Suffolk Bancorp (SCNB) 10-K 2009 FY Annual report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2009

-OR-

¨ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from            to            .

Commission File Number: 000-13580

SUFFOLK BANCORP

(Name of Issuer in Its Charter)

New York	11-2708279
(State or Other Jurisdiction of Incorporation of Organization)	(I.R.S. Employer Identification No.)

4 West Second Street, P.O. Box 9000, Riverhead, New York	11901
(Address of Principal Executive Offices)	(Zip Code)

Issuer’s Telephone Number, Including Area Code: (631) 727-5667

Securities registered under Section 12(b) of the Exchange Act:

Title of each class:	Name of each exchange on which registered:
Common stock, par value $2.50 per share	The NASDAQ Global Select Market

Securities registered under Section 12(g) of the Exchange Act: None

(Title of Class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.    YES  ¨    NO  x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    YES  ¨    NO  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨    Smaller Reporting Company  ¨    

Indicate by check mark whether the Registrant is a shell company.    YES  ¨    NO  x

The aggregate market value of the common equity held by non-affiliates of the Registrant as of the last business day of the Registrant’s most recently completed second fiscal quarter was $240.9 million.

As of January 31, 2010, there were 9,630,399 shares outstanding of the Registrant’s common stock.

On The Cover

Wading River

The name “Wading River” is translated from its original Algonquian name, “Pauquaconsuk,” which meant “the place where we wade for thick, round-shelled clams.” The land was conveyed to English settlers between the years 1657 and 1675 in a series of transactions with Wyandanch, the great sachem of the Montauket tribe, then the most influential tribe on Long Island, and also with the Uncachaug and Setauket tribes. The earliest records show that a settlement was founded in 1671 with eight families. The village was located carefully, with a stream with enough follow to power a mill, clean water to drink, seafood close at hand, woodland for fuel, building material, soil rich enough to grow crops, meadowland for grazing animals, and hills to offer settlers some protection from the elements. A sawmill was erected in the area and in operation as early as 1710, and the sale of cordwood later became a significant part of the local economy during the nineteenth century.

As the twentieth century approached, that industry declined as coal replaced wood as a fuel for a number of purposes, from heat to steam to power mechanical devices. General agriculture, including orchards and row crops, replaced woodland. From 1895 until 1938, the Long Island Rail Road ran as far as Wading River, and slowly, the area began to develop.

Wading River remained a small hamlet of a few hundred souls until 1947, when veterans of the Second World War began to build homes in the area, and travel to Wildwood State Park, 600 acres of woodland and meadow overlooking Long Island Sound introduced visitors to the area. It grew steadily from the 1950’s until the present day, where it is home to nearly 7,000 people.

Suffolk County National Bank opened its first branch office in Wading River on June 3, 1967, just about a mile up the hill from the original village’s iconic duck pond, where it continues to serve members of this historic community.

Corporate Profile

Suffolk Bancorp does commercial banking through its wholly owned subsidiary, Suffolk County National Bank. Organized in 1890, “SCNB” is a full-service, nationally chartered commercial bank. Most of SCNB’s revenue comes from net interest income, and the remainder from charges for a variety of services. SCNB has built a good reputation for personal, attentive service, resulting in a loyal and growing clientele. SCNB operates 29 full-service offices throughout Suffolk County, New York.

The staff at SCNB works hard to develop and maintain ties to the communities it serves. SCNB’s business includes loans to small and medium-sized commercial enterprises, to professionals, and to individual consumers. Suffolk Bancorp’s main strategic focus is on small business owners and professionals and those retail customers who need a range of financial services tailored to their individual needs, and who expect the kind of personal service that is possible only through the establishment of relationships that develop over time. In recent years commercial loans of all types have increased as a percentage of the loan portfolio and have made substantial contributions to SCNB’s profitability. SCNB’s primary market is Long Island, New York. Long Island is home to approximately 2.8 million people outside of the limits of New York City and is primarily suburban in nature. Nassau County and the western end of Suffolk County are a center for commerce and are highly developed, supporting a diversified economy. The economy on eastern Long Island is based on services that support tourism, a large number of second homes, and agriculture. Together, they generate family incomes greater than the national average, providing Suffolk Bancorp with a steady and growing demand for loans and other services, and a reliable, reasonably priced supply of deposits.

Financial Highlights

	(dollars in thousands, except ratios, share, and per-share information)
	December 31,	2009			2008
EARNINGS FOR THE YEAR	Net income	$	22,548		$	24,688
	Net interest income		74,336			66,219
	Net income-per-share		2.35			2.58
	Cash dividends-per-share		0.88			0.88
BALANCES AT YEAR-END	Assets	$	1,694,496		$	1,582,819
	Net loans		1,148,046			1,084,470
	Investment securities		446,344			394,287
	Deposits		1,385,278			1,216,437
	Equity		137,171			112,401
	Shares outstanding		9,615,494			9,582,699
	Book value per common share	$	14.27		$	11.73
RATIOS	Return on average equity		18.30	%		21.79	%
	Return on average assets		1.36			1.59
	Average equity to average assets		7.41			7.29
	Net interest margin (taxable-equivalent)		4.99			4.75
	Efficiency ratio		57.11			52.81
	Net charge-offs to average net loans		0.09			0.06

CORPORATE INFORMATION

Suffolk Bancorp Annual Meeting

Tuesday, April 13, 2010, 1:00 P.M.

Suffolk County National Bank

Administrative Center

Lower Level

Four West Second Street

Riverhead, New York

S.E.C. Form 10-K

The Annual Report to the Securities and Exchange Commission on Form

10-K and documents incorporated by reference can be obtained, without

charge, by writing to the Secretary, Suffolk Bancorp, 4 West Second Street,

Riverhead, New York 11901, or call (631) 727-5667, fax to (631) 727-3214,

or e-mail to

invest@suffolkbancorp.com

They are also available on the Internet at

www.suffolkbancorp.com

Trading

Suffolk Bancorp’s common stock is traded on the NASDAQ Global Select

Market under the symbol “SUBK.”

Registrar and Transfer Agent

Any questions about the registration or transfer of shares, the payment,

reinvestment, or direct deposit of dividends can be answered by:

American Stock Transfer

& Trust Co.

59 Maiden Lane

New York, New York 10038

1-800-937-5449

www.amstock.com

Registered Independent Public Accountant

Grant Thornton LLP

60 Broad Street

New York, New York 10004

General Counsel

Smith, Finkelstein, Lundberg,

Isler & Yakaboski, LLP

456 Griffing Avenue

Riverhead, New York 11901

FDIC Rules and Regulations, Part 350.4(d)

This statement has not been reviewed, or confirmed for accuracy or

relevance, by the Federal Deposit Insurance Corporation.

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TABLE OF CONTENTS

Corporate Profile	1
Financial Highlights	1
Corporate Information	2
To Our Shareholders	4
Price Range of Common Stock and Dividends	6
Summary of Selected Financial Data	6
Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Summary of Recent Developments and Current Trends	7
Suffolk’s Business	8
General Economic Conditions	8
Results of Operations	8
Net Income	8
Net Interest Income	8
Average Assets, Liabilities, Stockholders’ Equity, Rate Spread, and Effective Interest Rate Differential	9
Analysis of Changes in Net Interest Income	10
Interest Income	10
Investment Securities	10
Loan Portfolio	12
Non-Performing Loans	13
Summary of Loan Losses and Allowance for Loan Losses	13
Interest Expense	14
Deposits	14
Borrowings	15
Other Income	16
Other Expense	16
Asset/Liability Management & Liquidity	17
Interest Rate Sensitivity	17
Interest Rate Risk	18
Market Risk	19
Contractual and Off-Balance-Sheet Obligations	20
Capital Resources	20
Risk-Based Capital and Leverage Guidelines	21
Discussion of New Accounting Pronouncements	21
Critical Accounting Policies, Judgments, and Estimates	21
Business Risks and Uncertainties	22
Management’s Report on Internal Control over Financial Reporting	22
Consolidated Statements of Condition	23
Consolidated Statements of Income	24
Consolidated Statements of Changes in Stockholders’ Equity	25
Consolidated Statements of Cash Flows	26
Notes to Consolidated Financial Statements	27
Report of Independent Registered Public Accounting Firm - Internal Control	46
Report of Independent Registered Public Accounting Firm - Financial Statements	47
Report of Management	47
Annual Report on Form 10-K
Certifications of Periodic Report	57
Directors and Officers - Suffolk Bancorp	59
Directors and Officers - Suffolk County National Bank	60
Directory of Offices and Departments	inside back cover

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Dear Shareholder:

In 2010, we celebrate the one-hundred-twentieth year since the founding of our banking subsidiary, formally known as The Suffolk County National Bank of Riverhead, and more familiarly as “SCNB.” For all of those years, it has operated under the same national banking charter and under the same name. During those many years, the world has witnessed great advances and innovation in technology, and many and substantial changes in our community, our nation, and the world. It has also witnessed many economic cycles, banking panics, the Great Depression, world wars and other calamities, both local and global.

I am proud to be yet one more among the leaders of an organization that has not only survived such a sweep of events but, for the most part, thrived through them as well. This sort of stability and continuity is the result of a certain kind of discipline that has been and remains a fundamental part of Suffolk’s culture, passed from one generation to the next. This leads us to assess the environment in which we conduct business continually, and then to adjust to it, as is prudent, without compromising our core objective of consistent, sustainable profitability. That profitability is what ensures our ability to meet our obligations to our shareholders, customers and the communities we serve to the best of our ability.

Accordingly, I would like to provide a brief overview of our performance during 2009. Earnings and earnings-per-share for the full year of 2009 slightly exceeded those in 2008, when adjusted for the VISA transaction in 2008. We did this while increasing our margin, from 4.75 percent to 4.99 percent, among the widest in the industry in recent times.

This was mostly the result of historically low costs of funding. We did this in the face of substantial additional expenses, including assessments which increased by $2.2 million for FDIC deposit insurance, an increase of $2.2 million in our provision for loan losses, a $2.0 million increase in our pension expense to compensate for the decreased discount rate at which the pension liability was calculated as well as declines in the market value of plan assets during 2008, and a $528,000 provision recorded in connection with a data intrusion just before the end of the year.

Book value-per-share actually increased to $14.27 at year-end, up 21.7 percent from $11.73 at December 31, 2008, as a result of net income, net of dividends, and a positive change in accumulated other comprehensive income of $9.7 million, primarily as a result of increases in the market value of investments, but also from improvements in the status of the pension plan.

Return on equity (“ROE”), the bellwether of profitability, was indeed affected by these events, declining to 15.61 percent from 20.11 percent for the quarter and 18.30 percent from 21.79 percent for the year. Also affecting ROE was an increase in total risk-based capital of more than 1 percent, to 11.73 percent from 10.60 percent, as we anticipated higher capital requirements as scrutiny of the financial services

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industry increases. This means that for any given level of efficiency in our underlying banking operations, ROE will be lower than it would have been under earlier standards. This is something we will share with all other banks as those standards evolve. Still, in comparison to the banking industry, which posted ROE of 1.1 percent during the previous four quarters ended September 30, 2009, and 2.6 percent during the third quarter of 2009, according to SNL Securities, we consider this a successful year under trying circumstances.

Looking back on 2009, it appears that the economy had already started to recover, but economists are nearly unanimous in their prediction that it will be a slow rebound. Our customers are not exempt from the effects of a weakened economy. At the same time, however, we can see the value of business based on relationships rather than transactions.

Our primary motto is, “Good Relationships are Good Business.” Good relationships with our customers allow us to see how they are adjusting their business models to survive the downturn, and to meet their obligations back to us. Good relationships keep lines of communications open, and help us work with our customers to meet their need for credit. Good relationships provide for long-lasting business partnerships, through all types of economic cycles.

Transactions, on the other hand, are one-time opportunities to charge interest or collect a fee that need to be replicated over and over again to sustain revenue.

Our secondary motto is, “When Our Customers Grow, We Grow.” Good relationships are the catalyst for future growth. As we continue to maintain the relationships we already have, and seek to build new ones for the future, earnings grow, and earnings are the only basis for shareholder value in the long run.

These two concepts are not difficult to articulate, but to implement them requires focus, attention, and discipline. Most of all, they require that we not allow ourselves to be distracted by glitzy but unproductive transactions. History shows that growth for the sake of growth generally hurts shareholders.

We believe that focusing on the customer will provide for future growth and increased shareholder value. The core competencies we look for in our employees include customer service, communication, flexibility, and teamwork. When we use these skills and put the customer first, we build the relationships that are so important to our future. When we put our customers first, we gain their loyalty and repeat business. That is what enables us to generate shareholder returns that are higher than most of our peers.

Sincerely,

J. Gordon Huszagh

President and Chief Executive Officer

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PRICE RANGE OF COMMON STOCK AND DIVIDENDS

Suffolk’s common stock is traded on the NASDAQ Global Select Market under the symbol “SUBK.” Following are quarterly high and low prices of Suffolk’s common stock as reported by NASDAQ.

2009	High		Low		Dividends		2008	High		Low		Dividends
First Quarter	$	36.97	$	20.51	$	0.22	First Quarter	$	33.73	$	28.49	$	0.22
Second Quarter		29.00		23.17		0.22	Second Quarter		35.36		28.77		0.22
Third Quarter		31.14		24.61		0.22	Third Quarter		49.02		26.35		0.22
Fourth Quarter		30.46		25.90		0.22	Fourth Quarter		40.00		25.68		0.22

SUMMARY OF SELECTED FINANCIAL DATA

FIVE-YEAR SUMMARY: (dollars in thousands except shares and per-share amounts)
For the year ended December 31,	2009			2008			2007			2006				2005
Interest income	$	87,008		$	88,457		$	89,081		$	86,209			$	75,673
Interest expense		12,672			22,237			25,117			20,499				11,312
Net interest income		74,336			66,220			63,964			65,710				64,361
Provision for loan losses		4,275			2,050			377			966				1,575
Net interest income after provision		70,061			64,170			63,587			64,744				62,786
Other income		11,118			14,643			10,595			10,672				10,145
Other expense		48,801			42,702			40,392			39,975				37,453
Income before income taxes		32,378			36,111			33,790			35,441				35,478
Provision for income taxes		9,830			11,423			11,662			12,813				13,376
Net Income	$	22,548		$	24,688		$	22,128		$	22,628			$	22,102
BALANCE AT DECEMBER 31:
Federal funds sold	$	—		$	—		$	2,700		$	—			$	—
Investment securities – available for sale		437,000			382,357			392,796			403,246				400,038
Investment securities – held to maturity		9,343			11,930			9,155			10,013				11,478
Total investment securities		446,343			394,287			401,951			413,259				411,516
Net loans		1,148,046			1,084,470			949,609			882,096				893,245
Total assets		1,694,496			1,582,819			1,469,062			1,390,849				1,407,902
Total deposits		1,385,278			1,216,437			1,143,375			1,139,075				1,158,707
Other borrowings		150,800			224,820			198,320			120,135				127,975
Stockholders’ equity	$	137,171		$	112,401		$	108,981		$	108,566		��	$	102,001
SELECTED FINANCIAL RATIOS:
Performance:
Return on average equity		18.30	%		21.79	%		21.47	%		22.16	%			22.18	%
Return on average assets		1.36			1.59			1.57			1.61				1.59
Net interest margin (taxable-equivalent)		4.99			4.75			5.06			5.16				5.09
Efficiency ratio		57.11			52.81			54.17			52.34				50.28
Average equity to average assets		7.41			7.29			7.30			7.25				7.19
Dividend pay-out ratio		37.44			34.18			39.70			39.19				37.56
Asset quality:
Non-performing assets to total loans, net of discount		2.53			0.45			0.17			0.10				0.49
Non-performing assets to total assets		1.73			0.31			0.11			0.06				0.32
Allowance to non-performing assets		41.99			185.32			459.13			846.52				220.41
Allowance to loans, net of discount		1.06			0.83			0.80			0.85				1.09
Net charge-offs (recoveries) to average net loans		0.09			0.06			(0.01	)		0.36				(0.01	)
PER-SHARE DATA:
Net income (basic)		2.35			2.58			2.24			2.20				2.09
Cash dividends		0.88			0.88			0.88			0.88				0.79
Book value at year-end		14.27			11.73			11.34			10.60				9.80
Highest market value		36.97			49.02			38.80			38.95				37.00
Lowest market value		20.51			25.68			25.55			28.17				25.68
Average shares outstanding		9,602,802			9,580,025			9,895,301			10,279,870				10,570,896
Number of full-time-equivalent employees		368			362			350			357				369
Number of branch offices		29			29			29			27				27
Number of automatic teller machines		29			29			26			26				25

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The discussion that follows analyzes Suffolk Bancorp’s (“Suffolk”) operations for each of the past three years and its financial condition as of December 31, 2009 and 2008, respectively. Selected tabular data are presented for each of the past five years.

Summary of Recent Developments and Current Trends

Suffolk Bancorp is a one-bank holding company engaged in the commercial banking business through The Suffolk County National Bank, a full-service commercial bank headquartered in Riverhead, New York. “SCNB” is Suffolk Bancorp’s wholly owned subsidiary. Organized in 1890, Suffolk County National Bank is headquartered on Long Island, with 29 offices in Suffolk County, New York.

Recent Developments

As during the prior year, credit was generally less available as banks consolidated their loan losses and attempted to increase their capital ratios in response to regulatory pressure. Equity markets, however, recovered substantially as weaker competitors were shaken out of a number of industries, and earnings started to recover among remaining competitors. Federal officials continued to preside over various of the programs intended to stabilize credit markets, including most notably the Troubled Asset Relief Program (“TARP”), and certain target rates of interest that remain near zero. The effectiveness of these steps remains unclear, although confidence in the financial markets has appeared to have improved during the year. In the absence of credit, and with widespread foreclosures, residential real estate continued to decline in value, though stabilizing in some markets during the third and fourth quarters, further diminishing investors’ confidence and resulting in significant declines in the value of banking stocks. Commercial real estate continued to decline in value as certain investors used their reserves to service debt, and a greater number of such loans defaulted throughout the nation.

The yield curve remained steep, with short-term rates very low, and with a spread of as much as 400 basis points between the short- and long-term rates.

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 increased to 4.99 percent, up from 4.75 percent, year to year.

Return on average equity decreased to 18.30 percent for the year, down from 21.79 percent during 2008, and earnings-per-share decreased from $2.58 in 2008 to $2.35 in 2009. The decrease in return on average equity and earnings-per-share on a year-to-date basis is the result of a net gain on the 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. Please refer to “Other Income” for further discussion.

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

• Managing 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. During the year approximately $90 million of collateralized mortgage obligations were purchased, fully guaranteed by the U.S. government.

• Pursuing the ongoing program of capital management, allowing total risk-based capital (“TRBC”) to move upward to provide a greater cushion against uncertainty, and to respond to possible increases in regulatory requirements under discussion at various levels of government. While the regulatory requirement for TRBC remains at 10.00 percent, which qualifies as “well capitalized” with regulatory agencies and still affords certain advantages to the banking subsidiary, higher ratios have been under public discussion. Accordingly, maximum prudent leverage is thus applied to the shareholders’ investment while still anticipating changes in regulation through the retention of earnings when assets are growing. Growth in the core business during the year provided some leverage to retained earnings, and TRBC climbed to 11.73 percent at December 31, 2009 from 10.60 the prior year, an increase of 10.7 percent.

• 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 banking relationship with 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 2009, net charge-offs amounted to 9 basis points of average net loans. Although net charge-offs remain comparatively low, non-performing loans increased during the year as a result of current economic conditions. We maintain our underwriting standards for new loans and lending staff monitor existing credits closely.

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• Consistent underwriting for lending to preserve both credit quality and yields throughout the business cycle. Emphasis 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.

It has not been Suffolk’s policy to grant loans or to buy investment securities backed by loans which would be characterized as “sub-prime.”

Suffolk’s Business

Nearly all of Suffolk’s business is to provide banking services to its commercial and retail customers in Suffolk County, on Long Island, New York. Suffolk is a one-bank holding company. Its banking subsidiary, Suffolk County National Bank (the “Bank”), operates 29 full-service offices in Suffolk County, New York. It offers a full line of domestic, retail, and commercial banking services, and trust services. The Bank’s primary lending area includes all of Suffolk County, New York, and a limited number of loans or loan-participations in the adjacent markets of Nassau County and New York City. The Bank makes loans that are secured by commercial real estate and float with the prime rate and other indices, and that are retained in the Bank’s portfolio: commercial and industrial loans to small manufacturers, wholesalers, builders, farmers, and retailers, including dealer financing. The Bank serves as an indirect lender to the customers of a number of automobile dealers. The Bank also makes loans secured by residential mortgages, and both fixed and floating rate second mortgage loans with a variety of plans for repayment. Real estate construction loans are also offered.

Other investments are made in short-term United States Treasury debt, high-quality obligations of municipalities in New York and other states, issues of agencies of the United States government, collateralized mortgage obligations, mortgage-backed securities, and stock in the Federal Reserve Bank and the Federal Home Loan Bank of New York, each required as a condition of membership.

The Bank finances most of its activities with deposits, including demand, saving, N.O.W., and money market accounts, as well as term certificates. It also relies on other sources of funds, including inter-bank overnight loans, and sale-repurchase agreements.

General Economic Conditions

Long Island has a population of approximately 2.8 million people, about 20 percent of the population of New York State. Long Island has a number of important regional advantages, including public and private schools and universities that are ranked above national averages; an increasingly diversified economy with growing health, information, and business services; as well as hundreds of miles of coastline and other open spaces that draw tourists from within and beyond the region. However, Long Island also faces a number of challenges as a result of the historical fragmentation of governance among town villages, special authorities, and other taxing districts, and a growing disparity in incomes.

During 2007, gross metropolitan product (GMP) of $115 billion dollars ranked Long Island among the top 20 metropolitan areas in the United States. In 2009, Long Island’s total private sector gross domestic product (GDP) was approximately $128 billion in 2008 dollars, down from about $132 billion in 2008 (a decline of 3.2%). There was almost no change in private sector GDP between 2007 and 2008 (decrease of .1%). The private sector of the Long Island economy grew by 17% from 1999 to 2009. However, there was greater growth earlier in the period, slower growth more recently, and stagnation and decline during the past 24 months. Comparisons with the U.S. economy as a whole indicates that the national economy grew slightly more between 2000 and 2009 (15.2%) compared to Long Island (13.6%). In 2008 the Long Island economy was stagnant while the nation’s economy experienced almost 1% growth. In 2009, the U.S. economy contracted less than did our local economy (-2.1% versus -3.2%). (Source: Long Island Index 2010)

Results of Operations

Net Income

Net income was $22,548,000 compared to $24,688,000 in 2008 and $22,128,000 in 2007. These figures represent a decrease of 8.7 percent and an increase of 11.6 percent, respectively. Basic earnings-per-share were $2.35 during 2009, compared to $2.58 in 2008 and $2.24 in 2007.

Net Interest Income

Net interest income during 2009 was $74,336,000, up 12.3 percent from $66,220,000 in 2008, which was up 3.5 percent from $63,964,000 in 2007. Net interest income is the most important part of the net income of Suffolk. The net interest rate margin, on a taxable-equivalent basis, was 4.99 percent in 2009, 4.75 percent during 2008, and 5.06 percent in 2007. Average rates on average interest-earning assets decreased to 5.80 percent in 2009, down from 6.27 percent in 2008, and 6.96 percent in 2007. Average rates on average interest-bearing liabilities decreased to 1.24 percent in 2009, down from 2.24 percent in 2008, and 2.91 percent in 2007. Demand deposits remained a significant source of funds as a percentage of total liabilities.

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Average Assets, Liabilities, Stockholders’ Equity, Rate Spread, and Effective Interest Rate Differential

(on a taxable-equivalent basis)

The following table illustrates the average composition of Suffolk’s statements of condition. It presents an analysis of net interest income on a taxable-equivalent basis, listing each major category of interest-earning assets and interest-bearing liabilities, as well as other assets and liabilities: (dollars in thousands)

Year ended December 31,	2009							2008							2007
	Average Balance		Interest			Average Rate		Average Balance		Interest			Average Rate		Average Balance		Interest			Average Rate
Interest-earning assets
U.S. Treasury securities	$	9,577	$	371		3.87	%	$	9,988	$	407		4.07	%	$	9,526	$	406		4.26	%
Collateralized mortgage obligations		148,566		7,505		5.05			145,285		7,878		5.42			142,876		7,605		5.32
Mortgage-backed securities		603		41		6.80			721		49		6.80			953		67		7.03
Obligations of states & political subdivisions		194,089		10,762		5.54			164,296		9,570		5.82			139,429		8,234		5.91
U.S. government agency obligations		79,358		2,057		2.59			94,801		3,663		3.86			114,190		4,576		4.01
Other securities		8,029		434		5.41			9,278		482		5.20			5,727		423		7.39
Federal funds sold & interest-bearing bank accounts		15,170		51		0.34			17,875		314		1.76			2,637		140		5.31
Loans, including non-accrual loans
Commercial, financial & agricultural loans		235,202		13,863		5.89			223,722		14,568		6.51			193,885		16,213		8.36
Commercial real estate mortgages		363,256		24,613		6.78			329,121		23,562		7.16			298,632		22,480		7.53
Real estate construction loans		133,894		9,000		6.72			106,608		8,594		8.06			84,610		8,786		10.38
Residential mortgages (1st and 2nd liens)		208,696		12,731		6.10			194,915		12,175		6.25			158,294		10,160		6.42
Home equity loans		78,788		3,311		4.20			68,972		3,799		5.51			68,239		5,725		8.39
Consumer loans		85,634		5,951		6.95			95,030		6,672		7.02			98,739		7,084		7.17
Other loans		1,824				—			3,108		—		—			2,489		—		—
Total interest-earning assets	$	1,562,686	$	90,690		5.80	%	$	1,463,720	$	91,733		6.27	%	$	1,320,226	$	91,899		6.96	%
Cash & due from banks	$	44,037						$	45,718						$	46,744
Other non-interest-earning assets		55,703							45,300							45,611
Total assets	$	1,662,426						$	1,554,738						$	1,412,581
Interest-bearing liabilities
Saving, N.O.W. & money market deposits	$	563,513	$	3,630		0.64	%	$	467,180	$	6,334		1.36	%	$	417,472	$	4,838		1.16	%
Time deposits		328,853		6,068		1.85			319,888		9,852		3.08			311,098		13,275		4.27
Total saving & time deposits		892,366		9,698		1.09			787,068		16,186		2.06			728,570		18,113		2.49
Federal funds purchased & securities sold under agreements to repurchase		4,863		120		2.47			49,260		1,417		2.88			54,531		2,876		5.27
Other borrowings		127,123		2,854		2.25			157,618		4,635		2.94			79,328		4,128		5.20
Total interest-bearing liabilities	$	1,024,352	$	12,672		1.24	%	$	993,946	$	22,238		2.24	%	$	862,429	$	25,117		2.91	%
Rate spread						4.57	%						4.03	%						4.05	%
Non-interest-bearing deposits	$	478,886						$	430,610						$	425,553
Other non-interest-bearing liabilities		35,983							16,906							21,547
Total liabilities	$	1,539,221						$	1,441,462						$	1,309,529
Stockholders’ equity		123,205							113,276							103,052
Total liabilities & stockholders’ equity	$	1,662,426						$	1,554,738						$	1,412,581
Net interest income (taxable-equivalent basis) & interest rate margin			$	78,018		4.99	%			$	69,495		4.75	%			$	66,782		5.06	%
Less: taxable-equivalent basis adjustment				(3,682	)						(3,275	)						(2,818	)
Net interest income			$	74,336						$	66,220						$	63,964

Interest income on a taxable-equivalent basis includes the additional amount of interest income that would have been earned if Suffolk’s investment in nontaxable U.S. Treasury securities and states and municipal obligations had been subject to New York State and federal income taxes yielding the same after-tax income. The rate used for this adjustment was approximately 34 percent for federal income taxes and 9 percent for New York State income taxes for all periods. For each of the years 2009, 2008, and 2007, $1.00 of nontaxable income from obligations of states and political subdivisions equates to fully taxable income of $1.52, and $1.00 of nontaxable income from taxable obligations of states and political subdivisions equates to fully taxable income of $1.50. In addition, in 2009, 2008, and 2007, $1.00 of nontaxable income on U.S. Treasury securities equates to $1.02 of fully taxable income. Various loan fees included in interest income amounted to $1,594,000, $1,817,000, and $2,156,000 in 2009, 2008, and 2007, respectively.

9

Analysis of Changes in Net Interest Income

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 periods presented, each as compared with the preceding period. 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 2009 over 2008 Changes Due to									In 2008 over 2007 Changes Due to
	Volume			Rate			Net Change			Volume			Rate			Net Change
Interest-earning assets
U.S. Treasury securities	$	(16	)	$	(20	)	$	(36	)	$	19		$	(18	)	$	1
Collateralized mortgage obligations		175			(548	)		(373	)		129			144			273
Mortgage-backed securities		(8	)		—			(8	)		(16	)		(2	)		(18	)
Obligations of states & political subdivisions		1,666			(475	)		1,191			1,450			(113	)		1,337
U.S. government agency obligations		(532	)		(1,074	)		(1,606	)		(754	)		(159	)		(913	)
Corporate bonds & other securities		(67	)		19			(48	)		210			(151	)		59
Federal funds sold & interest-bearing bank accounts		(41	)		(222	)		(263	)		324			(150	)		174
Loans, including non-accrual loans		5,595			(5,495	)		100			8,495			(9,574	)		(1,079	)
Total interest-earning assets	$	6,772		$	(7,815	)	$	(1,043	)	$	9,857		$	(10,023	)	$	(166	)
Interest-bearing liabilities
Saving, N.O.W., & money market deposits	$	1,113		$	(3,817	)	$	(2,704	)	$	616		$	880		$	1,496
Time deposits		269			(4,053	)		(3,784	)		365			(3,788	)		(3,423	)
Federal funds purchased & securities sold under agreements to repurchase		(1,120	)		(177	)		(1,297	)		(256	)		(1,203	)		(1,459	)
Other borrowings		(801	)		(980	)		(1,781	)		2,844			(2,337	)		507
Total interest-bearing liabilities	$	(539	)	$	(9,027	)	$	(9,566	)	$	3,569		$	(6,448	)	$	(2,879	)
Net change in net interest income (taxable-equivalent basis)	$	7,311		$	1,212		$	8,523		$	6,288		$	(3,575	)	$	2,713

Interest Income

Interest income decreased to $87,008,000 in 2009, down 1.6 percent from $88,457,000 in 2008, which was down .7 percent from $89,081,000 in 2007.

Investment Securities

SCNB purchases investment securities only after a disciplined evaluation to ensure that they are the most appropriate available given the company’s objectives. Key factors include:

• Liquidity – the ease with which the security can be pledged or sold.

• Credit Quality – the likelihood the security will perform according to its original terms, with timely payments of principal and interest.

• Yield – the rate of return on the investment, balanced against the first two.

Investment securities are also selected in consideration of certain key risks to:

• Market value – the market value of fixed-rate securities increases when interest rates fall, and decreases when interest rates rise. The longer the maturity of the security, the greater this effect.

• Income risk – how long fixed payments can be assured. The shorter the duration of the portfolio, the greater this risk.

• Asset liability management – seeks to limit the change in net interest income as a result of changing interest rates. For example, when the maturities or the intervals between the repricing of investments are longer than those of the liabilities that fund them, net interest income will decline when rates rise because payments from those securities will remain the same while payments to depositors or other banks from which SCNB has borrowed will increase. This is referred to as “asset-sensitive.” Conversely, when investments mature or are repriced sooner than their funding, net interest income may decline when interest rates fall as income declines the same while funding expense remains the same. Asset liability management attempts to manage the duration of the investment portfolio, as well as that of the funding to minimize the risk to net interest income while maximizing returns.

10

The company seeks to create a portfolio that is diversified across different classes of assets. Historically, bonds have returned more than cash, and been less volatile than mortgage-backed securities (“MBS”). The steady return on bonds can also offset the decline in variable loan yields as interest rates fall. Collateralized mortgage obligations (“CMO’s”) provide more predictable cash flows because payments are assigned to specific securities (“tranches” or slices) in the order in which they are received, in contrast to a traditional security backed by a pool of mortgages in which investors share payments equally pro rata, based on the percentage of the pool they own. Analysis of CMO’s requires careful due diligence of the mortgages that serve as the underlying collateral. Suffolk has never owned mortgage obligations with underlying collateral that could be classified as “sub-prime.” Tranche structure, final maturity, and credit support also provide improved assurance of repayment. There are CMO’s which have experienced increased delinquencies in the underlying loan portfolio; however, these securities are in senior tranches where delinquencies and foreclosures result in accelerated cash flows received, and not losses. Suffolk reviews its investments for impairment regularly, and to date, none have been determined to be other-than-temporarily impaired due to credit.

Average investment in U.S. government agency securities decreased to $79,358,000 from $94,801,000 in 2008, and $114,190,000 in 2007. Average balances of CMO’s increased to $148,566,000 in 2009 from $145,285,000 in 2008, and $142,876,000 in 2007. Average investments in municipal securities increased to $194,089,000 in 2009, up from $164,296,000 in 2008 and $139,429,000 in 2007. U.S. Treasury, U.S. government agency, collateralized mortgage obligations, and municipal securities provide collateral for various liabilities to municipal depositors. Securities are Suffolk’s primary source of liquidity. With regard to securities characterized as available for sale, in general, Suffolk has the intent and ability to hold them until maturity. The following table summarizes Suffolk’s investment securities available for sale and held to maturity as of the dates indicated: (in thousands)

December 31,	2009		2008		2007
Investment securities available for sale, at fair value:
U.S. Treasury securities	$	8,318	$	10,152	$	9,838
U.S. government agency debt securities		43,205		76,477		105,066
Collateralized mortgage obligations		192,393		131,841		129,562
Mortgage-backed securities		599		595		859
Obligations of states & political subdivisions		192,485		163,292		147,471
Total investment securities available for sale		437,000		382,357		392,796
Investment securities held to maturity:
Obligations of states & political subdivisions		9,243		11,830		9,055
Other securities		100		100		100
Total investment securities held to maturity		9,343		11,930		9,155
Total investment securities	$	446,343	$	394,287	$	401,951
Fair value of investment securities held to maturity	$	10,096	$	12,515	$	9,743
Unrealized gains		755		596		603
Unrealized losses		2		11		15

The amortized cost, maturities, and approximate weighted average yields, at December 31, 2009 are as follows: (in thousands)

	Available for Sale												Held to Maturity
	U.S. Treasury Securities				U.S. Govt. Agency Debt				Obligations of States & Political Subdivisions				Obligations of States & Political Subdivisions				Other Securities
Maturity (in years)	Fair Value		Yield		Fair Value		Yield		Fair Value		Yield		Amortized Cost		Yield		Amortized Cost		Yield	Total		Yield
Within 1	$	1,996	0.32	%	$	20,129	0.96	%	$	—	—		$	2,079	2.85	%	$	—	—	$	24,204	1.07	%
After 1 but within 5		6,322	4.58	%		23,076	2.73	%		17,736	3.63	%		2,146	4.00	%		—	—	$	49,280	3.35	%
After 5 but within 10		—	—			—	—			153,687	3.72	%		5,018	5.56	%		—	—	$	158,705	3.78	%
After 10		—	—			—	—			21,062	4.06	%		—	—			—	—	$	21,062	4.06	%
Other securities		—	—			—	—			—	—			—	—			100	—	$	100	—
Subtotal	$	8,318	3.56	%	$	43,205	1.91	%	$	192,485	3.75	%	$	9,243	4.59	%	$	100	—	$	253,351	3.46	%
Collateralized mortgage obligations (1)																				$	192,393	5.34	%
Mortgage-backed securities (1)																				$	599	7.36	%
Total	$	8,318	3.56	%	$	43,205	1.91	%	$	192,485	3.75	%	$	9,243	4.59	%	$	100	—	$	446,343	4.27	%

(1) At fair value

11

As a member of the Federal Reserve System, the Bank owns Federal Reserve Bank stock with a book value of $652,000. Being an equity investment, the stock has no maturity. There is no public market for this investment. The last dividend was 6.0 percent.

As a member of the Federal Home Loan Bank of New York, the Bank owns Federal Home Loan Bank of New York (“FHLBNY”) stock with a book value of $8,346,000. As of December 31, 2009, the Bank owns 15,600 shares valued at $1,560,000 as its membership portion. The remaining $6,786,000 in stock is owned based on borrowing activity requirements. Being an equity investment, the stock has no maturity. There is no public market for this investment. The last declared dividend was 5.6 percent. We evaluated whether or not the value of FHLBNY stock was impaired. As the FHLBNY has continued to pay dividends and has not restricted redemptions, we concluded the stock was not impaired as of December 31, 2009.

Loan Portfolio

Loans, net of unearned discounts but before the allowance for loan losses, totaled $1,160,379,000. Loans secured by commercial real estate amounted to $375,652,000 and comprise 32.4 percent of the portfolio, the largest single component, up from $352,502,000 in 2008, and $317,262,000 in 2007. Commercial, financial, and agricultural loans followed at $259,565,000, up 17.5 percent from $220,946,000 at the end of 2008. These loans are made to small local businesses throughout Suffolk County. Commercial loan balances are seasonal, particularly in the Hamptons where retail inventories rise in the spring and decline by autumn. Consumer loans are a declining part of the portfolio. Net of unearned discounts, they totaled $80,352,000 at the end of 2009, down 15.1 percent from $94,691,000 at year-end 2008. Consumer loans include indirect, dealer-generated automobile loans. Competition among commercial banks and with captive finance companies of automobile manufacturers has reduced yields and volume. Additionally, rising fuel costs and uncertainties regarding the economy have led to a decline in consumer confidence, affecting automobile sales. Regional financial institutions have tightened their lending activities as a result of turmoil in the credit markets, offering continuing opportunity for real estate construction, and residential and commercial mortgage lending.

The remaining significant components of the loan portfolio are residential mortgages at $214,501,000, down 0.8 percent from $216,127,000; home equity loans at $82,808,000, up 9.5 percent from $75,654,000; and construction loans at $133,431,000, up 1.2 percent from $131,889,000. Construction loans increased primarily because of new borrowers whose former banks were no longer in a position to lend to them as a result of the current credit crisis. These loans have been underwritten on the basis of reasonable ratios of loan to value, conservative evaluations of projected cash flows, guarantees for permanent financing in place prior to granting the interim credit, and the ability of the borrower to repay the loan from sources other than the sale of the secured property. Other loans consist of overdraft advances nearly all of which have been repaid subsequent to year-end.

The following table categorizes total loans (net of unearned discounts) at December 31: (in thousands)

	2009				2008				2007				2006				2005
Commercial, financial & agricultural loans	$	259,565	22.4	%	$	220,946	20.2	%	$	204,222	21.3	%	$	182,801	20.5	%	$	179,522	19.9	%
Commercial real estate mortgages		375,652	32.4	%		352,502	32.2	%		317,262	33.1	%		290,893	32.7	%		306,754	34.0	%
Real estate - construction loans		133,431	11.5	%		131,889	12.1	%		83,715	8.7	%		80,687	9.1	%		67,411	7.5	%
Residential mortgages (1st and 2nd liens)		214,501	18.5	%		216,127	19.8	%		184,599	19.3	%		154,959	17.4	%		130,853	14.5	%
Home equity loans		82,808	7.1	%		75,654	6.9	%		67,081	7.0	%		76,361	8.6	%		80,775	8.9	%
Consumer loans		80,352	6.9	%		94,691	8.7	%		99,298	10.4	%		103,054	11.6	%		132,802	14.7	%
Other loans		14,070	1.2	%		1,712	0.2	%		1,104	0.1	%		892	0.1	%		4,956	0.5	%
Total loans (net of unearned discounts)	$	1,160,379	100	%	$	1,093,521	100	%	$	957,281	100	%	$	889,647	100	%	$	903,073	100	%

Commercial mortgages and commercial real estate construction loans totaled $507,516,000 as of December 31, 2009, up from $481,943,000 as of December 31, 2008, representing 43.7% and 44.1% of the total loan portfolio, respectively. Commercial mortgages and commercial real estate construction loans consist of the following as of December 31, 2009: 7% vacant land loans, 19% commercial construction loans, 25% for non-owner-occupied commercial mortgages and 49% for owner-occupied commercial mortgages. Commercial mortgages and commercial real estate construction loans consist of the following as of December 31, 2008: 7% vacant land loans, 20% commercial construction loans, 25% for non-owner-occupied commercial mortgages and 48% for owner-occupied commercial mortgages. Commercial real estate construction loans were generally underwritten on the basis of reasonable ratios of loan-to-value, evaluations of projected cash flows, and commitments for permanent financing in place prior to granting an interim credit. Non-performing commercial mortgages and commercial real estate construction loans have increased to $20,483,000 at December 31, 2009, up from $699,000 as of December 31, 2008. These loans have been evaluated for impairment and appropriate provisions have been made to recognize impaired balances. Please refer to the Summary of Loan Losses and Allowance for Loan Losses section for information regarding the provision for loan losses.

12

Non-Performing Loans

Generally, recognition of interest income is discontinued when reasonable doubt exists as to whether interest can be collected. Ordinarily, loans no longer accrue interest when 90 days past due. When a loan stops accruing interest, all interest accrued in the current year, but not collected, is reversed against interest income in the current year. Any interest accrued in prior years is charged against the allowance for loan losses. Loans start accruing interest again when they become current as to principal and interest, and when, in the opinion of management, they can be collected in full.

The following table shows non-accrual, past due, and restructured loans past due at December 31: (in thousands)

	2009		2008		2007		2006		2005
Loans accruing but past due contractually
90 days or more	$	173	$	699	$	23	$	68	$	—
Loans not accruing interest		19,124		4,185		1,648		824		4,459
Restructured loans past due		10,075		—		—		—		—
Total	$	29,372	$	4,884	$	1,671	$	892	$	4,459

Total non-performing loans as of December 31, 2009, amounted to $29,372,000. Of that amount, $23,686,000 was secured by collateral valued at approximately $39,714,000, having a cumulative loan-to-value of approximately 60 percent.

Included in non-performing loans are restructured loans past due of $10,075,000. Subsequent to restructuring, approximately $250,000 was committed to lend additional funds.

Interest on loans that are no longer accruing interest would have amounted to about $874,000 for 2009 under the contractual terms of those loans. Suffolk records the payment of interest on such loans as a reduction of principal. Interest income recognized on restructured and non-accrual loans was immaterial for the years 2009, 2008, and 2007. Suffolk has a formal procedure for internal credit review to more precisely identify risk and exposure in the loan portfolio.

Summary of Loan Losses and Allowance for Loan Losses

The allowance for loan losses is determined by continuous analysis of the loan portfolio. That analysis includes changes in the size and composition of the portfolio, historical loan losses, industry-wide losses, current and anticipated economic trends, and details about individual loans. It also includes estimates of the actual value of collateral and other possible sources of repayment. There can be no assurance that the allowance is, in fact, adequate. When a loan, in full or in part, is deemed uncollectible, it is charged against the allowance. This happens when it is well past due and the borrower has not shown the ability or intent to make the loan current, or the borrower does not have enough assets to pay the debt, or the value of the collateral is less than the balance of the loan and not likely to improve soon. Residential real estate and consumer loans are analyzed as a group and not individually because of the large number of loans, small balances, and historically low losses. In the future, the provision for loan losses may change as a percentage of total loans. The percentage of net charge-offs to average net loans during 2009 was 0.09 percent, compared to 0.06 percent in 2008, and net recoveries of 0.01 percent during 2007. The ratio of the allowance for loan losses to loans, net of discounts, was 1.06 percent at the end of 2009, up from 0.83 percent in 2008 and 0.80 percent in 2007. A summary of transactions follows: (in thousands)

Year ended December 31,	2009		2008		2007		2006		2005
Allowance for loan losses, January 1,	$	9,051	$	7,672	$	7,551	$	9,828	$	8,210
Loans charged-off:
Commercial, financial & agricultural loans		806		694		133		3,547		180
Commercial real estate mortgages		—		—		—		—		—
Real estate - construction loans		—		—		—		—		—
Residential mortgages (1st and 2nd liens)		—		—		—		—		—
Home equity loans		—		—		—		—		—
Consumer loans		404		337		48		210		428
Other loans		—		—		—		—		—
Total Charge-offs	$	1,210	$	1,031	$	181	$	3,757	$	608

13

Loans recovered after being charged-off	2009		2008			2007			2006		2005
Commercial, financial & agricultural loans		41		155			79			56		46
Commercial real estate mortgages		—		—			—			—		—
Real estate – construction loans		—		—			—			—		—
Residential mortgages (1st and 2nd liens)		—		—			—			—		—
Home equity loans		—		—			—			—		—
Consumer loans		176		234			236			458		605
Other loans		—		—			—			—		—
Total recoveries	$	217	$	389		$	315		$	514	$	651
Net loans charged-off (recovered)		993		642			(134	)		3,243		(43	)
Reclass to Allowance for Contingent Liabilities (1)		—		(29	)		(390	)		—		—
Provision for loan losses		4,275		2,050			377			966		1,575
Allowance for loan losses, December 31,	$	12,333	$	9,051		$	7,672		$	7,551	$	9,828

(1) Prior year amounts not reclassified due to immateriality.

The following table summarizes the allowance for loan losses allocated by loan type: (dollars in thousands)

As of December 31,	2009		% of Total		2008		% of Total		2007		% of Total		2006		% of Total		2005		% of Total
Commercial, financial & agricultural loans	$	5,422	44.0	%	$	3,875	42.8	%	$	3,762	49.0	%	$	2,852	37.7	%	$	5,209	53.0	%
Commercial real estate mortgages		3,644	29.5	%		2,780	30.7	%		2,264	29.5	%		2,139	28.3	%		2,431	24.7	%
Real estate – construction loans		1,258	10.2	%		875	9.7	%		542	7.1	%		518	6.9	%		388	4.0	%
Residential mortgages (1st and 2nd liens)		821	6.7	%		538	5.9	%		239	3.1	%		190	2.5	%		162	1.7	%
Home equity loans		612	5.0	%		436	4.8	%		290	3.8	%		450	6.0	%		502	5.1	%
Consumer loans		471	3.8	%		384	4.2	%		334	4.4	%		272	3.6	%		434	4.4	%
Allocated to general pool		105	0.8	%		163	1.9	%		241	3.1	%		1,130	15.0	%		702	7.1	%
Allowance for loan losses	$	12,333	100	%	$	9,051	100	%	$	7,672	100	%	$	7,551	100	%	$	9,828	100	%

The following table presents information concerning loan balances and asset quality: (dollars in thousands)

Year ended December 31,	2009			2008			2007			2006			2005
Loans, net of discounts:
Average	$	1,107,294		$	1,021,476		$	904,887		$	892,588		$	854,158
At end of period		1,160,379			1,093,521			957,281			889,647			903,073
Non-performing assets/total loans, net of discounts (1)		2.53	%		0.45	%		0.17	%		0.10	%		0.49	%
Non-performing assets/total assets (1)		1.73			0.31			0.11			0.06			0.32
Ratio of net charge-offs (recoveries)/average net loans		0.09			0.06			(0.01	)		0.36			(0.01	)
Net charge-offs (recoveries)/net loans at December 31,		0.09			0.06			(0.01	)		0.36			(0.00	)
Allowance for loan losses/loans, net of discounts		1.06			0.83			0.80			0.85			1.09

(1) Non-performing assets include non-performing loans and other real estate owned (“OREO”). There was no OREO as of December 31, 2009.

Interest Expense

Interest expense in 2009 was $12,672,000, down from $22,237,000 the year before, which was down from $25,117,000 during 2007. Interest expense decreased in 2009 due to decreased rates paid for all interest-bearing liabilities. Most interest was paid for the deposits of individuals, businesses, and various governments and their agencies. The cost of funds of average interest-bearing deposits decreased from 2.06 percent during 2008 to 1.09 percent during 2009. Borrowings include federal funds purchased (short-term lending by other banks), securities sold under agreements to repurchase, and Federal Home Loan Bank borrowings. The Federal Reserve Bank discount window was available though not used during 2009. Borrowings averaged $131,986,000 during 2009, $206,878,000 during 2008, and $133,859,000 during 2007.

Deposits

Average interest-bearing deposits increased to $892,366,000 in 2009, up 13.4 percent from $787,068,000 in 2008. Saving, N.O.W., and money market deposits increased during 2009, averaging $563,513,000, up 20.6 percent from 2008 when they averaged $467,180,000. Average time certificates of less than $100,000 totaled $123,905,000, down 30.8 percent from $179,159,000 in 2008. Average time certificates of $100,000 or more totaled $204,948,000, up 45.6% from $140,729,000 during 2008. During 2008, the Bank entered into an agreement with Promontory Interfinancial Network, LLC, for the purpose of issuing certificates of deposit through their CDARS^® program. As of December 31, 2009, the Bank had issued $5,046,000 in brokered certificates of deposits, down from $6,061,000 as of December 31, 2008. A portion of the Bank’s demand deposits are reclassified as saving accounts on a daily basis. The sole 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

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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.

The following table classifies average deposits for each of the periods indicated: (in thousands)

	2009				2008				2007
	Average		Average Rate Paid		Average		Average Rate Paid		Average		Average Rate Paid
Demand deposits	$	478,886			$	430,610			$	425,553
Saving deposits		250,695	0.38	%		240,360	0.84	%		255,276	0.82	%
N.O.W. & money market deposits		312,818	0.85			226,820	1.90			162,196	1.70
Time certificates of $100,000 or more		204,948	1.73			140,729	2.89			109,157	4.67
Other time deposits		123,905	2.04			179,159	3.23			201,941	4.05
Total deposits	$	1,371,252			$	1,217,678			$	1,154,123

At December 31, 2009, the remaining maturities of time certificates of $100,000 or more were as follows: (in thousands)

3 months or less	$	166,946
Over 3 through 6 months		26,628
Over 6 through 12 months		14,846
Over 12 months		3,478
Total	$	211,898

Borrowings

Suffolk uses both short-term and long-term funding when it is advantageous to do so in comparison with the alternatives. This includes borrowings from the Federal Home Loan Bank, lines of credit for federal funds with correspondent banks, and repurchase agreements.

The following table summarizes borrowings: (dollars in thousands)

	Federal Home Loan Bank Borrowings						Repurchase Agreements						Federal Funds Purchased
	2009			2008			2009			2008			2009			2008
December 31, balance	$	150,800		$	187,200		$	—		$	37,620		$	—		$	—
Weighted-average interest rate on balances outstanding		1.62	%		2.32	%		—	%		2.45	%		—	%		—	%
Maximum amount outstanding at any month-end	$	196,000		$	219,400		$	37,620		$	54,820		$	1,400		$	15,000
Daily average outstanding	$	127,123		$	157,618		$	4,859		$	58,176		$	4		$	1,084
Average interest rate paid		2.24	%		2.94	%		2.48	%		2.87	%		0.50	%		3.01	%

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Other Income

Other income decreased to $11,118,000 during 2009, down 24.1 percent from $14,643,000 during 2008, which was up 38.2 percent from $10,595,000 during 2007. Service charges on deposit accounts decreased 3.9 percent from 2008 to 2009, and increased 2.7 percent from 2007 to 2008. Other service charges were up 8.5 percent and 2.2 percent for the same periods, respectively. Fiduciary fees in 2009 totaled $1,010,000, down 30.8 percent from 2008 when they amounted to $1,460,000, which was up 3.6 percent from 2007, at $1,409,000.

Included in other income at December 31, 2008, is net securities gains, $3,737,000, ($2,429,000, net of provision for income taxes) of which pertain to the proceeds realized from the sale of shares issued by Visa, Inc. in connection with its initial public offering. Suffolk’s subsidiary, SCNB, 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. Accordingly, Suffolk has recorded these shares at zero in the accompanying statement of condition.

Other Expense

During 2009, other expense was $48,800,000, up 14.3 percent from 2008 when it was $42,701,000, which was up 5.7 percent from $40,392,000 in 2007. Salaries and employee benefits increased 10.2 percent, and net occupancy expense grew by 9.4 percent. Other operating expense increased 6.8 percent and equipment expense also increased 6.8 percent.

In December 2009, Suffolk’s banking subsidiary, SCNB confirmed that an unauthorized intruder accessed certain customers’ log-in information via the computer server hosting SCNB’s Online Banking system. As a result, 8,378 Online Banking customers were affected, amounting to less than 10 percent of SCNB’s total customers. To date, SCNB has found no evidence of any unauthorized access to Online Banking accounts, nor received any reports of unusual activity or reports of financial loss to its customers. SCNB took a number of additional steps to minimize any possible effect of this incident on its customers. Among other things, it launched an aggressive investigation of the incident with assistance from outside experts in forensics; notified all customers affected via first-class mail; arranged for retail credit monitoring services for two years and for certain other business services for one year, at SCNB’s expense. A provision of $528,000 was recorded during the fourth quarter of 2009 against which possible charges for the investigation, customer compensatory services, legal and other professional fees, and any other expense in connection with the intrusion will be applied.

Deposits meeting certain regulatory criteria as to size held at SCNB are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Federal Deposit Insurance Reform Act of 2005 merged the Bank Insurance Fund with the Savings Association Insurance Fund to form the Deposit Insurance Fund (“DIF”). The FDIC maintains the DIF by assessing depository institutions an insurance premium. The amount each institution is assessed is based upon statutory factors that include the balance of insured deposits as well as the degree of risk the institution poses to the insurance fund. SCNB is participating in the FDIC’s Transaction Account Guarantee Program. Under that program, extended through June 30, 2010, all non-interest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account. Coverage under the Transaction Account Guarantee Program is in addition to and separate from the $250,000 coverage available under the FDIC’s general deposit insurance rules. The FDIC has raised insurance premiums to cover substantial losses incurred by the DIF due to recent bank failures of 2009 and 2008. The increased assessment is a result of the FDIC’s anticipation of greater demands on the DIF in the future in response to the current unrest in the banking industry. As a result, SCNB expects deposit insurance premiums to be higher for the foreseeable future than they have been in the recent past. FDIC assessments increased to $2,717,000 or 459.1 percent from 2008 when it was $486,000, which was up 232.9 percent from $146,000 in 2007. In prior years, the FDIC granted a one-time initial assessment credit to recognize an institution’s past contributions to the DIF. For SCNB, this credit totaled $970,000. Up to ninety (90) percent of the credit was applied to the annual assessment with the remainder carried forward to the next year. In 2008, approximately $340,000 of the remaining one-time initial assessment credit offset DIF premiums of $777,000. In June 2009, SCNB paid a special assessment charged by the FDIC in the amount of $770,000. On November 12, 2009, the FDIC adopted a final rule imposing a 13-quarter prepayment of FDIC premiums. Suffolk’s prepayment amount totaled $7,158,000 and was paid in December 2009. This was an estimated prepayment for the fourth quarter of 2009 through the fourth quarter of 2012. The prepayment amount will be used to offset future FDIC premiums beginning in March 2010.

The provision for income taxes decreased from $11,423,000, for an effective income tax rate of 31.6 percent in 2008, to $9,830,000, for an effective income tax rate of 30.4 percent in 2009, primarily as a result of increased investments in municipal securities. Bank tax provisions of New York State Article 32 allow banking corporations to exclude from income 60 percent of the dividends it has received from subsidiaries such as a real estate investment trust (REIT). On various occasions over the course of a number of years, the tax commissioner of New York State has proposed the elimination of this provision, raising the question for New York State banking corporations as to whether this exclusion would remain in effect. Going forward, the Company may not realize the benefits of the exclusion from income of 60 percent of the dividends received from the REIT, resulting in a higher effective state income tax rate.

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Asset/Liability Management & Liquidity

The Asset/Liability Management Committee (“ALCO”) reviews Suffolk’s financial performance and compares it to the asset/liability management policy. The committee includes four outside directors, executive management, the senior lenders, the comptroller, and the head of risk management. It uses computer simulations to quantify interest rate risk and to project liquidity. The simulations also help the committee to develop contingent strategies to increase net interest income. The committee always assesses the impact of any change in strategy on Suffolk’s ability to make loans and repay deposits. Only strategies and policies that meet regulatory guidelines and that are appropriate under the economic and competitive circumstances are considered by the committee. Suffolk has not used forward contracts or interest rate swaps to manage interest rate risk.

Suffolk and its subsidiary manage liquidity to ensure that it has funds available, at a reasonable cost, to disburse funds as it becomes necessary, both in the ordinary course of business, and under extraordinary circumstances. These disbursements are made primarily to: depositors making withdrawals from their accounts; other banks when repaying borrowed funds; borrowers from the bank when funding loans to which the bank had previously made commitments; purchase investments; respond to unanticipated declines in deposits; take advantage of unanticipated opportunities to lend or invest which may help Suffolk to grow; and fund operations.

At the parent, Suffolk Bancorp, sources of liquidity included cash and cash equivalents of $2.7 million as of December 31, 2009, a line of credit, and dividends from the Bank. Cash available for distribution of dividends to shareholders of Suffolk is derived primarily from dividends paid by the Bank to Suffolk. Regulatory restrictions limit the amount of dividends that may be paid by the Bank (see Capital Resources). Dividends from the Bank to Suffolk at December 31, 2009, were limited to $38 million, which represented the Bank’s net income for 2009 as well as its retained earnings for the previous two years, less dividends paid. Prior approval from regulators is required if the total of all dividends declared by the Bank in any calendar year exceeds this amount. In the event that Suffolk expands its current operations, in addition to dividends from the Bank, it will need to rely on its own earnings, additional capital raised, and other borrowings to meet its need for liquidity. Suffolk currently has a secured line of credit in the amount of $6 million against which no funds have been drawn.

The Bank’s most liquid assets are cash and cash equivalents, securities available for sale, and securities held to maturity due within one year. The amounts of these assets are dependent upon the Bank’s operating, financing, lending, and investing activities during any given period. Other sources of liquidity include principal repayments and maturities of loans and investment securities, lines of credit with other financial institutions including the Federal Home Loan Bank, growth in core deposits, and sources of wholesale funding such as brokered certificates of deposit and eligibility for lines at the Federal Reserve Bank. Scheduled loan amortization, maturing securities, and short-term investments are relatively predictable sources of funds, whereas deposit flows and prepayments of loans and mortgage-backed securities are influenced by general interest rates, economic conditions, and competition, and may vary accordingly. The Bank adjusts its liquidity to fund such things as seasonal deposit outflows and loans, and to pursue asset and liability management objectives using a marginal cost of funds approach, seeking to find the lowest cost of funding possible for each additional dollar. The Bank relies primarily on its deposits, obtained through 29 full-service branches that serve its market area, as well as local municipal deposits. The Bank’s primary service area is Suffolk County, New York, where it holds approximately 4.07% of deposits in that market.

During 2009, the Bank’s core deposits increased, in demand, saving, N.O.W., and money market accounts, and in time deposits in excess of $100,000. Other time deposits decreased. The Bank borrows from the Federal Home Loan Bank as advance rates are generally lower than local rates for other time deposits offered by competitors. The Bank’s Asset/Liability and Funds Management Policy allows for wholesale borrowings of up to 25% of total assets. On December 31, 2009, the Bank had access to total lines of credit in the amount of $31 million which provide for short-term credit for liquidity. Of this total, $20 million was available on an unsecured basis. As of December 31, 2009, none of these lines had been drawn upon. The Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”) and may borrow using as collateral unencumbered investment securities and residential and commercial mortgages owned by the Bank. As of December 31, 2009, the Bank had pledged collateral giving it the capacity to borrow approximately $210.1 million from FHLBNY. As of December 31, 2009, the amount of overnight borrowings under these lines was $60.8 million. Additionally, the Bank had $90.0 million in term borrowings from the FHLBNY. There were no securities sold under agreements to repurchase from an unaffiliated primary broker as of December 31, 2009. In addition, during 2008, the Bank entered into an agreement for the purpose of issuing brokered certificates of deposit. As of December  31, 2009, the Bank had $5.0 million in brokered deposits.

Interest Rate Sensitivity

Interest rate “sensitivity” is determined by the date when each asset and liability in Suffolk’s portfolio can be repriced. Sensitivity increases when interest-earning assets and interest-bearing liabilities cannot be repriced at the same time. While this analysis presents the volume of assets and liabilities repricing in each period of time, it does not consider how quickly various assets and liabilities might actually be repriced in response to changes in interest rates. Management reviews its interest rate sensitivity regularly and adjusts its asset/liability management strategy accordingly. Because the interest rates of assets and liabilities vary according to their maturity, management may selectively mismatch the repricing of assets and liabilities to take advantage of temporary or projected differences between short- and long-term interest rates.

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The following table reflects the sensitivity of Suffolk’s assets and liabilities at December 31, 2009: (dollars in thousands)

Maturity	Less than 3 Months			3 to 6 Months			7 to 12 Months			More Than 1 Year			Not Rate Sensitive			Total
Interest-earning assets
Domestic loans (1) (net of unearned discount)	$	473,055		$	64,029		$	100,600		$	507,199		$	15,496		$	1,160,379
Federal Reserve Bank & Federal Home Loan Bank stock (2)		8,346			—			—			652			—			8,998
Investment securities (3)		7,954			11,006			41,505			385,878			—			446,343
Total interest-earning assets	$	489,355		$	75,035		$	142,105		$	893,729		$	15,496		$	1,615,720
Demand deposits and interest-bearing liabilities
Demand deposits (4)	$	24,382		$	24,382		$	48,765		$	390,118		$	—		$	487,647
N.O.W. & money market accounts (5)		230,211			4,986			9,973			79,781			—			324,951
Borrowings		110,800			—			—			40,000			—			150,800
Interest-bearing deposits (6)		211,561			38,051			25,332			297,735			—			572,679
Total demand deposits & interest-bearing liabilities	$	576,954		$	67,419		$	84,070		$	807,634		$	—		$	1,536,077
Gap	$	(87,600	)	$	7,615		$	58,035		$	86,095		$	15,496		$	79,643
Cumulative difference between interest-earning assets and interest-bearing liabilities	$	(87,600	)	$	(79,985	)	$	(21,950	)	$	64,145		$	79,641
Cumulative difference/total assets		(5.17	%)		(4.72	%)		(1.30	%)		3.79	%		4.70	%

Footnotes to Interest Rate Sensitivity

(1) Based on contractual maturity and instrument repricing date, if applicable; projected prepayments and prepayments of principal based on experience.

(2) FRB and FHLB stock is not considered rate-sensitive.

(3) Based on contractual maturity, and projected prepayments based on experience.

(4) Based on experience of historical stable core deposit relationships.

(5) N.O.W. and money market accounts are assumed to decline over a period of five years.

(6) Fixed-rate deposits and deposits with fixed pricing intervals are reflected as maturing in the period of contractual maturity. Saving accounts are assumed to decline over a period of five years.

At December 31, 2009, interest-bearing liabilities with maturities of less than one year exceed interest-earning assets of similar maturity. This cumulative gap might result in decreased net interest income if interest rates increase or remain stable during the next 12 months. If interest rates decline, net interest income might increase. However, interest-earning assets with maturities of greater than one year exceed interest-bearing liabilities of similar maturity. This cumulative gap might result in increased net interest income if interest rates increase beyond 12 months. If interest rates decline or remain stable, net interest income might decrease.

Interest Rate Risk

Interest rate risk is the sensitivity of earnings to changes in interest rates. As interest rates change, interest income and expense also change, thereby changing net interest income (“NII”). NII is the primary component of Suffolk’s earnings. ALCO uses a detailed and dynamic model to quantify the effect of sustained changes in interest rates on NII. While ALCO routinely monitors simulated NII sensitivity two years into the future, it uses other tools to monitor longer term interest rate risk.

The model measures the effect in the future of changing interest rates on both interest income and expense for all assets and liabilities, as well as for derivative financial instruments that do not appear on the balance sheet. The results are compared to ALCO policy limits that specify a maximum effect on NII one year in the future, assuming no growth in assets or liabilities, or a 200 basis point (“bp”) change in interest rates upward and 100 bp downward. The downward scenario was computed at 100 bp because of historically low interest rates as of the date of computation.

Following is Suffolk’s NII sensitivity as of December 31, 2009. Suffolk’s Board has approved a policy limit of 12.5 percent.

Rate Change	Estimated NII Sensitivity to December 31, 2009
+200 basis point rate shock	(2.00	)%
-100 basis point rate shock	(0.20	)%

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These estimates should not be interpreted as Suffolk’s forecast, and should not be considered as indicative of management’s expectations for operating results. They are hypothetical estimates that are based on many assumptions including: the nature and time of changes in interest rates, the shape of the “yield curve” (variations in interest rates for financial instruments of varying maturity at a given moment in time), prepayments on loans and securities, deposit outflows, pricing on loans and deposits, and the reinvestment of cash flows from assets and liabilities, among other things. While these assumptions are based on management’s best estimate of current economic conditions, Suffolk cannot give any assurance that they will actually predict results, nor can they anticipate how the behavior of customers and competitors may change in the future.

Factors that may affect actual results include: prepayment and refinancing of loans other than as assumed, interest rate change caps and floors, repricing intervals on adjustable rate instruments, changes in debt service on adjustable rate loans, and early withdrawal of deposits. Actual results may also be affected by actions ALCO takes in response to changes in interest rates, actual or anticipated.

When appropriate, ALCO may use off-balance-sheet instruments such as interest rate floors, caps, and swaps to hedge its position with regard to interest rate risk. The Board of Directors has approved a hedging policy statement that governs the use of such instruments. As of December 31, 2009, there were no derivative financial instruments outstanding.

The following table illustrates the contractual sensitivity to changes in interest rates of the Company’s total loans, net of discounts, not including overdrafts and loans not accruing interest, together totaling $33,194,000 at December 31, 2009: (in thousands)

Interest rate provision	Due Within 1 Year		After 1 but Before 5 Years		After 5 Years		Total
Predetermined rates	$	147,226	$	182,481	$	39,818	$	369,525
Floating or adjustable rates		490,458		247,526		19,676		757,660
Total	$	637,684	$	430,007	$	59,494	$	1,127,185

The following table illustrates the contractual sensitivity to changes in interest rates on the Company’s commercial, financial, agricultural, and real estate construction loans not including non-accrual loans totaling approximating $7,854,000 at December 31, 2009: (in thousands)

	Due Within 1 Year		After 1 but Before 5 Years		After 5 Years		Total
Commercial, financial & agricultural
Predetermined rates	$	33,539	$	50,230	$	4,142	$	87,911
Floating or adjustable rates		147,190		17,309		—		164,499
	$	180,729	$	67,539	$	4,142	$	252,410
Real estate construction
Predetermined rates		—		—		—		—
Floating or adjustable rates		132,732		—		—		132,732
	$	132,732	$	—	$	—	$	132,732
Total	$	313,461	$	67,539	$	4,142	$	385,142

Market Risk

Market risk is the risk that a financial instrument will lose value as the result of adverse changes in market prices, interest rates, foreign currency exchange rates, commodity prices, or the prices of equity securities. Suffolk’s primary exposure to market risk is to changing interest rates.

Monitoring and managing this risk is an important part of Suffolk’s asset/liability management process. It is governed by policies established by its Board of Directors. These policies are reviewed and approved annually. The Board delegates responsibility for asset/liability management to ALCO. ALCO then develops guidelines and strategies to implement the policy.

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Contractual and Off-Balance-Sheet Obligations

Following is a table describing certain liabilities not included in Suffolk’s consolidated statement of condition as well as borrowings and time deposits in the period in which they are due: (in thousands of dollars)

Contractual obligations	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Federal Home Loan Bank borrowings & repurchase agreements	$	150,800	$	110,800	$	40,000	$	—	$	—
Time deposits		319,079		274,942		32,012		12,125		—
Operating lease obligations		10,244		1,527		3,018		2,700		2,999
Purchase obligations		4,571		1,766		1,321		605		879
Performance and financial letters of credit		30,769		28,297		2,392		80		—
Total	$	515,463	$	417,332	$	78,743	$	15,510	$	3,878

Amounts listed as purchase obligations include agreements to purchase services for Suffolk’s core banking system. Operating lease obligations do not reflect a new office scheduled to open during 2010.

Suffolk has not used, and has no intention to use, any significant off-balance-sheet financing arrangements for liquidity purposes. Its primary financial instruments with off-balance-sheet risk are limited to loan servicing for others and obligations to fund loans to customers pursuant to existing commitments.

Capital Resources

Primary capital, including stockholders’ equity, not including the net unrealized gain (loss) on securities available for sale, net of tax, the comprehensive loss on the unfunded projected benefit obligation of the pension plan, and the allowance for loan losses, amounted to $151,211,000 at year-end 2009, compared to $132,882,000 at year-end 2008 and $115,810,000 at year-end 2007.

The following table presents Suffolk’s capital ratio and other related ratios for each of the past five years: (dollars in thousands)

	2009 (1)			2008 (1)			2007 (1)			2006 (1)			2005 (1)
Primary capital at year-end	$	151,211		$	132,882		$	115,810		$	120,187		$	114,107
Primary capital at year-end as a percentage of year-end:
Total assets plus allowance for loan losses		8.86	%		8.35	%		7.83	%		8.58	%		8.05	%
Loans, net of unearned discounts		13.03	%		12.15	%		12.08	%		13.48	%		12.61	%
Total deposits		10.92	%		10.92	%		10.13	%		10.55	%		9.85	%

(1) Capital ratios do not include the effect of accumulated other comprehensive income pertaining to securities available for sale, and other comprehensive loss on the unfunded projected benefit obligation of the pension plan.

The Board has adopted a policy whereby management will maximize both return on average equity and earnings-per-share, and therefore shareholder value, while maintaining the regulatory standard of “well capitalized.” That standard is currently 10 percent Total Risk-Based Capital, 6 percent Tier 1 Capital, and 5 percent Leverage Capital. However, increases in these ratios are currently under public discussion, and are expected to be implemented in the foreseeable future. Accordingly, capital will be allowed to increase to accommodate the standards now anticipated, as well as what an internal analysis indicates is necessary to allow Suffolk to operate with acceptable risk. When capital exceeds that standard meaningfully over what is expected to be required to maintain that standard during the current quarter, shares may be repurchased as they become available at prices that remain accretive to earnings-per-share in transactions under SEC rule 10-b 18 and in private purchases. When capital expected to be required during the current quarter does not exceed the standard, repurchases will not be made. Further, the dividend reinvestment program will automatically follow the same standard, purchasing shares in the market when Suffolk is in the market to repurchase shares, and issuing from the reserve when it is not. There were no repurchases during 2009.

Suffolk measures how effectively it uses capital by two widely accepted performance ratios: return on average assets and return on average equity. The return in 2009 on average assets was 1.36 percent and on average common equity was 18.30 percent, compared to 2008 returns of 1.59 percent and 21.79 percent, respectively.

All dividends must conform to applicable statutory requirements. Suffolk Bancorp’s ability to pay dividends depends on Suffolk County National Bank’s ability to pay dividends. Under 12 USC 56-9, a national bank may not pay a dividend on its common stock if the dividend would exceed net undivided profits then on hand. Further, under 12 USC 60, a national bank must obtain prior approval from the Office of the Comptroller of the Currency to pay dividends on either common or preferred stock that would exceed the bank’s net profits for the current year combined with retained net profits (net profits minus dividends paid during that period) of the prior two years. The amount the Bank currently has available to pay dividends is approximately $37,979,000.

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During the fourth quarter of 2008, the United States Treasury Department announced the Capital Purchase Program (“CPP”) of the Troubled Asset Relief Program (“TARP”). Under the program, banks were provided the opportunity to obtain additional capital in the form of senior preferred stock bearing an interest rate of 5% for five years and 9% thereafter and not callable for three years except in consideration of the issuance of other Tier 1 capital, along with certain warrants to purchase common stock. Suffolk analyzed it carefully and at length, and in light of satisfactory current capital and net income, neither applied for nor accepted funds from the program.

Risk-Based Capital and Leverage Guidelines

The Federal Reserve Bank’s risk-based capital guidelines call for bank holding companies to require minimum ratios of capital to risk-weighted assets, which include certain off-balance-sheet activities, such as standby letters of credit. The guidelines define capital as being “core,” or “Tier 1” capital, which includes common stockholders’ equity; a limited amount of perpetual preferred stock; minority interest in unconsolidated subsidiaries, less goodwill; or “supplementary” or “Tier 2” capital, which includes subordinated debt, redeemable preferred stock, and a limited amount of the allowance for loan losses. All bank holding companies must meet a minimum ratio of total qualifying capital to risk-weighted assets of 8.00 percent, of which at least 4.00 percent should be in the form of Tier 1 capital. At December 31, 2009 Suffolk’s ratios of core capital and total qualifying capital (core capital plus Tier 2 capital) to risk-weighted assets were 10.74 percent and 11.73 percent, respectively.

Discussion of New Accounting Pronouncements

The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) became effective for financial statements issued for interim and annual periods ending after September 15, 2009. The ASC or “codification” became FASB’s officially recognized source of authoritative accounting principles generally accepted in the United States (“U.S. GAAP”), applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All other accounting literature is considered non-authoritative. Suffolk has adopted the provisions of the codification which did not have a material impact on its consolidated financial statements. All references to accounting standards in this 10-K now refer to the relevant ASC Topic.

In October 2008, the FASB issued an update to the authoritative accounting guidance under ASC 820, “Fair Value Measurements and Disclosures.” This update describes a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The update permits, in determining fair value for a financial asset in a dislocated market, the use of a reporting entity’s own assumptions about future cash flows and appropriately risk-adjusted discount rates is acceptable when relevant observable inputs are not available. This update was effective upon issuance, including prior periods for which financial statements have not been issued.

In December 2008, the FASB issued FASB Staff Position (“FSP”) Financial Accounting Standard (“FAS”) 132R-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets,” which is codified in ASC 715, “Compensation – Retirement Benefits,” to require employers to provide expanded disclosures for the assets of postretirement benefit plans, including defined benefit pension plans. ASC 715 clarifies that the objectives of the disclosures about plan assets in an employer’s defined benefit pension or other postretirement plan are to provide users of financial statements with an understanding of: (1) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies; (2) the categories of plan assets; (3) the inputs and valuation techniques used to measure the fair value of plan assets; (4) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (5) significant concentrations of risk within plan assets. ASC 715 also expands the disclosures related to these objectives. The disclosures about plan assets required by this update are effective for fiscal years ending after December 15, 2009 (December 31, 2009 for a calendar-year entity). Suffolk has adopted the provisions ASC 715, which have been recorded in the accompanying consolidated statements of condition and related disclosures.

In May 2009, the FASB issued ASC 855, “Subsequent Events,” to incorporate the accounting and disclosure requirements for subsequent events into U.S. GAAP. ASC 855 introduces new terminology, defines a date through which management must evaluate subsequent events, and lists the circumstances under which an entity must recognize and disclose events or transactions occurring after the statement of condition date. Suffolk adopted ASC 855 as of June 30, 2009, which was the required effective date. Suffolk evaluated its financial statements as of December 31, 2009 for subsequent events through March 12, 2010, the date the financial statements were available to be issued. Suffolk is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

Critical Accounting Policies, Judgments, and Estimates

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

21

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 allowance for loan losses is calculated to maintain a reserve believed by management to be sufficient to absorb estimated credit losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. This evaluation is inherently subjective as it requires material estimates, including, among others, the expected probability of default; the amount of loss in the event of default; the expected usage of loan commitments; the amounts and timing of cash flows expected in the future from impaired loans and mortgages; and an additional factor for potential loan losses based on historical experience. Management also considers economic conditions, uncertainties in estimating losses, and inherent risks in the loan portfolio. All of these factors may change significantly in the future. To the extent that actual results differ from management’s estimates, additional provisions for loan losses may be required that could reduce earnings in future periods.

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.

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.

Business Risks and Uncertainties

This annual 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; and 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 operations. Each of these 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.

Management’s Report on Internal Control over Financial Reporting

The management of Suffolk Bancorp is responsible for establishing and maintaining adequate internal control over financial reporting. Suffolk Bancorp’s internal control system was designed to provide reasonable assurance to the company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Suffolk Bancorp management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2009. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control – Integrated Framework. Based on our assessment and those criteria we have determined that, as of December 31, 2009, the company’s internal control over financial reporting is effective.

Suffolk Bancorp’s independent registered public accounting firm has issued its report on our assessment of the company’s internal control over financial reporting. This report appears on page 46.

22

CONSOLIDATED STATEMENTS OF CONDITION

	December 31,
	2009			2008
ASSETS
Cash and Due from Banks	$	37,006,618		$	41,512,480
Federal Reserve Bank Stock		651,749			637,849
Federal Home Loan Bank Stock		8,345,600			9,821,100
Investment Securities:
Available for Sale, at Fair Value		437,000,346			382,357,190
Held to Maturity (Fair Value of $10,096,295 and $12,515,008, respectively)
Obligations of States and Political Subdivisions		9,243,309			11,830,259
Other Securities		100,000			100,000
Total Investment Securities		446,343,655			394,287,449
Total Loans		1,160,409,574			1,093,554,189
Less: Unearned Discounts		30,685			32,906
Allowance for Loan Losses		12,332,699			9,050,798
Net Loans		1,148,046,190			1,084,470,485
Premises and Equipment, Net		23,345,587			22,739,566
Accrued Interest Receivable		7,223,398			7,042,075
Goodwill		814,445			814,445
Other Assets		22,719,091			21,493,233
TOTAL ASSETS	$	1,694,496,333		$	1,582,818,682
LIABILITIES & STOCKHOLDERS’ EQUITY
Demand Deposits	$	487,648,382		$	439,380,062
Saving, N.O.W., and Money Market Deposits		578,551,138			482,204,209
Time Certificates of $100,000 or more		211,897,572			180,362,329
Other Time Deposits		107,181,377			114,490,893
Total Deposits		1,385,278,469			1,216,437,493
Repurchase Agreements		—			37,620,000
Federal Home Loan Bank Borrowings		150,800,000			187,200,000
Dividend Payable on Common Stock		2,115,409			2,108,194
Accrued Interest Payable		828,841			2,243,864
Other Liabilities		18,302,658			24,808,197
TOTAL LIABILITIES		1,557,325,377			1,470,417,748
Commitments and Contingent Liabilities (see Note 11)
STOCKHOLDERS’ EQUITY
Common Stock (par value $2.50; 15,000,000 shares authorized, 9,615,494 and 9,582,699 shares outstanding at December 31, 2009 & 2008, respectively)		34,030,931			33,945,901
Surplus		21,685,892			20,782,214
Retained Earnings		93,153,680			79,092,185
Treasury Stock at Par (3,996,878 shares and 3,995,661 shares, respectively)		(9,992,203	)		(9,989,160	)
Accumulated Other Comprehensive Loss, Net of Tax		(1,707,344	)		(11,430,206	)
TOTAL STOCKHOLDERS’ EQUITY		137,170,956			112,400,934
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	1,694,496,333		$	1,582,818,682

See accompanying notes to consolidated financial statements.

23

CONSOLIDATED STATEMENTS OF INCOME

	For the Years ended December 31,
	2009		2008		2007
INTEREST INCOME
Interest on Due from Banks	$	50,963	$	—	$	—
Federal Funds Sold		26		313,945		140,488
United States Treasury Securities		364,012		398,540		397,637
Obligations of States and Political Subdivisions (tax exempt)		6,579,717		5,766,450		4,914,370
Obligations of States and Political Subdivisions (taxable)		507,237		537,007		509,259
Mortgage-Backed Securities		7,545,964		7,926,441		7,672,224
U.S. Government Agency Obligations		2,056,782		3,663,307		4,575,522
Corporate Bonds and Other Securities		433,739		482,088		423,401
Loans and Loan Fees		69,469,158		69,369,546		70,448,470
Total Interest Income		87,007,598		88,457,324		89,081,371
INTEREST EXPENSE
Saving, N.O.W., and Money Market Deposits		3,629,586		6,333,647		4,838,463
Time Certificates of $100,000 or more		3,537,129		5,344,507		5,093,827
Other Time Deposits		2,530,579		4,507,324		8,180,878
Federal Funds Purchased and Repurchase Agreements		120,351		1,416,534		2,876,088
Interest on Other Borrowings		2,853,885		4,635,183		4,127,929
Total Interest Expense		12,671,530		22,237,195		25,117,185
Net Interest Income		74,336,068		66,220,129		63,964,186
Provision for Loan Losses		4,275,000		2,050,000		376,718
Net Interest Income After Provision for Loan Losses		70,061,068		64,170,129		63,587,468
OTHER INCOME
Service Charges on Deposit Accounts		5,341,588		5,557,936		5,411,969
Other Service Charges, Commissions & Fees		3,305,532		3,046,089		2,980,797
Fiduciary Fees		1,010,147		1,459,849		1,408,759
Other Operating Income		1,460,688		837,724		793,289
Net Gain on Sale of Securities Available for Sale		—		3,741,001		—
Total Other Income		11,117,955		14,642,599		10,594,814
OTHER EXPENSE
Salaries & Employee Benefits		28,266,579		25,645,919		24,407,513
Net Occupancy Expense		5,087,658		4,649,140		4,069,312
Equipment Expense		2,291,104		2,145,770		2,207,888
Outside Services		2,865,150		2,274,632		2,354,862
FDIC Assessments		2,716,985		486,304		145,992
Other Operating Expense		7,572,719		7,499,147		7,206,704
Total Other Expense		48,800,195		42,700,912		40,392,271
Income Before Provision for Income Taxes		32,378,828		36,111,816		33,790,011
Provision for Income Taxes		9,830,387		11,423,381		11,662,386
NET INCOME	$	22,548,441	$	24,688,435	$	22,127,625
Average:Common Shares Outstanding		9,602,802		9,580,025		9,895,301
Dilutive Stock Options		18,175		21,970		20,642
Average Total Common Shares and Dilutive Options		9,620,977		9,601,995		9,915,943
EARNINGS PER COMMON SHARE
Basic	$	2.35	$	2.58	$	2.24
Diluted	$	2.34	$	2.57	$	2.23

See accompanying notes to consolidated financial statements.

24

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

	Common Stock		Surplus		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss) Net of Tax			Total			Comprehensive Income
Balance,
December 31, 2006	$	33,910,979	$	19,931,465	$	67,099,115		$	(8,305,255	)	$	(4,069,957	)	$	108,566,347
Cumulative Effect of Adoption of FIN 48		—		—		2,012,657			—			—			2,012,657
Balance,
January 1, 2007 as revised	$	33,910,979	$	19,931,465	$	69,111,772		$	(8,305,255	)	$	(4,069,957	)	$	110,579,004
Net Income		—		—		22,127,625			—			—			22,127,625		$	22,127,625
Dividend - Cash		—		—		(8,651,816	)		—			—			(8,651,816	)
Purchase of Treasury Stock		—		—		(18,648,400	)		(1,578,905	)		—			(20,227,305	)
Stock Option Expense		—		240,420		—			—			—			240,420
Net Change in Unrealized Gain on Securities Available for Sale		—		—		—			—			3,011,237			3,011,237			3,011,237
Other Comprehensive Gain on Pension Projected Benefit Obligation		—		—		—			—			1,902,206			1,902,206			1,902,206
Comprehensive Income																	$	27,041,068
Balance,
December 31, 2007	$	33,910,979	$	20,171,885	$	63,939,181		$	(9,884,160	)	$	843,486		$	108,981,371
Remeasurement of Postretirement Obligation Under FAS 158						157,137									157,137
Remeasurement of Pension Obligation Under FAS 158						(118,515	)								(118,515	)
Balance,
January 1, 2008 as revised	$	33,910,979	$	20,171,885	$	63,977,803		$	(9,884,160	)	$	843,486		$	109,019,993
Net Income		—		—		24,688,435			—			—			24,688,435		$	24,688,435
Dividend - Cash		—		—		(8,425,893	)		—			—			(8,425,893	)
Purchase of Treasury Stock		—		—		(1,148,160	)		(105,000	)		—			(1,253,160	)
Stock Option Expense		—		181,894		—			—			—			181,894
Stock Dividend Reinvestment		34,922		428,435		—			—			—			463,357
Net Change in Unrealized Gain on Securities Available for Sale		—		—		—			—			(3,603,284	)		(3,603,284	)		(3,603,284	)
Other Comprehensive Loss on Pension Projected Benefit Obligation		—		—		—			—			(8,670,408	)		(8,670,408	)		(8,670,408	)
Comprehensive Income																	$	12,414,743
Balance,
December 31, 2008	$	33,945,901	$	20,782,214	$	79,092,185		$	(9,989,160	)	$	(11,430,206	)	$	112,400,934
Net Income		—		—		22,548,441			—			—			22,548,441		$	22,548,441
Dividend - Cash		—		—		(8,450,631	)		—			—			(8,450,631	)
Stock Option Expense		—		140,025		—			—			—			140,025
Stock Appreciation Rights and Stock Options Exercised		7,500		31,875		(36,315	)		(3,043	)		—			17
Stock Dividend Reinvestment, net		77,530		731,778		—			—			—			809,308
Net Change in Unrealized Gain on Securities Available for Sale		—		—		—			—			7,306,656			7,306,656			7,306,656
Other Comprehensive Gain on Pension and Postretirement Plan Projected Benefit Obligation		—		—		—			—			2,416,206			2,416,206			2,416,206
Comprehensive Income																	$	32,271,303
Balance,
December 31, 2009	$	34,030,931	$	21,685,892	$	93,153,680		$	(9,992,203	)	$	(1,707,344	)	$	137,170,956

See accompanying notes to consolidated financial statements.

25

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years ended December 31,
	2009			2008			2007
NET INCOME	$	22,548,441		$	24,688,435		$	22,127,625
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Provision for Loan Losses		4,275,000			2,050,000			376,718
Depreciation and Amortization		2,555,327			2,468,657			2,312,684
Stock-Based Compensation		140,025			181,894			240,420
Accretion of Discounts		(233,905	)		(317,089	)		(136,959	)
Amortization of Premiums		1,683,904			896,089			768,006
(Increase) Decrease in Accrued Interest Receivable		(181,322	)		317,272			249,655
(Increase) Decrease in Other Assets		(10,530,874	)		730,749			(4,283,583	)
Decrease in Accrued Interest Payable		(1,415,023	)		(3,506	)		(1,125,623	)
(Decrease) Increase in Income Taxes Payable		(17,057	)		682,182			(4,632,729	)
Increase in Other Liabilities		16,334			1,701,208			3,572,497
Net Gain on Sale of Securities		—			(3,741,001	)		—
Net Cash Provided by Operating Activities		18,840,850			29,654,890			19,468,711
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities		33,258,275			35,381,854			28,170,242
Proceeds from Sale of Investment Securities; Available for Sale		—			3,741,001			—
Maturities of Investment Securities; Available for Sale		112,500,000			47,200,000			20,000,000
Purchases of Investment Securities; Available for Sale		(189,541,442	)		(78,808,947	)		(33,249,252	)
Maturities of Investment Securities; Held to Maturity		11,421,300			2,326,400			2,919,000
Purchases of Investment Securities; Held to Maturity		(7,379,900	)		(7,104,068	)		(5,430,981	)
Loan Disbursements and Repayments, Net		(67,630,480	)		(137,481,135	)		(67,608,733	)
Purchases of Premises and Equipment, Net		(3,161,348	)		(3,064,990	)		(1,984,843	)
Net Cash Used in Investing Activities		(110,533,595	)		(137,809,885	)		(57,184,567	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposit Accounts		168,840,975			73,062,630			4,299,875
Short-Term Borrowings and Repayments, Net		(74,020,000	)		26,500,000			78,185,000
Dividends Paid to Shareholders		(8,443,417	)		(8,438,689	)		(8,784,131	)
Stock Dividend Reinvestment, Net		809,308			463,357			—
Stock Options and Stock Appreciation Rights Exercised		17			—			—
Treasury Shares Acquired		—			(1,253,160	)		(20,227,305	)
Net Cash Provided by Financing Activities		87,186,883			90,334,138			53,473,439
Net (Decrease) Increase in Cash and Cash Equivalents		(4,505,862	)		(17,820,857	)		15,757,583
Cash and Cash Equivalents Beginning of Year		41,512,480			59,333,337			43,575,754
Cash and Cash Equivalents End of Year	$	37,006,618		$	41,512,480		$	59,333,337
Supplemental Disclosure of Cash Flow Information
Cash Received During the Year for Interest	$	86,826,276		$	88,774,596		$	89,331,026
Cash Paid During the Year for:
Interest	$	14,086,553		$	22,240,700		$	26,242,808
Income Taxes		11,537,211			12,638,659			14,767,686
Total Cash Paid During Year for Interest & Income Taxes	$	25,623,764		$	34,879,359		$	41,010,494
Non-Cash Investing and Financing:
(Increase) Decrease in Market Value of Investments		(12,302,841	)		6,085,776			(5,103,793	)
(Decrease) Increase in Deferred Tax Asset Related to Market Value of Investments Available for Sale		(4,996,184	)		2,482,492			(2,092,555	)
Dividends Declared But Not Paid		2,115,409			2,108,194			2,120,989
Stock Options and Stock Appreciation Rights Exercised for Stock		39,375			—			—

See accompanying notes to consolidated financial statements.

26

Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies

The accounting and reporting policies of Suffolk Bancorp (Suffolk) and its subsidiary conform to accounting principles generally accepted in the United States of America (U.S. GAAP) and general practices within the banking industry. The following footnotes describe the most significant of these policies.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported assets and liabilities as of the date of the consolidated statements of condition. The same is true of revenues and expenses reported for the period. Actual results could differ significantly from those estimates.

The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) became effective for financial statements issued for interim and annual periods ending after September 15, 2009. The ASC or “codification” became FASB’s officially recognized source of authoritative U.S. GAAP applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. All references to accounting standards in these financial statements now refer to the relevant ASC Topic.

(A) Consolidation — The consolidated financial statements include the accounts of Suffolk and its wholly owned subsidiary, Suffolk County National Bank (the “Bank”). In 1998, the Bank formed a Real Estate Investment Trust named Suffolk Greenway, Inc. In 2004, the Bank formed an insurance agency named SCNB Financial Services, Inc. All inter-company transactions have been eliminated in consolidation.

(B) Investment Securities — Suffolk reports debt securities and mortgage-backed securities in one of the following categories: (i) “held to maturity” (management has the intent and ability to hold to maturity), which are to be reported at amortized cost; (ii) “trading” (held for current resale), which are to be reported at fair value, with unrealized gains and losses included in earnings; and (iii) “available for sale” (all other debt securities and mortgage-backed securities), which are to be reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity. Accordingly, Suffolk classified all of its holdings of debt securities and mortgage-backed securities as either “held to maturity” or “available for sale.” At the time a security is purchased, a determination is made as to the appropriate classification.

Premiums and discounts on debt and mortgage-backed securities are amortized as expense and accreted as income over the estimated life of the respective security using a method that approximates the level-yield method. Gains and losses on the sales of investment securities are recognized upon realization, using the specific identification method and shown separately in the consolidated statements of income.

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.

(C) Loans and Loan Interest Income Recognition — Loans are stated at the principal amount outstanding. Interest on loans not made on a discounted basis is credited to income, based upon the principal amount outstanding during the period. Unearned discounts on installment loans are credited to income using methods that result in a level yield. Recognition of interest income is discontinued when reasonable doubt exists as to whether interest due can be collected. Loans generally no longer accrue interest when 90 days past due. When a loan is placed on non-accrual status, all interest previously accrued in the current year, but not collected, is reversed against current-year interest income. Any interest accrued in prior years is charged against the allowance for loan losses. Loans start accruing interest again when they become current as to principal and interest, and when, in the opinion of management, the loans can be collected in full.

(D) Allowance for Loan Losses — The balance of the allowance for loan losses is determined by management’s estimate of the amount of financial risk in the loan portfolio and the likelihood of loss. The analysis also considers the Bank’s loan loss experience and is adjusted for economic conditions and other factors. Additions to the allowance are made by charges to expense, and actual losses, net of recoveries, are charged to the allowance. Regulatory examiners may require the Bank to add to the allowance based upon their judgment of information available to them at the time of their examination.

In accordance with FASB ASC 310, “Receivables,” an allowance is maintained for impaired loans to reflect the difference, if any, between the principal balance of the loan and the present value of projected cash flows, observable fair value, or collateral value. An impaired loan is defined as a loan for which it is probable that the lender will not collect all amounts due under the contractual terms of the loan.

Transfers of financial assets for which the Bank has surrendered control of the financial assets are accounted for as sales to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. Retained interests in a sale or securitization of financial assets are measured at the date of transfer by allocating the previous carrying amount between the assets transferred and based on their relative estimated fair values. The fair values of retained servicing rights and any other retained interests are determined based on the present value of expected future cash flows associated with those interests and by reference to market prices for similar assets. There were no

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transfers of financial assets to related or affiliated parties. At December 31, 2009 and 2008, the Bank’s servicing loan portfolio approximated $132,768,000, and $121,233,000, respectively, which are not included in the accompanying consolidated statements of condition. The carrying value which approximates the estimated fair value of mortgage servicing rights was $1,444,000 and $1,199,000 as of December 31, 2009 and 2008, respectively.

(E) Premises and Equipment — Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is calculated by the declining-balance or straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the term of the lease or the estimated life of the asset, whichever is shorter.

The Bank periodically evaluates impairment of long-lived assets to be held and used or to be disposed of by sale. There was no impairment of long-lived assets as of December 31, 2009 and 2008, respectively.

(F) Other Real Estate Owned — Property acquired through foreclosure (other real estate owned or “OREO”), is stated at the lower of cost or fair value less selling costs. Credit losses arising at the time of the acquisition of property are charged against the allowance for loan losses. Any additional write-downs to the carrying value of these assets that may be required, as well as the cost of maintaining and operating these foreclosed properties, are charged to expense. Additional write-downs are recorded in a valuation reserve account that is maintained asset by asset. There was no OREO as of December 31, 2009.

(G) Goodwill and Other Intangible Assets— Through December 31, 2001, the excess of cost over fair value of net assets acquired (goodwill) was amortized on a straight-line basis over a period of ten years. On January 1, 2002, the Bank ceased amortizing goodwill and, instead, tests goodwill for impairment annually or when there is a circumstance that would indicate the need to evaluate between annual tests. No such circumstances occurred in 2009. Accordingly, there was no impairment of goodwill as of December 31, 2009 and 2008.

(H) Allowance for Contingent Liabilities — The balance of the allowance for contingent liabilities is determined by management’s estimate of the amount of financial risk in outstanding loan commitments and contingent liabilities such as performance and financial letters of credit. The allowance for contingent liabilities was $419,000 as of December 31, 2009 and 2008.

Suffolk has financial and performance letters of credit. Financial letters of credit require the Bank to make payment if the customer’s financial condition deteriorates, as defined in the agreements. Performance letters of credit require the Bank to make payments if the customer fails to perform certain nonfinancial contractual obligations. The maximum potential undiscounted amount of the future payments of these letters of credit as of December 31, 2009 is $30,769,000 and they expire as follows:

2010	$	28,297,000
2011		1,899,000
2012		493,000
2013 and thereafter		80,000
	$	30,769,000

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 contingent liabilities includes a provision of $46,000 for losses based on the letters of credit outstanding on December 31, 2009.

(I) Income Taxes — Suffolk uses an asset and liability approach to accounting for income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are recognized if it is more likely than not that a future benefit will be realized. It is management’s position that no valuation allowance is necessary against any of Suffolk’s deferred tax assets.

Suffolk accounts for income taxes in accordance with FASB ASC 740, “Income Taxes,” which prescribes the recognition and measurement criteria related to tax positions taken or expected to be taken in a tax return.

(J) Summary of Retirement Benefits Accounting — Suffolk’s retirement plan is noncontributory and covers substantially all eligible employees. The plan conforms to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and the Pension Protection Act of 2006, which requires certain funding rules for defined benefit plans. Suffolk’s policy is to accrue for all pension costs and to fund the maximum amount allowable for tax purposes. Actuarial gains and losses that arise from changes in assumptions concerning future events are amortized over a period that reflects the long-term nature of pension expense used in estimating pension costs.

Suffolk accounts for its retirement plan in accordance with FASB ASC 715, “Compensation – Retirement Benefits” and FASB ASC 960, “Plan Accounting – Defined Benefit Pension Plans,” which require an employer that is a business entity and sponsors one or more single-employer defined benefit plans to recognize the funded status of a benefit plan in its statement of financial position; recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost; measure defined benefit plan assets and obligation as of the date of fiscal year-end statement of financial position (with limited exceptions); and disclose in the notes to financial statements additional information about certain effects of net periodic benefit cost for the next fiscal year that arise from delayed recognition of the

28

gains or losses, prior service costs or credits, and transition asset and obligation. Plan assets and benefit obligations shall be measured as of the date of its statement of financial position and in determining the amount of net periodic benefit cost. The codification also requires an employer to use the same date for the measurement of plan assets as for the statement of condition, and provides for either of two methods to make the transition. Suffolk has chosen to re-measure the obligations of the plan as of the beginning of fiscal year 2008. Under this method, 2008 net periodic pension expense was determined using the market value of plan assets and liabilities as of January 1, 2008. Accordingly, Suffolk recorded a decrease to prepaid pension cost of $1,297,000, a debit adjustment to opening retained earnings in the amount of $118,000, and a debit adjustment to accumulated other comprehensive loss in the amount of $1,140,000.

Suffolk accrues for postretirement benefits other than pensions by accruing the cost of providing those benefits to an employee during the years that the employee serves. The remeasurement of the postretirement plan resulted in a credit to the 2008 opening retained earnings in the amount of $157,000.

(K) Cash and Cash Equivalents — For purposes of the consolidated statement of cash flows, cash and due from banks, and federal funds sold are considered to be cash equivalents. Generally, federal funds are sold for one-day periods.

(L) Stock-Based Compensation — At December 31, 2009, the Bank had one stock-based employee compensation plan, which is more fully described in Note 8. Stock-based compensation for all share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their fair values.

During 2009, 2008, and 2007, $83,000, $108,000, and $143,000 of compensation expense, net of a tax benefit of $57,000, $74,000, and $97,000, respectively, was recorded for stock-based compensation. As of December 31, 2009, there was $12,000 of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested options under the stock-based employee compensation plan. That cost is expected to be recognized over a weighted average period of one month.

(M) Treasury Stock — The balance of treasury stock is computed at par value. The excess cost over par is subtracted from undivided profits.

(N) Earnings-per-share — Basic earnings-per-share are computed by dividing net income by the number of weighted-average shares outstanding during the period. Diluted earnings-per-share reflect the dilution that would occur if stock options were exercised in return for common stock that would then share in Suffolk’s earnings. It is computed by dividing net income by the sum of the weighted-average number of common shares outstanding and the weighted-average number of stock options exercisable during the period. Suffolk has no other securities that could be converted into common stock, nor any contracts that would result in the issuance of common stock.

(O) Comprehensive Income — Comprehensive income includes net income and all other changes in equity during a period except those resulting from investments by owners and distributions to owners. Other comprehensive income includes revenues, expenses, gains, and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income. Comprehensive income and accumulated other comprehensive income are reported net of related income taxes. Accumulated other comprehensive income for the Bank consists of unrealized holding gains or losses on securities available for sale, and gains or losses on the unfunded projected benefit obligation of the pension plan.

The following table summarizes comprehensive income activity : (in thousands)

	December 31, 2009							December 31, 2008								December 31, 2007
	Before Tax Amount		Tax (Expense) Benefit			Net of Tax Amount		Before Tax Amount			Tax (Expense) Benefit		Net of Tax Amount			Before Tax Amount		Tax (Expense) Benefit			Net of Tax Amount
Unrealized gains (losses) on investment securities (1)	$	12,303	$	(4,996	)	$	7,307	$	(6,086	)	$	2,483	$	(3,603	)	$	5,104	$	(2,093	)	$	3,011
Gains (losses) on pension andpostretirement plan projected benefit obligations		4,052		(1,636	)		2,416		(14,799	)		6,010		(8,671	)		3,247		(1,344	)		1,903
Adjusted other comprehensive income (loss), net	$	16,355	$	(6,632	)	$	9,723	$	(20,885	)	$	8,493	$	(12,274	)	$	8,351	$	(3,437	)	$	4,914

(1) Excludes realized securities gains, during 2008, from the sale of Visa shares with a zero basis.

(P) Segment Reporting— FASB ASC 28, “Segment Reporting,” requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. Suffolk is a regional bank, which offers a wide array of products and services to its customers.

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Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, at December 31, 2009 and 2008, Suffolk is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands change. Thus, all necessary requirements have been met by Suffolk as of December 31, 2009.

(Q) Fair Value Measurements— Fair value measurement is determined based on the assumptions that market participants would use in pricing the asset or liability in an exchange. The definition of fair value includes the exchange price, which is the price in an orderly transaction between market participants to sell an asset or transfer a liability in the principal market for the asset or liability. Market participant assumptions include assumptions about risk, the risk inherent in a particular valuation technique used to measure fair value, and/or the risk inherent in the inputs to the valuation technique, as well as the effect of credit risk on the fair value of liabilities.

Suffolk uses three levels of the fair value inputs to measure assets, as described below.

Basis of Fair Value Measurement:

Level 1 - Unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 - Quoted prices in markets that are not active, or inputs that use pricing models or matrix pricing;

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

As of January 1, 2008, Suffolk records investments and impaired loans at fair value. Please refer to Note 14 for further information regarding fair value measurements.

(R) Reclassification of Prior Year Consolidated Financial Statements— Certain reclassifications have been made to the prior year’s consolidated financial statements that conform with the current year’s presentation. Such reclassifications had no impact on net income.

Note 2 — Investment Securities

The amortized cost, estimated fair values, and gross unrealized gains and losses of Suffolk’s investment securities available for sale and held to maturity at December 31, 2009 and 2008 were: (in thousands)

	2009									2008
	Amortized Cost		Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost		Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
Available for sale:
U.S. Treasury securities	$	8,016	$	8,318	$	302	$	—		$	9,534	$	10,152	$	618	$	—
U.S. government agency debt		42,607		43,205		598		—			75,358		76,477		1,119		—
Collateralized mortgage obligations		192,143		192,393		4,026		(3,776	)		134,947		131,841		2,663		(5,769	)
Mortgage-backed securities		546		599		53		—			566		595		29		—
Obligations of states and political subdivisions		184,636		192,485		8,304		(455	)		165,203		163,292		1,121		(3,032	)
Balance at end of year		427,948		437,000		13,283		(4,231	)		385,608		382,357		5,550		(8,801	)
Held to maturity:
Obligations of states and political subdivisions		9,243		9,996		755		(2	)		11,830		12,415		596		(11	)
Other securities		100		100		—		—			100		100		—		—
Balance at end of year		9,343		10,096		755		(2	)		11,930		12,515		596		(11	)
Total investment securities	$	437,291	$	447,096	$	14,038	$	(4,233	)	$	397,538	$	394,872	$	6,146	$	(8,812	)

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The amortized cost, maturities, and approximate fair value of Suffolk’s investment securities at December 31, 2009 are as follows: (in thousands)

	Available for Sale													Held to Maturity
	U. S. Treasury Securities				U.S. Govt. Agency Debt				Obligations of States & Political Subdivisions					Obligations of States & Political Subdivisions				Other Securities				Total		Total
(1) Maturity (in years)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost			Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within 1	$	1,995	$	1,996	$	20,045	$	20,129	$	—		$	—	$	2,079	$	2,092	$	—	$	—	$	24,119	$	24,217
After 1 but within 5		6,021		6,322		22,562		23,076		16,669	��		17,736		2,146		2,249		—		—		47,398		49,383
After 5 but within 10		—		—		—		—		147,362			153,687		5,018		5,655		—		—		152,380		159,342
After 10		—		—		—		—		20,605			21,062		—		—		—		—		20,605		21,062
Other Securities		—		—		—		—		—			—		—		—		100		100		100		100
Subtotal	$	8,016	$	8,318	$	42,607	$	43,205	$	184,636		$	192,485	$	9,243	$	9,996	$	100	$	100	$	244,602	$	254,104
Collateralized mortgage obligations																			192,143		192,393
Mortgage-backed securities																					546		599
Total																						$	437,291	$	447,096

(1) Maturities shown are stated maturities. Securities backed by mortgages are expected to have substantial periodic prepayments resulting in weighted average lives considerably less than what would be surmised from the table above.

As a member of the Federal Reserve system, the Bank owns Federal Reserve Bank stock with a book value of $652,000. The stock has no maturity and there is no public market for the investment.

As a member of the Federal Home Loan Bank of New York, the bank owns Federal Home Loan Bank of New York stock with a book value of $8,346,000. As of December 31, 2009, the Bank owns 15,596 shares valued at $1,560,000 as its membership portion. The remaining $6,786,000 in stock is owned based on borrowing activity requirements. The stock has no maturity and there is no public market for the investment. The stock continues to pay dividends and has not placed restrictions on redemptions, and as such, was not deemed impaired as of December 31, 2009.

At December 31, 2009 and 2008, investment securities carried at $329,345,000 and $352,185,000 respectively, were pledged to secure trust deposits and public funds on deposit.

The following table presents detail concerning realized securities gains and losses during the years indicated: (in thousands)

	2009		2008		2007
Gross realized gains	$	—	$	3,741	$	—
Gross realized losses		—		—		—
Net gains	$	—	$	3,741	$	—

Included in realized gains on securities as of December 31, 2008, is $3,737,000 of proceeds received in connection with shares redeemed as part of the Visa, Inc. 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 public offering. The remaining shares are restricted because of unsettled litigation pending against Visa, Inc. Visa, Inc., at its discretion, may redeem additional 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.

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The table below indicates the length of time individual securities, both held-to-maturity and available-for-sale, have been held in a continuous unrealized loss position at the date indicated: (in thousands)

As of December 31, 2009 Type of securities	Number of Securities	Less than 12 months				12 months or longer				Total
		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
U. S. government agency securities	—	$	—	$	—	$	—	$	—	$	—	$	—
U.S. Treasury securities	—		—		—		—		—		—		—
Mortgage-backed securities	—		—		—		—		—		—		—
Municipal securities	48		16,995		444		1,002		13		17,997		457
Collateralized mortgage obligations	7		21,207		170		19,253		3,606		40,460		3,776
Total	55	$	38,202	$	614	$	20,255	$	3,619	$	58,457	$	4,233
As of December 31, 2008 Type of securities	Number of Securities	Less than 12 months				12 months or longer				Total
		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
U. S. government agency securities	—	$	—	$	—	$	—	$	—	$	—	$	—
U.S. Treasury securities	—		—		—		—		—		—		—
Municipal securities	377		—		—		106,549		3,043		106,549		3,043
Collateralized mortgage obligations	5		—		—		30,994		5,769		30,994		5,769
Total	382	$	—	$	—	$	137,543	$	8,812	$	137,543	$	8,812

Management has considered factors such as market value, cash flows, and analysis of underlying collateral regarding other-than-temporarily impaired securities and determined that there are no other-than-temporarily impaired securities as of December 31, 2009 and 2008.

The unrealized losses in collateralized mortgage obligations at December 31, 2009 were caused by volatile interest rates, a significant widening of credit spreads across markets for these securities, and illiquidity and uncertainty in the financial markets. These securities include four private issues held at a continuous, unrealized loss for twelve months or longer. Each of these securities has some level of credit enhancement, and none are collateralized by sub-prime loans. With the assistance of a third party, management reviews the characteristics of these securities periodically, including levels of delinquency and foreclosure, projected losses at various degrees of severity, and credit enhancement and coverage. These securities are performing according to their terms, and, in the opinion of management, will continue to do so.

The unrealized losses in municipal securities at December 31, 2009 were the result of volatile interest rates, and uncertainty in the financial markets. These securities are performing according to their terms, and, in the opinion of management, will continue to do so.

Suffolk does not have the intent to sell these securities and does not anticipate that it will be necessary to sell these securities before the full recovery of principal and interest due, which may be at maturity. Therefore, Suffolk did not consider these investments to be other-than-temporarily impaired at December 31, 2009.

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Note 3 — Loans

At December 31, 2009 and 2008, loans included the following: (in thousands)

	2009			2008
Commercial, financial, and agricultural	$	259,565		$	220,946
Commercial real estate		375,652			352,502
Real estate construction loans		133,431			131,889
Residential mortgages (1st and 2nd liens)		214,501			216,127
Home equity loans		82,808			75,654
Consumer loans		80,383			94,724
Other loans		14,070			1,712
		1,160,410			1,093,554
Unearned discounts		(31	)		(33	)
Allowance for loan losses		(12,333	)		(9,051	)
Balance at end of year	$	1,148,046		$	1,084,470

Other loans consist of overdraft advances nearly all of which have been repaid subsequent to year-end.

Restructured loans, loans not accruing interest, and loans contractually past due 90 days or more with regard to payment of principal and/or interest amounted to $29,372,000 and $4,884,000 at December 31, 2009 and 2008, respectively. Interest on loans that are no longer accruing interest would have amounted to $874,000 during 2009, $214,000 during 2008, and $131,000 during 2007, under contractual terms of those loans. Interest income recognized on restructured and non-accrual loans was immaterial for the years 2009, 2008, and 2007.

Suffolk makes loans to its directors and executives, as well as to other related parties in the ordinary course of its business. Loans made to directors and executives, either directly or indirectly, which exceed $60,000 in aggregate for any one director or executive, totaled $15,409,000 and $9,845,000 at December 31, 2009 and 2008, respectively. Unused portions of lines of credit to directors and executives, directly or indirectly, totaled $12,437,000 and $14,550,000. New loans totaling $32,590,000 were granted and payments of $27,026,000 were received during 2009.

Note 4 — Allowance for Loan Losses

An analysis of the changes in the allowance for loan losses follows: (in thousands)

	2009			2008			2007
Balance at beginning of year	$	9,051		$	7,672		$	7,551
Provision for loan losses		4,275			2,050			377
Reclass to Allowance for
Contingent Liabilities		—			(29	)		(390	)
Loans charged-off		(1,210	)		(1,031	)		(181	)
Recoveries on loans		217			389			315
Balance at end of year	$	12,333		$	9,051		$	7,672

At December 31, 2009 and 2008, respectively, the Bank’s recorded investment in impaired loans and the related valuation allowance as follows: (in thousands)

	2009		2008
Recorded investment	$	32,304	$	2,834
Valuation allowance		2,995		1,291

This valuation allowance is included in the allowance for loan losses on the statements of condition. The average investment in impaired loans in 2009 was $19,142,000, compared to $1,644,000 in 2008.

Note 5 — Premises and Equipment

The following table details premises and equipment: (in thousands)

	Estimated Useful Lives	2009			2008
Land	Indefinite	$	3,326		$	3,326
Premises	30 -40 years		21,527			19,647
Furniture, fixtures & equipment	2 - 7 years		25,614			25,830
Leasehold improvements	2 - 25 years		3,517			3,465
			53,984			52,268
Accumulated depreciation and amortization			(30,638	)		(29,528	)
Balance at end of year		$	23,346		$	22,740

Depreciation and amortization charged to operations amounted to $2,555,000, $2,469,000, and $2,313,000 during 2009, 2008, and 2007, respectively.

Note 6 — Deposits

The following table summarizes the contractual maturities of time deposits during the years after 2009: (in thousands)

Year during which Time Deposit Matures	Time Deposits > $100,000		Other Time Deposits
2010	$	193,574	$	81,368
2011		9,632		11,704
2012		5,214		5,462
2013		1,249		5,686
2014		2,229		2,961
Total	$	211,898	$	107,181

Note 7 — Borrowings

Presented below is information concerning short- and long-term interest-bearing liabilities — principally Federal Home Loan Bank Borrowings, Securities Sold Under Agreements to Repurchase, and Federal Funds Purchased — and their related weighted-average interest rates for the years 2009, 2008, and 2007: (dollars in thousands)

December 31,	2009			2008			2007
Daily average outstanding	$	131,986		$	206,878		$	133,859
Total interest cost		2,974			6,052			7,004
Average interest rate paid		2.25	%		2.93	%		5.23	%
Maximum amount outstanding at any month-end	$	225,620		$	289,170		$	198,320
December 31, balance		150,800			224,820			198,320
Weighted-average interest rate on balances outstanding		1.62	%		2.34	%		4.31	%

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The following tables summarize the components of short-term and long-term borrowings as of December 31, 2009 and 2008: (in thousands)

December 31, 2009	Short-Term Borrowings			Long-Term Borrowings			Total
Daily average outstanding	$	91,986		$	40,000		$	131,986
Total interest cost		1,610			1,364			2,974
Average interest rate paid		1.75	%		3.41	%		2.25	%
Maximum amount outstanding at any month-end	$	185,620		$	40,000		$	225,620
December 31, balance		110,800			40,000			150,800
Weighted-average interest rate on balances outstanding		0.98	%		3.41	%		1.62	%
December 31, 2008	Short-Term Borrowings			Long-Term Borrowings			Total
Daily average outstanding	$	177,777		$	29,101		$	206,878
Total interest cost		5,061			991			6,052
Average interest rate paid		2.85	%		3.41	%		2.93	%
Maximum amount outstanding at any month-end	$	249,170		$	40,000		$	289,170
December 31, balance		184,820			40,000			224,820
Weighted-average interest rate on balances outstanding		2.11	%		3.41	%		2.34	%

For purposes of borrowing, Suffolk has no assets pledged as collateral to the Federal Reserve Bank as of December 31, 2009 and 2008. Assets pledged as collateral to the Federal Home Loan Bank (FHLB) as of December 31, 2009 and 2008 totaled $330,471,000 and $417,773,000, consisting of eligible loans and investment securities as determined under FHLB borrowing guidelines.

Note 8 — Stockholders’ Equity

Suffolk has a Dividend Reinvestment Plan. Stockholders can reinvest dividends in common stock of Suffolk at a 3 percent discount from market value on newly issued shares. Shareholders may also make additional cash purchases at market value. There were 30,498 and 13,969 shares issued in 2009 and 2008, respectively. No shares were issued in 2007.

At December 31, 2009, Suffolk has a Stock Incentive Plan (“the Plan”) under which 500,000 shares of Suffolk’s common stock were originally reserved for issuance to key employees and directors, and of which none have been issued at that date. Options are awarded by a committee appointed by the Board of Directors. The Plan provides that the option price shall not be less than the fair value of the common stock on the date the option is granted. All options are exercisable for a period of ten years or less. The Plan provides for but does not require the grant of stock appreciation rights that the holder may exercise instead of the underlying option. When the stock appreciation right is exercised, the underlying option is canceled. The optionee receives shares of common stock with a fair market value equal to the excess of the fair value of the shares subject to the option at the time of exercise (or the portion thereof so exercised) over the aggregate option price of the shares set forth in the option agreement. The exercise of stock appreciation rights is treated as the exercise of the underlying option. Options vest after one year and expire after ten years. Compensation (benefit) expense related to stock appreciation rights amounted to approximately ($174,000), $104,000, and $46,000, for the years ended December 31, 2009, 2008, and 2007, respectively.

The following table presents the options granted, exercised, or expired during each of the past three years:

	Shares		Wtd. Avg. Exercise
Balance at December 31, 2006	117,500		$	26.52
Options granted	24,000			32.90
Options exercised	—			—
Options expired or terminated	—			—
Balance at December 31, 2007	141,500		$	27.61
Options granted	17,000			31.18
Options exercised	—			—
Options expired or terminated	(16,000	)		32.83
Balance at December 31, 2008	142,500		$	27.45
Options granted	15,000			28.30
Options exercised	(3,000	)		—
Options expired or terminated	—			13.13
Balance at December 31, 2009	154,500		$	27.81

The following table presents additional information:

At, or during, year ended December 31,	2009			2008			2007
Average remaining contractual life in years		4.83			5.26			5.95
Exercisable options (vested)		139,500			127,500			117,500
Weighted average fair value of options (Black-Scholes model) at date of grant:	$	9.24		$	10.38		$	10.07
Black-Scholes Assumptions:
Risk-free interest rate		3.17	%		3.59	%		4.89	%
Expected dividend yield		3.06	%		2.82	%		2.43	%
Expected life in years		10			10			10
Expected volatility		36.90	%		35.40	%		25.20	%

The following table details contractual weighted-averages lives of outstanding options at various prices:

	By range of exercise prices
from	$	13.13	$	28.30	$	34.39
to		15.50		32.90		34.95
Outstanding stock options		39,000		82,000		33,500
Weighted-average remaining life		0.72		6.58		5.32
Weighted-average exercise price	$	14.71	$	31.21	$	34.74
Exercisable stock options		39,000		67,000		33,500
Weighted-average remaining life		0.72		6.03		5.32
Weighted-average exercise price	$	14.71	$	31.86	$	34.74
			Weighted-average
At all prices	Options		price		life (yrs)
Total outstanding		154,500	$	27.81		4.83
Total exerciseable		139,500	$	27.75		4.37

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All dividends must conform to applicable statutory requirements. Under 12 USC 56-9, a national bank may not pay a dividend on its common stock if the dividend would exceed net undivided profits then on hand. Further, under 12 USC 60, a national bank must obtain prior approval from the Office of the Comptroller of the Currency (“OCC”) to pay dividends on either common or preferred stock that would exceed the bank’s net profits for the current year combined with retained net profits (net profits minus dividends paid during that period) from the prior two years. At December 31, 2009, approximately $37,979,000 was available for dividends from the Bank to Suffolk Bancorp without prior approval of the OCC.

Note 9 — Income Taxes

The following table presents the provision for income taxes in the consolidated statements of income which is comprised of the following: (in thousands)

		2009			2008			2007
Current:	Federal	$	9,023		$	10,574		$	10,382
	State		1,098			1,382			1,473
			10,121			11,956			11,855
Deferred:	Federal		(143	)		(487	)		(204	)
	State		(148	)		(46	)		11
			(291	)		(533	)		(193	)
Total		$	9,830		$	11,423		$	11,662

The total current tax expense was different from the amounts computed by applying the federal income tax rate because of the following:

	2009		2008		2007
Federal income tax expense at statutory rates	35	%	35	%	35	%
Tax-exempt interest	(8	%)	(6	%)	(5	%)
State income taxes net of federal benefit	2	%	2	%	3	%
Other	1	%	1	%	1	%
Total	30	%	32	%	34	%

The effects of temporary differences between tax and financial accounting that create significant deferred-tax assets and liabilities at December 31, 2009 and 2008, and the recognition of income and expense for purposes of tax and financial reporting, that resulted in a net decrease to Suffolk’s net deferred tax asset for the years ended December 31, 2009, 2008, and 2007 are presented below: (in thousands)

	2009		2008		2007
Deferred tax assets:
Provision for possible loan losses	$	5,008	$	3,675	$	3,116
Postretirement benefits		498		957		1,018
Deferred compensation		2,012		2,014		1,930
Securities available for sale		—		1,320		—
Unfunded pension obligation		2,414		4,717		—
Other		1,105		769		580
Total deferred tax assets		11,037		13,452		6,644
Deferred tax liabilities:
Prepaid pension cost		—		—		1,259
Securities available for sale		3,676		—		1,162
Other		1,132		873		669
Total deferred tax liabilities		4,808		873		3,090
Net deferred tax asset	$	6,229	$	12,579	$	3,554

Suffolk had unrecognized tax benefits including interest of approximately $50,000 as of December 31, 2009 and approximately $111,000 as of December 31, 2008. Changes in unrecognized tax benefits consist of the following: (in thousands)

	Total			Federal			State
Balance 12/31/08	$	111		$	86		$	25
Additions from current year tax positions		—			—			—
Additions from prior year tax positions		—			—			—
Reductions for prior year tax positions		(61	)		(46	)		(15	)
Settlements		—			—			—
Balance 12/31/09	$	50		$	40		$	10

Suffolk recognizes interest and penalties accrued relating to unrecognized tax benefits in income tax expense. The total amount of accrued interest relating to uncertain tax positions is $15,000 as of December 31, 2009. Suffolk files income tax returns in the U.S. federal jurisdiction and in New York State. Federal returns are subject to audits by tax authorities beginning with the 2005 tax year. New York State returns are subject to audits by tax authorities beginning with the 2006 tax year. It is not anticipated that the unrecognized tax benefits will significantly change over the next 12 months.

Note 10 — Employee Benefits

(A) Retirement Plan — Suffolk has a noncontributory defined benefit pension plan available to all full-time employees who are at least 21 years old and have completed at least one year of employment. The plan is governed by the rules and regulations in the Prototype Plan of the New York Bankers

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Association Retirement System and the Retirement System Adoption Agreement executed by the Bank. For purposes of investment, the plan contributions are pooled with those of other participants in the system.

The following tables set forth the status of Suffolk Bancorp’s combined plan as of December 31, 2009 and December 31, 2008, the time at which the annual valuation of the plan is made.

The following table sets forth the plan’s change in benefit obligation:

	2009			2008
Benefit obligation at start of year	$	32,262,082		$	26,129,023
Transition adjustment		—			390,198
Service cost		1,682,941			1,353,807
Interest cost		1,883,744			1,632,661
Actuarial loss		784,825			4,118,954
Benefits paid		(1,363,607	)		(1,362,561	)
Benefit obligation at end of year	$	35,249,985		$	32,262,082

The following table sets forth the plan’s change in plan assets:

	2009			2008
Fair value of plan assets at start of year	$	20,646,070		$	29,228,280
Transition adjustment		—			(906,946	)
Actual return on plan assets		4,387,357			(7,278,490	)
Employer contribution		5,633,353			986,196
Benefits paid		(1,361,979	)		(1,382,970	)
Fair value of plan assets at end of year	$	29,304,801		$	20,646,070

The following table presents the plan’s funded status:

	2009			2008
Prepaid Pension Cost	$	6,962,282		$	4,299,222
Unrecognized Net Gain (Loss)		(12,919,115	)		(15,930,862	)
Unrecognized Prior Service Cost		11,709			15,688
Under Funded Status	$	(5,945,124	)	$	(11,615,952	)

A transition adjustment in the amount of $1,297,000 was recorded in 2008 for the 2007 plan year. In June 2009, Suffolk contributed $2,300,000 for the plan year ended September 30, 2008. In December 2009, Suffolk made annual minimum contributions of $1,724,000 and $1,609,000 for the plan years ending September 30, 2009 and 2010, respectively. There is no additional minimum required contribution for the plan year ending September 30, 2010.

The following table presents estimated benefits to be paid during the years indicated: (in thousands)

	Qualified pension plan		Post- retirement plan
2010	$	1,292	$	57
2011		1,393		59
2012		1,510		62
2013		1,637		64
2014		1,826		67
2015-2019		11,524		366

The following table summarizes the net periodic pension cost:

	2009			2008			2007
Service cost	$	1,682,941		$	1,353,807		$	1,381,723
Interest cost on projected benefit obligations		1,883,744			1,632,661			1,482,086
Expected return on plan assets		(1,561,569	)		(2,081,897	)		(1,883,320	)
Net amortization & deferral		965,177			(3,979	)		130,947
Net periodic pension cost	$	2,970,293		$	900,592		$	1,111,436
Other changes in plan assets and benefit obligations recognized in other comprehensive income
Transition adjustment	$	—		$	651,824		$	—
Net actuarial (gain) loss		(1,798,026	)		8,016,221			(1,904,569	)
Amortization of service cost		2,363			2,363			2,363
Total recognized in other comprehensive (income) loss	$	(1,795,662	)	$	8,670,408		$	(1,902,206	)
Total recognized in net periodic pension cost and other comprehensive loss (income)	$	1,174,631		$	9,571,000		$	(3,013,642	)
Weighted-average discount rate		5.95	%		6.29	%		5.86	%
Rate of increase in future compensation		3.50	%		3.50	%		3.50	%
Expected long-term rate of return on assets		7.50	%		7.50	%		7.50	%

The following table summarizes the net periodic pension cost expected for the year ended December 31, 2010. This expense amount is subject to change if a significant plan-related event should occur before the end of fiscal 2010.

	2010
Service cost	$	1,804,602
Interest cost on projected benefit obligations		2,038,875
Expected return on plan assets		(2,150,306	)
Net amortization & deferral		724,135
Net periodic pension cost	$	2,417,306
Weighted-average discount rate		5.89	%
Rate of increase in future compensation		3.50	%
Expected long-term rate of return on assets		N/A

Plan Assets

Suffolk’s pension plan weighted-average asset allocations at December 31, 2009 and 2008, by asset category are as follows:

	at December 31,
	2009		2008
Asset category
Cash	13	%	10	%
Equity Securities	46	%	48	%
Debt Securities	41	%	41	%
Other	0	%	1	%
Total	100	%	100	%

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Fair Value

The following table summarizes the fair value measurements of Suffolk’s pension plan assets on a recurring basis as of December 31, 2009:

	Fair Value Measurements Using
Description	Active Markets for Identical Assets Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Investment in securities
Short-term investment funds	$	—	$	3,972,401	$	—	$	3,972,401
Equity securities		13,442,700		—		—		13,442,700
Fixed income securities
Collateralized mortgage obligations		—		710,148		—		710,148
Corporate bonds		—		2,794,731		—		2,794,731
Government-issued securities		—		8,219,854		—		8,219,854
Other fixed income securities		—		164,967		—		164,967
Total	$	13,442,700	$	15,862,101	$	—	$	29,304,801

The following table summarizes the fair value measurements of Suffolk’s pension plan assets on a recurring basis as of December 31, 2008:

	Fair Value Measurements Using
Description	Active Markets for Identical Assets Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Investment in securities
Short-term investment funds	$	—	$	2,071,423	$	—	$	2,071,423
Equity securities		9,913,369		—		—		9,913,369
Fixed income securities
Collateralized mortgage obligations		—		974,545		—		974,545
Corporate bonds		—		2,443,527		—		2,443,527
Government-issued securities		—		4,955,593		—		4,955,593
Other fixed income securities		—		182,122		—		182,122
Other financial instruments		—		—		105,491		105,491
Total	$	9,913,369	$	10,627,210	$	105,491	$	20,646,070

Please refer to Note 1 (Q) for further discussion on the three levels of fair value inputs to measure assets.

For pension assets, Level 1 securities consist primarily of short-term investment funds and equity securities which include investments in common stock and depository receipts. Level 2 securities consist of fixed income securities including corporate bonds, government issues, and mortgage-backed securities. Level 3 securities include rights and warrants.

Investment Policies

The New York State Bankers Retirement System (the “System”) was established in 1938 to provide for the payment of benefits to employees of participating banks. The System is overseen by a Board of Trustees who meet quarterly and set the investment policy guidelines.

The System utilizes two investment management firms (which will be referred to as Firm I and Firm II), each investing approximately 50 percent of the total portfolio. The System’s investment objective is to exceed the investment benchmarks in each asset category. Each firm operates under a separate written investment policy approved by the Trustees and designed to achieve an allocation approximating 60 percent invested in equity securities and 40 percent invested in debt securities.

Each Firm shall report at least quarterly to the Investment Committee and semiannually to the Board.

Equity Securities

The target allocation percentage for equity securities is from 40-60 percent at the investment manager’s discretion.

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Firm I is employed for its expertise as a Value Manager. It is allowed to invest a certain amount of the equity portfolio under its management in international securities and to hedge said international securities so as to protect against currency devaluations.

The equities managed by Firm II are in a separately managed Large Cap Core Equity Fund. The portfolio is permitted to invest in a diversified range of securities in the U.S. equity markets. Although the portfolio holds primarily common stocks, from time to time the portfolio may invest in other types of investments on an opportunistic basis.

The System currently prohibits its investment managers from purchasing the following investments: securities in emerging market countries as defined by the Morgan Stanley Emerging Markets Index, short sales, unregistered securities, and margin purchases.

Debt Securities

For both investment portfolios, the target allocation percentage for debt securities is from 40-60 percent at the investment manager’s discretion.

The Fixed Income Portfolio managed by Firm I operates with guidelines relating to types of debt securities, quality ratings, maturities, and maximum single and sector allocations.

The portfolio may trade foreign currencies in both spot and forward markets to effect securities transactions and to hedge underlying asset positions. The purchase and sale of futures and options on futures on foreign currencies and on foreign and domestic bonds, bond indices, and short-term securities is permitted; however, purchases may not be used to leverage the portfolio. Currency transactions may be used only to hedge 0-100 percent of currency exposure of foreign securities.

The Fixed Income portfolio managed by Firm II is a Core Bond Fixed Income Fund. The portfolio investments are limited to U.S. Dollar denominated, fixed income securities and selective derivatives designed to have similar attributes of such fixed income securities. The term “fixed income security” is defined to include instruments with fixed, floating, variable, adjustable, auction rate, zero, or other coupon features.

The System currently prohibits its investment managers from purchasing the following investments: securities of BBB quality or less, CMO’s that have an inverse floating rate and whose payments don’t include principal or which aren’t certified and guaranteed by the U.S. Government, ABS’s that aren’t issued or guaranteed by the U.S., or its agencies or its instrumentalities, Non-Agency residential subprime or ALT-A MBS’s and structured notes.

Concentration

At December 31, 2009, the System held approximately $27,200,000 of the State Street Bank & Trust Company Short Term Investment Fund. This fund represented 13.6% of the System’s total investments. Suffolk’s portion of this investment is $3,972,000 at December 31, 2009.

Expected Long-Term Rate of Return

The expected long-term rate of return on plan assets reflects long-term earnings expectations on existing plan assets and those contributions expected to be received during the current plan year. In estimating that rate, appropriate consideration was given to historical returns earned by plan assets in the fund and the rates of return expected to be available for reinvestment. Average rates of return over the past one-, three-, five-, and ten-year periods were determined and subsequently adjusted to reflect current capital market assumptions and changes in investment allocations.

(B) Director’s Retirement Income Agreement of the Bank of the Hamptons — On April 11, 1994, Suffolk acquired Hamptons Bancshares, Inc., which had a director’s deferred compensation plan. The liability for this plan was approximately $137,000 and $164,000 on December 31, 2009 and 2008. Interest (approximately $13,000 in 2009, $14,000 in 2008, and $16,000 in 2007) is accrued over the term of the plan. In 2009, the Bank paid approximately $40,000 to participants.

(C) Deferred Compensation

1986 Plan —In 1986, the Board approved a deferred compensation plan. Under the plan, certain employees and Directors of Suffolk elected to defer compensation aggregating approximately $177,000 in exchange for stated future payments to be made at specified dates. The rate of return on the initial deferral was guaranteed. For purposes of financial reporting, interest (approximately $71,000 in 2009, $268,000 in 2008, and $206,000 in 2007) at the plan’s contractual rate is being accrued on the deferral amounts over the expected plan term.

During 2009, Suffolk made payments of approximately $147,000 to participants of the plan. Suffolk has purchased life insurance policies on the plan’s participants based upon reasonable actuarial benefit and other financial assumptions where the present value of the projected cash flows from the insurance proceeds approximates the present value of the projected cost of the employee benefit. Suffolk is the named beneficiary on the policies. Net insurance income related to the policies aggregated approximately $17,000, $222,000, and $29,000, in 2009, 2008, and 2007, respectively.

1999 Plan—In 1999, the Board approved a non-qualified deferred compensation plan. Under this plan, certain employees and Directors of Suffolk may elect to defer some or all of their compensation in exchange for a future payment of the compensation deferred, with accrued interest, at retirement. During 2009, participants deferred compensation totaling $273,000. During 2009, payments of $244,000 have been made to the participants.

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(D) Postretirement Benefits Other Than Pension —The following table sets forth the postretirement benefit liability included in other liabilities in the accompanying consolidated statements of condition as of December 31, 2009 and 2008:

	2009			2008
Accumulated benefit obligation	$	(1,226,816	)	$	(1,377,462	)
Unrecognized net gain		(1,060,999	)		(979,827	)
Unrecognized past service cost		(9,178	)		(9,986	)
Unrecognized transition obligation		1,926			2,834
Postretirement benefit liability	$	(2,295,067	)	$	(2,364,441	)

The following table presents the plan’s funded status:

	2009			2008
Accrued Benefit Cost	$	(2,295,067	)	$	(2,364,441	)
Unrecognized Prior Service Cost		7,252			7,152
Unrecognized Net Gain		1,060,999			979,827
Underfunded Status	$	(1,226,816	)	$	(1,377,462	)

Net periodic postretirement benefit cost (the “net periodic cost”) for the years ended December 31, 2009, 2008, and 2007 includes the following components:

	2009			2008			2007
Service cost of benefits earned	$	4,545		$	37,257		$	35,408
Interest cost on liability		69,580			81,430			75,570
Unrecognized gain		(89,242	)		(53,830	)		(52,895	)
Net periodic cost	$	(15,117	)	$	64,857		$	58,083
Other changes in plan assets and benefit obligations recognized in other comprehensive income
Net actuarial gain		(620,542	)		—			—
Amortization of net actuarial loss		—			—			—
Total recognized in other comprehensive income	$	(620,542	)	$	—		$	—
Total recognized in net periodic pension cost and other comprehensive income	$	(635,659	)	$	64,857		$	58,083

Benefit assumptions are based on sponsor contributions of $0.27 per participant per month per $1,000 of life insurance. The retiree is responsible for the premiums, less sponsor contributions. The Bank no longer contributes towards a retiree health plan.

(E) 401(k) Retirement Plan

The Bank has a 401(k) Retirement Plan and Trust (the “401(k) Plan”). Employees who have attained the age of 21 and have completed one year of service have the option to participate. Employees may elect to contribute up to a dollar limit which is set by law. The limit was $16,500 for 2009. The Bank will match one-half of the employee’s contribution up to a maximum of 6% of the employee’s annual gross compensation subject to the aforementioned limit. Employees are fully vested in their own contributions, and the Bank’s matching contributions are fully vested once the participant has six years of service. Bank contributions under the 401(k) Plan amounted to $396,000, $377,000, and $366,000 in 2009, 2008, and 2007, respectively. The Bank funds all amounts when due. At December 31, 2009, contributions to the 401(k) Plan were invested in various bond, equity, money market, or diversified funds as directed by each employee. The 401(k) Plan does not allow for investment in the Company’s common stock.

Note 11 — Commitments and Contingent Liabilities

In the normal course of business, there are various outstanding commitments and contingent liabilities, such as standby letters of credit and commitments to extend credit, which are not reflected in the accompanying consolidated financial statements. No material losses are anticipated as a result of these transactions. Suffolk is contingently liable under standby letters of credit in the amount of $30,769,000 and $26,918,000 at December 31, 2009 and 2008, respectively. Suffolk has commitments to make or to extend credit in the form of revolving open-end lines secured by one- to four-family residential properties, commercial real estate, construction and land development loans, and lease financing arrangements in the amount of $148,309,000 and $181,744,000, and commercial loans of $39,885,000 and $47,219,000 as of December 31, 2009 and 2008, respectively.

In the opinion of management, based upon legal counsel, liabilities arising from legal proceedings against Suffolk would not have a significant effect on the financial position of Suffolk.

During 2009, Suffolk was required to maintain balances with the Federal Reserve Bank of New York for reserve and clearing requirements. These balances averaged $6,322,000 in 2009.

Total rental expense for the years ended December 31, 2009, 2008, and 2007 amounted to $1,633,000, $1,319,000, and $1,003,000, respectively.

At December 31, 2009, Suffolk was obligated under a number of non-cancelable operating leases for land and buildings used for bank purposes. Minimum annual rentals, exclusive of taxes and other charges under non-cancelable operating leases, are summarized as follows: (in thousands)

	Minimum Rentals
2010	$	1,527
2011		1,510
2012		1,508
2013		1,417
2014 and thereafter		4,282

These rentals do not include obligations for one new office currently scheduled to open in 2010.

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Note 12 — Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital requirements that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2009, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2009, the most recent notification from the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. Management believes that since that notification no circumstances have changed the institution’s category.

The Bank’s actual capital amounts and ratios are also presented in the following table: (dollars in thousands)

	Actual capital ratios				Minimum for capital adequacy				Minimum to be “Well Capitalized” under prompt corrective action provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2009
Total Capital (to risk-weighted assets)	$	149,950	11.68	%	$	102,725	8.00	%	$	128,406	10.00	%
Tier 1 Capital (to risk-weighted assets)		137,198	10.68	%		51,362	4.00	%		77,043	6.00	%
Tier 1 Capital (to average assets)		137,198	8.25	%		66,491	4.00	%		83,114	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	%

Note 13 — Credit Concentrations

Suffolk’s principal investments are loans and a portfolio of short- and medium-term debt of the United States Treasury, states and other political subdivisions, U.S. government agencies, corporations, and mortgage-backed securities and collateralized mortgage obligations.

Loans secured by real estate comprise 69.5 percent of the portfolio and 47.7 percent of assets, 32.4 percent of which are for commercial real estate. Commercial real estate loans present greater risk than residential mortgages. Suffolk has attempted to minimize the risks of these loans by considering several factors, including the creditworthiness of the borrower, location, condition, value, and the business prospects for the security property. Commercial, financial, and agricultural loans, unsecured or secured by collateral other than real estate, comprise 22.4 percent of the loan portfolio and 15.3 percent of assets. These loans present significantly greater risk than other types of loans. Average credits are greater in size than consumer loans, and unsecured loans may be more difficult to collect. Suffolk obtains, whenever possible, both the personal guarantees of the principal(s) and cross-guarantees among the principals’ business enterprises. Consumer loans, net of unearned discounts, comprised 6.9 percent of Suffolk’s loan portfolio and 4.7 percent of assets. A majority are indirect dealer-generated loans secured by automobiles. Most of these loans are made to residents of Suffolk’s primary lending area. Each loan is small in amount. Borrowers represent a cross-section of the population and are employed in a variety of industries. The risk presented by any one loan is correspondingly small, and therefore, the risk that this portion of the portfolio presents to Suffolk depends on the financial stability of the population as a whole, not any one entity or industry.

Municipal obligations constitute 44.3 percent of the investment portfolio and 11.9 percent of assets. These obligations present slightly greater risk than U.S. Treasury securities, or those secured by the U.S. government, but significantly less risk than loans because they are backed by the full faith and taxing power of the issuer, most of which is located in the state of New York. U.S. Treasury securities represented 1.8 percent of the investment portfolio and 0.5 percent of assets. U.S. government agency debt securities represented 9.5 percent of the investment portfolio and 2.5 percent of assets. These offer little or no financial risk. Collateralized mortgage obligations represented 42.3 percent of the investment portfolio and 11.4 percent of assets. These securities are backed by pools of mortgages; however, they provide more predictable cash flows because payments are assigned to specific “tranches” of securities in the order in which they are received. Suffolk invests in senior tranches, which provides for prioritized receipt of cash flows. Mortgage-backed securities represented 0.1 percent of the investment portfolio and less than 0.04 percent of assets.

40

Note 14 — Fair Value of Financial Instruments

The following table presents the carrying amounts and fair values of Suffolk’s financial instruments. FASB ASC 825, “Financial Instruments,” defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation: (in thousands)

	2009				2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash & cash equivalents	$	37,007	$	37,007	$	41,512	$	41,512
Investment securities available for sale		437,000		437,000		382,357		382,357
Investment securities held to maturity		9,343		10,096		11,930		12,515
Loans, net		1,160,379		1,178,429		1,093,521		1,103,610
Accrued interest receivable		7,223		7,223		7,042		7,042
Deposits		1,385,278		1,387,241		1,216,437		1,218,872
Borrowings		150,800		152,328		224,820		226,327
Accrued interest payable		829		829		2,244		2,244

Limitations

The following estimates are made at a specific point in time and may be based on judgments regarding losses expected in the future, risk, and other factors that are subjective in nature. The methods and assumptions used to produce the fair value estimates follow.

Short-Term Instruments

Short-term financial instruments are valued at the carrying amounts included in the statements of condition, which are reasonable estimates of fair value due to the relatively short term of the instruments. This approach applies to cash and cash equivalents; federal funds purchased; accrued interest receivable; non-interest-bearing demand deposits; N.O.W., money market, and saving accounts; accrued interest payable; and other borrowings. Federal Home Loan Bank advances/borrowings are measured using a discounted replacement cost of funds approach.

Loans

Fair values are estimated for portfolios of loans with similar characteristics. Loans are segregated by type.

The fair value of performing loans was calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk of the loan. Estimated maturity is based on the Bank’s history of repayments for each type of loan and an estimate of the effect of the current economy.

Fair value for significant non-performing loans is based on recent external appraisals of collateral, if any. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the associated risk. Assumptions regarding credit risk, cash flows, and discount rates are made using available market information and specific borrower information.

The carrying amount and fair value of loans were as follows at December 31, 2009 and 2008: (in thousands)

	2009				2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Commercial, financial & agricultural	$	259,565	$	261,333	$	220,946	$	219,728
Commercial real estate		375,652		383,392		352,502		361,327
Real estate construction loans		133,431		133,996		131,889		132,169
Residential mortgages (1st & 2nd liens)		214,501		221,502		216,127		219,522
Home equity loans		82,808		82,779		75,654		73,161
Consumer loans, net of unearned discounts		80,352		81,357		94,691		95,991
Other loans		14,070		14,070		1,712		1,712
Totals	$	1,160,379	$	1,178,429	$	1,093,521	$	1,103,610

41

Other assets measured at fair value are as follows: (in thousands)

	Fair Value Measurements Using
Description	12/31/2009		Active Markets for Identical Assets Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	29,309	$	—	$	—	$	29,309
Mortgage servicing rights		1,444		—		—		1,444
Total	$	30,753	$	—	$	—	$	30,753

Mortgage servicing rights are measured at fair value on a recurring basis.

	Fair Value Measurements Using
Description	12/31/2008		Active Markets for Identical Assets Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	1,543	$	—	$	—	$	1,543
Mortgage servicing rights		1,199		—		—		1,199
Total	$	2,742	$	—	$	—	$	2,742

Mortgage servicing rights are measured at fair value on a recurring basis.

Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or market value, and classified at level 3 in the fair value hierarchy. Market value is measured based on the value of the collateral securing these loans or techniques that are not supported by market activity for loans that are not collateral dependent and require management’s judgment. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable. The value of real estate collateral is determined based on appraisals by qualified licensed appraisers hired by Suffolk. The value of business equipment may be based on an appraisal by qualified licensed appraisers hired by Suffolk if significant, or may be valued based on the equipment’s net book value on the business’ financial statements. Inventory and accounts receivable collateral may be valued based on independent field examiner review or aging reports, if significant.

Field examiner reviews may be conducted based on the loan exposure and reliance on this type of collateral. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

Investment Securities

The fair value of the investment portfolio, including mortgage-backed securities, was based on quoted market prices or market prices of similar instruments.

42

The following tables summarize fair value measurements on a recurring basis as of December 31, 2009 and 2008 including the additional requirement to segregate classifications to correspond to the major security type classifications utilized for disclosure purposes: (in thousands)

Description	Fair Value Measurements Using
	12/31/2009		Active Markets for Identical Assets Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. treasury securities	$	8,318	$	8,318	$	—	$	—
U.S. government agency debt		43,205		43,205		—		—
Collateralized mortgage obligations		192,393		—		192,393		—
Mortgage-backed securities		599		—		599		—
Obligations of states and political subdivisions		192,485		—		192,485		—
Total	$	437,000	$	51,523	$	385,477	$	—

Investments measured on a recurring basis:

Description	12/31/2008		Active Markets for Identical Assets Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. treasury securities	$	10,152	$	10,152	$	—	$	—
U.S. government agency debt		76,477	$	76,477	$	—	$	—
Collateralized mortgage obligations		131,841		—		131,841		—
Mortgage-backed securities		595		—		595		—
Obligations of states and political subdivisions		163,292		—		163,292		—
Total	$	382,357	$	86,629	$	295,728	$	—

The types of instruments valued based on quoted market prices in active markets include most U.S. government debt and agency debt securities. Such instruments are generally classified within level 1 or level 2 of the fair value hierarchy. Suffolk does not adjust the quoted price for such instruments.

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include state and municipal obligations, mortgage-backed securities and collateralized mortgage obligations. Such instruments are generally classified within level 2 of the fair value hierarchy.

FASB ASC 820, “Fair Value Measurements and Disclosures,” provides additional guidance in determining fair values when the volume and level of activity for the asset or liability have significantly decreased, particularly when there is no active market or where the price inputs being used represent distressed sales. It also provides guidelines for making fair value measurements more consistent with principles, reaffirming the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets become inactive. Suffolk adopted this codification effective April 1, 2009. The adoption did not have a material impact on Suffolk’s financial condition and results of operations. The additional disclosures are included herein.

Deposit Liabilities

The fair value of certificates of deposit less than $100,000 was calculated by discounting cash flows with applicable origination rates. At December 31, 2009, the fair value of certificates of deposit less than $100,000 totaling $108,245,000 had a carrying value of $107,181,000. At December 31, 2009, the fair value of certificates of deposit more than $100,000 totaling $212,796,000 had a carrying value of $211,898,000.

43

Commitments to Extend Credit, Standby Letters of Credit, and Written Financial Guarantees

The fair value of commitments to extend credit was estimated by either discounting cash flows or using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the current creditworthiness of the counterparties.

Credit in the form of revolving open-end lines secured by one- to four-family residential properties, commercial real estate, construction and land development loans, and lease financing arrangements was $148,309,000 and $181,744,000 as of December 31, 2009 and 2008, respectively.

The estimated fair value of written financial guarantees and letters of credit is based on fees currently charged for similar agreements. The contractual amounts of these commitments were $70,654,000 and $74,137,000 at December 31, 2009 and 2008, respectively. The fees charged for the commitments were not material in amount.

Note 15 — Selected Quarterly Financial Data (Unaudited)

The comparative results for the four quarters of 2009 and 2008 are as follows: (in thousands of dollars except for share and per-share data)

	2009								2008
	1st Qtr.		2nd Qtr.		3rd Qtr.		4th Qtr.		1st Qtr.		2nd Qtr.		3rd Qtr.		4th Qtr.
Interest income	$	21,700	$	22,028	$	21,516	$	21,764	$	21,967	$	21,986	$	22,454	$	22,050
Interest expense		3,561		3,119		3,042		2,950		6,104		5,548		5,769		4,817
Net interest income		18,139		18,909		18,474		18,814		15,863		16,438		16,685		17,233
Provision for loan losses		975		1,050		975		1,275		225		300		300		1,225
Net interest income after provision for loan losses		17,164		17,859		17,499		17,539		15,638		16,138		16,385		16,008
Other income		2,761		2,826		2,766		2,765		6,350		2,692		2,801		2,800
Other expense		11,676		12,531		12,034		12,560		10,354		10,435		11,345		10,567
Provision for income taxes		2,592		2,444		2,203		2,591		4,075		2,681		2,168		2,499
Net income	$	5,657	$	5,710	$	6,028	$	5,153	$	7,559	$	5,714	$	5,673	$	5,742
Basic per-share data:
Net income	$	0.59	$	0.59	$	0.63	$	0.54	$	0.79	$	0.60	$	0.59	$	0.60
Cash dividends	$	0.22	$	0.22	$	0.22	$	0.22	$	0.22	$	0.22	$	0.22	$	0.22
Average shares		9,590,571		9,598,364		9,607,023		9,615,320		9,593,554		9,568,730		9,575,691		9,582,147

44

Note 16 — Suffolk Bancorp (Parent Company Only) Condensed Financial Statements (in thousands)

Condensed Statements of Condition as of December 31,	2009			2008			2007
Assets
Due From Banks	$	2,745		$	2,163		$	2,177
Investment in Subsidiaries: SCNB		136,448			112,337			108,969
Other Assets		444			457			341
Total Assets	$	139,637		$	114,957		$	111,487
Liabilities and Stockholders’ Equity
Dividends Payable	$	2,115		$	2,108		$	2,121
Other Liabilities		351			448			385
Stockholders’ Equity		137,171			112,401			108,981
Total Liabilities and Stockholders’ Equity	$	139,637		$	114,957		$	111,487
Condensed Statements of Income for the Years Ended December 31,	2009			2008			2007
Income
Dividends From Subsidiary Bank		8,451			9,416			29,079
		8,451			9,416			29,079
Expense
Other Expense		291			331			434
Income Before Equity in Undistributed Net Income of Subsidiaries		8,160			9,085			28,645
Equity in Undistributed Earnings of Subsidiaries		14,388			15,603			(6,517	)
Net Income	$	22,548		$	24,688		$	22,128
Condensed Statements of Cash Flows for the Years Ended December 31,	2009			2008			2007
Cash Flows From Operating Activities
Net Income	$	22,548		$	24,688		$	22,128
Less: Equity in Undistributed Earnings of Subsidiaries		(14,388	)		(15,603	)		6,517
Other, Net		56			130			245
Net Cash Provided by Operating Activities		8,216			9,215			28,890
Cash Flows From Financing Activities
Stock Dividend Reinvestment		809			463			—
Repurchase of Common Stock		—			(1,253	)		(20,227	)
Dividends Paid		(8,443	)		(8,439	)		(8,784	)
Net Cash Used in Financing Activities		(7,634	)		(9,229	)		(29,011	)
Net Increase (Decrease) in Cash and Cash Equivalents		582			(14	)		(121	)
Cash and Cash Equivalents, Beginning of Year		2,163			2,177			2,298
Cash and Cash Equivalents, End of Year	$	2,745		$	2,163		$	2,177

Note: No income tax provision has been recorded on the books of Suffolk Bancorp since it files a return consolidated with its subsidiaries.

45

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and

Shareholders of Suffolk Bancorp

We have audited Suffolk Bancorp (a New York corporation) and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Suffolk Bancorp’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included inManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on Suffolk Bancorp’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Suffolk Bancorp and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established inInternal Control—Integrated Frameworkissued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of condition of Suffolk Bancorp and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009 and our report dated March 12, 2010 expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

GRANT THORNTON LLP

New York, New York

March 12, 2010

46

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

Board of Directors and

Shareholders of Suffolk Bancorp

We have audited the accompanying consolidated statements of condition of Suffolk Bancorp (a New York corporation) and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Suffolk Bancorp and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Suffolk Bancorp and its subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 12, 2010 expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

GRANT THORNTON LLP

New York, New York

March 12, 2010

REPORT OF MANAGEMENT

Board of Directors and

Shareholders of Suffolk Bancorp

The management of Suffolk Bancorp is responsible for the preparation and integrity of the consolidated financial statements and all other information in this annual report, whether audited or unaudited. The financial statements have been prepared in accordance with generally accepted accounting principles and, where necessary, are based on management’s best estimates and judgment. The financial information contained elsewhere in this annual report is consistent with that in the consolidated financial statements.

Suffolk Bancorp’s independent registered public accounting firm has been engaged to perform an audit of the consolidated financial statements in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), and the firm’s report expresses its opinion as to the fair presentation of the consolidated financial statements and conformity with generally accepted accounting principles.

Suffolk Bancorp maintains systems of internal controls that provide reasonable assurance that assets are safeguarded and keeps reliable financial records for preparing financial statements. Internal audits are conducted to continually evaluate the adequacy and effectiveness of such internal controls, policies, and procedures.

The audit committee of the Board of Directors, which is composed entirely of directors who are not employees of Suffolk Bancorp, meets periodically with the internal auditors and management to discuss audit and internal accounting controls, regulatory audits, and financial reporting matters.

/s/ J. Gordon Huszagh

J. Gordon Huszagh

President & Chief Executive Officer,

/s/ Stacey L. Moran

Stacey L. Moran

Executive Vice President & Chief Financial Officer

Riverhead, New York

March 12, 2010

47

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2009

-OR-

¨ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from            to            .

Commission File Number: 000-13580

SUFFOLK BANCORP

(Name of Issuer in Its Charter)

New York	11-2708279
(State or Other Jurisdiction of Incorporation of Organization)	(I.R.S. Employer Identification No.)

4 West Second Street, P.O. Box 9000, Riverhead, New York	11901
(Address of Principal Executive Offices)	(Zip Code)

Issuer’s Telephone Number, Including Area Code:(631) 727-5667

Securities registered under Section 12(b) of the Exchange Act:

Title of each class:	Name of each exchange on which registered:
Common stock, par value $2.50 per share	The NASDAQ Global Select Market

Securities registered under Section 12(g) of the Exchange Act: None

(Title of Class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.    YES  ¨    NO  x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    YES  ¨    NO  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨    Smaller Reporting Company  ¨

Indicate by check mark whether the Registrant is a shell company.    YES  ¨    NO  x

The aggregate market value of the common equity held by non-affiliates of the Registrant as of the last business day of the Registrant’s most recently completed second fiscal quarter was $240.9 million.

As of January 31, 2010, there were 9,630,399 shares outstanding of the Registrant’s common stock.

PART I

DOCUMENT INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for its Annual Meeting of Shareholders to be held April 13, 2010, filed on March 12, 2010. (Part III)

ITEM 1. Business

Suffolk Bancorp (“Suffolk”)

Suffolk was incorporated on January 2, 1985 as a bank holding company. On that date, Suffolk acquired, and currently owns, all of the outstanding capital stock of Suffolk County National Bank. On July 14, 1988, Suffolk acquired all the outstanding capital stock of Island Computer Corporation of New York, Inc. The business of Suffolk consists primarily of the ownership, supervision, and control of its subsidiaries. On April 11, 1994, Suffolk acquired all the outstanding capital stock of Hamptons Bancshares, Inc. and merged it into a subsidiary. During 1996, the operations of Island Computer Corporation of New York, Inc. were assumed by Suffolk County National Bank.

Suffolk’s chief competition includes local banks with main or branch offices in the service area of Suffolk County National Bank, including Bank of Smithtown and Bridgehampton National Bank. Additionally, New York City money center banks and regional banks provide competition. These banks include primarily Capital One, Citibank, Bank of America, JPMorgan Chase & Co., TD Bank, and Hudson City Savings.

Suffolk and its subsidiaries had 359 full-time and 51 part-time employees on December 31, 2009.

Suffolk County National Bank (the “Bank”)

The Suffolk County National Bank of Riverhead was organized under the national banking laws of the United States of America on January 6, 1890. The Bank is a member of the Federal Reserve System, and its deposits are insured by the Federal Deposit Insurance Corporation to the extent provided by law.

Directed by members of the communities it serves, the Bank’s main service area includes the towns of Babylon, Brookhaven, East Hampton, Islip, Riverhead, Smithtown, Southampton, and Southold. The main office of the Bank is situated at 6 West Second Street, Riverhead, New York. Its branch offices are located at Bohemia, Center Moriches, Cutchogue, Deer Park, East Hampton, Hampton Bays, Hauppauge, Manorville, Mattituck, Medford, Middle Island, Miller Place, Montauk, Port Jefferson, Port Jefferson Station, Riverhead, Sag Harbor, Sayville, Shoreham, Smithtown, Southampton, Wading River, Water Mill, West Babylon, and Westhampton Beach, New York. An additional office in Amityville is scheduled to open in late 2010.

The Bank is a full-service bank serving the needs of the local residents of Suffolk County. Most of the Bank’s business is devoted to serving those residing in the immediate area of the Bank’s main and branch offices. Among the services offered by the Bank are checking accounts, savings accounts, time and savings certificates, money market accounts, negotiable-order-of-withdrawal accounts, holiday club accounts, and individual retirement accounts; secured and unsecured loans, including commercial loans to individuals, partnerships, and corporations, agricultural loans to farmers, installment loans to finance small businesses, mobile home loans, and automobile loans; home equity and real estate mortgage loans; safe deposit boxes; trust and estate services; the sale of mutual funds and annuities; and the maintenance of a master pension plan for self-employed individuals’ participation. The business of the Bank is only mildly seasonal.

BUSINESS SEGMENT REPORTING

Suffolk County National Bank is a regional bank, which offers a wide array of products and services to its customers. Pursuant to its banking strategy, emphasis is placed on building relationships with its customers, as opposed to building specific lines of business. As a result, at December 31, 2009 and 2008, Suffolk is not organized around discernible lines of business and prefers to work as an integrated unit to customize solutions for its customers, with business line emphasis and product offerings changing over time as needs and demands change. See page 29 of this Annual Report to Shareholders for the fiscal year ended December 31, 2009.

AVAILABLE INFORMATION

Suffolk files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Form 14(a), and any amendments to those reports, with the United States Securities and Exchange Commission (the “SEC”). The public may read and copy any of these materials at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330 (1-800-732-0330). The SEC also maintains an Internet site (http://www.sec.gov) that contains reports, proxy, and information statements, and other information regarding issuers, including Suffolk, that file electronically with the SEC. Suffolk also makes these reports available free of charge through its Internet website (http://www.suffolkbancorp.com) as soon as practicably possible after Suffolk files these reports electronically with the SEC.

SUPERVISION AND REGULATION

References in this section to applicable statutes and regulations are brief summaries only, and do not purport to be complete. The reader should consult such statutes and regulations themselves for a full understanding of the details of their operation.

As a consequence of the extensive regulation of commercial banking activities in the United States, the business of Suffolk and its subsidiaries is particularly susceptible to federal and state legislation that may have the effect of increasing or decreasing the cost of doing business, modifying permissible activities, or enhancing the competitive position of other financial institutions.

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Suffolk is a bank holding company registered under the Bank Holding Company Act (“BHC”Act) and is subject to supervision and regulation by the Federal Reserve Board. Federal laws subject bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violation of laws and policies.

Activities “Closely Related” to Banking

The BHC Act prohibits a bank holding company, with certain limited exceptions, from acquiring direct or indirect ownership or control of any voting shares of any company that is not a bank or from engaging in any activities other than those of banking, managing or controlling banks and certain other subsidiaries, or furnishing services to or performing services for its subsidiaries. One principal exception to these prohibitions allows the acquisition of interests in companies whose activities are found by the Federal Reserve Board, by order or regulation, to be closely related to banking, or managing or controlling banks. If a bank holding company has become a “Financial Holding Company” (a “FHC”), it may engage in activities that are jointly determined by the Federal Reserve Board and the Treasury Department to be “financial in nature or incidental to such financial activity.” FHCs may also engage in activities that are determined by the Federal Reserve to be “complementary to financial activities.” See “Gramm-Leach-Bliley Act” for a brief summary of the statutory provisions relating to FHC’s.

Safe and Sound Banking Practices

Bank holding companies are not permitted to engage in unsafe and unsound banking practices. The Federal Reserve Board may order a bank holding company to terminate an activity or control of a nonbank subsidiary if such activity or control constitutes a significant risk to the financial safety, soundness, or stability of a subsidiary bank and is inconsistent with sound banking principles. Regulation Y also requires a holding company to give the Federal Reserve Board prior notice of any redemption or repurchase of its own equity securities, if the consideration to be paid, together with the consideration paid for any repurchases or redemptions in the preceding year, is equal to 10 percent or more of the company’s consolidated net worth.

The Federal Reserve Board has broad authority to prohibit activities of bank holding companies and their non-banking subsidiaries which represent unsafe and unsound banking practices or which constitute violations of laws or regulations. Notably, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) provides that the Federal Reserve Board can assess civil money penalties for such practices or violations, which can be as high as $1 million per day. FIRREA contains expansive provisions regarding the scope of individuals and entities against which such penalties may be assessed.

Annual Reporting and Examinations

Suffolk is required to file an annual report with the Federal Reserve Board, and such additional information as the Federal Reserve Board may require pursuant to the BHC Act. The Federal Reserve Board may examine a bank holding company or any of its subsidiaries, and charge the company for the cost of such an examination. Suffolk is also subject to reporting and disclosure requirements under state and federal securities laws.

Imposition of Liability for Undercapitalized Subsidiaries

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) required each federal banking agency to revise its risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk, and the risks of nontraditional activities, as well as reflect the actual performance and expected risk of loss on multifamily mortgages. In accordance with the law, each federal banking agency has specified, by regulation, the levels at which an insured institution would be considered “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” Under these regulations, as of December 31, 2009, the Bank would be deemed to be “well capitalized.”

FDICIA requires bank regulators to take “prompt corrective action” to resolve problems associated with insured depository institutions. In the event an institution becomes “undercapitalized,” it must submit a capital restoration plan. If an institution becomes “significantly undercapitalized” or “critically undercapitalized,” additional and significant limitations are placed on the institution. The capital restoration plan of an undercapitalized institution will not be accepted by the regulators unless each company “having control of” the undercapitalized institution “guarantees” the subsidiary’s compliance with the capital restoration plan until it becomes “adequately capitalized.” Suffolk has control of the Bank for the purpose of this statute.

Additionally, Federal Reserve Board policy discourages the payment of dividends by a bank holding company from borrowed funds as well as payments that would adversely affect capital adequacy. Failure to meet the capital guidelines may result in supervisory or enforcement actions by the Federal Reserve Board.

Acquisition by Bank Holding Companies

The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before it may acquire all or substantially all of the assets of any bank, or ownership or control of any voting shares of any bank, if after such acquisition it would own or control, directly or indirectly, more than 5 percent of the voting shares of such bank. In approving bank acquisitions by bank holding companies, the Federal Reserve Board is required to consider the financial and managerial resources and future prospects of the bank holding company and banks concerned, the convenience and needs of the communities to be served, and the effect on competition. The Attorney General of the United States may, within 30 days after approval of an acquisition by the Federal Reserve Board, bring an action challenging such acquisition under the federal antitrust laws, in which case the effectiveness of such approval is stayed pending a final ruling by the courts. Under certain circumstances, the 30-day period may be shortened to 15 days.

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Interstate Acquisitions

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, beginning September 29, 1995, bank holding companies may acquire banks in any state subject to limited restrictions including bank age and deposit concentration limits, notwithstanding contrary state law. All banks owned in common by a bank holding company may act as agents for one another. An agent bank may receive deposits, renew time deposits, accept payments, and close and service loans for its principal bank and not be considered to be a branch of the principal banks.

Banks also may merge with banks in another state and operate either office as a branch, preexisting contrary state law notwithstanding. This law became effective automatically in all states on June 1, 1997, unless a state, by legislation enacted before June 1, 1997, opted out of coverage by the interstate branching provision. Upon consummation of an interstate merger, the resulting bank may acquire or establish branches on the same basis that any participant in the merger could have if the merger had not taken place.

Banks may also merge with branches of banks in other states without merging with the banks themselves, or may establishde novo branches in other states if the laws of the other states expressly permit such mergers or such interstatede novo branching.

Banking Regulation

The Bank is a national bank, which is subject to regulation and supervision primarily by the Office of the Comptroller of the Currency (the “OCC”) and secondarily by the Federal Reserve Board and the Federal Deposit Insurance Corporation (the “FDIC”). The Bank is subject to the requirements and restrictions under federal law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Bank.

Restrictions on Transactions with Affiliates

Section 23A of the Federal Reserve Act imposes quantitative and qualitative limits on transactions between a bank and any affiliate, and requires certain levels of collateral for such loans. It also limits the amount of advances to third parties which are collateralized by the securities or obligations of Suffolk or its subsidiaries.

Section 23B requires that certain transactions between the Bank and its affiliates must be on terms substantially the same, or at least as favorable, as those prevailing at the time for comparable transactions with or involving other nonaffiliated companies. In the absence of such comparable transactions, any transaction between the Bank and its affiliates must be on terms and under circumstances, including credit standards, that in good faith would be offered to or would apply to nonaffiliated companies.

Examinations

The OCC regularly examines the Bank and records of the Bank. The FDIC may also periodically examine and evaluate insured banks. In addition, the Federal Reserve Board regularly examines the Bank and records of Suffolk.

Standards for Safety and Soundness

As part of the FDICIA’s efforts to promote the safety and soundness of depository institutions and their holding companies, appropriate federal banking regulators are required to have in place regulations specifying operational and management standards (addressing internal controls, loan documentation, credit underwriting, and interest rate risk), asset quality, and earnings. In addition, the Federal Reserve Board, the OCC, and FDIC have extensive authority to police unsafe or unsound practices and violations of applicable laws and regulations by depository institutions and their holding companies. For example, the FDIC may terminate the deposit insurance of any institution that it determines has engaged in an unsafe or unsound practice. The agencies can also assess civil money penalties of up to $1 million per day, issue cease-and-desist or removal orders, seek injunctions, and publicly disclose such actions.

Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act, effective on March 11, 2000, permits bank holding companies to become FHCs and, by doing so, affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or complementary thereto. A bank holding company may become a FHC, if each of its subsidiary banks is “well capitalized” under the FDICIA prompt corrective action provisions, is “well managed,” and has at least a “satisfactory” rating under the Community Reinvestment Act as of 1977 as amended (the “CRA”), by filing a declaration that the bank holding company wishes to become a FHC and meets all applicable requirements.

No prior regulatory approval is required for a FHC to acquire a company, other than a bank or savings association, engaged in activities permitted under the Gramm-Leach-Bliley Act. Activities specified in the Gramm-Leach-Bliley Act as being “financial in nature” include securities underwriting and dealing, and insurance underwriting and agency activities. Activities that the Federal Reserve Board has determined to be closely related to banking are also deemed to be financial in nature.

A national bank also may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, merchant banking, real estate development, and real estate investment, through a financial subsidiary of the bank, if the bank is “well capitalized,” “well managed,” and has at least a “satisfactory” CRA rating. Subsidiary banks of a FHC or national bank with financial subsidiaries must continue to be well capitalized and well managed in order to continue to engage in such activities without regulatory actions or restrictions, which could include divestiture of the financial subsidiary or subsidiaries. In addition, a FHC or a bank may not acquire a company that is engaged in such activities unless each of the subsidiary banks of the FHC or the bank has at least a “satisfactory” rating. At December 31, 2009, the Bank was rated as “outstanding.”

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In July of 2001, provisions of the Gramm-Leach-Bliley Act became effective that impose additional requirements on financial institutions with respect to customer privacy. These provisions generally prohibit disclosure of customer information to nonaffiliated third parties unless the customer has been given the opportunity to object, and has not objected, to such disclosure. Financial institutions are also required to disclose their privacy policies to customers annually and may be required to comply with provisions of applicable state law if such provisions are more protective of customer privacy than those contained in the Gramm-Leach-Bliley Act.

Governmental Monetary Policies and Economic Conditions

The principal sources of funds essential to the business of banks and bank holding companies are deposits, stockholders’ equity, and borrowed funds. The availability of these various sources of funds and other potential sources, such as preferred stock or commercial paper, and the extent to which they are utilized, depends on many factors, the most important of which are the Federal Reserve Board’s monetary policies and the relative costs of different types of funds. An important function of the Federal Reserve Board is to regulate the national supply of bank credit in order to combat recession and curb inflationary pressure. Among the instruments of monetary policy used by the Federal Reserve Board to implement these objectives are open market operations in United States government securities, changes in the discount rate on bank borrowings, and changes in reserve requirements against bank deposits. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. In view of the recent changes in regulations affecting commercial banks and other actions and proposed actions by the federal government and its monetary and fiscal authorities, including proposed changes in the structure of banking in the United States, no prediction can be made as to future changes in interest rates, availability of credit, deposit balances, or the overall performance of banks generally or of Suffolk and its subsidiaries in particular.

ITEM 1A. Risk Factors

Net income at Suffolk is primarily reliant on its ability to generate net interest income, and to a lesser extent, fee income. Accordingly, factors affecting Suffolk Bancorp include particularly, but are not limited to: credit risk, the ability of borrowers to repay debt; interest rate risk, changes in interest rates that may cause the net interest margin between earning assets and interest-bearing liabilities to contract; market risk, changes in the market value of securities owing to changes in interest rates; increases or decreases in retail and commercial economic activity in Suffolk’s market area; and 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 operations. Each of these factors may change in ways that management does not now foresee. 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.

Additional information about the nature of these risks and how they are managed can be found in the following locations in this report:

Credit Risk: under the captions “Non-Performing Loans” and “Summary of Loan Losses and Allowance for Loan Losses” on page 13 of this report.

Interest Rate Risk: under the captions “Asset/Liability Management & Liquidity” and “Interest Rate Sensitivity” and on pages 17 and 18 of this report, respectively.

Market Risk: under the caption “Market Risk” on page 19 of this report.

Management believes that it is imprudent to make or rely on assertions made before the fact concerning the probability that any specific risk will be realized, and that any such assertions would be speculative. Instead, credit, asset/liability management, investment, compliance, risk management, and other operating policies are written to account for a range of possible outcomes, and prevent or ameliorate those outcomes falling at the margins of possible occurrence.

ITEM 1B. Unresolved Staff Comments

None.

STATISTICAL DISCLOSURE

ITEM 2. Properties

Registrant

Suffolk as such has no physical properties. Office facilities of Suffolk are located at 4 West Second Street, Riverhead, New York.

Bank

The Bank’s main office campus, with three buildings, is located at 6 West Second Street, Riverhead, New York, title to which is held by the Town of Riverhead, New York Industrial Development Agency for reasons of tax abatement, but to which the Bank has all other rights of ownership. The Bank also owns a total of 12 properties with 12 buildings in fee, and holds 17 buildings under lease agreements. The bank also holds one building under lease agreements that will commence upon occupancy of the building in 2010. Management believes that the physical facilities are suitable and adequate and at present are being fully utilized. Suffolk, however, evaluates future needs continuously and anticipates other changes in its facilities during the next several years.

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ITEM 3. Legal Proceedings

There are no material legal proceedings, individually or in the aggregate, to which Suffolk or its subsidiaries are a party or of which any of the property is subject.

ITEM 4. Submission of Matters to a Vote of Security Holders

None.

PART II

ITEM 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Pages 6, 20, and 25 of this Annual Report to Shareholders for the fiscal year ended December 31, 2009.

Comparison of Cumulative Total Return of Suffolk Bancorp, Industry Index, and Broad Market (in $)

	1/1/05	12/31/05	12/31/06	12/31/07	12/31/08	12/31/09
Suffolk Bancorp	100.00	96.96	109.47	88.17	102.18	85.27
NASDAQ Banks	100.00	97.69	109.64	86.90	63.36	53.09
NASDAQ US	100.00	102.13	112.19	121.68	58.64	84.28
source: CRSP Total Return Indices - NASDAQ

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At January 31, 2010, there were approximately 1,428 equity holders of record and approximately 6,485 beneficial shareholders of the Company’s common stock. The increase in the number of beneficial shareholders from 2,235 reported last year is primarily due to an investment manager at an investment bank adding Suffolk’s common stock to an investment strategy, resulting in the acquisition of the stock by a large number of the clients of the manager following that strategy. Information concerning dividends and the price range of the common stock can be found on page 6 of this Annual Report to Shareholders.

The following table illustrates equity compensation plan information as of December 31, 2009:

Equity Compensation Plan Information (item 201(d))

Plan category at December 31, 2009	Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a)	Weighted-average exercise price of outstanding options, warrants, and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
	$	$	$
Equity compensation plans approved by security holders	154,500	27.81	500,000
Equity compensation plans not approved by security holders	—	—	—
Total	154,500	27.81	500,000

ITEM 6. Selected Quarterly Financial Data

Page 44 of this Annual Report to Shareholders for the fiscal year ended December 31, 2009.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Pages 7—22 of this Annual Report to Shareholders for the fiscal year ended December 31, 2009.

ITEM 7a. Quantitative and Qualitative Disclosure about Market Risk

Page 19 of this Annual Report to Shareholders for the fiscal year ended December 31, 2009.

ITEM 8. Financial Statements and Supplementary Data

Pages 23—45 of this Annual Report to Shareholders for the fiscal year ended December 31, 2009.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9a. 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 for Suffolk. Based upon their evaluation of these controls and procedures as of a date within 90 days of the filing of this report, the Certifying Officers have concluded that Suffolk’s disclosure controls and procedures are effective to ensure that information required to be disclosed by Suffolk in this report is accumulated and communicated to Suffolk’s management, including its principal executive officers as appropriate, to allow timely decisions regarding required disclosure.

The Certifying Officers also have indicated that there were no significant changes in Suffolk’s internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses. Management’s Report on Internal Control over Financial Reporting is incorporated herein and can be found on page 22. The effectiveness of Suffolk’s internal control over financial reporting as of December 31, 2009, has been audited by Grant Thornton LLP whose report can be found on page 46.

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PART III

ITEM 10. Directors and Executive Officers of the Registrant

Pages 3-9 of Registrant’s Proxy Statement for its Annual Meeting of Shareholders to be held on April 13, 2010 is incorporated herein by reference.

EXECUTIVE OFFICERS

Name	Age	Position		Business Experience
J. Gordon Huszagh	56	President & Chief Executive Officer	Feb-09	- Present President, Chief Executive Officer, and Director, Suffolk Bancorp
			Feb-09	- Present President, Chief Executive Officer, and Director, SCNB
			Jan-99	- Mar-09 Chief Financial Officer, Suffolk Bancorp, SCNB
			Jan-99	- Feb-09 EVP, Suffolk Bancorp, SCNB
			Jan-97	- Jan-99 SVP and Chief Financial Officer, SCNB
			Dec-92	- Dec-96 SVP & Comptroller, SCNB
			Dec-88	- Dec-92 VP & Comptroller, SCNB
			Dec-86	- Dec-88 VP, SCNB
			Jan-83	- Dec-86 Auditor, SCNB
			1975	- 1982 Eastern Federal Savings and Loan
			Employed by SCNB since January 1983.
Stacey L. Moran	42	Executive Vice President and	Mar-09	- Present EVP and Chief Financial Officer, Suffolk Bancorp
		Chief Financial Officer	Mar-09	- Present EVP and Chief Financial Officer, SCNB
			Apr-06	- Mar-09 VP and Comptroller, SCNB
			Jan-04	- Apr-06 AVP, Assistant Comptroller, SCNB
			May-98	- Jan-04 Bank Officer, Assistant Comptroller, SCNB
			Dec-95	- May-98 Controller, Excel Technology, Inc.
			Sep-89	Dec-95 KPMG LLP
			Employed by SCNB since May 1998.
Robert C. Dick	60	Executive Vice President and	Apr-00	- Present EVP, Suffolk Bancorp
		Chief Lending Officer	Apr-00	- Present EVP and Chief Lending Officer, SCNB
			Oct-99	- Apr-00 SVP and Chief Lending Officer, SCNB
			Dec-88	- Oct-99 SVP, Commercial Loans, SCNB
			Dec-82	- Apr-88 VP, Commercial Loans, SCNB
			1965	- 1980 Security National Bank/Chemical Bank
			Employed by SCNB since January 1980.
Frank D. Filipo	58	Executive Vice President,	Mar-03	- Present EVP, Suffolk Bancorp
		Retail Banking	Mar-03	- Present EVP, Retail Banking, SCNB
			Sep-01	- Mar-03 SVP, Retail Banking, SCNB
			Sep-96	- Sep-01 Regional Administrator, North Fork Bank
			Apr-94	- Sep-96 SVP, Commercial Loans, SCNB
			Jul-84	- Apr-94 EVP, Senior Lending Officer, Bank of the Hamptons, N.A.
			1982	- Jul-84 VP Commercial Loans, Continental Bank
			Employed by SCNB from April 1994 to September 1996 and since September 2001.

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ITEM 11. Executive Compensation

Pages 9-18 of Registrant’s Proxy Statement for its Annual Meeting of Shareholders to be held on April 13, 2010 is incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

Pages 2, 13, 14, and 15 of Registrant’s Proxy Statement for its Annual Meeting of Shareholders to be held on April 13, 2010 is incorporated herein by reference.

ITEM 13. Certain Relationships and Related Transactions

Pages 5-6 of Registrant’s Proxy Statement for its Annual Meeting of Shareholders to be held on April 13, 2010 is incorporated herein by reference.

ITEM 14. Principal Accountant Fees and Services

The following table presents the fees billed for each of the last two fiscal years by Suffolk’s principal accountant by category:

	2009		2008
Audit fees	$	322,707	$	278,837
Audit-related fees		24,840		35,160
Tax fees		—		—
All other fees		6,727		1,500
	$	354,274	$	315,497

The Audit Committee pre-approves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for Suffolk by its independent auditor, subject to thede minimisexceptions for non-audit services described in Section 10A (i) (1) (B) of the Exchange Act which are approved by the Committee prior to the completion of the audit. The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting. Fees for consultation concerning the computation and filing of income taxes amounting to $45,000 for 2009 were paid to the firm of Marcum & Kliegman, LLP.

PART IV

ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

The following consolidated financial statements of the Registrant and Subsidiaries, and the accountant’s report thereon, are included on pages 23 through 45 inclusive.

Financial Statements (Consolidated)

Statements of Condition — December 31, 2009 and 2008.

Statements of Income — For the years ended December 31, 2009, 2008, and 2007.

Statements of Changes in Stockholders’ Equity — For the years ended December 31, 2009, 2008, and 2007.

Statements of Cash Flows — For the years ended December 31, 2009, 2008, and 2007.

Notes to Consolidated Financial Statements

EXHIBITS

The following exhibits, which supplement this report, have been filed with the Securities and Exchange Commission. Suffolk Bancorp will furnish a copy of any or all of the following exhibits to any persons sending a request in writing to the Corporate Secretary, Suffolk Bancorp, 4 West Second Street, P.O. Box 9000, Riverhead, New York 11901. Suffolk also makes these reports available free of charge through its Internet website (http://www.suffolkbancorp.com):

3.1	Certificate of Incorporation of Suffolk Bancorp (filed by incorporation by reference to Exhibit 3.(i) to Suffolk Bancorp’s Form 10-K for the fiscal year ended December 31, 1999, filed March 10, 2000)
3.2	Bylaws of Suffolk Bancorp (filed by incorporation by reference to Exhibit 3.(ii) to Suffolk Bancorp’s Form 10-K for the fiscal year ended December 31, 1999, filed March 10, 2000)
10.1	Suffolk Bancorp 2009 Stock Incentive Plan (filed by incorporation by reference to Exhibit C to Suffolk Bancorp’s Form 10-K for the fiscal year ended December 31, 2008, filed March 13, 2009)
10.2	Suffolk Bancorp Form of Change-of-Control Employment Contract (filed by incorporation by reference to Exhibit D to Suffolk Bancorp’s Form 10-K for the fiscal year ended December 31, 2008, filed March 13, 2009)
21.1	Subsidiaries of the Registrant (filed herewith)
23.1	Consent of Independent Registered Public Accounting Firm (filed herewith)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (filed herewith)
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith)

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Exhibit 31.1

CERTIFICATION OF PERIODIC REPORT

I, J. Gordon Huszagh, certify that:

1. I have reviewed this annual report on Form 10-K of Suffolk Bancorp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 12, 2010

/s/ J. GORDON HUSZAGH

J. Gordon Huszagh

President & Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF PERIODIC REPORT

I, Stacey L. Moran, certify that:

1. I have reviewed this annual report on Form 10-K of Suffolk Bancorp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 12, 2010

/s/ STACEY L. MORAN

Stacey L. Moran

Executive Vice President & Chief

Financial Officer

57

Exhibit 32.1

CERTIFICATION OF PERIODIC REPORT

I, J. Gordon Huszagh, President & Chief Executive Officer of Suffolk Bancorp (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Annual Report on Form 10-K of the Company for the year ended December 31, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 12, 2010

/s/ J. Gordon Huszagh

J. Gordon Huszagh

President & Chief Executive Officer

Exhibit 32.2

CERTIFICATION OF PERIODIC REPORT

I, Stacey L. Moran, Executive Vice President & Chief Financial Officer of Suffolk Bancorp (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Annual Report on Form 10-K of the Company for the year ended December 31, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 12, 2010

/s/ Stacey L. Moran

Stacey L. Moran

Executive Vice President & Chief Financial Officer

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: March 12, 2010

/s/ J. Gordon Huszagh

J. Gordon Huszagh

President & Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ EDGAR F. GOODALE
	Edgar F. Goodale
	Chairman of the Board & Director
By:	/s/ J. GORDON HUSZAGH
	J. Gordon Huszagh
	President, Chief Executive Officer (Principal Executive
	Officer) & Director
By:	/s/ STACEY L. MORAN
	Stacey L. Moran
	Executive Vice President & Chief Financial Officer
	(Principal Financial Officer & Principal Accounting Officer)
By:	/s/ JAMES E. DANOWSKI
	James E. Danowski
	Director
By:	/s/ JOSEPH A. GAVIOLA
	Joseph A. Gaviola
	Director
By:	/s/ DAVID A. KANDELL
	David A. Kandell
	Director
By:	/s/ THOMAS S. KOHLMANN
	Thomas S. Kohlmann
	Director
By:	/s/ TERENCE X. MEYER
	Terence X. Meyer
	Director
By:	/s/ SUSAN V. B. O’SHEA
	Susan V. B. O’Shea
	Director
By:	/s/ JOHN D. STARK, JR.
	John D. Stark, Jr.
	Director

58

DIRECTORS

James E. Danowski

Partner; Coughlin, Foundotos, Cullen & Danowski

(accounting firm)

Joseph A. Gaviola

Principal; Gaviola’s Montauk Market

Chris-Nic Properties

(retail, commercial and residential real estate)

Edgar F. Goodale

Chairman of the Board

President; Riverhead Building Supply Corp.

(building supply distributor)

J. Gordon Huszagh

President & Chief Executive Officer

David A. Kandell

Managing Partner; Kandell, Farnworth, & Pubins, C.P.A.’s

(accounting firm)

Thomas S. Kohlmann

Past Chairman, President & Chief Executive Officer

Terence X. Meyer

Managing Partner; Meyer, Meyer & Keneally, Esqs. L.L.P.

(attorneys)

Susan V. B. O’Shea

Managing Partner; O’Shea Properties

(commercial real estate)

John D. Stark, Jr.

Vice President; Foxwood Corporation

(manufactured housing)

OFFICERS

J. Gordon Huszagh

President & Chief Executive Officer

Stacey L. Moran

Executive Vice President & Chief Financial Officer

Robert C. Dick

Executive Vice President

Frank D. Filipo

Executive Vice President

Douglas Ian Shaw

Senior Vice President & Corporate Secretary

59

DIRECTORS

Edgar F. Goodale

Chairman of the Board

James E. Danowski

Joseph A. Gaviola

J. Gordon Huszagh

David A. Kandell

Thomas S. Kohlmann

Terence X. Meyer

Susan V. B. O’Shea

John. D. Stark, Jr.

EXECUTIVE OFFICERS

J. Gordon Huszagh

President & Chief Executive Officer

Stacey L. Moran

Executive Vice President &

Chief Financial Officer

Robert C. Dick

Executive Vice President &

Chief Lending Officer

Frank D. Filipo

Executive Vice President

Retail Banking

LOANS

Bruce W. Bradley

Senior Vice President

David T. DeVito

Senior Vice President

Joan Brigante

Senior Vice President

Robert T. Ellerkamp

Vice President

Robert P. Grady

Vice President

Wendy K. Harris

Vice President

Paul D. Hawkins, Jr.

Vice President

Benjamin Mancuso

Vice President

Gerard H. McGuirk

Vice President

William Mitarotondo

Vice President

Deborah Simonetti

Vice President

Thomas J. Sullivan

Vice President

Frederick J. Weinfurt

Vice President

RETAIL BANKING

Stanley V. Gelish

Senior Vice President

Anita J. Nigrel

Senior Vice President

Cynthia D’Andrea

Vice President

Maureen Hines

Vice President

David E. Lebens

Vice President

Susan M. Martinelli

Vice President

Bohemia Office

Steve E. Horner

1st Vice President

Center Moriches Office

Douglas S. Olsen

Vice President

Cutchogue Office

Kim Sweeney

Assistant Vice President

Deer Park Office

Steven DeLuca

1st Vice President

East Hampton Pantigo Office

Robert J. Mangels

Assistant Vice President

East Hampton Village Office

Rebecca L. Collins

Assistant Vice President

Hampton Bays Office

David C. Barczak

Vice President

Hauppauge Office

Mark J. Harrigan

Vice President

Manorville Office

Tara L. Bodkin

Assistant Vice President

Mattituck Office

Janet V. Stewart

Vice President

Medford Office

Paul E. Vaas

1st Vice President

Middle Island Office

Geralyn G. Harper

Assistant Vice President

Miller Place Office

Cynthia M. Berner

Assistant Vice President

Montauk Harbor Office

Montauk Village Office

John J. McDonald

Vice President

Port Jefferson Harbor Office

Port Jefferson Village Office

Jacqueline Brown

Vice President

Port Jefferson Station Office

Dawn M. Danielsen

Assistant Branch Manager

Riverhead, Ostrander

Avenue Office

Angela R. Reese

Vice President

Riverhead, Second Street Office

Vincent Cangiano

Vice President

Sag Harbor Office

Susan K. Tooker

Assistant Vice President

Sayville Office

Pamela S. Werner

Assistant Vice President

Shoreham Office

Wendy A. Stapon

Vice President

Smithtown Office

Susan L. Hughes

Assistant Vice President

Southampton Office

Patricia Bolomey

1st Vice President

Wading River Office

John A. Maki

Assistant Vice President

Water Mill Office

Jill James

Vice President

West Babylon Office

Joanne Goodman

Assistant Vice President

Westhampton Beach Office

Jayne D. Ebert

Vice President

TRUST & ASSET

MANAGEMENT GROUP

Dan A. Cicale

Senior Vice President

& Trust Officer

Trust & Estate Services

Linda A. Schwartz

Vice President & Trust Officer

Warren Palzer

Vice President

Lori E. Thompson

Vice President

SCNB Financial Services, Inc.

Martin Mangialardi

Vice President

AUDIT

Maria R. Michaelson

Senior Vice President

Tricia Thomas-Hector

Vice President

COLLECTIONS

Christopher R. Martinelli

Vice President

COMPTROLLERS

Erica S. Mathis

Senior Vice President

& Comptroller

Barbara J. Danowski

Vice President

& Assistant Comptroller

CORPORATE SERVICES

Douglas Ian Shaw

Senior Vice President &

Corporate Secretary

FACILITIES

Charles E. Anderson

Manager

HUMAN RESOURCES

Nancy Jacob

Senior Vice President

Christine Troyano

Vice President

INFORMATION

SECURITY

Joanne Appel

Vice President &

Information Security Officer

INFORMATION

TECHNOLOGY

Mark J. Drozd

Senior Vice President &

Chief Information Officer

Fred A. Bohonan

Vice President

MARKETING

Sandra K. Novick

Senior Vice President

Brenda B. Sujecki

Vice President

OPERATIONS

Dennis F. Orski

Senior Vice President

Deanna L. Miller

Vice President

RISK MANAGEMENT &

COMPLIANCE

Jeanne P. Kelley

Senior Vice President

Linda Follett

Vice President

SECURITY

Alexander B. Doroski

Senior Vice President

60

Directory of Offices and Departments

		Area Code (631)
ON THE WEB AT:	WWW.SCNB.COM	Telephone	FAX
Executive Offices	4 West Second Street, P.O. Box 9000, Riverhead, N.Y. 11901	208-2400	727-2638
Audit	4 West Second Street, P.O. Box 9000, Riverhead, N.Y. 11901	208-2285	727-8236
Bohemia Office	3880 Veterans Memorial Highway, Bohemia, N.Y. 11716	585-4477	585-4809
Business and Professional Banking Center	222 Middle Country Road, Smithtown, N.Y. 11787	979-3400	979-3430
Center Moriches Office	502 Main Street, Center Moriches, N.Y. 11934	878-8800	878-4431
Collections	206 Griffing Avenue, Riverhead, N.Y. 11901	208-2370	727-5732
Commercial Loans	4 West Second Street, P.O. Box 9000, Riverhead, N.Y. 11901	208-2201	727-5798
	3880 Veterans Memorial Highway, Bohemia, N.Y. 11716	580-0181	580-0183
	137 West Broadway, Port Jefferson, N.Y. 11777	642-1000	642-0200
	295 North Sea Road, Southampton, N.Y. 11968	287-3104	287-3296
Compliance	4 West Second Street, P.O. Box 9000, Riverhead, N.Y. 11901	208-2292	727-8010
Comptroller	4 West Second Street, P.O. Box 9000, Riverhead, N.Y. 11901	208-2270	369-2230
Consumer Loans	4 West Second Street, P.O. Box 9000, Riverhead, N.Y. 11901	208-2222	727-5521
Corporate Services (Investor Relations)	4 West Second Street, P.O. Box 9000, Riverhead, N.Y. 11901	727-5667	727-3214
Cutchogue Office	31525 Main Road, P.O. Box 702, Cutchogue, N.Y. 11935	734-5050	734-7759
Deer Park Office	21 East Industry Court, Suite 4, Deer Park, N.Y. 11729	274-4888	274-4810
East Hampton Pantigo Office	351 Pantigo Road, East Hampton, N.Y. 11937	324-2000	324-6367
East Hampton Village Office	99 Newtown Lane, East Hampton, N.Y. 11937	324-3800	324-3863
Facilities	4 West Second Street, P.O. Box 9000, Riverhead, N.Y. 11901	208-2333	208-0767
Hampton Bays Office	168 West Montauk Highway, Hampton Bays, N.Y. 11946	728-2700	728-8311
Hauppauge Office	110 Marcus Boulevard, Hauppauge, N.Y. 11788	436-5400	436-4454
Human Resources	4 West Second Street, P.O. Box 9000, Riverhead, N.Y. 11901	208-2310	727-3170
Information Technology	206 Griffing Avenue, Riverhead, N.Y. 11901	208-2495	369-5834
Investments and Insurance at SCNB	6 West Second Street, P.O. Box 9000, Riverhead, NY 11901	208-2380	727-3210
Manorville Office	460 County Road 111, Suite 18, Manorville, N.Y. 11949	281-8200	281-5695
Marketing	4 West Second Street, P.O. Box 9000, Riverhead, N.Y. 11901	208-2323	727-9223
Mattituck Office	10900 Main Road, P.O. Box 1420, Mattituck, N.Y. 11952	298-9400	298-9188
Medford Office	2801 Route 112, Suite B, Medford, N.Y. 11763	758-1500	758-1509
Middle Island Office	900 Middle Country Road, Middle Island, N.Y. 11953	345-0010	345-5377
Miller Place Office	159-21A Route 25A, Miller Place, N.Y. 11764	474-8400	474-5357
Montauk Harbor Office	541 West Lake Drive, P.O. Box 2368, Montauk, N.Y. 11954	668-4333	668-3643
Montauk Village Office	746 Montauk Highway, P.O. Box 743, Montauk, N.Y. 11954	668-5300	668-1214
Operations	206 Griffing Avenue, Riverhead, N.Y. 11901	208-2450	369-5834
Port Jefferson Harbor Office	135 West Broadway, Port Jefferson, N.Y. 11777	474-7200	331-7806
Port Jefferson Station Office	1510 Route 112, Port Jefferson Station, N.Y. 11776	473-0222	473-0775
Port Jefferson Village Office	228 East Main Street, Port Jefferson, N.Y. 11777	473-7700	473-9406
Residential Mortgage Loans	4 West Second Street, P.O. Box 9000, Riverhead, N.Y. 11901	208-2244	369-2468
Retail Banking	4 West Second Street, P.O. Box 9000, Riverhead, N.Y. 11901	208-2300	727-3873
Riverhead, Ostrander Avenue Office	1201 Ostrander Avenue, P.O. Box 9000, Riverhead, N.Y. 11901	727-6800	727-5095
Riverhead, Second Street Office	6 West Second Street, Riverhead, N.Y. 11901	208-2350	727-3210
Sag Harbor Office	17 Main Street, P.O. Box 1268, Sag Harbor, N.Y. 11963	725-3000	725-4627
Sayville Office	161 North Main Street, Sayville, N.Y. 11782	218-1600	218-9425
SCNB Financial Services, Inc.	31525 Main Road, P.O. Box 702, Cutchogue, N.Y. 11935	208-2380	727-3210
Shoreham Office	9926 Route 25A, P.O. Box 622, Shoreham, N.Y. 11786	744-4400	744-6743
Smithtown Office	222 Middle Country Road, Suite 108, Smithtown, N.Y. 11787	979-3400	979-3430
Southampton Office	295 North Sea Road, Southampton, N.Y. 11968	283-3800	287-3293
Trust and Asset Management	3880 Veterans Memorial Highway, Bohemia, N.Y. 11716	285-6600	285-6610
Wading River Office	2065 Wading River-Manor Road, Wading River, N.Y. 11792	929-6300	929-6799
Water Mill Office	828 Montauk Highway, P.O. Box 216, Water Mill, N.Y. 11976	726-4500	726-7573
West Babylon Office	955 Little East Neck Road, West Babylon, N.Y. 11704	669-7300	669-5211
Westhampton Beach Office	144 Sunset Avenue, Westhampton Beach, N.Y. 11978	288-4000	288-9252