Recent Developments

During the quarter, credit became somewhat less available throughout the economy as sub-prime mortgages granted during the previous several years defaulted, reducing capital at banks and other financial institutions that held them, whether directly or through derivative securities backed by these mortgages. This reduced banks' capacity and inclination to lend, and investors' willingness to purchase mortgage-backed securities. This was offset, to some degree, by investments in banks made by the U.S. Treasury through the Troubled Asset Relief Program ("TARP"). The market for securities backed by these mortgages remained illiquid as investors continued to be unable to value them accurately. As a result, a number of financial institutions took losses, further reducing the amount of capital available to support lending. The value of a number of other derivative securities was similarly uncertain, including such instruments as credit default swaps, and individuals and financial institutions became reluctant to lend to one another. The contraction of credit led to a lack of confidence in the ability of other industries to continue to operate profitably, triggering a decline in equity markets. Federal officials took a number of unprecedented steps to stabilize credit markets, including not only TARP, but reductions in certain target rates of interest to near zero, and certain other guarantees of private obligations. The effectiveness of these steps remains unclear. Residential real estate continued to decline in value, further diminishing investors' confidence and resulting in further declines in the value of banking stocks. However, during the previous year, rates of interest for shorter terms dropped more than those for longer terms, resulting in a steeper "yield curve" which lessened pressure on most banks' net interest margin. This was primarily the result of reductions by the Federal Reserve Board in its targets for federal funds and discount rates. Even so, at times, actual rates for overnight lending greatly exceeded the target rates. Rates were volatile throughout the period.

At Suffolk, interest income was flat despite an increase in total net loans, but net interest income increased because of lesser interest expense. The net interest margin increased to 4.97 percent in the first quarter of 2009, up from 4.78 percent, in the first quarter of 2008.

Return on average equity decreased to 19.63 percent for the first quarter in 2009, down from 27.44 percent during the first quarter of 2008, and earnings-per-share decreased from $.79 in the first quarter of 2008 to $.59 in the first quarter of 2009. The decrease in return on average equity and earnings-per-share 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 remain 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.

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

• 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.

• 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 first quarter of 2009, net charge-offs amounted to 1 basis point of average net loans, on an annualized basis.

• Managing 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.

Net Income

Net income was $5,659,000 for the quarter, down 25.1 percent from $7,559,000 posted during the same period last year. Earnings-per-share for the quarter were $0.59 versus $0.79, a decrease of 25.3 percent. However, included in net income of the first quarter of 2008, is $2,429,000 attributed to the Visa, Inc. transaction, net of income taxes. Accordingly, to compare the quarter of 2009 to the prior comparable quarter of 2008, exclusive of the Visa, Inc. transaction, earnings-per-share were $0.59, an increase of 9.3 percent from $0.54 during the comparable period of 2008. Net income was $5,659,000 up 10.3 percent from $5,130,000 during same quarter last year. Without the Visa, Inc. transaction, return on average equity increased to 19.63 percent from 18.62 percent last year

Interest Income

Interest income was $21,699,000 for the first quarter of 2009, down 1.2 percent from $21,967,000 posted for the same quarter in 2008. Average net loans during the first quarter of 2009 totaled $1,088,546,000 compared to $969,473,000 for the same period of 2008. During the first quarter of 2009, the yield on a fully taxable-equivalent basis was 5.90 percent on average earning assets of $1,530,126,000 down from 6.53 percent on average earning assets of $1,393,158,000 during the first quarter of 2008. Interest income remained flat from quarter to quarter.

Interest Expense

Interest expense for the first quarter of 2009 was $3,561,000, down 41.7 percent from $6,104,000 for the same period of 2008. During the first quarter of 2009, the cost of funds was 1.36 percent on average interest-bearing liabilities of $1,045,294,000, down from 2.59 percent on average interest-bearing liabilities of $944,243,000 during the first quarter of 2008. Interest expense decreased due to decreased rates paid for Savings, N.O.W. and Money Market deposits, time certificates and borrowings.

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 $18,138,000 for the first quarter of 2009, up 14.3 percent from $15,863,000 during the same period of 2008. The net interest margin for the quarter, on a fully taxable-equivalent basis, was 4.97 percent compared to 4.78 percent for the same period of 2008.

                                                                        March 31,
                                                      2009                                    2008
                                         Average                   Average       Average                   Average
                                         Balance     Interest       Rate         Balance     Interest       Rate
INTEREST-EARNING ASSETS
U.S. Treasury securities               $    10,093   $     101        4.00 %   $    10,017   $     101        4.03 %
Collateralized mortgage obligations        128,967       1,823        5.65         137,980       1,818        5.27
Mortgage backed securities                     596          10        6.71             834          14        6.71
Obligations of states and political
subdivisions                               182,787       2,570        5.62         159,634       2,295        5.75
U.S. govt. agency obligations              108,598         787        2.90         105,958       1,058        3.99
Corporate bonds and other securities        10,431          58        2.22           9,159         181        7.90
Federal funds sold and securities
purchased under agreements to resell           108          -           -              103           1        3.88
Loans, including non-accrual loans
Commercial, financial & agricultural
loans                                      223,667       3,315        5.93         211,118       3,812        7.22
Commercial real estate mortgages           355,642       6,123        6.89         321,384       5,785        7.20
Real estate construction loans             133,869       2,305        6.89          88,137       1,938        8.80
Residential mortgages (1st and 2nd
liens)                                     209,135       3,173        6.07         182,968       2,886        6.31
Home equity loans                           74,430         765        4.11          66,299       1,131        6.82
Consumer loans                              91,223       1,548        6.79          97,639       1,733        7.10
Other loans (overdrafts)                       580          -           -            1,928          -           -

Total interest-earning assets          $ 1,530,126   $  22,578        5.90 %   $ 1,393,158   $  22,753        6.53 %

Cash and due from banks                $    40,394                             $    46,556
Other non-interest-earning assets           56,136                                  52,613

Total assets                           $ 1,626,656                             $ 1,492,327

INTEREST-BEARING LIABILITIES
Saving, N.O.W. and money market
deposits                               $   551,189   $     931        0.68 %   $   414,194   $   1,318        1.27 %
Time deposits                              292,190       1,523        2.08         318,978       3,016        3.78
Total saving and time deposits             843,379       2,454        1.16         733,172       4,334        2.36
Federal funds purchased and
securities sold under agreement to
repurchase                                  19,706         120        2.44          57,147         516        3.61
Other borrowings                           182,209         987        2.17         153,924       1,254        3.26

Total interest-bearing liabilities     $ 1,045,294   $   3,561        1.36 %   $   944,243   $   6,104        2.59 %

Rate spread                                                           4.54 %                                  3.95 %
Non-interest-bearing deposits          $   429,056                             $   410,498
Other non-interest-bearing
liabilities                                 36,972                                  27,397

Total liabilities                      $ 1,511,322                             $ 1,382,138
Stockholders' equity                       115,334                                 110,189

Total liabilities and stockholders'
equity                                 $ 1,626,656                             $ 1,492,327

Net-interest income
(taxable-equivalent basis) and
effective interest rate differential                 $  19,017        4.97 %                 $  16,649        4.78 %
Less: taxable-equivalent basis
adjustment                                                (879 )                                  (786 )

Net-interest income                                  $  18,138                               $  15,863

                                                   In 2009 over 2008
                                                    Changes Due to                         Net
                                                        Volume               Rate         Change
Interest-earning assets
U.S. Treasury securities                          $                 1      $     (1 )    $     -
Collateralized mortgage obligations                              (123 )         128             5
Mortgage-backed securities                                         (4 )          -             (4 )
Obligations of states & political subdivisions                    326           (51 )         275
U.S. government agency obligations                                 26          (297 )        (271 )
Corporate bonds & other securities                                 22          (145 )        (123 )
Federal funds sold & securities purchased
under agreements to resell                                         -             (1 )          (1 )
Loans, including non-accrual loans                              1,998        (2,054 )         (56 )

Total interest-earning assets                     $             2,246      $ (2,421 )    $   (175 )


Interest-bearing liabilities
Saving, N.O.W. & money market deposits            $               351      $   (738 )    $   (387 )
Time deposits                                                    (235 )      (1,258 )      (1,493 )
Federal funds purchased & securities sold
under agreements to repurchase                                   (265 )        (131 )        (396 )
Other borrowings                                                  203          (470 )        (267 )

Total interest-bearing liabilities                $                54      $ (2,597 )    $ (2,543 )

Net change in net interest income
(taxable-equivalent basis)                        $             2,192      $    176      $  2,368

Other Income

Other income decreased to $2,764,000 for the quarter compared to $6,350,000 the previous year, down 56.5 percent. Service charges on deposits were down 3.2 percent. Service charges, including commissions and fees other than for deposits, increased by 12.1 percent. Trust revenue was down 23.1 percent. Other operating income increased by 130.2 percent. Proceeds received in connection with shares redeemed as part of the Visa, Inc. initial public offering resulted in a net securities gain of $3,737,000 during the first quarter of 2008. There were no sales of securities during the three months ended March 31, 2009.

Other Expense

Other expense for the first quarter of 2009 was $11,676,000, up 12.8 percent from $10,354,000 for the comparable period in 2008. Employee compensation increased by 7.8 percent, net occupancy expense increased 22.1 percent, equipment expense increased by 8.5 percent, and other operating expense increased by 22.5 percent. There were two significant items contributing to the increase in the category. One is increased net assessments by the FDIC for deposit insurance made in response to the current unrest in the banking industry. This amounted to $424,000 in 2009 compared to $36,000 in 2008, an increase of 1,078 percent. The increased assessment is a result of the FDIC's anticipation of greater demands on the Bank Insurance Fund in the future. Also increasing reported expense was the expiration during 2008 of a one-time credit previously granted by the FDIC. The second significant item is additional expense for the employee pension plan necessary after the value of plan assets declined during 2008 at the same time that the rate at which the future payments are discounted declined, resulting in a greater current liability. This amounted to $605,000 in 2009 compared to $255,000 in 2008, an increase of 137 percent. However, the provision for income taxes declined by 36.4 percent, primarily because of the VISA transaction the previous year.

Capital Resources

Stockholders' equity totaled $119,807,000 on March 31, 2009, an increase of 6.6 percent from $112,401,000 on December 31, 2008. This was the result of net income, as well as a decrease in the depreciation in the market value of securities available for sale, offset by cash dividends declared. The ratio of equity to assets was 7.3 percent at March 31, 2009 and 7.1 percent at December 31, 2008.

                                                                                          To be well capitalized
                                                                                         under prompt corrective
                                          Actual            For capital adequacy            action provisions
                                     Amount      Ratio        Amount         Ratio         Amount           Ratio
As of March 31, 2009
Total Capital (to risk-weighted
assets)                             $ 137,093    10.82 %   $     101,350      8.00 %   $      126,688         10.00 %
Tier 1 Capital (to risk-weighted
assets)                               126,684    10.00 %          50,675      4.00 %           76,013          6.00 %
Tier 1 Capital (to average
assets)                               126,684     7.79 %          65,029      4.00 %           81,286          5.00 %

As of December 31, 2008
Total Capital (to risk-weighted
assets)                             $ 131,884    10.59 %   $      99,585      8.00 %   $      124,482         10.00 %
Tier 1 Capital (to risk-weighted
assets)                               122,833     9.87 %          49,793      4.00 %           74,689          6.00 %
Tier 1 Capital (to average
assets)                               122,833     7.90 %          62,172      4.00 %           77,214          5.00 %

Credit Risk

Suffolk makes loans based on the best evaluation possible of the creditworthiness of the borrower. Even with careful underwriting, some loans may not be repaid as originally agreed. To provide for this possibility, Suffolk maintains an allowance for loan losses, based on an analysis of the performance of the loans in its portfolio. The analysis includes subjective factors based on management's judgment as well as quantitative evaluation. Prudent, conservative estimates should produce an allowance that will provide for a range of losses. According to U.S. GAAP, a financial institution should record its best estimate. Appropriate factors contributing to the estimate may include changes in the composition of the institution's assets, or potential economic slowdowns or downturns. Also important is the geographical or political environment in which the institution operates. Suffolk's management considers all of these factors when determining the provision for loan losses.

The provision for the allowance for loan losses was $975,000 for the first quarter of 2009, and $225,000 for the comparable period in 2008. Net charge-offs were $36,000 for the first quarter of 2009 compared to $30,000 for the first quarter of 2008.

The following table presents information about the allowance for loan losses:
(in thousands of dollars except for ratios)

                                                                           For the three months ended
                                         For the last        Mar. 31         Dec. 31        Sept. 30         June 30
                                          12 months           2009            2008            2008            2008
Allowance for loan losses
Beginning balance                       $        7,852     $     9,051     $     7,970     $     7,885     $     7,852
Total charge-offs                                 (999 )           (65 )          (269 )          (369 )          (296 )
Total recoveries                                   351              29              94             154              74
Reclass to Allowance for Contingent
Liabilities                                        (14 )            -               31              -              (45 )
Provision for loan losses                        2,800             975           1,225             300             300

Ending balance                          $        9,990     $     9,990     $     9,051     $     7,970     $     7,885

Coverage ratios
Loans, net of discounts: average        $    1,059,273     $ 1,097,834     $ 1,069,976     $ 1,047,062     $ 1,022,218
      at end of period                       1,075,218       1,118,660       1,093,521       1,061,658       1,027,031
Non-performing assets                            4,792           8,380           4,884           2,163           3,742
Non-performing assets/total loans
(net of discount)                                 0.44 %          0.75 %          0.45 %          0.20 %          0.36 %
Net charge-offs/average net loans
(annualized)                                      0.06 %          0.01 %          0.07 %          0.08 %          0.09 %
Allowance/non-accrual,
restructured, & OREO                            272.09 %        119.21 %        185.32 %        449.01 %        334.82 %
Allowance for loan losses/net loans               0.81 %          0.89 %          0.83 %          0.75 %          0.77 %

                               2009         $ 18,911
                               2010            6,898
                               2011            1,396
                               2012               -
                               Thereafter         78

                                            $ 27,283

Amounts due under these letters of credit would be reduced by any proceeds that Suffolk would be able to obtain in liquidating the collateral for the loans, which varies depending on the customer. The allowance for contingent liabilities includes a provision of $41,000 for losses based on the letters of credit outstanding as of March 31, 2009.

Critical Accounting Policies, Judgments and Estimates

Suffolk's accounting and reporting policies conform to U.S. GAAP and general practices within the financial services industry. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

Allowance for Loan Losses

Suffolk considers that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The balance in the allowance for loan losses is determined based on management's review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors, including management's assumptions as to future delinquencies, recoveries and losses. All of these factors may change significantly. To the extent actual performance differs from management's estimates, additional provisions for loan losses may be required that would reduce earnings in future periods.

Deferred Tax Assets and Liabilities

Suffolk recognizes deferred-tax assets and liabilities. Deferred income taxes occur when income taxes are allocated through time. Some items are temporary, resulting from differences in the timing of a transaction under generally accepted accounting principles, and for the computation of income tax. Examples would include the future tax effects of temporary differences for such items as deferred compensation and the provision for loan losses. Estimates of deferred tax assets are based upon evidence available to management that future realization is more likely than not. If management determines that Suffolk may be unable to realize all or part of net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of the net deferred tax asset to the amount that management expects to realize.

Investment Securities

Suffolk evaluates unrealized losses on securities to determine if any reduction in the fair value is other than temporary. This amount will continue to be dependent on market conditions, the occurrence of certain events or changes in circumstances of the issuer of the security, and the Company's intent and ability to hold the impaired investment at the time the valuation is made. If management determines that an impairment in the investment's value is other than temporary, earnings would be charged.