Suffolk Bancorp (SCNB) 10-Q 2005 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended June 30, 2005

Commission file number 0-13580

SUFFOLK BANCORP

(exact name of registrant as specified in its charter)

New York State	11-2708279
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4 West Second Street, Riverhead, New York	11901
(Address of Principal Executive Offices)	(Zip Code)

(Registrant’s telephone number, including area code) (631) 727-5667

NOT APPLICABLE

(former name, former address and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x.    No  ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b2 of the Exchange Act.     Yes  x.     No  ¨.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

10,518,571 SHARES OF COMMON STOCK OUTSTANDING AS OF August 4, 2005

This page left blank intentionally.

Page 2

SUFFOLK BANCORP AND SUBSIDIARIES

	Page
Part I - Financial Information (unaudited)
Item 1. Financial Statements
Consolidated Statements of Condition	4
Consolidated Statements of Income, For the Three Months Ended June 30, 2005 and 2004	5
Consolidated Statements of Income, For the Six Months Ended June 30, 2005 and 2004	6
Statements of Cash Flows, For the Six Months Ended June 30, 2005 and 2004	7
Notes to the Unaudited Consolidated Financial Statements	8
(1) Basis of Presentation	8
(2) Stock-based Compensation	8
(3) Recent Accounting Pronouncements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3. Quantitative and Qualitative Disclosures About Market Risk	14
Item 4. Controls and Procedures	14
Part II - Other Information
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	14
Item 6. Exhibits and Reports on Form 8-K	15
Signatures	15
Certifications of Periodic Report	16

Page 3

SUFFOLK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands of dollars except for share and per share data)

	June 30, 2005			December 31, 2004
	unaudited
ASSETS
Cash & Due From Banks		48,060		$	37,553
Federal Funds Sold		21,100			2,500
Investment Securities:
Available for Sale, at Fair Value		416,593			427,678
Held to Maturity (Fair Value of $13,850 and $15,151, respectively) Obligations of States & Political Subdivisions		10,443			11,900
Federal Reserve Bank Stock		638			638
Federal Home Loan Bank Stock		1,930			1,823
Corporate Bonds & Other Securities		100			100
Total Investment Securities		429,704			442,139
Total Loans		881,017			825,430
Less: Allowance for Loan Losses		8,887			8,210
Net Loans		872,130			817,220
Premises & Equipment, Net		22,765			23,005
Accrued Interest Receivable, Net		6,276			5,804
Excess of Cost Over Fair Value of Net Assets Acquired		814			814
Other Assets		19,292			19,183
TOTAL ASSETS	$	1,420,141		$	1,348,218
LIABILITIES & STOCKHOLDERS’ EQUITY
Demand Deposits	$	445,252		$	385,736
Saving, N.O.W. & Money Market Deposits		588,086			601,336
Time Certificates of $100,000 or more		24,910			22,737
Other Time Deposits		203,194			187,783
Total Deposits		1,261,442			1,197,592
Federal Home Loan Bank Borrowings		—			25,300
Repurchase Agreements		37,355			—
Dividend Payable on Common Stock		2,117			2,061
Accrued Interest Payable		1,088			721
Other Liabilities		15,546			16,332
TOTAL LIABILITIES		1,317,548			1,242,006
STOCKHOLDERS’ EQUITY
Common Stock (par value $2.50; 15,000,000 shares authorized; 10,552,571 and 10,842,537 shares outstanding at June 30, 2005 and December 31, 2004, respectively)		33,884			33,884
Surplus		19,439			19,440
Treasury Stock at Par (3,001,165 and 2,711,199 shares, respectively)		(7,502	)		(6,778	)
Retained Earnings		55,520			58,195
		101,341			104,741
Accumulated Other Comprehensive Income, Net of Tax		1,252			1,471
TOTAL STOCKHOLDERS’ EQUITY		102,593			106,212
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	1,420,141		$	1,348,218

See accompanying notes to consolidated financial statements.

Page 4

SUFFOLK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands of dollars except for share and per share data)

	For the Three Months Ended
	June 30, 2005		June 30, 2004
	unaudited		unaudited
INTEREST INCOME
Federal Funds Sold	$	41	$	79
United States Treasury Securities		96		104
Obligations of States & Political Subdivisions (tax exempt)		495		215
Mortgage-Backed Securities		2,579		2,548
U.S. Government Agency Obligations		1,222		966
Corporate Bonds & Other Securities		44		17
Loans		14,176		12,950
Total Interest Income		18,653		16,879
INTEREST EXPENSE
Saving, N.O.W. & Money Market Deposits		867		664
Time Certificates of $100,000 or more		131		88
Other Time Deposits		1,164		1,058
Federal Funds Purchased		387		—
Interest on Other Borrowings		202		5
Total Interest Expense		2,751		1,815
Net-interest Income		15,902		15,064
Provision for Loan Losses		375		1,298
Net-interest Income After Provision for Loan Losses		15,527		13,766
OTHER INCOME
Service Charges on Deposit Accounts		1,412		1,419
Other Service Charges, Commissions & Fees		669		645
Fiduciary Fees		277		308
Net Securities Gains		—		1,219
Other Operating Income		131		183
Total Other Income		2,489		3,774
OTHER EXPENSE
Salaries & Employee Benefits		5,555		5,340
Net Occupancy Expense		849		829
Equipment Expense		540		510
Other Operating Expense		2,520		2,512
Total Other Expense		9,464		9,191
Income Before Provision for Income Taxes		8,552		8,349
Provision for Income Taxes		3,227		3,316
NET INCOME	$	5,325	$	5,033
Average: Common Shares Outstanding		10,616,833		10,887,087
Dilutive Stock Options		25,101		33,080
Average Total Common Shares and Dilutive Options		10,641,934		10,920,167
EARNINGS PER COMMON SHARE
Basic	$	0.50	$	0.46
Diluted	$	0.50	$	0.46

See accompanying notes to consolidated financial statements.

Page 5

SUFFOLK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands of dollars except for share and per share data)

	For the Six Months Ended
	June 30, 2005		June 30, 2004
	unaudited		unaudited
INTEREST INCOME
Federal Funds Sold	$	51	$	87
United States Treasury Securities		192		208
Obligations of States & Political Subdivisions (tax exempt)		904		391
Mortgage-Backed Securities		5,236		4,986
U.S. Government Agency Obligations		2,445		2,044
Corporate Bonds & Other Securities		75		38
Loans		27,558		25,972
Total Interest Income		36,461		33,726
INTEREST EXPENSE
Saving, N.O.W. & Money Market Deposits		1,689		1,310
Time Certificates of $100,000 or more		248		182
Other Time Deposits		2,177		2,168
Federal Funds Purchased		489		—
Interest on Other Borrowings		462		40
Total Interest Expense		5,065		3,700
Net-interest Income		31,396		30,026
Provision for Loan Losses		675		1,523
Net-interest Income After Provision		30,721		28,503
OTHER INCOME
Service Charges on Deposit Accounts		2,770		2,827
Other Service Charges, Commissions & Fees		1,228		1,218
Fiduciary Fees		561		621
Net Security Gains		—		1,219
Other Operating Income		268		341
Total Other Income		4,827		6,226
OTHER EXPENSE
Salaries & Employee Benefits		11,079		10,848
Net Occupancy Expense		1,868		1,682
Equipment Expense		1,099		1,080
Other Operating Expense		4,711		4,700
Total Other Expense		18,757		18,310
Income Before Provision for Income Taxes		16,791		16,419
Provision for Income Taxes		6,334		6,522
NET INCOME	$	10,457	$	9,897
Average: Common Shares Outstanding		10,690,085		10,907,715
Dilutive Stock Options		28,952		34,760
Average Total Common Shares and Dilutive Options		10,719,037		10,942,475
EARNINGS PER COMMON SHARE
Basic	$	0.98	$	0.91
Diluted	$	0.98	$	0.90

See accompanying notes to consolidated financial statements.

Page 6

SUFFOLK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)

	For the Six Months Ended
	June 30, 2005			June 30, 2004
	unaudited			unaudited
NET INCOME	$	10,457		$	9,897
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Provision for Loan Losses		675			1,523
Depreciation & Amortization		1,108			1,041
Accretion of Discounts		(199	)		(170	)
Amortization of Premiums		1,892			2,418
(Increase) Decrease in Accrued Interest Receivable		(472	)		672
(Increase) Decrease in Other Assets		(108	)		472
Increase (Decrease) in Accrued Interest Payable		366			(73	)
Decrease in Other Liabilities		(676	)		(1,033	)
Net Security Gains		—			(1,219	)
Net Cash Provided by Operating Activities		13,043			13,528
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities Available for Sale		29,823			38,421
Purchases of Investment Securities; Available for Sale		(20,804	)		(91,344	)
Maturities of Investment Securities; Held to Maturity		3,692			5,918
Purchases of Investment Securities; Held to Maturity		(2,341	)		(3,136	)
Loan Disbursements & Repayments, Net		(55,585	)		5,654
Purchases of Premises & Equipment, Net		(868	)		(823	)
Net Cash Used in Investing Activities		(46,083	)		(1,706	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposit Accounts		63,850			120,056
Dividends Paid to Shareholders		(4,096	)		(4,155	)
Treasury Shares Acquired		(9,662	)		(2,259	)
Net Proceeds from (Payments for) Other Borrowings		12,055			(20,000	)
Net Cash Provided by Financing Activities		62,147			93,642
Net Increase in Cash & Cash Equivalents		29,107			105,464
Cash & Cash Equivalents Beginning of Period		40,053			56,353
Cash & Cash Equivalents End of Period	$	69,160		$	161,817

See accompanying notes to consolidated financial statements.

Page 7

SUFFOLK BANCORP AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements of Suffolk Bancorp (Suffolk) and its consolidated subsidiaries have been prepared to reflect all adjustments (consisting solely of normally recurring accruals) necessary for a fair presentation of the financial condition and results of operations for the periods presented. Certain information and footnotes normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. Notwithstanding, management believes that the disclosures are adequate to prevent the information from misleading the reader, particularly when the accompanying consolidated financial statements are read in conjunction with the audited consolidated financial statements and notes thereto included in the Registrant’s Annual Report on Form 10-K, for the year ended December 31, 2004.

The results of operations for the three and six months ended June 30, 2005 are not necessarily indicative of the results of operations to be expected for the remainder of the year.

(2) Stock-based Compensation

At June 30, 2005, Suffolk had one stock-based employee compensation plan. Suffolk accounts for that plan under the recognition and measurement principles of APB 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation costs are reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant.

The following table provides the disclosures required by Statement of Financial Accounting Standards No. 123 “Accounting for Stock Based Compensation” (“SFAS No. 123”) and illustrates the effect on net income and earnings per share if Suffolk had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation, and should be read in conjunction with “Capital Resources” on page 11 in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Quarter Ended June 30,	2005			2004
Net income (in thousands)
As reported	$	5,325		$	5,033
Stock-based compensation costs determined under fair value method for all awards		(18	)		(14	)
pro-forma		5,307			5,019
Earnings per share (Basic)
As reported		0.50			0.46
pro forma		0.49			0.46
Earnings per share (Diluted)
As reported		0.50			0.46
pro-forma		0.49			0.46

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), “Share-Based Payment” (SFAS 123(R)). This statement is a revision of SFAS NO.123, “Accounting for Stock-Based Compensation.” It supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The provisions of this statement are effective for periods beginning after December 31, 2005. The Company is currently evaluating the provisions of this revision to determine the impact on its consolidated financial statements. The recording of this expense is expected to decrease consolidated net income.

On March 29, 2005, the SEC released Staff Accounting Bulletin 107, “Share-Based Payments,” (“SAB 107”). The interpretations in SAB 107 express the views of the SEC staff regarding the application of SFAS No. 123(R). Among other things, SAB 107 provides interpretive guidance about the interaction of Statement 123(R) and certain SEC rules and regulations. It also provides the staff’s views regarding the valuation of share-based payments by public companies. Suffolk is evaluating the impact that the implementation of SAB 107 and SFAS 123(R) will have on options granted in the future.

(3) Recent Accounting Pronouncements

Suffolk adopted FASB Interpretation 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others,” on January 1, 2003. FIN 45 requires a guarantor entity, at the

Page 8

inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. Suffolk has financial and performance letters of credit. Financial letters of credit require Suffolk to make payment if the customer’s financial condition deteriorates, as defined in the agreements. Performance letters of credit require Suffolk to make payments if the customer fails to perform certain non-financial contractual obligations. Suffolk previously did not record a liability when guaranteeing obligations unless it became probable that Suffolk would have to perform under the guarantee. FIN 45 applies prospectively to guarantees Suffolk issues or modifies subsequent to December 31, 2003. The maximum potential undiscounted amount of future payments of these letters of credit as of June 30, 2005 is $6,406,000 and they expire as follows:

2005		2,878,000
2006		2,351,000
2007		988,000
Therafter		189,000
	$	6,406,000

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 valuation of the allowance for loan losses includes a provision of $9,600 for loan losses based on the letters of credit outstanding on June 30, 2005.

In March 2004, the SEC released Staff Accounting Bulletin No. 105, “Application of Accounting Principles to Loan Commitments” (“SAB 105”). SAB 105 provides guidance about the measurement of loan commitments recognized at fair value under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SAB 105 also requires companies to disclose their accounting policy for those loan commitments including methods and assumptions used to estimate fair value and associated hedging strategies. SAB 105 is effective for all loan commitments accounted for as derivatives that are entered into after March 31, 2004. The Company has adopted the provisions of SAB 105. This did not have a material effect on the Company’s consolidated financial statements.

In October 2003, the AICPA issued SOP 03-3, “Accounting for Loans or Certain Debt Securities Acquired in a Transfer” (“SOP 03-3”). SOP 03-3 applies to a loan with the evidence of deterioration of credit quality since origination acquired by completion of a transfer for which it is probable at acquisition that the Company will be unable to collect all contractually required payments receivable. SOP 03-3 requires that the Company recognize the excess of all cash flows expected at acquisition over the investor’s initial investment in the loan as interest income on a level-yield basis over the life of the loan as the accretable yield. The loan’s contractual required payments receivable in excess of the amount of its cash flows excepted at acquisition (nonaccretable difference) should not be recognized as an adjustment to yield, a loss accrual, or a valuation allowance for credit risk. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 31, 2004. Suffolk implemented SOP 03-3 on January 1, 2005. The adoption of SOP-03-3 did not materially impact its financial condition or results of operations.

In June 2005, the Financial Accounting Standards Board (“FASB”) issued proposed FSP (FASB Financial Staff Position) EITF 03-1a, “Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1.” The final FSP will be retitled FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments,” and will supercede EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments,” and EITF Topic D-44 “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Costs Exceeds Fair Value.” The final FSP will replace guidance in paragraphs 10-18 of EITF Issue 03-1 and will codify the guidance set forth in EITF Topic D-44 and clarify that an investor should recognize an impairment loss no later than when the impairment is considered other than temporary, even if a decision to sell has not been made. FSP FAS 115-1 will be effective for other-than temporary impairment analysis conducted in periods beginning after September 15, 2005. FASB approved the proposed FSP subject to a vote on the final draft. Suffolk is currently evaluating the impact of FSP FAS 115-1 on its financial condition, results of operations and disclosures.

In May 2005, FASB issued Statement No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This statement changes the requirements for the accounting for and reporting of a change in accounting principle. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new principle. Statement No. 154 requires retrospective application to prior periods financial statements of changes in accounting principle, where practicable, and limits retrospective application of a change to direct effects of the change in accounting principle. Indirect effects of a change in accounting principle should be recognized in the period of accounting change. This statement is effective for accounting changes made in fiscal years after December 15, 2005. Suffolk is currently evaluating the impact of FAS No. 154 on its financial condition and results of operations.

Page 9

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

For the Three-Month Periods ended June 30, 2005 and 2004

Net Income

Net income was $5,325,000 for the quarter, up 5.8 percent from $5,033,000 posted during the same period last year. Earnings per share for the quarter were $0.50 versus $0.46, an increase of 8.7 percent.

Interest Income

Interest income was $18,653,000 for the second quarter of 2005, up 10.5 percent from $16,879,000 posted for the same quarter in 2004. Average net loans during the second quarter of 2005 totaled $859,067,000 compared to $827,163,000 for the same period of 2004. During the second quarter of 2005, the yield was 5.83 percent (taxable-equivalent) on average earning assets of $1,296,205,000 up from 5.47 percent on average earning assets of $1,241,680,000 during the second quarter of 2004. Increases in interest income were attributable primarily to an increase in interest income on loans and obligations of states and political subdivisions.

Interest Expense

Interest expense for the second quarter of 2005 was $2,751,000, up 51.6 percent from $1,815,000 for the same period of 2004. During the second quarter of 2005, the cost of funds was 1.27 percent on average interest-bearing liabilities of $864,303,000, up from 0.88 percent on average interest-bearing liabilities of $824,810,000 during the second quarter of 2004. Interest expense increased primarily as a result of increases in market rates of interest, and increased interest on Federal funds purchased and other borrowings.

Each of the Bank’s demand deposit accounts has a related non-interest-bearing sweep account. The sole purpose of the sweep accounts 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 the sweep accounts 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 $15,902,000 for the second quarter of 2005, up 5.6 percent from $15,064,000 during the same period of 2004. The net interest margin for the quarter, on a fully taxable-equivalent basis, was 4.98 percent compared to 4.89 percent for the same period of 2004.

Page 10

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

	2005							2004
June 30,	Average Balance		Interest			Average Rate		Average Balance		Interest			Average Rate
INTEREST-EARNING ASSETS
U.S. Treasury securities	$	9,419	$	98		4.16	%	$	9,746	$	106		4.35	%
Collateralized mortgage obligations		240,118		2,551		4.25			245,623		2,518		4.10
Mortgage backed securities		3,040		28		3.68			7,430		30		1.62
Obligations of states and political subdivisions		50,904		723		5.68			23,704		314		5.30
U.S. govt. agency obligations		125,282		1,222		3.90			92,146		966		4.19
Corporate bonds and other securities		2,951		44		5.96			2,557		17		2.66
Federal funds sold and securities purchased under agreements to resell		5,424		41		3.02			33,311		79		0.95
Loans, including non-accrual loans
Commercial, financial & agricultural loans		175,777		2,842		6.47			182,949		2,354		5.15
Commercial real estate mortgages		285,891		4,792		6.70			234,498		4,071		6.94
Real estate construction loans		55,664		1,101		7.91			32,794		564		6.88
Residential mortgages (1st and 2nd liens)		115,591		1,837		6.36			109,605		1,721		6.28
Home equity loans		80,361		1,233		6.14			65,353		818		5.01
Consumer loans		144,314		2,371		6.57			199,738		3,422		6.85
Other loans (overdrafts)		1,469		—		—			2,226		—		—
Total interest-earning assets	$	1,296,205	$	18,883		5.83	%	$	1,241,680	$	16,980		5.47	%
Cash and due from banks	$	48,832						$	54,625
Other non-interest-earning assets		45,902							80,365
Total assets	$	1,390,939						$	1,376,670
INTEREST-BEARING LIABILITIES
Saving, N.O.W. and money market deposits	$	566,057	$	867		0.61	%	$	599,495	$	664		0.44	%
Time deposits		222,087		1,295		2.33			223,576		1,146		2.05
Total saving and time deposits		788,144		2,162		1.10			823,071		1,810		0.88
Federal funds purchased and securities sold under agreement to repurchase		276		2		2.90			57		—		—
Other borrowings		75,883		587		3.09			1,682		5		1.19
Total interest-bearing liabilities	$	864,303	$	2,751		1.27	%	$	824,810	$	1,815		0.88	%
Rate spread						4.55	%						4.59	%
Non-interest-bearing deposits	$	416,964						$	402,680
Other non-interest-bearing liabilities		10,307							50,513
Total liabilities	$	1,291,574						$	1,278,003
Stockholders’ equity		99,365							98,667
Total liabilities and stockholders’ equity	$	1,390,939						$	1,376,670
Net-interest income (taxable-equivalent basis) and effective interest rate differential			$	16,132		4.98	%			$	15,165		4.89	%
Less: taxable-equivalent basis adjustment				(230	)						(101	)
Net-interest income			$	15,902						$	15,064

Other Income

Other income decreased to $2,489,000 for the three months compared to $3,774,000 the previous year. Service charges on deposits were down 0.5 percent. Service charges, including commissions and fees other than for deposits, increased by 3.7 percent. Trust revenue was down 10.1 percent. Other operating income decreased by 28.4 percent. There were no net gains on the sale of securities for the second quarter of 2005. Net gains on the sale of securities of $1,219,000 were recognized in the comparable period last year.

Page 11

Other Expense

Other expense for the second quarter of 2005 was $9,464,000, up 3.0 percent from $9,191,000 for the comparable period in 2004. Employee compensation increased by 4.0 percent, net occupancy expense increased 2.4 percent owing primarily to increased rent, equipment expense increased by 5.9 percent, and other operating expense increased by 0.3 percent.

In accordance with the requirements of Statement of Financial Accounting Standards 132R (“SFAS 132R”), Suffolk presents information concerning net periodic defined benefit pension expense for the three and six months ended June 30, 2005 and 2004, including the following components:

	3 months 6/30/2005			3 months 6/30/2004			6 months 6/30/2005			6 months 6/30/2004
Service cost	$	298,660		$	282,110		$	597,320		$	564,219
Interest cost		312,648			290,790			625,296			581,580
Expected return on plan assets		(392,810	)		(352,111	)		(785,620	)		(704,223	)
Amortization of prior service cost		(3,595	)		(14,492	)		(7,190	)		(28,984	)
Amortization of unrecognized net actuarial loss		48,787			60,515			97,574			121,030
Net periodic benefit expense	$	263,690		$	266,812		$	527,380		$	533,623

A contribution of approximately $1,207,000 was made to the pension plan in June of 2005. There were no additional contributions required to be made to the plan in the three months ended June 30, 2005.

Capital Resources

Stockholders’ equity totaled $102,593,000 on June 30, 2005, a decrease of 3.4 percent from $106,212,000 on December 31, 2004. The ratio of equity to assets was 7.2 percent at June 30, 2005 and 7.9 percent at December 31, 2004. The following table details amounts and ratios of Suffolk’s regulatory capital: (in thousands of dollars except ratios)

	Actual				For capital adequacy				To be well capitalized under prompt corrective action provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2005
Total Capital (to risk-weighted assets)	$	109,295	10.90	%	$	80,241	8.00	%	$	100,301	10.00	%
Tier 1 Capital (to risk-weighted assets)		100,408	10.01	%		40,120	4.00	%		60,180	6.00	%
Tier 1 Capital (to average assets)		100,408	7.22	%		55,600	4.00	%		69,500	5.00	%
As of December 31, 2004
Total Capital (to risk-weighted assets)	$	112,020	11.94	%	$	75,051	8.00	%	$	93,814	10.00	%
Tier 1 Capital (to risk-weighted assets)		103,810	11.07	%		37,526	4.00	%		56,289	6.00	%
Tier 1 Capital (to average assets)		103,810	7.54	%		55,073	4.00	%		68,841	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 generally accepted accounting principles (“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 $375,000 for the second quarter of 2005, compared to $1,298,000 for the comparable period in 2004. In the second quarter of 2004, the provision was occasioned by the deterioration of a single

Page 12

credit, the circumstances of which are particular to that loan. Management does not believe that it is reflective of systemic weakness in Suffolk’s loan portfolio or of its underwriting standards and procedures. As of June 30, 2005, this loan was fully reserved for in the allowance for possible loan and lease losses.

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

	For the last 12 months			For the three months ended
				June 30 2005			Mar. 31 2005			Dec. 31 2004			Sept. 30 2004
Allowance for loan losses
Beginning balance	$	9,851		$	8,442		$	8,210		$	7,980		$	9,851
Total charge-offs		2,902			95			277			251			2,279
Total recoveries		813			165			209			256			183
Provision for loan losses		1,125			375			300			225			225
Ending balance	$	8,887		$	8,887		$	8,442		$	8,210		$	7,980
Coverage ratios
Loans, net of discounts: average	$	838,444		$	867,705		$	837,584		$	825,348		$	823,137
at end of period		845,906			881,017			860,584			825,430			816,594
Non-performing assets		4,314			4,831			5,172			5,364			1,888
Non-performing assets/total loans (net of discount)		0.51	%		0.55	%		0.60	%		0.65	%		0.23	%
Net charge-offs/average net loans (annualized)		0.25	%		(0.03)	%		0.03	%		0.00	%		1.02	%
Allowance/non-accrual, restructured, & OREO		230.73	%		183.96	%		163.23	%		153.06	%		422.67	%
Allowance for loan losses/net loans		0.99	%		1.01	%		0.98	%		0.99	%		0.98	%

Critical Accounting Policies, Judgments and Estimates

Suffolk’s accounting and reporting policies conform to the accounting principles generally accepted in the United States of America and general practices within the financial services industry. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Income Taxes

Under the liability method, deferred tax assets and liabilities are determined by the difference between the financial statement, and the tax bases of assets and liabilities. Deferred tax assets are subject to management’s judgment of available evidence that future realization is more likely than not. If management determines that Suffolk may be unable to realize all or part of the 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 management expects can be realized.

Page 13

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Market Risk

Suffolk originates and invests in interest-earning assets and solicits interest-bearing deposit accounts. Suffolk’s operations are subject to market risk resulting from fluctuations in interest rates to the extent that there is a difference between the amounts of interest-earning assets and interest-bearing liabilities that are prepaid, withdrawn, mature, or re-priced in any given period of time. Suffolk’s earnings or the net value of its portfolio (the present value of expected cash flows from liabilities) will change when interest rates change. The principal objective of Suffolk’s asset/liability management program is to maximize net interest income while keeping risks acceptable. These risks include both the effect of changes in interest rates, and risks to liquidity. The program also provides guidance to management in funding Suffolk’s investment in loans and securities. Suffolk’s exposure to interest-rate risk has not changed substantially since December 31, 2004.

Business Risks and Uncertainties

This report contains some statements that look to the future. These may include remarks about Suffolk Bancorp, the banking industry, and the economy in general. Factors affecting Suffolk Bancorp include particularly, but are not limited to: changes in interest rates; increases or decreases in retail and commercial economic activity in Suffolk’s market area; variations in the ability and propensity of consumers and businesses to borrow, repay, or deposit money, or to use other banking and financial services. Further, it could take Suffolk longer than anticipated to implement its strategic plans to increase revenue and manage non-interest expense, or it may not be possible to implement those plans at all. Finally, new and unanticipated legislation, regulation, or accounting standards may require Suffolk to change its practices in ways that materially change the results of operation. Each of the factors may change in ways that management does not now foresee. These remarks are based on current plans and expectations. They are subject, however, to a variety of uncertainties that could cause future results to vary materially from Suffolk’s historical performance, or from current expectations.

Item 4.

Controls and Procedures

Suffolk’s Chief Executive Officer and Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934 for Suffolk. Based upon their evaluation of these controls and procedures as of June 30, 2005, the Certifying Officers have concluded that Suffolk’s disclosure controls and procedures are effective.

In addition, there has been no significant change in Suffolk’s internal controls over financial reporting that occurred during Suffolk’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Suffolk’s internal controls over financial reporting.

PART II

Item 2.

Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

The following table details repurchases of common stock during the second quarter of 2005:

Quarter ending	Total shares repurchased	Average price per share		Aggregate cost
June 30, 2005	85,966	$	31.68	$	2,723,033

Page 14

Item 6.

Exhibits and Reports on Form 8-K

CERTIFICATION OF PERIODIC REPORT - Exhibit 31.1

CERTIFICATION OF PERIODIC REPORT - Exhibit 31.2

CERTIFICATION OF PERIODIC REPORT - Exhibit 32.1

CERTIFICATION OF PERIODIC REPORT - Exhibit 32.2

The following reports were filed on Form 8-K during the three month period ended June 30, 2005.

Current Report on Form 8-K – April 12, 2005 – Press Release of April 12, 2005, “Suffolk Bancorp Announces Earnings For The First Quarter” - Earnings release for the three months ended March 31, 2004.

Current Report on Form 8-K – April 14, 2005 – On April 12, 2005 at the Annual Organizational Meeting, the Board of Directors of Suffolk Bancorp (“the Company”) elected Thomas S. Kohlmann to serve as Chairman, President, and Chief Executive Officer of Suffolk Bancorp and its banking subsidiary The Suffolk County National Bank of Riverhead.

Current Report on Form 8-K – April 15, 2005 – On April 12, 2005, the Board of Directors of Suffolk Bancorp (“the Company”), after an evaluation of certain employment agreements with executive officers, agreed to renew them with certain key employees for one year, renewable annually. These employment agreements become effective only in the event of a change in control of the Company. Renewals were granted to executive officers Thomas S. Kohlmann, President and Chief Executive Officer; J. Gordon Huszagh, Executive Vice President and Chief Financial Officer; Robert C. Dick, Executive Vice President; Frank D. Filipo, Executive Vice President; and Augustus C. Weaver, Executive Vice President, and certain members of senior management of the Company’s banking subsidiary. All terms of the agreements, other than the date of expiration, remain unchanged.

Current Report on Form 8-K – May 24, 2005 – Press Release of May 24, 2005, “Suffolk Bancorp Increases Regular Quarterly Dividend by 5.26%”.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SUFFOLK BANCORP

Date: August 4, 2005	/s/ Thomas S. Kohlmann
	Thomas S. Kohlmann
	President & Chief Executive Officer
Date: August 4, 2005	/s/ J. Gordon Huszagh
	J. Gordon Huszagh
	Executive Vice President & Chief Financial Officer

Page 15