SECURITIES AND EXCHANGE COMMISSION
                                 Washington, D.C. 20549
                               __________________

                                    FORM 10-Q
                               __________________

             X   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                      For the quarter ended June 30, 1998

                               __________________ 

                         Commission file number 2-91511

                                SMITHTOWN BANCORP
               Incorporated pursuant to the Laws of New York State


        Internal Revenue Service - Employer Identification No. 11-2695037

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

                                  516-360-9300
                               __________________

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No __

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date: 845,493 Shares of Common stock
($2.50 Par Value) Outstanding as of June 30, 1998.
<PAGE>

                                   SMITHTOWN BANCORP

                                         INDEX


Part I - FINANCIAL INFORMATION                                     PAGES
                                                                   ------
Item 1.    Financial Statements

           Consolidated Balance Sheets
                June 30, 1998 and December 31, 1997                 4 - 5

           Consolidated Statements of Income
                Three months ended June 30, 1998 and 1997               6

           Consolidated Statements of Income
                Six months ended June 30, 1998 and 1997                 7

           Consolidated Statements of Changes in Stockholders Equity
                Six months ended June 30, 1998 and 1997                 8

           Consolidated Statements of Cash Flows
                Three months ended June 30, 1998 and 1997               9

           Consolidated Statements of Cash Flows
                Six months ended June 30, 1998 and 1997                10

Item 2.    Management's Discussion and Analysis of Financial Condition
            and Results of Operations                             11 - 15

Item 3.    Notes to Consolidated Financial Statements                  16


Part II - OTHER INFORMATION

Item 1.    Legal Proceedings - None

Item 2.    Change in Securities - None

Item 3.    Defaults under Senior Securities - None

Item 4.    Submission of Matters to Vote of Security Holders - None

Item 5.    Other Information - None

Item 6.    (A) Exhibits - None
 
<PAGE>
<TABLE>
<CAPTION>

SMITHTOWN BANCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
                                                                                                          As of
                                                                                           June 30, 1998          December 31, 1997
___________________________________________________________________________________________________________________________________
<S>                                                                                        <C>                        <C> 
 
Assets
Cash and Due from Banks ......................................................             $   8,729,362              $   7,667,371
Investment Securities:
   Investment Securities Held to Maturity
     Obligations of U.S. Government ..........................................                 1,000,081                  2,002,757
     Mortgage - Backed Securities ............................................                 6,025,272                  7,237,038
     Obligations of State and Political Subdivisions .........................                 6,410,295                  6,458,344
                                                                                           -------------              -------------
       Total .................................................................                13,435,648                 15,698,139
                                                                                           -------------              -------------
   Investment Securities Available for Sale
     Obligations of U.S. Government ..........................................                 6,146,730                  6,175,710
     Obligations of U.S. Government Agencies .................................                11,233,520                 15,251,638
     Mortgage - Backed Securities ............................................                27,561,467                 36,190,088
     Oligations of State and Political Subdivisions ..........................                 7,472,202                          0
     Other Securities ........................................................                   856,800                    856,800
                                                                                           -------------              -------------
       Total .................................................................                53,270,719                 58,474,236
                                                                                           -------------              -------------
     Total Investment Securities .............................................                66,706,367                 74,172,375
                                                                                           -------------              -------------
         (Fair value $66,808,889 at 6/30/98 and
               $74,336,201 at 12/31/97)
Federal Funds Sold ...........................................................                21,100,000                  8,300,000
Loans
     Real Estate .............................................................                77,237,374                 69,059,256
     Commercial and Industrial ...............................................                23,047,701                 23,745,418
     Loans to Individuals for Household, Family and
         Other Personal Expenditures .........................................                 6,026,383                  7,492,586
     Other ...................................................................                    61,141                    106,272
                                                                                           -------------              -------------
       Total .................................................................               106,372,599                100,403,532
     Less: Unearned Discount .................................................                  (435,540)                  (690,328)
              Reserve for Possible Loan Losses ...............................                (1,947,200)                (1,677,594)
                                                                                           -------------              -------------
Loans, Net ...................................................................               103,989,859                 98,035,610
                                                                                           -------------              -------------
Bank Premises and Equipment ..................................................                 3,013,312                  2,454,834
Other Assets
     Other Real Estate Owned .................................................                 3,844,788                  3,927,786
     Other ...................................................................                 3,269,967                  3,098,459
                                                                                           -------------              -------------
Total Assets .................................................................             $ 210,653,655              $ 197,656,435
                                                                                           =============              =============
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

SMITHTOWN BANCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
                                                                                                          As of
                                                                                           June 30, 1998          December 31, 1997
___________________________________________________________________________________________________________________________________

<S>                                                                                        <C>                        <C>          
Liabilities
Deposits:
     Demand ..................................................................             $  44,277,394              $  42,566,624
     Money Market ............................................................                42,157,381                 36,326,089
     NOW .....................................................................                14,098,358                 15,284,660
     Savings .................................................................                39,161,252                 40,998,166
     Certificates of Deposit $100,000 and Over ...............................                10,650,785                  8,773,618
     Other Time Deposits .....................................................                26,019,275                 24,246,478
                                                                                           -------------              -------------
       Total .................................................................               176,364,445                168,195,635
Dividend Payable .............................................................                   169,099                    151,644
Securities Sold Under Agreements to Repurchase ...............................                         0                  2,800,000
Demand Notes Issued to the U.S. Treasury .....................................                13,000,000                  5,452,540
Other Borrowed Funds .........................................................                 3,000,000                  3,000,000
Other Liabilities ............................................................                 1,048,581                  1,077,158
                                                                                           -------------              -------------
     Total ...................................................................               193,582,125                180,676,977
                                                                                           -------------              -------------

Stockholders' Equity
Common Stock - $2.50 Par Value,  3,000,000 Shares ............................                 2,239,775                  2,239,775
     Authorized; 895,910 Shares Issued
Unrealized Gain on Investment Securities
        Available for Sale ...................................................                   256,573                    249,068
Surplus ......................................................................                 1,993,574                  1,993,574
Retained Earnings ............................................................                14,260,308                 12,943,680
                                                                                           -------------              -------------
     Total ...................................................................                18,750,230                 17,426,097
     Less: Treasury Stock (50,417 shares at cost) ............................                (1,678,700)                  (446,639)
                                                                                           -------------              -------------
     Total ...................................................................                17,071,530                 16,979,458
                                                                                           -------------              -------------
Total Liabilities and Capital ................................................             $ 210,653,655              $ 197,656,435
                                                                                           =============              =============

</TABLE>
<PAGE>

<TABLE>
<CAPTION>

SMITHTOWN BANCORP
CONSOLIDATED INCOME STATEMENTS                                    
(unaudited)
                                                                                                      For Three Months Ended
                                                                                                 June 30, 1998        June 30, 1997
___________________________________________________________________________________________________________________________________
<S>                                                                                               <C>                   <C> 

Interest Income
Interest and Fees on Loans .........................................................              $ 2,386,239           $ 2,375,011
Interest and Dividends on:
     Obligations of U.S. Government ................................................                  111,083                23,991
     Obligations of U.S. Government Agencies .......................................                  234,215               266,487
     Mortgage - Backed Securities ..................................................                  515,826               753,222
     Obligations of State & Political Subdivisions .................................                  170,663                77,804
     Other Securities ..............................................................                   15,173                22,630
Interest on Federal Funds Sold .....................................................                  176,151                65,908
Interest on Balances Due From Depository Institutions ..............................                    2,794                 1,385
                                                                                                   ----------            ----------
     Total Interest Income .........................................................                3,612,144             3,586,438
                                                                                                   ----------            ----------

Interest Expense
Money Market Accounts ..............................................................                  343,404               266,382
Savings ............................................................................                  202,538               242,778
Time  Deposits $100,000 and Over ...................................................                  117,506                48,961
Other Time Deposits ................................................................                  334,530               334,474
Interest on Federal Funds Purchased and Securities
     Sold Under Agreements to Repurchase ...........................................                   28,745                42,483
Interest on Demand Notes Issued by U. S. Treasury ..................................                   51,924                31,035
Interest on Other Borrowed Money ...................................................                   42,163                42,245
                                                                                                   ----------            ----------
     Total Interest Expense ........................................................                1,120,810             1,008,358
                                                                                                   ----------            ----------
Net Interest Income ................................................................                2,491,334             2,578,080
Provision for Possible Loan Losses .................................................                  143,200               140,000
                                                                                                   ----------            ----------
Net Interest Income After Provision for Possible
  Loan Losses ......................................................................                2,348,134             2,438,080
                                                                                                   ----------            ----------

Other Non - Interest Income
Trust Department Income ............................................................                  118,186               119,500
Service Charges on Deposit Accounts ................................................                  374,178               401,868
Other Income .......................................................................                  286,368               186,051
                                                                                                   ----------            ----------
     Total Other Non - Interest Income .............................................                  778,732               707,419
                                                                                                   ----------            ----------

Other Operating Expenses
Salaries ...........................................................................                  807,058               763,239
Pension and Other Employee Benefits ................................................                  176,824               165,058
Net Occupancy Expense of Bank Premises .............................................                  196,753               220,461
Furniture and Equipment Expense ....................................................                  158,019               141,422
Miscellaneous Operating Expense ....................................................                  506,715               456,541
                                                                                                   ----------            ----------
     Total Other Operating Expense .................................................                1,845,369             1,746,721
                                                                                                   ----------            ----------
Income Before Income Taxes .........................................................                1,281,497             1,398,778
Provision for Income Taxes .........................................................                  463,022               540,255
                                                                                                   ----------            ----------
     Net Income ....................................................................              $  818,475            $   858,523
                                                                                                  ==========             ==========

Earnings Per Share
Net Income .........................................................................              $     0.96            $      0.99
Cash Dividends Paid ................................................................              $     0.20            $     0.175
Weighted Average Shares Outstanding ................................................                 850,263                866,536
</TABLE>
<PAGE>
 
<TABLE>
<CAPTION>

SMITHTOWN BANCORP
CONSOLIDATED INCOME STATEMENTS                                    
(unaudited)
                                                                                                  For Six Months Ended
                                                                                          June 30, 1998               June 30, 1997
___________________________________________________________________________________________________________________________________
<S>                                                                                               <C>                   <C>  

Interest Income
Interest and Fees on Loans .........................................................              $ 4,814,849           $ 4,754,488
Interest and Dividends on:
     Obligations of U.S. Government ................................................                  226,840                48,868
     Obligations of U.S. Government Agencies .......................................                  524,095               488,899
     Mortgage - Backed Securities ..................................................                1,132,303             1,438,976
     Obligations of State & Political Subdivisions .................................                  262,961               152,352
     Other Securities ..............................................................                   29,513                24,890
Interest on Federal Funds Sold .....................................................                  290,891               120,212
Interest on Balances Due From Depository Institutions ..............................                    5,701                 2,293
                                                                                                   ----------            ----------
     Total Interest Income .........................................................                7,287,153             7,030,978
                                                                                                   ----------            ----------

Interest Expense
Money Market Accounts ..............................................................                  679,106               498,645
Savings ............................................................................                  406,510               519,318
Time  Deposits $100,000 and Over ...................................................                  238,634               105,743
Other Time Deposits ................................................................                  631,657               629,944
Interest on Federal Funds Purchased and Securities
     Sold Under Agreements to Repurchase ...........................................                   72,826                86,402
Interest on Demand Notes Issued by U. S. Treasury ..................................                  102,116                46,641
Interest on Other Borrowed Money ...................................................                   83,863                88,668
                                                                                                   ----------            ----------
     Total Interest Expense ........................................................                2,214,712             1,975,361
                                                                                                   ----------            ----------
Net Interest Income ................................................................                5,072,441             5,055,617
Provision for Possible Loan Losses .................................................                  253,200               140,000
                                                                                                   ----------            ----------
Net Interest Income After Provision for Possible
  Loan Losses ......................................................................                4,819,241             4,915,617
                                                                                                   ----------            ----------

Other Non - Interest Income
Trust Department Income ............................................................                  204,688               221,259
Service Charges on Deposit Accounts ................................................                  728,094               774,541
Other Income .......................................................................                  447,989               340,544
                                                                                                   ----------            ----------
     Total Other Non - Interest Income .............................................                1,380,771             1,336,344
                                                                                                   ----------            ----------

Other Operating Expenses
Salaries ...........................................................................                1,568,693             1,486,414
Pension and Other Employee Benefits ................................................                  370,414               342,369
Net Occupancy Expense of Bank Premises .............................................                  409,517               457,990
Furniture and Equipment Expense ....................................................                  279,530               297,600
Miscellaneous Operating Expense ....................................................                  932,638               958,861
                                                                                                   ----------            ----------
     Total Other Operating Expense .................................................                3,560,792             3,543,234
                                                                                                   ----------            ----------
Income Before Income Taxes .........................................................                2,639,220             2,708,727
Provision for Income Taxes .........................................................                  982,292             1,051,925
                                                                                                   ----------            ----------
     Net Income ....................................................................              $ 1,656,928           $ 1,656,802
                                                                                                   ==========            ==========

Earnings Per Share
Net Income .........................................................................              $      1.93           $      1.91
Cash Dividends Paid ................................................................              $     0.375           $     0.335
Weighted Average Shares Outstanding ................................................                  856,605               866,536
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

SMITHTOWN BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)


                                                                            Unrealized                   Cost of
                                      Common Stock                          Gain(Loss)                   Common            Total
                                  Shares                      Capital      On Securities     Retained    stock in      Stockholders'
                                Outstanding      Amount       Surplus     Available for      Earnings    Treasury         Equity
                                                                           Sale
____________________________________________________________________________________________________________________________________
<S>                                 <C>        <C>          <C>              <C>          <C>           <C>            <C>


Balance at 1/1/97                   866,536    $ 2,239,775  $ 1,993,574      $ 81,093   $ 10,229,436   $   (446,639)   $ 14,097,239
Net Income                                                                                 1,656,802                      1,656,802
Cash Dividend Declared                                                                      (303,288)                      (303,288)
Allowance for Unrealized Gain(Loss)                                            65,617                                        65,617
                                   --------     ----------  -----------     ---------    ------------     ----------   -------------
Balance at 6/30/97                  866,536    $ 2,239,775  $ 1,993,574     $ 146,710   $ 11,582,950   $   (446,639)   $ 15,516,370
                                    =======    ===========  ===========     =========   ============     ===========    ============



Balance at 1/1/98                   866,536    $ 2,239,775  $ 1,993,574     $ 249,068   $ 12,943,680   $   (446,639)   $ 16,979,458
Net Income                                                                                 1,656,928                      1,656,928
Cash Dividend Declared                                                                      (340,300)                      (340,300)
Purchase Treasury Stock             (21,043)                                                             (1,232,061)     (1,232,061)
Allowance for Unrealized Gain(Loss)                                             7,505                                         7,505
                                    --------   -----------  -----------     ---------   ------------   -------------   ------------
Balance at 6/30/98                  845,493    $ 2,239,775  $ 1,993,574     $ 256,573   $ 14,260,308   $ (1,678,700)   $ 17,071,530
                                    =======    ===========  ===========     =========   ============   =============   =============

</TABLE>
<PAGE>


<TABLE>
<CAPTION>


SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
                                                                                                For Three Months Ended
                                                                                          June 30, 1998              June 30, 1997
____________________________________________________________________________________________________________________________________
<S>                                                                                           <C>                      <C> 

Cash Flows from Operating Activities
Net Income .......................................................................            $    818,475             $    858,523
Adjustments to reconcile net income to net cash
  provided by operating activities:
     Valuation Reserve for Other Real Estate Owned ...............................                  40,998                   30,000
     Depreciation on Premises and Equipment ......................................                  92,028                  105,419
     Provision for Possible Loan Losses ..........................................                 143,200                  140,000
     Amortization of Transition Obligation .......................................                  26,025                   26,025
     Decrease in Interest Payable ................................................                  (4,522)                 (12,406)
     Increase in Miscellaneous Payables and
        Accrued Expenses .........................................................                 143,717                   51,589
     Increase in Fees and Commissions
        Receivable ...............................................................                  (7,200)                  (6,000)
     Decrease in Interest Receivable .............................................                 101,926                  159,721
     (Increase)Decrease in Prepaid Expenses ......................................                 (56,822)                  69,635
     Increase in Miscellaneous Reveivables .......................................                 (44,208)                 (33,884)
     Increase in Income Taxes Receivable .........................................                (448,242)                 (99,129)
     Decrease in Deferred Taxes ..................................................                (115,736)                 (90,616)
     Decrease in Accumulated Post Retirement Benefit
        Obligation ...............................................................                 (13,418)                 (15,754)
     Amortization of Investment Security Premiums and
        Accretion of Discounts ...................................................                  29,807                  (58,959)
                                                                                              ------------             ------------
     Cash Provided by Operating Activities .......................................                 706,028                1,124,164
                                                                                              ------------             ------------

Cash Flows from Investing Activities
     Proceeds from Maturities of Investment Securities
        Held to Maturity .........................................................               1,972,800                  828,830
     Proceeds from Maturities of Investment Securities
        Available for Sale .......................................................               9,986,260                5,654,456
     Purchases of Investment Securities Available for
        Sale .....................................................................              (5,478,457)              (4,897,019)
     Purchases of Investment Securities Held to Maturity .........................                (198,131)                (473,799)
     Net Increase in Federal Funds Sold ..........................................              (7,900,000)              (6,100,000)
     Net (Increase)Decrease in Loans .............................................              (6,188,540)                  30,158
     Purchases of Premises and Equipment .........................................                (433,149)                 (86,923)
     Proceeds from Sale of Other Real Estate Owned ...............................                       0                  267,246
                                                                                              ------------             ------------
     Cash Used by Investing Activities ...........................................              (8,239,217)              (4,777,051)
                                                                                              ------------             ------------

Cash Flows from Financing Activities
     Net Increase(Decrease) in Demand Deposits, NOW
        Accounts and Savings Accounts ............................................               2,158,035               (2,512,750)
     Net Increase in Time Accounts ...............................................               2,076,654                3,501,085
     Cash Dividends Paid .........................................................                (171,201)                (151,644)
     Purchase of Treasury Stock ..................................................                (666,503)                       0
     Net Increase in Borrowed Funds ..............................................               4,905,816                4,699,999
                                                                                              ------------             ------------
     Cash Provided by Financing Activities .......................................               8,302,801                5,536,690
                                                                                              ------------             ------------

     Net Increase in Cash and Due from Banks .....................................                 769,612                1,883,803
     Cash and Due from Banks, Beginning of Period ................................               7,959,750                8,544,955
                                                                                              ------------             ------------
     Cash and Due from Banks, End of Period ......................................            $  8,729,362             $ 10,428,758
                                                                                              ============             ============

Supplemental Disclosures of Cash Flow Information
     Cash Paid During the Year for:
      Interest                                                                                $    122,832             $    115,762
      Income Taxes                                                                            $  1,027,000             $    730,000

Non-Cash Investing Activities
     Loans Transferred to Other Real Estate Owned                                             $          0             $    430,273

</TABLE>
<PAGE>
<TABLE>
<CAPTION>


SMITHTOWN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
                                                                                                   For Six Months Ended
                                                                                             June 30, 1998            June 30, 1997
___________________________________________________________________________________________________________________________________
<S>                                                                                           <C>                     <C>          

Cash Flows from Operating Activities
Net Income .......................................................................            $  1,656,928            $  1,656,802
Adjustments to reconcile net income to net cash
  provided by operating activities:
     Valuation Reserve for Other Real Estate Owned ...............................                  82,998                 120,000
     Depreciation on Premises and Equipment ......................................                 177,541                 210,576
     Provision for Possible Loan Losses ..........................................                 253,200                 140,000
     Amortization of Transition Obligation .......................................                  52,052                  52,052
     Increase(Decrease)in Interest Payable .......................................                  (7,226)                 24,997
     Decrease in Miscellaneous Payables and
        Accrued Expenses .........................................................                 (86,886)                 (56,006)
     Increase in Fees and Commissions
        Receivable ...............................................................                 (12,000)                 (21,000)
     (Increase)Decrease in Interest Receivable ...................................                  12,874                  (52,983)
     (Increase)Decrease in Prepaid Expenses ......................................                 (35,039)                171,617
     Increase in Miscellaneous Reveivables .......................................                 (57,345)                 (42,652)
     Decrease in Income Taxes Receivable .........................................                 151,408                  90,849
     Increase(Decrease) in Deferred Taxes ........................................                (196,116)                 26,649
     Decrease in Accumulated Post Retirement Benefit
        Obligation ...............................................................                 (27,241)                 (31,508)
     Amortization of Investment Security Premiums and
        Accretion of Discounts ...................................................                 127,314                  (93,801)
                                                                                              ------------             ------------
     Cash Provided by Operating Activities .......................................               2,092,462                2,195,592
                                                                                              ------------             ------------

Cash Flows from Investing Activities
     Proceeds from Maturities of Investment Securities
        Held to Maturity .........................................................               2,573,168               1,310,305
     Proceeds from Maturities of Investment Securities
        Available for Sale .......................................................              16,572,693               8,961,224
     Purchases of Investment Securities Available for
        Sale .....................................................................             (11,480,787)             (13,433,576)
     Purchases of Investment Securities Held to Maturity .........................                (313,441)                (473,799)
     Net Increase in Federal Funds Sold ..........................................             (12,800,000)             (13,300,000)
     Net (Increase)Decrease in Loans .............................................              (6,207,449)                997,921
     Purchases of Premises and Equipment .........................................                (736,019)                (115,021)
     Proceeds from Sale of Other Real Estate Owned ...............................                       0               1,570,054
                                                                                              ------------             ------------
     Cash Used by Investing Activities ...........................................             (12,391,835)             (14,482,892)
                                                                                              ------------             ------------

Cash Flows from Financing Activities
     Net Increase in Demand Deposits, NOW
        Accounts and Savings Accounts ............................................               4,518,846               4,312,125
     Net Increase in Time Accounts ...............................................               3,649,964               3,489,983
     Cash Dividends Paid .........................................................                (322,845)                (290,290)
     Purchase of Treasury Stock ..................................................              (1,232,061)                      0
     Net  Increase in Borrowed Funds .............................................               4,747,460               7,514,276
                                                                                              ------------             ------------
     Cash Provided by Financing Activities .......................................              11,361,364              15,026,094
                                                                                              ------------             ------------

     Net Increase in Cash and Due from Banks .....................................               1,061,991               2,738,794
     Cash and Due from Banks, Beginning of Period ................................               7,667,371               7,689,964
                                                                                              ------------             ------------
     Cash and Due from Banks, End of Period ......................................            $  8,729,362            $ 10,428,758
                                                                                              ============             ============

Supplemental Disclosures of Cash Flow Information
     Cash Paid During the Year for:
      Interest                                                                                $    258,805            $    221,711
      Income Taxes                                                                            $  1,027,000            $    934,427

Non-Cash Investing Activities
     Loans Transferred to Other Real Estate Owned                                             $          0                 609,643

</TABLE>
<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Smithtown  Bancorp,  a one-bank holding company acquired 100% of the outstanding
common stock of Bank of Smithtown on November 1, 1984. Smithtown Bancorp and its
subsidiary Bank of Smithtown,  filed an Annual Report 10KSB for the period ended
December 31, 1997.

The Balance  Sheet grew  substantially  during the first half of 1998,  totaling
$210,653,655  in Assets on June 30, 1998, a 6.58%  increase  since year end. The
Loan Portfolio  increased by 5.95%,  reaching  $106,372,599  on June 30, 1998 as
compared  to  $100,403,532,  on December  31,  1997.  This  growth was  realized
primarily  in  real  estate  loans,  attributable  to  good  market  conditions,
competitive  rates,  and the bank's  employment  of a seasoned  commercial  loan
officer in April.  The Loan  Portfolio  provides  an average  yield of 9.66% and
represents 50.50% of total Assets. The Investment  Portfolio decreased by 10.07%
,  due  primarily  to  Mortgage-Backed  security  prepayments  and  called  U.S.
Government  Agency  Bonds.  To  replace  these  repayments,  the Bank  purchased
tax-exempt Obligations of State & Political Subdivisions. Although the yields on
these  securities  are lower than those they were  replacing,  the tax  benefits
provided by these  investments  is  substantial  to bottom line.  The Investment
Portfolio produced an average yield of 5.93% , totaling  $66,706,367 on June 30,
1998,  which represents  31.67% of total Assets.  The Federal Funds Sold account
increased by $12,800,000  since year end, funded  principally by deposit growth,
investment  cash  flow,  and an  increase  in  Demand  Notes  Issued to the U.S.
Treasury . Bank  Premises  and  Equipment  rose by 22.75% due  primarily  to the
purchase of a new mainframe  computer system,  and major renovations to the main
office platform and loan areas, as well as substantial  capital  improvements to
our  branch  offices.  On the  Liability  side of the  Balance  Sheet,  Deposits
increased  by 4.86%,  reaching  $176,364,445  on June 30,  1998,  as compared to
$168,195,635  on December 31,  1997.  Money  Market and  Certificate  of Deposit
accounts  were  responsible  for the majority of this growth.  This  substantial
increase was the result of an aggressive 'Celebrate Our Success' campaign during
the first quarter,  coupled with competitive  products and rates. Other Borrowed
Funds shifted as a Repurchase Agreement matured and balances in the Demand Notes
Issued to the U.S.  Treasury  account  climbed to  $13,000,000 at the end of the
second quarter. Capital increased by .54% during the first half year of 1998, as
a result of the Bancorp's planned repurchase of stock from shareholders.  During
the period ended June 30, 1998, the Bancorp Board of Directors and  Shareholders
split the common  stock two for one,  increasing  the issued  stock from 447,955
shares to  895,910  shares.  The par value of this stock has been  reduced  from
$5.00 per share to $2.50 per share and the authorized shares have been increased
to 3,000,000 shares.  The Bancorp declared the stock split in order to bring the
price of the stock  into a more  affordable  range  thereby  allowing  for wider
distribution of ownership. All capital ratios remained consistently strong, with
ROAA and ROAE at 1.66 and 20.06  respectively  on June 30, 1998.  The  following
table outlines current capital ratios:

                          June 30, 1998    December 31, 1997       Required

Tier I                       13.17               14.35               4.00

Tier II                       1.25                1.25                  *

Total Risk Based
Capital Ratio                14.42               15.63               8.00

Leverage Ratio                8.35                8.01               4.00



* Tier II Capital is limited to 100% of Tier I Capital.
<PAGE>

Operational results for the first six months of 1998 unfolded favorably with net
income  climbing to  $1,656,928,  on June 30, 1998, a slight  increase  over the
first six months of 1997.  Total  interest  income rose by 3.64%.  Total average
earning asset balances reached  $183,476,544 on June 30, 1998, as compared to an
average of  $170,354,007  for June 30, 1997.  The average  yield on these assets
declined,  from 8.25% during the first six months of 1997 to 7.94% for the first
six months of this year. The cause of this drop was attributed  primarily to the
high prepayment speed on Mortgaged-Backed  securities as well as the purchase of
lower yielding municipal securities.  Various Agency securities were called, and
other securities  matured according to schedule.  A majority of the cash inflows
was invested in Federal  Funds,  due to anticipated  loan growth.  Yields on new
securities  have  been  low  which  has not  bode  well for  prudent  long  term
investing.  Total  interest  expense rose 12.12%  resulting  from an increase in
deposits,  as well as the  migration of Savings  accounts  into higher  yielding
products such as Money Market accounts and Certificates of Deposit.  Interest on
Other Borrowed Funds increased in spite of the Repurchase  Agreement payoff, due
to higher balances in the Demand Notes Issued by the U.S. Treasury Account.  The
Provision for Possible Loan Losses rose as balances in the Loan Portfolio  grew.
A Year 2000 Provision began during first quarter of 1998 to provide for any loan
losses arising from Year 2000 related credit  problems.  As of June 30, 1998 the
bank has  entered the  Testing  Phase of its Year 2000 Plan.  We are on schedule
according  to our  projected  time frames  provided  to the Federal  Reserve for
progression through our Plan. Total other non-interest income rose by 3.32% over
last year, as loan origination fees increased due to loan growth. A new official
check program,  initiated during the second half of last year, provided the bank
with  additional  interest earned on prefunding  balances and outstanding  check
balances.  Other operating  expenses remained  virtually the same as last year .
Salary  and  related  expenses  were  higher  than  last  year,  due to year end
increases and the addition of new employees to the staff.  Lower operating costs
offset this increase.  As the bank enters the third quarter,  management remains
confident  that the second half of 1998 will provide an equally strong finish to
another successful year.
<PAGE>

<TABLE>
<CAPTION>

SMITHTOWN BANCORP                                                                                                                   
INTEREST RATE SENSITIVITY REPORT                                                                                                    
JUNE 30, 1998                                                                                                        
                                                                                                    TOTAL
                                                         3 MONTHS         3 -6        6 - 12       SENSITIVE            
                                         REVOLVING       OR LESS         MONTHS       MONTHS       WITHIN I YR               
______________________________________________________________________________________________________________             
<S>                                      <C>            <C>            <C>           <C>            <C> 

ASSETS:

   INVESTMENTS ....................   $  4,258,318   $  1,998,651   $  7,544,150   $ 12,133,840   $ 25,934,959
   FEDERAL FUNDS SOLD .............     21,100,000              0              0              0     21,100,000
   LOANS:
       INSTALLMENT ................        949,968      1,269,975        798,447      3,181,006      6,199,396
       REAL ESTATE AND COMMERCIAL .     31,244,950      2,271,515      3,737,485      9,395,959     46,649,909
   CASH AND DUE FROM BANKS ........         70,936              0              0              0         70,936
   FIXED ASSETS ...................              0              0              0              0              0
   OTHER ASSETS ...................              0              0              0              0              0
   RESERVE FOR POSSIBLE LOAN LOSSES              0              0              0              0              0
   NON-ACCRUALS ...................              0              0              0              0              0
   UNEARNED DISCOUNT ..............              0              0              0              0              0
                                      ------------   ------------   ------------   ------------   ------------
TOTAL .............................   $ 57,624,172   $  5,540,141   $ 12,080,082   $ 24,710,805   $ 99,955,200
                                      ------------   ------------   ------------   ------------   ------------
SMITHTOWN BANCORP                                                                                                                   
INTEREST RATE SENSITIVITY REPORT(continue)                                                                                          
JUNE 30, 1998                 
                                          1-3             3-5           5+
                                          YEARS          YEARS         YEARS           OTHER         TOTAL
_______________________________________________________________________________________________________________
<S>                                     <C>             <C>           <C>              <C>           <C>    
ASSETS:

  INVESTMENTS ....................    $ 19,419,293   $  6,786,672   $ 13,708,643   $    856,800   $  66,706,367
  FEDERAL FUNDS SOLD .............               0              0              0              0      21,100,000
  LOANS:
  INSTALLMENT ................           4,310,087      4,266,837        352,585              0      15,128,905
  REAL ESTATE AND COMMERCIAL .          14,561,183     22,917,474      4,657,515         61,141      88,847,222
  CASH AND DUE FROM BANKS ........               0              0              0      8,658,426       8,729,362
  FIXED ASSETS ...................               0              0              0      3,013,312       3,013,312
  OTHER ASSETS ...................               0              0              0      7,114,755       7,114,755
  RESERVE FOR POSSIBLE LOAN LOSSES               0              0              0     (1,947,200)     (1,947,200)
  NON-ACCRUALS ...................               0              0              0      2,396,472       2,396,472
  UNEARNED DISCOUNT ..............               0              0              0       (435,540)       (435,540)
                                      ------------   ------------   ------------   ------------    ------------
  TOTAL ............................. $ 38,290,563   $ 33,970,983   $ 18,718,743   $ 19,718,166   $ 210,653,655
                                      ------------   ------------   ------------   ------------    ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SMITHTOWN BANCORP                                                                                                                 
INTEREST RATE SENSITIVITY REPORT                                                                                                  
JUNE 30, 1998                                                                                                        

                                                                                                 TOTAL                             
                                                       3 MONTHS       3 -6        6 - 12       SENSITIVE            
                                         REVOLVING     OR LESS       MONTHS       MONTHS       WITHIN I YR               
__________________________________________________________________________________________________________                        
<S>                                        <C>        <C>          <C>         <C>           <C>          
LIABILITIES:                                                                                                                       
   SAVINGS .......................... $          0  $ 1,958,062 $  1,958,063 $  3,916,125 $  7,832,250
   MONEY MARKETS ....................            0    5,269,673    5,269,672   10,539,345   21,078,690
   NOW ..............................            0      704,918      704,918    1,409,836    2,819,672
   TIME<100 ..........................     126,972    6,878,206    3,180,638    9,047,794   19,233,610
   TIME>100 .........................      169,019    4,181,362    2,179,216    1,967,797    8,497,394
   DEMAND ...........................            0    1,106,935    1,106,935    2,213,870    4,427,740
   REPURCHASE AGREEMENTS ............            0            0            0            0            0
   OTHER BORROWED MONEY .............            0   13,000,000            0            0   13,000,000
   OTHER LIABILITIES ................            0            0            0            0            0
   STOCKHOLDERS' EQUITY .............            0            0            0            0            0
                                        ----------   ----------   ----------   ----------   ----------
TOTAL ............................... $    295,991  $33,099,156 $ 14,399,442 $ 29,094,767 $ 76,889,356
                                        ----------   ----------   ----------   ----------   ----------

SMITHTOWN BANCORP                                                                                                                  
INTEREST RATE SENSITIVITY REPORT(continue)                                                                                         
JUNE 30, 1998                 
                                          1-3           3-5              5+
                                          YEARS        YEARS            YEARS       OTHER      TOTAL
______________________________________________________________________________________________________

<S>                                     <C>           <C>               <C>        <C>     <C> 

LIABILITIES:

SAVINGS ..........................    $ 15,664,501  $ 5,664,501 $          0 $          0 $ 39,161,252
MONEY MARKETS ....................      21,078,691            0            0            0   42,157,381
NOW ..............................       5,639,343    5,639,343            0            0   14,098,358
TIME<100 ..........................      4,724,172    2,061,493            0            0   26,019,275
TIME>100 .........................       1,109,435    1,043,956            0            0   10,650,785
DEMAND ...........................       8,855,478    8,855,479            0   22,138,697   44,277,394
REPURCHASE AGREEMENTS ............               0            0            0            0            0
OTHER BORROWED MONEY .............               0    3,000,000            0            0   16,000,000
OTHER LIABILITIES ................               0            0            0    1,217,680    1,217,680
STOCKHOLDERS' EQUITY .............               0            0            0   17,071,530   17,071,530
                                       -----------  -----------   ----------  -----------  -----------
TOTAL ............................    $ 57,071,620  $36,264,772 $          0 $ 40,427,907 #210,653,655
                                       -----------  -----------  -----------  -----------  -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

SMITHTOWN BANCORP                                                                                                                  
INTEREST RATE SENSITIVITY REPORT                                                                                                   
JUNE 30, 1998                                                                                                                      

                                                                                               TOTAL                               
                                                       3 MONTHS       3 -6        6 - 12     SENSITIVE                             
                                         REVOLVING     OR LESS       MONTHS       MONTHS     WITHIN I YR                           
__________________________________________________________________________________________________________                         

<S>                                      <C>          <C>          <C>           <C>            <C>                                

INTEREST SENSITIVITY GAP                                                                                                           
PER PERIOD                              57,328,181  (27,559,015)  (2,319,360)  (4,383,962)  23,065,844                             
GAP/TOTAL ASSETS                            27.21%       -13.08%       -1.10%       -2.08%      10.95%                             
CUMULATIVE INTEREST                                                                                                                
SENSITIVITY GAP                         57,328,181   29,769,166   27,449,806    23,065,844  23,065,844                             
% OF CUMULATIVE GAP                                                                                                                
TO TOTAL ASSETS                             27.21%       14.13%       13.03%       10.95%      10.95%



SMITHTOWN BANCORP                                                                                                                  
INTEREST RATE SENSITIVITY REPORT(continue)                                                                                         
JUNE 30, 1998                 
                                          1-3           3-5              5+
                                          YEARS        YEARS            YEARS       OTHER      TOTAL
______________________________________________________________________________________________________
<S>     <C>    <C>    <C>    <C>    <C>    <C>


INTEREST SENSITIVITY GAP                                                                                                           
PER PERIOD                            (18,781,057)   (2,293,789)   18,718,743  (20,709,741)                                        
GAP/TOTAL ASSETS                            -8.92%        -1.09%        8.89%                                                      
CUMULATIVE INTEREST                                                                                                                
SENSITIVITY GAP                          4,284,787     1,990,998   20,709,741                                                      
% OF CUMULATIVE GAP                                                                                                                
TO TOTAL ASSETS                              2.03%         0.95%        9.83%

</TABLE>
<PAGE>

Notes to Consolidated Financial Statements


Financial Statement Presentation

In the opinion of management,  the accompanying  unaudited interim  consolidated
financial  statements  contain all adjustments  (consisting of normal  recurring
accruals)  necessary to present  fairly its  financial  position as of March 31,
1998, and its results of operations for the three months ended June 30, 1998 and
1997 and its cash flows for the six months and three  months ended June 30, 1998
and  1997.  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, 1997.

Earnings Per Common Shares

Earnings per share are calculated by dividing Net Income by the weighted average
number of common shares outstanding.

Investment Securities

      Fair Value:
      June 30, 1998                $66,808,889
      December 31, 1997            $74,336,201

Stockholders' Equity

On April 7, 1998 the  shareholders  of  Bancorp  approved a two for one split of
common  stock for all  shareholders  of record as of April 22,  1998.  The split
became  affective on May 6, and  increased  the number of shares of issued stock
from  447,955 to  895,910.  The par value of the stock was  reduced  from $5 per
share to $2.50 per share and the  number of  authorized  shares  increased  from
1,500,000 to 3,000,000.

All references to common stock, retained earnings,  treasury stock, earnings per
share and average weighted shares outstanding appearing in this report have been
adjusted to reflect the split.
<PAGE>

                                   SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.










                               SMITHTOWN BANCORP



August 13, 1998
                                                /s/ Bradley E. Rock
                                                ___________________________
                                                Bradley E. Rock, President



August 13, 1998
                                                /s/ Anita M. Florek
                                                ___________________________
                                                Anita Florek, Treasurer