SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
__________________
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998
__________________
Commission file number 2-91511
SMITHTOWN BANCORP
Incorporated pursuant to the Laws of New York State
Internal Revenue Service - Employer Identification No. 11-2695037
One East Main Street, Smithtown, New York 11787-2801
516-360-9300
__________________
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: 845,493 Shares of Common stock
($2.50 Par Value) Outstanding as of June 30, 1998.
<PAGE>
SMITHTOWN BANCORP
INDEX
Part I - FINANCIAL INFORMATION PAGES
------
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 4 - 5
Consolidated Statements of Income
Three months ended June 30, 1998 and 1997 6
Consolidated Statements of Income
Six months ended June 30, 1998 and 1997 7
Consolidated Statements of Changes in Stockholders Equity
Six months ended June 30, 1998 and 1997 8
Consolidated Statements of Cash Flows
Three months ended June 30, 1998 and 1997 9
Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 15
Item 3. Notes to Consolidated Financial Statements 16
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
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<TABLE>
<CAPTION>
SMITHTOWN BANCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
As of
June 30, 1998 December 31, 1997
___________________________________________________________________________________________________________________________________
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Assets
Cash and Due from Banks ...................................................... $ 8,729,362 $ 7,667,371
Investment Securities:
Investment Securities Held to Maturity
Obligations of U.S. Government .......................................... 1,000,081 2,002,757
Mortgage - Backed Securities ............................................ 6,025,272 7,237,038
Obligations of State and Political Subdivisions ......................... 6,410,295 6,458,344
------------- -------------
Total ................................................................. 13,435,648 15,698,139
------------- -------------
Investment Securities Available for Sale
Obligations of U.S. Government .......................................... 6,146,730 6,175,710
Obligations of U.S. Government Agencies ................................. 11,233,520 15,251,638
Mortgage - Backed Securities ............................................ 27,561,467 36,190,088
Oligations of State and Political Subdivisions .......................... 7,472,202 0
Other Securities ........................................................ 856,800 856,800
------------- -------------
Total ................................................................. 53,270,719 58,474,236
------------- -------------
Total Investment Securities ............................................. 66,706,367 74,172,375
------------- -------------
(Fair value $66,808,889 at 6/30/98 and
$74,336,201 at 12/31/97)
Federal Funds Sold ........................................................... 21,100,000 8,300,000
Loans
Real Estate ............................................................. 77,237,374 69,059,256
Commercial and Industrial ............................................... 23,047,701 23,745,418
Loans to Individuals for Household, Family and
Other Personal Expenditures ......................................... 6,026,383 7,492,586
Other ................................................................... 61,141 106,272
------------- -------------
Total ................................................................. 106,372,599 100,403,532
Less: Unearned Discount ................................................. (435,540) (690,328)
Reserve for Possible Loan Losses ............................... (1,947,200) (1,677,594)
------------- -------------
Loans, Net ................................................................... 103,989,859 98,035,610
------------- -------------
Bank Premises and Equipment .................................................. 3,013,312 2,454,834
Other Assets
Other Real Estate Owned ................................................. 3,844,788 3,927,786
Other ................................................................... 3,269,967 3,098,459
------------- -------------
Total Assets ................................................................. $ 210,653,655 $ 197,656,435
============= =============
</TABLE>
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<TABLE>
<CAPTION>
SMITHTOWN BANCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
As of
June 30, 1998 December 31, 1997
___________________________________________________________________________________________________________________________________
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Liabilities
Deposits:
Demand .................................................................. $ 44,277,394 $ 42,566,624
Money Market ............................................................ 42,157,381 36,326,089
NOW ..................................................................... 14,098,358 15,284,660
Savings ................................................................. 39,161,252 40,998,166
Certificates of Deposit $100,000 and Over ............................... 10,650,785 8,773,618
Other Time Deposits ..................................................... 26,019,275 24,246,478
------------- -------------
Total ................................................................. 176,364,445 168,195,635
Dividend Payable ............................................................. 169,099 151,644
Securities Sold Under Agreements to Repurchase ............................... 0 2,800,000
Demand Notes Issued to the U.S. Treasury ..................................... 13,000,000 5,452,540
Other Borrowed Funds ......................................................... 3,000,000 3,000,000
Other Liabilities ............................................................ 1,048,581 1,077,158
------------- -------------
Total ................................................................... 193,582,125 180,676,977
------------- -------------
Stockholders' Equity
Common Stock - $2.50 Par Value, 3,000,000 Shares ............................ 2,239,775 2,239,775
Authorized; 895,910 Shares Issued
Unrealized Gain on Investment Securities
Available for Sale ................................................... 256,573 249,068
Surplus ...................................................................... 1,993,574 1,993,574
Retained Earnings ............................................................ 14,260,308 12,943,680
------------- -------------
Total ................................................................... 18,750,230 17,426,097
Less: Treasury Stock (50,417 shares at cost) ............................ (1,678,700) (446,639)
------------- -------------
Total ................................................................... 17,071,530 16,979,458
------------- -------------
Total Liabilities and Capital ................................................ $ 210,653,655 $ 197,656,435
============= =============
</TABLE>
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<TABLE>
<CAPTION>
SMITHTOWN BANCORP
CONSOLIDATED INCOME STATEMENTS
(unaudited)
For Three Months Ended
June 30, 1998 June 30, 1997
___________________________________________________________________________________________________________________________________
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Interest Income
Interest and Fees on Loans ......................................................... $ 2,386,239 $ 2,375,011
Interest and Dividends on:
Obligations of U.S. Government ................................................ 111,083 23,991
Obligations of U.S. Government Agencies ....................................... 234,215 266,487
Mortgage - Backed Securities .................................................. 515,826 753,222
Obligations of State & Political Subdivisions ................................. 170,663 77,804
Other Securities .............................................................. 15,173 22,630
Interest on Federal Funds Sold ..................................................... 176,151 65,908
Interest on Balances Due From Depository Institutions .............................. 2,794 1,385
---------- ----------
Total Interest Income ......................................................... 3,612,144 3,586,438
---------- ----------
Interest Expense
Money Market Accounts .............................................................. 343,404 266,382
Savings ............................................................................ 202,538 242,778
Time Deposits $100,000 and Over ................................................... 117,506 48,961
Other Time Deposits ................................................................ 334,530 334,474
Interest on Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase ........................................... 28,745 42,483
Interest on Demand Notes Issued by U. S. Treasury .................................. 51,924 31,035
Interest on Other Borrowed Money ................................................... 42,163 42,245
---------- ----------
Total Interest Expense ........................................................ 1,120,810 1,008,358
---------- ----------
Net Interest Income ................................................................ 2,491,334 2,578,080
Provision for Possible Loan Losses ................................................. 143,200 140,000
---------- ----------
Net Interest Income After Provision for Possible
Loan Losses ...................................................................... 2,348,134 2,438,080
---------- ----------
Other Non - Interest Income
Trust Department Income ............................................................ 118,186 119,500
Service Charges on Deposit Accounts ................................................ 374,178 401,868
Other Income ....................................................................... 286,368 186,051
---------- ----------
Total Other Non - Interest Income ............................................. 778,732 707,419
---------- ----------
Other Operating Expenses
Salaries ........................................................................... 807,058 763,239
Pension and Other Employee Benefits ................................................ 176,824 165,058
Net Occupancy Expense of Bank Premises ............................................. 196,753 220,461
Furniture and Equipment Expense .................................................... 158,019 141,422
Miscellaneous Operating Expense .................................................... 506,715 456,541
---------- ----------
Total Other Operating Expense ................................................. 1,845,369 1,746,721
---------- ----------
Income Before Income Taxes ......................................................... 1,281,497 1,398,778
Provision for Income Taxes ......................................................... 463,022 540,255
---------- ----------
Net Income .................................................................... $ 818,475 $ 858,523
========== ==========
Earnings Per Share
Net Income ......................................................................... $ 0.96 $ 0.99
Cash Dividends Paid ................................................................ $ 0.20 $ 0.175
Weighted Average Shares Outstanding ................................................ 850,263 866,536
</TABLE>
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<TABLE>
<CAPTION>
SMITHTOWN BANCORP
CONSOLIDATED INCOME STATEMENTS
(unaudited)
For Six Months Ended
June 30, 1998 June 30, 1997
___________________________________________________________________________________________________________________________________
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Interest Income
Interest and Fees on Loans ......................................................... $ 4,814,849 $ 4,754,488
Interest and Dividends on:
Obligations of U.S. Government ................................................ 226,840 48,868
Obligations of U.S. Government Agencies ....................................... 524,095 488,899
Mortgage - Backed Securities .................................................. 1,132,303 1,438,976
Obligations of State & Political Subdivisions ................................. 262,961 152,352
Other Securities .............................................................. 29,513 24,890
Interest on Federal Funds Sold ..................................................... 290,891 120,212
Interest on Balances Due From Depository Institutions .............................. 5,701 2,293
---------- ----------
Total Interest Income ......................................................... 7,287,153 7,030,978
---------- ----------
Interest Expense
Money Market Accounts .............................................................. 679,106 498,645
Savings ............................................................................ 406,510 519,318
Time Deposits $100,000 and Over ................................................... 238,634 105,743
Other Time Deposits ................................................................ 631,657 629,944
Interest on Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase ........................................... 72,826 86,402
Interest on Demand Notes Issued by U. S. Treasury .................................. 102,116 46,641
Interest on Other Borrowed Money ................................................... 83,863 88,668
---------- ----------
Total Interest Expense ........................................................ 2,214,712 1,975,361
---------- ----------
Net Interest Income ................................................................ 5,072,441 5,055,617
Provision for Possible Loan Losses ................................................. 253,200 140,000
---------- ----------
Net Interest Income After Provision for Possible
Loan Losses ...................................................................... 4,819,241 4,915,617
---------- ----------
Other Non - Interest Income
Trust Department Income ............................................................ 204,688 221,259
Service Charges on Deposit Accounts ................................................ 728,094 774,541
Other Income ....................................................................... 447,989 340,544
---------- ----------
Total Other Non - Interest Income ............................................. 1,380,771 1,336,344
---------- ----------
Other Operating Expenses
Salaries ........................................................................... 1,568,693 1,486,414
Pension and Other Employee Benefits ................................................ 370,414 342,369
Net Occupancy Expense of Bank Premises ............................................. 409,517 457,990
Furniture and Equipment Expense .................................................... 279,530 297,600
Miscellaneous Operating Expense .................................................... 932,638 958,861
---------- ----------
Total Other Operating Expense ................................................. 3,560,792 3,543,234
---------- ----------
Income Before Income Taxes ......................................................... 2,639,220 2,708,727
Provision for Income Taxes ......................................................... 982,292 1,051,925
---------- ----------
Net Income .................................................................... $ 1,656,928 $ 1,656,802
========== ==========
Earnings Per Share
Net Income ......................................................................... $ 1.93 $ 1.91
Cash Dividends Paid ................................................................ $ 0.375 $ 0.335
Weighted Average Shares Outstanding ................................................ 856,605 866,536
</TABLE>
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<TABLE>
<CAPTION>
SMITHTOWN BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Unrealized Cost of
Common Stock Gain(Loss) Common Total
Shares Capital On Securities Retained stock in Stockholders'
Outstanding Amount Surplus Available for Earnings Treasury Equity
Sale
____________________________________________________________________________________________________________________________________
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Balance at 1/1/97 866,536 $ 2,239,775 $ 1,993,574 $ 81,093 $ 10,229,436 $ (446,639) $ 14,097,239
Net Income 1,656,802 1,656,802
Cash Dividend Declared (303,288) (303,288)
Allowance for Unrealized Gain(Loss) 65,617 65,617
-------- ---------- ----------- --------- ------------ ---------- -------------
Balance at 6/30/97 866,536 $ 2,239,775 $ 1,993,574 $ 146,710 $ 11,582,950 $ (446,639) $ 15,516,370
======= =========== =========== ========= ============ =========== ============
Balance at 1/1/98 866,536 $ 2,239,775 $ 1,993,574 $ 249,068 $ 12,943,680 $ (446,639) $ 16,979,458
Net Income 1,656,928 1,656,928
Cash Dividend Declared (340,300) (340,300)
Purchase Treasury Stock (21,043) (1,232,061) (1,232,061)
Allowance for Unrealized Gain(Loss) 7,505 7,505
-------- ----------- ----------- --------- ------------ ------------- ------------
Balance at 6/30/98 845,493 $ 2,239,775 $ 1,993,574 $ 256,573 $ 14,260,308 $ (1,678,700) $ 17,071,530
======= =========== =========== ========= ============ ============= =============
</TABLE>
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<TABLE>
<CAPTION>
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For Three Months Ended
June 30, 1998 June 30, 1997
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Cash Flows from Operating Activities
Net Income ....................................................................... $ 818,475 $ 858,523
Adjustments to reconcile net income to net cash
provided by operating activities:
Valuation Reserve for Other Real Estate Owned ............................... 40,998 30,000
Depreciation on Premises and Equipment ...................................... 92,028 105,419
Provision for Possible Loan Losses .......................................... 143,200 140,000
Amortization of Transition Obligation ....................................... 26,025 26,025
Decrease in Interest Payable ................................................ (4,522) (12,406)
Increase in Miscellaneous Payables and
Accrued Expenses ......................................................... 143,717 51,589
Increase in Fees and Commissions
Receivable ............................................................... (7,200) (6,000)
Decrease in Interest Receivable ............................................. 101,926 159,721
(Increase)Decrease in Prepaid Expenses ...................................... (56,822) 69,635
Increase in Miscellaneous Reveivables ....................................... (44,208) (33,884)
Increase in Income Taxes Receivable ......................................... (448,242) (99,129)
Decrease in Deferred Taxes .................................................. (115,736) (90,616)
Decrease in Accumulated Post Retirement Benefit
Obligation ............................................................... (13,418) (15,754)
Amortization of Investment Security Premiums and
Accretion of Discounts ................................................... 29,807 (58,959)
------------ ------------
Cash Provided by Operating Activities ....................................... 706,028 1,124,164
------------ ------------
Cash Flows from Investing Activities
Proceeds from Maturities of Investment Securities
Held to Maturity ......................................................... 1,972,800 828,830
Proceeds from Maturities of Investment Securities
Available for Sale ....................................................... 9,986,260 5,654,456
Purchases of Investment Securities Available for
Sale ..................................................................... (5,478,457) (4,897,019)
Purchases of Investment Securities Held to Maturity ......................... (198,131) (473,799)
Net Increase in Federal Funds Sold .......................................... (7,900,000) (6,100,000)
Net (Increase)Decrease in Loans ............................................. (6,188,540) 30,158
Purchases of Premises and Equipment ......................................... (433,149) (86,923)
Proceeds from Sale of Other Real Estate Owned ............................... 0 267,246
------------ ------------
Cash Used by Investing Activities ........................................... (8,239,217) (4,777,051)
------------ ------------
Cash Flows from Financing Activities
Net Increase(Decrease) in Demand Deposits, NOW
Accounts and Savings Accounts ............................................ 2,158,035 (2,512,750)
Net Increase in Time Accounts ............................................... 2,076,654 3,501,085
Cash Dividends Paid ......................................................... (171,201) (151,644)
Purchase of Treasury Stock .................................................. (666,503) 0
Net Increase in Borrowed Funds .............................................. 4,905,816 4,699,999
------------ ------------
Cash Provided by Financing Activities ....................................... 8,302,801 5,536,690
------------ ------------
Net Increase in Cash and Due from Banks ..................................... 769,612 1,883,803
Cash and Due from Banks, Beginning of Period ................................ 7,959,750 8,544,955
------------ ------------
Cash and Due from Banks, End of Period ...................................... $ 8,729,362 $ 10,428,758
============ ============
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest $ 122,832 $ 115,762
Income Taxes $ 1,027,000 $ 730,000
Non-Cash Investing Activities
Loans Transferred to Other Real Estate Owned $ 0 $ 430,273
</TABLE>
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<TABLE>
<CAPTION>
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For Six Months Ended
June 30, 1998 June 30, 1997
___________________________________________________________________________________________________________________________________
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Cash Flows from Operating Activities
Net Income ....................................................................... $ 1,656,928 $ 1,656,802
Adjustments to reconcile net income to net cash
provided by operating activities:
Valuation Reserve for Other Real Estate Owned ............................... 82,998 120,000
Depreciation on Premises and Equipment ...................................... 177,541 210,576
Provision for Possible Loan Losses .......................................... 253,200 140,000
Amortization of Transition Obligation ....................................... 52,052 52,052
Increase(Decrease)in Interest Payable ....................................... (7,226) 24,997
Decrease in Miscellaneous Payables and
Accrued Expenses ......................................................... (86,886) (56,006)
Increase in Fees and Commissions
Receivable ............................................................... (12,000) (21,000)
(Increase)Decrease in Interest Receivable ................................... 12,874 (52,983)
(Increase)Decrease in Prepaid Expenses ...................................... (35,039) 171,617
Increase in Miscellaneous Reveivables ....................................... (57,345) (42,652)
Decrease in Income Taxes Receivable ......................................... 151,408 90,849
Increase(Decrease) in Deferred Taxes ........................................ (196,116) 26,649
Decrease in Accumulated Post Retirement Benefit
Obligation ............................................................... (27,241) (31,508)
Amortization of Investment Security Premiums and
Accretion of Discounts ................................................... 127,314 (93,801)
------------ ------------
Cash Provided by Operating Activities ....................................... 2,092,462 2,195,592
------------ ------------
Cash Flows from Investing Activities
Proceeds from Maturities of Investment Securities
Held to Maturity ......................................................... 2,573,168 1,310,305
Proceeds from Maturities of Investment Securities
Available for Sale ....................................................... 16,572,693 8,961,224
Purchases of Investment Securities Available for
Sale ..................................................................... (11,480,787) (13,433,576)
Purchases of Investment Securities Held to Maturity ......................... (313,441) (473,799)
Net Increase in Federal Funds Sold .......................................... (12,800,000) (13,300,000)
Net (Increase)Decrease in Loans ............................................. (6,207,449) 997,921
Purchases of Premises and Equipment ......................................... (736,019) (115,021)
Proceeds from Sale of Other Real Estate Owned ............................... 0 1,570,054
------------ ------------
Cash Used by Investing Activities ........................................... (12,391,835) (14,482,892)
------------ ------------
Cash Flows from Financing Activities
Net Increase in Demand Deposits, NOW
Accounts and Savings Accounts ............................................ 4,518,846 4,312,125
Net Increase in Time Accounts ............................................... 3,649,964 3,489,983
Cash Dividends Paid ......................................................... (322,845) (290,290)
Purchase of Treasury Stock .................................................. (1,232,061) 0
Net Increase in Borrowed Funds ............................................. 4,747,460 7,514,276
------------ ------------
Cash Provided by Financing Activities ....................................... 11,361,364 15,026,094
------------ ------------
Net Increase in Cash and Due from Banks ..................................... 1,061,991 2,738,794
Cash and Due from Banks, Beginning of Period ................................ 7,667,371 7,689,964
------------ ------------
Cash and Due from Banks, End of Period ...................................... $ 8,729,362 $ 10,428,758
============ ============
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest $ 258,805 $ 221,711
Income Taxes $ 1,027,000 $ 934,427
Non-Cash Investing Activities
Loans Transferred to Other Real Estate Owned $ 0 609,643
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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, 1997.
The Balance Sheet grew substantially during the first half of 1998, totaling
$210,653,655 in Assets on June 30, 1998, a 6.58% increase since year end. The
Loan Portfolio increased by 5.95%, reaching $106,372,599 on June 30, 1998 as
compared to $100,403,532, on December 31, 1997. This growth was realized
primarily in real estate loans, attributable to good market conditions,
competitive rates, and the bank's employment of a seasoned commercial loan
officer in April. The Loan Portfolio provides an average yield of 9.66% and
represents 50.50% of total Assets. The Investment Portfolio decreased by 10.07%
, due primarily to Mortgage-Backed security prepayments and called U.S.
Government Agency Bonds. To replace these repayments, the Bank purchased
tax-exempt Obligations of State & Political Subdivisions. Although the yields on
these securities are lower than those they were replacing, the tax benefits
provided by these investments is substantial to bottom line. The Investment
Portfolio produced an average yield of 5.93% , totaling $66,706,367 on June 30,
1998, which represents 31.67% of total Assets. The Federal Funds Sold account
increased by $12,800,000 since year end, funded principally by deposit growth,
investment cash flow, and an increase in Demand Notes Issued to the U.S.
Treasury . Bank Premises and Equipment rose by 22.75% due primarily to the
purchase of a new mainframe computer system, and major renovations to the main
office platform and loan areas, as well as substantial capital improvements to
our branch offices. On the Liability side of the Balance Sheet, Deposits
increased by 4.86%, reaching $176,364,445 on June 30, 1998, as compared to
$168,195,635 on December 31, 1997. Money Market and Certificate of Deposit
accounts were responsible for the majority of this growth. This substantial
increase was the result of an aggressive 'Celebrate Our Success' campaign during
the first quarter, coupled with competitive products and rates. Other Borrowed
Funds shifted as a Repurchase Agreement matured and balances in the Demand Notes
Issued to the U.S. Treasury account climbed to $13,000,000 at the end of the
second quarter. Capital increased by .54% during the first half year of 1998, as
a result of the Bancorp's planned repurchase of stock from shareholders. During
the period ended June 30, 1998, the Bancorp Board of Directors and Shareholders
split the common stock two for one, increasing the issued stock from 447,955
shares to 895,910 shares. The par value of this stock has been reduced from
$5.00 per share to $2.50 per share and the authorized shares have been increased
to 3,000,000 shares. The Bancorp declared the stock split in order to bring the
price of the stock into a more affordable range thereby allowing for wider
distribution of ownership. All capital ratios remained consistently strong, with
ROAA and ROAE at 1.66 and 20.06 respectively on June 30, 1998. The following
table outlines current capital ratios:
June 30, 1998 December 31, 1997 Required
Tier I 13.17 14.35 4.00
Tier II 1.25 1.25 *
Total Risk Based
Capital Ratio 14.42 15.63 8.00
Leverage Ratio 8.35 8.01 4.00
* Tier II Capital is limited to 100% of Tier I Capital.
<PAGE>
Operational results for the first six months of 1998 unfolded favorably with net
income climbing to $1,656,928, on June 30, 1998, a slight increase over the
first six months of 1997. Total interest income rose by 3.64%. Total average
earning asset balances reached $183,476,544 on June 30, 1998, as compared to an
average of $170,354,007 for June 30, 1997. The average yield on these assets
declined, from 8.25% during the first six months of 1997 to 7.94% for the first
six months of this year. The cause of this drop was attributed primarily to the
high prepayment speed on Mortgaged-Backed securities as well as the purchase of
lower yielding municipal securities. Various Agency securities were called, and
other securities matured according to schedule. A majority of the cash inflows
was invested in Federal Funds, due to anticipated loan growth. Yields on new
securities have been low which has not bode well for prudent long term
investing. Total interest expense rose 12.12% resulting from an increase in
deposits, as well as the migration of Savings accounts into higher yielding
products such as Money Market accounts and Certificates of Deposit. Interest on
Other Borrowed Funds increased in spite of the Repurchase Agreement payoff, due
to higher balances in the Demand Notes Issued by the U.S. Treasury Account. The
Provision for Possible Loan Losses rose as balances in the Loan Portfolio grew.
A Year 2000 Provision began during first quarter of 1998 to provide for any loan
losses arising from Year 2000 related credit problems. As of June 30, 1998 the
bank has entered the Testing Phase of its Year 2000 Plan. We are on schedule
according to our projected time frames provided to the Federal Reserve for
progression through our Plan. Total other non-interest income rose by 3.32% over
last year, as loan origination fees increased due to loan growth. A new official
check program, initiated during the second half of last year, provided the bank
with additional interest earned on prefunding balances and outstanding check
balances. Other operating expenses remained virtually the same as last year .
Salary and related expenses were higher than last year, due to year end
increases and the addition of new employees to the staff. Lower operating costs
offset this increase. As the bank enters the third quarter, management remains
confident that the second half of 1998 will provide an equally strong finish to
another successful year.
<PAGE>
<TABLE>
<CAPTION>
SMITHTOWN BANCORP
INTEREST RATE SENSITIVITY REPORT
JUNE 30, 1998
TOTAL
3 MONTHS 3 -6 6 - 12 SENSITIVE
REVOLVING OR LESS MONTHS MONTHS WITHIN I YR
______________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
ASSETS:
INVESTMENTS .................... $ 4,258,318 $ 1,998,651 $ 7,544,150 $ 12,133,840 $ 25,934,959
FEDERAL FUNDS SOLD ............. 21,100,000 0 0 0 21,100,000
LOANS:
INSTALLMENT ................ 949,968 1,269,975 798,447 3,181,006 6,199,396
REAL ESTATE AND COMMERCIAL . 31,244,950 2,271,515 3,737,485 9,395,959 46,649,909
CASH AND DUE FROM BANKS ........ 70,936 0 0 0 70,936
FIXED ASSETS ................... 0 0 0 0 0
OTHER ASSETS ................... 0 0 0 0 0
RESERVE FOR POSSIBLE LOAN LOSSES 0 0 0 0 0
NON-ACCRUALS ................... 0 0 0 0 0
UNEARNED DISCOUNT .............. 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
TOTAL ............................. $ 57,624,172 $ 5,540,141 $ 12,080,082 $ 24,710,805 $ 99,955,200
------------ ------------ ------------ ------------ ------------
SMITHTOWN BANCORP
INTEREST RATE SENSITIVITY REPORT(continue)
JUNE 30, 1998
1-3 3-5 5+
YEARS YEARS YEARS OTHER TOTAL
_______________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
ASSETS:
INVESTMENTS .................... $ 19,419,293 $ 6,786,672 $ 13,708,643 $ 856,800 $ 66,706,367
FEDERAL FUNDS SOLD ............. 0 0 0 0 21,100,000
LOANS:
INSTALLMENT ................ 4,310,087 4,266,837 352,585 0 15,128,905
REAL ESTATE AND COMMERCIAL . 14,561,183 22,917,474 4,657,515 61,141 88,847,222
CASH AND DUE FROM BANKS ........ 0 0 0 8,658,426 8,729,362
FIXED ASSETS ................... 0 0 0 3,013,312 3,013,312
OTHER ASSETS ................... 0 0 0 7,114,755 7,114,755
RESERVE FOR POSSIBLE LOAN LOSSES 0 0 0 (1,947,200) (1,947,200)
NON-ACCRUALS ................... 0 0 0 2,396,472 2,396,472
UNEARNED DISCOUNT .............. 0 0 0 (435,540) (435,540)
------------ ------------ ------------ ------------ ------------
TOTAL ............................. $ 38,290,563 $ 33,970,983 $ 18,718,743 $ 19,718,166 $ 210,653,655
------------ ------------ ------------ ------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SMITHTOWN BANCORP
INTEREST RATE SENSITIVITY REPORT
JUNE 30, 1998
TOTAL
3 MONTHS 3 -6 6 - 12 SENSITIVE
REVOLVING OR LESS MONTHS MONTHS WITHIN I YR
__________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
LIABILITIES:
SAVINGS .......................... $ 0 $ 1,958,062 $ 1,958,063 $ 3,916,125 $ 7,832,250
MONEY MARKETS .................... 0 5,269,673 5,269,672 10,539,345 21,078,690
NOW .............................. 0 704,918 704,918 1,409,836 2,819,672
TIME<100 .......................... 126,972 6,878,206 3,180,638 9,047,794 19,233,610
TIME>100 ......................... 169,019 4,181,362 2,179,216 1,967,797 8,497,394
DEMAND ........................... 0 1,106,935 1,106,935 2,213,870 4,427,740
REPURCHASE AGREEMENTS ............ 0 0 0 0 0
OTHER BORROWED MONEY ............. 0 13,000,000 0 0 13,000,000
OTHER LIABILITIES ................ 0 0 0 0 0
STOCKHOLDERS' EQUITY ............. 0 0 0 0 0
---------- ---------- ---------- ---------- ----------
TOTAL ............................... $ 295,991 $33,099,156 $ 14,399,442 $ 29,094,767 $ 76,889,356
---------- ---------- ---------- ---------- ----------
SMITHTOWN BANCORP
INTEREST RATE SENSITIVITY REPORT(continue)
JUNE 30, 1998
1-3 3-5 5+
YEARS YEARS YEARS OTHER TOTAL
______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
LIABILITIES:
SAVINGS .......................... $ 15,664,501 $ 5,664,501 $ 0 $ 0 $ 39,161,252
MONEY MARKETS .................... 21,078,691 0 0 0 42,157,381
NOW .............................. 5,639,343 5,639,343 0 0 14,098,358
TIME<100 .......................... 4,724,172 2,061,493 0 0 26,019,275
TIME>100 ......................... 1,109,435 1,043,956 0 0 10,650,785
DEMAND ........................... 8,855,478 8,855,479 0 22,138,697 44,277,394
REPURCHASE AGREEMENTS ............ 0 0 0 0 0
OTHER BORROWED MONEY ............. 0 3,000,000 0 0 16,000,000
OTHER LIABILITIES ................ 0 0 0 1,217,680 1,217,680
STOCKHOLDERS' EQUITY ............. 0 0 0 17,071,530 17,071,530
----------- ----------- ---------- ----------- -----------
TOTAL ............................ $ 57,071,620 $36,264,772 $ 0 $ 40,427,907 #210,653,655
----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SMITHTOWN BANCORP
INTEREST RATE SENSITIVITY REPORT
JUNE 30, 1998
TOTAL
3 MONTHS 3 -6 6 - 12 SENSITIVE
REVOLVING OR LESS MONTHS MONTHS WITHIN I YR
__________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
INTEREST SENSITIVITY GAP
PER PERIOD 57,328,181 (27,559,015) (2,319,360) (4,383,962) 23,065,844
GAP/TOTAL ASSETS 27.21% -13.08% -1.10% -2.08% 10.95%
CUMULATIVE INTEREST
SENSITIVITY GAP 57,328,181 29,769,166 27,449,806 23,065,844 23,065,844
% OF CUMULATIVE GAP
TO TOTAL ASSETS 27.21% 14.13% 13.03% 10.95% 10.95%
SMITHTOWN BANCORP
INTEREST RATE SENSITIVITY REPORT(continue)
JUNE 30, 1998
1-3 3-5 5+
YEARS YEARS YEARS OTHER TOTAL
______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
INTEREST SENSITIVITY GAP
PER PERIOD (18,781,057) (2,293,789) 18,718,743 (20,709,741)
GAP/TOTAL ASSETS -8.92% -1.09% 8.89%
CUMULATIVE INTEREST
SENSITIVITY GAP 4,284,787 1,990,998 20,709,741
% OF CUMULATIVE GAP
TO TOTAL ASSETS 2.03% 0.95% 9.83%
</TABLE>
<PAGE>
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 March 31,
1998, and its results of operations for the three months ended June 30, 1998 and
1997 and its cash flows for the six months and three months ended June 30, 1998
and 1997. 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, 1997.
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:
June 30, 1998 $66,808,889
December 31, 1997 $74,336,201
Stockholders' Equity
On April 7, 1998 the shareholders of Bancorp approved a two for one split of
common stock for all shareholders of record as of April 22, 1998. The split
became affective on May 6, and increased the number of shares of issued stock
from 447,955 to 895,910. The par value of the stock was reduced from $5 per
share to $2.50 per share and the number of authorized shares increased from
1,500,000 to 3,000,000.
All references to common stock, retained earnings, treasury stock, earnings per
share and average weighted shares outstanding appearing in this report have been
adjusted to reflect the split.
<PAGE>
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
August 13, 1998
/s/ Bradley E. Rock
___________________________
Bradley E. Rock, President
August 13, 1998
/s/ Anita M. Florek
___________________________
Anita Florek, Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jun-30-1998
<CASH> 4,188,234
<INT-BEARING-DEPOSITS> 70,936
<FED-FUNDS-SOLD> 21,100,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 53,270,719
<INVESTMENTS-CARRYING> 13,435,648
<INVESTMENTS-MARKET> 66,808,889
<LOANS> 105,937,059
<ALLOWANCE> 1,947,200
<TOTAL-ASSETS> 210,653,655
<DEPOSITS> 176,364,445
<SHORT-TERM> 13,000,000
<LIABILITIES-OTHER> 1,217,680
<LONG-TERM> 3,000,000
0
0
<COMMON> 2,239,775
<OTHER-SE> 14,831,755
<TOTAL-LIABILITIES-AND-EQUITY> 210,653,655
<INTEREST-LOAN> 4,814,849
<INTEREST-INVEST> 2,466,603
<INTEREST-OTHER> 5,701
<INTEREST-TOTAL> 7,287,153
<INTEREST-DEPOSIT> 1,955,907
<INTEREST-EXPENSE> 2,214,712
<INTEREST-INCOME-NET> 5,072,441
<LOAN-LOSSES> 253,200
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,560,792
<INCOME-PRETAX> 2,639,220
<INCOME-PRE-EXTRAORDINARY> 1,656,928
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,656,928
<EPS-PRIMARY> 1.93
<EPS-DILUTED> 1.93
<YIELD-ACTUAL> 7.60
<LOANS-NON> 2,396,472
<LOANS-PAST> 356,804
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 21,813
<RECOVERIES> 38,220
<ALLOWANCE-CLOSE> 1,677,594
<ALLOWANCE-DOMESTIC> 1,947,200
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 545,368
</TABLE>
