SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 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: 1,529,338 Shares of Common
Stock ($1.25 Par Value) Outstanding as of November 4, 2002.
SMITHTOWN BANCORP
INDEX
Part I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2002 and December 31, 2001 ............... 3
Consolidated Statements of Income
Three months ended September 30, 2002 and 2001 ......... 4
Consolidated Statements of Income
Nine months ended September 30, 2002 and 2001 .......... 5
Consolidated Statements of Comprehensive Income
Three months ended September 30, 2002 and 2001 ......... 6
Consolidated Statements of Comprehensive Income
Nine months ended September 30, 2002 and 2001 .......... 7
Consolidated Statements of Changes in Stockholders' Equity
Three months ended September 30, 2002 and 2001 ......... 8
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended September 30, 2002 and 2001 .......... 9
Consolidated Statements of Cash Flows
Three months ended September 30, 2002 and 2001 ......... 10
Consolidated Statements of Cash Flows
Nine months ended September 30, 2002 and 2001 .......... 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. ...................... 13-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk .. 15-17
Item 4. Controls and Procedures 18
Part II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Change in Securities and Use of Proceeds - Not Applicable
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(1) Exhibits
Exhibit Number Referred to Description of Exhibit
Item 601 of Regulation S-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
Signatures
Certifications
SMITHTOWN BANCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
As of As of
September 30, 2002 December 31, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue
Assets
Cash and Due from Banks .............................................................. $ 10,651,216 $ 10,911,762
Investment Securities:
Investment Securities Held to Maturity
Mortgage - Backed Securities .................................................... 667,529 922,879
Obligations of State and Political Subdivisions ................................. 2,943,294 3,667,584
------------ ------------
Total(Estimated Fair Value $3,792,120 and $4,738,416 .......................... 3,610,823 4,590,463
at 9/30/02 and 12/31/01) ------------ -----------
Investment Securities Available for Sale
Obligations of U.S. Government Agencies ......................................... 13,343,965 12,258,138
Mortgage - Backed Securities .................................................... 18,190,530 26,053,874
Oligations of State and Political Subdivisions .................................. 20,976,125 20,399,573
Other Securities ................................................................ 5,090,300 4,007,500
------------ ------------
Total (At Estimated Fair Value) ............................................... 57,600,920 62,719,085
------------ ------------
Total Investment Securities ..................................................... 61,211,743 67,309,548
------------ ------------
(Estimated Fair Value $61,393,040 and $67,457,501 at 9/30/02 and 12/31/01)
Federal Funds Sold ................................................................... 10,401,243 40,327
Loans ................................................................................ 344,663,805 282,090,123
Less: Unearned Discount ......................................................... 163,339 350,885
Reserve for Possible Loan Losses ....................................... 3,794,160 3,091,585
------------ ------------
Loans, Net ........................................................................... 340,706,306 278,647,653
------------ ------------
Equity Investment in SMTB Financial Group, LLC. ...................................... 44,054 35,207
Bank Premises and Equipment .......................................................... 8,201,231 5,001,407
Other Assets
Other Real Estate Owned ......................................................... 730,353 730,353
Other ........................................................................... 19,762,435 17,544,644
------------ ------------
Total Assets ......................................................................... $451,708,581 $380,220,901
=========== ============
Liabilities
Deposits:
Demand .......................................................................... $ 70,408,865 $ 67,011,152
Money Market .................................................................... 124,172,148 100,499,126
NOW ............................................................................. 23,380,273 23,091,022
Savings ......................................................................... 43,175,598 36,965,936
Time Deposits ................................................................... 106,061,735 84,374,808
------------ ------------
Total ......................................................................... 367,198,619 311,942,044
Dividend Payable ..................................................................... 230,365 200,103
Other Borrowed Funds ................................................................. 50,000,000 39,750,000
Other Liabilities .................................................................... 1,701,283 1,329,971
------------ ------------
Total ........................................................................... 419,130,267 353,222,118
------------ ------------
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 ............................................... 611,774 95,645
Surplus .............................................................................. 1,993,574 1,993,574
Retained Earnings .................................................................... 33,976,056 28,765,704
------------ ------------
Total ........................................................................... 38,821,179 33,094,698
Less: Treasury Stock (256,053 and 252,563 shares at cost) ....................... 6,242,865 6,095,915
------------ ------------
Total ........................................................................... 32,578,314 26,998,783
------------ ------------
Total Liabilities and Capital ........................................................ $451,708,581 $380,220,901
============ ============
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For Three Months Ended
September 30, 2002 September 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income
Interest on Loans .................................................................... $6,183,040 $5,427,974
Interest and Dividends on:
Obligations of U.S. Government Agencies ......................................... 154,006 153,922
Mortgage - Backed Securities .................................................... 277,031 462,820
Obligations of State & Political Subdivisions ................................... 264,313 239,285
Other Debt Securities ........................................................... 98,211 40,150
Interest on Federal Funds Sold ....................................................... 22,073 58,656
Interest on Balances Due From Depository Institutions ................................ 481 579
Other Interest Income ................................................................ 17,675 59,838
---------- ----------
Total Interest Income ........................................................... 7,016,830 6,443,224
---------- ----------
Interest Expense
Money Market Accounts ................................................................ 455,843 636,726
Savings .............................................................................. 78,713 111,297
Time Deposits $100,000 and Over ..................................................... 344,798 536,944
Other Time Deposits .................................................................. 594,574 634,731
Interest on Other Borrowed Money ..................................................... 440,951 422,091
---------- ----------
Total Interest Expense .......................................................... 1,914,879 2,341,789
---------- ----------
Net Interest Income .................................................................. 5,101,951 4,101,435
Provision for Possible Loan Losses ................................................... 330,000 210,000
---------- ----------
Net Interest Income After Provision for Possible Loan Losses ......................... 4,771,951 3,891,435
---------- ----------
Other Non - Interest Income
Trust Department Income .............................................................. 98,354 122,604
Service Charges on Deposit Accounts .................................................. 499,935 399,466
Other Income ......................................................................... 676,020 532,404
Net Securities Transactions .......................................................... 76,865 0
---------- ----------
Total Other Non - Interest Income ............................................... 1,351,174 1,054,474
---------- ----------
Other Operating Expenses
Salaries ............................................................................. 1,342,280 1,161,760
Pension and Other Employee Benefits .................................................. 283,441 206,366
Net Occupancy Expense of Bank Premises ............................................... 310,942 250,985
Furniture and Equipment Expense ...................................................... 271,795 208,969
Miscellaneous Operating Expense ...................................................... 986,068 623,435
---------- ----------
Total Other Operating Expense ................................................... 3,194,526 2,451,515
---------- ----------
Income Before Income Taxes ........................................................... 2,928,599 2,494,394
Provision for Income Taxes ........................................................... 1,005,550 884,237
---------- ----------
Income Before Net Income from Equity Investment ...................................... 1,923,049 1,610,157
Net Income from Equity Investment .................................................... 16,632 0
---------- ----------
Net Income ........................................................................... $1,939,681 $1,610,157
========== ==========
Earnings Per Share
Net Income ........................................................................... $ 1.26 $ 1.04
Cash Dividends Declared .............................................................. $ 0.15 $ 0.13
Weighted Average Shares Outstanding .................................................. 1,535,767 1,547,798
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For Nine Months Ended
September 30, 2002 September 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income
Interest on Loans .................................................................... $17,484,584 $15,793,881
Interest and Dividends on:
Obligations of U.S. Government Agencies ......................................... 405,648 462,314
Mortgage - Backed Securities .................................................... 973,777 1,336,809
Obligations of State & Political Subdivisions ................................... 805,469 615,267
Other Debt Securities ........................................................... 253,511 83,951
Interest on Federal Funds Sold ....................................................... 79,638 269,353
Interest on Balances Due From Depository Institutions ................................ 993 2,717
Other Interest Income ................................................................ 76,127 208,560
----------- -----------
Total Interest Income ........................................................... 20,079,747 18,772,852
----------- -----------
Interest Expense
Money Market Accounts ................................................................ 1,368,614 2,206,506
Savings .............................................................................. 230,647 338,117
Time Deposits $100,000 and Over ..................................................... 956,985 1,325,008
Other Time Deposits .................................................................. 1,561,414 2,139,412
Interest on Other Borrowed Money ..................................................... 1,328,322 1,362,376
----------- -----------
Total Interest Expense .......................................................... 5,445,982 7,371,419
----------- -----------
Net Interest Income .................................................................. 14,633,765 11,401,433
Provision for Possible Loan Losses ................................................... 690,000 630,000
----------- -----------
Net Interest Income After Provision for Possible Loan Losses ......................... 13,943,765 10,771,433
----------- -----------
Other Non - Interest Income
Trust Department Income .............................................................. 300,645 349,658
Service Charges on Deposit Accounts .................................................. 1,412,864 1,252,085
Other Income ......................................................................... 2,311,533 1,561,612
Net Securities Transactions .......................................................... 76,865 14,037
----------- -----------
Total Other Non - Interest Income ............................................... 4,101,907 3,177,392
----------- -----------
Other Operating Expenses
Salaries ............................................................................. 4,071,098 3,379,355
Pension and Other Employee Benefits .................................................. 808,826 647,935
Net Occupancy Expense of Bank Premises ............................................... 827,568 751,504
Furniture and Equipment Expense ...................................................... 749,465 649,026
Miscellaneous Operating Expense ...................................................... 2,551,853 1,820,086
----------- -----------
Total Other Operating Expense ................................................... 9,008,810 7,247,906
----------- -----------
Income Before Income Taxes ........................................................... 9,036,862 6,700,919
Provision for Income Taxes ........................................................... 3,174,045 2,390,417
----------- -----------
Income Before Net Income from Equity Investment ...................................... 5,862,817 4,310,502
Net Income from Equity Investment .................................................... 38,847 0
----------- -----------
Net Income ........................................................................... $ 5,901,664 $ 4,310,502
=========== ===========
Earnings Per Share
Net Income ........................................................................... $ 3.84 $ 2.77
Cash Dividends Declared .............................................................. $ 0.45 $ 0.39
Weighted Average Shares Outstanding .................................................. 1,536,559 1,557,702
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For Three Months Ended September 30,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income ......................................................................... $1,939,681 $1,610,157
---------- ----------
Other Comprehensive Income, Before Tax:
Unrealized Holding Gain Arising During the Period ............................. 194,462 632,417
---------- ----------
194,462 632,417
Income Tax Related to Other Comprehensive Income .............................. 81,675 265,616
---------- ----------
Other Comprehensive Income, Net of Tax ........................................ 112,787 366,801
---------- ----------
Total Comprehensive Income ............................................... $2,052,468 $1,976,958
========== ==========
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For Nine Months Ended September 30,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income ......................................................................... $5,901,664 $4,310,502
---------- ----------
Other Comprehensive Income, Before Tax:
Unrealized Holding Gain Arising During the Period ............................. 889,878 1,331,105
---------- ----------
889,878 1,331,105
Income Tax Related to Other Comprehensive Income .............................. 373,749 559,064
---------- ----------
Other Comprehensive Income, Net of Tax ........................................ 516,129 772,041
---------- ----------
Total Comprehensive Income ............................................... $6,417,793 $5,082,543
========== ==========
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 6/30/01 ............ 1,550,620 $ 2,239,775 $ 1,993,574 $25,795,181 $(5,685,342) $ 209,123 $24,552,311
Comprehensive Income:
Net Income ................. 1,610,157 1,610,157
Other Comprehensive Income,
Net of Tax ............... 366,801 366,801
------------
Total Comprehensive Income 1,976,958
Cash Dividends Declared ... (201,291) (201,291)
Treasury Stock Purchases ...... (7,387) (266,080) (266,080)
------------------------------------------------------------------------------------------------
Balance at 9/30/01 ............ 1,543,233 $ 2,239,775 $ 1,993,574 $27,204,047 $(5,951,422) $ 575,924 $26,061,898
================================================================================================
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
Comprehensive Income:
Net Income ................. 1,939,681 1,939,681
Other Comprehensive Income,
Net of Tax ............... 112,787 112,787
-------------
Total Comprehensive Income 2,052,468
Cash Dividends Declared ... (230,365) (230,365)
-----------------------------------------------------------------------------------------------
Balance at 9/30/02 ............ 1,535,767 $ 2,239,775 $ 1,993,574 $33,976,056 $(6,242,865) $ 611,774 $32,578,314
================================================================================================
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 .................. 4,310,502 4,310,502
Other Comprehensive Income,
Net of Tax ................ 772,041 772,041
------------
Total Comprehensive Income 5,082,543
Cash Dividends Declared .... (605,376) (605,376)
Treasury Stock Purchases ....... (16,594) (806,549) (806,549)
-------------------------------------------------------------------------------------------------
Balance at 9/30/01 ............. 1,550,620 $ 2,239,775 $ 1,993,574 $27,204,047 $(5,951,422) $ 575,924 $26,061,898
=================================================================================================
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 .................. 5,901,664 5,901,664
Other Comprehensive Income,
Net of Tax ................ 516,129 516,129
------------
Total Comprehensive Income 6,417,793
Cash Dividends Declared .... (691,312) (691,312)
Treasury Stock Purchases ....... (3,490) (146,950) (146,950)
------------------------------------------------------------------------------------------------
Balance at 9/30/02 ............. 1,535,767 $ 2,239,775 $ 1,993,574 $33,976,056 $(6,242,865) $ 611,774 $32,578,314
================================================================================================
Smithtown Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For Three Months Ended September 30 ,
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net Income ................................................................................. $ 1,939,681 $ 1,610,157
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation on Premises and Equipment ............................................... 172,257 132,741
Provision for Possible Loan Losses ................................................... 330,000 210,000
Net Gain on Sale of Investment Securities ............................................ (76,865) 0
Amortization of Transition Obligation ................................................ (597) 0
Increase in Interest Payable ......................................................... 75,084 83,741
Increase in Miscellaneous Payables and Accrued Expenses .............................. 56,739 80,118
Increase in Fees and Commissions Receivable .......................................... (13,290) (32,112)
Increase in Interest Receivable ...................................................... (464,069) (546,597)
Decrease in Prepaid Expenses ......................................................... 237,076 505,923
Decrease in Miscellaneous Receivable ................................................. 266,357 5,354,562
Increase in Income Taxes Receivable .................................................. 189,459 149,797
Increase in Deferred Taxes ........................................................... (213,659) (115,560)
Increase in Accumulated Post Retirement Benefit Obligation ........................... 5,109 6,195
Amortization of Investment Security Premiums and Accretion of Discounts .............. (50,240) (84,044)
Net Gain on Investment in SMTB Financial Group, LLC .................................. (16,632) (7,653)
Increase in Cash Surrender Value of Officer's Life Insurance Policies ................ (474,222) (125,259)
---------- -------------
Cash Provided by Operating Activities ................................................ 1,962,188 7,222,009
---------- -------------
Cash Flows from Investing Activities
Proceeds from Disposition of Mortgage-Backed Securities:
Held to Maturity ................................................................... 67,431 97,571
Available for Sale ................................................................. 2,478,488 2,802,701
Proceeds from Disposition of Other Investment Securities:
Held to Maturity ................................................................... 384,045 85,000
Available for Sale ................................................................. 7,021,406 4,082,210
Purchase of Mortgage-Backed Securities
Available for Sale ................................................................. 0 (3,999,604)
Purchase of Other Investment Securities:
Held to Maturity ................................................................... 0 (44,000)
Available for Sale ................................................................. (8,921,811) (10,216,946)
Federal Funds Sold, Net .............................................................. 584,874 12,386,727
Loans Made to Customers, Net ......................................................... (16,648,129) (15,839,816)
Purchase of Premises and Equipment ................................................... (998,883) (280,224)
------------ -------------
Cash Used by Investing Activities .................................................... (16,032,579) (10,926,381)
------------ -------------
Cash Flows from Financing Activities
Net Increase in Demand Deposits, NOW and Savings Accounts ............................ 5,458,520 2,447,342
Net Increase (Decrease) in Time Accounts ............................................. 13,143,981 (3,760,613)
Cash Dividends Paid .................................................................. (230,365) (201,581)
Securities Sold Under Agreements to Repurchase and Other Borrowings, Net ............. (3,000,000) 6,800,000
Purchase of Treasury Stock ........................................................... 0 (266,080)
----------- -------------
Cash Provided by Financing Activities ................................................ 15,372,136 5,019,068
----------- -------------
Net Increase in Cash and Due from Banks .............................................. 1,301,745 1,314,696
Cash and Due from Banks, Beginning of Period ......................................... 9,349,471 7,293,919
------------ -------------
Cash and Due from Banks, End of Period ............................................... $ 10,651,216 $ 8,608,615
============ =============
Supplemental Disclosures of Cash Flow Information
Cash Paid During Period for:
Interest ............................................................................. $ 431,015 $ 379,607
Income Taxes ......................................................................... 1,029,750 850,000
Schedule of Noncash Investing Activities
Unrealized Gain on Securities Available for Sale ....................................... 194,462 632,417
SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For Nine Months Ended September 30
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net Income ..................................................................................... $ 5,901,664 $ 4,310,502
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation on Premises and Equipment .................................................... 451,785 402,599
Provision for Possible Loan Losses ........................................................ 690,000 630,000
Net Gain on Sale of Investment Securities ................................................. (76,865) (14,037)
Amortization of Transition Obligation ..................................................... 66,825 22,146
Increase in Interest Payable .............................................................. 209,897 13,122
Increase in Miscellaneous Payables and Accrued Expenses ................................... 108,608 79,431
Increase in Fees and Commissions Receivable ............................................... (39,870) (68,504)
Increase in Interest Receivable ........................................................... (712,544) (200,781)
Increase in Prepaid Expenses .............................................................. (290,243) (330,581)
(Increase) Decrease in Miscellaneous Receivable ........................................... (288,299) 1,176,413
Decrease in Income Taxes Receivable ....................................................... 227,286 209,276
Increase in Deferred Taxes ................................................................ (423,387) (354,231)
Increase in Accumulated Post Retirement Benefit Obligation ................................ (51,529) (39,166)
Amortization of Investment Security Premiums and Accretion of Discounts ................... (157,004) (385,119)
Net Gain on Investment in SMTB Financial Group, LLC ....................................... (38,847) (27,209)
Increase in Cash Surrender Value of Officer's Life Insurance Policies ..................... (996,710) (385,527)
---------- -------------
Cash Provided by Operating Activities ..................................................... 4,580,767 5,038,334
---------- -------------
Cash Flows from Investing Activities
Proceeds from Disposition of Mortgage-Backed Securities:
Held to Maturity ........................................................................ 255,350 258,645
Available for Sale ...................................................................... 7,873,219 7,736,487
Proceeds from Disposition of Other Investment Securities:
Held to Maturity ........................................................................ 870,850 294,002
Available for Sale ...................................................................... 10,673,592 22,408,500
Purchase of Mortgage-Backed Securities
Available for Sale ...................................................................... 0 (14,212,104)
Purchase of Other Investment Securities:
Held to Maturity ........................................................................ (140,000) (44,000)
Available for Sale ...................................................................... (12,311,458) (20,300,896)
Federal Funds Sold, Net ................................................................... (10,360,915) (217,117)
Loans Made to Customers, Net .............................................................. (62,748,654) (43,261,756)
Distribution from SMTB Financial Group, LLC ............................................... 30,000 0
Purchase of Premises and Equipment ........................................................ (3,651,609) (1,030,276)
------------ -------------
Cash Used by Investing Activities ......................................................... (69,509,625) (48,368,515)
------------ -------------
Cash Flows from Financing Activities
Net Increase in Demand Deposits, NOW and Savings Accounts ................................. 33,569,648 30,920,685
Net Increase in Time Accounts ............................................................. 21,686,927 10,163,505
Cash Dividends Paid ....................................................................... (691,313) (592,607)
Securities Sold Under Agreements to Repurchase and Other Borrowings, Net................... 10,250,000 3,300,000
Purchase of Treasury Stock ................................................................ (146,950) (806,548)
------------ -------------
Cash Provided by Financing Activities ..................................................... 64,668,312 42,985,035
------------ -------------
Net Decrease in Cash and Due from Banks ................................................... (260,546) (345,146)
Cash and Due from Banks, Beginning of Period .............................................. 10,911,762 8,953,761
------------ -------------
Cash and Due from Banks, End of Period .................................................... $ 10,651,216 $ 8,608,615
============ =============
Supplemental Disclosures of Cash Flow Information
Cash Paid During Period for:
Interest .................................................................................. $ 1,243,340 $ 1,343,159
Income Taxes .............................................................................. 3,369,875 2,535,372
Schedule of Noncash Investing Activities
Unrealized Gain on Securities Available for Sale ............................................ 889,879 1,037,657
Notes to Consolidated Financial Statements
Financial Statement Presentation
In the opinion of management, the accompanying unaudited interim consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly its financial position as of September 30,
2002, and its results of operations for the three and nine months ended
September 30, 2002 and 2001 and its cash flows for the three and nine months
ended September 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.
Earnings Per Common Shares
Earnings per share are calculated by dividing Net Income by the weighted average
number of common shares outstanding.
Investment Securities
Fair Value:
September 30, 2002 $61,393,040
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 strong during the first three quarters of
2002. Total assets grew by 18.80% from $380,220,901 to $451,708,581 during the
period from January 1, 2002 to September 30, 2002. The majority of this growth
was in the loan portfolio, which increased in size during this period by
$62,058,653 or 22.27%. Loans now represent 75.43% of total assets, with
investments comprising 13.55%. Real estate loans continue to be the largest
component of the loan portfolio, representing 91.50% of total loans. Yields on
interest earning assets through September 30, 2002 remained stable despite the
continued pressure of low market rates. Loans, investment securities and federal
funds sold yielded 7.95%, 6.07%, and 1.69% through September 30, 2002,
respectively. The bank's net interest margin of 5.65% remains high compared to
peers, and is higher than the margin through the third quarter of 2001 of 5.29%.
The overall yield on interest earning assets was 7.53% through the third quarter
of 2002, as compared to 8.40% for the same period in 2001. During the first nine
months of 2002, premises and equipment increased by approximately $3,200,000.
This change is attributable to the opening of two branches. From the period
January 1, 2002 to September 30, 2002, the liability side of the Balance Sheet
increased by $65,908,149. Total deposits increased by $55,256,575 or 17.71% with
the largest increase in Time Deposits. The new branches contributed
approximately $11,000,000 in new deposits. The remaining deposit growth is
attributable to time deposits promotions and to overall competitive deposit
pricing. 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
nine months ended September 30, 2002 was 2.31%. The 20.67% growth in
stockholders' equity was the result of net income of $5,901,664, dividends
declared of $691,312, treasury stock purchases of $146,950 and other
comprehensive income of $516,129. All ratios remain very strong. At the end of
the third quarter the Return on Average Assets was 1.88% compared to 1.68%
during the same period in 2001. Also, the Return on Average Equity was 26.48%
compared to 23.83% for the same period in 2001. Leverage capital at September
30, 2002 and 2001 was 7.79% and 7.64%, respectively. Total Risk Based Capital
was 10.51% and 10.60% at the end of the third quarter of 2002 and 2001,
respectively.
The Bank's Balance Sheet remained very strong during the third quarter of 2002.
Total assets grew by 4.08% from $434,015,170 to $451,708,581 during the period
from July 1, 2002 to September 30, 2002. The majority of this growth was in the
loan portfolio, which increased in size during this period by $16,418,129 or
5.06%. During the third quarter of 2002, premises and equipment increased by
approximately $830,000. This change is attributable to the opening of a new
branch. The liability side of the Balance Sheet also saw changes during the
second quarter of 2002. Total deposits increased by $18,602,502 or 5.34% with
the largest increase in Time Deposits. This increase is directly attributable
the opening of a new branch during the third quarter, the second branch opened
during 2002, and to a very successful promotion to acquire time deposits at
market rates. The 5.92% growth in stockholders' equity was the result of net
income of $1,939,681, dividends declared of $230,365, and other comprehensive
income increased by $112,787.
Net income for the first three quarters of 2002 was $5,901,664 compared to
$4,310,502, for the same period ended September 30, 2001, an increase of 36.91%.
Earnings per share for the period was $3.84 compared to $2.77 for the same
period last year. In line with the increase in loan volume and lower interest
rates, interest income on loans increased by 10.70%. Interest expense decreased
from $7,371,419 to $5,445,982, or 26.12%. Non-interest income increased by
$924,515 or 29.10% for the nine months ended September 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 $690,000 for the nine-month period ending September 30, 2002, as compared to
$630,000 for the same nine-month period in 2001. 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 24.30% due to increased salary and benefit expenses as
well as increased equipment, advertising, and business development expenses
related to the opening of the new branches.
Net income for the third quarter 2002 was $1,939,681 compared to $1,610,157, for
the three months ended September 30, 2002, an increase of 20.47%. Earnings per
share for the quarter were $1.26 compared to $1.04 for the same period last
year. In line with the increase in loan volume, interest income on loans
increased by 13.91%. Interest expense decreased from $2,341,789 to $1,914,879,
or 18.23%. Non-interest income increased by $296,700 or 28.14% for the three
months ended September 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 $330,000 for the three-month
period ending September 30, 2002, as compared to $210,000 for the same
three-month period in 2001. Other operating expenses increased by 30.30% due to
increased salary and benefit expenses as well as increased equipment,
advertising, and business development expenses related to the opening of the new
branch.
As we enter the forth 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
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 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 Bank'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 September 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.
Expected Maturity Between
10/1/02 - 12/31/02 1/1/03 - 12/31/03 1/1/04 - 12/31/04 1/1/05 - 12/31/05
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Balance Rate (%) Balance Rate (%) Balance Rate (%) Balance Rate (%)
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Other Financial Instruments
Interest Earning Assets
Investments
Available for Sale (Fair Value) $ 5,537 5.03 $3,392 4.93 $ 1,851 4.50 $ 3,367 5.01
Held to Maturity (Book Value) 560 6.14 873 4.90 252 5.10 427 5.09
Federal Funds Sold 10,401 1.75 0 0.00 0 0.00 0 0.00
Loans:
Fixed Rate
Real Estate Loans, Construction 0 0.00 0 0.00 175 9.50 0 0.00
Real Estate Loans, Other
Commercial 0 0.00 48 11.03 138 8.73 2,760 7.99
Residential 5 10.75 23 11.54 269 8.50 290 8.73
Commercial and Industrial Loans 2,906 7.23 493 8.36 680 9.05 1,220 9.63
Loans to Individuals for
Household, Family and
Other Personal Expenditures 952 6.24 1,937 6.57 416 11.03 341 11.76
Variable Rate
Real Estate Loans, Construction 58,072 6.26 0 0.00 0 0.00 0 0.00
Real Estate Loans, Other
Commercial 1,750 8.28 15,261 7.28 20,756 7.95 19,460 8.40
Residential 17,866 4.83 1,261 7.22 2,309 7.76 1,659 8.21
Commercial and Industrial Loans 4,151 5.95 9,018 6.09 1,753 5.96 1,159 5.95
Loans to Individuals for
Household, Family and
Other Personal Expenditures 0 0.00 0 0.00 0 0.00 0 0.00
---------- -------- ------- --------
Total Interest Earning Assets $102,200 $32,306 $28,599 $ 30,683
========== ======== ======= =========
SMITHTOWN BANCORP
INTEREST RATE SENSITIVITY GAP REPORT (continue)
Expected Maturity Between
1/1/06 - 12/31/06 Thereafter
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average Fair
Balance Rate (%) Balance Rate (%) Value
- -----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Other Financial Instruments
Interest Earning Assets
Investments
Available for Sale (Fair Value) $ 577 4.33 $ 42,877 5.95 $57,601
Held to Maturity (Book Value) 661 5.19 838 6.32 3,792
Federal Funds Sold 0 0.00 0 0.00 10,401
Loans:
Fixed Rate
Real Estate Loans, Construction 0 0.00 18 8.75 193
Real Estate Loans, Other
Commercial 58 9.50 17,854 7.79 21,110
Residential 259 7.74 38,208 7.29 39,818
Commercial and Industrial Loans 1,156 9.26 1,918 7.58 8,427
Loans to Individuals for
Household, Family and
Other Personal Expenditures 228 11.27 420 14.62 4,305
Variable Rate
Real Estate Loans, Construction 0 0.00 0 0.00 58,128
Real Estate Loans, Other
Commercial 38,647 8.10 56,142 7.83 153,587
Residential 3,742 7.79 14,736 7.36 41,865
Commercial and Industrial Loans 649 6.80 3,082 6.56 19,752
Loans to Individuals for
Household, Family and
Other Personal Expenditures 0 0.00 40 8.75 40
---------- ---------
Total Interest Earning Assets $ 45,977 $176,133
========== =========
SMITHTOWN BANCORP
INTEREST RATE SENSITIVITY GAP REPORT
Expected Maturity Between
10/1/02 - 12/31/02 1/1/03 - 12/31/03 1/1/04 - 12/31/04 1/1/05 - 12/31/05
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Balance Rate (%) Balance Rate (%) Balance Rate (%) Balance Rate (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Bearing Liabilities
Deposits
Savings $ 2,158 0.63 $ 8,635 0.63 $ 8,635 0.63 $ 8,635 0.63
Money Market 15,522 1.39 62,086 1.39 46,564 1.39 0 0.00
NOW 1,169 0.20 4,676 0.20 4,676 0.20 4,676 0.20
Time Deposits of 100,000 or more 8,718 1.88 5,592 2.35 6,592 4.41 5,829 6.59
Other Time Deposits 6,724 2.40 17,867 2.54 25,323 3.74 10,846 6.37
Other Borrowings 21,000 2.79 7,000 6.40 12,000 4.42 5,000 2.89
-------- -------- ---------- ---------
Total Interest Bearing Liabilities $ 55,291 $105,856 $103,790 $ 34,986
========= ======== ========== =========
SMITHTOWN BANCORP
INTEREST RATE SENSITIVITY GAP REPORT (continue)
Expected Maturity Between
1/1/06 - 12/31/06 Thereafter
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average Fair
Balance Rate (%) Balance Rate (%) Value
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Bearing Liabilities
Deposits
Savings $ 8,635 0.63 $ 6,478 0.63 $ 40,102
Money Market 0 0.00 0 0.00 124,172
NOW 4,676 0.20 3,507 0.20 23,380
Time Deposits of 100,000 or more 998 4.96 5,947 4.74 33,676
Other Time Deposits 2,338 4.94 9,322 4.56 72,420
Other Borrowings 0 0.00 5,000 3.67 50,000
-------- --------
Total Interest Bearing Liabilities $ 16,647 $ 30,254
========= ========
CONTROLS AND PROCEDURES
Under the supervision of and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer, the Company
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-14(c) under the Exchange Act) as
of a date (the "Evaluation Date") within 90 days prior to the filing date of
this report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the Evaluation Date, these disclosure
controls and procedures are effective in timely alerting them to the material
information relating to the Company (or the consolidated subsidiaries) required
to be included in the Company's periodic SEC filings.
There were no significant changes in the Company's internal controls during the
period covered by this report or in other factors that could significantly
affect these controls subsequent to the date of the most recent evaluation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMITHTOWN BANCORP
November 14, 2002 /s/ Bradley E. Rock
________________________________________
Bradley E.Rock, Chairman, President
and Chief Executive Officer
November 14, 2002 /s/ Anita Florek
________________________________________
Anita Florek, Executive Vice President,
Treasurer and Chief Financial Officer
CERTIFICATION PURSUANT TO RULE 13a-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bradley E. Rock, Chairman,President and Chief Executive Officer,certify that:
1. I have reviewed this quarterly report on Form 10-Q of Smithtown Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date") ; and
c. presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 14, 2002 /s/ Bradley E. Rock
_________________________________
Bradley E. Rock
Chairman, President and Chief
Executive Officer
CERTIFICATION PURSUANT TO RULE 13a-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Anita M. Florek, Executive Vice President, and Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Smithtown Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date") ; and
c. presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 14, 2002 /s/ Anita M. Florek
___________________________
Anita M. Florek,
Executive Vice President, and
Treasurer
Exhibit 99.1
SMITHTOWN BANCORP
Certification of Periodic Report
I, Bradley E. Rock, Chairman, President and Chief Executive Officer of Smithtown
Bancorp (the 'Company'), certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. Section 1350, that:
(1) the Quarterly Report on Form 10-Q of the Company for the quarterly period
ended September 30, 2002 (the 'report') fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
78o(d); and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Dated: November 14, 2002
/s/ Bradley E. Rock
_______________________________________
Chairman, President and Chief Executive
Officer of Smithtown Bancorp
Exhibit 99.2
SMITHTOWN BANCORP
Certification of Periodic Report
I, Anita M. Florek, Executive Vice President and Treasurer of Smithtown Bancorp
(the 'Company'), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350, that:
(1) the Quarterly Report on Form 10-Q of the Company for the quarterly period
ended September 30, 2002 (the 'Report') fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
78o(d); and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Dated: November 14, 2002
/s/ Anita M. Florek
_________________________________________
Executive Vice President
and Treasurer of Smithtown Bancorp