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 September 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:
831,807 Shares of Common stock ($2.50 Par Value) Outstanding as of September 30,
1998.
<PAGE>
SMITHTOWN BANCORP
INDEX
Part I - FINANCIAL INFORMATION PAGES
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997 4-5
Consolidated Statements of Income
Three months ended September 30, 1998 and 1997 6
Consolidated Statements of Income
Nine months ended September 30, 1998 and 1997 7
Consolidated Statements of Changes in Stockholders Equity
Nine months ended September 30, 1998 and 1997 8
Consolidated Statements of Cash Flows
Three months ended September 30, 1998 and 1997 9
Consolidated Statements of Cash Flows
Nine months ended September 30, 1998 and 1997 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-12
Item 3. Notes to Consolidated Financial Statements 13
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
September 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Due from Banks ...................................................... $ 8,442,383 $ 7,667,371
Investment Securities:
Investment Securities Held to Maturity
Obligations of U.S. Government .......................................... 0 2,002,757
Mortgage - Backed Securities ............................................ 5,418,315 7,237,038
Obligations of State and Political Subdivisions ......................... 6,507,894 6,458,344
------------- -------------
Total ................................................................. 11,926,209 15,698,139
------------- -------------
Investment Securities Available for Sale
Obligations of U.S. Government .......................................... 6,189,420 6,175,710
Obligations of U.S. Government Agencies ................................. 12,309,862 15,251,638
Mortgage - Backed Securities ............................................ 23,119,259 36,190,088
Oligations of State and Political Subdivisions .......................... 8,664,880 0
Other Securities ........................................................ 856,800 856,800
------------- -------------
Total ................................................................. 51,140,221 58,474,236
------------- -------------
Total Investment Securities ............................................. 63,066,430 74,172,375
------------- -------------
(Fair value $63,350,663 at 9/30/98 and
$74,336,201 at 12/31/97)
Federal Funds Sold ........................................................... 15,000,000 8,300,000
Loans
Real Estate ............................................................. 78,092,912 69,059,256
Commercial and Industrial ............................................... 26,444,306 23,745,418
Loans to Individuals for Household, Family and
Other Personal Expenditures ......................................... 5,192,828 7,492,586
Other ................................................................... 88,032 106,272
------------- -------------
Total ................................................................. 109,818,078 100,403,532
Less: Unearned Discount ................................................. (468,946) (690,328)
Reserve for Possible Loan Losses .................................. (2,079,012) (1,677,594)
------------- -------------
Loans, Net ................................................................... 107,270,120 98,035,610
------------- -------------
Bank Premises and Equipment .................................................. 3,038,016 2,454,834
Other Assets
Other Real Estate Owned ................................................. 832,531 3,927,786
Other ................................................................... 3,150,144 3,098,459
------------- -------------
Total Assets ................................................................. $ 200,799,624 $ 197,656,435
============= =============
</TABLE>
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<TABLE>
<CAPTION>
SMITHTOWN BANCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
As of
September 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities
Deposits:
Demand .................................................................. $ 43,882,121 $ 42,566,624
Money Market ............................................................ 40,755,487 36,326,089
NOW ..................................................................... 15,229,830 15,284,660
Savings ................................................................. 38,844,343 40,998,166
Certificates of Deposit $100,000 and Over ............................... 11,995,519 8,773,618
Other Time Deposits ..................................................... 25,231,450 24,246,478
------------- -------------
Total ................................................................. 175,938,750 168,195,635
Dividend Payable ............................................................. 168,096 151,644
Securities Sold Under Agreements to Repurchase ............................... 0 2,800,000
Demand Notes Issued to the U.S. Treasury ..................................... 3,185,177 5,452,540
Other Borrowed Funds ......................................................... 3,000,000 3,000,000
Other Liabilities ............................................................ 1,225,273 1,077,158
------------- -------------
Total ................................................................... 183,517,296 180,676,977
------------- -------------
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 ................................................... 347,272 249,068
Surplus ...................................................................... 1,993,574 1,993,574
Retained Earnings ............................................................ 15,039,350 12,943,680
------------- -------------
Total ................................................................... 19,619,971 17,426,097
Less: Treasury Stock (64,103 shares at cost) ............................ (2,337,643) (446,639)
------------- -------------
Total ................................................................... 17,282,328 16,979,458
------------- -------------
Total Liabilities and Capital ................................................ $ 200,799,624 $ 197,656,435
============= =============
</TABLE>
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<TABLE>
<CAPTION>
SMITHTOWN BANCORP
CONSOLIDATED INCOME STATEMENTS
(unaudited)
For Three Months Ended
September 30, 1998 September 30, 1997
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<S> <C> <C>
Interest Income
Interest and Fees on Loans ......................................................... $2,604,258 $2,447,188
Interest and Dividends on:
Obligations of U.S. Government ................................................ 96,303 69,114
Obligations of U.S. Government Agencies ....................................... 178,181 279,053
Mortgage - Backed Securities .................................................. 459,762 730,856
Obligations of State & Political Subdivisions ................................. 179,277 76,010
Other Securities .............................................................. 13,903 2,809
Interest on Federal Funds Sold ..................................................... 200,938 129,915
Interest on Balances Due From Depository Institutions .............................. 1,305 11,313
---------- ----------
Total Interest Income ......................................................... 3,733,927 3,746,258
---------- ----------
Interest Expense
Money Market Accounts .............................................................. 362,725 305,462
Savings ............................................................................ 199,225 231,489
Time Deposits $100,000 and Over ................................................... 158,713 33,343
Other Time Deposits ................................................................ 320,759 390,791
Interest on Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase ........................................... 0 43,278
Interest on Demand Notes Issued by U. S. Treasury .................................. 61,705 34,874
Interest on Other Borrowed Money ................................................... 42,627 42,627
---------- ----------
Total Interest Expense ........................................................ 1,145,754 1,081,864
---------- ----------
Net Interest Income ................................................................ 2,588,173 2,664,394
Provision for Possible Loan Losses ................................................. 83,400 210,000
---------- ----------
Net Interest Income After Provision for Possible
Loan Losses .................................................................... 2,504,773 2,454,394
---------- ----------
Other Non - Interest Income
Trust Department Income ............................................................ 78,037 42,298
Service Charges on Deposit Accounts ................................................ 367,665 374,635
Other Income ....................................................................... 253,513 226,652
Net Securities Transactions ........................................................ 40,676 0
---------- ----------
Total Other Non - Interest Income ............................................. 739,891 643,585
---------- ----------
Other Operating Expenses
Salaries ........................................................................... 863,266 746,835
Pension and Other Employee Benefits ................................................ 137,885 157,787
Net Occupancy Expense of Bank Premises ............................................. 212,090 223,395
Furniture and Equipment Expense .................................................... 174,611 144,759
Miscellaneous Operating Expense .................................................... 359,889 402,433
---------- ----------
Total Other Operating Expense ................................................. 1,747,741 1,675,209
---------- ----------
Income Before Income Taxes ......................................................... 1,496,923 1,422,770
Provision for Income Taxes ......................................................... 550,107 541,846
---------- ----------
Net Income .................................................................... $ 946,816 $ 880,924
========== ==========
Earnings Per Share
Net Income ......................................................................... $ 1.13 $ 1.02
Cash Dividends Paid ................................................................ $ 0.20 $ 0.175
Weighted Average Shares Outstanding ................................................ 837,207 866,536
</TABLE>
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<TABLE>
<CAPTION>
SMITHTOWN BANCORP
CONSOLIDATED INCOME STATEMENTS
(unaudited)
For Nine Months Ended
September 30, 1998 September 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income
Interest and Fees on Loans ....................................................... $ 7,419,107 $ 7,201,676
Interest and Dividends on:
Obligations of U.S. Government .............................................. 323,143 117,982
Obligations of U.S. Government Agencies ..................................... 702,276 767,952
Mortgage - Backed Securities ................................................ 1,592,065 2,169,832
Obligations of State & Political Subdivisions ............................... 442,238 228,362
Other Securities ............................................................ 43,416 27,699
Interest on Federal Funds Sold ................................................... 491,829 250,127
Interest on Balances Due From Depository Institutions ............................ 7,006 13,606
----------- -----------
Total Interest Income ....................................................... 11,021,080 10,777,236
----------- -----------
Interest Expense
Money Market Accounts ............................................................ 1,041,831 804,107
Savings .......................................................................... 605,735 750,807
Time Deposits $100,000 and Over ................................................. 397,347 139,086
Other Time Deposits .............................................................. 952,416 1,020,735
Interest on Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase ......................................... 72,826 129,680
Interest on Demand Notes Issued by U. S. Treasury ................................ 163,821 81,515
Interest on Other Borrowed Money ................................................. 126,490 131,295
----------- -----------
Total Interest Expense ...................................................... 3,360,466 3,057,225
----------- -----------
Net Interest Income .............................................................. 7,660,614 7,720,011
Provision for Possible Loan Losses ............................................... 336,600 350,000
----------- -----------
Net Interest Income After Provision for Possible
Loan Losses .................................................................... 7,324,014 7,370,011
----------- -----------
Other Non - Interest Income
Trust Department Income .......................................................... 282,725 263,557
Service Charges on Deposit Accounts .............................................. 1,095,759 1,149,176
Other Income ..................................................................... 701,502 567,196
Net Securities Transactions ...................................................... 40,676 0
----------- -----------
Total Other Non - Interest Income ........................................... 2,120,662 1,979,929
----------- -----------
Other Operating Expenses
Salaries ......................................................................... 2,431,959 2,233,249
Pension and Other Employee Benefits .............................................. 508,299 500,156
Net Occupancy Expense of Bank Premises ........................................... 621,607 681,385
Furniture and Equipment Expense .................................................. 454,141 442,359
Miscellaneous Operating Expense .................................................. 1,292,527 1,361,294
----------- -----------
Total Other Operating Expense ............................................... 5,308,533 5,218,443
----------- -----------
Income Before Income Taxes ....................................................... 4,136,143 4,131,497
Provision for Income Taxes ....................................................... 1,532,399 1,593,771
----------- -----------
Net Income .................................................................. $ 2,603,744 $ 2,537,726
=========== ===========
Earnings Per Share
Net Income ....................................................................... $ 3.06 $ 2.93
Cash Dividends Paid .............................................................. $ 0.575 $ 0.510
Weighted Average Shares Outstanding .............................................. 849,995 866,536
</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
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 ........................ 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 ................ 866,536 $ 2,239,775 $ 1,993,574 $ 281,543 $12,312,231 $ (446,639) $16,380,484
========= =========== =========== ========== =========== ============ ===========
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 ........................ 2,603,744 2,603,744
Cash Dividend Declared ............ (508,074) (508,074)
Purchase Treasury Stock ........... (34,729) (1,891,004) (1,891,004)
Allowance for Unrealized Gain(Loss) 98,204 98,204
--------- ----------- ----------- --------- ----------- ------------ -----------
Balance at 9/30/98 ................ 831,807 $ 2,239,775 $ 1,993,574 $ 347,272 $15,039,350 $(2,337,643) $17,282,328
========= =========== =========== ========= =========== ============ ===========
</TABLE>
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<TABLE>
<CAPTION>
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For Three Months Ended
September 30, 1998 September 30, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income ..................................................................... $ 946,816 $ 880,924
Adjustments to reconcile net income to net cash
provided by operating activities:
Valuation Reserve for Other Real Estate Owned ............................. 0 0
Depreciation on Premises and Equipment .................................... 89,924 98,345
Provision for Possible Loan Losses ........................................ 83,400 210,000
Amortization of Transition Obligation ..................................... 13,878 26,025
Increase(Decrease) in Interest Payable .................................... 46,316 12,719
Increase(Decrease) in Miscellaneous Payables and
Accrued Expenses ....................................................... 197,969 1,120
(Increase)Decrease in Fees and Commissions
Receivable ............................................................. (7,200) 46,000
(Increase)Decrease in Interest Receivable ................................. 15,018 (174,115)
(Increase)Decrease in Prepaid Expenses .................................... 10,603 17,943
(Increase)Decrease in Miscellaneous Receivables ........................... (54,635) (135,589)
(Increase)Decrease in Income Taxes Receivable ............................. (378) 96,856
Increase(Decrease) in Deferred Taxes ...................................... (9,515) (126,010)
Decrease in Accumulated Post Retirement Benefit
Obligation ............................................................. (13,079) (15,447)
Amortization of Investment Security Premiums and
Accretion of Discounts ................................................. 9,514 47,629
Gain on Sale of Investment Securities ..................................... (40,676) 0
Gain on Sale of Other Real Estate Owned ................................... (65,437) 0
------------ ------------
Cash Provided by Operating Activities ..................................... 1,222,518 986,400
------------ ------------
Cash Flows from Investing Activities
Proceeds from Maturities of Investment Securities
Held to Maturity ....................................................... 1,651,929 540,519
Proceeds from Maturities of Investment Securities
Available for Sale ..................................................... 5,386,931 2,869,383
Purchases of Investment Securities Available for
Sale ................................................................... (3,077,034) (9,790,730)
Purchases of Investment Securities Held to Maturity ....................... (102,289) (263,756)
Net (Increase)Decrease in Federal Funds Sold .............................. 6,100,000 900,000
Net (Increase)Decrease in Loans ........................................... (3,483,661) (1,615,309)
Purchases of Premises and Equipment ....................................... (114,830) (21,997)
Proceeds from Sale of Other Real Estate Owned ............................. 3,197,693 0
------------ ------------
Cash Provided(Used) by Investing Activities ............................... 9,558,739 (7,381,890)
------------ ------------
Cash Flows from Financing Activities
Net Increase(Decrease) in Demand Deposits, NOW
Accounts and Savings Accounts .......................................... (982,604) 4,249,496
Net Increase(Decrease) in Time Accounts ................................... 556,909 997,586
Cash Dividends Paid ....................................................... (168,776) (151,643)
Net Increase(Decrease) in Borrowed Funds .................................. (9,814,823) (1,000,000)
Purchase of Treasury Stock ................................................ (658,942) 0
------------ ------------
Cash Provided(Used) by Financing Activities ............................... (11,068,236) 4,095,439
------------ ------------
Net Increase(Decrease) in Cash and Due from Banks ......................... (286,979) (2,300,051)
Cash and Due from Banks, Beginning of Period .............................. 8,729,362 10,428,758
------------ ------------
Cash and Due from Banks, End of Period .................................... $ 8,442,383 $ 8,128,707
============ ============
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest ................................................................. $ 104,332 $ 120,779
Income Taxes ............................................................. $ 560,000 $ 571,000
Non-Cash Investing Activities
Loans Transferred to Other Real Estate Owned .............................. $ 0 $ 120,036
</TABLE>
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<TABLE>
<CAPTION>
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For Nine Months Ended
September 30, 1998 September 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income ..................................................................... $ 2,603,744 $ 2,537,726
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 .................................... 267,465 308,921
Provision for Possible Loan Losses ........................................ 336,600 350,000
Amortization of Transition Obligation ..................................... 65,930 78,077
Increase(Decrease) in Interest Payable .................................... 39,090 37,716
Increase(Decrease) in Miscellaneous Payables and
Accrued Expenses ....................................................... 111,081 (54,886)
(Increase)Decrease in Fees and Commissions
Receivable ............................................................. (19,200) 25,000
(Increase)Decrease in Interest Receivable ................................. 27,893 (227,098)
(Increase)Decrease in Prepaid Expenses .................................... (24,436) 189,560
(Increase)Decrease in Miscellaneous Receivables ........................... (111,980) (178,241)
(Increase)Decrease in Income Taxes Receivable ............................. 151,030 187,705
Increase(Decrease) in Deferred Taxes ...................................... (205,631) (99,361)
Decrease in Accumulated Post Retirement Benefit
Obligation ............................................................. (40,320) (46,955)
Amortization of Investment Security Premiums and
Accretion of Discounts ................................................. 136,829 (46,172)
Gain on Sale of Investment Securities ..................................... (40,676) 0
Gain on Sale of Other Real Estate Owned ................................... (65,437) 0
------------ ------------
Cash Provided by Operating Activities ..................................... 3,314,980 3,181,992
------------ ------------
Cash Flows from Investing Activities
Proceeds from Maturities of Investment Securities
Held to Maturity ....................................................... 4,225,096 1,850,824
Proceeds from Maturities of Investment Securities
Available for Sale ..................................................... 21,959,625 11,830,607
Purchases of Investment Securities Available for
Sale ................................................................... (14,557,821) (23,224,306)
Purchases of Investment Securities Held to Maturity ....................... (415,730) (737,555)
Net (Increase)Decrease in Federal Funds Sold ............................. (6,700,000) (12,400,000)
Net (Increase)Decrease in Loans ........................................... (9,691,110) (617,388)
Purchases of Premises and Equipment ....................................... (850,849) (137,018)
Proceeds from Sale of Other Real Estate Owned ............................. 3,197,693 1,570,054
Purchase of Treasury Stock ................................................ (1,891,004) 0
------------ ------------
Cash Provided(Used) by Investing Activities ............................... (4,724,100) (21,864,782)
------------ ------------
Cash Flows from Financing Activities
Net Increase(Decrease) in Demand Deposits, NOW
Accounts and Savings Accounts .......................................... 3,536,242 8,561,621
Net Increase(Decrease) in Time Accounts .................................. 4,206,873 4,487,569
Cash Dividends Paid ....................................................... (491,621) (441,933)
Net Increase(Decrease) in Borrowed Funds ................................. (5,067,362) 6,514,276
------------ ------------
Cash Provided(Used) by Financing Activities ............................... 2,184,132 19,121,533
------------ ------------
Net Increase(Decrease) in Cash and Due from Banks ......................... 775,012 438,743
Cash and Due from Banks, Beginning of Period .............................. 7,667,371 7,689,964
------------ ------------
Cash and Due from Banks, End of Period .................................... $ 8,442,383 $ 8,128,707
============ ============
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest ................................................................. $ 363,137 $ 342,490
Income Taxes ............................................................. $ 1,587,000 $ 1,505,427
Non-Cash Investing Activities
Loans Transferred to Other Real Estate Owned .............................. $ 0 $ 728,680
</TABLE>
<PAGE>
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, 1997.
Changes in the September 30, 1998 Balance Sheet were primarily due to a shift in
asset allocation. Total Investment Securities declined by 14.97% due principally
to heavy prepayments of Mortgage Backed Securities and utilization of call
features on various Agency Securities. Due to the current low rate environment,
municipal bonds have been the only arena for investable funds with yields above
that of Federal Funds. As security payments were returned to the Bank, they were
invested primarily in Federal Funds Sold. This accounts for the 80.72% increase
in this Asset category. Gross loans increased by 9.38% since year-end 1997, also
funded through investment security returns. The largest area of growth in the
loan portfolio was commercial real estate. Loans now comprise 54.7% of total
Assets and Investment Securities 31.4% of total Assets. At December 31, 1997,
Loans and Investment Securities represented 50.8% and 37.5%, respectively. The
23.8% increase reflected in the balance of Bank Premises and Equipment is due to
capital improvements made in the Bank's main office as well as the purchase of a
new, upgraded IBM Risc Box. This new mainframe was required to process a new
on-line teller system which will be implemented during fourth quarter 1998.
These two new hardware and software systems are Year 2000 compliant and as such
reduce the number of mission critical systems yet to be renovated. Other Real
Estate Owned declined 78.8% during 1998, the result of the sale of three
properties. The largest of these three properties had been transferred to Other
Real Estate Owned in 1991. As a result of these sales, slightly more than three
million dollars was added back to the Bank's earning assets. Total Assets
increased by 1.59% from December 31, 1997. On the Liability side of the Balance
Sheet, total Deposits increased by 4.60%, with the largest growth in Money
Market Accounts, and then in Certificates of Deposit $100,000 and over.
Securities Sold Under Agreement to repurchase declined by $2,800,000 as the REPO
transaction matured and Demand Notes Issued to the U.S. Treasury declined by
41.6%. In the Stockholders' Equity section of the Balance Sheet, Treasury Stock
holdings increased by 423.4%, a result of an aggressive stock buyback program
approved by the Bank's Board of Directors at the beginning of 1998. The Bank's
capital ratios remain very strong as evidenced below.
Sept. 1998 Dec. 1997 Required
Leverage 8.45 8.72 4.00
Risk Based Capital
Tier I 13.59 14.35 4.00
II 1.25 1.25 ***
Total 14.86 15.63 8.00
*** Tier II Capital is limited to 100% of Tier I Capital.
The nine month Income Statement for 1998 and 1997 reflect a 2.6% increase in Net
Income, with slight changes in Income and Expense categories. Loan income grew
by 3.0% over the same time frame in 1997. Investment income declined by 6.3% due
to the high level of prepayments. Interest income on Federal Funds Sold
increased by 96.6% once again due to the high level of these Funds in 1998.
Total Interest Income was a slight 2.26% higher during 1998 over 1997. Interest
Expense finished third quarter 9.92% higher than the same period in 1997.
Corresponding to increases in Money Market Accounts and Certificates of Deposit
$100,000 and over, the interest expense in these deposit accounts also rose.
Although the level of Demand Notes Issued by the U.S. Treasury was lower at
September 30, 1998 than at December 31, 1997, on average, the balance was
significantly higher during the nine month period of 1998 compared to 1997. Due
to this higher average balance, the interest expense on these Demand Notes for
the nine month period ended September 30, 1998 was 100.97% higher. The resulting
Net Interest Income for the nine months ended September 30, 1998 was .77% lower
than the same period last year. Considering the lower interest rate environment
of 1998 as compared to 1997, with its effect of narrowing margins, this .77%
decrease in Net Interest Income is quite minimal. The Bank's actual margin as of
September 30, 1998 is 5.69% as compared to 6.07% at year-end 1997. Total Other
Non-Interest Income during 1998 increased by 7.11% over 1997. This is primarily
the result of gains on the Sale of Other Real Estate Owned as well as gains on
the Sale of Investment Securities. Other Operating Expenses increased by a
slight 1.73%, resulting from $198,710 of increased Salary Expenses. The 2.6%
increase in Net Income for 1998 over the same period in 1997, along with the
1.91% reduced level of Weighted Average Shares Outstanding resulted in an EPS of
$3.06 for the nine month period ended September 30, 1998.
<PAGE>
As the Bank enters the final quarter of 1998, management fully expects earnings
to continue on an upward trend. Loan demand remains strong with significant
growth anticipated by year-end. Management will continue to focus its efforts on
Y2K compliance during fourth quarter. The Bank has entered the Validation Phase
of its Y2K Plan and expects to be substantially through this Phase by year-end.
Contingency Plans are currently being evaluated with respect to all mission
critical systems. Management reviews its progress quarterly as related to Y2K
compliance against FFIEC guidelines. The Bank's projected expense for Y2K
compliance remains at the same level projected at year-end 1997.
<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 September 30,
1998, and its results of operations for the three months and nine months ended
September 30, 1998 and 1997 and its cash flows for the three months and nine
months ended September 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:
September 30, 1998 $63,350,663
December 31, 1997 $74,336,201
<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
//s Bradley E. Rock
November 12, 1998 ___________________________
Bradley E. Rock, President
//S Anita Florek
November 12, 1998 ___________________________
Anita Florek, Treasurer
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> Sep-30-1998
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