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United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2005

Commission File #0 - 13314

SMITHTOWN BANCORP, INC.

(Exact name of registrant as specified in its charter)

(631) 360-9300

(Registrant’s telephone number, including area code)

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 ¨

Check whether the registrant is an accelerated filer. 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:

Shares of Common Stock ($.01 Par Value) Outstanding as of May 9, 2005.

5,923,726

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SMITHTOWN BANCORP

INDEX

Issuer Purchases of Equity Securities

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SMITHTOWN BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share data)

See notes to consolidated financial statements.

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SMITHTOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(in thousands, except share and per share data)

See notes to consolidated financial statements.

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SMITHTOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands, except share and per share data)

See notes to consolidated financial statements.

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SMITHTOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

See notes to consolidated financial statements.

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Notes to Consolidated Financial Statements – Unaudited

Note 1 – Financial Statement Presentation

(in thousands, except share and per share data)

The consolidated financial statements include the accounts of Smithtown Bancorp (the “Company”) and its wholly-owned subsidiary, Bank of Smithtown (the “Bank”) (collectively referred to as the “Company”). The Company’s financial condition and operating results principally reflect those of the Bank. All intercompany balances and amounts have been eliminated. 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, 2004.

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by U.S. generally accepted accounting principles are not included herein. These interim statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission. The December 31, 2004 consolidated balance sheet was derived from the Company’s December 31, 2004 audited financial statements included in the Annual Report on Form 10-K.

Interim statements are subject to possible adjustments in connection with the annual audit of the Company for the year ending December 31, 2005. 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 and its results of operations for the periods presented.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates.

Note 2 – Subordinated Debt

A trust formed by the Company issued $11,000 of floating rate trust preferred securities in 2003 as part of a pooled offering of such securities due October 8, 2033. The securities bear interest at 3-month LIBOR plus 2.99%. The Bancorp issued subordinated debentures to the trust in exchange for the proceeds of the offering: the debentures and related issuance costs represent the sole assets of the trust. The Bancorp may redeem the subordinated debentures, in whole or part, at a premium declining ratably to par on October 8, 2008.

Note 3 – Earnings Per Common Share

Earnings per common share are calculated by dividing net income by the weighted average number of common shares outstanding for the respective period. The Company has no potentially dilutive securities.

Note 4 – Employee Benefits

During 2005, the Bank continues to fund a 401(K) Defined Contribution Plan and an Employee Stock Ownership Plan for substantially all of its employees. First quarter costs during 2005 and 2004 for these two plans were $36 and $29 and $45 and $45, respectively. It is expected that the Company’s costs for these two plans for the twelve months ending December 31, 2005 will be approximately $145 and $180, respectively. Bank of Smithtown also continues to sponsor post-retirement medical and life insurance plans for a closed group of prior employees. The interest cost, amortization cost of the unrecognized transition obligation, and the amortization of the net gain for the quarters ended March 31, 2005 and 2004 were $5, $8 and $2 and $5, $8 and $1, respectively. Since the plans hold no assets, the Bank did not contribute and does not expect to contribute to the plans during 2004 and 2005, other than to fund the payments for the benefits. The Bank has also adopted a nontax qualified Executive and Director Incentive Retirement Plan. While this plan is to be funded from the general assets of the Bank, life insurance policies were acquired for the purpose of serving as the primary funding source. Benefits under the Incentive Retirement Plan are based solely on the amount contibuted by the Bank. The contributions accrued under this plan for the three months ending March 31, 2005 and 2004 were $50 and $47. The Bank has a similar supplemental life insurance plan for all members of management, funded with similar life insurance policies. The benefit provides post retirement life insurance up to a maximum of two and one half times annual salary. At March 31, 2005 and 2004, the combined value of these insurance policies was $13,429 and $12,936. The Bank has also establised a nontax qualified Deferred Compensation Plan for certain directors and executive officers. This group of employees defers a portion of its compensation. A liability is accrued for the obligation under this plan. During 2004 the Bank adopted a Supplemental Executive Retirement Plan for the Chief Executive Officer. This Plan is partially funded by a life insurance policy with a cash value at March 31, 2005 and 2004 of $3,670 and $3,500. The Bank’s expense for this Plan for the three months ending March 31, 2005 and 2004 was $69 and $0.

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Item 2.- Management’s Discussion and Analysis of Financial Plan and Results of Operations

This report may contain certain 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 or the actual effect of future strategic plans is inherently uncertain. Factors that could have a material adverse effect on the operation of the Company and its subsidiaries include, but are not limited to, changes in: general economic conditions, interest rates, deposit flows, loan demand, competition, accounting principles 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 and Exchange Commission.

Summary

An 11.11% increase in earnings per share and 11.39% growth in assets are the most significant results of first quarter 2005. These results also produced the following statistics:

Asset growth during first quarter 2005 was primarily the result of the 20.94% increase in deposits. This deposit inflow resulted from the opening of the Bank’s twelfth branch office located at corporate headquarters, additional deposit inflow from a new branch office opened during fourth quarter 2004, the introduction of a new Elite Money Market product and various CD campaigns. Total loan growth during the quarter was $6,570 or 1.15%. Actual loan closings during the quarter were over $65,000, but due to an unusually high number of loan payoffs of interim fundings in conjunction with slow draw downs of construction loans, net loan growth was considerably slower than that of prior quarters. Asset quality remained high at first quarter end 2005, with no nonperforming loans. The Bank’s efficiency ratio increased from 48.89% at year end December 2004 to 57.79% at March 31, 2005. This increase was fully expected and is the result of the additional expenses associated with the Bancorp’s growth. The Bank’s eleventh branch office in Miller Place opened during fourth quarter of 2004. The opening of new corporate headquarters also took place during the fourth quarter. The twelfth branch location at corporate headquarters opened on January 3, 2005 and our thirteenth location in Port Washington opened on April 4, 2005. The acquisition of the Seigerman Mulvey insurance agency with its associated expenses has also contributed to the increased efficiency ratio. Efficiencies are expected to continue to develop from both the single location of all support staff at the new headquarters as well as further integration of the insurance agency into the Bank. Capital remains strong at March 31, with regulatory ratios in the well capitalized level.

Comparision of Financial Position at March 31, 2005 and December 31, 2004

Total assets of the Company at March 31, 2005 were $754,132 as compared to $677,003, an increase of 11.39%. The largest areas of growth during the quarter were in federal funds sold, investment securities and deposits. Federal funds sold increased significantly as a result of the large increase in deposits. Year end overnight borrowings from Federal Home Loan Bank and JP Morgan Chase were paid off and the balance was channeled into loans, investment securities and federal funds sold. Investment securities and deposits increased by 71.72% and 20.94%, respectively. Loans increased by 1.15%. The segregation of the loan portfolio at March 31, 2005 and December 31, 2004 remained stable and is as follows:

Non performing loans at March 31, 2005 remain at $0, as they were at December 31, 2004. Loans past due 30-89 days amounted to $14,469 as compared to $61 at year end 2004. This large increase is due to the delinquent status of three loans to one borrower. The first loan is a $7,378 loan, collateral for which consists of a leasehold mortgage on two six story office buildings located on Madison Avenue, New York City which are appraised at $11,800. While this loan is not at a 90 day delinquency status, the borrower remains in technical default under the lease. Substantial progress has been made in satisfying the technical problems, but the problems have not been completely resolved. Prospects for resolution appear to be very good. The same borrower is a principal on a second property located in the Greenwich Village section of New York City on which the bank holds a mortgage of $3,002 that is also in arrears. The Greenwich Village property is under contract of sale and is scheduled to be sold in June 2005. The same borrower was a principal in a third property also in Manhattan on which the bank held a mortgage of approximately $4,000 which was sold and the bank’s mortgage satisfied on April 28, 2005. The allowance for loan loss account at March 31, 2005

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and December 31, 2004 was $5,060 and $4,912. The increase was the result of net recoveries of $8 and a provision for loan losses of $140. Based on specific reserves for internally classified loans and multiple factors including historical loss experience and current economic conditions, management feels the level of the allowance for loan losses provides adequate coverage. At March 31, 2005 and December 31, 2004, the Bank’s coverage ratio (the allowance for loan losses as a percentage of end of period loans) was .88% and .86%, respectively, and remains well within the range of peer group bank ratios. In determining the allowance for loan losses, there is not an exact amount but rather a range for what constitutes an appropriate amount. The determination of this amount as of any balance sheet date is subjective in nature and requires material estimates based on historical experience, the economic environment, trends in the portfolio, concentrations of loan balances and various other factors. The portion of the loan loss allowance allocated to each loan category does not represent the total available for probable incurred losses which may occur within the loan category since the loan loss allowance is a valuation applicable to the entire loan portfolio.

Investment securities increased by 71.72% from December 31, 2004 to March 31, 2005. The composition of the portfolio at these two dates was as follows:

As a result of the large growth in deposits during the first quarter, the Bank channeled a substantial portion of these funds into higher yielding investment securities, rather than maintaining a very high federal funds position awaiting loan closings. A majority of the securities purchased were short term treasury and agency securities with a book value of $49,154 and an average weighted yield of 4.41%. The yield on the total investment portfolio at March 31, 2005 and December 31, 2004 was 4.23% and 4.55%, respectively. Restricted securities decreased from $5,555 to $4,005, a 27.90% reduction, resulting from a lower volume of Federal Home Loan Bank stock, due to the significantly reduced borrowing position of the Bank from December 31, 2004 to March 31, 2005.

Bank premises and equipment increased from December 31, 2004 to March 31, 2005 by 17.56%, a result of the opening of corporate headquarters and corporate headquarters branch office, as well as the construction costs of the Port Washington office. Other assets increased by 1.79%, primarily the result of the increase in cash value of bank owned life insurance.

On the liability side of the balance sheet, total deposits increased by 20.94% from year end 2004 to March 31, 2005. The composition of deposits is as follows:

The large increase in deposits was the result of various factors. The opening of the new corporate headquarters branch office contributed to the growth, as well as the continued growth of deposits at a newly opened branch during fourth quarter of 2004. The Bank also introduced a new Elite money market account which pays a high, competitive interest rate for balances over $50,000. Various CD campaigns were also run during the early part of first quarter in anticipation of future rate increases by the Federal Reserve Bank. These campaigns resulted in approximately $20,000 in each of one, two and five year CD’s. Although these deposits increased the Bank’s cost of funds from 2.08% at December 31, 2004 to 2.38% at March 31, 2005, these funds have been invested in higher yielding investment securities.

Other borrowings decreased from $99,500 at December 31, 2004 to $67,000 at March 31, 2005. As deposits flowed into the Bank during the first weeks of the quarter, all overnight borrowings were paid down. At March 31, 2005, the $67,000 in outstanding borrowings is comprised of thirteen advances from the Federal Home Loan Bank with maturities ranging from September 2005 to March 2011. The weighted average maturity of these borrowings is 2 years 10 months. The weighted average rate of the borrowings is 3.50%. Stockholders’ equity increased

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from $46,943 to $48,513, an increase of 3.34% from year end December 2004 to quarter end March 2005. This growth was the result of dividends declared of $355, net income of $2,349 and the increase of accumulated other comprehensive income of $424. The Company and the Bank are subject to the risk based capital guidelines administered by bank regulatory agencies. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk based capital to total risk weighted assets of 8%, including Tier I capital to total risk weighted assets of 4% and a Tier I capital to average assets ratio of at least 4%. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators, that, if undertaken, could have a material effect on the consolidated financial statements. As of March 31, 2005, the most recent notification from the corresponding regulatory agency, categorized the Company as well capitalized under the regulatory framework for prompt corrective action. Under the capital adequacy guidelines, a well capitalized institution must maintain a total risk adjusted capital ratio of at least 10%, a Tier I capital ratio of at least 6%, a leverage ratio of at least 5%, and not be subject to any written order, agreement or directive. There are no conditions or events since such notifications that management believes have changed this classification. As of March 31, 2005, the Company’s ratios were 11.29%, 10.31% and 8.16%, respectively, well above these minimum guidelines.

Comparision of Operating Results for the Three Months Ended March 31, 2005 and 2004

Net income for the three months ended March 31, 2005 and 2004 was $2,349 and $2,130, an increase of 10.28%. Total interest income increased by $2,219 or 26.63%. The largest growth in interest income over the two periods was in interest on federal funds sold, which increased by 318.37%, due to the significantly higher average balance of funds during 2005. Interest on loans increased by 25.82% during first quarter 2005 also a result of the increased portfolio balance. Interest income on the investment portfolio increased by 14.12% during first quarter 2005 as compared to first quarter 2004. The purchase of securities during first quarter 2005 resulted in the increased interest income. The yield on interest earning assets for the periods ending March 31, 2005 and March 31, 2004 was 6.33% and 6.08%.

Total interest expense increased by 36.83% for the three months ending March 31, 2005 as compared to the same period in 2004. This was a result of both an increase in volume and an increase in rate during 2005. The largest increase in interest expense was in borrowed funds, resulting from an increased average balance of Federal Home Loan Bank advances of $70,218 during first quarter 2005 as compared to $40,334 during first quarter 2004. This increased expense was also the result of the higher cost of interest payments on the subordinated debt during 2005 as compared to 2004. The next largest increase in interest expense was the cost of time deposits. Average balances for time deposits during first quarter 2005 was $220,080 as compared to $162,469 during the comparable period in 2004. The average rate paid on these time deposits during first quarter 2005 was 3.50% as compared to 3.42% during the same period in 2004. The cost for money market accounts also increased during 2005 as compared to 2004. This increased interest expense was primarily the result of the increased money market average balances during the first three months of 2005 as compared to the same period in 2004. These increased average balances totaled $25,925. The increased rate paid for these balances also contributed to the higher cost. Average cost for money market accounts in the period in 2005 was 1.45% as compared to 1.19% during the same period in 2004. Net interest income increased by 22.01% for the first three months of 2005 as compared to the same three months in 2004. The provision for loan losses was $140 for the period ending March 31, 2005 as compared to $0 during the period ending March 31, 2004.

The following table sets forth certain information relating to the Company’s consolidated statements of financial condition and its consolidated statements of income for the periods indicated and reflects the average yield on assets and average cost of liabilities. These yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. The resulting spread is the rate equivalent of net interest income.

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AVERAGE BALANCE SHEET AND YIELD ANALYSIS