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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarter ended September 30, 2003



Commission file number 2-91511



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SMITHTOWN BANCORP

Incorporated pursuant to the laws of New York State



Internal Revenue Service  Employer Identification
No. 11-2695037



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



631-360-9300



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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: 2,990,074 Shares of Common Stock ($1.25 Par Value) Outstanding as of November 10, 2003.



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SMITHTOWN BANCORP



INDEX



|Part IFINANCIAL INFORMATION
|----------------------------
|                            
|Item 1.                     
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|Item 2.                     
|                            
|Item 3.                     
|                            
|Item 4.                     
|                            
|Part IIOTHER INFORMATION   
|                            
|Item 1.                     
|                            
|Item 2.                     
|                            
|Item 3.                     
|                            
|Item 4.                     
|                            
|Item 5.                     
|                            
|Item 6.                     



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



Exhibit Number Referred toItem 601 of Regulation S-K

Description of Exhibit31.1

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 135032.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350




| | (2) | Report Form 8-K Change in Registrants Certifying AccountantFiled August 26, 2003Incorporated by Reference
| | --- | ------------------------------------------------------------------------------------------------------------



|Signatures |  |  |  | 
|---------- |  |  |  | 



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SMITHTOWN BANCORP

UNAUDITED
CONSOLIDATED BALANCE SHEETS





|                                                                                                            |  | As of             
|----------------------------------------------------------------------------------------------------------- |  | ------------------
|                                                                                                            |  | September 30, 2003
|Assets                                                                                                      |  |                   
|Cash and Due from Banks                                                                                     |  | $                 
|Federal Funds Sold                                                                                          |  |                   
|                                                                                                            |  |                   
|Total Cash and Cash Equivalents                                                                             |  |                   
|                                                                                                            |  |                   
|Investment Securities:                                                                                      |  |                   
|Investment Securities Held to Maturity:                                                                     |  |                   
|Mortgage-Backed Securities                                                                                  |  |                   
|Obligations of State and Political Subdivisions                                                             |  |                   
|                                                                                                            |  |                   
|Total Investment Securities Held to Maturity                                                                |  |                   
|                                                                                                            |  |                   
|(Estimated Fair Value $2,248,554 and $ 3,118,644 at September 30, 2003 and December 31, 2002, respectively) |  |                   
|Investment Securities Available for Sale:                                                                   |  |                   
|Obligations of U.S. Government Agencies                                                                     |  |                   
|Mortgage-Backed Securities                                                                                  |  |                   
|Obligations of State and Political Subdivisions                                                             |  |                   
|Other Securities                                                                                            |  |                   
|                                                                                                            |  |                   
|Total Investment Securities Available for Sale (At Estimated Fair Value)                                    |  |                   
|                                                                                                            |  |                   
|Total Investment Securities                                                                                 |  |                   
|                                                                                                            |  |                   
|Restricted Investment Securities                                                                            |  |                   
|                                                                                                            |  |                   
|Loans                                                                                                       |  |                   
|Less: Unearned Discount                                                                                     |  |                   
|Allowance for Loan Losses                                                                                   |  |                   
|                                                                                                            |  |                   
|Loans, Net                                                                                                  |  |                   
|                                                                                                            |  |                   
|Equity Investment in SMTB Financial Group, LLC.                                                             |  |                   
|Bank Premises and Equipment                                                                                 |  |                   
|Other Assets                                                                                                |  |                   
|Cash Surrender Value of Bank Owned Life Insurance Policies                                                  |  |                   
|Other                                                                                                       |  |                   
|                                                                                                            |  |                   
|Total Assets                                                                                                |  | $                 
|                                                                                                            |  |                   
|Liabilities                                                                                                 |  |                   
|Deposits:                                                                                                   |  |                   
|Demand                                                                                                      |  | $                 
|Money Market                                                                                                |  |                   
|NOW                                                                                                         |  |                   
|Savings                                                                                                     |  |                   
|Time Deposits                                                                                               |  |                   
|                                                                                                            |  |                   
|Total Deposits                                                                                              |  |                   
|Dividend Payable                                                                                            |  |                   
|Other Borrowed Funds                                                                                        |  |                   
|Trust Preferred Securities                                                                                  |  |                   
|Other Liabilities                                                                                           |  |                   
|                                                                                                            |  |                   
|Total Liabilities                                                                                           |  |                   
|                                                                                                            |  |                   
|Stockholders Equity                                                                                        |  |                   
|Common Stock-$1.25 Par Value:                                                                               |  |                   
|(7,000,000 Shares Authorized; 3,583,640 Shares Issued)                                                      |  |                   
|Retained Earnings                                                                                           |  |                   
|Additional Paid in Capital                                                                                  |  |                   
|Accumulated Other Comprehensive Income                                                                      |  |                   
|                                                                                                            |  |                   
|Total                                                                                                       |  |                   
|Less: Treasury Stock                                                                                        |  |                   
|                                                                                                            |  |                   
|(567,185 and 536,142 Shares at Cost at September 30, 2003 and December 31, 2002, respectively)              |  |                   
|Total Stockholders Equity                                                                                  |  |                   
|                                                                                                            |  |                   
|Total Liabilities and Stockholders Equity                                                                  |  | $                 
|                                                                                                            |  |                   





See accompanying notes to the Unaudited Consolidated Financial Statements.



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SMITHTOWN BANCORP

UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME





|                                                      |  | For the Three Months Ended September 30,
|----------------------------------------------------- |  | ----------------------------------------
|                                                      |  | 2003                                    
|                                                      |  |                                         
|Interest Income                                       |  |                                         
|Interest and Fees on Loans                            |  | $                                       
|Interest and Dividends on:                            |  |                                         
|Obligations of U.S. Government Agencies               |  |                                         
|Mortgage-Backed Securities                            |  |                                         
|Obligations of State & Political Subdivisions         |  |                                         
|Other Securities                                      |  |                                         
|Interest on Federal Funds Sold                        |  |                                         
|Interest on Balances Due From Depository Institutions |  |                                         
|Other Interest Income                                 |  |                                         
|                                                      |  |                                         
|Total Interest Income                                 |  |                                         
|                                                      |  |                                         
|Interest Expense                                      |  |                                         
|Money Market Accounts                                 |  |                                         
|Savings                                               |  |                                         
|Time Deposits $100,000 and Over                       |  |                                         
|Other Time Deposits                                   |  |                                         
|Interest on Other Borrowed Money                      |  |                                         
|                                                      |  |                                         
|Total Interest Expense                                |  |                                         
|                                                      |  |                                         
|Net Interest Income                                   |  |                                         
|Provision for Loan Losses                             |  |                                         
|                                                      |  |                                         
|Net Interest Income After Provision for Loan Losses   |  |                                         
|                                                      |  |                                         
|Other Non-Interest Income                             |  |                                         
|Trust Department Income                               |  |                                         
|Service Charges on Deposit Accounts                   |  |                                         
|Other Income                                          |  |                                         
|Net Gain on Sale of Investment Securities             |  |                                         
|Net Income from Equity Investment                     |  |                                         
|                                                      |  |                                         
|Total Other Non-Interest Income                       |  |                                         
|                                                      |  |                                         
|Other Operating Expenses                              |  |                                         
|Salaries                                              |  |                                         
|Pension and Other Employee Benefits                   |  |                                         
|Net Occupancy Expense of Bank Premises                |  |                                         
|Furniture and Equipment Expense                       |  |                                         
|Miscellaneous Operating Expense                       |  |                                         
|                                                      |  |                                         
|Total Other Operating Expense                         |  |                                         
|                                                      |  |                                         
|Income Before Income Taxes                            |  |                                         
|Provision for Income Taxes                            |  |                                         
|                                                      |  |                                         
|Net Income                                            |  | $                                       
|                                                      |  |                                         
|Earnings Per Share                                    |  |                                         
|Net Income                                            |  | $                                       
|Cash Dividends Declared                               |  | $                                       
|Weighted Average Shares Outstanding                   |  |                                         
|Comprehensive Income                                  |  | $                                       





See accompanying notes to the Unaudited Consolidated Financial Statements.



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SMITHTOWN BANCORP

UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME





|                                                      |  | For the Nine Months Ended September 30,
|----------------------------------------------------- |  | ---------------------------------------
|                                                      |  | 2003                                   
|                                                      |  |                                        
|Interest Income                                       |  |                                        
|Interest and Fees on Loans                            |  | $                                      
|Interest and Dividends on:                            |  |                                        
|Obligations of U.S. Government Agencies               |  |                                        
|Mortgage-Backed Securities                            |  |                                        
|Obligations of State & Political Subdivisions         |  |                                        
|Other Securities                                      |  |                                        
|Interest on Federal Funds Sold                        |  |                                        
|Interest on Balances Due From Depository Institutions |  |                                        
|Other Interest Income                                 |  |                                        
|                                                      |  |                                        
|Total Interest Income                                 |  |                                        
|                                                      |  |                                        
|Interest Expense                                      |  |                                        
|Money Market Accounts                                 |  |                                        
|Savings                                               |  |                                        
|Time Deposits $100,000 and Over                       |  |                                        
|Other Time Deposits                                   |  |                                        
|Interest on Other Borrowed Money                      |  |                                        
|                                                      |  |                                        
|Total Interest Expense                                |  |                                        
|                                                      |  |                                        
|Net Interest Income                                   |  |                                        
|Provision for Loan Losses                             |  |                                        
|                                                      |  |                                        
|Net Interest Income After Provision for Loan Losses   |  |                                        
|                                                      |  |                                        
|Other Non-Interest Income                             |  |                                        
|Trust Department Income                               |  |                                        
|Service Charges on Deposit Accounts                   |  |                                        
|Other Income                                          |  |                                        
|Net Gain on Sale of Investment Securities             |  |                                        
|Net Income from Equity Investment                     |  |                                        
|                                                      |  |                                        
|Total Other Non-Interest Income                       |  |                                        
|                                                      |  |                                        
|Other Operating Expenses                              |  |                                        
|Salaries                                              |  |                                        
|Pension and Other Employee Benefits                   |  |                                        
|Net Occupancy Expense of Bank Premises                |  |                                        
|Furniture and Equipment Expense                       |  |                                        
|Miscellaneous Operating Expense                       |  |                                        
|                                                      |  |                                        
|Total Other Operating Expense                         |  |                                        
|                                                      |  |                                        
|Income Before Income Taxes                            |  |                                        
|Provision for Income Taxes                            |  |                                        
|                                                      |  |                                        
|Net Income                                            |  | $                                      
|                                                      |  |                                        
|Earnings Per Share                                    |  |                                        
|Net Income                                            |  | $                                      
|Cash Dividends Declared                               |  | $                                      
|Weighted Average Shares Outstanding                   |  |                                        
|Comprehensive Income                                  |  | $                                      





See accompanying notes to the Unaudited Consolidated Financial Statements.



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SMITHTOWN BANCORP

UNAUDITED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY





|                                       |  |              |   |  |        |           |         |   | Cost of   |  |   | Accumulated |   |  |               |           
|-------------------------------------- |  | ------------ | - |  | ------ | --------- | ------- | - | --------- |  | - | ----------- | - |  | ------------- | ----------
|                                       |  | Common Stock |   |  |        |           |         |   | Common    |  |   | Other       |   |  | Total         |           
|                                       |  | Shares       |   |  |        |           | Capital |   | Retained  |  |   | Stock in    |   |  | Comprehensive |           
|                                       |  | Outstanding  |   |  | Amount |           | Surplus |   | Earnings  |  |   | Treasury    |   |  | Income (Loss) |           
|                                       |  |              |   |  |        |           |        
|Balance at 1/1/02                      |  | 3,078,514    |   |  | $      | 2,239,775 |         | $ | 1,993,574 |  | $ | 28,765,704  |   |  | $             | (6,095,915
|Comprehensive Income:                  |  |              |   |  |        |           |         |   |           |  |   |             |   |  |               |           
|Net Income                             |  |              |   |  |        |           |         |   |           |  |   | 5,901,664   |   |  |               |           
|Other Comprehensive Income, Net of Tax |  |              |   |  |        |           |         |   |           |  |   |             |   |  |               |           
|                                       |  |              |   |  |        |           |         |   |           |  |   |             |   |  |               |           
|Total Comprehensive Income             |  |              |   |  |        |           |         |   |           |  |   |             |   |  |               |           
|Cash Dividends Declared                |  |              |   |  |        |           |         |   |           |  |   | (691,312    | ) |  |               |           
|Treasury Stock Purchases               |  | (6,980       | ) |  |        |           |         |   |           |  |   |             |   |  |               | (146,950  
|                                       |  |              |   |  |        |           |         |   |           |  |   |             |   |  |               |           
|Balance at 9/30/02                     |  | 3,071,534    |   |  | $      | 2,239,775 |         | $ | 1,993,574 |  | $ | 33,976,056  |   |  | $             | (6,242,865
|                                       |  |              |   |  |        |           |         |   |           |  |   |             |   |  |               |           
|                                       |  |              |   |  |        |           |        
|Balance at 1/1/03                      |  | 3,047,498    |   |  | $      | 2,239,775 |         | $ | 1,993,574 |  | $ | 35,887,008  |   |  | $             | (6,909,711
|Comprehensive Income:                  |  |              |   |  |        |           |         |   |           |  |   |             |   |  |               |           
|Net Income                             |  |              |   |  |        |           |         |   |           |  |   | 6,632,768   |   |  |               |           
|Other Comprehensive Income, Net of Tax |  |              |   |  |        |           |         |   |           |  |   |             |   |  |               |           
|                                       |  |              |   |  |        |           |         |   |           |  |   |             |   |  |               |           
|Total Comprehensive Income             |  |              |   |  |        |           |         |   |           |  |   |             |   |  |               |           
|Cash Dividends Declared                |  |              |   |  |        |           |         |   |           |  |   | (815,494    | ) |  |               |           
|Treasury Stock Purchases               |  | (31,043      | ) |  |        |           |         |   |           |  |   |             |   |  |               | (865,929  
|                                       |  |              |   |  |        |           |         |   |           |  |   |             |   |  |               |           
|Balance at 9/30/03                     |  | 3,016,455    |   |  | $      | 2,239,775 |         | $ | 1,993,574 |  | $ | 41,704,282  |   |  | $             | (7,775,640
|                                       |  |              |   |  |        |           |         |   |           |  |   |             |   |  |               |           





See accompanying notes to the Unaudited Consolidated Financial Statements.



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SMITHTOWN BANCORP

|UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS |  | 
|----------------------------------------------- |  | 



|                                                                                  |  | For the Nine Months Ended September 30 |            
|--------------------------------------------------------------------------------- |  | -------------------------------------- | -----------
|                                                                                  |  | 2003                                   |            
|Cash Flows from Operating Activities                                              |  |                                        |            
|Net Income                                                                        |  | $                                      | 6,632,768  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                        |            
|Depreciation on Premises and Equipment                                            |  |                                        | 540,066    
|Provision for Loan Losses                                                         |  |                                        | 600,000    
|Net Gain on Sale of Investment Securities                                         |  |                                        | (60,965    
|Amortization of Transition Obligation                                             |  |                                        | 22,196     
|Increase in Interest Payable                                                      |  |                                        | 112,721    
|Increase in Miscellaneous Payables and Accrued Expenses                           |  |                                        | 226,050    
|(Increase) Decrease in Fees and Commissions Receivable                            |  |                                        | 75,065     
|Increase in Interest Receivable                                                   |  |                                        | (198,297   
|Increase in Prepaid Expenses                                                      |  |                                        | (369,272   
|(Increase) Decrease in Miscellaneous Receivable                                   |  |                                        | 46,269     
|Decrease in Income Taxes Receivable                                               |  |                                        | 149,820    
|Increase in Deferred Taxes                                                        |  |                                        | (238,816   
|Decrease in Accumulated Post Retirement Benefit Obligation                        |  |                                        | (19,669    
|Amortization of Investment Security Premiums and Accretion of Discounts           |  |                                        | (116,665   
|Net Gain on Investment in SMTB Financial Group, LLC.                              |  |                                        | (53,510    
|                                                                                  |  |                                        |            
|Cash Provided by Operating Activities                                             |  |                                        | 7,347,761  
|                                                                                  |  |                                        |            
|Cash Flows from Investing Activities                                              |  |                                        |            
|Proceeds from Disposition of Mortgage-Backed Securities:                          |  |                                        |            
|Held to Maturity                                                                  |  |                                        | 238,313    
|Available for Sale                                                                |  |                                        | 5,981,753  
|Proceeds from Disposition of Other Investment Securities:                         |  |                                        |            
|Held to Maturity                                                                  |  |                                        | 446,861    
|Available for Sale                                                                |  |                                        | 32,046,984 
|Purchase of Other Investment Securities:                                          |  |                                        |            
|Held to Maturity                                                                  |  |                                        | (40,000    
|Available for Sale                                                                |  |                                        | (42,852,184
|Federal Funds Sold, Net                                                           |  |                                        | 1,993,689  
|Loans Made to Customers, Net                                                      |  |                                        | (65,139,786
|Distribution from SMTB Financial Group, LLC.                                      |  |                                        | 0          
|Purchase of Premises and Equipment                                                |  |                                        | (1,897,134 
|Purchase of Officers Life Insurance Policies                                     |  |                                        | (1,413,600 
|Increase in Cash Surrender Value of Officers Life Insurance Policies             |  |                                        | (351,138   
|                                                                                  |  |                                        |            
|Cash Used by Investing Activities                                                 |  |                                        | (70,986,242
|                                                                                  |  |                                        |            
|Cash Flows from Financing Activities                                              |  |                                        |            
|Net Increase in Demand Deposits, NOW and Savings Accounts                         |  |                                        | 54,097,897 
|Net Increase in Time Accounts                                                     |  |                                        | 1,579,558  
|Cash Dividends Paid                                                               |  |                                        | (773,263   
|Securities Sold Under Agreements to Repurchase and Other Borrowings, Net          |  |                                        | 6,300,000  
|Purchase of Treasury Stock                                                        |  |                                        | (865,928   
|Proceeds from Trust Preferred Issue                                               |  |                                        | 11,000,000 
|                                                                                  |  |                                        |            
|Cash Provided by Financing Activities                                             |  |                                        | 71,338,264 
|                                                                                  |  |                                        |            
|Net Increase (Decrease) in Cash and Cash Equivalents                              |  |                                        | 7,699,783  
|Cash and Due from Banks, Beginning of Period                                      |  |                                        | 8,169,673  
|                                                                                  |  |                                        |            
|Cash and Due from Banks, End of Period                                            |  | $                                      | 15,869,456 
|                                                                                  |  |                                        |            
|Supplemental Disclosures of Cash Flow Information                                 |  |                                        |            
|Cash Paid During Period for:                                                      |  |                                        |            
|Interest                                                                          |  | $                                      | 980,952    
|Income Taxes                                                                      |  |                                        | 3,848,117  
|Schedule of Noncash Investing Activities                                          |  |                                        |            
|Unrealized Gain (Loss) on Securities Available for Sale                           |  |                                        | (304,379   



See
accompanying notes to the Unaudited Consolidated Financial Statements.



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Notes to Consolidated Financial StatementsUnaudited



Note 1Financial Statement Presentation



The consolidated financial statements include the accounts of Smithtown Bancorp (the
Company) and its wholly-owned subsidiary, The 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,
2002.



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 accounting principles generally accepted in the United States of America 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, 2002 consolidated balance
sheet was derived from the Companys December 31, 2002 audited consolidated financial statements included in the Annual Report on Form 10-K.



Interim statements are subject to possible adjustment in connection with the annual audit of the Company for the year ending December 31, 2003. 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.



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Note 2Trust Preferred Securities



In September 2003, the Company formed a statutory trust organized under the laws of the
State of Delaware, known as Smithtown Bancorp Capital Trust I (the Trust). The Trust issued $11,000,000 of Floating Rate Capital Securities due October 8, 2033 (the capital securities). The capital securities bear interest at 3-month
LIBOR plus 2.99%. The interest rate adjusts quarterly. Interest is payable quarterly. The capital securities provide for an interest deferral on a cumulative basis at the option of the Company for up to 20 consecutive quarters. The Company may not
declare or pay dividends or distributions on capital stock or redeem or purchase any of its capital stock during an interest deferral period. The Company has the right to redeem the capital securities, in whole or in part, at a premium declining
ratably to par on October 8, 2008.



Note
3Earnings Per Common Shares



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



Note 4New Accounting Pronouncements



In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 (FIN No. 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Adoption of the initial recognition and measurement provisions did not have a material impact on the Companys financial condition or results of
operations at or for the nine months ended September 30, 2003.



In January
2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN No. 46). FIN No. 46, which is an interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, addresses the accounting and reporting for variable interest entities, as defined. FIN 46 is effective immediately for VIEs created after January 31, 2003. For VIEs created prior to February 1, 2003,
FIN 46 will apply in the first interim period or fiscal year beginning after September 15, 2003. The Company adopted this provision effective September 25, 2003 upon the issuance of a pooled trust preferred offering. See Note 2.



In April 2003, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 149 Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS No. 149). SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. All provisions of this Statement shall be applied prospectively. Based on the Companys current business operations, the provisions of SFAS No. 149 do not have a material impact on the
Companys financial condition, results of operations, or disclosures.



---

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS No. 150). SFAS No. 150 is generally effective for financial instruments entered into or modified after May 31, 2003, and
otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Based on the Companys current business operations, the provisions of SFAS No. 150 do not impact the Companys financial condition, results of
operations, or disclosures.



---

|Item 2: |  | Managements Discussion and Analysis of Financial Condition and Results of Operation
|------- |  | ------------------------------------------------------------------------------------



The following discussion compares the financial condition of Smithtown Bancorp (the Company), at September 30, 2003 to its financial
condition at December 31, 2002 and the results of operations for the three-month and nine-month periods ended September 30, 2003 to the same periods in 2002. This discussion should be read in conjunction with the interim financial statements and
footnotes included herein.



This report may contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, but actual results may differ materially from anticipated future results. Forward-looking statements may
be identified by the use of the words believe, expect, anticipate, project, estimate, will be, will continue, will likely result, or similar expressions.
The Companys ability to predict results of the actual effect of future strategic plans is inherently uncertain. Factors that could have a material adverse effect on the operations of the Company as well as its subsidiaries include but are not
limited to changes in: general economic conditions, interest rates, deposit flows, loan demand, competition, accounting principals and guidelines, and governmental, regulatory and technological factors affecting the Companys operations,
pricing, products and services. The factors included here are not exhaustive. Other sections of this report may include additional factors that could adversely impact the Companys performance.



Investors are cautioned not to place undue reliance on forward-looking statements as a
prediction of actual results. Except as required by applicable law or regulation, the Company undertakes no obligation to republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the
occurrences of unanticipated results. Investors are advised, however, to consult any further disclosures the Company makes on related subjects in our reports to the Securities Exchange Commission.



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



Comparison of Financial Condition at September 30, 2003 and December 31, 2002



The Banks Balance Sheet continued to grow during the third quarter 2003. During the first three quarters of 2003 total assets grew 17.28% from $451,803,237 to $529,892,952. Loan growth also continued during
third quarter. First quarter loan growth was 1.53%, second quarter growth was 7.68% and third quarter growth exceeded both prior quarters and was 8.09%. Total loan growth year to date has been 18.17%. The continued strong demand for loans,
principally commercial mortgages, causes management to expect loan growth to continue for the balance of the year. The strong demand for real estate on Long Island as well in our surrounding areas is the major contributory factor for this demand.
Loans represent 79.88% of total assets as of September 30, 2003 as compared to 79.28% at December 31, 2002. The loan portfolio at September 30, 2003 is comprised of 89.96% real estate collateralized loans, 9.28% commercial loans and .76% other
loans.



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The Companys securities portfolio increased by 6.96% from December 31, 2002, with the growth primarily in available
for sale U.S. Government Agency securities. The Banks net interest margin for the nine months ended September 30, 2003 was 5.11% as compared to 5.32% for the comparable period of 2002.



During the first nine months of 2003, bank premises and equipment increased by $1,357,068 or
15.46%. This change is primarily attributable to the opening of a new retail branch as well as new and upgraded computer equipment.



From the period January 1, 2003 to September 30, 2003, the liability side of the balance sheet increased by $73,314,935, of which $55,677,453 or 75.94% was deposit
growth. This growth was the result of a competitive rate structure and greatly increased sales efforts by the retail staff. The areas of largest deposit growth were in demand deposits and money market accounts. Other borrowed funds increased by
$6,300,000 or 16.58% during the first nine months of 2003. This was the result of the Banks strong loan demand and resultant growth in the portfolio.



During third quarter 2003, the Company formed a statutory trust organized under the laws of the State of Delaware, known as Smithtown Bancorp Capital Trust I
(the Trust). The Trust issued Trust Preferred Securities in a pooled transaction and subsequently purchased subordinated debentures issued by Smithtown Bancorp. The use for the capital raised by the Company was for general corporate
purposes as well as repurchase of the Bancorps common stock. The volume of the Trust Preferred Securities was $11,000,000 with the following terms: 3 month LIBOR plus 299 basis points, callable after 5 years and for special events.



Total stockholders equity increased by 14.07%, a result of net income of $6,632,768,
dividends declared of $815,494, treasury stock purchases of $865,929 and other comprehensive income of $176,565. The return on average assets for the nine month period ended September 30, 2003 was 1.81% as compared to 1.88% for the same period in
2002. The return on average equity for the first nine months of 2003 was 24.44% as compared to 26.48% for the same period in 2002. Leverage capital for September 30, 2003 and December 31, 2002 was 7.90% and 7.79%, respectively. Total Risk Based
Capital for the same periods was 12.70% and 10.46%, respectively.



Comparison of Operating Results for the Three Months Ended September 30, 2003 and 2002



Net income for the third quarter of 2003 was $2,410,713 as compared to $1,939,681, or a 24.28% increase over the same period in 2002. Earnings per share were $.80 for the nine month period in 2003 as compared to $.63
for the same period in 2002. This increase represents a 26.98% increase. Interest and fees on loans was 12.63% higher during the statement period in 2003 as compared to 2002.



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Total interest income for the three month period of 2003 reflects an 8.64% increase over 2002 primarily as a result of
increased loan volume, partially offset by a decrease in the yield on interest earning assets.



Total interest expense for the third quarter of the current year was 4.18% less than that of the same period last year. This was largely due to the continued downward repricing of deposits as a result of the low
interest rate environment, partially offset by an increase in the volume of interest-bearing liabilities.



The provision for loan losses for the three month period ended September 30 was $250,000 as compared to $330,000 for the three months during 2002. The provision is reflective of the high quality of the loan portfolio.



In evaluating the level of the allowance for loan losses, management considers
historical loss experience, the composition of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral, peer group information and prevailing economic conditions.
Large balance complex loans, such as commercial real estate and building loans are evaluated individually for impairment. Estimated losses for loans that are not individually deemed to be impaired are determined on a pooled basis taking into account
a variety of factors including historical losses; levels of and trends in delinquencies and nonaccruing loans; trends in volume and terms of loans; changes in lending policies and procedures; experience, ability and depth of lending staff; national
and local economic conditions; concentrations of credit; and environmental risks.



This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. The allowance for loan losses as a percentage of loans
outstanding decreased to 1.07% at September 30, 2003 from 1.10% at September 30, 2002. The level of the allowance is based on estimates and the ultimate losses may vary from the estimates.



Management assesses the allowance for loan losses quarterly. While management uses available
information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for
loan losses and may require the bank to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses as of September 30, 2003 was maintained at a level that
represented managements best estimate of losses in the loan portfolio to the extent they were both probable and reasonably estimable.



Non interest income for the third quarter of 2003 was 22.66% less than during the comparable period in 2002. This was the result of reduced service charges on customer
accounts due to the introduction of free checking and reduced gain on the sale/redemption of investment securities. Trust department income was greatly increased during third quarter 2003. The final settlement of various trusts occurred during this
quarter, at which time the Banks pay out commissions received exceeded the amounts accrued during prior periods.



Other operating expenses were also lower during the three month period in 2003 as compared to 2002. These expenses were 12.08% less during third quarter 2003. The major
categories of reduced expense were office supplies, consulting expenses, and a specific provision of $300,000 related to an off balance sheet reserve.



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Comparison of Operating Results for the Nine Months Ended September 30, 2003 and 2002



Net income for the nine months ended September 30, 2003 was $6,632,768 as compared to
$5,901,664 for the same period in 2002, a 12.39% increase. Earnings per share were $2.19 as compared to $1.92 for the two periods, a 14.21% increase. The increase in net income and earnings per share are primarily a result of increased interest and
fees on loans. This interest and fee income during the nine months ended September 30, 2003 increased by 13.33% over the comparable period in 2002.



Total interest income during the first three quarters of 2003 was $1,865,887 greater than that for the same period during 2002. The overall yield on interest earning
assets at September 30, 2003 was 6.76% as compared to 7.20% during the first nine months of 2002. The yield on the loan portfolio at September 30, 2003 was 7.12% as compared to 7.54% at September 30, 2002. This decline in yield is a result of the
continued low interest rate environment. The yield on securities declined from 6.07% to 5.43% at September 30, 2002 and 2003, respectively. Yield on federal funds sold also declined from 1.69% at September 30, 2002 to 1.06% at September 30,
2003.



Interest expense on deposit accounts increased from $4,117,660 to
$4,503,663, or 9.37%. This was the result of $43,453,906 of additional interest bearing balances. Interest expense on borrowed funds however, decreased by 19.82% over the comparable periods due to the reduced volume of funds outstanding and the
downward repricing of new borrowings. Overall cost of funds for the nine months ended September 30, 2003 was 2.03% as compared to 2.29% for the comparable period in 2002.



The provision for loan losses for the first nine months of 2003 was $600,000 as compared to $690,000 for the same period in 2002 reflective
of the Banks present high loan portfolio quality.



Other non interest
income increased by 1.85% during the first nine months of 2003 as compared to the same period in 2002. This was the result of an increase in trust department income during the third quarter resulting from the closing of various trusts, partially
offset by a decrease in service charges.



Other operating expenses increased by
6.48%, primarily the result of a 34.57% increase in net occupancy expense of bank premises. The opening of an additional retail office this year as well as the operating expenses related to the two retail offices opened during 2002 contributed to
this increase. Salary and benefit increases contributed, to a smaller degree, to the increase in operating expenses.



As we enter the fourth quarter, management remains very optimistic about the Banks continued performance during 2003.



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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 September 30, 2003, the total approved loan
origination commitments outstanding amounted to $61,121,290, of which unused lines of credit were $2,597,000. Outstanding letters of credit totaled $9,469,076. Certificates of deposit scheduled to mature in one year or less at September 30, 2003,
totaled $36,603,207.



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 $6,000,000 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 $6,000,000 at September 30, 2003. 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.



Capital



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 maintain a minimum ratio of total risk
based capital to total risk weighted assets (Total Risk Adjusted Capital) of 8%, including Tier 1 capital to total risk weighted assets (Tier 1 Capital) of 4% and a Tier 1 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 September 30, 2003, the Bank is considered to be
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 1 Capital Ratio of at least
6%, a Leverage Ratio of at least 5%, and not be subject to any written order, agreement or directive. There are no conditions or events since such notifications that management believes have changed this classification. However, due to the recent
issuance of FIN 46, there can be no assurance that the Federal Reserve will continue to allow institutions to include Trust Preferred Securities in Tier I Capital.



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Impact of Inflation, Changing Prices and Monetary Policies



The financial statements and related financial data concerning the Company 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 changes in 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.



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|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 2003 reflected minimal sensitivity to upward or downward rate fluctuations. Interest income, margins, and net income remain stable regardless of changes in market interest rates. These models then
lead to investment, loan, and deposit strategies and decisions for earnings maximization within acceptable risk levels.



The Banks market risk is primarily its exposure to interest rate risk. Interest rate risk is the effect that changes in interest rates have on future earnings. The
principal objective in managing interest rate risk is to maximize net interest income within acceptable levels of risk that have been previously established by policy.



The following table sets forth the amounts of estimated cash flows for the various interest earning assets and interest bearing liabilities
that are sensitive to changes in interest rates at September 30, 2003 and 2002. Adjustable rate assets are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due. Money market
deposit accounts are assumed to decline over a two-year period. Savings and NOW deposit accounts are assumed to decline over a five-year period.



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|As of September 30, 2003           |  | Expected Maturity Between |        |                          
|---------------------------------- |  | ------------------------- | ------ | -------------------------
|                                   |  | 10/1/0312/31/03          |        | 1/1/0412/31/04          
|(In thousands)                     |  | Balance                   |        | Weighted Average Rate (%)
|Other Financial Instruments        |  |                           |        |                          
|Interest Earning Assets            |  |                           |        |                          
|Investments                        |  |                           |        |                          
|Available for Sale (Fair Value)    |  | $                         | 3,623  |                          
|Held to Maturity (Book Value)      |  |                           | 245    |                          
|Federal Funds Sold                 |  |                           | 529    |                          
|Loans:                             |  |                           |        |                          
|Fixed Rate                         |  |                           |        |                          
|Real Estate Loans, Construction    |  |                           | 8      |                          
|Real Estate Loans, Other           |  |                           |        |                          
|Commercial                         |  |                           | 7      |                          
|Residential                        |  |                           | 0      |                          
|Commercial and Industrial Loans    |  |                           | 5,883  |                          
|Loans to Individuals for           |  |                           | 659    |                          
|Household, Family and              |  |                           |        |                          
|Other Personal Expenditures        |  |                           |        |                          
|Variable Rate                      |  |                           |        |                          
|Real Estate Loans, Construction    |  |                           | 23,302 |                          
|Real Estate Loans, Other           |  |                           |        |                          
|Commercial                         |  |                           | 971    |                          
|Residential                        |  |                           | 20,879 |                          
|Commercial and Industrial Loans    |  |                           | 22,058 |                          
|Loans to Individuals for           |  |                           | 280    |                          
|Household, Family and              |  |                           |        |                          
|Other Personal Expenditures        |  |                           |        |                          
|                                   |  |                           |        |                          
|Total Interest Earning Assets      |  | $                         | 78,444 |                          
|                                   |  |                           |        |                          
|Interest Bearing Liabilities       |  |                           |        |                          
|Deposits                           |  |                           |        |                          
|Savings                            |  | $                         | 2,462  |                          
|Money Market                       |  |                           | 18,601 |                          
|NOW                                |  |                           | 1,659  |                          
|Time Deposits of 100,000 or more   |  |                           | 7,740  |                          
|Other Time Deposits                |  |                           | 5,089  |                          
|Other Borrowings                   |  |                           | 22,300 |                          
|                                   |  |                           |        |                          
|Total Interest Bearing Liabilities |  | $                         | 57,851 |                          
|                                   |  |                           |        |                          



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|As of September 30, 2002                                                   |  | Expected Maturity Between |         |                 
|-------------------------------------------------------------------------- |  | ------------------------- | ------- | ----------------
|                                                                           |  | 10/1/02-12/31/02          |         | 1/1/03-12/31/03 
|                                                                           |  |                           |         | Weighted Average
|                                                                           |  | Balance                   |         | Rate (%)        
|(In thousands)                                                             |  |                          
|                                                                           |  |                           |         |                 
|Other Financial Instruments                                                |  |                           |         |                 
|Interest Earning Assets                                                    |  |                           |         |                 
|Investments                                                                |  |                           |         |                 
|Available for Sale (Fair Value)                                            |  | $                         | 5,537   |                 
|Held to Maturity (Book Value)                                              |  |                           | 560     |                 
|Federal Funds Sold                                                         |  |                           | 10,401  |                 
|Loans:                                                                     |  |                           |         |                 
|Fixed Rate                                                                 |  |                           |         |                 
|Real Estate Loans, Construction                                            |  |                           | 0       |                 
|Real Estate Loans, Other                                                   |  |                           |         |                 
|Commercial                                                                 |  |                           | 0       |                 
|Residential                                                                |  |                           | 5       |                 
|Commercial and Industrial Loans                                            |  |                           | 2,906   |                 
|Loans to Individuals for Household, Family and Other Personal Expenditures |  |                           | 952     |                 
|Variable Rate                                                              |  |                           |         |                 
|Real Estate Loans, Construction                                            |  |                           | 58,072  |                 
|Real Estate Loans, Other                                                   |  |                           |         |                 
|Commercial                                                                 |  |                           | 1,750   |                 
|Residential                                                                |  |                           | 17,866  |                 
|Commercial and Industrial Loans                                            |  |                           | 4,151   |                 
|Loans to Individuals for Household, Family and Other Personal Expenditures |  |                           | 0       |                 
|                                                                           |  |                           |         |                 
|Total Interest Earning Assets                                              |  | $                         | 102,200 |                 
|                                                                           |  |                           |         |                 
|                                                                           |  |                           |         |                 
|Interest Bearing Liabilities                                               |  |                           |         |                 
|Deposits                                                                   |  |                           |         |                 
|Savings                                                                    |  | $                         | 2,158   |                 
|Money Market                                                               |  |                           | 15,522  |                 
|NOW                                                                        |  |                           | 1,169   |                 
|Time Deposits of 100,000 or more                                           |  |                           | 8,718   |                 
|Other Time Deposits                                                        |  |                           | 6,724   |                 
|Other Borrowings                                                           |  |                           | 21,000  |                 
|                                                                           |  |                           |         |                 
|Total Interest Bearing Liabilities                                         |  | $                         | 55,291  |                 
|                                                                           |  |                           |         |                 





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|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 September 30, 2003. 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.



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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 BANCORPNovember 14, 2003  /s/    Bradley E. RockBradley E. Rock, Chairman, President and Chief Executive Officer




November 14, 2003



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