<PAGE> 3
No. of pages within this report 65
As filed with the Securities and Exchange Commission on March 28, 2000
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 31 December 1999 Commission File #0 - 13314
SMITHTOWN BANCORP, INC.
(Exact name of registrant as specified in its charter)
New York 11-2695037
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One East Main Street, Smithtown, New York 11787-2801
(Address of principal executive office, Zip Code)
Registrant's telephone number, including area code: (516) 360-9300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act
Common Stock, $2.50 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Number of Shares Outstanding
Class of Common Stock as of 15 March 2000
$2.50 Par Value 806,168
The aggregate market value of the Registrant's common stock held by
nonaffiliates was approximately 45,556,396 based on the price at which stock was
sold on 15 March 2000.
DOCUMENTS INCORPORATED BY REFERENCE
1) Portions of the Annual Report for the fiscal year ended 31 December 1999 are
incorporated herein by reference into Parts I and II.
2) Portions of the Prospectus dated 26 July 1984 and filed as a part of the
Registrant's Form S-14 Registration Statement under the Securities Act of 1933,
Reg #2-91511, are incorporated by reference into Part I.
3) Portions of the Proxy Statement relating to the annual meeting of
stockholders to be held on 4 April 2000 are incorporated herein by reference
into Part III.
<PAGE> 4
Part I
Item 101: Description of Business
Smithtown Bancorp, Inc. ("Registrant")
Bank of Smithtown ("Bank")
Information regarding the Registrant's formation and business and a description
of the Bank's business is contained on:
Page 13 of the Registrant's Annual Report for the year ended 31 December
1999
Page 8 of the Registrant's Prospectus dated 26 July 1984, both of which are
incorporated by reference.
Item 102: Description of Properties
The Registrant owns no materially important physical properties. Office
facilities of the Registrant are located at One East Main Street, Smithtown, New
York 11787.
The Bank owns in fee the following locations:
Smithtown Office Hauppauge Office
One East Main Street 548 Route 111
Smithtown, New York 11787 Hauppauge, New York 11788
Trust and Audit Building
17 Bank Avenue
Smithtown, New York 11787
The Bank occupies the following locations under lease arrangements:
Commack Office Kings Park Office
2020 Jericho Turnpike 14 Park Drive
Commack, New York 11725 Kings Park, New York 11754
Centereach Office Lake Grove Office
1919 Middle Country Road 2921 Middle Country Road
Centereach, New York 11720 Lake Grove, New York 11755
Northport Office
836 Fort Salonga Road
Northport, New York 11768
All office facilities are in well maintained condition. There are no other
owners of these properties and no mortgages or liens exist on the properties.
The Bank owns properties that it has acquired through the foreclosure process.
The majority in this category are vacant commercial properties. The balance are
residential properties.
<PAGE> 5
Item 103: Legal Proceedings
In the opinion of the Registrant and its counsel, there are no material
proceedings pending in which the Registrant or the Bank is a party, or of which
its property is the subject, or any which depart from the ordinary routine
litigation incident to the kind of business conducted by the Registrant and the
Bank; no proceedings are known to be contemplated by government authorities or
others.
Part 2
Item 201: Market for Common Equity and Related Stockholder Matters
Page 28 and 35 of the Registrant's Annual Report for the year ended 31 December
1999 is incorporated herein by reference.
Item 202: Description of Securities or Plan of Operation
691 Shareholders of common stock at 15 March 2000.
Preemptive Rights exist whereby the holders of the shares outstanding at that
time shall have the right to subscribe, in proportion to their holdings, for
capital stock to be so issued. The right to subscribe shall only last for such
a period of time as shall be determined by the Board of Directors of the
Registrant.
Part 3
Item 303: Management's Discussion and Analysis or Plan of Operations
Pages 41 through 53, inclusive, of the Registrant's Annual Report for the year
ended 31 December 2000 are incorporated herein by reference.
Item 304: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Form 8-K was filed with the Exchange on September 14, 1992. Form 8 Amendment
to Form 8-K was filed on September 24, 1992. Both forms are incorporated herein
by reference.
Item 310: Financial Statements
Pages 17 through 36, inclusive, of the Registrant's Annual Report for the year
ended 31 December 2000 are incorporated herein by reference.
Part 4
Item 401: Directors, Executive Officers, Promoters and Control Persons of the
Registrant
The information with respect to directors, executive officers and control
persons contained on pages 57 through 58, and pages 60 through 62, of the
Registrant's Proxy Statement dated 4 March 2000, is incorporated herein by
reference.
None of the individuals named in the Proxy Statement was selected as a director
or nominee by any arrangement or understanding between him/her and any other
person(s).
There are no family relationships between any director, executive officer, or
person nominated by the Registrant to become a director.
None of the individuals named in the Proxy Statement hold a directorship in any
company with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment Company Act of
1940.
<PAGE> 6
None of the individuals named in the Proxy Statement are or have been involved
in a material legal proceeding that has effected or would effect his/her ability
or integrity while carrying out his/her term of office.
Item 402: Executive Compensation
Pages 61 and 62 of the Registrant's Proxy Statement dated 1 March 2000 are
incorporated herein by reference, together with the information set forth on
page 64.
Item 403: Security Ownership of Certain Beneficial Owners and Management
Page 60 of the Registrant's Proxy Statement, dated 1 March 2000 are incorporated
herein by reference.
Item 404: Certain Relationships and Related Transactions
Page 62 of the Registrant's Proxy Statement dated 1 March 2000 and page 27 of
the Registrant's Annual Report for the year ended 31 December 1999 are
incorporated herein by reference.
<PAGE> 7
INDEX OF EXHIBITS
Exhibit No. Description Page
3a Articles of Incorporation *
3b By-Laws *
4 By-Laws Page Nos. 2,11,12,13,14 *
Articles of Incorporation Page No. 2 *
9 No voting trust agreements
10 No material contracts
13 Annual Report for the year ended 31 December 1999 10-54
Notice of Annual Meeting and Proxy Statement 55-64
16 Reference to Item 8 in 10-KSB 2
18 No change in accounting principles
19 Reference to Page 1 1
22 Bank of Smithtown
Smithtown, New York 11787
23 Notice of Annual Meeting and Proxy Statement 55-64
24 Consent of Independent Auditors 9
Report of Independent Auditors 16
25 None
28 Prospectus dated 26 July 1984 *
29 N/a
*Incorporated by reference and filed as a part of the Registrant's Form
S-14 Registration Statement under the Securities Act of 1933, Reg #2-91511,
filed on 6 June 1984.
<PAGE> 8
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
Date: 3/28/00 Smithtown Bancorp, Inc.
Registrant
/s/ Bradley E. Rock
----------------------------------------------------
Bradley E. Rock, President, Chief Executive
Officer and Chairman of the Board
/s/ Anita M. Flork
---------------------------------------------------
Anita M. Florek, Treasurer, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below, by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Bradley E. Rock
-------------------------------------------
Bradley E. Rock, President, Chief Executive Date 3/28/00
Officer and Chairman of the Board
/s/ Augusta Kemper
-------------------------------------------
Augusta Kemper, Director Date 3/28/00
/s/ Patrick A. Given
------------------------------------------- Date 3/28/00
Patrick A. Given, Director
/s/ Manny Schwartz
------------------------------------------- Date 3/28/00
Manny Schwartz, Director
/s/ Edith Hpdgkinson
------------------------------------------- Date 3/28/00
Edith Hodgkinson, Director
/s/ Barry M. Seigerman
------------------------------------------- Date 3/28/00
Barry M. Seigerman, Director
/s/ Charles E. Rockwell
------------------------------------------- Date 3/28/00
Charles E. Rockwell, Director
/s/ Robert W. Scherdel
------------------------------------------- DATE 3/28/00
Robert W. Scherdel, Director
/s/ Sanford Scheman
------------------------------------------- Date 3/28/00
Sanford Scheman, Director
<PAGE> 9
ALBRECHT, VIGGIANO, ZURECK
& COMPANY, P.C.
Certified Public Accountants
25 Suffolk Court
Hauppauge, New York 11788
(516) 434-9500
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Form 10-KSB of Smithtown
Bancorp, Inc. of our report dated January 27, 2000, included in the 1999 Annual
Report to shareholders of Smithtown Bancorp, Inc.
Albrecht, Viggiano, Zureck & Company, P.C.
Hauppauge, New York
January 27, 2000
<PAGE> 10
TABLE OF CONTENTS
Financial Highlights
Message from the Chairman of the Board
Independent Auditors'
Report Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Selected Financial Data
Consolidated Average Balance Sheets
Consolidated Balance Sheets
Consolidated Income Statements
Per Share Data and Supplementary Information
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Banking Locations
Corporate Directory
(Object Omitted)
(Object Omitted)
(Object Omitted)
(Object Omitted)
<TABLE>
<CAPTION>
Financial Highlights
1999 1998 1997 1996 1995
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
At Year End
Assets ..................... $ 266,081,443 $ 205,825,657 $ 197,656,435 $ 181,629,049 $ 157,528,274
Loans ...................... 176,200,017 117,575,281 99,713,204 100,577,940 98,955,368
Deposits ................... 207,806,261 183,875,462 168,195,635 158,928,455 143,581,497
Stockholders' Equity ....... 18,690,015 17,412,189 16,979,458 14,097,239 12,837,073
For the Year
Net Income ................. $ 4,253,653 $ 3,500,413 $ 3,320,819 $ 1,705,498 $ 1,471,381
Return on Average Equity (%) 23.31 20.45 21.60 12.94 11.98
Return on Average Assets (%) 1.79 1.73 1.73 1.00 0.94
Efficiency (%) ............. 0.52 0.54 0.52 0.72 0.75
Per Share
Net Income ................. $ 5.25 $ 4.15 $ 3.83 $ 1.97 $ 1.70
Cash Dividends Declared .... 0.86 0.80 0.70 0.64 0.56
Stockholders' Equity ....... 23.07 21.16 19.60 16.27 14.82
</TABLE>
<PAGE> 11
(Object Omitted)
Message From the Chairman of the Board
The last year of the century found Bank of Smithtown enjoying levels of
success unparalleled in its 90-year history.
For the fourth consecutive year, Bank of Smithtown posted a record level of
earnings, finishing 1999 with net income of $4,253,653. Even more impressively,
for the third year in a row the Bank achieved a return on equity of more than
20%, posting an ROE of 24.72%, ranking it as the leader among its peers.
Other measures of the Bank's performance are equally impressive, and rank
it at or near the top of its peer group. Return on average assets was 1.79%, far
exceeding statewide and national averages. Efficiency was 51.72%, more than 10%
leaner than peer group averages.
Loans grew by 49.86%, with both commercial loans and residential mortgages
making significant advances and the loan portfolio topping $176 million by
year-end. At the same time, asset quality continued to improve, with OREO
declining by 20% to less than a million dollars, and nonperforming loans
declining by 21% to achieve a ratio of nonperforming loans to total loans of
0.79%, which is better than all New York State peer group averages.
Earning per share amounted to $5.25, a remarkable growth of 26.51%. Cash
dividends increased by 10% to $0.88 per share, and the market value of our stock
increased by 11% to $60.50 per share at year-end.
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The last achievement is particularly impressive considering that, due to a
variety of economic factors, all bank stock indexes for the banks of $10 billion
or less in assets declined by approximately 9 to 10%.
We continue to try to blend the best elements of our past success with
improvements for the further. In the year 2000, we plan to introduce Internet
banking, as well as a debit card, credit cards and an expanded network of ATM's.
We intend to expand our customer relationship by deepening the market
penetration of our new insurance products as well as the products and services
offered through our Trust Department.
We also continue to develop sites for new branches as we believe that
customer preferences and convenience will remain significantly tied to brick and
mortar offices for quite some time to come.
We enter the new century having been widely-recognized as one of the
leading community banks in the nation. With your support, we will continue to
adapt ourselves to the ever-changing financial marketplace to become a model
community-oriented financial organization for the 21st century.
Bradley E. Rock
Chairman of the Board
President & Chief Executive Officer
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Opportunities for growth abound on Long Island today. For example, the
1999/2000 Long Island Economic Survey and Opinion Poll revealed that 59% of
respondents plan to increase personnel in 2000 and 40% plan to expand or
purchase facilities. With our long tradition of serving local residents and
businesses, Bank of Smithtown is in an exceptional position to seize the
opportunities afforded by this economic surge.
To ensure our competitive advantage, this past year we concentrated on
developing products and service delivery method that respond to customer needs.
The 24-hour banking concept introduced through our CHATS telephone access system
is being expanded to encompass electronic banking via the Internet.
Enhanced automated teller machine (ATM) cars, called Bank of Smithtown
Ready Money, were developed. These cards now also will serve as debit cards and
will enable customers to make purchases anywhere that MasterCard is accepted,
worldwide. Additionally, MasterCard and Visa credit cards for businesses and
individuals will be introduced by the Bank.
During 1999, the Bank established SMTB Financial Group, LLC, to serve the
personal and commercial insurance needs of our customers. As an independent
entity, SMTB will be able to recommend the best coverage available on the market
at the most affordable price.
Our advantage has been and always will be a commitment to personal service,
listening to our customers and responding to their needs. Technology may help us
accomplish those task, but it will never be a substitute for what we do best:
serve our customers.
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The health of the communities we serve is the underpinning of our own
financial strength. At Bank of Smithtown we believe it is our responsibility to
funnel resources back into the community.
In 1999, we made some $20 million in construction loans, primarily for
residential properties, and some $30 million in loans to small business. These
monies allow young families to establish roots here and business to achieve
their full potential, important ingredients to a stable future.
Safe Guard Surfacing Corporation, a Long Island company that manufactures
and installs playground surfacing materials made from recycled tires, is a
typical community bank success story. A Bank of Smithtown customer since its
inception in 1992, the firm today employs 30 people, boasts annual sales of
approximately $2.5 million, and includes among its clients the New York City
Board of Education, McDonald's and Safeco Field, the new home of the Seattle
Mariner's baseball team. The Bank's willingness to work with fledging
entrepreneurs keeps our local economy vital and allows residents to achieve
their dreams.
Quality of life issues gain our attention, too. Student-related activities
are high priorities. Through programs ranging from supporting athletic teams
that prepare youngsters for the competitive world to those like Student of the
Month that promote academic excellence, Bank of Smithtown invests in the future.
Our local non-profit organizations are vital to the continued stability of
our communities. The Bank enhances their work in a variety of ways, particularly
by sponsoring fund raising events.
Community reinvestment is the cornerstone of our success and will ensure
our stability going forward.
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A Description of our Business
Smithtown Bancorp (the "Bancorp") is a bank holding company incorporated in the
State of New York, subject to the regulation and supervision of the State of New
York Banking Department, the Federal Reserve Board and the Securities and
Exchange Commission. The Bancorp owns all of the outstanding stock of Bank of
Smithtown (the"Bank") and conducts no business other than holding the stock of
Bank of Smithtown. Therefore, the content of this annual report, as it pertains
to the description of the activities of the Bancorp, is in essence a description
of the activities of Bank of Smithtown.
Bank of Smithtown, chartered under the laws of the State of New York, is a
member of the Federal Reserve System and is insured by the Federal Deposit
Insurance Corporation. The Bank has been headquartered in Smithtown since 1910.
It is in its 90th year of operation as an independent commercial bank. The Bank
operates seven offices in the following communities: Smithtown, Commack,
Hauppauge, Kings Park, Centereach, Lake Grove, and Northport.
Bank of Smithtown is a full-service bank offering a complete range of commercial
and consumer financial services. The Bank also extends its services to local
municipalities.
The Bank's Trust and Investment Management Division, introduced in 1970,
provides trust and estate administration, fiduciary and investment advisory
services, and acts as a bond and coupon paying agent for local municipalities.
The Bank's intention is to continue to provide individuals, businesses, and
municipalities with a comprehensive array of financial services
Independent Auditors' Report
To the Board of Directors and Stockholders of Smithtown Bancorp
We have audited the accompanying consolidated balance sheets of Smithtown
Bancorp as of December 31, 1999 and 1998, and the related consolidated
statements of income, comprehensive income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of
Smithtown Bancorp's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Smithtown Bancorp at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
As discussed in Note A to the consolidated financial statements, Smithtown
Bancorp adopted the provisions of Statements of Financial Accounting Standards
(SFAS) No. 132, 'Employers' Disclosures about Pensions and Other Postretirement
Benefits' in 1998 and SFAS No. 125, 'Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities' in 1997.
Albrecht, Viggiano, Zureck & Company, P.C.
Hauppauge, New York
January 27, 2000
<PAGE> 17
<TABLE>
<CAPTION>
Consolidated Balance Sheets Smithtown Bancorp
As of December 31,
____________________________________________________________________________________________________________________________________
1999 1998
<S> <C> <C>
Assets
Cash and Due from Banks .......................................................... $ 10,195,378 $ 7,124,365
Investment Securities:
Investment Securities Held to Maturity:
Mortgage-Backed Securities ................................................ 2,829,437 4,582,024
Obligations of State and Political Subdivisions ........................... 5,141,551 6,292,248
Total (Estimated Fair Value $7,969,754 in 1999 and $11,125,675 in 1998) 7,970,988 10,874,272
Investment Securities Available for Sale:
Obligations of U.S. Government ............................................... 3,012,570 6,151,890
Obligations of U.S. Government Agencies ...................................... 17,331,246 14,213,318
Mortgage-Backed Securities ................................................... 19,612,906 19,129,406
Obligations of State and Political Subdivisions .............................. 11,152,866 11,818,684
Other Securities ............................................................. 3,580,700 856,800
Total (At Estimated Fair Value) ....................................... 54,690,288 52,170,098
Total Investment Securities ............................................... 62,661,276 63,044,370
Federal Funds Sold ................................................................... 10,350,000 12,500,000
Loans ................................................................................ 176,819,745 118,101,158
Less: Unearned Discount ......................................................... 619,728 525,877
Allowance for Possible Loan Losses ........................................ 2,251,668 2,120,371
Loans, Net ........................................................................... 173,948,349 115,454,910
Bank Premises and Equipment .......................................................... 3,207,348 3,259,290
Other Assets
Other Real Estate Owned .......................................................... 855,353 1,072,495
Other ............................................................................ 4,863,739 3,370,227
Total Other Assets ........................................................ 5,719,092 4,442,722
Total ..................................................................... $ 266,081,443 $ 205,825,657
Liabilities
Deposits:
Demand (Non-Interest Bearing) .................................................... $ 50,008,452 $ 49,752,008
Money Market ..................................................................... 53,667,605 42,807,109
NOW .............................................................................. 15,968,937 15,790,178
Savings .......................................................................... 35,594,368 39,267,087
Time ............................................................................. 52,566,899 36,259,080
Total Deposits ............................................................ 207,806,261 183,875,462
Dividend Payable ..................................................................... 177,357 165,893
Other Borrowings ..................................................................... 38,000,000 3,174,645
Other Liabilities .................................................................... 1,407,810 1,197,468
Total Liabilities ......................................................... 247,391,428 188,413,468
Commitments and Contingent Liabilities
Stockholders' Equity
Common Stock - $2.50 Par Value:
(3,000,000 Shares Authorized; 895,910 Shares Issued) ............................. 2,239,775 2,239,775
Capital Surplus ...................................................................... 1,993,574 1,993,574
Retained Earnings .................................................................... 19,314,995 15,770,822
Accumulated Other Comprehensive Income ............................................... (1,069,376) 249,455
Total ..................................................................... 22,478,968 20,253,626
Less:
Treasury Stock (89,742 and 73,145 Shares at Cost
at December 31, 1999 and 1998, respectively) ............................... 3,788,953 2,841,437
Total Stockholders' Equity ................................................ 18,690,015 17,412,189
Total ..................................................................... $ 266,081,443 $ 205,825,657
See notes to consolidated financial statements
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
Consolidated Statements of Income Smithtown Bancorp
Year Ended December 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Interest and Fees on Loans ......................................... $ 12,673,580 $ 9,996,927 $ 9,731,626
Interest on Balances Due from Banks ................................ 45,609 7,631 5,973
Interest on Federal Funds Sold ..................................... 411,031 707,252 382,157
Interest and Dividends on Investment Securities:
Taxable:
Obligations of U.S. Government ............................. 339,877 414,782 235,724
Obligations of U.S. Government Agencies .................... 1,166,148 920,343 1,038,404
Mortgage-Backed Securities ................................. 1,659,362 1,979,480 2,847,023
Other Securities ........................................... 102,946 57,932 52,010
Total ................................................... 3,268,333 3,372,537 4,173,161
Exempt from Federal Income Taxes:
Obligations of State and Political Subdivisions ......... 821,512 656,858 308,609
Total Interest Income ................................... 17,220,065 14,741,205 14,601,526
Interest Expense
Money Market Accounts .............................................. 1,587,735 1,418,621 1,136,766
Savings ............................................................ 553,069 775,420 967,334
Certificates of Deposit of $100,000 and Over ....................... 697,356 516,403 392,267
Other Time Deposits ................................................ 1,274,439 1,284,662 1,194,572
Securities Sold Under Agreements To Repurchase ..................... 0 72,826 174,556
Other Borrowings ................................................... 1,145,234 375,057 286,995
Total Interest Expense .................................. 5,257,833 4,442,989 4,152,490
Net Interest Income ..................................... 11,962,232 10,298,216 10,449,036
Provision for Possible Loan Losses ...................... 450,000 525,000 805,000
Net Interest Income, After Provision for Possible Loan Losses 11,512,232 9,773,216 9,644,036
Other Non-Interest Income
Trust Department Income ............................................ 461,383 400,569 364,600
Service Charges on Deposit Accounts ................................ 1,501,740 1,479,577 1,518,765
Other Income ....................................................... 1,201,272 952,721 751,137
Net Gain on Sales of Investment Securities ......................... 17,012 40,676 0
Total Other Non-Interest Income ......................... 3,181,407 2,873,543 2,634,502
Other Operating Expenses
Salaries ........................................................... 3,626,284 3,252,761 2,949,150
Pensions and Other Employee Benefits ............................... 704,559 682,397 669,919
Net Occupancy Expense of Bank Premises ............................. 864,844 835,787 874,033
Furniture and Equipment Expense .................................... 807,080 621,808 589,897
Other Expense ...................................................... 1,992,593 1,726,923 1,793,602
Total Other Operating Expenses .......................... 7,995,360 7,119,676 6,876,601
Income Before Income Taxes ......................................... 6,698,279 5,527,083 5,401,937
Provision for Income Taxes ......................................... 2,444,626 2,026,670 2,081,118
Net Income ......................................................... $ 4,253,653 $ 3,500,413 $ 3,320,819
Earnings Per Share
Net Income ......................................................... $ 5.25 $ 4.15 $ 3.83
Weighted Average Shares Outstanding ................................ 810,130 844,496 866,536
</TABLE>
See notes to consolidated financial statements
<PAGE> 19
<TABLE>
<CAPTION>
Consolidated Statements of Comprehensive Income Smithtown Bancorp
Year Ended December 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income ..................................................................... $ 4,253,653 $ 3,500,413 $ 3,320,819
Other Comprehensive Income (Loss), Before Tax:
Unrealized Holding Gain (Loss) Arising During the Period ................... (2,290,858) 41,343 289,612
Less: Reclassification Adjustment for Gains Included in Net Income ........ 17,012 40,676 0
(2,273,846) 667 289,612
Income Tax Related to Other Comprehensive Income ........................... 955,015 280 121,637
Other Comprehensive Income (Loss), Net of Tax .............................. (1,318,831) 387 167,975
Total Comprehensive Income ............................................. $ 2,934,822 $ 3,500,800 $ 3,488,794
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
Smithtown Bancorp
Cost of Accumulated
Common Stock Common Other Total
Shares Capital Retained Stock in Comprehensive Stockholders'
Outstanding Amount Surplus Earnings Treasury Income (Loss) Equity
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 866,536 $ 2,239,775 $ 1,993,574 $ 10,229,436 $ (446,639) $ 81,093 $ 14,097,239
Comprehensive Income:
Net Income 3,320,819 3,320,819
Other Comprehensive Income,
Net of Tax 167,975 167,975
Total Comprehensive Income 3,488,794
Cash Dividends Declared (606,575) (606,575)
____________________________________________________________________________________________________________________________________
Balance at December 31, 1997 866,536 2,239,775 1,993,574 12,943,680 (446,639) 249,068 16,979,458
Comprehensive Income:
Net Income 3,500,413 3,500,413
Other Comprehensive Income,
Net of Tax 387 387
Total Comprehensive Income 3,500,800
Cash Dividends Declared (673,271) (673,271)
Treasury Stock Purchases (43,771) (2,394,798) (2,394,798)
____________________________________________________________________________________________________________________________________
Balance at December 31, 1998 822,765 2,239,775 1,993,574 15,770,822 (2,841,437) 249,455 17,412,189
Comprehensive Income:
Net Income 4,253,653 4,253,653
Other Comprehensive Loss,
Net of Tax (1,318,831) (1,318,831)
Total Comprehensive Income 2,934,822
Cash Dividends Declared (709,480) (709,480)
Treasury Stock Purchases (16,597) (947,516) (947,516)
____________________________________________________________________________________________________________________________________
Balance at December 31, 1999 806,168 $ 2,239,775 $ 1,993,574 $ 19,314,995 $ (3,788,953) $ (1,069,376) $ 18,690,015
____________________________________________________________________________________________________________________________________
</TABLE>
Cash dividends declared per share were $.88 in 1999, $.80 in 1998, $.70 in 1997.
See notes to consolidated financial statements.
<PAGE> 20
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Smithtown Bancorp
Year Ended December 31
1999 1998 1997
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income ......................................................................... $ 4,253,653 $ 3,500,413 $ 3,320,819
Adjustments to reconcile net income to net cash provided by operating activities:
Valuation Reserve for Other Real Estate Owned .............................. 0 (67,002) 120,000
Depreciation on Premises and Equipment ..................................... 509,946 371,715 401,663
Provision for Possible Loan Losses ......................................... 450,000 525,000 805,000
Net Gain on Sale of Investment Securities ...................................... (17,012) (40,676) 0
Amortization of Transition Obligation ...................................... 90,219 79,811 104,102
Gain on Sale of Other Real Estate Owned .................................... (29,281) (35,437) 0
Increase in Interest Payable ............................................... 311,030 15,387 40,203
Increase (Decrease) in Miscellaneous Payables and Accrued
Expenses ................................................................ 28,895 111,373 (73,361)
(Increase) Decrease in Fees and Commissions Receivables .................... 46,200 (26,400) 25,000
(Increase) Decrease in Interest Receivable ................................. (415,783) 172,950 (154,263)
(Increase) Decrease in Prepaid Expenses .................................... (157,504) (111,624) 142,864
Increase in Miscellaneous Receivables ...................................... (26,316) (139,858) (161,499)
(Increase) Decrease in Income Taxes Receivable ............................. 915 29,592 (224,362)
Increase in Deferred Taxes ................................................. (118,579) (229,922) (71,947)
Decrease in Accumulated Postretirement Benefit Obligation .................. (87,233) (52,843) (62,249)
Amortization of Investment Security Premiums and Accretion
of Discounts ............................................................ 117,691 160,734 (1,467)
Cash Provided by Operating Activities ................................... 4,956,841 4,263,213 4,210,503
Cash Flows from Investing Activities
Proceeds from Disposition of Mortgage-Backed Securities:
Held to Maturity ........................................................... 1,675,055 2,629,306 1,734,661
Available for Sale ......................................................... 14,237,579 16,887,078 8,272,600
Proceeds from Disposition of Other Investment Securities:
Held to Maturity ........................................................... 1,478,604 2,642,018 569,013
Available for Sale ......................................................... 7,057,714 9,015,875 7,103,438
Purchase of Mortgage-Backed Securities:
Available for Sale ......................................................... (15,492,620) 0 (10,022,600)
Purchase of Other Investment Securities:
Held to Maturity ........................................................... (723,862) (415,730) (2,031,947)
Available for Sale ......................................................... (10,223,900) (19,749,933) (15,115,725)
Federal Funds Sold, Net ........................................................ 2,150,000 (4,200,000) (8,300,000)
Loans Made to Customers, Net ................................................... (58,943,439) (18,184,265) (613,921)
Purchase of Premises and Equipment ............................................. (458,004) (1,176,171) (237,635)
Proceeds from Sale of Other Real Estate Owned .................................. 246,423 3,197,491 1,768,601
Cash Used in Investing Activities ....................................... (58,996,450) (9,354,331) (16,873,515)
Cash Flows from Financing Activities
Net Increase in Demand Deposits, NOW and Savings Accounts ...................... 7,622,979 12,440,843 5,004,459
Net Increase in Time Accounts .................................................. 16,307,819 3,238,984 4,262,721
Cash Dividends Paid ............................................................ (698,015) (659,022) (593,577)
Securities Sold Under Agreements to Repurchase and Other
Borrowings, Net ............................................................ 34,825,355 (8,077,895) 3,966,816
Purchase of Treasury Stock ..................................................... (947,516) (2,394,798) 0
Cash Provided by Financing Activities ................................... 57,110,622 4,548,112 12,640,419
Net Increase (Decrease) in Cash and Due from Banks ...................... 3,071,013 (543,006) (22,593)
Cash and Due from Banks, Beginning of Year .............................. 7,124,365 7,667,371 7,689,964
Cash and Due from Banks, End of Year .................................... $ 10,195,378 $ 7,124,365 $ 7,667,371
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest ................................................................... $ 1,145,234 $ 447,883 $ 461,392
Income Taxes ............................................................... 2,562,290 2,227,000 2,377,427
Schedule of Noncash Investing Activities
Loans Transferred to Other Real Estate Owned ................................... $ 0 $ 239,964 $ 728,680
Unrealized Gain on Securities Available for Sale ............................... 1,318,831 387 167,975
</TABLE>
See notes to consolidated financial statements
<PAGE> 21
Notes to Consolidated Financial Statements
Note A. Summary of Significant Accounting Policies
The accounting and reporting policies of Smithtown Bancorp (the 'Bancorp) and
its subsidiary, Bank of Smithtown (the 'Bank') reflect banking industry
practices and conform to generally accepted accounting principles. A summary of
the significant accounting policies followed by the Bancorp in the preparation
of the accompanying consolidated financial statements is set forth below.
Basis of Presentation
The consolidated financial statements include the accounts of Smithtown Bancorp,
and its wholly-owned subsidiary, Bank of Smithtown. All material intercompany
transactions have been eliminated.
On May 6, 1998, the Bank effected a two-for-one split of common stock. All
references in the accompanying consolidated financial statements and notes
thereto relating to common stock, capital surplus, earnings per share and share
data have been retroactively adjusted to reflect the two-for-one stock split.
Nature of Operations
Smithtown Bancorp operates under a state bank charter and provides full banking
services, including trust and investment management services. As a state bank,
the Bank is subject to regulation by the State of New York Banking Department
and the Federal Reserve Board. The area served by Smithtown Bancorp is the north
central region of Suffolk County, New York, and services are provided at seven
branch offices.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. It is reasonably possible that
the Allowance for Possible Loan Losses and the Valuation Reserve for OREO could
differ from actual results.
Investment Securities
The Bank evaluates its investment policies consistent with Statement of
Financial Accounting Standards No. 115 'Accounting for Certain Investments in
Debt and Equity Securities' (SFAS No. 115). Accordingly, the Bank's investments
in securities are classified in two categories and accounted for as follows:
o Securities to be Held to Maturity - Bonds, notes and debentures for which the
Bank has the positive intent and ability to hold to maturity are reported at
cost, adjusted for amortization of premiums and accretion of discounts which are
recognized in interest income using the interest method over the period to
maturity.
o Securities Available for Sale - Bonds, notes, debentures, and certain equity
securities are carried at estimated fair value.
Unrealized holding gains and losses, net of tax, arising on securities available
for sale are reported as a component of accumulated other comprehensive income,
in accordance with SFAS No. 130, 'Reporting Comprehensive Income'. In June 1997,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130 (SFAS No. 130), 'Reporting Comprehensive Income'.
This statement establishes requirements for disclosure of comprehensive income
and became effective for the Bank in 1998, with reclassification of earlier
financial statements for comparative purposes. Comprehensive income generally
represents all changes in stockholders' equity except those resulting from
investments by and distributions to stockholders.
Gains and losses on the sale of securities are determined using the
specific-identification method.
<PAGE> 22
Loans
Effective January 1, 1995, Bank of Smithtown has adopted Statement of Financial
Accounting Standards No. 114, 'Accounting by Creditors for Impairment of a Loan'
(SFAS No. 114). SFAS No. 114 applies only to impaired loans, with the exception
of groups of smaller-balance homogeneous loans that are collectively evaluated
for impairment (generally consumer loans). A loan is defined as impaired by SFAS
No. 114 if, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due, both interest and principal,
according to the contractual terms of the loan agreement. Specifically, SFAS No.
114 requires that a portion of the overall Allowance for Possible Loan Losses be
determined based on the present value of expected cash flows discounted at the
loan's effective interest rate or, as a practical expedient, the loan's
observable market price or the fair value of the collateral. Prior to the
adoption of SFAS No. 114, Bank of Smithtown's methodology for determining the
adequacy of the Allowance for Possible Loan Losses did not incorporate the
concept of the time value of money and expected future interest cash flows. In
addition, SFAS No. 114 modifies the accounting for insubstance foreclosures
(ISF). A collateralized loan is now considered an ISF and reclassified to Other
Assets only when a creditor has taken physical possession of the collateral
regardless of whether formal foreclosure proceedings have taken place.
Bank of Smithtown has also adopted SFAS No. 118, 'Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure' (SFAS No. 118) which
amends SFAS No. 114 to permit a creditor to use existing methods for recognizing
interest revenue on impaired loans. Generally, interest revenue received on
impaired loans continues either to be applied by the Bank against principal or
to be realized as interest revenue, according to management's judgment as to the
collectibility of principal.
Loans are generally recorded at the principal amount outstanding net of unearned
discount and the allowance for possible loan losses. Unearned discounts are
generally amortized over the term of the loan using the interest method.
Interest on loans is credited to income based on the principal amount
outstanding. The accrual of interest on a loan is discontinued when in the
opinion of management there is doubt about the ability of the borrower to pay
interest or principal. Management may continue to accrue interest when it
determines that a loan and related interest are adequately secured and in the
process of collection. Loans held for sale are carried at the lower of aggregate
cost or estimated fair value. The Bank sells or securitizes certain loans. Such
sales are with recourse and no reserve is considered necessary at December 31,
1999 and 1998. Gains are reported in Other Income.
Loan-related fees and cost are recognized as income when received in accordance
with generally accepted accounting principles.
Allowance for Possible Loan Losses
The allowance for possible loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance for
possible loan losses when management believes the collectibility of the
principal is unlikely. The allowance for possible loan losses is based on
management's evaluation of the loan portfolio. Management believes that the
allowance for possible loan losses is adequate. While management uses available
information, including appraisals, to estimate potential losses on loans,
further additions to the allowance may be necessary based on changes in economic
conditions.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation and
amortization. The depreciation and amortization are computed on the
straight-line method over the estimated useful lives of the related assets as
follows:
Bank Premises .......................................... 25-30 years
Leasehold Improvements ................................. 5-40 years
Furniture and Equipment ................................ 10 years
<PAGE> 23
Other Real Estate Owned
Included in other assets is real estate held for sale which is acquired
principally through foreclosure or a similar conveyance of title and is carried
at the lower of cost or estimated fair value minus estimated costs to sell the
property. Any write-downs at the dates of acquisition are charged to the
Allowance for Possible Loan Losses. Revenues and expenses associated with
holding such assets are recorded through operations when realized.
Other Real Estate Owned Valuation Reserve Account
The valuation reserve account is established through a loss on other real estate
owned charged to expense. Properties held in Other Real Estate Owned are
periodically valued through appraisals, and are written down to estimated fair
market value based on management's evaluation of these appraisals. Specific
reserves are allocated to the properties as necessary, and these reserves may be
adjusted based on changes in economic conditions.
Income Taxes
The tax provision as shown in the consolidated statements of income relates to
items of income and expense reflected in the statements after appropriate
deduction of tax-free income, principally nontaxable interest from obligations
of state and political subdivisions. Deferred taxes are provided for timing
differences related to depreciation, loan loss provisions, postretirement
benefits, and investment securities which are recognized for financial
accounting purposes in one period and for tax purposes in another period.
Trust Assets
Assets belonging to trust customers that are held in fiduciary or agency
capacity by the Bank are not included in the financial statements since they are
not assets of the Bank. Deposits held in fiduciary or agency capacity in the
normal course of business are reported in the applicable deposit categories of
the consolidated balance sheets.
Earnings Per Share
Earnings per share is computed based on the weighted average number of shares
outstanding. There are no shares issuable through stock options or warrants.
Statements of Cash Flows
For the purposes of the Statements of Cash Flows, the Bank considers Cash and
Due from Banks as Cash and Cash Equivalents.
Retirement Benefits
The Bank accounts for postretirement benefits other than pensions in accordance
with Statement of Financial Accounting Standards No. 106 'Employers' Accounting
for Postretirement Benefits Other Than Pensions' (SFAS No. 106). This statement
requires that the estimated costs of postretirement benefits other than pensions
be accrued over the period earned rather than expensed as incurred.
In addition, the Bank adopted the provisions of SFAS No. 132, 'Employers'
Disclosures about Pensions and Other Postretirement Benefits' (SFAS No. 132), in
1998. This Statement supersedes the disclosure requirements in SFAS No. 106. It
does not address the measurement or recognition issues as prescribed by SFAS No.
106.
Collateralized Securities Transactions
Transactions involving purchases of securities under agreements to resell
('reverse repurchase agreements') or sales of securities under agreements to
repurchase ('repurchase agreements') are treated as collateralized financing
transactions and are recorded at their contracted resale or repurchase amounts
plus accrued interest. The Bank is required to provide securities to
counterparties in order to collateralize repurchase agreements. The Bank's
agreements with counterparties generally contain contractual provisions allowing
for additional collateral to be obtained, or excess collateral returned, when
necessary. It is the Bank's policy to value collateral periodically and to
obtain additional collateral, or to retrieve excess collateral from
counterparties, when deemed appropriate.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, 'Accounting for Derivative
Instruments and Hedging Activities' (SFAS No. 133) which is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. This
statement standardizes the accounting for derivative instruments and hedging
activities.
<PAGE> 24
In October 1998, the FASB issued Statement of Financial Accounting Standards No.
134, 'Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage-Banking Enterprise'
(SFAS No. 134) an amendment of SFAS No. 65, which is effective for the first
fiscal quarter beginning after December 15, 1998. This Statement establishes
standards for the subsequent accounting for securities retained after the
securitization of mortgage loans held for sale by mortgage-banking enterprises.
The Bank is evaluating methods for adoption of these statements, if necessary,
and currently does not expect these new pronouncements to have a material impact
on its consolidated financial statements.
Note B. Investment Securities
The carrying amounts of investment securities as shown in the consolidated
balance sheets and their estimated fair values at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities to be Held to Maturity:
December 31, 1999
Mortgage-Backed Securities ................................. $ 2,829,437 $ 0 $ (39,019) $ 2,790,418
Obligations of State and Political Subdivisions ............ 5,141,551 61,017 (23,231) 5,179,337
Total ................................................. 7,970,988 61,017 (62,250) 7,969,755
December 31, 1998
Mortgage-Backed Securities ................................. 4,261,731 24,123 (5,407) 4,280,447
Collateralized Mortgage Obligations ........................ 320,293 0 (846) 319,447
Obligations of State and Political Subdivisions ............ 6,292,248 233,533 0 6,525,781
Total ................................................. 10,874,272 257,656 (6,253) 11,125,675
Securities Available for Sale:
December 31, 1999
Obligations of U.S. Government ............................. 3,008,273 4,297 0 3,012,570
Obligations of U.S. Government Agencies .................... 18,008,211 0 (676,965) 17,331,246
Mortgage-Backed Securities ............................. 20,207,982 0 (595,076) 19,612,906
Obligations of State and Political Subdivisions ........ 11,728,874 0 (576,008) 11,152,866
Other Securities ...................................... 3,580,700 0 0 3,580,700
Total .................................................. 56,534,040 4,297 (1,848,049) 54,690,288
Securities Available for Sale:
December 31, 1998
Obligations of U.S. Government ............................. 6,077,249 74,641 0 6,151,890
Obligations of U.S. Government Agencies .................... 14,135,967 97,671 (20,320) 14,213,318
Mortgage-Backed Securities ............................. 17,920,702 199,929 (6,802) 18,113,829
Collateralized Mortgage Obligations .................... 1,030,083 0 (14,506) 1,015,577
Obligations of State and Political Subdivisions ........ 11,719,202 146,656 (47,174) 11,818,684
Other Securities ...................................... 856,800 0 0 856,800
Total .................................................. $51,740,003 $ 518,897 $ (88,802) $52,170,098
</TABLE>
<PAGE> 25
The following table presents the amortized costs of and estimated fair values of
investment in debt securities by scheduled maturity at respective year-ends.
<TABLE>
<CAPTION>
1999 1998
Amortized Estimated Fair Amortized Estimated Fair
Type and Maturity Grouping Costs Value Costs Value
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Investment Securities Held to Maturity:
Mortgage-Backed Securities
Within 1 year ....................................... $ 1,233,129 $ 1,223,344 $ 0 $ 0
After 1 year, but within 5 years .................... 0 0 2,109,778 2,110,703
After 5 years, but within 10 years .................. 1,596,308 1,567,074 2,472,246 2,489,191
Total Mortgage-Backed Securities ............... 2,829,437 2,790,418 4,582,024 4,599,894
Obligations of State and Political Subdivisions
Within 1 year ....................................... 1,078,994 1,075,322 1,864,243 1,884,271
After 1 year, but within 5 years .................... 3,230,807 3,261,703 2,897,921 3,017,547
After 5 years, but within 10 years .................. 831,750 842,312 1,530,084 1,623,963
Total Obligations of State and
Political Subdivisions ................... 5,141,551 5,179,337 6,292,248 6,525,781
Investment Securities Available for Sale:
Obligations of U.S. Government
Within 1 year ....................................... 3,008,273 3,012,570 2,998,111 3,029,070
After 1 year, but within 5 years .................... 0 0 3,079,138 3,122,820
Total Obligations of U.S. Government ........... 3,008,273 3,012,570 6,077,249 6,151,890
Obligations of U.S. Government Agencies
After 1 year, but within 5 years .................... 6,000,000 5,745,010 0 0
After 5 years, but within 10 years .................. 10,008,211 9,761,776 9,531,548 9,595,975
After 10 years ...................................... 2,000,000 1,824,460 4,604,419 4,617,343
Total Obligations of U.S. Government
Agencies .................................. 18,008,211 17,331,246 14,135,967 14,213,318
Mortgage-Backed Securities
Within 1 year ....................................... 0 0 109,152 109,343
After 10 years ...................................... 20,207,982 19,612,906 18,841,633 19,020,063
Total Mortgage-Backed Securities ............... 20,207,982 19,612,906 18,950,785 19,129,406
Obligations of State and Political Subdivisions
After 1 year, but within 5 years .................... 2,680,761 2,628,999 776,629 787,316
After 5 years, but within 10 years .................. 6,253,021 5,964,453 4,386,613 4,459,239
After 10 years ...................................... 2,795,092 2,559,414 6,555,960 6,572,129
Total Obligations of State and Political
Subdivisions .............................. $11,728,874 $11,152,866 $11,719,202 $11,818,684
</TABLE>
Mortgage-Backed Securities are classified in the above schedule by their
contractual maturity. Actual maturities can be expected to differ from scheduled
maturities due to prepayment or early call privileges of the issuer.
Gross unrealized gains for the above investments amounted to $65,314 and
$776,553 in 1999 and 1998, respectively, while gross unrealized losses amounted
to $1,910,299 and $95,055 in 1999 and 1998, respectively.
Obligations of the U.S. Government, U.S. Government Agencies, Mortgage-Backed
Securities and Obligations of State and Political Subdivisions having a book
value of $42,251,749 and an estimated fair value of $43,779,055 were pledged to
secure public deposits, treasury tax and loan deposits, repurchase agreements
and advances. No municipality maintains deposits exceeding ten percent of
stockholders' equity.
Gross realized gains on sales of Investment Securities Available for Sale for
the years ended December 31,
1999 1998 1997
Mortgage-Backed Securities $ 17,012 $ 40,676 $ 0
<PAGE> 26
Effective November 15, 1995, the Financial Accounting Standards Board permitted
a one-time opportunity for banks to reassess the appropriateness of the
designation of all securities held. Any resulting reclassifications had to be
made no later than December 31, 1995. In accordance with this one time
reclassification consistent with SFAS No. 115, Bank of Smithtown transferred
securities from the Held to Maturity portfolio to the Available for Sale
portfolio in order to increase its liquidity position. The amortized cost,
related net unrealized loss, and estimated fair value of these transferred
securities were $22,537,536, $206,705 and $22,330,831, respectively.
As a member of the Federal Reserve Bank of New York, the Bank owns Federal
Reserve Bank stock with a book value of $127,200. The stock has no maturity and
has paid dividends at the rate of 6.00% for 1999 and 1998. During 1995, the Bank
became a member of the Federal Home Loan Bank of New York, and now holds
$3,423,500 of its stock. This stock also has no maturity and has paid average
dividends of 6.75% and 7.75% during 1999 and 1998, respectively. Stock of both
the Federal Reserve Bank and the Federal Home Loan Bank are restricted.
The Bank invested $30,000 in the Nassau-Suffolk Business Development Fund. This
consortium of banks provides loans to low income homeowners.
Note C. Loans and OREO
Loans as of December 31, consisted of the following:
1999 1998
Real Estate Loans, Construction .................. $ 22,563,456 $ 17,349,704
Real Estate Loans, Other
Commercial ................................. 81,336,842 54,025,411
Residential ................................ 37,459,938 13,455,104
Commercial and Industrial Loans .................. 31,997,026 27,663,218
Loans to Individuals for Household, Family and
Other Personal Expenditures ...................... 3,350,208 4,782,592
All Other Loans (Including Overdrafts) ........... 112,275 825,129
Total Loans, Gross ............................... 176,819,745 118,101,158
Less: Unearned Discount on Loans ................. 619,728 525,877
Total (Net of Unearned Discount) ........... $176,200,017 $117,575,281
Collateral varies, but generally includes residential and income producing
commercial properties, as well as automobiles on personal loans. Estimated fair
values of loans at December 31, 1999 and 1998 totaled $174,805,445 and
$118,276,323, respectively.
Bank of Smithtown adopted SFAS No. 114 and SFAS No.118 effective January 1,
1995. This did not have any impact on Bank of Smithtown's results of operations
nor on its financial position, including the level of the Allowance for Possible
Loan Losses. All loans considered impaired under SFAS No. 115 are included in
the Bank's 90-day or more past due or nonaccrual categories. At December 31,
1999, the recorded investment in loans that are considered impaired under SFAS
No. 114 was $1,387,635. No additional SFAS No. 114 reserve is required for the
$1,387,635 of recorded investment in impaired loans, since previously taken
charge-offs have reduced the recorded investment values to amounts that are less
than the SFAS No. 114 calculated values. The average recorded investment in
impaired loans during the twelve months ended December 31, 1999 was $1,622,862.
The total allowance on impaired loans at December 31, 1999 and 1998 totaled
$362,972 and $593,123, respectively.
Recognition of interest income on impaired loans, as for all other loans, is
discontinued when reasonable doubt exists as to the full collectibility of
principal or interest. Bank of Smithtown recognized $18,149, $26,654, and $2,996
in interest revenue in 1999, 1998 and 1997 on these impaired loans. Any cash
receipts would first be applied to accrued interest on impaired loans, and then
to the principal balance outstanding.
At December 31, 1999 and 1998, loans with unpaid principal balances of
$1,387,635 and $1,749,751, respectively, on which the Bank is no longer accruing
interest income, are included in the total loans listed above. The Bank expects
to recover a portion of the principal balance included in the nonaccrual
category at December 31, 1999 through work-out arrangements and the liquidation
of collateral. If the Bank had accrued interest income on loans which were in a
nonaccrual status at year-end, its interest income would have increased by
approximately $138,183 in 1999 and $90,166 in 1998. There were no loans
contractually past-due 90 days or more and still accruing interest at December
31, 1999 and 1998.
No loans were transferred to Other Real Estate Owned (OREO) during 1999. The
estimated fair value at OREO as of December 31, 1999 was $1,157,500.
During 1998, $239,964 of loans, net of an allocated portion of the Allowance for
Possible Loan Losses, were transferred to Other Real Estate Owned (OREO). The
estimated fair value of OREO as of December 31, 1998 was $1,392,500.
<PAGE> 27
The composition of OREO at December 31, follows:
1999 1998
OREO ..................................... $1,157,500 $1,392,500
Less: Valuation Reserve .................. 302,147 320,005
Net ...................................... $ 855,353 $1,072,495
Other net OREO costs, which include operating revenue and expense, and gains and
losses on the sale or disposition of Other Real Estate Owned, approximated
$53,000, $91,000 and $85,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
A summary of information concerning interest income on nonaccrual loans and OREO
at December 31, follows:
<TABLE>
<CAPTION>
OREO Nonaccrual
(in thousands) 1999 1998 1997 1999 1998 1997
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Gross interest income which would have
been recorded during the year under
original contract terms ........................ $ 75 $214 $522 $138 $ 90 $ 95
Gross interest income recorded during
the year ....................................... 0 0 0 18 0 0
</TABLE>
The Bank has granted loans to officers, directors and principal shareholders of
the Bancorp and to their associates. Related party loans are made in the
ordinary course of business, on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons. The aggregate dollar amount of these loans
was $1,674,111 and $1,542,012 at December 31, 1999 and 1998, respectively.
During 1999, $539,265 of new loans were made, and repayments totaled $355,666.
During 1999 Bank of Smithtown originated residential mortgages to be sold in the
secondary market to various investors. The Bank does not retain servicing rights
on these mortgages, but earns fee income from the origination process. At year
end 1999, there were no Mortgages Held for Sale outstanding. Fee income earned
during the year from these mortgage originations totaled $24,121.
Note D. Allowance for Possible Loan Losses
Transactions in the allowance for the year ending December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
Balance, January 1 ............................................... $2,120,371 $1,677,594 $1,622,572
Add:
Recoveries .................................................... 50,852 51,726 98,648
Provision Charged to Current Expense .......................... 450,000 525,000 805,000
Total ....................................................... 2,621,223 2,254,320 2,526,220
Less: Charge-Offs ............................................... 369,555 133,949 848,626
Balance, December 31 ............................................. $2,251,668 $2,120,371 $1,677,594
</TABLE>
Note E. Bank Premises and Equipment
Bank premises and equipment as of December 31 at cost is as follows:
1999 1998
Land ............................................... $ 321,044 $ 92,650
Bank Premises ...................................... 1,856,352 1,811,023
Leasehold Improvements ............................. 2,086,159 2,020,598
Furniture and Equipment ............................ 3,887,669 3,768,949
Total ................................... 8,151,224 7,693,220
Less: Accumulated Depreciation and Amortization ... 4,943,876 4,433,930
Total ................................... $3,207,348 $3,259,290
Note F. Employee Benefits
A 401(k) Defined Contribution Plan (the 'Plan') was established by the Bank
during 1986. All employees who have attained age 21 with one continuous year of
service may participate in the Plan through voluntary contributions of up to 14%
of their compensation. The Plan requires that the Bank match 50% of an
employee's contribution up to 2.5% of the participating employee's compensation.
The Bank's 401(k) contribution for 1999, 1998, and 1997, amounted to $53,551,
$43,352, and $43,015, respectively.
<PAGE> 28
During 1995, the Bank established an Employee Stock Ownership Plan (ESOP) for
substantially all of its employees. The ESOP replaced the Profit Sharing Plan.
Eligibility requirements for the ESOP remain the same as for the Defined
Contribution Plan and include one year of continuous service, 1,000 hours and
attaining an age of 21. Eligible compensation is defined as gross wages less
contributions to any qualified plans to the extent that these contributions are
not includable in the gross income of the participant. Contributions to the ESOP
are in the form of cash and made at the discretion of the Board of Directors.
The ESOP uses this contribution to purchase shares of Smithtown Bancorp stock
which are then allocated to eligible participants. ESOP benefits are 100% vested
after five years of service with the Bank. Forfeitures are reallocated among
participating employees, in the same proportion as contributions. Benefits are
payable upon death, retirement, early retirement, disability or separation from
service and may be payable in cash or stock. The Bank reported a net expense of
$130,000, $125,000, and $125,000 related to the ESOP for the years ended
December 31, 1999, 1998 and 1997. During 1999, 1998 and 1997, the ESOP used the
Bank's contribution to purchase 2,235, 1,162 and 1,246 shares of common stock at
an average cost of $58.41, $43.50 and $32.00 per share, respectively. The 1999
contribution represents 4.02% of eligible compensation. As of December 31, 1999
and 1998 the ESOP held 28,867 and 27,324 allocated shares, respectively. There
were no unallocated shares in the ESOP effective December 31, 1999 and 1998.
ESOP shares are included in Weighted Average Shares Outstanding in the
calculations of earnings per share.
The Bank of Smithtown sponsors postretirement medical and life insurance plans
for a closed group of prior employees. The following tables provide a
reconciliation of the changes in the Plans' benefit obligations and fair value
of assets over the two-year period ending December 31, 1998, and a statement of
the funded status as of December 31 of both years:
<TABLE>
<CAPTION>
Retiree Health Benefits
1999 1998
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Reconciliation of Benefit Obligation
Obligation at January 1 .......................................................... $ 567,171 $ 632,937
Interest Cost .................................................................... 35,046 40,580
Actuarial Gain ................................................................... (16,692) (48,446)
Benefit Payments ................................................................. (54,616) (57,900)
Obligation at December 31 ........................................................ 530,909 567,171
Reconciliation of Fair Value of Plan Assets
Employer Contributions ........................................................... 54,616 57,900
Benefit Payments ................................................................. (54,616) (57,900)
Fair Value of Plan Assets at December 31 ......................................... 0 0
Funded Status
Funded Status at December 31 ..................................................... (530,909) (567,171)
Unrecognized Transition (Asset) Obligation ....................................... 412,600 444,400
Unrecognized Loss ................................................................ (8,557) 8,135
Net Amount Recognized, before Additional Minimum Liability ....................... $(126,866) $(114,636)
</TABLE>
The following table provides the amounts recognized in the statement of
financial position as of December 31 of both years:
<TABLE>
<CAPTION>
Retiree Health Benefits
1999 1998
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Accrued Benefit Liability, after Additional Minimum Liability ........................ $(126,866) $(114,636)
Net Amount Recognized ................................................................ $(126,866) $(114,636)
</TABLE>
Additional year-end information for plans with obligations in excess of plan
assets:
Projected Benefit Obligation $ 530,909 $ 567,171
The following table provides the components of net periodic benefit cost for the
plans for fiscal years 1999 and 1998:
<TABLE>
<CAPTION>
Retiree Health Benefits
1999 1998
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Interest Cost .............................................................................. $35,046 $40,580
Amortization of Unrecognized Transition Obligation ......................................... 31,800 31,800
Net Periodic Benefit Cost ............................................................ 66,846 72,380
Net Periodic Benefit Cost after Curtailments and Settlements ......................... $66,846 $72,380
</TABLE>
<PAGE> 29
The assumption used in the measurement of the Company's benefit obligation are
shown in the following table:
Retiree Health Benefits
1999 1998
Weighted Average Assumptions as of December 31
Discount 7.00% 6.50%
Initial Rate for Health Care Costs* 9.50% 10.00%
Ultimate Rate for Health Care Costs 6.00% 6.00%
Ultimate Year of Health Care Increase 2007 2008
*The known premium rate for 1999 was used in determining the December 31,1997
liabilities. A 10% increase was assumed for the claim in year 2000.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A 1% change in assumed health care cost
trend rates would have the following effects:
<TABLE>
<CAPTION>
1% Increase 1% Decrease
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Effect on total of service and interest cost components
of net periodic postretirement health care benefit cost ............................ $ 230 $ (217)
Effect on health care component of the accumulated
ostretirement benefit obligation .................................................. $ 2,796 $(2,648)
</TABLE>
Note G. Income Taxes
Federal and State Income Taxes payable as of December 31, included in other
assets in 1999 and 1998 are as follows:
1999 1998
________________________________________________________________________________
Current .............................. $ 127,162 $ 128,077
Deferred ............................. 1,603,611 530,016
Total ..................... $1,730,773 $ 658,093
Provisions for current income taxes are as follows:
1999 1998 1997
________________________________________________________________________________
Federal:
Current .................. $1,683,452 $1,300,500 $1,490,794
Deferred ................. 95,991 186,129 58,528
Total Federal .................. 1,779,443 1,486,629 1,549,322
New York State:
Current .................. 642,595 496,248 518,377
Deferred ................. 22,588 43,793 13,419
Total New York State ........... 665,183 540,041 531,796
Total ............... $2,444,626 $2,026,670 $2,081,118
<PAGE> 30
A reconciliation of the federal statutory tax rate to the required tax rate
based on income before income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
Tax Pretax Tax Pretax Tax Pretax
Amount Income(%) Amount Income(%) Amount Income(%)
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Federal Statutory Rate ................... $ 2,277,415 34.00 $ 1,879,208 34.00 $ 1,836,659 34.00
Increase (Reduction) of Taxes
Resulting From:
Tax Exempt Interest ................ (253,086) (3.75) (204,358) (3.70) (97,258) (1.80)
State Income Taxes Net
of Federal Income
Tax Benefit ................... 439,021 6.55 356,427 6.45 350,985 6.50
Other .............................. (18,724) (0.28) (4,607) (0.08) (9,268) (0.17)
Total ......................... $ 2,444,626 36.52 $ 2,026,670 36.67 $ 2,081,118 38.53
</TABLE>
Income taxes on investment securities transactions amounted to approximately
$7,100 in 1999, $17,100 in 1998, and zero in 1997.
Deferred income tax assets and liabilities are calculated based on their
estimated effect on future cash flows. The calculations under this method
resulted in a net deferred tax asset of $1,603,611 and $530,015 as of the end of
1999 and 1998, respectively.
Deferred tax assets and liabilities were recognized as of December 31, 1999 and
1998 for the taxable temporary differences related to loan loss provisions,
depreciation, OREO losses, Accounting for Postretirement Benefits Other than
Pensions (SFAS No. 106), and Accounting for Investment Securities (SFAS No.
115), as presented below:
<TABLE>
<CAPTION>
Loan Loss OREO SFAS SFAS
December 31, 1999: Provision Depreciation Losses No. 106 No.115 Total
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Federal Deferred Tax
Asset (Liability) ........... $ 531,759 $ (70,118) $ 128,909 $ 46,176 $ 626,880 $ 1,263,606
New York State Deferred
Tax Asset ................... 124,959 26,351 30,331 10,864 147,500 340,005
Net Deferred Tax
Asset (Liability) ........... $ 656,718 $ (43,767) $ 159,240 $ 57,040 $ 774,380 $ 1,603,611
____________________________________________________________________________________________________________________________________
December 31, 1998:
Federal Deferred Tax
Asset (Liability) .......... $ 464,511 $(103,917) $ 134,981 $ 45,161 $ (146,232) $ 394,504
New York State Deferred
Tax Asset (Liability) ........... 109,136 18,398 31,760 10,625 (34,408) 135,511
Net Deferred Tax
Asset (Liability) ................ $ 573,647 $ (85,519) $ 166,741 $ 55,786 $ (180,640) $ 530,015
</TABLE>
<PAGE> 31
Note H. Deposits
Time Deposits in Excess of $100,000
At December 31, 1999 and 1998, time deposits in principal amounts of $100,000 or
more were $17,208,743 and $10,666,898, respectively. Interest expense on such
deposits for the three years ended December 31, 1999 was $679,756, $516,403, and
$392,267, respectively.
A schedule of time deposits having a remaining term of more than one year and
the aggregate amount of maturities is set forth as follows:
2001.................................................. 1,259,709
2002.................................................. 1,492,342
2003.................................................. 0
Total.............................................. $ 2,752,051
Deposits of Major Shareholders, Officers, Directors and their Affiliates
Deposits due to major shareholders, officers, directors and their affiliates
aggregated $4,247,977 and $3,354,172 at December 1, 1999 and 1998, respectively.
Note I. Stockholders' Equity
The Banking Law of the State of New York and the Federal Reserve Board regulate
the amount of cash dividends that may be paid without prior approval. Retained
Earnings available for cash dividends were $9,795,039 and $7,365,572 at December
31, 1999 and 1998, respectively.
During 1998 the Board of Directors approved a Stock Repurchase Plan authorizing
the repurchase of up to $4,000,000 worth of Bancorp stock at market prices.
Pursuant to the plan, the Bancorp repurchased an adjusted equivalent of 43,771
common shares at a total cost of $2,394,798 during 1998.
During 1999, the Board of Directors authorized an additional repurchase of
Bancorp stock of up to $800,000 thereby increasing the total authorized
repurchase to $4,800,000. In accordance with the plan, during 1999, the Bancorp
repurchased 16,597 common shares at a total cost of $947,516. During the course
of repurchasing outstanding shares, the bank paid approximately $2,800 in
dividends on those shares subsequently, these dividends were returned to the
bank.
During 1996, the stockholders increased the number of authorized common shares
to 1,500,000 and in 1998, the stockholders increased the number of authorized
common shares again to 3,000,000. During 1996, the stockholders also authorized
100,000 preferred shares with a par value of $.01 per share. No preferred shares
have been issued pursuant to that authorization.
<PAGE> 32
Note J. Smithtown Bancorp (parent company only)
Smithtown Bancorp has one wholly-owned subsidiary, Bank of Smithtown.
<TABLE>
<CAPTION>
Balance Sheets
As of December 31,
1999 1998
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Assets
Non-Interest-Bearing Deposits with Subsidiary Bank ................................. $ 876,319 $ 1,012,371
Investment in Bank of Smithtown .................................................... 19,057,630 16,316,256
Total ................................................................... 19,933,949 17,328,627
Liabilities
Cash Dividends Payable ............................................................. 177,357 165,892
Stockholders' Equity
Common Stock - $2.50 Par Value:
(3,000,000 Shares Authorized; 895,910 Shares Issued) ............................... 2,239,775 2,239,775
Capital Surplus .................................................................... 7,859,918 7,859,918
Retained Earnings .................................................................. 13,445,852 9,904,478
Less: Treasury Stock (89,742 and 73,145 Shares at Cost
at December 31, 1999 and 1998, respectively ............................. 3,788,953 2,841,436
Total Stockholders' Equity .............................................. 19,756,592 17,162,735
Total ................................................................... $19,933,949 $17,328,627
</TABLE>
Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
Income
Dividends from Bank of Smithtown .......................................... $ 1,509,480 $ 3,874,289 $ 606,575
Expenses .................................................................. 0 0 (10,000)
Net Income Before Equity in Undistributed Earnings of Subsidiary .......... 1,509,480 3,874,289 596,575
Equity in Undistributed Earnings of Subsidiary ...................... 2,744,173 (373,876) 2,724,244
Net Income ................................................................ 4,253,653 3,500,413 3,320,819
Retained Earnings, Beginning of Year ...................................... 9,904,478 7,077,336 4,363,092
Dividends Declared ........................................................ (712,279) (673,271) (606,575)
Retained Earnings, End of Year ............................................ $ 13,445,852 $ 9,904,478 $ 7,077,336
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
Cash Flow From Operating Activities:
Net Income $ .............................................................. 4,253,653 $ 3,500,413 $ 3,320,819
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in Undistributed Net Earnings of Subsidiary .................. (2,741,374) 373,876 (2,724,244)
Net Cash Provided by Operating Activities ................................. 1,512,279 3,874,289 596,575
Cash Flow from Financing Activities:
Dividends Paid ............................................................ (700,815) (659,022) (593,578)
Purchases of Treasury Stock ............................................... (947,516) (2,394,798) 0
Net Cash Used by Financing Activities ..................................... (1,648,331) (3,053,820) (593,578)
Net Increase (Decrease) in Non-Interest-Bearing Deposits with
Subsidiary Bank ..................................................... (136,052) 820,469 2,997
Non-Interest Bearing Deposits with Subsidiary Bank,
Beginning of Year ................................................... 1,012,371 191,902 188,905
Non-Interest-Bearing Deposits with Subsidiary Bank,
End of Year ......................................................... $ 876,319 $ 1,012,371 $ 191,902
</TABLE>
<PAGE> 33
Note K. Commitments and Contingent Liabilities
As of December 31, 1999, the minimum rental commitments under non-cancelable
operating leases for premises and equipment with initial terms in excess of one
year are as follows:
2000.......................................... $ 171,046
2001.......................................... 157,602
2002.......................................... 162,738
2003.......................................... 167,705
2004.......................................... 170,881
Subsequent to 2005............................ 1,041,648
Total......................................... $ 1,871,620
A number of leases include escalation provisions relating to real estate taxes
and expenses.
Rental expenses for all leases on premises and equipment amounted to $366,217 in
1999, $391,338 in 1998 and $422,622 in 1997.
The Bank is required to maintain reserve balances with the Federal Reserve Bank
of New York for reserve and clearing purposes. The average amount of these
reserve balances for the year ended December 31, 1999 was $862,449.
Note L. Estimated Fair Value of Financial Instruments
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Bank's entire holdings of a particular financial
instrument. Fair value estimates are based on many judgments. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumption could significantly affect the estimates.
Fair value estimates do not apply to the value of anticipated future business
and the value of assets and liabilities that are not considered financial
instruments in accordance with generally accepted accounting principles.
Significant assets and liabilities that are not considered financial instruments
include the mortgage banking operation, deferred income taxes and premises and
equipment. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
SFAS No. 107, 'Disclosures about Fair Value of Financial Instruments', requires
the Bank to disclose estimated fair values of its financial instruments. SFAS
No. 107 was amended in October, 1994 by SFAS No. 119, 'Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments'.
Financial Instruments are defined as cash, evidence of an ownership in an
entity, or a contract that conveys or imposes on an entity the contractual right
or obligation to either receive or deliver cash or another financial instrument.
Fair value is defined as the amount at which such financial instruments could be
exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation, and is best evidenced by a quoted price, or if one
exists. Fair value estimates, methods and assumptions are set forth below for
the Bank's financial instruments.
Cash and Due from Banks, Federal Funds Sold, Dividend Payable and Other
Liabilities because of their short-term nature, have been valued at their
respective carrying vales.
Investment Securities
For securities held-to-maturity and available-for-sale, fair values are
estimated based on quoted market prices or dealer quotes.
Loans
The fair value of fixed-rate loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings. For variable rate loans, the carrying amount is a
reasonable estimate of fair value. The fair value of mortgage loans held for
sale approximates cost based on current estimated disposition values.
<PAGE> 34
Deposit Liabilities
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable at the reporting date. The fair value of fixed
maturity certificates of deposit are estimated using the rates currently offered
for deposits of similar remaining maturities.
Securities Sold Under Agreements to Repurchase and Other Borrowings
The fair value of securities sold under agreements to repurchase and other
borrowings are estimated based on quoted market prices or dealer quotes.
Note M. Securities Sold Under Agreements to Repurchase
At December 31, 1999 and 1998, the Bank had no outstanding Securities Sold Under
Agreement to Repurchase. During 1998, a REPO of $2,800,000 remained outstanding
at a yield of 6.16% until its maturity date of May 26, 1998. The Bank's interest
in these securities has been designated under a written custodial agreement. The
average balance of this Security Sold Under Agreements to Repurchase totaled
$1,173,699 during 1998, with $2,800,000 being the maximum amount outstanding at
any month end during the first five months of 1998. The underlying security in
the $2,800,000 REPO was a 7.75% U.S. Government Agency, called on May 26, 1998,
with a fair value of $3,000,000. This security was held at Morgan Stanley.
Note N. Other Borrowings
The Bank has available to it, under various lines of credit from the Federal
Home Loan Bank of New York a total of $68,080,000 at December 31, 1999. The
borrowing limit at the Federal Home Loan Bank of New York (FHLBNY) is calculated
on 25% of the Bank's total average assets and is subject to specific collateral
requirements.
At December 31, 1999, the outstanding balances on these lines of credit totaled
$38,000,000, with remaining available credit of $30,080,000. The outstanding
balance consisted of the following advances.
Repo Convertible Rate Advance dated January 15, 1999 in the amount of
$5,000,000, maturity date January 15, 2009 bearing an interest rate of 4.935%.
On January 15, 2004 and quarterly thereafter on each Payment Date, FHLBNY has
the option to convert this Convertible Advance with four business days prior
notice into replacement funding for the same or lesser principal amount based on
any advance then offered by FHLBNY at then current market rates. Advance is not
prepayable. Interest payable quarterly on the 15th of April, July, October and
January.
Adjustable Rate Advance dated June 21, 1999 in the amount of $10,000,000,
maturity date May 19, 2000. Interest rate index: 3 month USD-BBA LIBOR minus 12
basis points, determined quarterly on the 19th of August, November, February and
May. Interest payments are due quarterly on the 19th of August, November,
February and May. At December 31, 1999, the interest rate was 5.981%.
Adjustable Rate Advance dated August 3, 1999 in the amount of $10,000,000,
maturity date August 4, 2000. Interest rate index: 3 month LIBOR minus 10 basis
points, determined quarterly on the 4th of November, February, May and August.
Interest payments are due quarterly on the 4th of November, February, May and
August. At December 31, 1999, the interest rate was 6.059%. Advance is not
payable.
Fixed Rate Advance dated November 5, 1999 in the amount of $7,000,000, maturity
date November 14, 2003 bearing an interest rate of 6.40%. Advance is not
prepayable. Interest payable semi-annually on May 15th and November 15th.
<PAGE> 35
Fixed Rate Advance dated November 8, 1999 in the amount of $3,000,000, maturity
date March 8, 2000 bearing an interest rate of 5.74%. Interest due at maturity.
Advance is not prepayable.
Fixed Rate Advance dated December 3, 1999 in the amount of $3,000,000, maturity
date December 3, 2002 bearing an interest rate of 6.56%. Interest payments are
due on the 1st of each month. Advance is not prepayable.
These borrowings were secured by U.S. Treasury Note, Federal Home Loan Mortgage
Corporation (FHLMC), and Federal National Mortgage Association (FNMA)
securities. The maturity dates of these securities range from February 2000 to
February 2029, with coupon interest rates paying between 8.50% and 6.00%. Total
estimated fair value of the securities at December 31, 1999, was $18,497,601.
These securities are held in safekeeping at the Federal Home Loan Bank of New
York.
These borrowings were also secured by residential mortgages. The average
maturity is 30 years. The average interest rate is 10%. Total estimated fair
value of these securities at December 31, 1999, was $23,197,544.
The average balance of Other Borrowings for 1999 was $19,084,028 and the maximum
outstanding amount at any month end was $38,000,000.
The Bank had available to it, under various lines of credit from the Federal
Home Loan Bank of New York and Morgan Stanley & Company, Inc. a total of
$60,499,509 at December 31, 1998. The borrowing limit at the Federal Home Loan
Bank of New York is calculated on 25% of the Bank's total average assets and is
subject to specific collateral requirements. At December 31, 1998, the
outstanding balances on these lines of credit were $3,000,000, with remaining
available credit of $57,499,509. The outstanding balance at year end consisted
of a five year 5.56% fixed rate advance with a stated maturity date of December
2001, a call date of December 1999, obtained through the Federal Home Loan Bank
of New York and Demand Notes issued to the U.S. Treasury totaling $174,645.
These borrowings were secured by U.S. Treasury Notes, Federal Home Loan Bank
Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA)
securities. The maturity dates of these securities range from November 1999 to
August 2024, with coupon interest rates paying between 5.00% to 8.50%. Total
estimated fair value of these securities at December 31, 1998, was $17,623,784.
These securities are held in safekeeping at the Federal Reserve Bank of New York
and the Federal Home Loan Bank of New York. The average balance of Other
Borrowings for 1998 was $7,020,425 and the maximum outstanding amount at any
month end was $16,000,000.
At December 31, 1999 and 1998, the estimated fair value of Other Borrowings
approximated cost.
<PAGE> 36
Note O. Financial Instruments with Off-Balance-Sheet Risk and Concentrations of
Credit Risk
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. The Bank
uses the same credit policies in making these commitments as it does for
on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
may have fixed expiration dates or other termination clauses. At December 31,
1999 the Bank's total commitments to extend credit were $9,604,050 at fixed
rates and $18,090,000 at variable rates. Standby letters of credit are written
conditional instruments issued by the Bank to guarantee the financial
performance of a customer to a third party. There were 30 performance standby
letters of credit totaling $1,876,400 as of December 31, 1999. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained by the Bank upon extension of credit is based on
management's credit evaluation of the customer. Collateral held varies but
generally includes residential and income-producing properties.
Residential mortgage loans which have been sold in the secondary market may
present off-balance sheet-risk to the Bank in the form of first payment buyback
obligation. This buyback obligation commences with the date of later of the date
of sale of the loan to the investor and/or the first contractually due payment
by the mortgage. At December 31, 1999 this buyback obligation totaled $223,200.
Note P. Regulatory Matters
In January 1989, the Board of Governors of the Federal Reserve Bank issued
guidelines for the implementation of risk based capital requirements by U.S.
Banks and bank holding companies. These guidelines have been revised along with
minimum leverage ratios also set by the Federal Reserve Bank. The Bank's capital
remains extremely strong by all regulatory guidelines. The following is a
listing of the Bank's required and actual capital ratios.
1999 Actual(%) 1998 Actual(%) Required(%)
Tier I 10.96 12.09 6.00
Tier II 1.25 1.25 **
Total Risk-Based Capital 12.20 14.14 10.00
Leverage Ratio 8.33 8.47 4.00
**Tier II Capital is limited to maximum of 100% of Tier 1 Capital.
Note Q. SMTB FINANCIAL GROUP, LLC
During 1999, the bank formed SMTB FINANCIAL Group, LLC. No revenues or expenses
were incurred during 1999. The bank expects to record cash flows during 2000.
<PAGE> 37
Selected Financial Data
Consolidated Average Balance Sheet Data
<TABLE>
<CAPTION>
As of December 31,
(in thousands) 1999 1998 1997 1996 1995
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Cash and Due from Banks ................................... $ 9,695 $ 8,162 $ 7,796 $ 7,401 $ 6,781
Investment Securities:
Obligations of U.S. Government and Agencies ............. 23,040 20,875 18,828 10,788 10,496
Mortgage-Backed Securities .............................. 26,667 34,339 45,452 31,392 33,601
Obligations of State and Political Subdivisions ......... 17,361 12,686 5,213 4,814 5,259
Other Securities ........................................ 1,518 857 823 600 331
Total Investment Securities .................... 68,586 68,757 70,316 47,594 49,687
Federal Funds Sold ........................................ 8,177 12,943 6,884 7,681 3,758
Loans (Net of Unearned Discount) .......................... 144,443 104,848 98,997 99,451 86,437
Less: Allowance for Possible Loan Losses .............. 2,227 1,934 1,513 1,550 1,412
Loans: Net ............................................... 142,216 102,914 97,484 97,901 85,025
Bank Premises and Equipment ............................... 3,153 2,900 2,515 2,793 3,133
---------
Other Assets
Other Real Estate Owned ................................. 908 2,891 4,245 4,523 5,489
Other ................................................... 3,935 3,431 2,695 3,207 2,839
Total .......................................... $ 236,670 $ 201,998 $ 191,935 $ 171,100 $ 156,712
Liabilities
Deposits:
Demand (Non-Interest Bearing) ........................... $ 50,682 $ 45,014 $ 42,664 $ 38,425 $ 35,075
Money Market ............................................ 49,519 40,211 33,636 26,627 22,965
Savings (including NOW) ................................. 53,776 54,265 58,814 60,578 60,404
Time .................................................... 42,184 35,965 31,506 28,660 22,896
Total Deposits ................................. 196,161 175,455 166,620 154,290 141,340
Securities Sold Under Agreements to Repurchase ............ 0 1,174 2,800 1,645 1,690
Other Borrowings .......................................... 21,129 6,965 5,502 848 247
Other Liabilities ......................................... 1,399 1,290 1,641 1,141 1,157
Total Liabilities .............................. 218,689 184,884 176,563 157,924 144,434
Stockholders' Equity
Common Stock - $2.50 Par Value ............................ 2,240 2,240 2,240 2,240 2,240
Capital Surplus ........................................... 1,993 1,993 1,993 1,993 1,993
Accumulated Other Comprehensive Income .................... (270) 279 121 (156) (53)
Retained Earnings ......................................... 17,504 14,296 11,465 9,546 8,579
Total .......................................... 21,467 18,808 15,819 13,623 12,759
Less: Treasury Stock .......................... 3,486 1,694 447 447 481
Total Stockholders' Equity ..................... 17,981 17,114 15,372 13,176 12,278
Total .......................................... $ 236,670 $ 201,998 $ 191,935 $ 171,100 $ 156,712
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
Selected Financial Data
Consolidated Balance Sheets
As of December 31,
(in thousands) 1999 1998 1997 1996 1995
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Assets
Cash and Due from Banks .................................... $ 10,195 $ 7,124 $ 7,667 $ 7,690 $ 7,003
Investment Securities Held to Maturity:
Obligations of U.S. Government ........................... 0 0 2,003 2,008 2,014
Obligations of U.S. Government Agencies .................. 0 0 0 0 0
Mortgage-Backed Securities ............................... 2,829 4,582 7,237 9,003 10,227
Obligations of State and Political Subdivisions .......... 5,142 6,293 6,458 4,997 4,648
Other Securities ......................................... 0 0 0 0 0
Total ........................................... 7,971 10,875 15,698 16,008 16,889
Investment Securities Available for Sale:
Obligations of U.S. Government ........................... 3,012 6,152 6,176 0 3,009
Obligations of U.S. Government Agencies .................. 17,331 14,213 15,252 13,564 3,016
Mortgage-Backed Securities ............................... 19,613 19,129 36,190 34,219 13,155
Obligations of State and Political Subdivisions .......... 11,153 11,819 0 0 0
Other Securities ......................................... 3,581 857 856 600 599
Total ........................................... 54,690 52,170 58,474 48,383 19,779
Total Investment Securities ..................... 62,661 63,045 74,172 64,391 36,668
Federal Funds Sold ......................................... 10,350 12,500 8,300 0 6,750
Loans ...................................................... 176,820 118,101 100,404 101,151 98,069
Less: Unearned Discount .................................. 620 526 690 573 655
Allowance for Possible Loan Losses ................. 2,252 2,120 1,678 1,623 1,430
Loans, Net ................................................. 173,948 115,455 98,036 98,955 95,984
Bank Premises and Equipment ................................ 3,207 3,259 2,455 2,619 3,173
Other Assets
Other Real Estate Owned .................................. 856 1,073 3,928 5,088 5,046
Other .................................................... 4,864 3,370 3,098 2,886 2,904
Total ........................................... $ 266,081 $ 205,826 $ 197,656 $ 181,629 $ 157,528
Liabilities
Deposits:
Demand (Non-Interest Bearing) ............................ $ 50,008 $ 49,752 $ 42,567 $ 42,563 $ 35,945
Money Market ............................................. 53,668 42,807 36,326 27,412 23,376
Savings (including NOW) .................................. 51,563 55,057 56,283 60,196 59,656
Time ..................................................... 52,567 36,259 33,020 28,757 24,605
Total Deposits .................................. 207,806 183,875 168,196 158,928 143,582
Dividend Payable ........................................... 177 166 152 139 121
Securities Sold Under Agreements to Repurchase ............. 0 0 2,800 2,800 0
Other Borrowings ........................................... 38,000 3,175 8,452 4,486 0
Other Liabilities .......................................... 1,408 1,198 1,077 1,179 988
Total Liabilities ............................... 247,391 188,414 180,677 167,532 144,691
Stockholders' Equity
Common Stock - $2.50 Par Value ............................. 2,240 2,240 2,240 2,240 2,240
Capital Surplus ............................................ 1,994 1,994 1,994 1,994 1,994
Accumulated Other Comprehensive Income ..................... (1,069) 249 249 81 (28)
Retained Earnings .......................................... 19,314 15,770 12,943 10,229 9,078
Total ........................................... 22,479 20,253 17,426 14,544 13,284
Less: Treasury Stock ........................... 3,789 2,841 447 447 447
Total Stockholders' Equity ...................... 18,690 17,412 16,979 14,097 12,837
Total ........................................... $ 266,081 $ 205,826 $ 197,656 $ 181,629 $ 157,528
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
Selected Financial Data
Consolidated Income Statements
Year Ended December 31,
1999 1998 1997 1996 1995
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Interest Income
Interest and Fees on Loans ......................... $12,673,580 $ 9,996,927 $ 9,731,626 $ 9,391,802 $ 8,278,027
Interest on Balance due from Banks ................. 45,609 7,631 5,973 1,493 0
Interest on Federal Funds Sold ..................... 411,031 707,252 382,157 417,107 221,857
Interest and Dividends on Investment
Securities :
Taxable:
Obligations of U.S. Government ............. 339,877 414,782 235,724 141,265 431,259
Obligations of U.S. Government
Agencies ................................ 1,166,148 920,343 1,038,404 569,716 178,689
Mortgage-Backed Securities ................. 1,659,362 1,979,480 2,847,023 1,833,879 1,901,977
Other Securities ........................... 102,946 57,932 52,010 37,638 22,385
Total ............................................ 3,268,333 3,372,537 4,173,161 2,582,498 2,534,310
Exempt from Federal Income Taxes:
Obligations of State and Political
Subdivisions ................................. 821,512 656,858 308,609 293,774 318,174
Total Interest Income ........................ 17,220,065 14,741,205 14,601,526 12,686,674 11,352,368
Interest Expense
Money Market Accounts .............................. 1,587,735 1,418,621 1,136,766 834,353 716,465
Certificates of Deposit of $100,000 and
Over ......................................... 697,356 516,403 392,267 361,484 210,891
Other Time Deposits ................................ 1,827,508 2,060,082 2,161,906 2,343,908 2,316,078
Interest on Securities Sold Under
Agreements to Repurchase ......................... 0 72,826 174,556 100,932 106,511
Interest on Other Borrowings ....................... 1,145,234 375,057 286,995 44,308 14,950
Total Interest Expense .................. 5,257,833 4,442,989 4,152,490 3,684,985 3,364,895
Net Interest Income ..................... 11,962,232 10,298,216 10,449,036 9,001,689 7,987,473
Provision for Possible Loan Losses ................. 450,000 525,000 805,000 370,000 110,000
Net Interest Income After Provision
for Possible Loan Losses ..................... 11,512,232 9,773,216 9,644,036 8,631,689 7,877,473
Other Non-Interest Income
Trust Department Income ............................ 461,383 400,569 364,600 434,069 401,811
Service Charges on Deposit Accounts ................ 1,501,740 1,479,577 1,518,765 1,337,449 1,278,668
Other Income ....................................... 1,201,272 952,721 751,137 540,588 482,538
Net Gain on Sales of Investment Securities ......... 17,012 40,676 0 16,724 1,393
Total Other Non-Interest Income ......... 3,181,407 2,873,543 2,634,502 2,328,830 2,164,410
Other Operating Expenses
Salaries ........................................... 3,626,284 3,252,761 2,949,150 3,379,214 3,470,680
Pensions and Other Employee Benefits ............... 704,559 682,397 669,919 717,516 761,577
Net Occupancy Expense .............................. 864,844 835,787 874,033 1,130,358 944,571
Furniture and Equipment Expense .................... 807,080 621,808 589,897 637,029 622,775
Other Expenses ..................................... 1,992,593 1,726,923 1,793,602 2,393,013 1,922,109
Total Other Operating Expenses .......... 7,995,360 7,119,676 6,876,601 8,257,130 7,721,712
Income Before Income Taxes ......................... 6,698,279 5,527,083 5,401,937 2,703,389 2,320,171
Provision for Income Taxes ......................... 2,444,626 2,026,670 2,081,118 997,891 848,790
Net Income $ ....................................... 4,253,653 $ 3,500,413 $ 3,320,819 $ 1,705,498 $ 1,471,381
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
Selected Financial Data
Supplementary Information
1999 1998 1997 1996 1995
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Per Share Data
Net Income $ ......................... 5.25 $ 4.15 $ 3.83 $ 1.97 $ 1.70
Book Value ........................... 23.07 21.16 19.60 16.27 14.82
Dividends Declared
Cash Dividends per Share.............. 0.88 0.80 0.70 0.64 0.56
Cash Dividends Declared............... 712,279 673,271 606,575 554,582 484,890
Year-End Data
Total Assets ............................. 266,081,443 205,825,657 197,656,436 181,629,049 157,528,274
Total Deposits ........................... 207,806,261 183,875,462 168,195,635 158,928,455 143,581,497
Total Stockholders' Equity ............... 18,690,015 17,412,189 16,979,459 14,097,239 12,837,073
Total Trust Assets ....................... 90,386,444 83,966,013 76,562,667 70,643,739 71,304,522
Number of Shares Outstanding ............. 806,168 822,765 866,536 866,536 866,536
Selected Ratios % % % % %
____________________________________________________________________________________________________________________________________
Net Income to:
Total Income .......................................... 20.85 19.87 19.27 11.36 10.89
Average Total Adjusted Assets ......................... 1.79 1.74 1.73 0.99 0.94
Average Adjusted Stockholders'
Equity .............................................. 23.31 20.79 21.78 12.77 11.91
Average Adjusted Stockholders'
Equity to Average Adjusted Assets ..................... 7.70 8.35 7.95 7.79 7.88
Dividend Payout Ratio ................................... 16.68 19.23 18.27 32.52 32.95
</TABLE>
Management is not necessarily aware of the price for every transaction of
Bancorp stock. The following charts show the prices for the transactions of
which management is aware. All per share data has been adjusted to reflect the
May 1998 two-for-one split.
Per Share
Cash
Dividend
By Quarter High Low Declared
1999
First Quarter ............................. $ 56.75 $ 55.00 $ 0.220
Second Quarter ............................ 62.00 55.00 0.220
Third Quarter ............................. 57.00 55.50 0.220
Fourth Quarter ............................ 60.50 55.75 0.220
Total Cash Dividends Declared ............. $ 0.880
1998
First Quarter $ 57.25 41.00 $ 0.200
Second Quarter 57.00 52.00 0.200
Third Quarter 57.00 55.50 0.200
Fourth Quarter 55.88 54.50 0.200
Total Cash Dividends Declared $ 0.800
1997
First Quarter $ 36.00 $ 34.00 $ 0.175
Second Quarter 42.00 36.00 0.175
Third Quarter 51.00 38.50 0.175
Fourth Quarter 85.00 52.75 0.175
Total Cash Dividends Declared $ 0.700
<PAGE> 41
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Summary
Smithtown Bancorp is a one-bank holding company formed in 1984. Its income is
derived solely from the operations of its sole subsidiary, Bank of Smithtown.
The Bank operates seven full service offices in the north central region of
Suffolk County and offers a full line of consumer and commercial products,
including a Trust and Investment Management Division. Bank of Smithtown is
committed to providing increased shareholder value through superior customer
service, efficiency of operations and financial products especially geared
toward the community which we serve. The year 1999 was another outstanding year
for Bank of Smithtown. Once again we achieved the earnings level, balance sheet
growth and return on equity achieved only by the highest performing banks in the
nation. Most national averages for indices of bank performance pale in
comparison to Bank of Smithtowns' ratios. Efficiency reached its peak level in
five years. Earnings per share attained an unprecedented level in the bank's
history, and demand and the company's stock continued to perform well in spite
of market trends to the contrary.
1999 was a year during which Bank of Smithtown's focus was in two arenas: growth
in balance sheet assets and strengthening of internal assets to support this
growth. The Long Island economy remained very strong during 1999, with a
corresponding benefit felt in the real estate market. Loan demand has been very
strong, evidenced by the 49.86% growth in the loan portfolio. Growth on the
liability side of the balance sheet was required to keep pace with the asset
growth, and was accomplished through traditional increased deposit gathering as
well as alternative sources of funding, part of the bank's overall asset
liability management plan. Internally, resources were committed to achieving a
smooth transition over the century date change, which proved to be very
successful. Although dollars and time spent on Year 2000 preparation are not
reflected in 1999's bottom line, confidence in our institution was strengthened
due to our efforts. New technological systems were implemented during the year,
the results of which will decrease consumer inquiry response time and improve
and expand customer database information. During 1999, the bank began receiving
images of checks on magnetic media which dramatically reduced time spent on
research, thereby providing back office staff more time to service their
internal and external customers. A new Marketing Customer Information File
(MCIF) and Profitability System was purchased and has been helpful in improving
our customer segmentation and relationship management programs. Also during
1999, significant time and resources were dedicated to the development of three
new products to be introduced to our customer base during the first and second
quarters of 2000. These products include credit cards, a debit card and internet
banking. Adding to the bank's already large array of deposit products, during
1999 Bank of Smithtown introduced a variable rate money market product, the
Premier Account, whose rate is tied to the 90 day Treasury Bill. This product
was designed to provide maximum returns for investments greater than $50,000.
The challenge for most community banks today remains achievement of economies of
scale and efficiencies enjoyed by the larger banks along with attainment of
customer service levels unsurpassed by other financial service institutions. Few
community banks have come close to meeting this challenge. Bank of Smithtown's
results of operations speak for themselves.
<PAGE> 42
Bank of Smithtown's balance sheet changed dramatically during 1999. Total assets
grew from $205,825,657 at year-end 1998 to $266,081,443 at year end 1999, a
29.28% increase. The area of largest growth was in the loan portfolio which
reached a historical high of $176,200,017, net of unearned income. This
represents a 49.86% increase in portfolio volume. Loans now comprise 66.22% of
total assets. The segregation of credits within the portfolio also changed, with
46.00% of the portfolio invested in commercial real estate loans, 21.19% of the
portfolio in residential mortgages, 18.10% in commercial and industrial loans
and 12.76% in construction loans. The balance of the portfolio is made up of
consumer loans. The most significant change in loan composition during 1999 was
the 178.41% increase in residential mortgages. These loans are high credit
quality with low loan to value ratios conributing toward management's decision
to increase holdings of these loans. The level of investment securities remained
stable throughout 1999, with a slight increase in the securities available for
sale portfolio and corresponding decrease in securities held to maturity. The
allocation of securities held within the investment portfolio also remained
constant. At year end 1999 investment securities represented 23.55% of total
assets as compared to 30.63% at year end 1998. Federal funds sold decreased from
$12,500,000 at December 31, 1998 to $10,350,000 at December 31, 1999. These
funds were used during the course of the year to fund loan growth, resulting in
significantly higher yields. The balance in federal funds sold was unusually
high at year end compared to levels maintained during the balance of the year
due to Y2K liquidity needs. These funds will be re-channeled appropriately after
year end. Bank premises and equipment remained stable from 1998 throughout 1999.
A parcel of land was purchased during 1999 which will be the future site of Bank
of Smithtown's newest branch location scheduled to open during 2000. The bank's
holdings of Other Real Estate Owned declined by 20.25% from 1998 to 1999,
through the sale of one property. There now remain two properties in this asset
category, one piece of commercial land and one residential property. Other
assets increased by 44.31% during 1999, from $3,370,227 to $4,863,739. This was
the result of an increase in deferred taxes due to the large change in the
Unrealized Loss on Securities Available for Sale. The liability side of the
balance sheet also underwent dramatic changes during 1999. Deposit growth was
significant, and increased from $183,875,462 at December 31, 1998 to
$207,806,261 at December 31, 1999, a 13.01% increase. The composition of the
deposit base also changed significantly, with money market accounts increasing
by 25.37% and time deposit accounts increasing by 44.98%. As part of its overall
asset/liability management plan, the bank aggressively sought to increase
deposit balances as one part of its total funding plan to support new loan
growth. The premier money market account along with incrementally higher rates
paid to 'Preferred Depositors' resulted in greatly increased volumes. Also part
of the deposit growth plan were various promotional certificate of deposit
programs. These programs raised significant dollars for the bank and remain a
cost effective funding alternative. Other borrowings increased from $3,174,645
at December 31, 1998 to $38,000,000 at December 31, 1999. These borrowings are
all in the form of advances from the Federal Home Loan Bank with laddered
maturities at both fixed and variable rates. These borrowings represent an
alternative source of funding available to Bank of Smithtown and are once again
part of an overall strategy to maintain reasonable loan growth funded by both
traditional and 'non-traditional' sources. This 'non-traditional' source of
funding has now become a very normal, recurring source of funds for all
financial institutions competing for the same dollars of deposits. Stockholders'
equity increased by 7.34% from year end 1998 to year end 1999. The bank's
Repurchase Program begun in 1998 designed to control the rapid growth of
capital, was continued into 1999. The Board of Directors authorized an
additional $800,000 to be used for the repurchase of bank stock. A total of
16,597 shares were repurchased during 1999, with a total for the two years
ending December 31, 1999 of 60,368 shares. At year end 1999, the bank held
89,742 shares of Treasury stock at cost with a value of $3,788,953. Capital
ratios remain consistently strong by all regulatory guidelines and Bank of
Smithtown continues to be classified as'well capitalized.'
<PAGE> 43
The bank's income statement reflects a continued upward trend in earnings, with
$4,253,653 of net income, the highest level ever achieved by the bank in its 90
years of operation. The driving force behind earnings, and certainly its largest
component, remains net interest income. The difference between the interest
earned on interest earning assets and the interest paid on interest bearing
liabilities, net interest income, reached $11,962,232 for the period ending
December 31, 1999, an increase of $1,664,016, or 16.16% over 1998. Interest and
fees on loans was the largest contributor to this increase. Interest expense
climbed by 18.34% due primarily to the cost of other borrowings. The bank's cost
of deposits remains low in comparison to peers. Net interest income as a
percentage of total income increased slightly from 58.46% to 58.63%. The bank's
provision for possible loan losses, which is the charge to current expense added
to the Allowance for Possible Loan Loss account was $425,000 for the period
ended December 31, 1999 compared to $525,000 for the same period in 1998. This
reduction in provision expense was based on management's assessment of the
current loan portfolio and overall high asset quality level. Non-interest
income, the bank's source of fee income on its deposit accounts, delivery
channel services, and loan originations increased by 10.71% over the year ended
December 31, 1998, and represents 15.59% of total income. Other operating
expenses, also increased by 12.30%. These expenses represent the bank's costs of
doing business, such as salary and benefit expense, overhead costs and
miscellaneous legal, accounting and computer expenses. Operating costs represent
49.51% of total expenses for 1999 and 50.44% of total expenses for 1998.
Earnings per share at year end 1999 was $5.25 compared to $4.15 at year end
1998, with average weighted common shares outstanding of 810,130 compared to
844,496. This 26.51% increase in EPS is the result of the superior level of
earnings and the stock repurchase program.
Interest Income
Interest income for the three years ended December 31, 1999, 1998 and 1997 was
$17,220,065, $14,741,205 and $14,601,526. The largest contributor to interest
income is interest and fees on loans and represents 73.60%, 67.82%, and 66.65%
of the total. This increased income is the result of the 49.86% increase in loan
volume. As can be seen from the Average Balance Sheet and Yield Analysis
Schedule, yield on the loan portfolio decreased from 9.71% during 1998 to 8.91%
during 1999. This reduction in yield is related to the lower interest rate
environment during early 1999 as well as the composition of the loan portfolio.
The next largest contributor to interest income is the investment portfolio,
which remained at substantially the same level during 1999 and 1998, and
comprises 23.55% and 30.63% of total assets. However, yield on the portfolio
increased from 6.35% to 6.58% in 1999. This was the result of adding higher
yielding securities to the portfolio upon principal reductions and maturities of
securities purchased during lower rate environments. Interest on federal funds
sold contributed a smaller percentage of interest income during 1999 than 1998.
However, these funds remain a significant source of income for the bank, as they
represent daily excess funds which are invested overnight until further
reclassification into higher yielding assets.
<PAGE> 44
Interest Expense
Interest expense for the three years ended December 31, 1999, 1998 and 1997 was
$5,257,833, $4,442,989 and $4,152,490, an increase of 26.62% over the three year
period. For the two years ended 1998 and 1997, the interest cost for the bank
was primarily that of its deposit accounts, and this cost was 3.06% and 2.99%,
respectively. During 1999, this interest cost to the bank was made up of the
cost for its deposits, which was 2.83% and the cost of other borrowings which
was 5.42%. Interest expense on deposit accounts remains the largest percentage
of total interest expense, and represents 78.22% of this total. The bank's low
interest cost on deposit accounts is due to the composition of its deposit base,
with lower yielding savings and NOW accounts comprising 24.82% of this base.
Competitive, higher yielding money market and certificate of deposit rates are
offered to the customer base in return for higher balances and larger
relationships. 'Preferred customers' who conduct a majority of their banking
business with us, and customers maintaining high balances in single accounts
receive rates that are among the highest paid in the state. Other borrowings
have been an alternative source of funding for the bank as it continues to
expand its current deposit base. Additional branch locations planned to open in
the future, the addition of alternative delivery channels, internet banking and
increased sales training and efforts by branch personnel represent the strategic
direction of the bank to expand its customer base. The use of other borrowings
as both a temporary and longer term source of funding is both acceptable and
common at financial institutions as long as they are part of a carefully planned
and executed asset liability management program.
Net Interest Income
Net interest income is the largest contributor to net income and represents
58.63% of total income at year end 1999 compared to 58.46% at year end 1998. Net
interest income increased from $10,298,216 during 1998 to $11,962,232 during
1999. The average volume of interest earning assets increased by 18.97% during
1999, while the volume of interest bearing liabilities increased by 20.23% over
the same period. The result of these increases in the balance sheet was an
interest margin of 5.63%, slightly lower than the margin during 1998 of 5.76%.
This interest margin still remains very high compared to the banks' peers. The
higher rate environment characteristic of 1999 placed downward pressure on
margins, yet it had minimal effect on the bank's spread. This was achieved
through the addition of high yielding assets and relatively low cost funding.
The tables below show a comparative analysis of the major areas of interest
income, interest expense and resultant changes in net interest income. Variances
in the rate volume relationship has been allocated to the rate.
<PAGE> 45
Average Balance Sheet and Yield Analysis
<TABLE>
<CAPTION>
1999 1998
(in thousands) Average Average Average Average
Tax Equivalent Basis Balance Interest Rate(%) Balance Interest Rate(%)
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-Earning Assets:
Investment Securities:
Taxable ................................... $ 51,225 $ 3,268 6.38 $ 56,071 $ 3,372 6.01
Nontaxable ................................ 17,361 1,245 7.17 12,686 995 7.84
Total Investment Securities ................. 68,586 4,513 6.58 68,757 4,367 6.35
Balances Due from Banks ..................... 848 46 5.42 166 8 4.82
Total Net Loans ............................. 142,216 12,673 8.91 102,914 9,997 9.71
Federal Funds Sold .......................... 8,177 411 5.03 12,943 707 5.46
Total Interest-Earning Assets ............... 219,827 17,643 8.03 184,780 15,079 8.16
Non-Interest-Earning Assets ................. 16,843 0 0.00 17,218 0 0.00
Total Assets ............................. $ 236,670 $ 17.643 7.45 $ 201,998 $ 15,079 7.47
Liabilities
Interest-Bearing Liabilities:
Savings Deposits (including NOW) ............ $ 53,776 $ 553 1.03 $ 54,650 $ 781 1.43
Money Market Accounts ....................... 49,519 1,588 3.21 40,211 1,419 3.53
Certificates of Deposit ..................... 42,184 1,972 4.67 35,580 1,795 5.05
Total Interest-Bearing Deposits ............... 145,479 4,113 2.83 130,441 3,995 3.06
Securities Sold Under Agreements
to Repurchase ............................... 0 0 0.00 1,174 73 6.22
Other Borrowings .............................. 21,129 1,145 5.42 6,965 375 5.38
Total Interest-Bearing Liabilities ............ 166,608 5,258 3.16 138,580 4,443 3.21
Non-Interest Bearing Liabilities:
Demand Deposits ............................. 50,682 0 0.00 45,014 0 0.00
Other ....................................... 1,399 0 0.00 1,290 0 0.00
Total Liabilities ........................ 218,689 5,258 2.40 184,884 4,443 2.40
Stockholders' Equity .......................... 17,981 0 0.00 17,114 0 0.00
Total Liabilities and
Stockholders' Equity ................. $ 236,670 $ 5,258 2.22 $ 201,998 $ 4,443 2.20
Interest Margin $ 12,385 $ 10,636
Interest Spread on:
Average Total Assets 5.23% 5.27%
Average Total Interest-Earning Assets 5.63% 5.76%
</TABLE>
<PAGE> 46
Rate Volume Relationships of Interest Margin on Earning Assets
<TABLE>
<CAPTION>
1999/1998 1998/1997
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
Net Net
(in thousands) Volume Rate Change Volume Rate Change
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Investment Securities:
Taxable ................................... $ (291) $ 205 $ (86) $ (579) $ (222) $ (801)
Nontaxable ................................ 366 (85) 281 671 (144) 527
Total Investment Securities ............ 75 120 195 92 (366) (274)
Total Net Loans ............................. 3,817 (825) 2,992 542 (277) 265
Federal Funds Sold .......................... (260) (57) (317) 336 (11) 325
Balances Due from Banks ..................... 33 1 34 2 0 2
Total Interest-Earning Assets .......... 3,665 (761) 2,904 972 (654) 318
Interest Expense:
Savings Deposits .......................... (13) (219) (232) (68) (118) (186)
Money Market Accounts ..................... 328 (129) 199 222 60 282
Certificates of Deposits .................. 333 (132) 201 230 (22) 208
Total Interest-Bearing Deposits ........ 648 (480) 168 384 (80) 304
Securities Sold Under Agreements
to Repurchase ............................. (73) (73) (146) (101) 0 (101)
Other Borrowings ............................ 763 2 765 76 12 88
Total Interest-Bearing Liabilities ..... 1,338 (551) 787 359 (68) 291
Changes in Interest Margin ............. $ 2,327 $ (210) $ 2,117 $ 613 $ (586) $ 27
</TABLE>
Other Operating Income
The schedule below details items of non-interest income for the years ended
December 31,
<TABLE>
<CAPTION>
1999 1998 1997
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
Other Operating Income
Trust and Investment Management Department Income .................... $ 461,383 $ 400,569 $ 364,600
Service Charges on Deposit Accounts .................................. 1,501,740 1,479,577 1,518,765
Other Income ......................................................... 1,201,272 952,721 751,137
Net Gain on the Sales of Investment Securities ....................... 17,012 40,676 0
Total ............................................................. $3,181,407 $2,873,543 $2,634,502
</TABLE>
<PAGE> 47
Other Operating Income represents fee income collected by the bank on non-rate
sensitive transactions. As margins tighten due to the rising rate environment,
the generation of fee income plays a larger role in the level of net income.
Other operating income increased by 10.71% over 1998 and 20.76% over 1997.
Service charges on deposit accounts is the single largest contributor to Other
Operating Income and it increased from $1,479,577 to $1,501,740 or 1.50% from
1998 to 1999. This minimal increase is due to the large number of preferred
accounts whose service charges are waived, another benefit offered to customers
who maintain their primary relationship with Bank of Smithtown. Income from
Trust and Investment Management Services increased by 15.18% over the 1998 level
due to the addition of several large investment management accounts. The Trust
and Investment Management Division of Bank of Smithtown will soon be offering
more services to the smaller investor as well as larger investment, custody, and
estate planning and management services. Other income rose by 26.09% and 59.93%
over 1998 and 1997 levels. This is due in small part to gains on the sale of
Other Real Estate Owned, and in a larger part to increased fee income on a
higher volume of ATM transactions. Loan fees are also a large part of Other
Income and these fees increased dramatically during 1999 by 37.43%. During 1999,
the bank also recognized $17,012 on the sale of an investment security held in
its available for sale portfolio.
Other Operating Expenses
Detailed below are the components of the Other Operating Expenses for the years
ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
Other Operating Expenses
Salaries ....................................................... $3,626,284 $3,252,761 $2,949,150
Pensions and Other Employee Benefits ........................... 704,559 682,397 669,919
Net Occupancy Expense .......................................... 864,844 835,787 874,033
Furniture and Equipment Expense ................................ 807,080 621,808 589,897
Other Expenses ................................................. 1,992,593 1,726,923 1,793,602
Total ....................................................... $7,995,360 $7,119,676 $6,876,601
</TABLE>
Other Operating Expenses represent various categories of non-interest expense.
These expenses increased by 12.30% over 1998 levels and 16.27% over 1997 levels.
Salary and benefit expense increased during 1999 partially due to the increasing
costs of health insurance, as well as additions to Senior Management. Increases
in balance sheet assets, such as experienced in 1999, require additional
internal resources to carefully manage the bank's strategic plan and hence yield
the highest returns for our shareholders within all boundaries of safety and
soundness. Also reflected in salary expense, to a lesser degree than in prior
years, is compensation expense paid to consultants for assistance with various
software programs and sales training for branch personnel. Net occupancy expense
increased slightly from $835,787 during 1998 to $864,844 during 1999. This
resulted from increased lease payments on branch properties, and depreciation
expenses attributed to leasehold improvements. Expenses related to the
maintenance of Other Real Estate Owned declined during 1999, as only two
properties remain to be sold. Furniture and equipment expense rose by 29.80% and
36.82% over 1998 and 1997. This was due to the purchase and resultant
depreciation on new computer hardware and software, partially in preparation for
Y2K compliance. It also is reflective of the new technology purchases necessary
to maintain Bank of Smithtown's position as a leader in the financial services
market. Other expenses increased by only 15.38%, reflective of continued tight
expense control.
<PAGE> 48
Investment Securities
Investment securities at December 31, 1999 totaled $62,661,276 as compared to
$63,044,370 at year 1998, a decrease of 0.61%. As the interest rate environment
increased during 1999, principal payment reductions on mortgage-backed
securities decreased. Proceeds from maturities of investment securities were
reinvested into higher yielding securities and were also re-channeled into new
loan originations. The majority of investment securities are held in the
available for sale portfolio which represents 87.28% of the total portfolio.
This provides maximum liquidity for the bank, as these securities may be sold,
if necessary. However, it remains management's intent to hold most securities to
maturity. The composition of the portfolio has remained stable with
mortgage-backed securities representing 35.82% of the portfolio and U.S.
government agency securities and obligations of state and political subdivisions
representing 27.66% and 26.00%, respectively. Other securities is comprised of
Federal Reserve Bank stock of $127,200, Federal Home Loan Bank stock of
$3,423,500 and other equity investments of $30,000. The Federal Reserve Bank
stock and Federal Home Loan Bank stock are restricted. As can be seen from the
accompanying Weighted Average Maturity Schedule the entire portfolio has
lengthened in term and has moved from 12 years, 11 months in average term to 17
years, 10 months. This increased maturity term has resulted from slower
principal reductions on mortgage-backed securities and fewer called securities.
The actual maturity, or average life of the portfolio remains considerably
shorter due to periodic paydowns. The Weighted Average Yield Table and the
Average Balance Sheet and Yield Analysis both clearly indicate the increased
yield on the investment portfolio. This yield has increased from 6.35% to 6.58%
from 1998 to 1999.
The following schedule presents the amortized cost of Investment Securities Held
to Maturity and estimated fair value for
Investment Securities Available for Sale as detailed in the Bank's balance sheet
as of December 31:
<TABLE>
<CAPTION>
Investment Securities Held to Maturity 1999 1998
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Mortgage-Backed Securities ..................................................... $ 2,829,437 $ 4,582,024
Obligations of State and Political Subdivisions ................................ 5,141,551 6,292,248
Total ..................................................................... $ 7,970,988 $10,874,272
Investment Securities Available for Sale
Obligations of U.S. Government ................................................. $ 3,012,570 $ 6,151,890
Obligations of U.S. Government Agencies ........................................ 17,331,246 14,213,318
Mortgage-Backed Securities ..................................................... 19,612,906 19,129,406
Obligations of State and Political Subdivisions ................................ 11,152,866 11,818,684
Other Securities ............................................................... 3,580,700 856,800
Total ..................................................................... $54,690,288 $ 52,170,098
</TABLE>
<PAGE> 49
The table below sets forth the investment securities by portfolio and weighted
average maturity as of December 31, 1999 and 1998.
Weighted Average Maturity
<TABLE>
<CAPTION>
Investment Securities Held to Maturity 1999 1998
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Mortgage-Backed Securities ................................................. 7yrs. 11 mos. 5 yrs. 7 mos.
Obligations of State and Political Subdivisions ............................ 4 yrs. 7 mos. 3 yrs. 4 mos.
Total ................................................................. 6 yrs. 9 mos. 4 yrs. 4 mos.
Investment Securities Available for Sale
Obligations of U.S. Government ............................................. 0 yrs. 1 mos. 1 yr. 0 mos.
Obligations of U.S. Government Agencies .................................... 8 yrs. 8 mos. 9 yrs. 8 mos.
Mortgage-Backed Securities ................................................. 28 yrs. 4 mos. 25 yrs. 10 mos.
Obligation of State and Political Subdivisions ............................. 10 yrs. 2 mos. 10 yrs. 1 mos.
Total ................................................................. 20 yrs. 9 mos. 14 yrs. 9 mos.
Total Investment Securities ........................................... 17 yrs. 10 mos. 12 yrs. 11 mos.
</TABLE>
The table below sets forth the investment securities by portfolio and weighted
average yield as of December 31, 1999.
Weighted Average Yield
<TABLE>
<CAPTION>
Weighted
Amortized Estimated Average
Investment Securities Held to Maturity Cost Fair Value Yield (%)
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
Mortgage-Backed Securities: .......................................... $ 1,233,129 $ 1,223,344 5.82
After 1 year, but within 5 years .................................. 1,596,308 1,567,074 6.50
After 5 years, but within 10 years
Obligations of State and Political Subdivisions:
Within 1 year ..................................................... 1,078,994 1,075,322 4.63
After 1 year, but within 5 years .................................. 3,230,807 3,261,703 5.61
After 5 years, but within 10 years ................................ 831,750 842,312 5.30
Total ........................................................... $ 7,970,988 $ 7,969,755 5.72
Investment Securities Available for Sale
Obligations of U.S. Government:
Within 1 year ..................................................... $ 3,008,273 $ 3,012,570 8.50
Obligations of U.S. Government Agencies:
After 1 year, but within 5 years .................................. 6,000,000 5,745,010 6.03
After 5 years, but within 10 years ................................ 10,008,211 9,761,776 7.39
After 10 years .................................................... 2,000,000 1,824,460 6.75
Mortgage-Backed Securities:
After 10 years .................................................... 20,207,982 19,612,906 6.60
Obligation of State and Political Subdivisions
After 1 year, within 5 years ...................................... 2,680,761 2,628,999 4.33
After 5 years, but within 10 years ................................ 6,253,021 5,964,453 4.43
After 10 years .................................................... 2,795,092 2,559,414 4.29
Total ........................................................... $52,953,340 $51,109,588 6.52
</TABLE>
Loans
The Bank's loan portfolio at December 31, 1999 and 1998 (net of unearned income)
was $176,200,017 and $117,575,281, respectively, an increase of 49.86% . The
classification of the portfolio is as follows:
<TABLE>
<CAPTION>
1999 % 1998 %
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Real Estate Loans, Construction ............................ $ 22,563,456 12.76 $ 17,349,704 14.69
Real Estate Loans, Other:
Commercial .............................................. 81,336,842 46.00 54,025,411 45.75
Residential ............................................. 37,459,938 21.19 13,455,104 11.39
Commercial and Industrial Loans ............................ 31,997,026 18.10 27,663,218 23.42
Loans to Individuals for Household,
Family and Other Personal Expenditures .................. 3,350,208 1.89 4,782,592 4.05
All Other Loans (including Overdrafts) ..................... 112,275 0.06 825,129 0.70
Total Loans ........................................... $176,819,745 100.00 $118,101,158 100.00
</TABLE>
<PAGE> 50
The areas of largest growth in the portfolio have been in the residential
mortgage portfolio and the commercial and industrial loan portfolio. Average
yield on the portfolio decreased from 9.71% to 8.91% due primarily to the change
in composition. Real estate loans comprise 67.19% of the entire portfolio, but
credit concentration risk in this segment has been minimized through low loan to
value ratios and high credit quality of borrowers. A majority of loans made by
Bank of Smithtown are to residents and businesses located in the bank's primary
lending area and credit is extended to a wide spectrum of borrowers, including
individuals, not for profit organizations and small to middle market businesses.
The following table shows the maturities of loans (excluding real estate
mortgages and installment loans) outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
After One
Within Year but After
One Within Five Five
(in thousands) Year Years Years Total
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Commercial (and all other loans including overdrafts) $ 13,356 $ 4,803 $ 403 $ 18,562
Real Estate - Construction 2,123 2,982 0 5,105
Total $ 15,479 $ 7,785 $ 403 $ 23,667
</TABLE>
Deposits
Average deposits for 1999 increased by 11.80% over 1998. Year end deposits
increased by 13.01% over the same period in 1998. The largest areas of growth in
average deposits for 1999 were money market accounts, time deposits and demand
deposits, respectively. The resultant increase in interest expense on this
increased deposit base was only $44,667. Competitive pricing on all deposit
accounts, but in particular to customers who maintain large relationships with
the bank was achieved at minimal cost.
Average Balance
(in thousands) 1999 1998
________________________________________________________________________________
Demand (Non-Interest Bearing) ................ $ 50,682 $ 45,014
Money Market ................................. 49,519 40,211
Savings (Including NOW) ...................... 53,776 54,265
Time ......................................... 42,184 35,965
Total Deposits ............................... $196,161 $175,455
At December 31, 1999, the remaining maturities of the Bank's Certificates of
Deposit in amounts of $100,000 or greater were as follows:
(in thousands)
3 months or less ........................... $ 7,234
Over 3 through 6 months .................... 2,087
Over 6 through 12 months ................... 3,529
Over 12 months ............................. 4,359
Total ...................................... $17,209
Other Borrowings
Year end 1999 borrowings increased from $3,174,645 to $38,000,000. These
borrowings are in the form of six advances from the Federal Home Loan Bank of
New York. A description of the advances is detailed below.
Description Rate Type Maturity Amount
________________________________________________________________________________
4 Month Advance ......... 5.74 Fixed 03/08/00 $ 3,000,000
1 Year Advance .......... 5.98 Adjustable 05/19/00 10,000,000
1 Year Advance .......... 6.05 Adjustable 08/04/00 10,000,000
4 Year Advance .......... 6.40 Fixed 11/14/03 7,000,000
5 Year Advance .......... 6.56 Fixed 12/03/02 3,000,000
10 Year Repo Advance .... 4.93 Fixed 01/15/09 5,000,000
Total ................... $38,000,000
The average cost for these borrowings is 5.42%. The underlying collateral for
the borrowings is comprised of various U.S. government agency securities and
mortgage-backed securities.
<PAGE> 51
Liquidity and Rate Sensitivity
Liquidity provides the source of funds for anticipated and unanticipated deposit
outflow and loan growth. The bank's primary sources of liquidity include
deposits, repayments of loan principal, maturities of investment securities,
principal reductions on mortgage-backed securities, 'unpledged' securities
available for sale, overnight federal funds sold and borrowing potential from
correspondent banks. The primary factor effecting these sources of liquidity is
their immediate availability if necessary, and their market rate of interest,
which can cause fluctuations in levels of deposits and prepayments on loans and
securities. The method by which the bank controls its liquidity and interest
rate sensitivity is through asset/liability management. The goal of
asset/liability management is the combination of maintaining adequate liquidity
levels without sacrificing earnings. The bank matches the maturity of its assets
and liabilities in a way that takes advantage of the current and anticipated
rate environment. Asset/liability management is of great concern to management
and is reviewed on an ongoing basis. The Chief Executive Officer, Chief
Financial Officer, Chief Lending Officer, Chief Commercial Lending Officer and
the Executive Vice President of the Retail Division of the bank serve on the
asset/liability management committee. Reports detailing current liquidity
position and projected liquidity as well as projected funding requirements are
reviewed monthly, or as often as deemed necessary. Semiannually, the bank
collects the necessary information to run an income simulation model, which
tests the bank's sensitivity to fluctuations in interest rates. These rate
fluctuations are large and immediate, and actually reflect the bank's earnings
under these simulations. These income simulations are reviewed by the Board of
Directors. Both simulations performed during 1999 reflected minimal sensitivity
to upward or downward rate fluctuations. Interest income, margins and net income
remain stable regardless of changes in market interest rates. These models then
lead to investment, loan and deposit strategies and decisions for earnings
maximization within acceptable risk levels. The following table details the
interest rate sensitivity of the bank over various periods as of December 31,
1999.
<TABLE>
<CAPTION>
Three One Three
Months Six Total Year Years
Three Through Months Sensitive Through Through Over
Months Six Through Within Three Five Five All
(in thousands) 1 Day or Less Months One Year One Year Years Years Years Other(1) Total
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Interest $ 50,929 $ 22,087 $ 12,740 $ 13,540 $ 99,296 $ 22,267 $ 58,512 $ 65,113 $ 4,967 $ 250,155
Earning Assets
Total Interest Bearing
Liabilities and
Demand Deposits (2) 556 28,468 27,968 47,098 104,090 69,853 46,858 0 25,005 245,806
Interest Sensitivity
Gap Per Period 50,373 (6,381) (15,228) (33,558) (4,794) (47,586) 11,654 65,113 (20,038) 4,349
Cumulative Interest
Sensitivity Gap 50,373 43,992 28,764 (4,794) (4,794) (52,380) (40,726) 24,387 4,349 4,349
Percent of Cumulative
Gap to Total Assets 18.93% 16.53% 10.81% (1.80)% (1.80)% (19.69)% (15.31)% 9.17% 1.63% 1.63%
</TABLE>
(1) Includes interest-earning assets and interest-bearing liabilities that do
not reprice as well as $1,387,685 in nonaccrual loans.
(2) Money Market Accounts assumed to decline over a 2 year period. Savings
Accounts and NOW assumed to decline over a 5 year period. Demand Deposits are
spread based on historical experience.
Stockholders' Equity
<PAGE> 52
Shown below are the components of Stockholders' Equity as of December 31:
<TABLE>
<CAPTION>
1999 1998
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Common Stock - $2.50 Par Value ( 3,000,000 Shares Authorized;
895,910 Shares Issued) $ 2,239,775 $ 2,239,775
Capital Surplus 1,993,574 1,993,574
Retained Earnings 19,314,995 15,770,822
Accumulated Other Comprehensive Income (1,069,376) 249,455
Total 22,478,968 20,253,626
Less:Treasury Stock (89,742 and 73,145 Shares at Cost
At December 31, 1999 and 1998, respectively) 3,788,953 2,841,437
Total Stockholders' Equity $18,690,015 $ 17,412,189
</TABLE>
Stockholders' equity increased by 7.34% from year end 1998 to year end 1999.
Effective May 6, 1998 the Board of Directors approved a 2:1 stock split which
increased the number of authorized shares from 1,500,000 to 3,000,000, and
reduced the par value of the stock from $5 per share to $2.50 per share. Also
during 1998, the Board approved $3,200,000 to be paid in the form of a special
dividend from the bank to the Bancorp for the purpose of stock repurchase.
During 1998, the Bancorp repurchased an adjusted equivalent of 43,771 shares at
a total cost of $2,394,798. During 1999, the Board authorized an additional
$800,000 dividend paid to the Bancorp for additional repurchases of company
stock. For the year ended 1999, the Bancorp repurchased 16,597 additional common
shares at a total cost of $947,516. Retained earnings increased by 22.47% during
1999 as a result of net income of $4,253,652 and cash dividends declared of
$712,279.
Capital ratios are regarded as one of the most important indicators of a banking
institution's strength. There are two capital ratios that are most significant:
leverage ratio and risk based capital. Leverage at year end 1999 and 1998 was
8.33% and 8.47%, respectively. The minimum regulatory leverage ratio is 4.00%.
Total risk based capital at year end 1999 and 1998 was 12.20% and 14.14%. The
minimum regulatory Tier II risk based capital ratio is 10%. Bank of Smithtown is
considered well capitalized by all guidelines.
Analysis of the Allowance for Possible Loan Losses The Allowance for Possible
Loan Loss Account at year end 1999 was $2,251,668 compared to $2,120,371 at year
end 1998. The change in the Allowance Account is the result of net charge-offs
if $318,703 and a Provision for Possible Loan Losses of $450,000. Based on the
high quality of the loan portfolio, and the low level of non-performing assets,
management feels the Allowance for Possible Loan Losses provides adequate
coverage.
<PAGE> 53
The following tables describe the activity in the Allowance for Possible Loan
Losses Account for the years ended December 31,
The following tables describe the activity in the Allowance for Possible Loan
Losses for the years ended December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
___________________________________________________________________________________________________________________________________
<S> <C> <C>
Allowance for Possible Loan Losses at Beginning of Period ...................................... $ 2,120 $ 1,678
Loans Charged Off:
Commercial .................................................................................. 255 82
Real Estate ................................................................................. 9 0
Consumer .................................................................................... 105 52
Total Loans Charged-Off ................................................................... 369 134
Recoveries on Amounts Previously Charged-Off:
Commercial .................................................................................. 20 6
Real Estate ................................................................................. 15 10
Consumer .................................................................................... 16 35
Total Recoveries .......................................................................... 51 51
Net Charge-Offs ................................................................................ 318 83
Current Year's Provision for Possible Loan Losses .............................................. 450 525
Allowance for Possible Loan Losses at End of Period ............................................ $ 2,252 $ 2,120
Total Loans:
Average (Net of Unearned Discount and Allowance for Possible Loan Loss)$ .................... 142,216 $102,914
End of Period (Net of Unearned Discount) .................................................... 176,200 117,575
Ratios: 1999 1998
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Net Loans Charged-Off to:
Average Loans ................................................................................. 0.22% 0.08%
Loans at End of Period ........................................................................ 0.18 0.07
Allowance for Possible Loan Losses ............................................................ 14.12 3.92
Provision for Possible Loan Losses ............................................................ 70.67 15.81
Last Year's Charge-Off to this Year's Recovery ................................................... 262.75 1,664.71
Allowance for Possible Loan Losses at Year End To:
Average Loans (Net of Unearned Discount) ...................................................... 1.56 2.02
End of Period Loans (Net of Unearned Discount) ................................................ 1.28 1.80
</TABLE>
The following table shows the Bank's non-accrual and contractually past due
loans:
<TABLE>
<CAPTION>
At December 31,
(in thousands) 1999 1998 1997 1996 1995
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Accruing Loans Past Due 90 Days or More ................. $ 0 $ 0 $ 432 $ 3 $ 90
Non-Accrual Loans ....................................... 1,388 1,749 1,593 2,001 2,849
Total .............................................. $1,388 $1,749 $2,025 $2,004 $2,939
</TABLE>
For 1999 and 1998 the difference between interest income on non-accrual loans
and income that would have been recognized at original contractual rates and
terms is $138,183 and $90,166, respectively.
The composition of Other Real Estate Owned at December 31 is as follows:
1999 1998
Commercial Land ...................... $ 730,354 $ 712,495
Single Family ........................ 125,000 360,000
Total ............................. $ 855,354 $1,072,495
The value of Other Real Estate Owned shown above is net of the Valuation
Reserve.
<PAGE> 54
<TABLE>
<CAPTION>
CORPORATE DIRECTORY
<S> <C> <C>
SMITHTOWN BANCORP AND Bank of Smithtown Bank of Smithtown
Bank of Smithtown Officers Corporate Headquarter's
DIRECTORS Bradley E. Rock SMITHTOWN, NY 11787-2801
Bradley E. Rock, Chairman Chairman, President One East Main Street
Patrick A. Given & Chief Executive Oficer (631) 360-9300
Manny Schwartz
Edith Hodgkinson Anita M. Florek Centereach, NY 11720-3501
Augusta Kemper Executive Vice President 1919 Middle Country Road
Attmore Robinson, Jr. & Chief Financial Officer (631) 585-6644
Charles E. Rockwell
Robert W. Scherdel Robert Anrig Commack, NY 11725-3097
Barry M. Seigerman Executive Vice President 2020 Jericho Turnpike
Sanford C. Scheman & Chief Lending Officer (631) 543-7400
Thomas J. Stevens Hauppauge, NY 11788-4346
Executive Vice President 548 Route 111
& Chief Commercial Lending Officer (631) 265-7922
SMITHTOWN BANCORP
OFFICERS John Romano Kings Park, NY 11754-3811
Bradley E. Rock Executive Vice President,Marketing 14 parks Drive
CHAIRMAN, PRESIDENT Marketing & Retail Banking (631) 269-4900
& CHIEF EXECUTIVE OFFICER
Ellen Metzger
Anita M. Florek Vice President, Marketing & Training Lake Grove, NY 11755-2107
EXECUTIVE VICE PRESIDENT 2921 Middle Country Road
& TREASURER Rosanna Dill (631) 588-0700
Vice President, Human Resources
Rosanna Dill Northport, NY 11768-3151
VICE PRESIDENT Edward Benedetto 836 Fort Salonga Road
Vice President & Comptroller (631) 262-1353
Judith Barber
CORPORATE SECRETARY Patricia Guidi
Vice President, Operatons
INDEPENDENT AUDITORS
Susan Ladone Annual Meeting
Albrecht, Viggiano, Vice President, Consumer Lending The Annual Meeting of Stockholders
Zureck & Company, P.C. of Smithtown Bancorp will be held
25 Suffolk Court Maria Nowotny on Tuesday , April 4, 2000
Hauppauge.NY 11788 Vice President & Trust Officer at 10:30 AM, at the:
Wyndham Wind Watch
Carol Schofield 1717 Vanderbilt Motor Parkway
Assistant Trust Officer Hauppauge, New York 11788
GENERAL COUNSEL Judith Barberporate
Patricia C. Delaney, Esq. Corporate Secretary & Cashier
Assistant Vice Presidents
Helene Caspar
Robert Staron
Register and Transfer Agent
Managers Bank of Smithtown
Ann Marie Bove One East Main Street
Nancy Bradley Smithtown, New York 11787-2801
Carol Ann Brennan
Constance Lynch 10-KSB Report
Lisa McCulloch The annual report to the Securities and
Connie Ponticello Exchange Commission, From 10-KSB
Jeanne Quortrop will be made available upon request by
Sylvia Scheick contacting:
Karen Neale Judith Barber,Corporate Secretary
Ronald Florek Smithtown Bancorp
One East Main Street
Smithtown, New York 11787-2801
Assistant Managers
Donna Maresca
Phyllis Kaiserman
Mae Russo
Ardene signorelli Member Federal Reserve System and
Beth Tramontana Federal Deposit Insurance Corporation
</TABLE>
<PAGE> 55
SMITHTOWN BANCORP
ONE EAST MAIN STREET
SMITHTOWN, NEW YORK 11787-2823
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held
TUESDAY, APRIL 4, 2000
The Annual Meeting of Shareholders of Smithtown Bancorp (the "Bancorp"), will be
held at the Wyndham Wind Watch, 1717 Vanderbilt Motor Parkway, Hauppauge, New
York, on April 4, 2000, at 10:30 a.m., for the following purposes:
1. The election of three directors to serve a term of three years.
2. To approve the appointment of Albrecht, Viggiano, Zureck & Company, P.C. as
independent auditors for the year ending December 31, 2000.
3. To transact such other business as may properly come before the meeting for
any adjournment thereof.
Pursuant to a resolution of the Board of Directors adopted at the Board of
Directors meeting on January 26, 2000, only shareholders of record at the close
of business on February 25, 2000, shall be entitled to notice of and to vote at
this meeting.
Dated:March 1, 2000
Smithtown, New York
BY ORDER OF THE BOARD OF DIRECTORS
Bradley E. Rock
Chairman of the Board, President
& Chief Executive Officer
<PAGE> 56
SMITHTOWN BANCORP
ONE EAST MAIN STREET
SMITHTOWN, NEW YORK 11787-2823
PROXY STATEMENT
GENERAL PROXY INFORMATION
This Proxy Statement (this "Proxy Statement") is furnished in connection
with the solicitation by and on behalf of the Board of Directors of Smithtown
Bancorp, (the "Bancorp") of proxies to be used at the Annual Meeting of
Shareholders of the Bancorp to be held at the Wyndham Wind Watch, 1717
Vanderbilt Motor Parkway, Hauppauge, New York, on April 4, 2000, and at any
adjournment thereof. The costs of the proxy solicitation are to be paid by the
Bancorp. Bank of Smithtown (the "Bank" or "Bank of Smithtown" ) is a
wholly-owned subsidiary of the Bancorp. This Proxy Statement is being mailed on
or about March 1, 2000, to holders of the Common Shares.
Authorized Shares and Voting Rights
Holders of record of Common Shares as of the close of business on February
25, 2000 (the "Record Date"), will be entitled to vote at the meeting. Each
shareholder is entitled to one vote for each share of stock held by him or her.
There were 806,168 Common Shares outstanding on the Record Date.
Revocability of Proxy
If the accompanying form of Proxy is executed and returned, it nevertheless
may be revoked by the shareholder at any time before it is exercised. But if it
is not revoked, the shares represented thereby will be voted by the persons
designated in each such Proxy.
Financial Statements
A copy of the Bancorp's Annual Report to Shareholders, including financial
statements for the fiscal year ended December 31, 1999, has heretofore been
mailed to the shareholders.
Matters To Be Voted On At The Meeting
There are two matters that are scheduled to be voted on at the Annual
Meeting. Shareholders are being asked to vote on (1) the election of three
directors, and (2) the approval of Albrecht, Viggiano, Zureck & Co., P.C., as
the Bancorp's independent auditors for the year ending December 31, 2000.
It is intended that the shares of stock represented by the accompanying
form of Proxy will be voted for the election of the director nominees listed in
Table I and in favor of the other proposals, unless a contrary direction is
indicated on the form of Proxy. With respect to the director nominees, if any of
such nominees should become unavailable for any reason, which the directors do
not now contemplate, it is intended that, pursuant to the accompanying form of
Proxy, votes will be cast for a substitute nominee designated by the Board of
Directors.
<PAGE> 57
Directors are elected by a plurality of the votes cast at the Annual
Meeting, either in person or by proxy. The approval referred to above will be
authorized if a majority of the votes cast at the Annual Meeting, either in
person or by proxy, are voted in favor of such approval.
With respect to the proposals referred to above, abstentions and broker
non-votes will be counted as not having voted and will not be counted in
determining if the plurality, with respect to (1), or the majority, with respect
to (2), was obtained.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Certificate of Incorporation of the Bancorp provides that the Board of
Directors shall consist of 9 members and that the directors shall be classified
into three classes, each of which shall serve for a term of three years, with
the term of office of one class expiring each year.
Nominees for Election of Directors
All nominees who are presently serving as directors were elected to their
present term of office by the shareholders. The following directors whose terms
are expiring this year, are proposed for re-election for terms expiring in 2003:
Bradley E. Rock, Charles E. Rockwell and Sanford C. Scheman. Sanford C. Scheman
was elected to the Board on December 21, 1999, pursuant to Article 2, Section 1,
of the Bancorp's By-Laws to fill the unexpired term of Attmore Robinson, Jr.,
who retired his position on the Board on December 21, 1999, and assumed the role
of "Director Emeritus".
<TABLE>
<CAPTION>
TABLE I
Date Experience and Shares of Stock
Directorship Director Principal Occupation Beneficially Owned (2)
Name and Age Term Expires Since (1) During Past 5 Years # %
____________________________________________________________________________________________________________________________________
NOMINEES
<S> <C> <C> <C> <C> <C>
Bradley E. Rock, 47 2003 1988 Chairman of the Board, President
& Chief Executive Officer of the
Bancorp and the Bank. 7,138 .88
Charles E. Rockwell, 83 2003 1984 Retired in 1976. Formerly a
commercial airline captain. Active
in community non-profit organizations. 8,836 1.09
Sanford C. Scheman, 63 2003 2000 Principal, North Shore Orthopedic
Surgery & Sports Medicine, PC;
Chairman of the Board & Executive
Director of St. James Plaza Nursing
Facility; President, Copesetic Ventures,
Inc.; Founding member, National
Osteoporosis Institute, LLC. 1,000 .12
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
Directorship Director Principal Occupation Beneficially Owned (2)
Name and Age Term Expires Since (1) During Past 5 Years # %
____________________________________________________________________________________________________________________________________
DIRECTORS CONTINUING IN OFFICE
<S> <C> <C> <C> <C> <C>
Patrick A. Given, 55 2001 1989 Real Estate Appraiser and
Consultant; Given Associates,
located at 550 Route 111,
Hauppauge, New York. 4,225 .52
Edith Hodgkinson, 77 2001 1979 Retired Restaurateur. 49,400 6.12
Robert W. Scherdel, 45 2001 1996 President & CEO
Sunrest Health Facilities, Inc. 12,336 1.53
Manny Schwartz, 57 2002 1998 President, Quality Enclosures,
Inc., located Central Islip, N.Y.
President, Sarasota Shower Door
Company, Inc., Quality Powder
Coating Company, Inc., and MSS
Properties, located in Sarasota, Fla. 2,250 .27
Barry M. Seigerman, 59 2002 1993 Chairman & Chief Executive
Officer Seigerman-Mulvey Co., Inc.,
Insurance Brokers, located at
45 Research Way, East Setauket,
New York. Active in business and
community non-profit
organizations. 2,415 .29
Augusta Kemper, 77 2002 1992 Horticulturist and Owner of Kemper
Nurseries until retirement in 1985. 49,866 6.18
1) Each director of the Bancorp is also a director of Bank of Smithtown. The
dates given are the dates on which the director first served as a director of
Bank of Smithtown.
2) These figures include Common Shares owned by family members of directors as
to which each of the directors disclaim any beneficial ownership. Mrs.
Hodgkinson's shares include shares held by Bank of Smithtown as Trustee under
the Last Will and Testament of Carlyle Hodgkinson. The amount of Common Shares
beneficially owned and listed in the table above is provided as of February 25,
2000.
</TABLE>
<PAGE> 59
Board of Directors
The Board of Directors holds regular monthly meetings. The Board held
twelve meetings during 1999. Each director attended 75% or more of the aggregate
number of meetings of the Board of Directors and the committee or committees
thereof on which such director served during 1999.
Committees of the Board
The Board of Directors has established a number of committees to assist it
in the discharge of its responsibilities.
The Audit Committee, consisting of eight directors, had six meetings in
1999. The chairman of the committee during 1999 was Attmore Robinson, Jr. The
chairman of the committee currently is Barry M. Seigerman. The committee reviews
results of regulatory examinations, internal audits of the independent auditor
in conformance with regulations of the New York State Banking Department and the
laws of the State of New York. Current members of this committee are Edith
Hodgkinson, Augusta Kemper, Charles E. Rockwell, Patrick A. Given, Barry M.
Seigerman, Robert Scherdel, Manny Schwartz and Sanford C. Scheman.
The Compensation Committee, consists of five members. The chairman of the
committee during 1999 was Attmore Robinson, Jr. The chairman of the committee
currently is Patrick A. Given. This committee makes recommendations to the Board
of Directors with respect to the compensation of elected officers. Current
members of this committee are Augusta Kemper, Edith Hodgkinson, Patrick A.
Given, Barry M. Seigerman and Charles E. Rockwell.
The Board of Directors does not have a standing nominating committee.
Director Compensation
Directors of the Bank received a fee of $750 per month for the first
five months of 1999. Beginning on June 1, 1999, the Directors received an annual
retainer of $10,000 paid on a monthly basis at a rate of $833.33 per month,
together with an attendance fee of $200 for each meeting attended. The members
of the Directors Loan Committee who are not officers of the Bank and who were
appointed to the committee prior to May 1, 1996, also received a monthly fee of
$300 for committee membership. The total amount of directors' fees paid during
1999 was $107,449.79.
The Board of Directors recommends a vote FOR the election of all Nominees
(Proposal No. 1 on the Proxy)
APPROVAL OF INDEPENDENT AUDITORS
(PROPOSAL NO. 2)
The Audit Committee has recommended that Albrecht, Viggiano, Zureck & Co.,
P.C., Certified Public Accountants, continue as the independent auditors for the
Bank and the Bancorp for 2000. The firm has served as the independent auditors
for the Bank and the Bancorp since 1992. Representatives of the firm will be
present at the annual meeting to answer questions and are free to make
statements during the course of the meeting.
The Board of Directors recommends a vote FOR the proposal to approve the
independent auditors (Proposal No. 2 on the Proxy)
<PAGE> 60
EXECUTIVE OFFICERS AND PRINCIPAL SHAREHOLDERS
Security Ownership of Certain Beneficial Owners
The persons listed below are beneficial owners of more than 5% of the
outstanding Common Shares of the Bancorp as of February 25, 2000.
Name and Address Common Shares Percent
of Beneficial Owner Beneficially Owned of Class
________________________________________________________________________________
Elizabeth Radau 60,592 7.51%
43 Edgewood Avenue
Smithtown, New York 11787
Edith Hodgkinson 49,400 6.12%
81 Governors Road
Sea Pines Plantation
Hilton Head, South Carolina 29928
Augusta Kemper 49,866 6.18%
51 Mills Pond Road
St. James, New York 11780
The following table shows stock ownership as of February 25, 2000, of all
directors and officers of the Bancorp and the Bank as a group:
TABLE II
Number of Percentage of
Common Shares Outstanding
Beneficially Owned Common Shares
(Note 1)
________________________________________________________________________________
Patrick A. Given ................... 4,255 .52
Anita M. Florek .................... 2,026 .25
Edith Hodgkinson ................... 49,400 6.12
Robert W. Scherdel ................. 12,336 1.53
Manny Schwartz ..................... 2,250 .27
Barry M. Seigerman ................. 2,415 .29
Augusta Kemper ..................... 49,866 6.18
Sanford C. Scheman ................. 1,000 .12
Bradley E. Rock .................... 7,138 .88
Charles E. Rockwell ................ 8,836 1.09
Thomas J. Stevens .................. 1,792 .22
Robert J. Anrig .................... 1,000 .12
Eleven directors and executive officers 159,810 19.67
of the Bancorp and the Bank as a group
Note 1 - Includes Common Shares owned by family members of directors as to which
the directors disclaim any interest.
<PAGE> 61
Material Proceedings
There are no material proceedings to the best of management's knowledge to
which any director, officer or affiliate of the Bancorp or any record holder or
beneficial owner of more than five percent of the Bancorp's stock, or any
associate of any such director, officer, affiliate of the Bancorp, or security
holder is a party adverse to the Bancorp or any of its subsidiaries or has a
material interest adverse to the Bancorp.
Executive Officers
The following table sets forth information as to each executive officers of
the Bancorp and the Bank as of February, 2000.
<TABLE>
<CAPTION>
TABLE III
Name Age Position
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Bradley E. Rock 47 Chairman of the Board, President & Chief Executive Officer of Bancorp since January 1992.
President of Bancorp and the Bank October 1990 to January 1992.
irector of Bancorp and the Bank since 1988.
____________________________________________________________________________________________________________________________________
Anita M. Florek 49 Executive Vice President & Chief Financial Officer of the Bank since January 1993.
Executive Vice President & Treasurer of the Bancorp since January 1993.
Senior Vice President & Comptroller of the Bank March 1989 to January 1993.
Treasurer of Bancorp January 1991 to January 1992.
____________________________________________________________________________________________________________________________________
Thomas J. Stevens 41 Executive Vice President & Chief Lending Officer of the Bank since July 1997.
Senior Vice President & Commercial Loan Officer of the Bank February 1997 to July 1997.
Vice President & Commercial Loan Officer May 1994 to February 1997.
____________________________________________________________________________________________________________________________________
Robert J. Anrig 51 Executive Vice President & Chief Loan Officer of the Bank since April 1998.
First Vice President Lending of Home Federal Savings Bank from May 1992 to April 1998.
____________________________________________________________________________________________________________________________________
</TABLE>
Executive Compensation
The table appearing below sets forth all compensation paid in 1999 to each
executive officer whose total compensation exceeded $100,000 for such year. All
remuneration was paid by Bank of Smithtown.
TABLE IV
Summary Compensation Table
Name and Principal Position Year Salary Incentive Other
Compensation Compensation
(1) (2)
________________________________________________________________________________
Bradley E. Rock 1997 $212,000.00 $ 38,000.00 $25,373.42
Chairman, President & CEO 1998 $223,741.38 $ 105,665.52 $28,523.15
of the Bancorp and the Bank 1999 $238,824.62 $ 120,065.00 $26,889.19
________________________________________________________________________________
Anita M. Florek 1997 $108,120.00 $ 14,000.00 $12,687.42
Executive Vice President 1998 $121,702.70 $ 26,416.38 $14,087.42
of the Bancorp and the Bank 1999 $130,769.28 $ 30,016.28 $15,142.40
<PAGE> 62
Name and Principal Position Year Salary Incentive Other
Compensation Compensation
(1) (2)
________________________________________________________________________________
Thomas J. Stevens 1997 $ 88,538.34 $ 13,332.11 $ 9,525.43
Executive Vice President 1998 $105,538.38 $ 35,723.19 $12,483.48
of the Bank 1999 $110,892.32 $ 40,594.16 $13,785.21
________________________________________________________________________________
Robert Anrig 1997 - 0 - - 0 - - 0 -
Executive Vice President 1998 $ 91,826.88 - 0 - - 0 -
of the Bank 1999 $130,769.30 $ 31,474.42 $12,443.83
(1) These amounts include a monthly director's fee of $750 for the first five
months of 1999. Beginning June 1, 1999, Mr. Rock received an annual retainer of
$10,000 paid on a monthly basis at a rate of $833.33 per month, as Chairman of
the Board of Directors. Mr. Rock does not receive any additional fees or any
additional compensation for participation on any of the board's committees.
These amounts also include employer matching contributions paid in connection
with the Bank's 401(k) plan, amounts accrued during 1999 under the ESOP and
premiums paid on behalf of the officers for a group term life insurance policy.
(2) Amounts reported do not include any amount expended by the Bank which may
have provided an incidental benefit to the persons listed in the table above,
but which were made by the Bank in connection with its business. While the
specific amounts of such incidental benefits cannot be precisely determined,
after due inquiry, management does not believe that such value would exceed
$5,000 in the aggregate for any of such persons.
Certain Transactions
Some of the directors and officers of the Bancorp, and some of the
corporations and firms with which these individuals are associated, are also
customers of Bank of Smithtown in the ordinary course of business, or are
indebted to the Bank in respect of loans of $60,000.00 or more. It is
anticipated that some of these individuals, corporations and firms will continue
to be customers of and indebted to the Bank on a similar basis in the future.
All loans extended to such individuals, corporations and firms were made in the
ordinary course of business, did not involve more than the normal risk of
collectability or present other unfavorable features, and were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the same time for comparable Bank transactions with unaffiliated
persons.
No director of the Bank or the Bancorp had an aggregate amount of unsecured
indebtedness to the Bank in excess of 15 percent of the Bank's equity capital
account during the period of January 1, 1999, through December 31, 1999.
Outside of normal customer relationships, none of the directors or officers
of the Bank or the Bancorp, or the corporations or firms with which such
individuals are associated, currently maintains or has maintained within the
last fiscal year any significant business or personal relationship with the Bank
or the Bancorp other than such as arises by virtue of such individual's or
entity's position with and/or ownership interest in the Bank or the Bancorp.
PENSION PLAN
The Employee Stock Ownership Plan ( the "ESOP") and the 401(k) plans cover
full-time employees who have attained the age of 21 years and who have completed
1,000 hours of employment during the year.
<PAGE> 63
Benefits under the ESOP are based solely on the amount contributed to the ESOP
which is used to purchase Common Shares. A participant's allocation is the total
employer contribution multiplied by the ratio of that participant's applicable
compensation over the amount of such compensation for all participants for that
year. Benefits are not subject to deduction of social security or other offset
amounts.
SHAREHOLDER PROPOSALS
Shareholder proposals to be presented at the 2001 Annual Meeting must be
received by the Secretary of the Board of Directors by November 2, 2000, to be
included in the proxy statement.
OTHER BUSINESS
So far as the Board of Directors of the Bancorp now knows, no business
other than that referred to above will be transacted at the Annual Meeting. The
persons named in the Board of Directors' Proxies may, in the absence of
instructions to the contrary, vote upon all matters presented for action at the
Meeting according to their best judgment.
Dated: March 1, 2000
SMITHTOWN BANCORP
Bradley E. Rock
Chairman of the Board, President
& Chief Executive Officer
<PAGE> 64
Additional Information Set Forth in Response to Item 10:
The bank has agreements with Bradley Rock and Anita Florek and Thomas Stevens
(the Executives) which would become effective in the event of a change in
control of the Bank's stock. The agreement provides, in essence, that the
Executive would continue to be employed for a period of five years from the date
of the change in control in a position with duties and authority commensurate
with the duties being performed and the authority being exercised by the
executives immediately prior to the change in control. It provides that their
compensation and benefits would be commensurate with those of other executives
in similar positions at the Bank or in similar positions with the organization
which has acquired control of the bank. In any event, the executives
compensation and benefits would not be less than they were immediately prior to
the change in control.
The agreement further provides that if the Executives employment were terminated
by the Bank subsequent to a change in control, for any reason other than cause,
disability or death, the Executives would continue to receive the same
compensation and benefits they would have received had they remained employed
for a period of five years. It also provides that at any time withtin one year
after the change in control, if the executives elect to terminate their
employment with the bank for any reason, they will receive a lump sum sevrance
allowance equivalent to three years compensation and benefits at the rate as
payable to the executives immediately prior to the change in control.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<CASH> 5,701,878
<INT-BEARING-DEPOSITS> 436,698
<FED-FUNDS-SOLD> 10,350,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,690,288
<INVESTMENTS-CARRYING> 7,970,988
<INVESTMENTS-MARKET> 62,660,042
<LOANS> 176,200,017
<ALLOWANCE> 2,251,668
<TOTAL-ASSETS> 266,081,443
<DEPOSITS> 207,806,261
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,407,810
<LONG-TERM> 38,000,000
<COMMON> 2,239,775
0
0
<OTHER-SE> 16,450,240
<TOTAL-LIABILITIES-AND-EQUITY> 266,081,443
<INTEREST-LOAN> 12,673,580
<INTEREST-INVEST> 4,500,876
<INTEREST-OTHER> 45,609
<INTEREST-TOTAL> 17,220,065
<INTEREST-DEPOSIT> 4,112,599
<INTEREST-EXPENSE> 5,257,833
<INTEREST-INCOME-NET> 11,962,232
<LOAN-LOSSES> 450,000
<SECURITIES-GAINS> 17,012
<EXPENSE-OTHER> 7,995,360
<INCOME-PRETAX> 6,698,279
<INCOME-PRE-EXTRAORDINARY> 6,698,279
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,253,653
<EPS-BASIC> 5.25
<EPS-DILUTED> 5.25
<YIELD-ACTUAL> 8.03
<LOANS-NON> 1,387,635
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,120,371
<CHARGE-OFFS> 369,555
<RECOVERIES> 50,852
<ALLOWANCE-CLOSE> 2,251,668
<ALLOWANCE-DOMESTIC> 2,251,668
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 562,969
</TABLE>
