##### Table of Contents

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United States

Securities and Exchange Commission

Washington, D.C. 20549



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Form 10-Q



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

THE SECURITIES EXCHANGE ACT OF 1934



For the quarter ended June 30, 2005



Commission File #0 - 13314



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SMITHTOWN BANCORP, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|New York                                                       |  | 11-2695037                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



|                                            |  |           
|------------------------------------------- |  | ----------
|100 Motor Parkway, Suite 160, Hauppauge, NY |  | 11788-5138
|(Address of Principal Executive Office)     |  | (Zip Code)



(631) 360-9300

(Registrants telephone number, including area code)



---



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



Check
whether the registrant is an accelerated filer.    Yes  x    No ̈



Indicate the number of shares outstanding of
each of the issuers classes of common stock, as of the latest practicable date:



Shares of Common Stock ($.01 Par Value) Outstanding as of August 8, 2005.

5,923,726



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##### Table of Contents

SMITHTOWN BANCORP, INC.



INDEX



|                               |  |                                                                                                                     
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------
|                              
|Part I - FINANCIAL INFORMATION
|                               | 
|Item 1.                        |  | Financial Statements                                                                                                
|                               | 
|                               |  | Unaudited Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004                                     
|                               | 
|                               |  | Unaudited Consolidated Statements of Income for the Three Months Ended June 30, 2005 and 2004                       
|                               | 
|                               |  | Unaudited Consolidated Statements of Income for the Six Months Ended June 30, 2005 and 2004                         
|                               | 
|                               |  | Unaudited Consolidated Statements of Changes in Stockholders Equity For the Six Months Ended June 30, 2005 and 2004
|                               | 
|                               |  | Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004                     
|                               | 
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                               
|                               | 
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                          
|                               | 
|Item 4.                        |  | Controls and Procedures                                                                                             
|                              
|Part II - OTHER INFORMATION   
|                               | 
|Item 1.                        |  | Legal Proceedings - None                                                                                            
|                               | 
|Item 2.                        |  | Change in Securities and Use of Proceeds  Not Applicable                                                           



Issuer Purchases of Equity Securities

|                              |  |                                                 |  |                                           |  |                                                                                                 |   |  |                                                                                                                             |  
|----------------------------- |  | ----------------------------------------------- |  | ----------------------------------------- |  | ----------------------------------------------------------------------------------------------- | - |  | --------------------------------------------------------------------------------------------------------------------------- | -
|Period                        |  | (a) Total Number of Shares (or Units) Purchased |  | (b) Average Price Paid PerShare (or Unit) |  | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |   |  | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the
Plans or Programs |  
|April 1, 2005- April 30, 2005 |  | 0                                               |  | 0                                         |  | (1                                                                                              | ) |  | (1                                                                                                                          | )
|May 1, 2005- May 31, 2005     |  | 0                                               |  | 0                                         |  |                                                                                                 |   |  |                                                                                                                             |  
|June 1, 2005- June 30, 2005   |  | 0                                               |  | 0                                         |  |                                                                                                 |   |  |                                                                                                                             |  
|                              |  |                                                 |  |                                           |  |                                                                                                 |   |  |                                                                                                                             |  
|Total                         |  | 0                                               |  | 0                                         |  |                                                                                                 |   |  |                                                                                                                             |  



|(1) | During 2004, the Board of Directors reapproved a Stock Repurchase Plan authorizing the repurchase of Bancorp stock at market prices.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|        |  |                                                           
|------- |  | ----------------------------------------------------------
|Item 3. |  | Defaults upon Senior Securities  None                    
|        | 
|Item 4. |  | Submission of Matters to a Vote of Security Holders  None
|        | 
|Item 5. |  | Subsequent Event - None                                   
|        | 
|Item 6. |  | Other Information  None                                  
|        | 
|Item 7. |  | Exhibits and Reports on Form 8-K                          



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##### Table of Contents

(1) Exhibits



|                                                         |  |                                                                                               
|-------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------
|Exhibit Number Referred to in Item 601 of Regulation S-K |  | Description of Exhibit                                                                        
|31.1                                                     |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)                           
|                                                         | 
|31.2                                                     |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)                           
|                                                         | 
|32.1                                                     |  | Certification of Chief Executive Officer pursuant to
Rule 13a-14(b) and 18 U.S.C. Section 1350
|                                                         | 
|32.2                                                     |  | Certification of Chief Financial Officer pursuant to
Rule 13a-14(b) and 18 U.S.C. Section 1350



(2) Reports on Form 8-K



Entry into Material Definitive Agreement  Filed April 26, 2005 
Incorporated by Reference



Results of Operation and Financial
Condition  Filed April 27, 2005  Incorporated by Reference



Other Events and Regulation FD Disclosures  Filed May 23, 2005  Incorporated by Reference



Other Events and Regulation FD Disclosures  Filed June 1, 2005  Incorporated by Reference



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







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##### Table of Contents

SMITHTOWN BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share data)



|                                                                                           |  |               |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                           |  | As of         |        
|                                                                                           |  | June 30, 2005 |         |   | December 31, 2004 |  
|ASSETS                                                                                     |  |               |         |   |                   |   |         |  
|Cash and due from banks                                                                    |  | $             | 14,079  |   |                   | $ | 8,581   |  
|Federal funds sold                                                                         |  |               | 397     |   |                   |   | 1,052   |  
|                                                                                           |  |               |         |   |                   |   |         |  
|Total cash and cash equivalents                                                            |  |               | 14,476  |   |                   |   | 9,633   |  
|Investment securities:                                                                     |  |               |         |   |                   |   |         |  
|Available for sale:                                                                        |  |               |         |   |                   |   |         |  
|Obligations of U.S. government treasury                                                    |  |               | 6,913   |   |                   |   |        |  
|Obligations of U.S. government agencies                                                    |  |               | 85,960  |   |                   |   | 30,192  |  
|Mortgage-backed securities                                                                 |  |               | 4,374   |   |                   |   | 4,976   |  
|Obligations of state and political subdivisions                                            |  |               | 13,381  |   |                   |   | 13,585  |  
|Other securities                                                                           |  |               | 1,990   |   |                   |   | 3,005   |  
|                                                                                           |  |               |         |   |                   |   |         |  
|Total securities available for sale                                                        |  |               | 112,618 |   |                   |   | 51,758  |  
|Held to maturity:                                                                          |  |               |         |   |                   |   |         |  
|Mortgage-backed securities                                                                 |  |               | 122     |   |                   |   | 165     |  
|Obligations of state and political subdivisions                                            |  |               | 1,217   |   |                   |   | 1,419   |  
|                                                                                           |  |               |         |   |                   |   |         |  
|Total securities held to maturity (estimated fair value $1,369 in 2005 and $1,631 in 2004) |  |               | 1,339   |   |                   |   | 1,584   |  
|                                                                                           |  |               |         |   |                   |   |         |  
|Total investment securities                                                                |  |               | 113,957 |   |                   |   | 53,342  |  
|                                                                                           |  |              
|Restricted securities                                                                      |  |               | 4,745   |   |                   |   | 5,555   |  
|                                                                                           |  |              
|Loans                                                                                      |  |               | 618,943 |   |                   |   | 570,093 |  
|Less: allowance for loan losses                                                            |  |               | 5,071   |   |                   |   | 4,912   |  
|                                                                                           |  |               |         |   |                   |   |         |  
|Loans, net                                                                                 |  |               | 613,872 |   |                   |   | 565,181 |  
|                                                                                           |  |              
|Bank premises and equipment                                                                |  |               | 18,422  |   |                   |   | 15,366  |  
|                                                                                           |  |              
|Other assets                                                                               |  |               |         |   |                   |   |         |  
|Cash value of bank-owned life insurance                                                    |  |               | 17,258  |   |                   |   | 16,942  |  
|Goodwill                                                                                   |  |               | 388     |   |                   |   | 388     |  
|Intangible assets                                                                          |  |               | 541     |   |                   |   | 465     |  
|Other                                                                                      |  |               | 10,923  |   |                   |   | 10,131  |  
|                                                                                           |  |               |         |   |                   |   |         |  
|Total other assets                                                                         |  |               | 29,110  |   |                   |   | 27,926  |  
|                                                                                           |  |              
|Total assets                                                                               |  | $             | 794,582 |   |                   | $ | 677,003 |  
|                                                                                           |  |               |         |   |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                       |  |               |         |   |                   |   |         |  
|Liabilities                                                                                |  |               |         |   |                   |   |         |  
|Deposits:                                                                                  |  |               |         |   |                   |   |         |  
|Demand (non-interest bearing)                                                              |  | $             | 109,193 |   |                   | $ | 90,466  |  
|Money market                                                                               |  |               | 203,497 |   |                   |   | 164,878 |  
|NOW                                                                                        |  |               | 35,650  |   |                   |   | 32,434  |  
|Savings                                                                                    |  |               | 52,144  |   |                   |   | 55,258  |  
|Time                                                                                       |  |               | 244,710 |   |                   |   | 171,278 |  
|                                                                                           |  |               |         |   |                   |   |         |  
|Total deposits                                                                             |  |               | 645,194 |   |                   |   | 514,314 |  
|Dividends payable                                                                          |  |               | 355     |   |                   |   | 296     |  
|Other borrowings                                                                           |  |               | 82,000  |   |                   |   | 99,500  |  
|Subordinated debt                                                                          |  |               | 11,000  |   |                   |   | 11,000  |  
|Other liabilities                                                                          |  |               | 4,700   |   |                   |   | 4,950   |  
|                                                                                           |  |               |         |   |                   |   |         |  
|Total liabilities                                                                          |  |               | 743,249 |   |                   |   | 630,060 |  
|                                                                                           |  |              
|Stockholders equity                                                                       |  |               |         |   |                   |   |         |  
|Common stock $.01 par value (20,000,000 shares authorized; 7,167,280 shares issued)        |  |               | 72      |   |                   |   | 72      |  
|Retained earnings                                                                          |  |               | 56,816  |   |                   |   | 52,480  |  
|Additional paid in capital                                                                 |  |               | 4,408   |   |                   |   | 4,408   |  
|Accumulated other comprehensive income                                                     |  |               | 99      |   |                   |   | 45      |  
|                                                                                           |  |               |         |   |                   |   |         |  
|                                                                                           |  |               | 61,395  |   |                   |   | 57,005  |  
|Treasury stock (1,243,554 shares at cost)                                                  |  |               | (10,062 | ) |                   |   | (10,062 | )
|                                                                                           |  |               |         |   |                   |   |         |  
|Total stockholders equity                                                                 |  |               | 51,333  |   |                   |   | 46,943  |  
|                                                                                           |  |              
|Total liabilities and stockholders equity                                                 |  | $             | 794,582 |   |                   | $ | 677,003 |  
|                                                                                           |  |               |         |   |                   |   |         |  



See
notes to consolidated financial statements.



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##### Table of Contents

SMITHTOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(in thousands, except share and per share data)



|                                                    |  |                                     |           |      |   |          
|--------------------------------------------------- |  | ----------------------------------- | --------- | ---- | - | ---------
|                                                    |  | For the Three Months Ended June 30,
|                                                    |  | 2005                                |           | 2004
|Interest income                                     |  |                                     |           |      |   |          
|Interest on loans                                   |  | $                                   | 10,191    |      | $ | 8,263    
|Interest on federal funds sold                      |  |                                     | 125       |      |   | 43       
|Interest and dividends on investment securities:    |  |                                     |           |      |   |          
|Taxable:                                            |  |                                     |           |      |   |          
|Obligations of U.S. government treasury             |  |                                     | 61        |      |   |         
|Obligations of U.S. government agencies             |  |                                     | 795       |      |   | 247      
|Mortgage-backed securities                          |  |                                     | 44        |      |   | 73       
|Other securities                                    |  |                                     | 35        |      |   | 57       
|                                                    |  |                                     |           |      |   |          
|Subtotal                                            |  |                                     | 935       |      |   | 377      
|Exempt from federal income taxes:                   |  |                                     |           |      |   |          
|Obligations of state and political subdivisions     |  |                                     | 112       |      |   | 179      
|Other interest income                               |  |                                     | 53        |      |   | 15       
|                                                    |  |                                     |           |      |   |          
|Total interest income                               |  |                                     | 11,416    |      |   | 8,877    
|                                                    |  |                                     |           |      |   |          
|Interest expense                                    |  |                                     |           |      |   |          
|Money market accounts (including savings)           |  |                                     | 969       |      |   | 646      
|Time deposits of $100,000 or more                   |  |                                     | 797       |      |   | 548      
|Other time deposits                                 |  |                                     | 1,243     |      |   | 886      
|Other borrowings                                    |  |                                     | 757       |      |   | 369      
|                                                    |  |                                     |           |      |   |          
|Total interest expense                              |  |                                     | 3,766     |      |   | 2,449    
|                                                    |  |                                     |           |      |   |          
|Net interest income                                 |  |                                     | 7,650     |      |   | 6,428    
|                                                    |  |                                    
|Provision for loan losses                           |  |                                     | 85        |      |   |         
|                                                    |  |                                     |           |      |   |          
|Net interest income after provision for loan losses |  |                                     | 7,565     |      |   | 6,428    
|                                                    |  |                                    
|Other noninterest income                            |  |                                     |           |      |   |          
|Trust department income                             |  |                                     | 111       |      |   | 98       
|Service charges on deposit accounts                 |  |                                     | 504       |      |   | 487      
|Revenues from insurance agency                      |  |                                     | 897       |      |   |         
|Net gain on sales of investment securities          |  |                                     | 9         |      |   | 194      
|Increase in cash value of bank owned life insurance |  |                                     | 159       |      |   | 172      
|Net income from equity investment                   |  |                                     | 12        |      |   | 61       
|Other income                                        |  |                                     | 404       |      |   | 107      
|                                                    |  |                                     |           |      |   |          
|Total other noninterest income                      |  |                                     | 2,096     |      |   | 1,119    
|                                                    |  |                                    
|Other operating expenses                            |  |                                     |           |      |   |          
|Salaries                                            |  |                                     | 2,478     |      |   | 1,586    
|Pensions and other employee benefits                |  |                                     | 559       |      |   | 437      
|Net occupancy expense of bank premises              |  |                                     | 826       |      |   | 403      
|Furniture and equipment expense                     |  |                                     | 442       |      |   | 287      
|Other expense                                       |  |                                     | 990       |      |   | 782      
|                                                    |  |                                     |           |      |   |          
|Total other operating expenses                      |  |                                     | 5,295     |      |   | 3,495    
|                                                    |  |                                     |           |      |   |          
|Income before income taxes                          |  |                                     | 4,366     |      |   | 4,052    
|Provision for income taxes                          |  |                                     | 1,668     |      |   | 1,474    
|                                                    |  |                                     |           |      |   |          
|Net income                                          |  | $                                   | 2,698     |      | $ | 2,578    
|                                                    |  |                                     |           |      |   |          
|Earnings per share                                  |  |                                     |           |      |   |          
|Net income                                          |  | $                                   | 0.46      |      | $ | 0.43     
|Cash dividends declared                             |  | $                                   | 0.06      |      | $ | 0.05     
|Weighted average shares outstanding                 |  |                                     | 5,923,726 |      |   | 5,940,024
|Comprehensive income                                |  | $                                   | 3,176     |      | $ | 1,766    



See notes to consolidated financial
statements.



---

##### Table of Contents

SMITHTOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(in thousands, except share and per share data)



|                                                    |  |                                   |           |      |   |          
|--------------------------------------------------- |  | --------------------------------- | --------- | ---- | - | ---------
|                                                    |  | For the Six Months Ended June 30,
|                                                    |  | 2005                              |           | 2004
|Interest income                                     |  |                                   |           |      |   |          
|Interest on loans                                   |  | $                                 | 19,947    |      | $ | 16,017   
|Interest on federal funds sold                      |  |                                   | 330       |      |   | 92       
|Interest and dividends on investment securities:    |  |                                   |           |      |   |          
|Taxable:                                            |  |                                   |           |      |   |          
|Obligations of U.S. government treasury             |  |                                   | 72        |      |   |         
|Obligations of U.S. government agencies             |  |                                   | 1,176     |      |   | 401      
|Mortgage-backed securities                          |  |                                   | 88        |      |   | 159      
|Other securities                                    |  |                                   | 74        |      |   | 136      
|                                                    |  |                                   |           |      |   |          
|Subtotal                                            |  |                                   | 1,410     |      |   | 696      
|Exempt from federal income taxes:                   |  |                                   |           |      |   |          
|Obligations of state and political subdivisions     |  |                                   | 229       |      |   | 370      
|Other interest income                               |  |                                   | 95        |      |   | 36       
|                                                    |  |                                   |           |      |   |          
|Total interest income                               |  |                                   | 22,011    |      |   | 17,211   
|                                                    |  |                                   |           |      |   |          
|Interest expense                                    |  |                                   |           |      |   |          
|Money market accounts (including savings)           |  |                                   | 1,708     |      |   | 1,256    
|Time deposits of $100,000 or more                   |  |                                   | 1,389     |      |   | 1,044    
|Other time deposits                                 |  |                                   | 2,549     |      |   | 1,770    
|Other borrowings                                    |  |                                   | 1,512     |      |   | 858      
|                                                    |  |                                   |           |      |   |          
|Total interest expense                              |  |                                   | 7,158     |      |   | 4,928    
|                                                    |  |                                   |           |      |   |          
|Net interest income                                 |  |                                   | 14,853    |      |   | 12,283   
|                                                    |  |                                  
|Provision for loan losses                           |  |                                   | 225       |      |   |         
|                                                    |  |                                   |           |      |   |          
|Net interest income after provision for loan losses |  |                                   | 14,628    |      |   | 12,283   
|                                                    |  |                                  
|Other noninterest income                            |  |                                   |           |      |   |          
|Trust department income                             |  |                                   | 214       |      |   | 208      
|Service charges on deposit accounts                 |  |                                   | 975       |      |   | 913      
|Revenues from insurance agency                      |  |                                   | 1,764     |      |   |         
|Net gain on sales of investment securities          |  |                                   | 13        |      |   | 288      
|Increase in cash value of bank owned life insurance |  |                                   | 316       |      |   | 323      
|Net income from equity investment                   |  |                                   | 38        |      |   | 81       
|Other income                                        |  |                                   | 729       |      |   | 324      
|                                                    |  |                                   |           |      |   |          
|Total other noninterest income                      |  |                                   | 4,049     |      |   | 2,137    
|                                                    |  |                                  
|Other operating expenses                            |  |                                   |           |      |   |          
|Salaries                                            |  |                                   | 4,868     |      |   | 3,362    
|Pensions and other employee benefits                |  |                                   | 1,168     |      |   | 772      
|Net occupancy expense of bank premises              |  |                                   | 1,605     |      |   | 817      
|Furniture and equipment expense                     |  |                                   | 877       |      |   | 571      
|Other expense                                       |  |                                   | 2,078     |      |   | 1,503    
|                                                    |  |                                   |           |      |   |          
|Total other operating expenses                      |  |                                   | 10,596    |      |   | 7,025    
|                                                    |  |                                   |           |      |   |          
|Income before income taxes                          |  |                                   | 8,081     |      |   | 7,395    
|Provision for income taxes                          |  |                                   | 3,034     |      |   | 2,687    
|                                                    |  |                                   |           |      |   |          
|Net income                                          |  | $                                 | 5,047     |      | $ | 4,708    
|                                                    |  |                                   |           |      |   |          
|Earnings per share                                  |  |                                   |           |      |   |          
|Net income                                          |  | $                                 | 0.86      |      | $ | 0.79     
|Cash dividends declared                             |  | $                                 | 0.12      |      | $ | 0.10     
|Weighted average shares outstanding                 |  |                                   | 5,923,726 |      |   | 5,942,567
|Comprehensive income                                |  | $                                 | 5,101     |      | $ | 4,067    



See notes to consolidated financial
statements.



---

##### Table of Contents

SMITHTOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(unaudited)

(in thousands, except shares outstanding)



|                                       |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            |         |   |  |   |      |   |  |   |        |  
|-------------------------------------- |  | ------------------ | - |  | --------------- | ------ | - | ----------------- | - | ----- | -------------------------------- |  | - | --------------------------------------------- | - |  | -------------------------- | ------- | - |  | - | ---- | - |  | - | ------ | -
|                                       |  | Common Stock       |   |  | Capital Surplus |        |   | Retained Earnings |   |       | Cost of Common Stock in Treasury |  |   | Accumulated Other Comprehensive Income (Loss) |   |  | Total Stockholders Equity |        
|                                       |  | Shares Outstanding |   |  | Amount          |        |   |                   |   |       |                                 
|Balance at 12/31/2003                  |  | 2,974,237          |   |  | $               | 4,480  |   |                   | $ |      |                                  |  | $ | 43,656                                        |   |  | $                          | (9,378  | ) |  | $ | 420  |   |  | $ | 39,178 |  
|Comprehensive income:                  |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            |         |   |  |   |      |   |  |   |        |  
|                                       |  |                    |   |  |                 |        |  
|Net income                             |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   | 4,708                                         |   |  |                            |         |   |  |   |      |   |  |   | 4,708  |  
|Other comprehensive loss, net of tax   |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            |         |   |  |   | (641 | ) |  |   | (641   | )
|Total comprehensive income             |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            |         |   |  |   |      |   |  |   | 4,067  |  
|2-for-1 stock split                    |  | 2,974,237          |   |  |                 | 36     |   |                   |   | (36   | )                                |  |   |                                               |   |  |                            |         |   |  |   |      |   |  |   |        |  
|Change in par value                    |  |                    |   |  |                 | (4,444 | ) |                   |   | 4,444 |                                  |  |   |                                               |   |  |                            |         |   |  |   |      |   |  |   |        |  
|Cash dividends declared                |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   | (595                                          | ) |  |                            |         |   |  |   |      |   |  |   | (595   | )
|                                       |  |                    |   |  |                 |        |  
|Treasury stock purchases               |  | (10,576            | ) |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            | (299    | ) |  |   |      |   |  |   | (299   | )
|                                       |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            |         |   |  |   |      |   |  |   |        |  
|Balance at 6/30/2004                   |  | 5,937,898          |   |  | $               | 72     |   |                   | $ | 4,408 |                                  |  | $ | 47,769                                        |   |  | $                          | (9,677  | ) |  | $ | (221 | ) |  | $ | 42,351 |  
|                                       |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            |         |   |  |   |      |   |  |   |        |  
|Balance at 12/31/2004                  |  | 5,923,726          |   |  | $               | 72     |   |                   | $ | 4,408 |                                  |  | $ | 52,480                                        |   |  | $                          | (10,062 | ) |  | $ | 45   |   |  | $ | 46,943 |  
|Comprehensive income:                  |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            |         |   |  |   |      |   |  |   |        |  
|                                       |  |                    |   |  |                 |        |  
|Net income                             |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   | 5,047                                         |   |  |                            |         |   |  |   |      |   |  |   | 5,047  |  
|Other comprehensive income, net of tax |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            |         |   |  |   | 54   |   |  |   | 54     |  
|Total comprehensive income             |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            |         |   |  |   |      |   |  |   | 5,101  |  
|Cash dividends declared                |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   | (711                                          | ) |  |                            |         |   |  |   |      |   |  |   | (711   | )
|Treasury stock purchases               |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            |         |   |  |   |      |   |  |   |       |  
|                                       |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            |         |   |  |   |      |   |  |   |        |  
|Balance at 6/30/2005                   |  | 5,923,726          |   |  | $               | 72     |   |                   | $ | 4,408 |                                  |  | $ | 56,816                                        |   |  | $                          | (10,062 | ) |  | $ | 99   |   |  | $ | 51,333 |  
|                                       |  |                    |   |  |                 |        |   |                   |   |       |                                  |  |   |                                               |   |  |                            |         |   |  |   |      |   |  |   |        |  



See notes to consolidated financial
statements.



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##### Table of Contents

SMITHTOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)



|                                                                                  |  |                                   |          |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                  |  | For the Six Months Ended June 30, |         
|                                                                                  |  | 2005                              |          |   | 2004 |  
|Cash flows from operating activities                                              |  |                                   |          |   |      |   |         |  
|Net income                                                                        |  | $                                 | 5,047    |   |      | $ | 4,708   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                   |          |   |      |   |         |  
|Depreciation on premises and equipment                                            |  |                                   | 828      |   |      |   | 349     |  
|Provision for loan losses                                                         |  |                                   | 225      |   |      |   |        |  
|Net gain on sale of investment securities                                         |  |                                   | (13      | ) |      |   | (288    | )
|Net increase (decrease) in other liabilities                                      |  |                                   | (254     | ) |      |   | 243     |  
|Net increase in other assets                                                      |  |                                   | (630     | ) |      |   | (743    | )
|Net increase in deferred taxes                                                    |  |                                   | (238     | ) |      |   | (476    | )
|Increase in cash surrender value of officers life insurance policies             |  |                                   | (316     | ) |      |   | (324    | )
|Amortization of investment security premiums and accretion of discounts, net      |  |                                   | (204     | ) |      |   | (48     | )
|                                                                                  |  |                                   |          |   |      |   |         |  
|Cash provided by operating activities                                             |  |                                   | 4,445    |   |      |   | 3,421   |  
|                                                                                  |  |                                  
|Cash flows from investing activities                                              |  |                                   |          |   |      |   |         |  
|Mortgage-backed securities:                                                       |  |                                   |          |   |      |   |         |  
|Proceeds from calls, repayments, maturities and sales of available for sale       |  |                                   | 2,651    |   |      |   | 1,771   |  
|Proceeds from calls, repayments and maturities of held to maturity                |  |                                   | 44       |   |      |   | 73      |  
|Other securities:                                                                 |  |                                   |          |   |      |   |         |  
|Proceeds from calls, repayments, maturities and sales of available for sale       |  |                                   | 18,364   |   |      |   | 19,120  |  
|Proceeds from calls, repayments and maturities of held to maturity                |  |                                   | 202      |   |      |   | 202     |  
|Purchase of investment securities:                                                |  |                                   |          |   |      |   |         |  
|Available for sale                                                                |  |                                   | (81,600  | ) |      |   | (19,194 | )
|Redemptions of Federal Home Loan Bank stock                                       |  |                                   | 810      |   |      |   |        |  
|Loans made to customers, net                                                      |  |                                   | (48,916  | ) |      |   | (61,703 | )
|Purchase of premises and equipment                                                |  |                                   | (3,885   | ) |      |   | (644    | )
|                                                                                  |  |                                   |          |   |      |   |         |  
|Cash used in investing activities                                                 |  |                                   | (112,330 | ) |      |   | (60,375 | )
|                                                                                  |  |                                  
|Cash flows from financing activities                                              |  |                                   |          |   |      |   |         |  
|Net increase in demand deposits, money market, NOW and savings                    |  |                                   | 57,448   |   |      |   | 37,459  |  
|Net increase in time deposits                                                     |  |                                   | 73,432   |   |      |   | 16,490  |  
|Cash dividends paid                                                               |  |                                   | (652     | ) |      |   | (565    | )
|Net increase (decrease) in other borrowings                                       |  |                                   | (17,500  | ) |      |   | 11,000  |  
|Purchase of treasury stock                                                        |  |                                   |         |   |      |   | (299    | )
|                                                                                  |  |                                   |          |   |      |   |         |  
|Cash provided by financing activities                                             |  |                                   | 112,728  |   |      |   | 64,085  |  
|                                                                                  |  |                                   |          |   |      |   |         |  
|Net increase in cash and cash equivalents                                         |  |                                   | 4,843    |   |      |   | 7,131   |  
|Cash and cash equivalents, beginning of period                                    |  |                                   | 9,633    |   |      |   | 14,765  |  
|                                                                                  |  |                                   |          |   |      |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                                 | 14,476   |   |      | $ | 21,896  |  
|                                                                                  |  |                                   |          |   |      |   |         |  
|Supplemental disclosures of cash flow information                                 |  |                                   |          |   |      |   |         |  
|Cash paid during the year for:                                                    |  |                                   |          |   |      |   |         |  
|Interest                                                                          |  | $                                 | 6,615    |   |      | $ | 4,901   |  
|Income taxes                                                                      |  |                                   | 3,102    |   |      |   | 2,941   |  



See notes to consolidated financial
statements.



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##### Table of Contents

Notes to Consolidated Financial Statements  Unaudited

(in thousands, except share and per share data)



Note 1  Financial Statement Presentation



The consolidated
financial statements include the accounts of Smithtown Bancorp, Inc. (the Company) and its wholly-owned subsidiary, Bank of Smithtown (the Bank) (collectively referred to as the Company). The Companys
financial condition and operating results principally reflect those of the Bank. All intercompany balances and amounts have been eliminated. For further information refer to the consolidated financial statements and notes thereto included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.



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



Interim statements are subject to possible adjustments in connection with the annual audit of the Company for the year ending December 31,
2005. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly its financial position and its results of
operations for the periods presented.



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



Note 2  Subordinated Debt



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



Under new accounting guidance, in FASB Interpretation No. 46, as revised in December 2003,
the trust is not consolidated with the Company. Accordingly, the Company does not report the securities issued by the trust as liabilities, and instead reports as liabilities the subordinated debentures issued by the Company and held by the trust,
as these are no longer eliminated in consolidation.



Note 3  Earnings Per
Common Share



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



Note 4  Employee Benefits



During 2005, the Bank continues to fund a 401(K) Defined Contribution Plan and an Employee Stock Ownership Plan for substantially all of its employees. Second quarter
costs during 2005 and 2004 for these two plans were $33 and $26 and $45 and $45, respectively. It is expected that the Companys costs for these two plans for the twelve months ending December 31, 2005 will be approximately $145 and $180,
respectively. Bank of Smithtown also continues to sponsor post-retirement medical and life insurance plans for a closed group of prior employees. The interest cost, amortization cost of the unrecognized transition obligation, and the amortization of
the net gain for the quarters ended June 30, 2005 and 2004 were $5, $8 and $2 and $5, $8 and $1, respectively. Since the plans hold no assets, the Bank did not contribute and does not expect to contribute to the plans during 2004 and 2005, other
than to fund the payments for the benefits. The Bank has also adopted a nontax qualified Executive and Director Incentive Retirement Plan. While this plan is funded from the general assets of the Bank, life insurance policies were acquired for the
purpose of serving as the primary funding source. Benefits under the Incentive Retirement Plan are based solely on the amount contributed by the Bank. The contributions accrued under this plan for the three months ending June 30, 2005 and 2004 were
$57 and $51. The Bank has a similar supplemental life insurance plan for all members of management, funded with similar life insurance policies. The benefit provides post retirement life insurance up to a maximum of two and one half times annual
salary. At June 30, 2005 and 2004, the combined value of these insurance policies was $13,552 and $13,112. The Bank has also established a nontax qualified Deferred Compensation Plan for certain directors and executive officers. This group of
employees defers a portion of its compensation. A liability has been accrued for the obligation under this plan. During 2004 the Bank adopted a Supplemental Executive Retirement Plan for the Chief Executive Officer. This plan is partially funded by
a life insurance policy with a cash value at June 30, 2005 and 2004 of $3,705 and $3,500. The Banks expense for this plan for the three months ending June 30, 2005 and 2004 was $69 and $0.



---

##### Table of Contents

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

(in thousands, except share and per
share data)



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



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



Summary



A 6.98% and 8.86% increase in earnings per share over the second quarter of 2004 and the first six months of 2004, and a 5.36% increase in
total assets from March 31, 2005 are the most significant results of second quarter 2005. These results also produced the following statistics:



| |  |  | An increase in net interest income of $1,170 or 18.20% during the three months ending June 30, 2005 as compared to the same period in 2004
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increasing net interest margin of 4.32%
| | - |  | ------------------------------------------



| |  |  | 7.33% loan growth during second quarter with a corresponding 4.46% increase in loan income
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | 24.41% investment security growth with a corresponding increase in investment income of 76.86%
| | - |  | ----------------------------------------------------------------------------------------------



Asset growth during second quarter of 2005 was 5.36%, primarily the result of new loan fundings. During the quarter, assets were re-deployed
from federal funds sold into investment securities and loans. As was expected during first quarter, loan closings during the second three months of 2005 continued at a strong pace, construction loan drawings increased, and loan payoffs were higher
than usual. The Bank actually closed over $116 million of loans during the quarter, but approximately $54 million of loans were paid off. Deposits increased by 3.73%, with the largest growth in demand and time deposits. But for the temporary
withdrawal of approximately $16 million in money market deposits from two large municipalities at quarters end, deposits actually increased by more than 6.30% earlier in the quarter. All of this withdrawn municipal deposit money is expected to
return to the Bank within a short period of time. Much of the deposit inflow resulted from continued growth at our newest branch locations as well as from the Elite Money Market account introduced during the first quarter of 2005. The Companys
efficiency ratio decreased from 57.79% at March 31 to 56.08% at June 30, 2005. This ratio continues to be higher than in the past due to the the additional expenses associated with the Companys growth. Three new branch openings during 2004 and
2005, the move to new corporate headquarters during the fourth quarter of 2004, and the full impact of the Seigerman Mulvey insurance agency acquisition during 2004 with its associated expenses have all contributed to this increased efficiency
ratio. Efficiencies are expected to continue to develop from both the single location of all support staff at the new headquarters as well as further integration of the insurance agency into the Bank. Capital remains strong at June 30, with
regulatory ratios in the well capitalized level.



Comparison of Financial
Position at June 30, 2005 and December 31, 2004



Total assets of the Company
at June 30, 2005 and December 31, 2004 were $794,582 as compared to $677,003, an increase of 17.37%. The largest areas of growth during the six month period were in investment securities and bank premises and equipment, respectively. Investment
securities increased by 113.63% and premises and equipment by 19.89%. This growth was funded by an increase in deposits of 25.45%. Loan growth during the period increased by 8.57%. The composition of the loan portfolio at June 30, 2005 and December
31, 2004 remained stable and was as follows:



|                          |  |               |         |  |                   |   |  |   |         |  |        |  
|------------------------- |  | ------------- | ------- |  | ----------------- | - |  | - | ------- |  | ------ | -
|                          |  | June 30, 2005 |         |  | December 31, 2004 |  
|Real estate loans         |  |               |         |  |                   |   |  |   |         |  |        |  
|Construction              |  | $             | 149,257 |  | 24.07             | % |  | $ | 120,204 |  | 21.06  | %
|Residential               |  |               | 117,680 |  | 18.97             |   |  |   | 105,301 |  | 18.45  |  
|Commercial                |  |               | 308,044 |  | 49.67             |   |  |   | 302,281 |  | 52.95  |  
|Commercial and industrial |  |               | 41,483  |  | 6.69              |   |  |   | 40,968  |  | 7.18   |  
|Consumer                  |  |               | 3,479   |  | .56               |   |  |   | 1,893   |  | .33    |  
|Other loans               |  |               | 239     |  | .04               |   |  |   | 190     |  | .03    |  
|                          |  |               |         |  |                   |   |  |   |         |  |        |  
|                          |  | $             | 620,182 |  | 100.00            | % |  | $ | 570,837 |  | 100.00 | %
|                          |  |               |         |  |                   |   |  |   |         |  |        |  



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##### Table of Contents

While loans past due 30 through 89 days increased to $10,530 as of June 30, 2005 from $61 as of December 31, 2004 they
have decreased from $14,468 at March 31, 2005. There were no loans past due 90 days or more and still accruing at December 31, 2004 and $3,002 at June 30, 2005. The majority of these loans are to one borrower who continues to remain delinquent on
his mortgages. The first loan, which remains in the 30 to 89 day past due category, is a $7,378 loan, collateral for which consists of a leasehold mortgage on two six story office buildings located on Madison Avenue in New York City appraised at
$11,800. While this loan is not at a 90 day delinquency status, the borrower remains in technical default under the lease. Progress has been made in satisfying the technical problems, but these problems have not yet been completely resolved.
Prospects for resolution still appear to be very good. The second loan, which has moved from the 30 to 89 day delinquent category to past due 90 days or more, is a loan to the same borrower for $3,002 and is located in the Greenwich Village section
of New York City. This property is under contract of sale and is scheduled to be sold in early August. Nonaccrual loans at June 30, 2005 were $12. The allowance for loan loss account at June 30, 2005 and December 31, 2004 was $5,071 and $4,912. The
increase was the result of net chargeoffs of $66 and a provision for loan losses of $225. Based on specific reserves for internally classified loans and multiple factors including historical loss experience and current economic conditions,
management feels the level of the allowance for loan losses provides adequate coverage. At June 30, 2005 and December 31, 2004, the Banks ratio of the allowance for loan losses as a percentage of end of period loans was .82% and .86%,
respectively. Based on various factors including asset quality, collateral and low loan to value ratios, management believes the allowance account to be adequate. In determining the allowance for loan losses, there is not an exact amount but rather
a range for what constitutes an appropriate amount. The determination of this amount as of any balance sheet date is subjective in nature and requires material estimates based on historical experience, the economic environment, trends in the
portfolio, concentrations of loan balances and various other factors. The portion of the loan loss allowance allocated to each loan category does not represent the total available for probable incurred losses which may occur within the loan category
since the loan loss allowance is a valuation applicable to the entire loan portfolio. Management has also set up a reserve for unfunded loan commitments and the balance in this account at second quarter end 2005 and year end 2004 was $523 and $474.



Investment securities increased by 113.63% from December 31, 2004 to June 30,
2005. The composition of the portfolio at these two dates was as follows:



|                                                |  |               |         |                   |   |       
|----------------------------------------------- |  | ------------- | ------- | ----------------- | - | ------
|                                                |  | June 30, 2005 |         | December 31, 2004
|Securities available for sale                   |  |               |         |                   |   |       
|Obligations of U.S. government treasury         |  | $             | 6,913   |                   | $ | 0     
|Obligations of U.S. government agencies         |  |               | 85,960  |                   |   | 30,192
|Mortgage-backed securities                      |  |               | 4,374   |                   |   | 4,976 
|Obligations of state and political subdivisions |  |               | 13,381  |                   |   | 13,585
|Other securities                                |  |               | 1,990   |                   |   | 3,005 
|                                                |  |               |         |                   |   |       
|Total securities available for sale             |  | $             | 112,618 |                   | $ | 51,758
|                                                |  |              
|Held to maturity                                |  |               |         |                   |   |       
|Mortgage-backed securities                      |  | $             | 122     |                   | $ | 165   
|Obligations of state and political subdivisions |  |               | 1,217   |                   |   | 1,419 
|                                                |  |               |         |                   |   |       
|Total held to maturity                          |  |               | 1,339   |                   |   | 1,584 
|                                                |  |               |         |                   |   |       
|Total investment securities                     |  | $             | 113,957 |                   | $ | 53,342
|                                                |  |               |         |                   |   |       



As a result of the large growth in
deposits during the first and second quarter, the Bank channeled a substantial portion of these funds into higher yielding investment securities, rather than maintaining a very high federal funds position awaiting loan closings. A majority of the
securities purchased were short term treasury and agency securities with a book value of $81,601 and an average weighted yield of 3.85%. The yield on the total investment portfolio at June 30, 2005 and December 31, 2004 was 4.07% and 4.55%,
respectively. Restricted securities decreased from $5,555 to $4,745, a 14.58% reduction, resulting from a lower volume of Federal Home Loan Bank stock, due to the significantly reduced borrowing position of the Bank from December 31, 2004 to June
30, 2005.



Bank premises and equipment increased from December 31, 2004 to June
30, 2005 by 19.89%, a result of the opening of corporate headquarters and corporate headquarters branch office, as well as our newest branch office in Port Washington which opened in April of this year. Other assets increased by 4.24%, primarily the
result of the increase in cash value of the bank owned life insurance and various prepaid expenses.



On the liability side of the balance sheet, total deposits increased by 25.45% from year end 2004 to June 30, 2005. The composition of deposits is as follows:



|                              |  |               |         |                   |   |        
|----------------------------- |  | ------------- | ------- | ----------------- | - | -------
|                              |  | June 30, 2005 |         | December 31, 2004
|Demand (non interest bearing) |  | $             | 109,193 |                   | $ | 90,466 
|Money market                  |  |               | 203,497 |                   |   | 164,878
|NOW                           |  |               | 35,650  |                   |   | 32,434 
|Savings                       |  |               | 52,144  |                   |   | 55,258 
|Time                          |  |               | 244,710 |                   |   | 171,278
|                              |  |               |         |                   |   |        
|Total deposits                |  | $             | 645,194 |                   | $ | 514,314
|                              |  |               |         |                   |   |        



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##### Table of Contents

The large increase in deposits was the result of various factors. The opening of the new corporate headquarters branch
office and the Port Washington office contributed to the growth. The Bank also introduced a new Elite money market account which pays a high, competitive interest rate for balances over $25. Various CD campaigns were also run during the early part
of first quarter and again toward the end of the second quarter in anticipation of future rate increases by the Federal Reserve Bank. Time deposits with maturities of one, two and five years sustained the largest growth in balances. Although these
deposits increased the Banks cost of interest bearing funds from 2.08% at December 31, 2004 to 2.43% at June 30, 2005, these funds have been invested in higher yielding investment securities and loans.



Other borrowings decreased from $99,500 at December 31, 2004 to $82,000 at June 30, 2005. As
deposits flowed into the Bank during the first weeks of the quarter, the overnight borrowings were paid down. At June 30, 2005, the $67,000 in outstanding term borrowings was comprised of thirteen advances from the Federal Home Loan Bank with
maturities ranging from September 2005 to March 2011. The weighted average maturity of these borrowings is 2 years 7 months. The weighted average rate of the borrowings is 3.50%. At June 30, 2005 an overnight line of credit borrowing from the
Federal Home Loan Bank of New York totaled $15,000. This borrowing was obtained at a rate of 3.38%.



Stockholders equity increased from $46,943 to $51,333, an increase of 9.35% from year end December 2004 to quarter end June 30, 2005. This growth was the result of dividends declared of $711, net income of
$5,047 and the increase in accumulated other comprehensive income of $54. The Company and the Bank are subject to the risk based capital guidelines administered by bank regulatory agencies. The guidelines require all banks and bank holding companies
to maintain a minimum ratio of total risk based capital to total risk weighted assets of 8%, including Tier I capital to total risk weighted assets of 4% and a Tier I capital to average assets ratio of at least 4%. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators, that, if undertaken, could have a material effect on the consolidated financial statements. As of June 30, 2005, the most recent notification
from the corresponding regulatory agency categorized the Company as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since such notifications that management believes have changed this
classification. As of June 30, 2005, the Companys capital ratios were 10.95%, 10.04% and 8.05%, well above these minimum guidelines.



Comparison of Operating Results for the Three Months Ended June 30, 2005 and 2004



Net income for the three months ended June 30, 2005 and 2004 was $2,698 and $2,578, an increase of 4.65%. Total interest income increased by
$2,539 or 28.60%. The largest growth in interest income over the two periods was in interest on federal funds sold, which increased by 190.70%, due to the significantly higher average balance of funds during 2005. Interest on loans increased by
23.33% during second quarter 2005 also a result of the increased portfolio balance. Interest income on the investment portfolio increased by 88.31% during second quarter 2005 as compared to second quarter 2004. The purchase of securities during
first and second quarter 2005 resulted in this increased interest income. The yield on interest earning assets for the periods ending June 30, 2005 and June 30, 2004 was 6.41% and 6.09%.



Total interest expense increased by 53.78% for the three months ending June 30, 2005 as compared to the same period in 2004. This was a
result of both an increase in volume and an increase in rate on deposits and borrowings during 2005. The largest increase in interest expense was in expense of borrowed funds, resulting from an increased average balance of Federal Home Loan Bank
term advances of $67,000 during second quarter 2005 as compared to $42,000 during second quarter 2004. This increased expense was also the result of the higher cost of interest payments on the subordinated debt during 2005 as compared to 2004. The
next largest increase in interest expense was the cost of money market accounts. This increased interest expense was the result of the increased money market average balances and average rate paid during the second three months of 2005 as compared
to the same period in 2004. The average cost for money market accounts during second quarter 2005 was 1.55% as compared to 1.28% during the same period in 2004. Average balances for time deposits during second quarter 2005 was $235,567 as compared
to $171,423 during the comparable period in 2004. The average rate paid on these time deposits during second quarter 2005 was 3.37% as compared to 3.29% during the same period in 2004. Net interest income increased by 19.01% for the second quarter
of 2005 as compared to the same three months in 2004. Based on our continuing review of the overall loan portfolio and of the current asset quality of the portfolio, including the classification of loans through our internal review and
classification process, a provision for loan losses of $85 was recorded during the second quarter of 2005 as compared to $0 for the same period in 2004. This provision maintains the allowance at an adequate level as determined through our internal
analysis.



Other noninterest income increased by 87.31%, primarily the result
of the gross revenue received from the insurance agency, Seigerman Mulvey Co., Inc. (Seigerman Mulvey). This income totaled $897 for the second quarter of 2005. For the first eight months of 2004, the Bank owned a 50% interest in an
insurance agency joint venture known as SMTB Financial Group LLC (SMTB). Net income from SMTB for the second three months of 2004 was $21. As of August 31, 2004, the Bank acquired Seigerman Mulvey and its gross revenue is now included as
part of the Banks other income. Service charges on deposit accounts also increased this year as a result of a new Overdraft Honor program implemented in early February 2005. This program provides overdraft coverage for customers meeting
certain requirements, and has been very successful in providing increased fee income. Other miscellaneous income also increased due to increased debit card fee income and loan fee income. Net income from the Banks equity investments during the
second quarter of 2004 was comprised of the income from SMTB in addition to income from the financial services subsidiary and this income totaled $61. As a result of the purchase of Seigerman Mulvey in August 2004, only the financial services
subsidiary remains as an equity investment, and this income for the second quarter of 2005 totaled $12. The net gain on the sale of investment securities declined by 95.36% due to a significantly lower volume of sold securities. Other operating
expenses increased by 51.50% as a result of various factors, almost all of which are related to the Banks continued growth. The largest increase in this category of expenses was in net occupancy expenses of bank premises. This increase was
104.96% over the period in 2004, and was primarily the increased rental and overhead expenses as



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well as the construction costs of new branch and corporate headquarter facilities. The second largest increased category of non interest expense was
furniture and equipment expense also related to the increased branch network. Salary and benefit expenses increased for the three month period by a total of 50.12%. Higher costs for group medical insurance, even with a portion of this increase
passed along to employees, has caused the Banks expense to increase significantly. Furniture and equipment expense also increased by 54.01% this quarter as compared to the same period during 2004. As with the increased occupancy expense, this
was the result of the growth in branch offices and corporate headquarters. Other miscellaneous expenses also grew by 26.60%. These miscellaneous expenses are related to normal operating costs as well as operating expenses of Seigerman Mulvey. The
major categories of increases included audit and accounting fees, ATM and debit card fees, legal fees and the provision for contingent liabilities. Earnings per share increased by 6.98% for the period ending June 30, 2005 as compared to the same
period ending June 30, 2004.



Comparison of Operating Results for the Six
Months Ended June 30, 2005 and 2004



Net income for the six months ended June
30, 2005 and 2004 was $5,047 and $4,708, an increase of 7.20%. Total interest income increased 27.89% over the two comparable periods, due in the majority to the increased loan income and investment security income. Loan average balances for the six
month periods ended June 30, 2005 and 2004 increased by 16.22% and the average yield on these balances increased by 7.10%. Investment security average balances over the two six month periods also increased by 58.25%, with the corresponding yield
earned on these securities decreasing by 11.71%. Interest income on federal funds sold also increased during 2005 as a result of the greatly increased average balance. The large deposit inflow experienced during the first six months of 2005 was
responsible for the increase in earning assets as these funds were deployed into the three primary interest earning asset categories. During the first quarter, as loan growth was slower than it has been in the past several years, most of the deposit
inflow was channeled into federal funds sold and short term investment securities. As loan volume regained much of its momentum during the second quarter of 2005, a larger portion of the deposit inflows were redeployed into these new loan
originations.



Interest expense for the first six months of 2005 was 45.25%
higher than the expense of the comparable period in 2004. Again, this was due to the 23.82% increased average balance and 17.39% increased cost. The greatest increase in deposit expense for the first six months of 2005 was time deposits, which rose
by 39.94%. The cost of other borrowings increased by 76.22% during 2005 resulting from the increased average outstanding balance of Federal Home Loan Bank advances and the increased interest expense related to the subordinated debt.



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



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AVERAGE BALANCE SHEET AND YIELD ANALYSIS



|                                                                |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|--------------------------------------------------------------- |  | -------------------------------------- | ------- | -------- | -------------------------------------- | ----------- |  | ---- | -------------- |  | -------- | ------- | ----------- | - | ------ |  | ---- | -
|                                                                |  | For the six months ended June 30, 2005 |         |          | For the six months ended June 30, 2004 |            
|                                                                |  | AverageBalance                         |         | Interest |                                        | AverageRate |  |      | AverageBalance |  | Interest |         | AverageRate |  
|ASSETS                                                          |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|                                                                |  |                                        |         |          |                                        |            
|Interest-earning assets:                                        |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|Investment securities:                                          |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|                                                                |  |                                        |         |          |                                        |            
|Taxable                                                         |  | $                                      | 71,815  |          | $                                      | 1,410       |  | 3.93 | %              |  | $        | 35,749  |             | $ | 696    |  | 3.89 | %
|Nontaxable                                                      |  |                                        | 14,563  |          |                                        | 347         |  | 4.77 |                |  |          | 18,833  |             |   | 561    |  | 5.96 |  
|                                                                |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|Total investment securities                                     |  |                                        | 86,378  |          |                                        | 1,757       |  | 4.07 |                |  |          | 54,582  |             |   | 1,257  |  | 4.61 |  
|                                                                |  |                                        |         |          |                                        |            
|Total loans                                                     |  |                                        | 574,810 |          |                                        | 19,947      |  | 6.94 |                |  |          | 494,568 |             |   | 16,017 |  | 6.48 |  
|Federal funds sold                                              |  |                                        | 25,725  |          |                                        | 330         |  | 2.55 |                |  |          | 19,636  |             |   | 92     |  | 0.93 |  
|Restricted securities                                           |  |                                        | 3,916   |          |                                        | 94          |  | 4.84 |                |  |          | 2,670   |             |   | 35     |  | 2.64 |  
|Balances due from banks                                         |  |                                        | 99      |          |                                        | 1           |  | 2.39 |                |  |          | 317     |             |   | 1      |  | 0 57 |  
|                                                                |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|Total interest-earning assets                                   |  |                                        | 690,928 |          |                                        | 22,129      |  | 6.41 |                |  |          | 571,773 |             |   | 17,402 |  | 6.09 |  
|Non-interest-earning assets                                     |  |                                        | 51,924  |          |                                        |             |  |      |                |  |          | 38,937  |             |   |        |  |      |  
|                                                                |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|Total assets                                                    |  | $                                      | 742,852 |          |                                        |             |  |      |                |  | $        | 610,710 |             |   |        |  |      |  
|                                                                |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY                            |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|                                                                |  |                                        |         |          |                                        |            
|Liabilities                                                     |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|Interest-bearing liabilities:                                   |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|                                                                |  |                                        |         |          |                                        |            
|Savings deposits (including NOW)                                |  | $                                      | 85,618  |          | $                                      | 108         |  | 0.25 | %              |  | $        | 90,076  |             | $ | 234    |  | 0.52 | %
|Money market accounts                                           |  |                                        | 200,052 |          |                                        | 1,600       |  | 1.61 |                |  |          | 170,036 |             |   | 1,022  |  | 1.21 |  
|Certificates of deposit                                         |  |                                        | 227,866 |          |                                        | 3,938       |  | 3.49 |                |  |          | 166,946 |             |   | 2,814  |  | 3.39 |  
|                                                                |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|Total interest-bearing deposits                                 |  |                                        | 513,536 |          |                                        | 5,646       |  | 2.22 |                |  |          | 427,058 |             |   | 4,070  |  | 1.92 |  
|                                                                |  |                                        |         |          |                                        |            
|Other borrowings                                                |  |                                        | 68,837  |          |                                        | 1,189       |  | 3.48 |                |  |          | 41,171  |             |   | 642    |  | 3.14 |  
|Subordinated debt                                               |  |                                        | 11,000  |          |                                        | 323         |  | 5.84 |                |  |          | 11,000  |             |   | 216    |  | 3.88 |  
|                                                                |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|Total interest-bearing liabilities                              |  |                                        | 593,373 |          |                                        | 7,158       |  | 2.43 |                |  |          | 479,229 |             |   | 4,928  |  | 2.07 |  
|Non-interest bearing liabilities:                               |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|Demand deposits                                                 |  |                                        | 99,034  |          |                                        |             |  |      |                |  |          | 88,260  |             |   |        |  |      |  
|Other liabilities                                               |  |                                        | 1,210   |          |                                        |             |  |      |                |  |          | 2,389   |             |   |        |  |      |  
|                                                                |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|Total liabilities                                               |  |                                        | 693,617 |          |                                        |             |  |      |                |  |          | 569,878 |             |   |        |  |      |  
|Stockholders equity                                            |  |                                        | 49,235  |          |                                        |             |  |      |                |  |          | 40,832  |             |   |        |  |      |  
|                                                                |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|Total liabilites & stockholders equity                          |  | $                                      | 742,852 |          |                                        |             |  |      |                |  | $        | 610,710 |             |   |        |  |      |  
|                                                                |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|Net interest income/interest rate spread                        |  |                                        |         |          | $                                      | 14,971      |  | 3.98 | %              |  |          |         |             | $ | 12,474 |  | 4.02 | %
|                                                                |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  
|Net earning assets/net yield on average interest earning assets |  | $                                      | 97,555  |          |                                        |             |  | 4.32 | %              |  | $        | 92,544  |             |   |        |  | 4.36 | %
|                                                                |  |                                        |         |          |                                        |             |  |      |                |  |          |         |             |   |        |  |      |  



Other noninterest income for the first
six months of 2005 increased by 89.47% due primarily to the gross revenue from Seigerman Mulvey. Service charge income on deposit accounts has increased by 6.79% to date in 2005 due in a large part to the Overdraft Honor program. Other operating
expenses also increased during the first six months of 2005 over the same period in 2004 due primarily to the growth of the Bank. These additional expenses are related to the new corporate headquarters, and the openings of the Motor Parkway and Port
Washington branches during 2005 as well as the Miller Place branch office opened during the fourth quarter of 2004. As brick and mortar have increased, additional expenses related to new staff hirings have been incurred. Salary and benefit expenses
have risen as a result of the growth in branch locations of the Bank. Other miscellaneous expenses increased by 38.26%, predominantly a result of the Seigerman Mulvey acquisition and its related operating costs. Also contributing to the increase,
based on our continuing review of the overall loan portfolio and of the current asset quality of the portfolio, including the classification of loans through our internal review and



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classification process, a provision for loan losses of $225 was recorded for the first six months of 2005 as compared to $0 for the same period in 2004. This
provision maintains the allowance at an adequate level as determined through our internal analysis. Earnings per share for the first six months of 2005 were 8.86% higher than the comparable period in 2004. Return on average assets for the 2005 and
2004 periods was 1.36% and 1.55% respectively, primarily reduced due to the significantly increased asset base.



Liquidity and Commitments



Liquidity provides the source of funds for anticipated 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. The Banks total liquidity level at June 30, 2005 was strong due to the
high levels of unpledged marketable securities available for sale, and unused lines of credit from correspondent banks. In addition to these sources of liquidity, additional borrowing potential from the Federal Home Loan Bank at June 30, 2005 was
$88,211.



On June 30, 2005 total loan commitments outstanding were $183,188, of
which $98,358 represents available lines on funded loans, and $6,083 represents letters of credit. At June 30, 2004 these commitments totaled $127,593 with available lines of $55,750 and letters of credit of $7,491.



Impact of Inflation and Changing Prices



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



Item 3.- Quantitative and Qualitative Disclosures About Market Risk



Significant changes in the level of market interest rates may adversely affect the value of the Companys interest earning assets. This change in rates could also affect the level of net interest income and
ultimately net income of the Company. The Company utilizes the results of a dynamic simulation model to quantify the estimated exposure to net interest income fluctuations resulting from sustained interest rate changes. Management monitors simulated
net interest income sensitivity over a rolling two year horizon. This simulation captures the impact of changing interest rates on the interest income received and interest expense paid on all interest sensitive assets and liabilities. This
sensitivity is then compared to policy limits internally set by the Asset Liability Committee that specify a maximum tolerance level for net interest income exposure over a one year horizon given both an upward and downward shift in interest rates.
This simulation modeling is done on a quarterly basis. The last simulation model was prepared as of May 31, 2005 and was modeled on a 100 downward and 200 and 300 basis point upward shift in rates. A parallel and pro rata shift in rates over a
twenty four month period was assumed. The following reflects the Companys income sensitivity analysis over a one year time frame as of May 31, 2005 and February 28, 2005.



(in thousands)



|                                                      |          |                                                            |   |          |                                                                 |   |          |        |   |          |       |  
|----------------------------------------------------- | -------- | ---------------------------------------------------------- | - | -------- | --------------------------------------------------------------- | - | -------- | ------ | - | -------- | ----- | -
|Change In Interest Rates In
Basis Points (Rate Shock) |          | As of May 31, 2005 Potential Change In Net Interest Income |   |          | As of February 28, 2005 Potential Change In Net Interest Income |  
|                                                      | $ Change |                                                            |   | % Change |                                                                 |   | $ Change |        |   | % Change |      
|Up 300 basis points                                   |          | 3,080                                                      |   |          | 9.19                                                            |   |          | 738    |   |          | 2.44  |  
|Static                                                |          |                                                           |   |          |                                                                |   |          |       |   |          |      |  
|Down 100 basis points                                 |          | (1,184                                                     | ) |          | (3.53                                                           | ) |          | (1,068 | ) |          | (3.53 | )



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 131-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2005. 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 controls over financial reporting during the quarter that has materially affected,
or is reasonably likely to 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 BANCORP, INC.



August 5,
2005





/s/ Bradley E. Rock

Bradley E. Rock, Chairman, President and

Chief Executive Officer





/s/ Anita M. Florek

Anita M. Florek, Executive Vice President and

Treasurer