Smithtown Bancorp Announces Second Quarter Earnings

Smithtown Bancorp (NASDAQ: SMTB), the parent company of Bank of Smithtown, today announced that the Company had earnings for the second quarter of 2008 of $3,952,503 or $.40 per share. These figures represent an 8% increase in earnings on a year-over-year basis and an 11% increase in earnings on a linked-quarter basis. Basic earnings per share for the last twelve months now stand at $1.51.

Loan growth continued to be exceptionally strong during the second quarter. Loans grew by $230 million to $1.354 billion at the end of the period. This figure represents loan growth of 20% for the quarter. For the first six months of 2008, loans have grown by $370 million, or 38%.

Consistent with the patterns that began last December, 85% of the second 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.

During the second quarter, commercial mortgage loans grew by $109 million, or 23%. During the same period, permanent mortgage loans on existing, fully-tenanted multi-family properties grew by $74 million, or 54%. Residential mortgage loans on 1-to-4 family homes grew by $15 million, or 12%.

For the first six months of 2008, commercial mortgage loans grew by $153 million, or 36%. Multi-family loans (which has been the strongest area of growth) increased by $123 million, or 139%. Single-family residential mortgages increased by $37 million, or 30%.

At June 30, 2008, the average balance of a commercial mortgage loan in the Bank's portfolio was approximately $1,680,000, with an average loan-to-value ratio of 59%. The average balance of a multi-family loan was approximately $3,461,000, with an average loan-to-value ratio of 57%. For 1-to-4 family residential mortgage loans, the average balance was $518,000, with an average LTV of 54%.

The loan "pipeline" of approved but unfunded commitments at June 30, 2008, was $181 million. This figure is significantly lower than the March 31st pipeline (which was at a record high level of $289 million). During the past three quarters, the Bank has closed and funded approximately 80-90% of the pipeline during the following 90 days. If this pattern were to continue, and the Bank were to experience payoffs and construction loan advances similar to the second quarter, net loan growth for the third quarter would be similar to that of the first quarter, which was $140 million.

Consistent with reduced construction activity in the area and the Bank's tightened construction loan standards, the pipeline of committed construction loans that have not yet been closed has been reduced substantially, down from $115 million at March 31st to $47 million at June 30th, a 59% reduction.

Asset quality remained very strong. Nonperforming loans were $2.8 million or .21% of total loans at the end of the quarter. The increase of 7 basis points in nonperformers from March 31st is attributable to one single-family construction loan which management believes is well-secured. Loans 30-89 days past due were at $150,000, or .01% of total loans. Net charge-offs for the first six months were $1,400, or .0001% of average total loans. The Bank does not hold any sub-prime loans, "Alt-A" loans, option ARMs, 2/28 ARMs or loans with teaser rates.

The Company's capital ratios also remained strong. All of the Company's regulatory capital ratios are in the "well capitalized" range, with Tier I Leverage at 7.71%, Tier I Risk-Based Capital at 8.67% and Total Risk-Based Capital at 10.36%. The Company regularly monitors its capital ratios and evaluates all of its options in light of its asset growth, earnings growth and market conditions at the time.

Deposits grew substantially during the second quarter. Total deposits grew by $139 million, or 14%. Checking account balances grew by 7%, and money market, savings and NOW balances grew by 8% for the quarter. Total "core deposits" grew by $45 million, or 8%. Certificates of deposit grew by $94 million, or 23%. At June 30, 2008, 55% of the Bank's deposits were in core deposits, and 45% in CDs. For the first six months of 2008, the Bank's CD retention rate was 82%, which is consistent with the Bank's CD retention rate for the past five years.

Bank of Smithtown opened two branches during the second quarter, and both have been very successful. The Greenvale branch in Nassau County opened during early April and collected almost $1 million per day for the first 45 days it was open. The Nesconset branch in Suffolk County opened in early June and collected more than $2 million per week for the first four weeks it was open. As of June 30th, the two newest branches combined had $64 million in deposits. In the Greenvale market, much of the growth has been in CDs, with 17% of the new money being in core deposits. In Nesconset, 70% of the growth has been in core deposits, which is more consistent with the Bank's experience with other recent new branches in Suffolk County.