SOURCE: Smithtown Bancorp

April 24, 2008 09:28 ET

Smithtown Bancorp Announces First Quarter Earnings

Earnings Up 6%; Loans Increase 14%; At Least 4 New Branches Opening This Year

SMITHTOWN, NY--(Marketwire - April 24, 2008) - Smithtown Bancorp (NASDAQ: SMTB), the parent company of Bank of Smithtown, today announced that the Company had earnings for the first quarter of 2008 of $3,573,886, or $.37 per share. These figures represent a 6% increase in net income and a 6% increase in basic earnings per share. Basic earnings per share for the last twelve months now stand at $1.49.

Loan growth was exceptionally strong during the first quarter. Loans grew by $140 million to $1.124 billion at the end of the period. This figure represents loan growth of 14% for the quarter.

Consistent with the loan application inflows that began last December, 78% of the first quarter net loan growth was in permanent mortgage loans. Generally, these loans are on fully-tenanted commercial or multi-family buildings with seasoned cash flows.

Loan payoffs diminished substantially with only $22 million paid off during the first quarter. This figure compares very favorably with the $102 million of payoffs during the fourth quarter of last year. It also compares favorably with payoffs of $77 million and $51 million in the second and third quarters of 2007, respectively. This reduced volume of payoffs contributed significantly to the Bank's strong net loan growth during the first quarter of 2008.

The loan "pipeline" of approved but unfunded commitments at March 31, 2008, was $289 million, the strongest it has ever been at quarter's end. During the past two quarters, the Bank has closed and funded approximately 90% of the pipeline during the following 90 days.

Asset quality remained strong. Nonperforming loans were .14% of total loans at the end of the quarter. The small increase of 7 basis points in nonperformers from $687,000 at December 31st to $1.6 million at March 31st is attributable to one relationship where the borrower has died and the loans are well-secured by multiple properties. The Bank does not hold any sub-prime loans, "Alt-A" loans, option ARMs, 2/28 ARMs or loans with teaser rates.

Due to the dramatic and unprecedented cuts in interest rates by the Federal Reserve during this past quarter, the Bank chose to fund its loan growth with low-cost structured borrowings from the Federal Home Loan Bank. The Bank drew down $150 million of this wholesale funding, mostly at rates ranging from 1.88% to 2.59%, and at an average rate of 2.44%.

The availability of these low-cost funds allowed the Bank to decrease rates on deposits more quickly than some of its competitors in an effort to offset the reductions in interest income caused by the rapid and deep Fed rate cuts. As a result, deposits decreased slightly during the quarter by $17 million, or less than 2%. We anticipate that the opening of two new branches during the second quarter, together with the introduction of several targeted promotional products, will rejuvenate the deposit growth that was not pursued during the first quarter. In fact, thus far during a little more than the first three weeks of the second quarter, with only one new branch opened for a short period of time, deposits have grown by $70 million.

Net interest margin decreased from the fourth quarter of last year by 15 basis points to 3.90%. This decrease was mostly caused by two factors. First, the Bank carried an average balance during the quarter of $440 million of loans tied to the "prime rate." When the Fed rapidly reduced short-term rates by 200 basis points, interest income on these loans was reduced significantly. Secondly, the fixed rates on the types of high-quality permanent mortgage loans that the Bank has been adding to its portfolio are generally lower than the rates on construction lending and other types of business and consumer lending. Therefore, though the Bank has been able to decrease deposit rates some and borrow at a low cost from the Federal Home Loan Bank, the reduced rates on loans have nonetheless squeezed the margin on the asset side.

The Company continued to control noninterest expense effectively, posting an efficiency ratio of 52.60% for the first quarter, which is an improvement of 123 basis points over last year. The average efficiency ratio for peer group banks is 60.56%.

The Company's Chairman & CEO, Brad Rock, commented: "It has become clear that the current economic environment is creating opportunities for us. Many of our competitors have had to curtail lending due to capital constraints or liquidity constraints caused by sub-prime mortgage problems and other difficulties. As a result, we have greatly increased opportunities for permanent commercial mortgage lending. Most of these loans are on fully-tenanted commercial and multi-family buildings with seasoned cash flows. Because of recent Fed rate cuts and the high quality of these loans, the rates on these loans are somewhat lower than what we are accustomed to, but the volume of these loans available to us is unprecedented for our Company. Last year, loans grew by $135 million. For the first quarter of this year, loans grew by $140 million. We expect these increased lending opportunities to continue for the near future, which should allow us to build a significantly increased revenue stream."

Mr. Rock continued: "We intend to fund these loans with a combination of wholesale funding and deposit growth. Due to the Fed rate cuts, the low cost of wholesale funding and the high deposit rates being paid by some of our competitors, we decided not to pursue deposits aggressively during the first quarter, but rather to wait for the openings of our new branches later in the year as a source of new deposits. One of those branches opened in early April, another will open in late May, and at least two more (Manhattan and Huntington) will open later this year. We also continue to negotiate for other sites, two of which could open this year if deals are concluded." The Bank also expects to open 5 or 6 new branches in 2009, including locations in Port Jefferson, Deer Park, Brentwood, East Setauket and St. James.

Founded in 1910, Bank of Smithtown is nearing its 100th anniversary as a community bank. The stock of its parent holding company, Smithtown Bancorp, is traded on the NASDAQ Global Market under the symbol "SMTB." In a recent issue of U.S. Banker magazine, the Company was rated the sixth best "mid-size" bank in the United States, and the 13th best bank of any size. There are approximately 8,300 banks in the United States. Smithtown Bancorp has often been ranked among the top banks in the country, including having been rated #1 by U.S. Banker and other rating services. At various times in the past, the Company's stock has also been rated by Investors Business Daily and U.S. Today as one of the top stocks in the nation.

Forward-Looking Statements

This release and other written materials and statements management may make, may contain forward-looking statements regarding the Company's prospective performance and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of said safe harbor provisions.

Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are sometimes identified by use of the words "plan," "believe," "expect," "intend," "anticipate," "estimate," "project," "appear" or other similar expressions. The Company's ability to predict results or the actual effects of its plans and strategies is inherently uncertain. Accordingly actual results may differ materially from anticipated results.

Factors that could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, a change in economic conditions; changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation and regulation; other risk factors disclosed in the Company's reports filed with the Securities and Exchange Commission; and other economic, competitive, governmental, regulatory, geopolitical and technological factors affecting the Company's operations, pricing and services.

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 the statements were made or to reflect the occurrences of unanticipated results. Investors are advised, however, to consult any further disclosures the Company makes on related subjects in our reports to the Securities and Exchange Commission.

Consolidated Balance Sheets

                                                            As of
                                                   March 31,    March 31,
                                                      2008         2007
                                                  -----------  -----------
ASSETS
Cash and due from banks                           $    19,936  $    13,941
Federal funds sold                                     12,458       47,546
                                                  -----------  -----------
    Total cash and cash equivalents                    32,394       61,487

Investment securities:
    Available for sale:
      Obligations of U.S. government agencies          13,896       59,084
      Mortgage - backed securities                     24,269        2,639
      Obligations of state and political
       subdivisions                                     5,834        8,565
      Other securities                                  7,581        5,135
                                                  -----------  -----------
                Total securities available for
                 sale                                  51,580       75,423
      Held to maturity:
          Mortgage - backed securities                      3           31
          Obligations of state and political
           subdivisions                                   202          293
                                                  -----------  -----------
               Total securities held to
                maturity (estimated fair
                value 205 in 2008 and
                $327 in 2007)                             205          324
                                                  -----------  -----------
                   Total investment
                    securities                         51,785       75,747

Restricted securities                                   9,048        2,547

Loans                                               1,124,033      890,505
    Less: allowance for loan losses                     9,039        7,414
                                                  -----------  -----------
    Loans, net                                      1,114,994      883,091

Bank premises and equipment                            23,506       22,334

Other assets
   Cash value of company owned life insurance          19,159       18,385
   Goodwill                                             3,923        2,077
   Intangible assets                                    1,276        1,471
   Other real estate owned                              6,972        6,972
   Other                                               19,121       15,068
                                                  -----------  -----------
       Total other assets                              50,451       43,973
                                                  -----------  -----------

           Total assets                           $ 1,282,178  $ 1,089,179
                                                  ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
    Deposits:
       Demand (non-interest bearing)              $   108,637  $   103,100
       Money market                                   371,028      351,634
       NOW                                             30,681       37,509
       Savings                                         59,167       53,263
       Time                                           404,217      408,813
                                                  -----------  -----------
         Total deposits                               973,730      954,319

    Dividends payable                                     393          356
    Other borrowings                                  175,000       35,000
    Subordinated debt                                  38,836       18,217
    Other liabilities                                  11,820       11,033
                                                  -----------  -----------
       Total liabilities                            1,199,779    1,018,925

Stockholders' equity
    Common stock - $.01 par value (20,000,000
     shares authorized at March 31, 2008 and
     2007; 11,886,341 shares issued, 9,834,477
     shares outstanding at March 31, 2008;
     11,852,374 shares issued, 9,800,510 shares
     outstanding at March 31, 2007)                       119          119
    Additional paid in capital                         26,070        4,302
    Retained earnings                                  67,412       76,068
    Accumulated other comprehensive loss               (1,140)        (173)
                                                  -----------  -----------
                                                       92,461       80,316
    Treasury stock (2,051,864 shares at cost)         (10,062)     (10,062)
                                                  -----------  -----------
       Total stockholders' equity                      82,399       70,254
                                                  -----------  -----------

Total liabilities and stockholders' equity        $ 1,282,178  $ 1,089,179
                                                  ===========  ===========




Consoidated Statements of Income

                                                 For the Three Months Ended
                                                          March 31,
                                                      2008         2007
                                                  ------------ ------------
Interest income
   Loans                                          $     19,262 $     17,713
   Federal funds sold                                        8          311
   Investment securities:
       Taxable:
           Obligations of U.S. government
            agencies                                       273          859
           Mortgage - backed securities                    238           37
           Other securities                                124           48
                                                  ------------ ------------
              Subtotal                                     635          944
       Exempt from federal income taxes:
           Obligations of state & political
            subdivisions                                    58           79
   Other interest income                                   125           59
                                                  ------------ ------------
             Total interest income                      20,088       19,106

Interest expense
   Money market accounts (including savings)             3,350        3,535
   Time deposits of $100,000 or more                     1,796        1,959
   Other time deposits                                   2,672        2,935
   Other borrowings                                        889          384
   Subordinated debt                                       422          344
                                                  ------------ ------------
             Total interest expense                      9,129        9,157
                                                  ------------ ------------
Net interest income                                     10,959        9,949
Provision for loan losses                                  800          400
                                                  ------------ ------------
Net interest income after provision for loan losses     10,159        9,549


Noninterest income
   Trust and investment services                           182          159
   Service charges on deposit accounts                     504          427
   Revenues from insurance agency                        1,048          903
   Increase in cash value of company owned
    life insurance                                         198          230
   Other                                                   414          507
                                                  ------------ ------------
            Total noninterest income                     2,346        2,226

Noninterest expense
   Salaries                                              3,146        2,992
   Pension and other employee benefits                     849          740
   Net occupancy expense of bank premises                1,135        1,020
   Furniture and equipment expense                         657          645
   Amortization of intangible assets                       107          120
   Other                                                 1,078        1,128
                                                  ------------ ------------
            Total noninterest expense                    6,972        6,645
                                                  ------------ ------------
Income before income taxes                               5,533        5,130
Provision for income taxes                               1,958        1,751
                                                  ------------ ------------
Net income                                        $      3,575 $      3,379
                                                  ============ ============

Earnings per share
   Basic earnings per share                       $       0.37 $       0.35
   Diluted earnings per share                     $       0.37 $       0.35

Cash dividends declared                           $       0.04 $       0.04
Weighted average common shares outstanding           9,787,266    9,766,753
Weighted average common equivalent shares            9,794,201    9,769,936

Comprehensive income                              $      2,607 $      3,537




Selected Financial Data
(in thousands, except per share data)

                                              For the Three Months Ended
                                            March 31, 2008  March 31, 2007

                                            --------------- ---------------
Basic earnings per share (1)                $          0.37 $          0.35
                                            --------------- ---------------
Diluted earnings per share (1)                         0.37            0.35
                                            --------------- ---------------

                                            --------------- ---------------
Assets                                      $     1,282,178 $     1,089,179
                                            --------------- ---------------
Loans                                             1,124,033         890,505
                                            --------------- ---------------
Deposits                                            973,730         954,319
                                            --------------- ---------------

                                            --------------- ---------------
Return on Average Equity                              17.59           19.71
                                            --------------- ---------------
Cash Return on Average Equity (1)                     17.93           20.18
                                            --------------- ---------------
Return on Average Tangible Equity (2)                 18.79           20.82
                                            --------------- ---------------
Cash Return on Average Tangible Equity (3)            19.16           21.30
                                            --------------- ---------------

                                            --------------- ---------------
Return on Average Assets                               1.19            1.28
                                            --------------- ---------------
Cash Return on Average Assets (1)                      1.21            1.31
                                            --------------- ---------------
Return on Average Tangible Assets (2)                  1.19            1.28
                                            --------------- ---------------
Cash Return on Average Tangible Assets (3)             1.22            1.31
                                            --------------- ---------------

                                            --------------- ---------------
Net Interest Margin                                    3.90            4.04
                                            --------------- ---------------

                                            --------------- ---------------
Efficiency                                            52.60           54.94
                                            --------------- ---------------
Efficiency - Cash Basis                               51.80           54.15
                                            --------------- ---------------


(1) Excludes amortization of intangibles
(2) Excludes intangible assets
(3) Excludes amortization of intangibles and intangible assets

Contact Information

  • Contact:
    Ms. Judith Barber
    Corporate Secretary
    Corporate Headquarters
    100 Motor Parkway, Suite 160
    Hauppauge, NY 11788-5138
    Direct Dial: 631-360-9304
    Direct Fax: 631-360-9380
    brock@bankofsmithtown.net