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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarter ended June 30, 2004



Commission file number 2-91511



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SMITHTOWN BANCORP

Incorporated pursuant to the laws of New York State



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Internal Revenue Service
 Employer Identification No. 11-2695037



One East
Main Street, Smithtown, New York 11787-2801



631-360-9300



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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: 5,937,898 Shares of Common Stock ($.01 Par Value) Outstanding as of August 3, 2004.



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SMITHTOWN BANCORP



INDEX



|                               |  |                                                                                                                     
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------
|Part I - FINANCIAL INFORMATION
|                               | 
|Item 1.                        |  | Financial Statements                                                                                                
|                               | 
|                               |  | Unaudited Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003.                                    
|                               | 
|                               |  | Unaudited Consolidated Statements of Income for the Three Months Ended June 30, 2004 and 2003                       
|                               | 
|                               |  | Unaudited Consolidated Statements of Income for the Six Months Ended June 30, 2004 and 2003                         
|                               | 
|                               |  | Unaudited Consolidated Statements of Changes in Stockholders Equity For the Six Months Ended June 30, 2004 and 2003
|                               | 
|                               |  | Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003                     
|                               | 
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                               
|                               | 
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                          
|                               | 
|Item 4.                        |  | Controls and Procedures                                                                                             
|                              
|Part II - OTHER INFORMATION   
|                               | 
|Item 1.                        |  | Legal Proceedings - None                                                                                            





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|        |  |                                                          
|------- |  | ---------------------------------------------------------
|        | 
|Item 2. |  | Change in Securities and Use of Proceeds  Not Applicable



Issuer Purchases of
Equity Securities

|                                                                                                                                      |  |                                           |  |                                      |  |                                                                                        |  |                                                                                                                
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- |  | ------------------------------------ |  | -------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------
|                                                                                                                                      |  | (a)                                       |  | (b)                                  |  | (c)                                                                                    |  | (d)                                                                                                            
|Period                                                                                                                                |  | Total Numberof Shares (or Units)Purchased |  | Average PricePaid PerShare (or Unit) |  | Total Number ofShares (or Units)Purchased asPart of PubliclyAnnounced Plansor Programs |  | Maximum Number(or ApproximateDollar Value) ofShares(or Units)That May Yet BePurchased Underor the PlansPrograms
|April 1,2004  April 30,2004                                                                                                          |  | 0                                         |  | 0                                    |  | (1)                                                                                    |  | (1)                                                                                                            
|May 1,2004  May 31,2004                                                                                                              |  | 4,000                                     |  | 32.05                                |  |                                                                                        |  |                                                                                                                
|June 1,2004  June 30,2004                                                                                                            |  | 0                                         |  | 0                                    |  |                                                                                        |  |                                                                                                                
|                                                                                                                                      |  |                                           |  |                                      |  |                                                                                        |  |                                                                                                                
|Total                                                                                                                                 |  | 4,000                                     |  | 32.05                                |  |                                                                                        |  |                                                                                                                
|                                                                                                                                      |  |                                           |  |                                      |  |                                                                                        |  |                                                                                                                
|(1) During 1998, the Board of Directors approved a Stock Repurchase Plan authorizing the repurchase of Bancorp stock at market
prices



|        |  |                                                                   
|------- |  | ------------------------------------------------------------------
|        | 
|Item 3. |  | Defaults upon Senior Securities - None                            
|        | 
|Item 4. |  | Submission of Matters to a Vote of Security Holders April 20, 2004

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 
| |  | (1)    The election of 3 directors to serve a term of three years.  (2)    To consider and vote
upon a proposal to amend the Bancorps Certificate of Incorporation in order to change the number of authorized Common Shares from 7,000,000 shares, par value $1.25, to 15,000,000 shares, par value $.01.  (3)    To transact such other
business as may properly come before the meeting or any adjournment thereof.

|        |  |                                 
|------- |  | --------------------------------
|        | 
|Item 5. |  | Other Information - None        
|        | 
|Item 6. |  | Exhibits and Reports on Form 8-K

| |  |                 |  | 
| |  | --------------- |  | 
| | 
| |  | (1)    Exhibits

| |  |                                                      |  |                                                                                               
| |  | ---------------------------------------------------- |  | ----------------------------------------------------------------------------------------------
| |  |                                                     
| |  | Exhibit Number Referred to Item601 of Regulation S-K |  | Description of Exhibit                                                                        
| |  |                                                     
| |  | 31.1                                                 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)                           
| |  |                                                     
| |  | 31.2                                                 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)                           
| |  |                                                     
| |  | 32.1                                                 |  | Certification of Chief Executive Officer pursuant to
Rule 13a-14(b) and 18 U.S.C. Section 1350
| |  |                                                     
| |  | 32.2                                                 |  | Certification of Chief Financial Officer pursuant to
Rule 13a-14(b) and 18 U.S.C. Section 1350





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| |  |                        |  |                                                                                                   
| |  | ---------------------- |  | --------------------------------------------------------------------------------------------------
| |  | (2)    Report Form 8-K
| |  |                       
| |  |                        |  | Results of Operations and Financial Condition  Filed January 22, 2004  Incorporated by Reference
| |  |                        |  | Results of Operations and Financial Condition  Filed March 4, 2004  Incorporated by Reference   
| |  |                        |  | Other Events and Regulation FD Disclosures  Filed April 1, 2004  Incorporated by Reference      
| |  |                        |  | Other Events and Regulation FD Disclosure Filed April 7, 2004  Incorporated by Reference        
| |  |                        |  | Other Events and Regulation FD Disclosure  Filed April 15, 2004  Incorporated by Reference      
| |  |                        |  | Results of Operations and Financial Condition Filed April 23, 2004  Incorporated by Reference   
| |  |                        |  | Other Events and Regulation FD Disclosure  Filed May 5, 2004  Incorporated by Reference         
| |  |                        |  | Other Events and Regulation FD Disclosure  Filed May 17, 2004 Incorporated by Reference         
| |  |                        |  | Other Events and Regulation FD Disclosure  Filed May 26, 2004 Incorporated by Reference          
| |  |                        |  | Other Events and Regulation FD Disclosure  Filed June 14, 2004  Incorporated by Reference       
| |  |                        |  | Other Events and Regulation FD Disclosure  Filed June 24, 2004  Incorporated by Reference       
| |  |                        |  | Results of Operations and Financial Condition  Filed July 27,2004  Incorporated by Reference    





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##### Table of Contents

SMITHTOWN BANCORP

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share data)



|                                                                                                                   |  |               |         |   |                   |   |        
|------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | ----------------- | - | -------
|                                                                                                                   |  | As of        
|                                                                                                                   |  | June 30, 2004 |         |   | December 31, 2003
|Assets                                                                                                             |  |               |         |   |                   |   |        
|Cash and due from banks                                                                                            |  | $             | 10,279  |   |                   | $ | 9,383  
|Federal funds sold                                                                                                 |  |               | 11,617  |   |                   |   | 5,382  
|                                                                                                                   |  |               |         |   |                   |   |        
|Total cash and cash equivalents                                                                                    |  |               | 21,896  |   |                   |   | 14,765 
|Investment securities:                                                                                             |  |               |         |   |                   |   |        
|Investment securities held to maturity                                                                             |  |               |         |   |                   |   |        
|Mortgage - backed securities                                                                                       |  |               | 219     |   |                   |   | 293    
|Obligations of state and political subdivisions                                                                    |  |               | 1,498   |   |                   |   | 1,700  
|                                                                                                                   |  |               |         |   |                   |   |        
|Total investment securities held to maturity (Estimated fair value $1,788 in 2004 and $2,091 in 2003)              |  |               | 1,717   |   |                   |   | 1,993  
|                                                                                                                   |  |               |         |   |                   |   |        
|Investment securities available for sale                                                                           |  |               |         |   |                   |   |        
|Obligations of U.S. government agencies                                                                            |  |               | 29,676  |   |                   |   | 25,094 
|Mortgage - backed securities                                                                                       |  |               | 6,205   |   |                   |   | 8,120  
|Obligations of state and political subdivisions                                                                    |  |               | 15,839  |   |                   |   | 17,746 
|Other securities                                                                                                   |  |               | 3,091   |   |                   |   | 6,324  
|                                                                                                                   |  |               |         |   |                   |   |        
|Total investment securities available for sale                                                                     |  |               | 54,811  |   |                   |   | 57,284 
|                                                                                                                   |  |               |         |   |                   |   |        
|Total investment securities                                                                                        |  |               | 56,528  |   |                   |   | 59,277 
|Restricted securities                                                                                              |  |               | 2,719   |   |                   |   | 2,162  
|Loans, net of unearned discount                                                                                    |  |               | 521,131 |   |                   |   | 459,631
|Less: reserve for loan losses                                                                                      |  |               | 4,558   |   |                   |   | 4,761  
|                                                                                                                   |  |               |         |   |                   |   |        
|Loans, net                                                                                                         |  |               | 516,573 |   |                   |   | 454,870
|Bank premises and equipment                                                                                        |  |               | 10,583  |   |                   |   | 10,288 
|                                                                                                                   |  |               |         |   |                   |   |        
|Other assets                                                                                                       |  |               |         |   |                   |   |        
|Cash surrender value - bank owned life insurance                                                                   |  |               | 16,612  |   |                   |   | 16,288 
|Other                                                                                                              |  |               | 8,569   |   |                   |   | 7,435  
|                                                                                                                   |  |               |         |   |                   |   |        
|Total assets                                                                                                       |  | $             | 633,480 |   |                   | $ | 565,085
|                                                                                                                   |  |               |         |   |                   |   |        
|Liabilities                                                                                                        |  |               |         |   |                   |   |        
|Deposits:                                                                                                          |  |               |         |   |                   |   |        
|Demand (non-interest bearing)                                                                                      |  | $             | 96,815  |   |                   | $ | 85,604 
|Money market                                                                                                       |  |               | 179,401 |   |                   |   | 150,584
|NOW                                                                                                                |  |               | 38,156  |   |                   |   | 41,817 
|Savings                                                                                                            |  |               | 51,984  |   |                   |   | 50,892 
|Time                                                                                                               |  |               | 168,924 |   |                   |   | 152,434
|                                                                                                                   |  |               |         |   |                   |   |        
|Total deposits                                                                                                     |  |               | 535,280 |   |                   |   | 481,331
|Dividend payable                                                                                                   |  |               | 298     |   |                   |   | 268    
|Federal Home Loan Bank Advances                                                                                    |  |               | 42,000  |   |                   |   | 31,000 
|Subordinated debt                                                                                                  |  |               | 11,000  |   |                   |   | 11,000 
|Other liabilities                                                                                                  |  |               | 2,551   |   |                   |   | 2,308  
|                                                                                                                   |  |               |         |   |                   |   |        
|Total liabilities                                                                                                  |  |               | 591,129 |   |                   |   | 525,907
|Stockholders Equity                                                                                               |  |               |         |   |                   |   |        
|Common Stock - $.01 par value (15,000,000 shares authorized; 7,167,280 shares issued)                              |  |               | 72      |   |                   |   | 4,480  
|Surplus                                                                                                            |  |               | 4,408   |   |                   |   |       
|Retained earnings                                                                                                  |  |               | 47,769  |   |                   |   | 43,656 
|Accumulated other comprehensive income/(loss)                                                                      |  |               | (221    | ) |                   |   | 420    
|                                                                                                                   |  |               |         |   |                   |   |        
|Total                                                                                                              |  |               | 52,028  |   |                   |   | 48,556 
|Less: treasury stock (1,229,382 and 1,218,806 shares at cost at June 30, 2004 and December 31, 2003, respectively) |  |               | 9,677   |   |                   |   | 9,378  
|Total stockholders equity                                                                                         |  |               | 42,351  |   |                   |   | 39,178 
|                                                                                                                   |  |               |         |   |                   |   |        
|Total liabilities and stockholders equity                                                                         |  | $             | 633,480 |   |                   | $ | 565,085
|                                                                                                                   |  |               |         |   |                   |   |        



See
accompanying notes to the Unaudited Consolidated Financial Statements.





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##### Table of Contents

SMITHTOWN BANCORP

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(in thousands, except share and per share data)



|                                                    |  |                                     |           |      |   |          
|--------------------------------------------------- |  | ----------------------------------- | --------- | ---- | - | ---------
|                                                    |  | For the Three Months Ended June 30,
|                                                    |  | 2004                                |           | 2003
|Interest income                                     |  |                                     |           |      |   |          
|Interest and fees on loans                          |  | $                                   | 8,263     |      | $ | 6,722    
|Interest on federal funds sold                      |  |                                     | 43        |      |   | 33       
|Interest and dividends on investment securities:    |  |                                     |           |      |   |          
|Taxable:                                            |  |                                     |           |      |   |          
|Obligations of U.S. government agencies             |  |                                     | 247       |      |   | 176      
|Mortgage - backed securities                        |  |                                     | 73        |      |   | 156      
|Other securities                                    |  |                                     | 57        |      |   | 122      
|                                                    |  |                                     |           |      |   |          
|Subtotal                                            |  |                                     | 377       |      |   | 454      
|Exempt from federal income taxes:                   |  |                                     |           |      |   |          
|Obligations of state & political subdivisions       |  |                                     | 179       |      |   | 206      
|Other interest income                               |  |                                     | 15        |      |   | 28       
|                                                    |  |                                     |           |      |   |          
|Total interest income                               |  |                                     | 8,877     |      |   | 7,443    
|                                                    |  |                                     |           |      |   |          
|Interest expense                                    |  |                                     |           |      |   |          
|Money market accounts (including savings)           |  |                                     | 646       |      |   | 515      
|Certificates of deposit of $100,000 and over        |  |                                     | 548       |      |   | 361      
|Other time deposits                                 |  |                                     | 886       |      |   | 655      
|Other borrowings                                    |  |                                     | 369       |      |   | 357      
|                                                    |  |                                     |           |      |   |          
|Total interest expense                              |  |                                     | 2,449     |      |   | 1,888    
|                                                    |  |                                     |           |      |   |          
|Net interest income                                 |  |                                     | 6,428     |      |   | 5,555    
|Provision for loan losses                           |  |                                     |          |      |   | 270      
|                                                    |  |                                     |           |      |   |          
|Net interest income after provision for loan losses |  |                                     | 6,428     |      |   | 5,285    
|                                                    |  |                                     |           |      |   |          
|Other non - interest income                         |  |                                     |           |      |   |          
|Trust department income                             |  |                                     | 98        |      |   | 125      
|Service charges on deposit accounts                 |  |                                     | 487       |      |   | 482      
|Other income                                        |  |                                     | 340       |      |   | 470      
|Net gain on sales of investment securities          |  |                                     | 194       |      |   | 6        
|                                                    |  |                                     |           |      |   |          
|Total other non - interest income                   |  |                                     | 1,119     |      |   | 1,083    
|                                                    |  |                                     |           |      |   |          
|Other operating expenses                            |  |                                     |           |      |   |          
|Compensation expense                                |  |                                     | 1,586     |      |   | 1,217    
|Pension and other employee benefits                 |  |                                     | 437       |      |   | 332      
|Net occupancy expense of bank premises              |  |                                     | 403       |      |   | 369      
|Furniture and equipment expense                     |  |                                     | 287       |      |   | 275      
|Other expense                                       |  |                                     | 782       |      |   | 638      
|                                                    |  |                                     |           |      |   |          
|Total other operating expenses                      |  |                                     | 3,495     |      |   | 2,831    
|                                                    |  |                                     |           |      |   |          
|Income before income taxes                          |  |                                     | 4,052     |      |   | 3,537    
|Provision for income taxes                          |  |                                     | 1,474     |      |   | 1,304    
|                                                    |  |                                     |           |      |   |          
|Net income                                          |  | $                                   | 2,578     |      | $ | 2,233    
|                                                    |  |                                     |           |      |   |          
|Basic and diluted earnings per share                |  | $                                   | 0.43      |      | $ | 0.37     
|Cash dividends declared                             |  | $                                   | 0.050     |      | $ | 0.045    
|Weighted average shares outstanding                 |  |                                     | 5,940,024 |      |   | 6,040,918
|Comprehensive income                                |  | $                                   | 1,766     |      | $ | 2,457    



See
accompanying notes to the Unaudited Consolidated Financial Statements.





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##### Table of Contents

SMITHTOWN BANCORP

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(in thousands, except share and per share data)



|                                                    |  |                                   |           |      |   |          
|--------------------------------------------------- |  | --------------------------------- | --------- | ---- | - | ---------
|                                                    |  | For the Six Months Ended June 30,
|                                                    |  | 2004                              |           | 2003
|Interest income                                     |  |                                   |           |      |   |          
|Interest and fees on loans                          |  | $                                 | 16,017    |      | $ | 12,931   
|Interest on federal funds sold                      |  |                                   | 92        |      |   | 57       
|Interest and dividends on investment securities:    |  |                                   |           |      |   |          
|Taxable:                                            |  |                                   |           |      |   |          
|Obligations of U.S. government agencies             |  |                                   | 401       |      |   | 270      
|Mortgage - backed securities                        |  |                                   | 159       |      |   | 343      
|Other securities                                    |  |                                   | 136       |      |   | 248      
|                                                    |  |                                   |           |      |   |          
|Subtotal                                            |  |                                   | 696       |      |   | 861      
|Exempt from federal income taxes:                   |  |                                   |           |      |   |          
|Obligations of state & political subdivisions       |  |                                   | 370       |      |   | 454      
|Other interest income                               |  |                                   | 36        |      |   | 56       
|                                                    |  |                                   |           |      |   |          
|Total interest income                               |  |                                   | 17,211    |      |   | 14,359   
|                                                    |  |                                   |           |      |   |          
|Interest expense                                    |  |                                   |           |      |   |          
|Money market accounts (including savings)           |  |                                   | 1,256     |      |   | 992      
|Certificates of deposit of $100,000 and over        |  |                                   | 1,044     |      |   | 737      
|Other time deposits                                 |  |                                   | 1,770     |      |   | 1,293    
|Other borrowings                                    |  |                                   | 858       |      |   | 712      
|                                                    |  |                                   |           |      |   |          
|Total interest expense                              |  |                                   | 4,928     |      |   | 3,734    
|                                                    |  |                                   |           |      |   |          
|Net interest income                                 |  |                                   | 12,283    |      |   | 10,625   
|Provision for loan losses                           |  |                                   |          |      |   | 350      
|                                                    |  |                                   |           |      |   |          
|Net interest income after provision for loan losses |  |                                   | 12,283    |      |   | 10,275   
|                                                    |  |                                   |           |      |   |          
|Other non - interest income                         |  |                                   |           |      |   |          
|Trust department income                             |  |                                   | 208       |      |   | 226      
|Service charges on deposit accounts                 |  |                                   | 913       |      |   | 938      
|Other income                                        |  |                                   | 728       |      |   | 851      
|Net gain on sales of investment securities          |  |                                   | 288       |      |   | 16       
|                                                    |  |                                   |           |      |   |          
|Total other non - interest income                   |  |                                   | 2,137     |      |   | 2,031    
|                                                    |  |                                   |           |      |   |          
|Other operating expenses                            |  |                                   |           |      |   |          
|Compensation expense                                |  |                                   | 3,362     |      |   | 2,400    
|Pension and other employee benefits                 |  |                                   | 772       |      |   | 665      
|Net occupancy expense of bank premises              |  |                                   | 817       |      |   | 746      
|Furniture and equipment expense                     |  |                                   | 571       |      |   | 524      
|Other expense                                       |  |                                   | 1,503     |      |   | 1,324    
|                                                    |  |                                   |           |      |   |          
|Total other operating expenses                      |  |                                   | 7,025     |      |   | 5,659    
|                                                    |  |                                   |           |      |   |          
|Income before income taxes                          |  |                                   | 7,395     |      |   | 6,647    
|Provision for income taxes                          |  |                                   | 2,687     |      |   | 2,425    
|                                                    |  |                                   |           |      |   |          
|Net income                                          |  | $                                 | 4,708     |      | $ | 4,222    
|                                                    |  |                                   |           |      |   |          
|Basic and diluted earnings per share                |  | $                                 | 0.79      |      | $ | 0.70     
|Cash dividends declared                             |  | $                                 | 0.10      |      | $ | 0.09     
|Weighted average shares outstanding                 |  |                                   | 5,942,567 |      |   | 6,055,354
|Comprehensive income                                |  | $                                 | 4,067     |      | $ | 4,470    



See
accompanying notes to the Unaudited Consolidated Financial Statements.





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##### Table of Contents

SMITHTOWN BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(in thousands)



|                                       |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           |        |   |  |   |      |   |  |   |        |  
|-------------------------------------- |  | ----------------- | - |  | ----------------- | ------ | - | ---------------- | - | ------ | ------------------------------- |  | - | -------------------------------------------- | - |  | ------------------------- | ------ | - |  | - | ---- | - |  | - | ------ | -
|                                       |  | Common Stock      |   |  | CapitalSurplus(1) |        |   | RetainedEarnings |   |        | Cost of Common Stock inTreasury |  |   | Accumulated Other ComprehensiveIncome (Loss) |   |  | Total StockholdersEquity |       
|                                       |  | SharesOutstanding |   |  | Amount            |        |   |                  |   |        |                                
|Balance at 12/31/2002                  |  | 3,047             |   |  | $                 | 2,240  |   |                  | $ | 1,993  |                                 |  | $ | 35,887                                       |   |  | $                         | (6,910 | ) |  | $ | 734  |   |  | $ | 33,944 |  
|Comprehensive Income:                  |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           |        |   |  |   |      |   |  |   |        |  
|Net Income                             |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   | 4,222                                        |   |  |                           |        |   |  |   |      |   |  |   | 4,222  |  
|Other Comprehensive Income, Net of Tax |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           |        |   |  |   | 248  |   |  |   | 248    |  
|                                       |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           |        |   |  |   |      |   |  |   |        |  
|Total Comprehensive Income             |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           |        |   |  |   |      |   |  |   | 4,470  |  
|Cash Dividends Declared                |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   | (544                                         | ) |  |                           |        |   |  |   |      |   |  |   | (544   | )
|2 for 1 stock split                    |  | 3,047             |   |  |                   | 2,240  |   |                  |   | (1,993 | )                               |  |   | (247                                         | ) |  |                           |        |   |  |   |      |   |  | $ | 0      |  
|Treasury Stock Purchases               |  | (58               | ) |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           | (826   | ) |  |   |      |   |  |   | (826   | )
|                                       |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           |        |   |  |   |      |   |  |   |        |  
|Balance at 6/30/2003                   |  | 6,036             |   |  | $                 | 4,480  |   |                  | $ | 0      |                                 |  | $ | 39,318                                       |   |  | ($                        | 7,736  | ) |  | $ | 982  |   |  | $ | 37,044 |  
|                                       |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           |        |   |  |   |      |   |  |   |        |  
|Balance at 12/31/2003                  |  | 2,974             |   |  | $                 | 4,480  |   |                  | $ | 0      |                                 |  | $ | 43,656                                       |   |  | $                         | (9,378 | ) |  | $ | 420  |   |  | $ | 39,178 |  
|Comprehensive Income:                  |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           |        |   |  |   |      |   |  |   |        |  
|Net Income                             |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   | 4,708                                        |   |  |                           |        |   |  |   |      |   |  |   | 4,708  |  
|Other Comprehensive Loss, Net of Tax   |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           |        |   |  |   | (641 | ) |  |   | (641   | )
|                                       |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           |        |   |  |   |      |   |  |   |        |  
|Total Comprehensive Income             |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           |        |   |  |   |      |   |  |   | 4,067  |  
|Cash Dividends Declared                |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   | (595                                         | ) |  |                           |        |   |  |   |      |   |  |   | (595   | )
|Treasury Stock Purchases               |  | (10               | ) |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           | (299   | ) |  |   |      |   |  |   | (299   | )
|2 for 1 stock split                    |  | 2,974             |   |  |                   | 36     |   |                  |   | (36    | )                               |  |   |                                              |   |  |                           |        |   |  |   |      |   |  |   | 0      |  
|Change in Par Value                    |  |                   |   |  |                   | (4,444 | ) |                  |   | 4,444  |                                 |  |   |                                              |   |  |                           |        |   |  |   |      |   |  |   | 0      |  
|Balance at 6/30/2004                   |  | 5,938             |   |  | $                 | 72     |   |                  | $ | 4,408  |                                 |  | $ | 47,769                                       |   |  | $                         | (9,677 | ) |  | $ | (221 | ) |  | $ | 42,351 |  
|                                       |  |                   |   |  |                   |        |   |                  |   |        |                                 |  |   |                                              |   |  |                           |        |   |  |   |      |   |  |   |        |  



See
accompanying notes to the Unaudited Consolidated Financial Statements.



|(1) | As a result of the May 7, 2004 2:1 stock split and the April 20, 2004 reduction in par value from $1.25 per share to $.01 per share, a transfer of $4,444 was made from the common
stock account into the capital surplus account.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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SMITHTOWN BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                  |  |                                  |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | For the Six MonthsEnded June 30, |        
|                                                                                  |  | 2004                             |         |   | 2003 |  
|Cash flows from operating activities                                              |  |                                  |         |   |      |   |         |  
|Net income                                                                        |  | $                                | 4,708   |   |      | $ | 4,222   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                  |         |   |      |   |         |  
|Depreciation on premises and equipment                                            |  |                                  | 349     |   |      |   | 356     |  
|Provision for possible loan losses                                                |  |                                  |        |   |      |   | 350     |  
|Net increase (decrease) in other liabilities                                      |  |                                  | 243     |   |      |   | (268    | )
|Net (increase) decrease in other assets                                           |  |                                  | (743    | ) |      |   |         |  
|Net gain on sale of investment securities                                         |  |                                  | (288    | ) |      |   | (16     | )
|Increase in deferred taxes                                                        |  |                                  | (476    | ) |      |   | (172    | )
|Amortization of investment security premiums and accretion of discounts           |  |                                  | (48     | ) |      |   | (45     | )
|                                                                                  |  |                                  |         |   |      |   |         |  
|Cash provided by operating activities                                             |  |                                  | 3,745   |   |      |   | 4,427   |  
|                                                                                  |  |                                  |         |   |      |   |         |  
|Cash flows from investing activities                                              |  |                                  |         |   |      |   |         |  
|Mortgage-backed securities:                                                       |  |                                  |         |   |      |   |         |  
|Proceeds from calls, repayments, maturities and sales of available for sale       |  |                                  | 1,771   |   |      |   | 4,011   |  
|Proceeds from calls, repayments and maturities of held to maturity                |  |                                  | 73      |   |      |   | 168     |  
|Investment securities:                                                            |  |                                  |         |   |      |   |         |  
|Proceeds from calls, repayments, maturities and sales of available for sale       |  |                                  | 19,120  |   |      |   | 13,929  |  
|Proceeds from calls, repayments and maturities of held to maturity                |  |                                  | 202     |   |      |   | 313     |  
|Purchase of other investment securities:                                          |  |                                  |         |   |      |   |         |  
|Held to maturity                                                                  |  |                                  |        |   |      |   | (40     | )
|Available for sale                                                                |  |                                  | (19,194 | ) |      |   | (28,396 | )
|Loans made to customers, net                                                      |  |                                  | (61,703 | ) |      |   | (33,435 | )
|Purchase of premises and equipment                                                |  |                                  | (644    | ) |      |   | (1,473  | )
|Increase in cash surrender value of officers life insurance policies             |  |                                  | (324    | ) |      |   | (246    | )
|                                                                                  |  |                                  |         |   |      |   |         |  
|Cash used by investing activities                                                 |  |                                  | (60,699 | ) |      |   | (45,169 | )
|                                                                                  |  |                                  |         |   |      |   |         |  
|Cash flows from financing activities                                              |  |                                  |         |   |      |   |         |  
|Net increase in demand deposits, NOW and savings accounts                         |  |                                  | 37,459  |   |      |   | 52,068  |  
|Net increase (decrease) in time accounts                                          |  |                                  | 16,490  |   |      |   | (1,597  | )
|Cash dividends paid                                                               |  |                                  | (565    | ) |      |   | (502    | )
|Net increase in advances from Federal Home Loan Bank                              |  |                                  | 11,000  |   |      |   |        |  
|Purchase of treasury stock                                                        |  |                                  | (299    | ) |      |   | (826    | )
|                                                                                  |  |                                  |         |   |      |   |         |  
|Cash provided by financing activities                                             |  |                                  | 64,085  |   |      |   | 49,143  |  
|                                                                                  |  |                                  |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                              |  |                                  | 7,131   |   |      |   | 8,401   |  
|Cash and cash equivalents, beginning of period                                    |  |                                  | 14,765  |   |      |   | 10,692  |  
|                                                                                  |  |                                  |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                                | 21,896  |   |      | $ | 19,093  |  
|                                                                                  |  |                                  |         |   |      |   |         |  
|Supplemental disclosures of cash flow information                                 |  |                                  |         |   |      |   |         |  
|Cash paid during period for:                                                      |  |                                  |         |   |      |   |         |  
|Interest                                                                          |  | $                                | 4,901   |   |      | $ | 3,744   |  
|Income taxes                                                                      |  |                                  | 2,941   |   |      |   | 2,512   |  





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Notes to Consolidated Financial Statements - Unaudited



(in thousands, except share and per share data)



Note 1 - Financial Statement Presentation



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, 2003.



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, 2003 consolidated balance sheet was derived from the Companys
December 31, 2003 audited consolidated 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, 2004. 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.



Certain reclassifications related to direct loan origination fees and costs have been made to
the prior and current 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.



Note 2  Subordinated Debt



A trust formed by the Bancorp 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.



Under new accounting guidance, in FASB Interpretation No. 46, as revised in December 2003,
the trust is not consolidated with the Bancorp. Accordingly, the Bancorp does not report the securities issued by the trust as liabilities, and instead reports as liabilities the





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##### Table of Contents

subordinated debentures issued by the Bancorp and held by the trust, as these are no longer eliminated in consolidation.



Note 3 - Earnings Per Common Share



Earnings per 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
2004, the Bank continues to fund a 401(k) Defined Contribution Plan and an Employee Stock Ownership Plan for substantially all of its employees. Second quarter costs during 2004 and 2003 for these two plans were $26 and $45 and $28 and $40. Year to
date costs for the two plans were $55 and $90 during 2004 and $52 and $80 during 2003. It is expected that the Companys costs for the two plans for the twelve months ending December 31, 2004 will be approximately $120 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 June 30, 2004 and 2003 were $5, $8 and $1 and $6, $8, and $1, respectively. Since both plans hold no assets, the Bank did not contribute and expects to contribute $0 to its plans in 2003 and 2004.



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation



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 use of the words believe, expect, anticipate,
project, estimate, will be, will continue, will likely result, or similar expressions. The Bancorp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 operations of the Bancorp 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 Bancorp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 Bancorp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 Bancorp 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 Bancorp makes on
related subjects in our reports to the Securities Exchange Commission.



Smithtown Bancorp is a one-bank holding company formed in 1984. Its income is derived primarily from the operations of its subsidiary, Bank of Smithtown.



As previously discussed in the March 31, 2004 10Q, the acquisition of the Siegerman Mulvey insurance agency has continued throughout the
second quarter of 2004 and is





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##### Table of Contents

expected to reach final closing during the third quarter of the year. The bank has signed a lease agreement for relocation into new corporate headquarters
during the second quarter of 2004. Relocation is expected to take place during the fourth quarter of the year.



Comparison of Financial Condition at June 30, 2004 and December 31, 2003



Assets at June 30, 2004 totaled $633,480 as compared to $565,085 at year end, representing growth of 12.10%. As in prior quarters, the largest categories of growth were
in loans and deposits. Loans grew from $459,678 at December 31, 2003 to $521,160 at June 30, 2004, an increase of 13.38%. The composition of the portfolio remained stable and is as follows:



|                          |  |               |         |  |                   |   |  |   |         |  |        |  
|------------------------- |  | ------------- | ------- |  | ----------------- | - |  | - | ------- |  | ------ | -
|                          |  | June 30, 2004 |         |  | December 31, 2003 |  
|Real estate loans         |  | $             | 476,737 |  | 91.48             | % |  | $ | 418,753 |  | 91.10  | %
|Commercial and industrial |  |               | 40,553  |  | 7.78              | % |  |   | 39,228  |  | 8.53   | %
|Consumer                  |  |               | 3,657   |  | .70               | % |  |   | 1,382   |  | .30    | %
|Other loans               |  |               | 213     |  | .04               | % |  |   | 315     |  | .07    | %
|                          |  |               |         |  |                   |   |  |   |         |  |        |  
|                          |  | $             | 521,160 |  | 100.00            | % |  | $ | 459,678 |  | 100.00 | %



Non accrual loans at June 30, 2004
totaled $525 as compared to $0 at December 31, 2003, representing .10% and 0% of the total portfolio, respectively. Subsequent to June 30, 2004 the bank has received a partial recovery on one of these loans. The reserve for loan losses at June 30
and December 31 was $4,558 and $4,761, respectively, a decrease of $203 or 4.26%. Based on the continued high quality of the loan portfolio and the low level of nonperforming assets, management feels the allowance for loan losses provides adequate
coverage for probable incurred losses. 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 reserve allocated to each
loan category does not represent the total available for potential losses which may occur within the loan category since the loan loss allowance is a valuation applicable to the entire loan portfolio. The ratio of reserves to total loans is
currently at .87%, deemed adequate by management. Total commitments to fund loans at June 30, 2004 were $127,593. Management has also set up a reserve for unfunded loan commitments as an other liability and currently the balance in this account,
based on historical loss experience, is $471.



12



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##### Table of Contents

The growth in deposits for the first six months of 2004 kept pace with loan growth. At December 31, 2003 and June 30,
2004 total deposits were $481,331 and $535,280, representing growth of 11.21%. The composition of the deposit portfolio changed slightly from year end as a result of various internal and external promotions. Deposit composition at the two periods in
time was as follows:



|                              |  |               |         |  |                   |   |  |   |         |  |        |  
|----------------------------- |  | ------------- | ------- |  | ----------------- | - |  | - | ------- |  | ------ | -
|                              |  | June 30, 2004 |         |  | December 31, 2003 |  
|Demand (non-interest bearing) |  | $             | 96,815  |  | 18.09             | % |  | $ | 85,604  |  | 17.78  | %
|Money market                  |  |               | 179,401 |  | 33.51             | % |  |   | 150,584 |  | 31.29  | %
|NOW                           |  |               | 38,156  |  | 7.13              | % |  |   | 41,817  |  | 8.69   | %
|Savings                       |  |               | 51,984  |  | 9.71              | % |  |   | 50,892  |  | 10.57  | %
|Time deposits                 |  |               | 168,924 |  | 31.56             | % |  |   | 152,434 |  | 31.67  | %
|                              |  |               |         |  |                   |   |  |   |         |  |        |  
|                              |  | $             | 535,280 |  | 100.00            | % |  | $ | 481,331 |  | 100.00 | %



Federal funds sold increased by $6,235
from December 31, 2003 to June 30, 2004. The bank uses this temporary form of investment when there is a timing difference between deposit collection and loan funding. As these funds earn a very low rate of interest, managements goal is to
maintain as low a level of federal funds as possible, within the guidelines of its liquidity and asset liability management policy. Total investment securities decreased slightly from $59,277 at December 31, 2003 to $56,528 at June 30, 2004, a
reduction of 4.64%. This reduction was the result of several called agency securities as well as the sale of various debt securities. A portion of these funds was reinvested in agency and municipal securities, and gains were recognized on the sales.
A portion of these redeemed investment funds were also rechanneled into loan fundings. During the quarter the Company purchased a new investment into the CRA (the Community Reinvestment Act) Qualified Investment Fund. This investment was
made as part of the banks ongoing commitment to the CRA Act, as well as an alternative source for earning a competitive return on our investment. Restricted securities increased by $557 or 25.76% due to the increase in Federal Home Loan Bank
and Federal Reserve Bank stocks. Bank premises and equipment remained nearly constant with growth of just 2.87% over the six month period. The cash surrender value of bank owned life insurance policies grew by 1.99%. Other assets increased from
$7,435 at December 31, 2003 to $8,569 at June 30, 2004, a result of increased prepaid expenses including real estate and corporation taxes, deferred taxes, and prepaid regulatory expenses.



On the liability side of the balance sheet, in addition to deposit growth, dividends payable
also increased by 11.19% due to the increased dividend payments to shareholders. Other borrowings, which consist entirely of Federal Home Loan Bank advances, increased by $11,000 or 35.48% from year end. These advances were transacted during the
first quarter of 2004 as a result of the timing difference between deposit gathering and loan funding as discussed above. A borrowing of $9,000 which was originated in 2002 matured in January and was replaced with two advances for $10,000 each for
two and three year terms at 2.04% and 2.69%, respectively. The low cost of these funds has contributed to the banks stable net interest margin. Other liabilities have also increased by 10.53%, a result of an increase in various reserve
accounts including deferred incentive compensation plan expenses. Total equity grew from $39,178 at December 31, 2003 to $42,351 at June 30, 2004, an 8.10% increase, primarily as a result of net income of $4,708. The par value of the Bancorps
common stock was reduced from $1.25 per share to $.01 per share as of April 20, 2004 and the number of authorized shares was increased from 7,000,000 to 15,000,000. The Bancorp also declared a 2:1 stock split on May 7, 2004, the fourth split in six
years. The unrealized gain (loss) on investment securities decreased from $420 to ($221) over the six month period ending June 30, 2004, resulting from the change in interest rates. During the first six months of 2004 the Bancorp repurchased 10,576
shares at a cost of $219.



The company and bank are subject to the risk based
capital guidelines administered by bank regulatory agencies. The guidelines require all banks and bank holding companies to





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##### Table of Contents

maintain a minimum ratio of total risk based capital to total risk weighted assets (Total Risk Adjusted Capital) of 8%, including Tier I capital
to total risk weighted assets (Tier I Capital) of 4% and a Tier I capital to average total assets (Leverage 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 direct material effect on our consolidated financial statements.



As of June 30, 2004, the most recent notification from the corresponding regulatory agency categorized the Bancorp 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 that notification that management believes have changed the Bancorps categories. As of June 30, 2004, the Bancorps ratios were 11.47%, 10.47%
and 8.40%, respectively. The Bancorps return on average equity and return on average assets for the first six months of 2004 were 23.05% and 1.55%, respectively.



Comparison of Operating Results for the Three Months Ended June 30, 2004 and 2003



Net income for the three months ended June 30, 2004 and 2003 was $2,578 and $2,233, an
increase of 15.45%. This increase is primarily the result of an increased net interest income of $873 or 15.72%. As net interest income remains the banks largest contributor to net income, the interest income earned on loans and interest
expense paid on deposits and borrowings remains the primary, daily focus of management. Loan income increased by 22.92% during the second quarter of 2004 as compared to the same period in 2003. Investment income decreased by $107 during the same two
periods, with a corresponding decrease in volume of $13,185. Other interest income, which represents interest and dividends on Federal Home Loan Bank and Federal Reserve Bank income, declined by $13 or 46.43% due to reduced payment rates. Overall,
total interest income for the three month period ended June 30, 2004 and 2003 was $8,877 and $7,443, an increase of $1,434 or 19.27%. Interest expense for the second quarter increased by $561 or 29.71%, due to the rising rate environment and the
continuing competitive pressure for deposits. The largest increases in interest cost were in time deposits over $100,000, which grew by $187 or 51.80% and in other time deposits which rose by $231 or 35.27%. As part of ongoing asset liability
management, and the rising rate environment, the bank offered higher rates for longer term time deposits resulting in increased balances over June 2003. No provision for loan losses was taken during the second quarter of 2004 as compared to $270
during the same period in 2003. As loan quality remains high, management believes the reserve for loan loss account to be adequate. Net interest income after the provision for loan losses increased by 21.63% for the three months ended June 30, 2004.
Non interest income rose by $36 or 3.32% primarily due to the gain on the sale of investment securities which accounts for $188 of the growth. Trust department income decreased by $27 or 21.60% during 2004 due to several trusts which closed in 2003,
generating additional one time commissions for the department. Other miscellaneous income declined by 27.66% due to a reduction in loan fee recognition and various deposit fees and commissions. Other operating expenses increased by $664 or 23.45%,
primarily as a result of increased salary and benefit expenses. As a result of the significant growth the bank has been experiencing over the past years, the need for additional staff has become a priority. The 2004 year has been and will continue
to be a year during which the banks resources catch up to meet its already increased asset size. During 2004, the bank also began its compliance efforts with Sarbanes Oxley Section 404, Internal Controls over Financial Reporting. This effort
has resulted in considerable extra cost, as the bank has engaged an auditing firm to





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##### Table of Contents

assist with the project. Additionally, during 2004, the bank re-evaluated the costs associated with the origination of its loans and determined that due to
efficiencies in operations and staff, these costs have decreased. Costs associated with the origination of loans, including salaries, are deferred over the duration of the loans in accordance with FASB91. During 2004, it has been determined that the
estimated cost per loan, on average, has been reduced. This re-evaluation has resulted in proportionately higher salary expenses in 2004, since salary expense attributable to loan originations has been reduced. Other expenses increased by $144 or
22.57%, a result of increases in various expense categories such as auditing and accounting costs, indemnity insurance expense, ATM and debit card expenses. The provision for taxes also increased by 13.04% as a result of the increased pretax income.
Earnings per share for the second quarter of 2004 was $.43 as compared to $.37 for the comparable period in 2003.



Comparison of Operating Results for the Six Months Ended June 30, 2004 and 2003



Net income for the first half of 2004 as compared to 2003 was $4,708 and $4,222, an increase of $486 or 11.51%. Net interest income for the
first six months of 2004 increased by 15.60%. Loan income rose by $3,086 or 23.87% in 2004 over the comparable period in 2003, due to increased balances. Investment income declined by $252, representing a 19.16% decrease. Called securities in
conjunction with new lower yielding investments caused this source of interest income to decline this year. Lower yield on Federal Home Loan Bank and Federal Reserve Bank stock resulted in 30.36% lower other interest income. Interest and borrowings
expense increased by $1,194 or 31.98%. As during the second quarter, the largest segment of this increased cost was in time deposits, which grew by $478 during the first half of the year. No provision for loan losses was taken during the first half
of 2004 as compared to $350 in 2003. Other non interest income increased by 5.22%, primarily the result of the gain on the sale of investment securities which was $288 during the first half of this year as compared to $16 during the same period in
2003. Other operating expenses increased by $1,366 or 24.14% during 2004 over the same period in 2003. As in the second quarter of 2004, the primary reason for the increase was that salary and related benefit expenses, increased due to the
additional need for resources relating to Sarbanes Oxley compliance and growth requirements. Earnings per share for the first six months of 2004 was $.79 as compared to $.70 for the same period in 2003, representing a 12.86% increase.



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 period indicated and reflects the average yield on assets and the 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 period shown. The resulting spread is the rate equivalent of net interest income.





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##### Table of Contents

Average Balance Sheet and Yield Analysis



|                                                        |  |                                      |         |                      |   |                   |  |      |  
|------------------------------------------------------- |  | ------------------------------------ | ------- | -------------------- | - | ----------------- |  | ---- | -
|                                                        |  | For the 6 Months Ended June 30, 2004 |        
|                                                        |  | AverageBalance                       |         | Year to DateInterest |   | AverageYield/Cost | 
|Assets                                                  |  |                                      |         |                      |   |                   |  |      |  
|Interest earning assets:                                |  |                                      |         |                      |   |                   |  |      |  
|Total loans                                             |  | $                                    | 494,568 |                      | $ | 16,017            |  | 6.48 | %
|Investments                                             |  |                                      |         |                      |   |                   |  |      |  
|Taxable                                                 |  |                                      | 35,749  |                      |   | 693               |  | 3.88 | %
|Non-taxable                                             |  |                                      | 18,833  |                      |   | 561               |  | 5.96 | %
|Restricted securities                                   |  |                                      | 2,670   |                      |   | 38                |  | 2.86 | %
|Federal funds sold                                      |  |                                      | 19,636  |                      |   | 92                |  | 0.94 | %
|Balances due from banks                                 |  |                                      | 317     |                      |   | 1                 |  | 0.57 | %
|Total interest earnings assets                          |  |                                      | 571,773 |                      |   | 17,402            |  | 6.09 | %
|Non interest earning assets:                            |  |                                      |         |                      |   |                   |  |      |  
|Cash and due from banks                                 |  |                                      | 8,927   |                      |   |                  |  | 0.00 | %
|Other assets                                            |  |                                      | 30,010  |                      |   |                  |  | 0.00 | %
|Total assets                                            |  | $                                    | 610,710 |                      | $ | 17,402            |  | 5.70 | %
|Liabilities and Stockholders Equity                    |  |                                      |         |                      |   |                   |  |      |  
|Interest bearing liabilities:                           |  |                                      |         |                      |   |                   |  |      |  
|Savings deposits (including NOW)                        |  | $                                    | 90,076  |                      | $ | 234               |  | 0.52 | %
|Money market accounts                                   |  |                                      | 170,036 |                      |   | 1,022             |  | 1.20 | %
|Certificates of deposit of $100,000 and over            |  |                                      | 63,211  |                      |   | 1,044             |  | 3.30 | %
|Other time deposits                                     |  |                                      | 103,735 |                      |   | 1,770             |  | 3.41 | %
|Other borrowings                                        |  |                                      | 52,171  |                      |   | 858               |  | 3.29 | %
|Total interest bearing liabilities                      |  |                                      | 479,229 |                      |   | 4,928             |  | 2.06 | %
|Non interest bearing liabilities:                       |  |                                      |         |                      |   |                   |  |      |  
|Demand deposits                                         |  |                                      | 88,260  |                      |   |                  |  | 0.00 | %
|Other liabilities                                       |  |                                      | 2,389   |                      |   |                  |  | 0.00 | %
|Total liabilities                                       |  |                                      | 569,878 |                      |   |                   |  |      |  
|Stockholders equity                                    |  |                                      | 40,832  |                      |   |                  |  | 0.00 | %
|Total liabilities and stockholders equity              |  | $                                    | 610,710 |                      | $ | 4,928             |  | 1.61 | %
|Net interest income/rate spread                         |  |                                      |         |                      | $ | 12,474            |  | 4.03 | %
|Net earning assets/net yield on interest earning assets |  | $                                    | 92,544  |                      |   |                   |  | 4.36 | %



Liquidity and Commitments



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 current market rates of interest, which
can cause fluctuations in levels of deposits and prepayments on loans and securities.



At June 30, 2004, the total approved loan origination commitments outstanding amounted to $127,593. Outstanding letters of credit totaled $7,491. Certificates of deposit scheduled to mature in one year or less at June 30, 2004 totaled
$23,884.



The Companys membership in the Federal Home Loan Bank System
gives it the ability to borrow funds from the Federal Home Loan Bank of New York for short or long term purposes under a variety of programs. The Bank also has various funding arrangements with commercial and investment banks providing up to $6,000
of unsecured funding sources in the form of federal funds lines and repurchase agreements based on available collateral. Unused capacity under these unsecured lines was $6,000 at June 30, 2004. The Bank maintains these funding arrangements to
achieve favorable costs of funds, manage interest rate risk, and enhance liquidity in the event of deposit outflows.





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##### Table of Contents

Impact of Inflation and Changing Prices



The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of
America, which require the measurement of financial position and operating results in terms of historical dollars without considering the relative purchasing power of money over time due to inflation. The primary effect of inflation on the
operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more
significant effect on the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices. Interest rates do not necessarily move in the same direction or in the same magnitude as the
prices of goods and services. Interest rates are highly sensitive to many factors, which are beyond the control of the Company, including the influence of domestic and foreign economic conditions and the monetary and fiscal policies of the United
States government and federal agencies, particularly the Federal Reserve Bank.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



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 2004 reflected minimal sensitivity to upward or downward rate fluctuations. Interest income, margins, and net income remain stable regardless of changes in market interest rates. These models then
lead to investment, loan, and deposit strategies and decisions for earnings maximization within acceptable risk levels. The following reflects the net interest income sensitivity for the company at April 30, 2004:



Interest Rate Shock Analysis



|                                                      |  |        |  |                                                      |          |   |          |       |  
|----------------------------------------------------- |  | ------ |  | ---------------------------------------------------- | -------- | - | -------- | ----- | -
|Change in Interest Rates in Basis Points (RATE SHOCK) |  |        |  | As of 4/30/04 Potential Changein Net Interest Income |         
|                                                      |  |        |  | $ Change                                             |          |   | % Change |      
|                                                      |  | 300    |  | $                                                    | 136,000  |   |          | 0.47  | %
|                                                      |  | Static |  |                                                      |          |   |          |       |  
|                                                      |  | -100   |  | $                                                    | (362,000 | ) |          | -1.25 | %





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##### Table of Contents

Item 4  Controls and Procedures



An
evaluation was performed under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2004. Based on that evaluation, the Companys management, including the Chief Executive
Officer and Chief Financial Officer, concluded that the Companys disclosure controls and procedures were effective. There has been no change in the Companys internal control over financial reporting during the quarter that has materially
affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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 BANCORPAugust 6, 2004/s/ Bradley E. RockBradley E. Rock, Chairman, President and Chief
Executive Officer




August 6, 2004



/s/ Anita M. FlorekAnita M. Florek, Executive Vice President, Treasurer
and Chief Financial Officer