings 750,807 997,911
Certificates of Deposit $100,000 and Over 139,086 151,823
Other Time Deposits 1,020,735 896,072
Interest on Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase 129,680 57,576
Interest on Demand Notes Issued by U. S. Treasury 81,515 17,436
Interest on Other Borrowed Money 131,295 0
----------- ----------
Total Interest Expense 3,057,225 2,741,576
----------- ----------
Net Interest Income 7,720,011 6,616,914
Provision for Possible Loan Losses 350,000 370,000
----------- ----------
Net Interest Income After Provision for Possible
Loan Losses 7,370,011 6,246,914
----------- ----------
OTHER NON - INTEREST INCOME
Trust Department Income 263,557 288,241
Service Charges on Deposit Accounts 1,149,176 965,128
Other Income 567,196 385,794
----------- ----------
Total Other Non - Interest Income 1,979,929 1,639,163
----------- ----------
OTHER OPERATING EXPENSES
Salaries 2,233,249 2,635,665
Pension and Other Employee Benefits 500,156 559,269
Net Occupancy Expense of Bank Premises 681,385 825,675
Furniture and Equipment Expense 442,359 486,521
Miscellaneous Operating Expense 1,361,294 1,800,360
----------- ----------
Total Other Operating Expense 5,218,443 6,307,490
----------- ----------
Income Before Income Taxes 4,131,497 1,578,587
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
Provision for Income Taxes 1,593,771 568,444
----------- ----------
NET INCOME $ 2,537,726 $1,010,143
=========== ==========
Earnings Per Share
Net $ 5.86 $ 2.33
Income
Cash Dividends Paid $ 1.02 $ 0.92
Weighted Average Shares Outstanding 433,268 433,268
</TABLE>
<PAGE> 9
SMITHTOWN BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
UNREALIZED COST OF
COMMON STOCK GAIN(LOSS) COMMON TOTAL
SHARES CAPITAL ON SECURITIES RETAINED STOCK IN STOCKHOLDERS'
OUTSTANDING AMOUNT SURPLUS AVAILABLE FOR SALE EARNINGS TREASURY EQUITY
----------- ------ ------- ------------------ -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 1/1/96 433,268 $2,239,775 $1,993,574 $ (28,157) $ 9,078,520 $(446,639) $12,837,073
Net Income 1,010,143 1,010,143
Cash Dividend Declared (415,937) (415,937)
Allowance for Unrealized Gain(Loss) (180,546) (180,546)
------- ---------- ---------- ----------- ----------- --------- -----------
BALANCE AT 9/30/96 433,268 $2,239,775 $1,993,574 $ (208,703) $ 9,672,726 $(446,639) $13,250,733
======= ========== ========== =========== =========== ========= ===========
Balance at 1/1/97 433,268 $2,239,775 $1,993,574 $ 81,093 $10,229,436 $(446,639) $14,097,239
Net Income 2,537,726 2,537,726
Cash Dividend Declared (454,931) (454,931)
Allowance for Unrealized Gain(Loss) 200,450 200,450
------- ---------- ---------- ----------- ----------- --------- -----------
BALANCE AT 9/30/97 433,268 $2,239,775 $1,993,574 $ 281,543 $12,312,231 $(446,639) $16,380,484
======= ========== ========== =========== =========== ========= ===========
</TABLE>
<PAGE> 10
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 880,924 $ 519,928
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation on Premises and Equipment 98,345 108,942
Provision for Possible Loan Losses 210,000 150,000
Amortization of Transition Obligation 26,025 11,925
Increase (Decrease) in Interest Payable 12,719 (2,797)
Increase in Miscellaneous Payables and
Accrued Expenses 1,120 132,920
(Increase) Decrease in Fees and Commissions Receivable 46,000 (17,600)
Increase in Interest Receivable (174,115) (26,362)
Decrease in Prepaid Expenses 17,943 219,201
Increase in Miscellaneous Receivables (135,589) (308)
Decrease in Income Taxes Receivable 96,856 75,576
Decrease in Deferred Taxes (126,010) (70,100)
Decrease in Accumulated Post Retirement Benefit
Obligation (15,447) (16,170)
Amortization of Investment Security Premiums and
Accretion of Discounts 47,629 33,461
------------ -----------
CASH PROVIDED BY OPERATING ACTIVITIES 986,400 1,118,616
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities
Held to Maturity 540,519 1,941,826
Proceeds from Maturities of Investment Securities
Available for Sale 2,869,383 537,532
Purchases of Investment Securities Available for Sale (9,790,730) (8,142,856)
Purchases of Investment Securities Held to Maturity (263,756) 0
Net Decrease in Federal Funds Sold 900,000 2,750,000
Net (Increase) Decrease in Loans (1,615,309) 3,170,968
Purchases of Premises and Equipment (21,997) (50,697)
------------ -----------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES (7,381,890) 206,773
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Demand Deposits, NOW
Accounts and Savings Accounts 4,249,496 1,064,930
Net Increase (Decrease) in Time Accounts 997,586 (963,862)
Cash Dividends Paid (151,643) (138,646)
Net Increase (Decrease) in Borrowed Funds (1,000,000) 754,287
------------ -----------
CASH PROVIDED BY FINANCING ACTIVITIES 4,095,439 716,709
------------ -----------
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C>
Net Increase (Decrease) in Cash and Due from Banks (2,300,051) 2,042,098
Cash and Due from Banks, Beginning of Period 10,428,758 7,703,429
------------ -----------
Cash and Due from Banks, End of Period $ 8,128,707 $ 9,745,527
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest $ 120,779 $ 55,257
Income Taxes $ 571,000 $ 308,000
NON-CASH INVESTING ACTIVITIES
Loans Transferred to Other Real Estate Owned $ 120,036 $ 0
</TABLE>
<PAGE> 12
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,537,726 $ 1,010,143
Adjustments to reconcile net income to net cash
provided by operating activities:
Valuation Reserve for Other Real Estate Owned 120,000 80,000
Depreciation on Premises and Equipment 308,921 344,123
Provision for Possible Loan Losses 350,000 370,000
Amortization of Transition Obligation 78,077 35,775
Loss on Sale of Bank Property 0 57,568
Increase in Interest Payable 37,716 12,467
Increase(Decrease)in Miscellaneous Payables and
Accrued Expenses (54,886) 102,883
(Increase) Decrease in Fees and Commissions Receivable 25,000 (63,200)
Increase in Interest Receivable (227,098) (244,860)
Decrease in Prepaid Expenses 189,560 285,291
(Increase) Decrease in Miscellaneous Receivables (178,241) 2,717
Decrease in Income Taxes Receivable 187,705 82,672
Decrease in Deferred Taxes (99,361) (60,191)
Decrease in Accumulated Post Retirement Benefit
Obligation (46,955) (38,246)
Amortization of Investment Security Premiums and
Accretion of Discounts (46,172) (37,828)
------------ ------------
CASH PROVIDED BY OPERATING ACTIVITIES 3,181,992 1,939,314
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities
Held to Maturity 1,850,824 2,782,827
Proceeds from Maturities of Investment Securities
Available for Sale 11,830,607 4,259,117
Purchases of Investment Securities Available for Sale (23,224,306) (27,253,144)
Purchases of Investment Securities Held to Maturity (737,555) (714,347)
Net (Increase) Decrease in Federal Funds Sold (12,400,000) 2,650,000
Net Increase in Loans (617,388) (1,307,301)
Purchases of Premises and Equipment (137,018) (141,769)
Proceeds from Sale of Bank Property 0 205,239
Proceeds from Sale of Other Real Estate Owned 1,570,054 1,070,000
------------ ------------
CASH USED BY INVESTING ACTIVITIES (21,864,782) (18,449,378)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Demand Deposits, NOW
Accounts and Savings Accounts 8,561,621 9,606,275
Net Increase in Time Accounts 4,487,569 4,444,689
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C>
Cash Dividends Paid (441,933) (398,607)
Net Increase in Borrowed Funds 6,514,276 5,600,000
------------ ------------
CASH PROVIDED BY FINANCING ACTIVITIES 19,121,533 19,252,357
------------ ------------
Net Increase in Cash and Due from Banks 438,743 2,742,293
Cash and Due from Banks, Beginning of Period 7,689,964 7,003,234
------------ ------------
Cash and Due from Banks, End of Period $ 8,128,707 $ 9,745,527
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest $ 342,490 $ 75,011
Income Taxes $ 1,505,427 $ 545,963
NON-CASH INVESTING ACTIVITIES
Loans Transferred to Other Real Estate Owned $ 728,680 $ 0
</TABLE>
<PAGE> 14
SMITHTOWN BANCORP
INTEREST RATE SENSITIVITY REPORT
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
3 MONTHS 3 -6 6 - 12 1-3 3-5
REVOLVING OR LESS MONTHS MONTHS YEARS YEARS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INVESTMENTS $ 7,859,921 $ 2,110,300 $ 9,914,398 $17,922,596 $ 19,079,701 $ 1,719,018
FEDERAL FUNDS SOLD 12,400,000 0 0 0 0 0
LOANS:
INSTALLMENT 1,096,032 1,190,373 1,158,250 3,652,799 5,726,139 3,914,711
REAL ESTATE AND COMMERCIAL 22,005,441 7,114,673 1,899,578 7,293,253 19,111,690 14,942,455
CASH AND DUE FROM BANKS 152,499 0 0 0 0 0
FIXED ASSETS 0 0 0 0 0 0
OTHER ASSETS 0 0 0 0 0 0
RESERVE FOR POSSIBLE LOAN LOSSES 0 0 0 0 0 0
NON-ACCRUALS 0 0 0 0 0 0
UNEARNED DISCOUNT 0 0 0 0 0 0
----------- ------------ ----------- ----------- ------------ ------------
TOTAL 43,513,893 10,415,346 12,972,226 28,868,648 43,917,530 20,576,184
----------- ------------ ----------- ----------- ------------ ------------
LIABILITIES:
SAVINGS 0 2,081,407 2,081,407 4,162,814 16,651,255 16,651,255
MONEY MARKETS 0 4,384,067 4,384,067 8,768,134 17,536,269 0
NOW 0 842,307 842,307 1,684,615 6,738,460 6,738,461
TIME less than 100 8,658 6,415,612 5,284,868 6,236,281 3,694,993 1,938,844
TIME greater than 100 0 5,048,599 733,727 616,243 2,367,119 900,000
DEMAND 0 1,129,647 1,129,647 2,259,294 9,037,175 9,037,175
REPURCHASE AGREEMENTS 0 0 0 2,800,000 0 0
OTHER BORROWED MONEY 0 8,000,000 0 0 0 3,000,000
OTHER LIABILITIES 0 0 0 0 0 0
STOCKHOLDERS' EQUITY 0 0 0 0 0 0
----------- ------------ ----------- ----------- ------------ ------------
TOTAL 8,658 27,901,639 14,456,023 26,527,381 56,025,271 38,265,735
----------- ------------ ----------- ----------- ------------ ------------
INTEREST SENSITIVITY GAP
PER PERIOD 43,505,235 (17,486,293) (1,483,797) 2,341,267 (12,107,741) (17,689,551)
GAP/TOTAL ASSETS 21.38% -8.59% -0.73% 1.15% -5.95% -8.69%
CUMULATIVE INTEREST
SENSITIVITY GAP 43,505,235 26,018,942 24,535,145 26,876,412 14,768,671 (2,920,880)
% OF CUMULATIVE GAP
TO TOTAL ASSETS 21.38% 12.79% 12.06% 13.21% 7.26% -1.44%
</TABLE>
<TABLE>
<CAPTION>
5+
YEARS OTHER TOTAL
-------------------------------------------
<S> <C> <C> <C>
ASSETS:
INVESTMENTS $15,630,207 $ 826,800 $ 75,062,941
FEDERAL FUNDS SOLD 0 0 12,400,000
LOANS:
INSTALLMENT 2,499,765 0 19,238,069
REAL ESTATE AND COMMERCIAL 6,987,590 264,844 79,619,524
CASH AND DUE FROM BANKS 0 7,976,208 8,128,707
FIXED ASSETS 0 2,446,960 2,446,960
OTHER ASSETS 0 6,958,729 6,958,729
RESERVE FOR POSSIBLE LOAN LOSSES 0 (1,709,526) (1,709,526)
NON-ACCRUALS 0 2,040,421 2,040,421
UNEARNED DISCOUNT 0 (694,412) (694,412)
----------- ------------ ------------
TOTAL 25,117,562 18,110,024 203,491,413
----------- ------------ ------------
LIABILITIES:
SAVINGS 0 0 41,628,138
MONEY MARKETS 0 0 35,072,537
NOW 0 0 16,846,150
TIME less than 100 0 0 23,579,256
TIME greater than 100 0 0 9,665,688
DEMAND 0 22,592,938 45,185,876
REPURCHASE AGREEMENTS 0 0 2,800,000
OTHER BORROWED MONEY 0 0 11,000,000
OTHER LIABILITIES 0 1,181,640 1,181,640
STOCKHOLDERS' EQUITY 0 16,532,128 16,532,128
----------- ------------ ------------
TOTAL 0 40,306,706 203,491,413
----------- ------------ ------------
INTEREST SENSITIVITY GAP
PER PERIOD 25,117,562 (22,196,682)
GAP/TOTAL ASSETS 12.34%
CUMULATIVE INTEREST
SENSITIVITY GAP 22,196,682
% OF CUMULATIVE GAP
TO TOTAL ASSETS 10.91%
</TABLE>
ASSUMPTIONS:
1) BALANCE SHEET FIGURES AS OF SEPT 30, 1997
2) SAVINGS AND NOW ACCOUNTS ASSUMED TO DECLINE OVER 5 YEAR PERIOD
3) MONEY MARKET ACCOUNTS ASSUMED TO DECLINE OVER 2 YEAR PERIOD
<PAGE> 15
Management's Discussion and Analysis of Financial Condition and Results of
Operation
Smithtown Bancorp, a one-bank holding company, acquired 100% of the
outstanding common stock of Bank of Smithtown on November 1, 1984. Smithtown
Bancorp and its subsidiary Bank of Smithtown, filed an Annual Report 10KSB for
the period ended December 31, 1996.
The Balance Sheet remained on an upward trend reaching $203,491,413 in
total assets at September 30, 1997, surpassing the 1996 year-end total assets of
$181,629,049 by 12.04%. This substantial growth was fueled by an impressive
increase of 8.21% to the Bank's deposit base. The investment portfolio was the
major recipient of these funds, rising 16.57%. New purchases were made primarily
to the Available for Sale portion of the portfolio and consisted of U.S.
Treasury Notes, U.S. Government Agencies and adjustable rate Mortgaged-Backed
Securities. These newly acquired investments remain diversified in order to
obtain high yields, realize risk based capital advantages, and supply
collateral demands while maintaining a comfortable liquidity level. On
September 30, 1997, investments totaled $75,062,941, yielding 6.39%. The
Investment Security portfolio comprises 36.89% of total assets.
Federal Funds Sold equaled $12,400,000 on September 30, 1997, yielding
5.61%. As we approach the final quarter of 1997, the bank anticipates a major
increase in loan growth which will be funded by monies residing in the Federal
Funds Sold Account. Participation in the U.S. Treasury Demand Note Program
reached $8,000,000 on September 30, 1997. These funds are invested overnight in
Fed Funds due to the nature of their repayment.
Currently, loans remain stable and strong with only a slight decrease
of 0.25%, totaling $100,898,104 on September 30, 1997 compared to $101,150,671
on December 31, 1996. The segregation of the loan portfolio shifted with
approximately $2,500,000 moving from consumer loans into real estate loans.
Loans represent 49.58% of total assets and yield 9.67%.
OREO has dramatically decreased by 18.90% from $5,087,707 on December
31, 1996 to $4,126,333 on September 30, 1997. This decline is attributed to the
sale of one large property during the first quarter. The last two quarters have
produced minimal balance changes due to the sale of a few small properties
replaced by new properties of equal value.
Deposit accounts continued to rise ascending to $171,977,645 on
September 30, 1997, an increase of 8.21% from the December 31, 1996 total of
$158,928,455. All deposit account categories increased with the exception of
savings accounts. This, however, was not unexpected as the Bank significantly
lowered the rate on these accounts in keeping with current market standards.
Many savings account customers transferred funds to money market instruments
because of the higher rates paid on these accounts. The bank also anticipated
this movement of funds and was not surprised by
<PAGE> 16
the 27.94% rise in money market balances. Demand Deposits, Certificates of
Deposits, and NOW accounts continued to escalate throughout the nine months in
1997, due to the efforts of an aggressive sales team, competitive rates and
products coupled with superior service and the communities' trust in Bank of
Smithtown and its continued longevity.
As a result of the increased level of Demand Notes Issued to the U.S.
Treasury, the bank was able to take advantage of the spread earned on higher
balances.
Capital increased by 16.20% due to the high level of net income and
remains very strong by all regulatory guidelines. The following table outlines
current capital ratios:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996 Required
<S> <C> <C> <C>
Tier I 13.66 12.30 4.00
Tier II 1.25 1.25 ***
Total Risk Based
Capital Ratio 14.91 13.58 8.00
Leverage Ratio 8.22 7.82 4.00
</TABLE>
The reengineering efforts of 1996 have produced magnificent results in
1997. Bank of Smithtown closed its third quarter with record high earnings of
$2,537,726. Total Interest Income rose by 15.16% largely attributed to the
growth of the Investment Portfolio which produced an income increase of
$1,370,205 over that same period last year. Loan income rose by 2.24% from
$7,043,785 on September 30, 1996 to $7,201,676 on September 30, 1997. Total
Interest Expense climbed 11.51% as a result of the increased deposit base and
competitive rates combined with the bank's decision to utilize borrowings such
as Repos, Advances and Demand Notes Issued to the U.S. Treasury to fund higher
yielding assets. Other non-interest income increased by 20.79% over the same
nine month period in 1996, due to increased service charge fees and commissions,
boosted by the larger deposit base. Total other operating expenses were reduced
by 17.27% primarily due to the reengineering process which decreased salary and
benefit expenses and increased the awareness of unnecessary expenditures and
procedures.
Earnings have more than doubled that of last year during the same nine
month period climbing to a record high of $2,537,726. As the Bank enters the
final quarter of 1997, it will continue its strong efforts to close this year
with results equal to those achieved during the previous three quarters.
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENT PRESENTATION
In the opinion of management, the accompanying unaudited interim
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly its financial position as of
September 30, 1997, and its results of operations for the three months ended
September 30, 1997 and 1996 and its cash flows for the three months ended
September 30, 1997 and 1996. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1996.
EARNINGS PER COMMON SHARES
Earnings per share are calculated by dividing Net Income by the
weighted average number of common shares outstanding.
INVESTMENT SECURITIES
Fair Value:
<TABLE>
<S> <C>
September 30, 1997 $75,138,477
December 31, 1996 $64,285,417
</TABLE>
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMITHTOWN BANCORP
By /s/ Bradley E. Rock, President
November 13, 1997 ---------------------------------
Bradley E. Rock, President
By /s/ Anita Florek, Treasurer
November 13, 1997 ---------------------------------
Anita Florek, Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,531,191
<INT-BEARING-DEPOSITS> 152,499
<FED-FUNDS-SOLD> 12,400,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,193,792
<INVESTMENTS-CARRYING> 14,559,149
<INVESTMENTS-MARKET> 75,138,477
<LOANS> 98,494,076
<ALLOWANCE> 1,709,526
<TOTAL-ASSETS> 203,491,413
<DEPOSITS> 172,169,547
<SHORT-TERM> 0
<LIABILITIES-OTHER> 15,133,284
<LONG-TERM> 0
0
0
<COMMON> 2,239,775
<OTHER-SE> 14,140,710
<TOTAL-LIABILITIES-AND-EQUITY> 203,491,413
<INTEREST-LOAN> 2,447,188
<INTEREST-INVEST> 1,287,757
<INTEREST-OTHER> 11,313
<INTEREST-TOTAL> 3,746,258
<INTEREST-DEPOSIT> 961,085
<INTEREST-EXPENSE> 1,081,864
<INTEREST-INCOME-NET> 2,664,394
<LOAN-LOSSES> 210,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,675,209
<INCOME-PRETAX> 1,422,770
<INCOME-PRE-EXTRAORDINARY> 880,924
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 880,924
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 2.03
<YIELD-ACTUAL> 8.24
<LOANS-NON> 2,040,422
<LOANS-PAST> 65,137
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,449,253
<CHARGE-OFFS> 0
<RECOVERIES> 50,273
<ALLOWANCE-CLOSE> 1,709,526
<ALLOWANCE-DOMESTIC> 1,709,526
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 453,600
</TABLE>
