Recent Developments

During the third quarter of 2009, the availability of credit appeared to remain static as banks balanced the need for additional capital against current business opportunities, although at lesser levels than during the previous year. However, weakness continued to develop in loans for commercial real estate, and consumer spending remained depressed. Residential real estate stopped declining in value in a number of markets, although certain regions continued to deteriorate. Very short-term rates remained near zero, and the "yield curve" remained comparatively steep in comparison with historic averages, with margins between short- and long-term rates wider than average, which continued to widen most banks' net interest margin. This was primarily the result of continuing, low short-term targets for interest rates by the Federal Reserve Board for federal funds and discount rates. It was also the result of an offsetting concern in the marketplace about the possibility of inflation over the longer term as a result of deficit spending by the federal government, some of which was intended to stimulate the sluggish economy. Rates of unemployment continued to increase throughout the period, both locally and nationally.

During the past quarter, equity markets continued to rise as economists speculated that the decline in GDP had reached its low for the recession, but did not result in either capital spending or hiring on the part of the private sector. At Suffolk, interest income declined despite an increase in total net loans, but net interest income increased because of lesser interest expense. The net interest margin increased to 4.89 percent in the third quarter of 2009, up from 4.62 percent, in the third quarter of 2008. The net interest margin for earnings assets excluding interest-bearing deposits with other banks was 5.06 percent for the quarter ended September 30, 2009. The net interest margin on a year to date basis increased to 4.98 percent in

2009, up from 4.70 percent for the comparable period in 2008. The net interest margin for earnings assets excluding interest-bearing deposits with other banks was 5.05 percent for the nine months ended September 30, 2009. Increased net interest income was offset, however, by higher rates assessed by the FDIC that increased expense for deposit insurance by 6 times in comparison with the third quarter of 2008. Consistent application of a methodology to determine the allowance for loan losses resulted in a provision that was 2.25 times that made in the comparable quarter of 2008.

Return on average equity decreased to 19.34 percent for the third quarter in 2009, down from 19.89 percent during the third quarter of 2008, while basic earnings-per-share increased from $0.59 in the third quarter of 2008 to $0.63 in the third quarter of 2009. For the first nine months of 2009, return on average equity decreased to 19.29 percent, down from 22.36 percent during the comparable period of 2008, and earnings-per-share decreased to $1.81 for the first nine months of 2009, down from $1.98 for the same period last year. The decrease in return on average equity and earnings-per-share for the first nine months of 2009 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. The 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 disciplined management of the balance sheet. Steps included:

• Consistent underwriting for lending to preserve both credit quality and yields throughout the business cycle. Emphasis was on preservation of margins over less profitable growth, and on allocation of capital to credits that would result in a relationship with a long-term customer rather than on a single transaction which might itself be profitable but not lead to further business.

• Maintaining emphasis on both commercial and personal demand deposits, and non-maturity time deposits as a key part of relationships with customers 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 its customers with the Bank, seeking when possible to both make loans to and obtain funding from qualified customers.

• Managing net loan charge-offs and non-performing loans. During the third quarter of 2009, net charge-offs amounted to 5 basis points of average net loans, on an annualized basis, although non-performing assets, those more than 90 days past due, and those that had been restructured but were more than 90 days past due increased. Lending staff's first efforts were directed to the management of such credits, and then to developing new business as the economy wavered.

• Managing the investment portfolio to provide downside protection from falling rates, and continued purchases of municipal securities, which provide liquidity as well as higher returns net of taxes, and some protection from falling interest rates. This included purchases of approximately $90 million of collateralized mortgage obligations fully guaranteed by the U. S. government.

• Managing capital closely, already in excess of the 10.00 percent total risk-based capital ("TRBC") required to be considered "well-capitalized" from a regulatory point of view, but allowing it to grow further above recent averages 1) to position Suffolk to absorb unanticipated losses should the economy stall further, and 2) to position Suffolk, if possible, to respond to the possibility of higher capital requirements now under discussion among regulators using retained earnings having no marginal costs of distribution, rather than secondary offerings of stock with attendant investment banking, syndication, legal, accounting, and other fees which would dilute the earnings of current shareholders. Growth in the core business during the quarter was sufficient to employ retained earnings, and no shares were repurchased.

Net Income

Net income was $6,028,000 for the quarter, up 6.3 percent from $5,673,000 posted during the same period last year. Basic earnings-per-share for the quarter were $0.63 versus $0.59, an increase of 6.8 percent. Net income was $17,395,000 for the nine months ended September 30, 2009, down from $18,946,000 posted during the same period last year. Basic earnings-per-

share were $1.81 for the nine month period ended September 30, 2009, down from $1.98 posted last year. 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 first nine months of 2009 to the prior comparable period of 2008, exclusive of the Visa, Inc. transaction, earnings-per-share were $1.81, an increase of 4.6 percent from $1.73 during the comparable period of 2008. Without the Visa, Inc. transaction, return on average equity decreased to 19.29 percent from 19.50 percent last year.

Interest Income

Interest income was $21,516,000 for the third quarter of 2009, down 4.2 percent from $22,454,000 posted for the same quarter in 2008. Average net loans during the third quarter of 2009 totaled $1,109,161,000 compared to $1,039,045,000 for the same period of 2008. During the third quarter of 2009, the yield on a fully taxable-equivalent basis was 5.66 percent on average earning assets of $1,587,600,000 down from 6.14 percent on average earning assets of $1,516,069,000 during the third quarter of 2008. Interest income was $65,244,000 for the first nine months of 2009, down 1.8 percent from $66,407,000 recorded in the first nine months of 2008. During the first nine months of 2009, the yield on a fully taxable-equivalent basis was 5.81 percent on average earning assets of $1,560,306,000, down from 6.29 percent on average earning assets of $1,457,667,000 during the first nine months of 2008.

Interest Expense

Interest expense for the third quarter of 2009 was $3,042,000, down 47.3 percent from $5,769,000 for the same period of 2008. During the third quarter of 2009, the cost of funds was 1.19 percent on average interest-bearing liabilities of $1,018,949,000, down from 2.24 percent on average interest-bearing liabilities of $1,030,877,000 during the third quarter of 2008. Interest expense decreased due to decreased rates paid for all interest-bearing liabilities, in addition to a decrease in average borrowings outstanding. Interest expense was $9,722,000 for the first nine months of 2009, down 44.2 percent from $17,421,000 recorded last year to date. During the first nine months of 2009, the cost of funds was 1.26 percent on average interest-bearing liabilities of $1,029,022,000, down from 2.34 percent on average interest-bearing liabilities of $990,647,000 during the first nine months of 2008.

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 saving 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 $18,474,000 for the third quarter of 2009, up 10.7 percent from $16,685,000 during the same period of 2008. The net interest margin for the quarter, on a fully taxable-equivalent basis, was 4.89 percent compared to 4.62 percent for the same period of 2008.

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,                           2009                                      2008
                                          Average                    Average        Average                    Average
                                          Balance     Interest        Rate          Balance     Interest        Rate
INTEREST-EARNING ASSETS
U.S. Treasury securities                $     9,784   $      97         3.97 %    $     9,888   $     102         4.13 %
Collateralized mortgage obligations         145,479       1,826         5.02          147,695       2,017         5.46
Mortgage backed securities                      610          10         6.56              695          12         6.91
Obligations of states and political
subdivisions                                197,631       2,739         5.54          165,592       2,422         5.85
U.S. govt. agency obligations                62,742         354         2.26           91,082         855         3.75
Corporate bonds and other securities          6,434         123         7.65            8,584         119         5.55
Federal funds sold and interest
bearing bank deposits                        55,759          44         0.32           53,488         262         1.96
Loans, net of allowance for loan
losses
Commercial, financial & agricultural
loans                                       233,721       3,459         5.92          226,143       3,616         6.40
Commercial real estate mortgages            366,682       6,176         6.74          329,305       5,958         7.24
Real estate construction loans              131,561       2,158         6.56          114,068       2,220         7.78
Residential mortgages (1st and 2nd
liens)                                      208,930       3,148         6.03          201,003       3,118         6.20
Home equity loans                            80,851         844         4.18           69,535         911         5.24
Consumer loans                               83,997       1,476         7.03           94,960       1,671         7.04
Other loans (overdrafts)                      3,419          -            -             4,031          -            -

Total interest-earning assets           $ 1,587,600   $  22,454         5.66 %    $ 1,516,069   $  23,283         6.14 %

Cash and due from banks                 $    41,381                               $    46,794
Other non-interest-earning assets            54,935                                    43,526

Total assets                            $ 1,683,916                               $ 1,606,389

INTEREST-BEARING LIABILITIES
Saving, N.O.W. and money market
deposits                                $   580,544   $     934         0.64 %    $   525,541   $   2,085         1.59 %
Time deposits                               346,768       1,544         1.78          316,713       2,337         2.95

Total saving and time deposits              927,312       2,478         1.07          842,254       4,422         2.10
Federal funds purchased and
securities sold under agreement to
repurchase                                       16          -            -            45,734         295         2.58
Other borrowings                             91,621         564         2.46          142,889       1,052         2.94

Total interest-bearing liabilities      $ 1,018,949   $   3,042         1.19 %    $ 1,030,877   $   5,769         2.24 %

Rate spread                                                             4.46 %                                    3.90 %
Non-interest-bearing deposits           $   508,810                               $   447,089
Other non-interest-bearing
liabilities                                  31,493                                    14,314

Total liabilities                       $ 1,559,252                               $ 1,492,280
Stockholders' equity                        124,664                                   114,109

Total liabilities and stockholders'
equity                                  $ 1,683,916                               $ 1,606,389
Net-interest income
(taxable-equivalent basis) and
effective interest rate differential                  $  19,412         4.89 %                  $  17,514         4.62 %
Less: taxable-equivalent basis
adjustment                                                 (938 )                                    (829 )

Net-interest income                                   $  18,474                                 $  16,685

For the nine months ended September 30, 2009, net interest income was $55,522,000, up 13.3 percent from $48,986,000 during the same period of 2008. The net interest margin on a fully taxable-equivalent basis was 4.98 percent compared to 4.70 percent for the same period of 2008.

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,                       2009                                      2008
                                          Average                    Average        Average                    Average
                                          Balance     Interest        Rate          Balance     Interest        Rate
INTEREST-EARNING ASSETS
U.S. Treasury securities                $     9,962   $     298         3.99 %    $     9,966   $     304         4.07 %
Collateralized mortgage obligations         131,515       5,351         5.42          147,927       5,956         5.37
Mortgage backed securities                      604          31         6.84              741          38         6.84
Obligations of states and political
subdivisions                                191,154       7,979         5.57          162,356       7,049         5.79
U.S. govt. agency obligations                88,428       1,797         2.71          101,187       2,948         3.88
Corporate bonds and other securities          8,359         334         5.33            9,463         500         7.04
Federal funds sold and interest
bearing bank deposits                        25,060          48         0.26           18,160         265         1.95
Loans, net of allowance for loan
losses
Commercial, financial & agricultural
loans                                       233,848      10,369         5.91          224,363      11,207         6.66
Commercial real estate mortgages            362,206      18,501         6.81          324,428      17,441         7.17
Real estate construction loans              133,890       6,821         6.79          100,651       6,111         8.10
Residential mortgages (1st and 2nd
liens)                                      208,604       9,469         6.05          191,469       8,975         6.25
Home equity loans                            77,540       2,446         4.21           67,544       2,937         5.80
Consumer loans                               87,135       4,531         6.93           96,581       5,088         7.02
Other loans (overdrafts)                      2,001          -            -             2,831          -            -

Total interest-earning assets           $ 1,560,306   $  67,975         5.81 %    $ 1,457,667   $  68,819         6.29 %

Cash and due from banks                 $    40,557                               $    47,350
Other non-interest-earning assets            55,347                                    46,558

Total assets                            $ 1,656,210                               $ 1,551,575

INTEREST-BEARING LIABILITIES
Saving, N.O.W. and money market
deposits                                $   567,270   $   2,732         0.64 %    $   459,191   $   4,841         1.41 %
Time deposits                               320,462       4,593         1.91          316,216       7,804         3.29

Total saving and time deposits              887,732       7,325         1.10          775,407      12,645         2.17
Federal funds purchased and
securities sold under agreement to
repurchase                                    6,501         120         2.46           53,182       1,181         2.96
Other borrowings                            134,789       2,277         2.25          162,058       3,595         2.96

Total interest-bearing liabilities      $ 1,029,022   $   9,722         1.26 %    $   990,647   $  17,421         2.34 %

Rate spread                                                             4.55 %                                    3.95 %
Non-interest-bearing deposits           $   470,598                               $   429,050
Other non-interest-bearing
liabilities                                  36,376                                    18,924

Total liabilities                       $ 1,535,996                               $ 1,438,621
Stockholders' equity                        120,214                                   112,954

Total liabilities and stockholders'
equity                                  $ 1,656,210                               $ 1,551,575
Net-interest income
(taxable-equivalent basis) and
effective interest rate differential                  $  58,253         4.98 %                  $  51,398         4.70 %
Less: taxable-equivalent basis
adjustment                                               (2,731 )                                  (2,412 )

Net-interest income                                   $  55,522                                 $  48,986

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 of 2009 over
                                                       Third Quarter of 2008, Changes Due to
                                                   Volume               Rate            Net Change
Interest-earning assets
U.S. Treasury securities                         $        (1 )      $         (4 )     $         (5 )
Collateralized mortgage obligations                      (30 )              (161 )             (191 )
Mortgage-backed securities                                (1 )                (1 )               (2 )
Obligations of states & political subdivisions           449                (131 )              318
U.S. government agency obligations                      (220 )              (281 )             (501 )
Corporate bonds & other securities                       (34 )                38                  4
Federal funds sold & interest bearing bank
deposits                                                  11                (229 )             (218 )
Loans, including non-accrual loans                     1,138              (1,372 )             (234 )

Total interest-earning assets                    $     1,312        $     (2,141 )     $       (829 )


Interest-bearing liabilities
Saving, N.O.W., & money market deposits          $       199        $     (1,350 )     $     (1,151 )
Time deposits                                            205                (998 )             (793 )
Federal funds purchased & due from bank                 (148 )              (147 )             (295 )
Other borrowings                                        (335 )              (153 )             (488 )

Total interest-bearing liabilities               $       (79 )      $     (2,648 )     $     (2,727 )

Net change in net interest income
(taxable-equivalent basis)                       $     1,391        $        507       $      1,898

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 2009 over
                                                     First Nine Months of 2008, Changes Due to
                                                 Volume                Rate               Net Change
Interest-earning assets
U.S. Treasury securities                       $        -          $          (6 )       $         (6 )
Collateralized mortgage obligations                   (667 )                  62                 (605 )
Mortgage-backed securities                              (7 )                  -                    (7 )
Obligations of states & political
subdivisions                                         1,209                  (279 )                930
U.S. government agency obligations                    (339 )                (812 )             (1,151 )
Corporate bonds & other securities                     (54 )                (112 )               (166 )
Federal funds sold & interest bearing bank
deposits                                                74                  (291 )               (217 )
Loans, including non-accrual loans                   4,779                (4,401 )                378

Total interest-earning assets                  $     4,995         $      (5,839 )       $       (844 )


Interest-bearing liabilities
Saving, N.O.W., & money market deposits        $       952         $      (3,061 )       $     (2,109 )
Time deposits                                          103                (3,314 )             (3,211 )
Federal funds purchased & due from bank               (890 )                (171 )             (1,061 )
Other borrowings                                      (545 )                (773 )             (1,318 )

Total interest-bearing liabilities             $      (380 )       $      (7,319 )       $     (7,699 )

Net change in net interest income
(taxable-equivalent basis)                     $     5,375         $       1,480         $      6,855

Other Income

Other income decreased to $2,766,000 for the quarter compared to $2,801,000 the previous year, down 1.2 percent. Service charges on deposits were down 3.4 percent. Service charges, including commissions and fees other than for deposits, increased by 2.8 percent. Fiduciary fees were down 35.2 percent. Other operating income increased by 90.7 percent, mainly attributable to the sale of residential mortgage loans to the secondary market. Other income for the nine months ended September 30, 2009 was $8,353,000, down 29.5 percent from $11,843,000 for the comparable year to date period. Service charges on deposits were down 4.5 percent. Service charges, including commissions and fees other than for deposits, increased 10.0 percent. Fiduciary fees were down 30.1 percent. Other operating income increased by 123.3 percent, mainly attributable to the sale of residential mortgage loans to the secondary market. 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 of 2008. There were no sales of securities during the nine months ended September 30, 2009.

Other Expense

Other expense for the third quarter of 2009 was $12,034,000, up 6.1 percent from $11,345,000 for the comparable period in 2008. Employee compensation increased by 10.3 percent, net occupancy expense decreased 3.0 percent, equipment expense increased by 9.7 percent, and other operating expense decreased by 14.9 percent. FDIC assessments increased by $443,000 or 598.6 percent. There were two significant items contributing to the increase in other expense. 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 $517,000 in 2009 compared to $74,000 in 2008. 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 . . .