Recent Developments

Turmoil in credit markets increased as the problems posed by sub-prime mortgages granted during the previous several years became increasingly evident. An inability to value securities backed by these mortgages forced a number of financial institutions to take losses, reducing the amount of capital available to support their lending. The uncertainty created by the difficulties in valuing these securities spread more broadly into such markets as that for credit default swaps, and individuals and financial institutions became reluctant to lend to one another. This triggered a concurrent drop in equity markets, and federal officials took a number of unprecedented steps to stabilize credit markets, the precise outcome of which remains unclear. Residential real estate continued to decline in value, and the number of foreclosures increased, further diminishing investors' confidence and resulting in significant declines in the value of banking stocks.

Against this background, rates of interest for shorter terms dropped during the year more than those for longer terms, resulting in a steeper "yield curve." This was primarily the result of reductions by the Federal Reserve Board in its targets for federal funds and discount rates. At times, actual rates for overnight lending greatly exceed the target rates. However, rates were volatile throughout the period.

At Suffolk, interest income was flat despite an increase in total net loans, although that was offset by lesser interest expense, resulting in higher net interest income. The net interest margin decreased to 4.62 percent in the third quarter of 2008, down from 5.09 percent, in the third quarter of 2007. The net interest margin on a year to date basis decreased to 4.70 percent in 2008, down from 5.08 percent for the comparable period last year.

Return on average equity decreased to 19.89 percent for the third quarter in 2008, down from 24.36 percent during the third quarter of 2007, and earnings-per-share decreased from $.61 in the third quarter of 2007 to $.59 in the third quarter of 2008. For the first nine months of 2008, return on average equity increased to 22.36 percent, up from 21.43 percent during the comparable period of 2007, and earnings per share increased to $1.98 for the first nine months of 2008 up from $1.66 for the same period last year. The increase in return on average equity and earnings per share on a year to date basis is the result of a

net gain on sale of securities during the first quarter of 2008, the proceeds of which were realized from the sale of shares issued by Visa, Inc. in connection with its initial public offering. Suffolk's subsidiary, Suffolk County National Bank, was a member of the former Visa, Inc. payments organization and was issued shares when Visa, Inc. was organized. Approximately 39 percent of those shares were redeemed in connection with the initial public offering. The remaining shares are restricted because of unsettled litigation pending against Visa, Inc. Visa, Inc., at its discretion, may redeem additional restricted shares in order to resolve pending litigation. The restriction expires upon resolution of the pending litigation. Accordingly, Suffolk has recorded these shares at zero in the accompanying statement of condition. Upon expiration of the restriction, Suffolk expects to record the fair value of the remaining shares.

On October 14, 2008, subsequent to the preparation of Suffolk's release of third quarter earnings, Visa, Inc. announced that it had reached an agreement in principle with Discover Financial Services ("Discover") to settle litigation pending since 2004, and that the specific terms of the settlement were still being negotiated and would be made available when a final agreement had been reached. On October 27, 2008, Visa, Inc. announced that it had agreed to settle litigation with Discover, for $1.8875 billion, which included $1.7425 billion from the escrow created under Visa, Inc.'s retrospective responsibility plan, $80 million from Visa, Inc. to obtain releases from MasterCard, and an additional $65 million which would be refunded by Morgan Stanley under a separate agreement related to the settlement; and that this settlement would be subject to approval by Visa, Inc.'s former U.S. member financial institutions. On October 31, 2008, officials of Visa, Inc. conducted a conference call providing additional information concerning the settlement, thus allowing Suffolk to compute conclusively the net amount of its liability under the settlement. Based on a total excess of settlements over the amount of litigation escrow provided by Visa, Inc. of $807,500,000, Suffolk's portion amounted to $455,995, resulting in an after-tax charge of $294,116, or $0.03 per share, recorded for the third quarter. It is expected that sufficient shares of Visa, Inc. will be redeemed during the fourth quarter of 2008 to cover this charge, thus reversing its effect.

Key to maintaining performance was close management of the balance sheet. Steps included:

• Repositioning of the investment portfolio to provide downside protection from falling rates, and continued purchases of municipal securities, currently providing liquidity as well as higher returns net of taxes, and some protection from falling interest rates.

• Pursuing ongoing program of capital management, maintaining total risk-based capital ("TRBC") at a small margin above 10.00 percent which qualifies as "well-capitalized" with regulatory agencies and affords certain advantages to the banking subsidiary. Maximum prudent leverage is thus applied to the shareholders' investment by means of selected repurchases of shares when capital exceeds the target, and through the retention of earnings when assets are growing. Growth in the core business during the quarter was sufficient to provide leverage to all retained earnings, and no shares were repurchased.

• Maintaining emphasis on both commercial and personal demand deposits, and non-maturity time deposits while responding as necessary to demand in Suffolk's market for certificates of deposit of all sizes. In light of increased demand for loans from customers unable to obtain financing from other banks whose capital losses reduced their lending capacity, Suffolk redoubled its emphasis on the profitability of the whole relationship of it customers with the Bank, seeking when possible to both make loans to and obtain funding from qualified customers.

• Managing net loan charge-offs aggressively. During the third quarter of 2008, net charge-offs amounted to 8 basis points of average net loans, on an annualized basis.

• Consistent underwriting for lending to preserve both credit quality and yields in face of competition. Emphasis on preservation of margins over less profitable growth, and on the relationship rather than the transaction.

Net Income

Net income was $5,673,000 for the quarter, down 6.1 percent from $6,043,000 posted during the same period last year. Earnings per share for the quarter were $0.59 versus $0.61, a decrease of 3.3 percent. Net income was $18,946,000 for the nine months ended September 30, 2008, up from $16,524,000 posted during the same period last year. Earnings per share were $1.98 for the nine month period ended September 30, 2008, up from $1.66 posted last year. Included in net income is $2,429,000 attributed to the Visa, Inc. transaction, net of income taxes.

Interest Income

Interest income was $22,454,000 for the third quarter of 2008, down 0.1 percent from $22,474,000 posted for the same quarter in 2007. Average net loans during the third quarter of 2008 totaled $1,039,045,000 compared to $912,248,000 for the same period of 2007. During the third quarter of 2008, the yield on a fully taxable-equivalent basis was 6.14 percent on average earning assets of $1,516,069,000 down from 7.03 percent on average earning assets of $1,319,548,000 during the third quarter of 2007. Interest income remained flat from quarter to quarter. Interest income was $66,407,000 for the first nine months of 2008, down 0.7 percent from $66,870,000 recorded in the first nine months of 2007. During the first nine months of 2008, the yield on a fully taxable-equivalent basis was 6.29 percent on average earning assets of $1,457,667,000, down from 6.98 percent on average earning assets of $1,316,723,000 during the first nine months of 2007.

Interest Expense

Interest expense for the third quarter of 2008 was $5,769,000, down 10.2 percent from $6,427,000 for the same period of 2007. During the third quarter of 2008, the cost of funds was 2.24 percent on average interest-bearing liabilities of $1,030,877,000, down from 2.99 percent on average interest-bearing liabilities of $858,812,000 during the third quarter of 2007. Interest expense decreased due to decreased rates paid for time certificates and borrowings, offset by increased balances and rates paid for Savings, N.O.W. and Money Market deposits. Interest expense was $17,421,000 for the nine months ended September 30, 2008, down 7.1 percent from $18,756,000 recorded last year to date. During the first nine months of 2008, the cost of funds was 2.34 percent on average interest-bearing liabilities of $990,647,000, down from 2.90 percent on average-interest bearing liabilities of $861,735,000 during the first nine months of 2007.

A portion of the Bank's demand deposits are reclassified as savings accounts on a daily basis. The purpose of the reclassification is to reduce the non-interest-bearing reserve balances that the Bank is required to maintain with the Federal Reserve Bank, and thereby increase funds available for investment. Although these balances are classified as savings accounts for regulatory purposes, they are included in demand deposits in the accompanying consolidated statements of condition.

Net Interest Income

Net interest income, before the provision for loan losses, is the largest component of Suffolk's earnings. It was $16,685,000 for the third quarter of 2008, up 4.0 percent from $16,047,000 during the same period of 2007. The net interest margin for the quarter, on a fully taxable-equivalent basis, was 4.62 percent compared to 5.09 percent for the same period of 2007.

The following table details the components of Suffolk's net interest income for the quarter on a taxable-equivalent basis: (in thousands)

Quarters ending September 30,                        2008                                    2007
                                        Average                   Average       Average                   Average
                                        Balance     Interest       Rate         Balance     Interest       Rate
INTEREST-EARNING ASSETS
U.S. Treasury securities              $     9,888   $     102        4.13 %   $     9,486   $     101        4.26 %
Collateralized mortgage obligations       147,695       2,017        5.46         138,597       1,874        5.41
Mortgage backed securities                    695          12        6.91             950          17        7.16
Obligations of states and political
subdivisions                              165,592       2,422        5.85         142,788       2,136        5.98
U.S. govt. agency obligations              91,082         855        3.75         106,120       1,083        4.08
Corporate bonds and other
securities                                  8,584         119        5.55           5,389          96        7.13
Federal funds sold and securities
purchased under agreements to
resell                                     53,488         262        1.96           3,970          53        5.34
Loans, including non-accrual loans
Commercial, financial &
agricultural loans                        226,143       3,616        6.40         192,738       4,079        8.47
Commercial real estate mortgages          329,305       5,958        7.24         301,994       5,729        7.59
Real estate construction loans            114,068       2,220        7.78          88,648       2,277       10.27
Residential mortgages (1st and 2nd
liens)                                    201,003       3,118        6.20         161,683       2,575        6.37
Home equity loans                          69,535         911        5.24          65,949       1,399        8.49
Consumer loans                             94,960       1,671        7.04          98,812       1,786        7.23
Other loans (overdrafts)                    4,031          -           -            2,424          -           -

Total interest-earning assets         $ 1,516,069   $  23,283        6.14 %   $ 1,319,548   $  23,205        7.03 %

Cash and due from banks               $    46,794                             $    47,611
Other non-interest-earning assets          43,526                                  41,017

Total assets                          $ 1,606,389                             $ 1,408,176

INTEREST-BEARING LIABILITIES
Saving, N.O.W. and money market
deposits                              $   525,541   $   2,085        1.59 %   $   414,431   $   1,221        1.18 %
Time deposits                             316,713       2,337        2.95         317,379       3,484        4.39

Total saving and time deposits            842,254       4,422        2.10         731,810       4,705        2.57
Federal funds purchased and
securities sold under agreement to
repurchase                                 45,734         295        2.58          54,109         739        5.46
Other borrowings                          142,889       1,052        2.94          72,893         983        5.39

Total interest-bearing liabilities    $ 1,030,877   $   5,769        2.24 %   $   858,812   $   6,427        2.99 %

Rate spread                                                          3.90 %                                  4.04 %
Non-interest-bearing deposits         $   447,089                             $   426,369
Other non-interest-bearing
liabilities                                14,314                                  23,767

Total liabilities                     $ 1,492,280                             $ 1,308,948
Stockholders' equity                      114,109                                  99,228

Total liabilities and stockholders'
equity                                $ 1,606,389                             $ 1,408,176

Net-interest income
(taxable-equivalent basis) and
effective interest rate
differential                                        $  17,514        4.62 %                 $  16,778        5.09 %
Less: taxable-equivalent basis
adjustment                                               (829 )                                  (731 )

Net-interest income                                 $  16,685                               $  16,047

For the nine months ended September 30, 2008, net interest income was $48,986,000, up 1.8 percent from $48,114,000 during the same period of 2007. The net interest margin for the first nine months of 2008, on a fully taxable-equivalent basis, was 4.70 percent compared to 5.08 percent for the same period of 2007.

The following table details the components of Suffolk's net interest income for the first nine months of the year on a taxable-equivalent basis: (in thousands)

Year to date ending September 30,                    2008                                    2007
                                        Average                   Average       Average                   Average
                                        Balance     Interest       Rate         Balance     Interest       Rate
INTEREST-EARNING ASSETS
U.S. Treasury securities              $     9,966   $     304        4.07 %   $     9,464   $     303        4.27 %
Collateralized mortgage obligations       147,927       5,956        5.37         146,302       5,826        5.31
Mortgage backed securities                    741          38        6.84             977          52        7.10
Obligations of states and political
subdivisions                              162,356       7,049        5.79         134,998       6,004        5.93
U.S. govt. agency obligations             101,187       2,948        3.88         117,412       3,518        4.00
Corporate bonds and other
securities                                  9,463         500        7.04           5,634         304        7.19
Federal funds sold and securities
purchased under agreements to
resell                                     18,160         265        1.95           3,396         136        5.34
Loans, including non-accrual loans
Commercial, financial &
agricultural loans                        224,363      11,207        6.66         194,076      12,301        8.45
Commercial real estate mortgages          324,428      17,441        7.17         293,940      16,588        7.52
Real estate construction loans            100,651       6,111        8.10          85,473       6,724       10.49
Residential mortgages (1st and 2nd
liens)                                    191,469       8,975        6.25         154,157       7,447        6.44
Home equity loans                          67,544       2,937        5.80          69,169       4,436        8.55
Consumer loans                             96,581       5,088        7.02          98,927       5,286        7.12
Other loans (overdrafts)                    2,831          -           -            2,798          -           -

Total interest-earning assets         $ 1,457,667   $  68,819        6.29 %   $ 1,316,723   $  68,925        6.98 %

Cash and due from banks               $    47,350                             $    47,560
Other non-interest-earning assets          46,558                                  50,796

Total assets                          $ 1,551,575                             $ 1,415,079

INTEREST-BEARING LIABILITIES
Saving, N.O.W. and money market
deposits                              $   459,191   $   4,841        1.41 %   $   422,871   $   3,632        1.15 %
Time deposits                             316,216       7,804        3.29         308,333       9,848        4.26

Total saving and time deposits            775,407      12,645        2.17         731,204      13,480        2.46
Federal funds purchased and
securities sold under agreement to
repurchase                                 53,182       1,181        2.96          53,830       2,180        5.40
Other borrowings                          162,058       3,595        2.96          76,701       3,096        5.38

Total interest-bearing liabilities    $   990,647   $  17,421        2.34 %   $   861,735   $  18,756        2.90 %

Rate spread                                                          3.95 %                                  4.08 %
Non-interest-bearing deposits         $   429,050                             $   423,473
Other non-interest-bearing
liabilities                                18,924                                  27,072

Total liabilities                     $ 1,438,621                             $ 1,312,280
Stockholders' equity                      112,954                                 102,799

Total liabilities and stockholders'
equity                                $ 1,551,575                             $ 1,415,079

Net-interest income
(taxable-equivalent basis) and
effective interest rate
differential                                        $  51,398        4.70 %                 $  50,169        5.08 %
Less: taxable-equivalent basis
adjustment                                             (2,412 )                                (2,055 )

Net-interest income                                 $  48,986                               $  48,114

The table below presents a summary of changes in interest income, interest expense, and the resulting net interest income on a taxable equivalent basis for the quarterly periods presented. Because of numerous, simultaneous changes in volume and rate during the period, it is not possible to allocate precisely the changes between volumes and rates. In this table changes not due solely to volume or to rate have been allocated to these categories based on percentage changes in average volume and average rate as they compare to each other: (in thousands)

                                                             In Third Quarter 2008 over
                                                         Third Quarter 2007, Changes Due to
                                                   Volume               Rate            Net Change
Interest-earning assets
U.S. Treasury securities                         $         4        $         (3 )     $          1
Collateralized mortgage obligations                      124                  19                143
Mortgage-backed securities                                (4 )                (1 )               (5 )
Obligations of states & political
subdivisions                                             335                 (49 )              286
U.S. government agency obligations                      (146 )               (82 )             (228 )
Corporate bonds & other securities                        48                 (25 )               23
Federal funds sold & securities purchased
under agreements to resell                               263                 (54 )              209
Loans, including non-accrual loans                     2,308              (2,659 )             (351 )

Total interest-earning assets                    $     2,932        $     (2,854 )     $         78

Interest-bearing liabilities
Saving, N.O.W., & money market deposits          $       377        $        487       $        864
Time deposits                                             (7 )            (1,140 )           (1,147 )
Federal funds purchased & securities sold
under agreements to repurchase                          (101 )              (343 )             (444 )
Other borrowings                                         653                (584 )               69

Total interest-bearing liabilities               $       922        $     (1,580 )     $       (658 )

Net change in net interest income
(taxable-equivalent basis)                       $     2,010        $     (1,274 )     $        736

The table below presents a summary of changes in interest income, interest expense, and the resulting net interest income on a taxable equivalent basis for the nine month periods presented: (in thousands)

                                                         In First Nine Months of 2008 over
                                                     First Nine Months of 2007, Changes Due to
                                                 Volume                Rate               Net Change
Interest-earning assets
U.S. Treasury securities                      $         16        $          (15 )      $            1
Collateralized mortgage obligations                     65                    65                   130
Mortgage-backed securities                             (12 )                  (2 )                 (14 )
Obligations of states & political
subdivisions                                         1,191                  (146 )               1,045
U.S. government agency obligations                    (475 )                 (95 )                (570 )
Corporate bonds & other securities                     202                    (6 )                 196
Federal funds sold & securities purchased
under agreements to resell                             263                  (134 )                 129
Loans, including non-accrual loans                   6,025                (7,048 )              (1,023 )

Total interest-earning assets                 $      7,275        $       (7,381 )      $         (106 )

Interest-bearing liabilities
Saving, N.O.W., & money market deposits       $        331        $          878        $        1,209
Time deposits                                          246                (2,290 )              (2,044 )
Federal funds purchased & securities sold
under agreements to repurchase                         (26 )                (973 )                (999 )
Other borrowings                                     2,341                (1,842 )                 499

Total interest-bearing liabilities            $      2,892        $       (4,227 )      $       (1,335 )

Net change in net interest income
(taxable-equivalent basis)                    $      4,383        $       (3,154 )      $        1,229

Other Income

Other income increased to $2,801,000 for the quarter compared to $2,756,000 the previous year, up 1.6 percent. Service charges on deposits were up 4.7 percent. Service charges, including commissions and fees other than for deposits, increased by 15.3 percent. Trust revenue was up 0.8 percent. Other operating income decreased by 52.2 percent.

Other income for the nine months ended September 30, 2008 was $11,843,000, up 54.1 percent from $7,685,000 for the comparable year to date period. Service charges on deposit were up 4.8 percent. Service charges, including commissions and fees other than for deposits, increased 6.9 percent. Trust revenue was up 9.0 percent. Other operating income decreased by 3.3 percent. Proceeds received in connection with shares redeemed as part of the Visa, Inc. Inc. initial public offering resulted in a net securities gain of $3,737,000 during the first quarter.

Other Expense

Other expense for the third quarter of 2008 was $11,345,000, up 14.5 percent from $9,907,000 for the comparable period in 2007. Employee compensation increased by 7.6 percent, net occupancy expense increased 21.5 percent, equipment expense increased by 3.7 percent, and other operating expense increased by 32.3 percent. Increased expenses are attributed to new branch locations, and $456,000 recorded in connection with the settlement of Visa, Inc.'s litigation with Discover.

Other expense for the first nine months of 2008 was $32,134,000, up 5.2 percent from $30,549,000 compared to the first nine months of 2007. Employee compensation increased by 4.3 percent, net occupancy expense increased 13.0 percent, equipment expense decreased by 4.8 percent, and other operating expense increased by 6.5 percent.

Capital Resources

Stockholders' equity totaled $117,380,000 on September 30, 2008, an increase of 7.7 percent from $108,981,000 on December 31, 2007. This was the result of net income, offset by the depreciation in the market value of securities available for sale, cash dividends and the repurchase of shares. The ratio of equity to assets was 7.2 percent at September 30, 2008 and 7.4 percent at December 31, 2007.

The following table details amounts and ratios of Suffolk's regulatory capital:
(in thousands of dollars except ratios)

                                                                                         To be well capitalized
. . .