Washington, D.C. 20549
------------------------
FORM 10-Q
------------------
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2002
------------------
Commission file number 2-91511
SMITHTOWN BANCORP
Incorporated pursuant to the Laws of New York State
Internal Revenue Service - Employer Identification No. 11-2695037
One East Main Street, Smithtown, New York 11787-2801
631-360-9300
------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:1,535,767 Shares of Common stock
($1.25 Par Value) Outstanding as of August 6, 2002.
SMITHTOWN BANCORP
INDEX
Part I - FINANCIAL INFORMATION PAGES
------
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001 3
Consolidated Statements of Income
Three months ended June 30, 2002 and 2001 4
Consolidated Statements of Income
Six months ended June 30, 2002 and 2001 5
Consolidated Statements of Comprehensive Income
Three months ended June 30, 2002 and 2001 6
Consolidated Statements of Comprehensive Income
Six months ended June 30, 2002 and 2001 7
Consolidated Statements of Changes in Stockholders' Equity
Three months ended June 30, 2002 and 2001 8
Consolidated Statements of Changes in Stockholders' Equity
Six months ended June 30, 2002 and 2001 9
Consolidated Statements of Cash Flows
Three months ended June 30, 2002 and 2001 10
Consolidated Statements of Cash Flows
Six months ended June 30, 2002 and 2001 11
Item 2. Notes to Consolidated Financial Statements 12
Item 3. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13 - 14
Item 4. Quantitative and Qualitative Disclosures About Market Risk 15 - 17
Item 5. Signatures 18
Part II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Change in Securities and Use of Proceeds - Not Applicable
Item 3. Defaults under Senior Securities - None
Item 4. Submission of Matters to Vote of Security Holders
At the April 16, 2002 Annual Meeting of Shareholders the following matters
were voted upon in addition to the election of three (3) directors.
1. A proposal to ratify the appointment of Albrecht, Viggiano, Zureck &
Company, P.C. as independent auditors for the year ending December 31, 2002.
Voting results; Votes cast for 1,175,038, against or withheld 29,148,
Abstentions and broker non-votes 2,264
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K 19
(a) Exhibits
Exhibit Number Referred to Description of Exhibit
Item 601 of Regulation 5-K
99.1 Certification of Chief Executive
Officer pursuant to 18 U.S.C
Section 1350
99.2 Certification of Chief Financial
Officer pursuant to 18 U.S.C
Section 1350
SMITHTOWN BANCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
As of
June 30, 2002 December 31, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Cash and Due from Banks .............................................................. $ 9,349,471 $ 10,911,762
Investment Securities:
Investment Securities Held to Maturity
Mortgage - Backed Securities .................................................... 734,960 922,879
Obligations of State and Political Subdivisions ................................. 3,325,264 3,667,584
----------- ------------
Total (Estimated Fair Value $4,227,944 and $4,738,416
at 6/30/02 and 12/31/01, respectively) .................................... 4,060,224 4,590,463
----------- ------------
Investment Securities Available for Sale
Obligations of U.S. Government Agencies ......................................... 12,993,353 12,258,138
Mortgage - Backed Securities .................................................... 20,790,054 26,053,874
Oligations of State and Political Subdivisions .................................. 20,003,604 20,399,573
Other Securities ................................................................ 4,072,500 4,007,500
----------- ------------
Total (At Estimated Fair Value) ............................................... 57,859,511 62,719,085
----------- ------------
Total Investment Securities (Estimated Fair Value $62,087,455
and $67,457,501 at 6/30/02 and 12/31/01, respectively) ..................... 61,919,735 67,309,548
----------- ------------
Federal Funds Sold ................................................................... 10,986,116 40,327
Loans ................................................................................ 328,054,836 282,090,123
Less: Unearned Discount ......................................................... 207,061 350,885
Reserve for Possible Loan Losses ....................................... 3,559,598 3,091,585
----------- ------------
Loans, Net ........................................................................... 324,288,177 278,647,653
----------- ------------
Equity Investment in SMTB Financial Group, LLC ....................................... 27,423 35,207
Bank Premises and Equipment .......................................................... 7,374,605 5,001,407
Other Assets
Other Real Estate Owned ......................................................... 730,353 730,353
Other ........................................................................... 19,339,290 17,544,644
----------- ------------
Total Assets .................................................................... $434,015,170 $380,220,901
============ ============
Liabilities
Deposits:
Demand .......................................................................... $ 70,382,698 $ 67,011,152
Money Market .................................................................... 118,067,940 100,499,126
NOW ............................................................................. 27,126,045 23,091,022
Savings ......................................................................... 40,101,680 36,965,936
Time Deposits ................................................................... 92,917,754 84,374,808
----------- ------------
Total ......................................................................... 348,596,117 311,942,044
Dividend Payable ..................................................................... 230,365 200,103
Other Borrowed Funds ................................................................. 53,000,000 39,750,000
Other Liabilities .................................................................... 1,432,477 1,329,971
----------- ------------
Total ........................................................................... 403,258,959 353,222,118
----------- ------------
Stockholders' Equity
Common Stock - $1.25 Par Value, 7,000,000 Shares .................................... 2,239,775 2,239,775
Authorized; 1,791,820 Shares Issued
Accumulated Other Comprehensive Income ............................................... 498,987 95,645
Surplus .............................................................................. 1,993,574 1,993,574
Retained Earnings .................................................................... 32,266,740 28,765,704
----------- ------------
Total ........................................................................... 36,999,076 33,094,698
Less: Treasury Stock (256,053 and 252,563 shares at cost) ....................... 6,242,865 6,095,915
----------- ------------
Total ........................................................................... 30,756,211 26,998,783
----------- ------------
Total Liabilities and Capital ................................................... $434,015,170 $380,220,901
============ ============
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Three Months Ended June 30,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income
Interest on Loans ................................................................... $ 5,809,990 $ 5,189,440
Interest and Dividends on:
Obligations of U.S. Government Agencies ........................................ 135,704 128,472
Mortgage - Backed Securities ................................................... 321,722 501,774
Obligations of State & Political Subdivisions .................................. 267,152 190,287
Other Debt Securities .......................................................... 77,650 40,150
Interest on Federal Funds Sold ...................................................... 28,914 129,620
Interest on Balances Due From Depository Institutions ............................... 228 875
Other Interest Income ............................................................... 31,744 69,585
--------- ----------
Total Interest Income .......................................................... 6,673,104 6,250,203
--------- -----------
Interest Expense
Money Market Accounts ............................................................... 467,265 759,186
Savings ............................................................................. 76,935 113,159
Time Deposits $100,000 and Over .................................................... 274,911 487,060
Other Time Deposits ................................................................. 515,421 668,640
Interest on Other Borrowed Money .................................................... 445,550 467,883
--------- -----------
Total Interest Expense ......................................................... 1,780,082 2,495,928
--------- -----------
Net Interest Income ................................................................. 4,893,022 3,754,275
Provision for Possible Loan Losses .................................................. 250,000 210,000
--------- -----------
Net Interest Income After Provision for Possible Loan Losses ........................ 4,643,022 3,544,275
--------- -----------
Other Non - Interest Income
Trust Department Income ............................................................. 92,228 114,863
Service Charges on Deposit Accounts ................................................. 488,095 398,084
Other Income ........................................................................ 862,696 509,095
Net Securities Transactions ......................................................... 0 (5,234)
--------- -----------
Total Other Non - Interest Income .............................................. 1,443,019 1,016,808
--------- -----------
Other Operating Expenses
Salaries ............................................................................ 1,452,790 1,096,046
Pension and Other Employee Benefits ................................................. 261,448 178,445
Net Occupancy Expense of Bank Premises .............................................. 279,888 239,911
Furniture and Equipment Expense ..................................................... 254,957 217,937
Miscellaneous Operating Expense ..................................................... 676,731 583,538
--------- -----------
Total Other Operating Expense .................................................. 2,925,814 2,315,877
--------- -----------
Income Before Income Taxes .......................................................... 3,160,227 2,245,206
Provision for Income Taxes .......................................................... 1,109,444 812,208
--------- -----------
Income Before Net Income from Equity Investment ..................................... 2,050,783 1,432,998
Net Income from Equity Investment ................................................... 12,950 9,060
----------- -----------
Net Income ..................................................................... $ 2,063,733 $ 1,442,058
=========== ===========
Earnings Per Share
Net Income .......................................................................... $ 1.34 $ 0.93
Cash Dividends Declared ............................................................. $ 0.30 $ 0.26
Weighted Average Shares Outstanding ................................................. 1,536,962 1,557,702
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Six Months Ended June 30,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income
Interest on Loans .................................................................... $11,301,544 $10,365,907
Interest and Dividends on:
Obligations of U.S. Government Agencies ......................................... 251,642 308,392
Mortgage - Backed Securities .................................................... 696,746 873,989
Obligations of State & Political Subdivisions ................................... 541,156 375,982
Other Debt Securities ........................................................... 155,300 43,801
Interest on Federal Funds Sold ....................................................... 57,565 210,697
Interest on Balances Due From Depository Institutions ................................ 512 2,138
Other Interest Income ................................................................ 58,452 148,722
---------- ----------
Total Interest Income ........................................................... 13,062,917 12,329,628
---------- ----------
Interest Expense
Money Market Accounts ................................................................ 912,771 1,569,780
Savings .............................................................................. 151,934 226,820
Time Deposits $100,000 and Over ..................................................... 612,187 788,064
Other Time Deposits .................................................................. 966,840 1,504,681
Interest on Other Borrowed Money ..................................................... 887,371 940,285
--------- ----------
Total Interest Expense .......................................................... 3,531,103 5,029,630
--------- ----------
Net Interest Income .................................................................. 9,531,814 7,299,998
Provision for Possible Loan Losses ................................................... 460,000 420,000
--------- ---------
Net Interest Income After Provision for Possible Loan Losses ......................... 9,071,814 6,879,998
--------- ----------
Other Non - Interest Income
Trust Department Income .............................................................. 202,291 227,054
Service Charges on Deposit Accounts .................................................. 912,929 852,619
Other Income ......................................................................... 1,635,513 1,009,652
Net Securities Transactions .......................................................... 0 14,037
--------- ---------
Total Other Non - Interest Income ............................................... 2,750,733 2,103,362
--------- ---------
Other Operating Expenses
Salaries ............................................................................. 2,728,818 2,217,595
Pension and Other Employee Benefits .................................................. 525,385 441,569
Net Occupancy Expense of Bank Premises ............................................... 516,626 500,519
Furniture and Equipment Expense ...................................................... 477,670 440,057
Miscellaneous Operating Expense ...................................................... 1,465,785 1,196,651
--------- ---------
Total Other Operating Expense ................................................... 5,714,284 4,796,391
--------- ---------
Income Before Income Taxes ........................................................... 6,108,263 4,186,969
Provision for Income Taxes ........................................................... 2,168,495 1,506,180
--------- ---------
Income Before Net Income from Equity Investment ...................................... 3,939,768 2,680,789
Net Income from Equity Investment .................................................... 22,215 19,556
--------- ---------
Net Income ........................................................................... $ 3,961,983 $ 2,700,345
========= =========
Earnings Per Share
Net Income ........................................................................... $ 2.58 $ 1.73
Cash Dividends Declared .............................................................. $ 0.30 $ 0.26
Weighted Average Shares Outstanding .................................................. 1,536,962 1,557,702
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For Three Months Ended June 30,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income ................................................................................. $2,063,733 $1,442,058
---------- ----------
Other Comprehensive Income, Before Tax:
Unrealized Holding Gain Arising During the Period ..................................... 636,593 125,443
Less: Reclassification Adjustment for Gains Included in Net Income ................... 0 0
---------- ----------
636,593 125,443
Income Tax Related to Other Comprehensive Income ...................................... 267,369 52,686
---------- ----------
Other Comprehensive Income, Net of Tax ................................................ 369,224 72,757
---------- ----------
Total Comprehensive Income ....................................................... $2,432,957 $1,514,815
========== ==========
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For Six Months Ended June 30,
2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income ............................................................................... $ 3,961,983 $ 2,700,345
----------- -----------
Other Comprehensive Income Before Tax:
Unrealized Holding Gain Arising During the Period ................................... 695,417 698,690
Less: Reclassification Adjustment for Gains Included in Net Income ................. 0 0
----------- -----------
695,417 698,690
Income Tax Related to Other Comprehensive Income .................................... 292,075 293,450
----------- -----------
Other Comprehensive Income Net of Tax ............................................... 403,342 405,240
----------- -----------
Total Comprehensive Income ..................................................... $ 4,365,325 $ 3,105,585
=========== ===========
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Cost of Accumulated
Common Stock Common Other Total
Shares Capital Retained Stock in Comprehensive Stockholders'
Outstanding Amount Surplus Earnings Treasury Income Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at 3/31/01 ............ 1,557,728 $ 2,239,775 $ 1,993,574 $24,554,704 $(5,446,288) $ 136,366 $23,478,131
Comprehensive Income:
Net Income ................. 1,442,058 1,442,058
Other Comprehensive Income,
Net of Tax ............... 72,757 72,757
------------
Total Comprehensive Income 1,514,815
Cash Dividends Declared .... (201,581) (201,581)
Treasury Stock Purchases ...... (7,108) (239,054) (239,054)
------------------------------------------------------------------------------------------------
Balance at 6/30/01 ............ 1,550,620 $ 2,239,775 $ 1,993,574 $25,795,181 $(5,685,342) $ 209,123 $24,552,311
================================================================================================
Balance at 3/31/02 ............ 1,535,767 $ 2,239,775 $ 1,993,574 $30,433,373 $(6,242,865) $ 129,763 $28,553,620
Comprehensive Income:
Net Income ................. 2,063,733 2,063,733
Other Comprehensive Income,
Net of Tax ............... 369,224 369,224
------------
Total Comprehensive Income 2,432,957
Cash Dividends Declared .... (230,366) (230,366)
------------------------------------------------------------------------------------------------
Balance at 6/30/02............ 1,535,767 $ 2,239,775 $ 1,993,574 $32,266,740 $(6,242,865) $ 498,987 $30,756,211
================================================================================================
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Cost of Accumulated
Common Stock Common Other Total
Shares Capital Retained Stock in Comprehensive Stockholders'
Outstanding Amount Surplus Earnings Treasury Income (Loss) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at 1/1/01 1,567,214 $ 2,239,775 $ 1,993,574 $ 23,498,921 $(5,144,873) $ (196,117) $ 22,391,280
Comprehensive Income:
Net Income 2,700,345 2,700,345
Other Comprehensive Income,
Net of Tax 405,240 405,240
--------------
Total Comprehensive Income 3,105,585
Cash Dividends Declared (404,085) (404,085)
Treasury Stock Purchases (16,594) (540,469) (540,469)
------------------------------------------------------------------------------------------------
Balance at 6/30/01 1,550,620 $ 2,239,775 $ 1,993,574 $ 25,795,181 $(5,685,342) $ 209,123 $ 24,552,311
================================================================================================
Balance at 1/1/02 1,539,257 $ 2,239,775 $ 1,993,574 $28,765,704 $(6,095,915) $ 95,645 $ 26,998,783
Comprehensive Income:
Net Income 3,961,983 3,961,983
Other Comprehensive Income,
Net of Tax 403,342 403,342
-------------
Total Comprehensive Income 4,365,325
Cash Dividends Declared (460,947) (460,947)
Treasury Stock Purchases (3,490) (146,950) (146,950)
--------------------------------------------------------------------------------------------------
Balance at 6/30/02 1,535,767 $ 2,239,775 $ 1,993,574 $32,266,740 $(6,242,865) $ 498,987 $ 30,756,211
==================================================================================================
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For Three Months Ended June 30,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income ............................................................................... $ 2,063,733 $ 1,442,058
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation on Premises and Equipment ................................................ 162,401 138,292
Provision for Possible Loan Losses .................................................... 250,000 210,000
Net Loss on Sale of Investment Securities ............................................. 0 5,235
Amortization of Transition Obligation ................................................. 67,422 5,358
Increase(Decrease)in Interest Payable ................................................. 21,844 (144,990)
Decrease in Miscellaneous Payables and Accrued Expenses ............................... (75,269) (75,381)
Increase in Fees and Commissions Receivable ........................................... (13,290) (18,850)
(Increase)Decrease in interest Receivable ............................................. 70,494 ( 7,056)
(Increase)Decrease in Prepaid Expenses ................................................ 85,437 (279,778)
Increase in Miscellaneous Receivable .................................................. (322,492) (3,931,678)
Increase in Income Taxes Receivable ................................................... (922,616) (585,894)
Increase in Deferred Taxes ............................................................ (95,540) (99,898)
Decrease in Accumulated Post Retirement Benefit Obligation ............................ (63,166) (35,158)
Amortization of Investment Security Premiums and Accretion of Discounts ............... (44,920) (115,736)
Net Gain on Investment in SMTB Financial Group, LLC ................................... (12,951) (9,059)
Increase in Cash Surrender Value of Officer's Life Insurance Policies ................. (369,222) (132,717)
------------ ------------
Cash Provided(Used) by Operating Activities ........................................... 801,865 (3,635,252)
------------ -------------
Cash Flows from Investing Activities
Proceeds from Disposition of Mortgage-Backed Securities:
Held to Maturity .................................................................... 77,312 89,621
Available for Sale .................................................................. 2,538,847 2,586,483
Proceeds from Disposition of Other Investment Securities:
Held to Maturity .................................................................... 450,894 122,043
Available for Sale .................................................................. 1,070,436 8,145,699
Purchase of Other Investment Securities:
Available for Sale .................................................................. (3,196,551) (8,083,950)
Held to Maturity .................................................................. (140,000) 0
Federal Funds Sold, Net ............................................................... (311,401) (5,103,844)
Loans Made to Customers, Net .......................................................... (27,245,463) (16,696,483)
Purchase of Premises and Equipment .................................................... (737,453) (455,385)
------------ ------------
Cash Used by Investing Activities ..................................................... (27,493,379) (19,395,816)
------------ ------------
Cash Flows from Financing Activities
Net Increase in Demand Deposits, NOW and Savings Accounts ............................. 12,394,010 18,417,392
Net Increase in Time Accounts ......................................................... 12,259,679 9,594,660
Cash Dividends Paid ................................................................... (230,583) (202,504)
Securities Sold Under Agreements to Repurchase and Other Borrowings, Net .............. 0 (5,000,000)
Purchase of Treasury Stock ............................................................ 0 (239,054)
------------ ------------
Cash Provided by Financing Activities ................................................ 24,423,106 22,570,494
------------ ------------
Net Decrease in Cash and Due from Banks ............................................... (2,268,408) (460,574)
Cash and Due from Banks, Beginning of Period .......................................... 11,617,879 7,754,493
------------ ------------
Cash and Due from Banks, End of Period ................................................ $ 9,349,471 $ 7,293,919
============ ============
Supplement Disclosures of Cash Flow Information
Cash Paid During Period for:
Interest .............................................................................. $ 529,853 $ 616,948
Income Taxes .......................................................................... 2,127,600 1,498,000
Schedule of Noncash Investing Activities
Unrealized Gain on Securities Available for Sale ......................................... 636,593 125,443
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For Six Months Ended June 30,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net Income ................................................................................. $ 3,961,983 $ 2,700,345
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation on Premises and Equipment ................................................ 279,528 269,858
Provision for Possible Loan Losses .................................................... 460,000 420,000
Net Gain Loss on Sale of Investment Securities ...................................... 0 (14,037)
Amortization of Transition Obligation ................................................. 67,422 22,146
Increase (Decrease) in Interest Payable ............................................... 134,813 (70,619)
Increase(Decrease)in Miscellaneous Payables and Accrued Expenses ...................... 51,869 (687)
Increase in Fees and Commissions Receivable ........................................... (26,580) (36,392)
(Increase) Decrease in Interest Receivable ............................................ (248,475) 345,816
Increase in Prepaid Expenses .......................................................... (527,319) (836,504)
Increase in Miscellaneous Receivable .................................................. (654,656) (4,178,149)
Decrease in Income Taxes Receivable ................................................... 37,827 59,479
Increase in Deferred Taxes ............................................................ (209,728) (238,671)
Decrease in Accumulated Post Retirement Benefit Obligation ............................ (56,638) (45,361)
Amortization of Investment Security Premiums and Accretion of Discounts ............... (106,764) (301,075)
Net Gain on Investment in SMTB Financial Group, LLC ................................... (22,215) (19,556)
Increase in Cash Surrender Value of Officer's Life Insurance Policies ................. (522,488) (260,268)
------------ ------------
Cash Provided (Used) by Operating Activities .......................................... 2,618,579 (2,183,675)
------------ ------------
Cash Flows from Investing Activities
Proceeds from Disposition of Mortgage-Backed Securities:
Held to Maturity .................................................................... 187,919 161,074
Available for Sale .................................................................. 5,394,731 4,933,786
Proceeds from Disposition of Other Investment Securities:
Held to Maturity .................................................................... 486,805 209,002
Available for Sale .................................................................. 3,652,186 18,326,290
Purchase of Mortgage-Backed Securities
Available for Sale .................................................................. 0 (10,212,500)
Purchase of Other Investment Securities:
Held to Maturity .................................................................. (140,000) 0
Available for Sale .................................................................. (3,389,647) (10,083,950)
Federal Funds Sold, Net ............................................................... (10,945,789) (12,603,844)
Loans Made to Customers, Net .......................................................... (46,100,525) (27,421,940)
Distribution from SMTB Financial Group, LLC ........................................... 30,000 0
Purchase of Premises and Equipment .................................................... (2,652,726) (750,052)
------------ ------------
Cash Used by Investing Activities ..................................................... (53,477,046) (37,442,134)
------------ ------------
Cash Flows from Financing Activities
Net Increase in Demand Deposits, NOW and Savings Accounts ............................. 28,111,128 28,473,343
Net Increase in Time Accounts ......................................................... 8,542,946 13,924,118
Cash Dividends Paid ................................................................... (460,948) (391,026)
Securities Sold Under Agreements to Repurchase and Other Borrowings, Net .............. 13,250,000 (3,500,000)
Purchase of Treasury Stock ............................................................ (146,950) (540,468)
------------ ------------
Cash Provided by Financing Activities ................................................. 49,296,176 37,965,967
------------ ------------
Net Decrease in Cash and Due from Banks ............................................... (1,562,291) (1,659,842)
Cash and Due from Banks, Beginning of Period .......................................... 10,911,762 8,953,761
------------ ------------
Cash and Due from Banks, End of Period ................................................ $ 9,349,471 $ 7,293,919
============ ============
Supplemental Disclosures of Cash Flow Information
Cash Paid During Period for:
Interest .............................................................................. $ 812,325 $ 963,552
Income Taxes .......................................................................... 2,340,125 1,685,372
Schedule of Noncash Investing Activities
Unrealized Gain on Securities Available for Sale ........................................ 695,417 698,690
Notes to Consolidated Financial Statements
Financial Statement Presentation
In the opinion of management, the accompanying unaudited interim consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly its financial position as of June 30,
2002, and its results of operations for the three and six months ended June 30,
2002 and 2001 and its cash flows for the three and six months ended June 30,
2002 and 2001. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 2001.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current period presentation. These
reclassifications had no effect on previously reported results of operations or
retained earnings.
Recent Accounting Pronouncements
Earnings Per Common Shares
Earnings per share are calculated by dividing Net Income by the weighted average
number of common shares outstanding.
Investment Securities
Fair Value:
June 30, 2002 $62,087,455
December 31, 2001 $67,457,501
Management's Discussion and Analysis of Financial Condition and Results of
Operations This report may contain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based on current expectations, but actual results may differ
materially from anticipated future results. Forward-looking statements may be
identified by the use of the words 'believe', 'expect', 'anticipate', 'project',
'estimate', 'will be', 'will continue', 'will likely result', or similar
expressions. The Company's ability to predict results of the actual effect of
future strategic plans is inherently uncertain. Factors that could have a
material adverse effect on the operations of the Company as well as its
subsidiaries include but are not limited to changes in: general economic
conditions, interest rates, deposit flows, loan demand, competition, accounting
principals and guidelines, and governmental, regulatory and technological
factors affecting the Company's operations, pricing, products and services. The
factors included here are not exhaustive. Other sections of this report may
include additional factors that could adversely impact the Company's
performance.
Investors are cautioned not to place undue reliance on forward-looking
statements as a prediction of actual results. Except as required by applicable
law or regulation, the Company undertakes no obligation to republish or revise
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrences of unanticipated results. Investors are
advised, however, to consult any further disclosures the Company makes on
related subjects in our reports to the Securities Exchange Commission.
Bank of Smithtown is a one-bank holding company formed in 1984. Its income is
derived primarily from the operations of its subsidiary, Bank of Smithtown. The
Bank's Balance Sheet remained very strong during the second quarter of 2002.
Total assets grew by 6.34% from $408,156,628 to $434,015,170 during the period
from April 1, 2002 to June 30, 2002. The majority of this growth was in the loan
portfolio, which increased in size during this period by $26,995,463 or 9.08%.
Loans now represent 74.72% of total assets, with investments comprising 14.27%.
Real estate loans continue to be the largest component of the loan portfolio,
representing 90.95% of total loans. Yields on interest earning assets remain
stable despite the continued pressure of low market rates. Loans, investment
securities and federal funds sold yielded 8.13%, 6.12%, and 1.66%, respectively.
The bank's net interest margin of 5.77% remains high compared to peers, and is
higher than the 5.24% margin of second quarter 2001. The overall yield on
interest earning assets was 7.66% for the second quarter of 2002, as compared to
8.53% for the same period in 2001. During the second quarter of 2002, premises
and equipment increased by approximately $575,000, as the Bank purchased new
computers and placed additional ATM's into service. As of June 30, 2002, the
East Setauket branch continues to exceed management's projected deposit growth.
The liability side of the Balance Sheet also saw changes during the second
quarter of 2002. Total deposits increased by $24,653,688 or 7.61% with the
largest increase in Time Deposits, Money Market and Demand accounts. This
increase is directly attributable to very successful promotions to acquire new
deposits at market rates. While promotional rates were higher than other funding
sources, branch personnel were afforded the opportunity to meet with the
customer and discuss the other products offered by the Bank. The Bank's overall
cost of funds for the six months ended June 30, 2002 was 2.31%. The 7.71% growth
in stockholders' equity was the result of net income of $2,063,733, dividends
declared of $230,366. Other comprehensive income also increased by $369,224 due
to the continued low interest rate environment. At the end of the second quarter
all ratios remain very strong. The Return on Average Assets was 1.94% compared
to 1.56% during the same period in 2001. Also, the Return on Average Equity was
27.54% compared to 23.01% for the same period in 2001. Leverage capital at June
30, 2002 and 2001 was 7.55% and 7.35%, respectively. Total Risk Based Capital
was 9.87% and 10.57% at the end of the second quarter of 2002 and 2001,
respectively.
Net income for the second quarter 2002 reached an all time record high of
$2,063,733 compared to $1,442,058, for the three months ended June 30, 2001, an
increase of 43.11%. Earnings per share for the quarter were $1.34 compared to
$0.93 for the same period last year. In line with the increase in loan volume,
interest income on loans increased by 11.96%. Interest expense decreased from
$2,495,928 to $1,780,082, or 28.68%. Non-interest income increased by $426,211
or 41.92% for the period ended June 30, 2002 compared to the same period in
2001. This large increase is primarily the result of increased fee income on
debit cards, ATM transactions, and account level service charges. The Provision
for Possible Loan Losses, a direct charge to earnings, increased to $250,000 for
the three-month period ending June 30, 2002, as compared to $210,000 for the
three-month period ending June 30, 2002. Management is confidant that the
reserve for loan loss account provides adequate coverage for any known losses in
the loan portfolio. Asset quality remains high. Other operating expenses
increased by 26.34% due to increased salary and benefit expenses as well as
increased advertising and business development expenses related to the opening
of the new branch store.
As we enter the third quarter, management remains very optimistic about the
bank's performance during 2002. Plans continue for increased branch presence on
Long Island this year as well as in future years.
Quantitative and Qualitative Disclosures About Market Risk
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 factors affecting these sources of liquidity
are 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 Chief
Retail Officer 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. Semi-annually, 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. The first simulation performed during
2002 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 Company's market risk is primarily its exposure to interest rate risk.
Interest rate risk is the effect that changes in interest rates have in future
earnings. The principal objective in managing interest rate risk is to maximize
net interest income within acceptable levels of risk that have been previously
established by policy.
The following table sets forth the amounts of estimated cash flows for the
various interest earning assets and interest bearing liabilities that are
sensitive to changes in interest rates at June 30, 2002. Adjustable rate assets
are included in the period in which interest rates are next scheduled to adjust
rather than in the period in which they are due. Money Market deposit accounts
are assumed to decline over a two-year period. Savings and NOW deposit accounts
are assumed to decline over a five-year period.