10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

Commission file number 0-13580

SUFFOLK BANCORP

(Exact Name of Registrant as Specified in Its Charter)

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

4 West Second Street, Riverhead, New York	11901
(Address of Principal Executive Offices)	(Zip Code)

(631) 727-5667

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant is 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  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

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

10,251,106 SHARES OF COMMON STOCK OUTSTANDING AS OF August 2, 2006

This page left blank intentionally.

Page 2

SUFFOLK BANCORP AND SUBSIDIARIES

				Page
Part I - Financial Information (unaudited)
	Item 1. Financial Statements
		Consolidated Statements of Condition		4
		Consolidated Statements of Income, For the Three Months Ended June 30, 2006 and 2005		5
		Consolidated Statements of Income, For the Six Months Ended June 30, 2006 and 2005		6
		Consolidated Statements of Cash Flows, For the Six Months Ended June 30, 2006 and 2005		7
		Notes to the Unaudited Consolidated Financial Statements		8
			(1) Basis of Presentation	8
			(2) Stock-based Compensation	8
			(3) Recent Accounting Pronouncements	9
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			10
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			15
	Item 4. Controls and Procedures			15
Part II - Other Information
	Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities			15
	Item 6. Exhibits and Reports on Form 8-K			16
	Signatures			16
	Certifications of Periodic Report			17

Page 3

SUFFOLK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

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

	June 30, 2006			December 31, 2005
	unaudited
ASSETS
Cash & Due From Banks	$	59,285		$	48,530
Federal Funds Sold		5,000			—
Investment Securities:
Available for Sale, at Fair Value		395,826			400,038
Held to Maturity (Fair Value of $16,800 and $17,885, respectively)
Obligations of States & Political Subdivisions		10,168			11,378
Federal Reserve Bank Stock		638			638
Federal Home Loan Bank Stock		5,497			5,158
Corporate Bonds & Other Securities		100			100
Total Investment Securities		412,229			417,312
Total Loans		919,622			905,037
Less: Allowance for Loan Losses		7,084			9,828
Net Loans		912,538			895,209
Premises & Equipment, Net		22,364			22,792
Accrued Interest Receivable, Net		7,173			6,747
Excess of Cost Over Fair Value of Net Assets Acquired		814			814
Other Assets		23,701			18,462
TOTAL ASSETS	$	1,443,104		$	1,409,866
LIABILITIES & STOCKHOLDERS’ EQUITY
Demand Deposits	$	436,508		$	424,320
Saving, N.O.W. & Money Market Deposits		490,566			521,156
Time Certificates of $100,000 or more		45,603			15,825
Other Time Deposits		208,611			197,406
Total Deposits		1,181,288			1,158,707
Federal Funds Purchased		—			7,700
Federal Home Loan Bank Borrowings		90,350			83,000
Repurchase Agreements		52,835			37,275
Dividend Payable on Common Stock		2,260			2,081
Accrued Interest Payable		1,827			1,722
Other Liabilities		14,453			17,380
TOTAL LIABILITIES		1,343,013			1,307,865
STOCKHOLDERS’ EQUITY
Common Stock (par value $2.50; 15,000,000 shares authorized; 10,251,106 and 10,406,721 shares outstanding at June 30, 2006 and December 31, 2005, respectively)		33,884			33,884
Surplus		19,553			19,440
Treasury Stock at Par (3,302,630 and 3,147,015 shares, respectively)		(8,256	)		(7,868	)
Retained Earnings		60,446			58,823
		105,627			104,279
Accumulated Other Comprehensive Loss, Net of Tax		(5,536	)		(2,278	)
TOTAL STOCKHOLDERS’ EQUITY		100,091			102,001
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	1,443,104		$	1,409,866

See accompanying notes to consolidated financial statements.

Page 4

SUFFOLK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

	For the Three Months Ended
	June 30, 2006		June 30, 2005
	unaudited		unaudited
INTEREST INCOME
Federal Funds Sold	$	33	$	41
United States Treasury Securities		96		96
Obligations of States & Political Subdivisions		931		495
Mortgage-Backed Securities		1,935		2,579
U.S. Government Agency Obligations		1,222		1,222
Corporate Bonds & Other Securities		77		44
Loans		17,523		14,176
Total Interest Income		21,817		18,653
INTEREST EXPENSE
Saving, N.O.W. & Money Market Deposits		1,266		867
Time Certificates of $100,000 or more		265		131
Other Time Deposits		1,645		1,164
Federal Funds Purchased and Repurchase Agreements		844		387
Interest on Other Borrowings		1,128		202
Total Interest Expense		5,148		2,751
Net-interest Income		16,669		15,902
Provision for Loan Losses		300		375
Net-interest Income After Provision for Loan Losses		16,369		15,527
OTHER INCOME
Service Charges on Deposit Accounts		1,456		1,412
Other Service Charges, Commissions & Fees		768		669
Fiduciary Fees		340		277
Other Operating Income		155		131
Total Other Income		2,719		2,489
OTHER EXPENSE
Salaries & Employee Benefits		5,955		5,555
Net Occupancy Expense		974		849
Equipment Expense		519		540
Other Operating Expense		2,591		2,520
Total Other Expense		10,039		9,464
Income Before Provision for Income Taxes		9,049		8,552
Provision for Income Taxes		3,410		3,227
NET INCOME	$	5,639	$	5,325
Average: Common Shares Outstanding		10,297,824		10,616,833
Dilutive Stock Options		23,817		25,101
Average Total Common Shares and Dilutive Options		10,321,641		10,641,934
EARNINGS PER COMMON SHARE Basic	$	0.55	$	0.50
Diluted	$	0.55	$	0.50

See accompanying notes to consolidated financial statements.

Page 5

SUFFOLK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

	For the Six Months Ended
	June 30, 2006		June 30, 2005
	unaudited		unaudited
INTEREST INCOME
Federal Funds Sold	$	41	$	51
United States Treasury Securities		191		192
Obligations of States & Political Subdivisions		1,760		904
Mortgage-Backed Securities		3,965		5,236
U.S. Government Agency Obligations		2,444		2,445
Corporate Bonds & Other Securities		171		75
Loans		33,784		27,558
Total Interest Income		42,356		36,461
INTEREST EXPENSE
Saving, N.O.W. & Money Market Deposits		2,313		1,689
Time Certificates of $100,000 or more		462		248
Other Time Deposits		3,099		2,177
Federal Funds Purchased and Repurchase Agreements		1,506		489
Interest on Other Borrowings		2,152		462
Total Interest Expense		9,532		5,065
Net-interest Income		32,824		31,396
Provision for Loan Losses		600		675
Net-interest Income After Provision		32,224		30,721
OTHER INCOME
Service Charges on Deposit Accounts		2,854		2,770
Other Service Charges, Commissions & Fees		1,334		1,228
Fiduciary Fees		632		561
Other Operating Income		285		268
Total Other Income		5,105		4,827
OTHER EXPENSE
Salaries & Employee Benefits		12,013		11,079
Net Occupancy Expense		2,006		1,868
Equipment Expense		1,023		1,099
Other Operating Expense		4,857		4,711
Total Other Expense		19,899		18,757
Income Before Provision for Income Taxes		17,430		16,791
Provision for Income Taxes		6,567		6,334
NET INCOME	$	10,863	$	10,457
Average: Common Shares Outstanding		10,326,529		10,690,085
Dilutive Stock Options		29,505		28,952
Average Total Common Shares and Dilutive Options		10,356,034		10,719,037
EARNINGS PER COMMON SHARE Basic	$	1.05	$	0.98
Diluted	$	1.05	$	0.98

See accompanying notes to consolidated financial statements.

Page 6

SUFFOLK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)

	For the Six Months Ended
	June 30, 2006			June 30, 2005
	unaudited			unaudited
NET INCOME	$	10,863		$	10,457
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Provision for Loan Losses		600			675
Depreciation & Amortization		1,075			1,108
Stock Based Compensation		114			—
Accretion of Discounts		(125	)		(199	)
Amortization of Premiums		1,478			1,892
Increase in Accrued Interest Receivable		(426	)		(472	)
Increase in Other Assets		(2,976	)		(108	)
Increase in Accrued Interest Payable		105			366
Decrease in Other Liabilities		(2,925	)		(676	)
Net Cash Provided by Operating Activities		7,783			13,043
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities Available for Sale		19,446			29,823
Purchases of Investment Securities; Available for Sale		(22,110	)		(20,804	)
Maturities of Investment Securities; Held to Maturity		2,357			3,692
Purchases of Investment Securities; Held to Maturity		(1,486	)		(2,341	)
Loan Disbursements & Repayments, Net		(17,929	)		(55,585	)
Purchases of Premises & Equipment, Net		(647	)		(868	)
Net Cash Used in Investing Activities		(20,369	)		(46,083	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposit Accounts		22,582			63,850
Dividends Paid to Shareholders		(4,355	)		(4,096	)
Treasury Shares Acquired		(5,096	)		(9,662	)
Net Proceeds from Other Borrowings		15,210			12,055
Net Cash Provided by Financing Activities		28,341			62,147
Net Increase in Cash & Cash Equivalents		15,755			29,107
Cash & Cash Equivalents Beginning of Period		48,530			40,053
Cash & Cash Equivalents End of Period	$	64,285		$	69,160

See accompanying notes to consolidated financial statements.

Page 7

SUFFOLK BANCORP AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements of Suffolk Bancorp (Suffolk) and its consolidated subsidiaries have been prepared to reflect all adjustments (consisting solely of normally recurring accruals) necessary for a fair presentation of the financial condition and results of operations for the periods presented. Certain information and footnotes normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. Notwithstanding, management believes that the disclosures are adequate to prevent the information from misleading the reader, particularly when the accompanying consolidated financial statements are read in conjunction with the audited consolidated financial statements and notes thereto included in the Registrant’s Annual Report on Form 10-K, for the year ended December 31, 2005.

The results of operations for the three months ended June 30, 2006 are not necessarily indicative of the results of operations to be expected for the remainder of the year.

(2) Stock-based Compensation

At June 30, 2006, Suffolk had one stock-based employee compensation plan, a Stock Option Plan (“the Plan”), under which 1,200,000 shares of Suffolk’s common stock were originally reserved for issuance to key employees, and of which 1,061,500 remained available 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 not more than ten years. Prior to January 1, 2006, Suffolk accounted for that plan under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and related interpretations. No stock-based employee compensation costs were reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant.

On January 1, 2006 Suffolk adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”). This statement supersedes APB No. 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. This statement was adopted using the modified prospective method of application, which requires the recognition of compensation expense on a prospective basis. Accordingly, prior periods have not been restated. This statement also revised SFAS No. 123 “Accounting for Stock-Based Compensation”, which superseded APB No. 25. SFAS 123 required the disclosure of the effect on net income and earnings per share using fair value recognition provisions. During the three months ended June 30, 2006, $35,000 of compensation expense, net of a tax benefit of $24,000, was recorded for stock-based compensation. As of June 30, 2006, there was $138,000 of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested options under the Plan. That cost is expected to be recognized over a weighted-average period of 4.58 months.

The following table illustrates what the effect on net income would have been during the comparable period in 2005 under the fair value recognition provisions of SFAS 123:

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

Page 8

There were no options granted, exercised or expired during the quarter ended June 30, 2006.

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

	By range of exercise prices
from		13.13		31.25		34.39
to		15.50		31.83		34.95
Outstanding stock options		56,000		38,500		41,000
Weighted-average remaining life		3.89		7.80		8.80
Weighted-average exercise price	$	14.54	$	31.48	$	34.73
Exercisable stock options		56,000		38,500		16,000
Weighted-average remaining life		3.89		7.80		7.59
Weighted-average exercise price	$	14.54	$	31.48	$	34.39
			Weighted-average
At all prices	Options		price		life (yrs)
Total outstanding		135,500	$	25.46		6.48
Total exerciseable		110,500	$	23.32		5.78

(3) Recent Accounting Pronouncements

Suffolk adopted FASB Interpretation 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others,” on January 1, 2003. FIN 45 requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. Suffolk has financial and performance letters of credit. Financial letters of credit require Suffolk to make payment if the customer’s financial condition deteriorates, as defined in the agreements. Performance letters of credit require Suffolk to make payments if the customer fails to perform certain non-financial contractual obligations. Previously, Suffolk did not record a liability when guaranteeing obligations unless it became probable that Suffolk would have to perform under the guarantee. FIN 45 applies prospectively to guarantees Suffolk issues or modifies subsequent to December 31, 2003. The maximum potential undiscounted amount of future payments of these letters of credit as of June 30, 2006 is $9,040,000 and they expire as follows:

2006		2,774
2007		4,937
2008		843
2010		312
Thereafter		174
	$	9,040

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.

In June 2005, the FASB decided not to provide additional guidance on the meaning of other-than-temporary impairment, but directed its staff to issue proposed FSP EITF 03-1-a, “Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1,” as final. The final FSP will supersede EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” and EITF Topic No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value.” The final FSP (re-titled FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”) will replace the guidance set forth in paragraphs 10-18 of Issue 03-1 with references to existing other-than-temporary impairment guidance, such as FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities;” SEC Staff Accounting Bulletin No. 59, “Accounting for Non-current Marketable Equity Securities;” and APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” FASB Staff Position No. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (the “FSP”), were issued on November 3, 2005 and addresses the determination of when an investment is considered impaired; whether the impairment is other than temporary; and how to measure an impairment loss. The FSP replaces the impairment guidance in EITF Issue No. 03-1 with references to existing authoritative literature concerning other-than-temporary determinations, principally Statement of Financial Accounting Standards (“SFAS”) No. 115 and SEC Staff Accounting Bulletin 59. Under the FSP, impairment losses

Page 9

must be recognized in earnings equal to the entire difference between the security’s cost and its fair value at the financial statement date, without considering partial recoveries subsequent to that date. The FSP also requires that an investor recognize an other-than-temporary impairment loss when a decision to sell a security has been made and the investor does not expect the fair value of the security to fully recover prior to the expected time of sale. The FSP is effective for reporting periods beginning after December 15, 2005. Suffolk has adopted the provisions of FSP EITF 03-1a which did not have a material impact on its consolidated financial condition, consolidated results of operations, or consolidated financial statement disclosures.

In May 2005, FASB issued Statement No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This statement changes the requirements for the accounting for and reporting of a change in accounting principle. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new principle. Statement No. 154 requires retrospective application to prior periods financial statements of changes in accounting principle, where practicable, and limits retrospective application of a change to direct effects of the change in accounting principle. Indirect effects of a change in accounting principle should be recognized in the period of accounting change. This statement is effective for accounting changes made in fiscal years after December 15, 2005. Suffolk has adopted the provisions of FAS. No. 154 which did not have a material effect on either its consolidated financial position or consolidated results of operations.

In March 2006, FASB issued Statement No. 156, “Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140”. This statement addresses the recognition and measurement of separately recognized servicing assets and liabilities. It requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in certain situations. Statement No. 156 requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. An entity is permitted to choose from two measurement methods for each class of separately recognized servicing assets and servicing liabilities: an amortization method or fair value measurement method. This statement also permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights. Separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities are required. This statement is effective for fiscal years beginning after September 15, 2006. Suffolk is currently evaluating the impact of FAS. No. 156 on its financial condition, results of operations and disclosures.

On July 13, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of this standard. Only tax positions that meet a “more-likely-than-not” recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of FIN 48. The cumulative effect of applying the provisions of FIN 48 are to be reported as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that fiscal year. The new interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company is currently assessing what the impact of this interpretation will be on the Company’s financial position or results of operations.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

For the Three-Month Periods ended June 30, 2006 and 2005

Recent Developments

Interest rates have increased throughout the year. This lead to an increase in net interest margin, which increased to 5.15 percent in the second quarter of 2006, from 4.98 percent, in the second quarter of 2005.

Return on average equity increased, to 22.93 percent for the second quarter in 2006, up from 21.44 percent during the second quarter of 2005, and earnings-per-share increased from $.50 in the second quarter of 2005 to $.55 in the second quarter of 2006.

Page 10

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

• Redirecting flow of investment from the consumer loan portfolio comprised primarily of indirect automobile paper, and the investment portfolio, to the commercial and commercial real estate loan portfolios, as well as residential mortgages and construction loans.

• Pursuing ongoing program of capital management, which applies leverage to shareholders’ investment by means of the selective repurchase of shares, while maintaining “well-capitalized” status with regulatory agencies.

• Utilizing the market for wholesale funds to offset a decrease in deposits, the result of which is due to an unusually competitive environment. Demand deposits decreased 2.0 percent quarter to quarter, while savings, N.O.W. and money market deposits declined by 8.7 percent.

Net Income

Net income was $5,639,000 for the quarter, up 5.9 percent from $5,325,000 posted during the same period last year. Earnings per share for the quarter were $0.55 versus $0.50, an increase of 10.0 percent.

Interest Income

Interest income was $21,817,000 for the second quarter of 2006, up 17.0 percent from $18,653,000 posted for the same quarter in 2005. Average net loans during the second quarter of 2006 totaled $913,213,000 compared to $859,067,000 for the same period of 2005. During the second quarter of 2006, the yield on a fully taxable-equivalent basis was 6.70 percent on average earning assets of $1,328,358,000 up from 5.83 percent on average earning assets of $1,296,205,000 during the second quarter of 2005. Increases in interest income were attributable primarily to an increase in interest income on loans and obligations of states and political subdivisions.

Interest Expense

Interest expense for the second quarter of 2006 was $5,148,000, up 87.1 percent from $2,751,000 for the same period of 2005. During the second quarter of 2006, the cost of funds was 2.34 percent on average interest-bearing liabilities of $878,998,000, up from 1.27 percent on average interest-bearing liabilities of $864,303,000 during the second quarter of 2005. Interest expense increased primarily as a result of increases in market rates of interest, and increased interest on Federal funds purchased, repurchase agreements and other borrowings.

Each of the Bank’s demand deposit accounts has a related non-interest-bearing sweep account. The sole purpose of the sweep accounts is to reduce the non-interest-bearing reserve balances that the Bank is required to maintain with the Federal Reserve Bank, and thereby increase funds available for investment. Although the sweep accounts are classified as savings accounts for regulatory purposes, they are included in demand deposits in the accompanying consolidated statements of condition.

Net Interest Income

Net interest income, before the provision for loan losses, is the largest component of Suffolk’s earnings. It was $16,669,000 for the second quarter of 2006, up 4.8 percent from $15,902,000 during the same period of 2005. The net interest margin for the quarter, on a fully taxable-equivalent basis, was 5.15 percent compared to 4.98 percent for the same period of 2005.

Page 11

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

June 30,	2006							2005
	Average Balance		Interest			Average Rate		Average Balance		Interest			Average Rate
INTEREST-EARNING ASSETS
U.S. Treasury securities	$	9,292	$	98		4.22	%	$	9,419	$	98		4.16	%
Collateralized mortgage obligations		179,066		1,911		4.27			240,118		2,551		4.25
Mortgage backed securities		1,390		24		6.91			3,040		28		3.68
Obligations of states and political subdivisions		94,307		1,357		5.76			50,904		723		5.68
U.S. govt. agency obligations		122,261		1,222		4.00			125,282		1,222		3.90
Corporate bonds and other securities		6,217		77		4.95			2,951		44		5.96
Federal funds sold and securities purchased under agreements to resell		2,612		33		5.05			5,424		41		3.02
Loans, including non-accrual loans
Commercial, financial & agricultural loans		196,228		3,955		8.06			175,777		2,842		6.47
Commercial real estate mortgages		310,339		5,920		7.63			285,891		4,792		6.70
Real estate construction loans		73,381		1,873		10.21			55,664		1,101		7.91
Residential mortgages (1st and 2nd liens)		131,444		2,175		6.62			115,591		1,837		6.36
Home equity loans		80,174		1,601		7.99			80,361		1,233		6.14
Consumer loans		120,193		2,000		6.66			144,314		2,371		6.57
Other loans (overdrafts)		1,454		—		—			1,469		—		—
Total interest-earning assets	$	1,328,358	$	22,246		6.70	%	$	1,296,205	$	18,883		5.83	%
Cash and due from banks	$	47,634						$	48,832
Other non-interest-earning assets		49,009							45,902
Total assets	$	1,425,001						$	1,390,939
INTEREST-BEARING LIABILITIES
Saving, N.O.W. and money market deposits	$	491,240	$	1,265		1.03	%	$	566,057	$	867		0.61	%
Time deposits		230,979		1,910		3.31			222,087		1,295		2.33
Total saving and time deposits		722,219		3,175		1.76			788,144		2,162		1.10
Federal funds purchased and securities sold under agreement to repurchase		67,447		845		5.01			276		2		2.90
Other borrowings		89,332		1,128		5.05			75,883		587		3.09
Total interest-bearing liabilities	$	878,998	$	5,148		2.34	%	$	864,303	$	2,751		1.27	%
Rate spread						4.36	%						4.55	%
Non-interest-bearing deposits	$	431,961						$	416,964
Other non-interest-bearing liabilities		15,673							10,307
Total liabilities	$	1,326,632						$	1,291,574
Stockholders’ equity		98,369							99,365
Total liabilities and stockholders’ equity	$	1,425,001						$	1,390,939
Net-interest income (taxable-equivalent basis) and effective interest rate differential			$	17,098		5.15	%			$	16,132		4.98	%
Less: taxable-equivalent basis adjustment				(429	)						(230	)
Net-interest income			$	16,669						$	15,902

Other Income

Other income increased to $2,719,000 for the three months compared to $2,489,000 the previous year. Service charges on deposits were up 3.1 percent. Service charges, including commissions and fees other than for deposits, increased by 14.8 percent. Trust revenue was up 22.7 percent. Other operating income increased by 18.3 percent. There were no net gains on the sale of securities for the second quarter of 2006 and 2005.

Other Expense

Other expense for the second quarter of 2006 was $10,039,000, up 6.1 percent from $9,464,000 for the comparable period in 2005. Employee compensation increased by 7.2 percent, net occupancy expense increased 14.7 percent owing primarily to increased rent and building maintenance, equipment expense decreased by 3.9 percent, and other operating expense increased by 2.8 percent.

Page 12

In accordance with the requirements of Statement of Financial Accounting Standards 132R (“SFAS 132R”), Suffolk presents information concerning net periodic defined benefit pension expense for the three months ended June 30, 2006 and 2005, including the following components:

	3 months 6/30/2006			3 months 6/30/2005			6 months 6/30/2006			6 months 6/30/2005
Service cost	$	350,337		$	298,660		$	700,674		$	597,320
Interest cost		339,996			312,648			679,992			625,296
Expected return on plan assets		(444,960	)		(392,810	)		(889,920	)		(785,620	)
Amortization of prior service cost		(995	)		(3,595	)		(1,990	)		(7,190	)
Amortization of unrecognized net actuarial loss		66,802			48,787			133,605			97,574
Net periodic benefit expense	$	311,180		$	263,690		$	622,361		$	527,380

A contribution of approximately $1,431,000 was made to the pension plan in June of 2006. Management is currently evaluating the impact of the Pension Funding Equity Act enacted in April 2004 on projected funding. There were no additional contributions required to be made to the plan in the three months ended June 30, 2006.

Capital Resources

Stockholders’ equity totaled $100,091,000 on June 30, 2006, a decrease of 1.9 percent from $102,001,000 on December 31, 2005. This was the result of net income, offset by a combination of declines in the market value of securities available for sale; the repurchase of shares; and cash dividends. The ratio of equity to assets was 6.9 percent at June 30, 2006 and 7.2 percent at December 31, 2005. The following table details amounts and ratios of Suffolk’s regulatory capital: (in thousands of dollars except ratios)

	Actual				For capital adequacy				To be well capitalized under prompt corrective action provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2006
Total Capital (to risk-weighted assets)	$	111,771	10.22	%	$	87,460	8.00	%	$	109,326	10.00	%
Tier 1 Capital (to risk-weighted assets)		104,687	9.58	%		43,730	4.00	%		65,595	6.00	%
Tier 1 Capital (to average assets)		104,687	0.74	%		56,962	4.00	%		71,203	5.00	%
As of December 31, 2005
Total Capital (to risk-weighted assets)	$	113,172	10.91	%	$	82,984	8.00	%	$	103,730	10.00	%
Tier 1 Capital (to risk-weighted assets)		103,344	9.96	%		41,492	4.00	%		62,238	6.00	%
Tier 1 Capital (to average assets)		103,344	7.52	%		54,943	4.00	%		68,679	5.00	%

Credit Risk

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

Page 13

The provision for the allowance for loan losses was $300,000 for the second quarter of 2006, and $375,000 for the comparable period in 2005. During the second quarter of 2006, the remainder of a large loan that is in litigation and not performing, previously disclosed and fully reserved, was charged off. Suffolk will continue to pursue all legal remedies to collect the balance of this loan. Management believes the circumstances particular to this loan are not reflective of systematic weakness in Suffolk’s loan portfolio or of its underwriting standards.

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

	For the last 12 months			For the three months ended
				June 30 2006			Mar. 31 2006			Dec. 31 2005			Sept. 30 2005
Allowance for loan losses
Beginning balance	$	8,887		$	10,150		$	9,828		$	9,384		$	8,887
Total charge-offs		(3,891	)		(3,504	)		(151	)		(111	)		(125	)
Total recoveries		588			138			173			105			172
Provision for loan losses		1,500			300			300			450			450
Ending balance	$	7,084		$	7,084		$	10,150		$	9,828		$	9,384
Coverage ratios
Loans, net of discounts: average	$	893,324		$	923,372		$	903,490		$	878,617		$	867,818
at end of period		908,059			919,622			924,256			905,037			883,321
Non-performing assets		3,604			608			4,182			4,459			5,168
Non-performing assets/total loans (net of discount)		0.40	%		0.07	%		0.45	%		0.49	%		0.59	%
Net charge-offs/average net loans (annualized)		(0.44	%)		(1.58	%)		(0.14	%)		0.00	%		(0.02	%)
Allowance/non-accrual, restructured, & OREO		452.46	%		1,165.13	%		242.71	%		220.41	%		181.58	%
Allowance for loan losses/net loans		1.00	%		0.77	%		1.10	%		1.09	%		1.06	%

Critical Accounting Policies, Judgments and Estimates

Suffolk’s accounting and reporting policies conform to the accounting principles generally accepted in the United States of America and general practices within the financial services industry. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

Allowance for Loan Losses

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

Income Taxes

Under the liability method, deferred tax assets and liabilities are determined by the difference between the financial statement, and the tax bases of assets and liabilities. Deferred tax assets are subject to management’s judgment of available evidence that future realization is more likely than not. If management determines that Suffolk may be unable to realize all or part of the net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of the net deferred tax asset to the amount management expects can be realized.

Page 14

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Market Risk

Suffolk originates and invests in interest-earning assets and solicits interest-bearing deposit accounts. Suffolk’s operations are subject to market risk resulting from fluctuations in interest rates to the extent that there is a difference between the amounts of interest-earning assets and interest-bearing liabilities that are prepaid, withdrawn, mature, or re-priced in any given period of time. Suffolk’s earnings or the net value of its portfolio (the present value of expected cash flows from liabilities) will change when interest rates change. The principal objective of Suffolk’s asset/liability management program is to maximize net interest income while keeping risks acceptable. These risks include both the effect of changes in interest rates, and risks to liquidity. The program also provides guidance to management in funding Suffolk’s investment in loans and securities. Suffolk’s exposure to interest-rate risk has not changed substantially since December 31, 2005.

Business Risks and Uncertainties

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

Item 4.

Controls and Procedures

Suffolk’s Chief Executive Officer and Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934 for Suffolk. Based upon their evaluation of these controls and procedures as of June 30, 2006, the Certifying Officers have concluded that Suffolk’s disclosure controls and procedures are effective.

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

PART II

Item 2.

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

The following table details repurchases of common stock during the second quarter of 2006:

Quarter ending	Total shares repurchased	Average price per share	Aggregate cost
June 30, 2006	77,600	$29.73	$2,307,254

Page 15

Item 6.

Exhibits and Reports on Form 8-K

CERTIFICATION OF PERIODIC REPORT - Exhibit 31.1

CERTIFICATION OF PERIODIC REPORT - Exhibit 31.2

CERTIFICATION OF PERIODIC REPORT - Exhibit 32.1

CERTIFICATION OF PERIODIC REPORT - Exhibit 32.2

The following reports were filed on Form 8-K during the three month period ended June 30, 2006.

Current Report on Form 8-K – April 11, 2006 – Press Release of April 11, 2006, “Bancorp Announces Earnings for the First Quarter of 2006” - Earnings release for the three months ended March 31, 2006.

Current Report on Form 8-K – May 23, 2006 – Press Release of May 23, 2006, “Suffolk Bancorp Announces Regular Quarterly Dividend”.

Current Report on Form 8-K – June 30, 2006 – Press Release of June 23, 2006, “Suffolk Bancorp Announces Resignation of Ralph M. Gibson, M.D., Director”.

SIGNATURES

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

	SUFFOLK BANCORP
Date: August 4, 2006	/s/ Thomas S. Kohlmann
	Thomas S. Kohlmann
	President & Chief Executive Officer
Date: August 4, 2006	/s/ J. Gordon Huszagh
	J. Gordon Huszagh
	Executive Vice President & Chief Financial Officer

Page 16

EX-31.1

Exhibit 31.1

CERTIFICATION OF PERIODIC REPORT

I, Thomas S. Kohlmann, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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.

Dated: August 4, 2006

/s/ Thomas S. Kohlmann

Thomas S. Kohlmann

President & Chief Executive Officer

Page 17

EX-31.2

Exhibit 31.2

CERTIFICATION OF PERIODIC REPORT

I, J. Gordon Huszagh, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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.

Dated: August 4, 2006

/s/ J. Gordon Huszagh

J. Gordon Huszagh

Executive Vice President & Chief Financial Officer

Page 18

EX-32.1

Exhibit 32.1

CERTIFICATION OF PERIODIC REPORT

I, Thomas S. Kohlmann, 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 Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2006 (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: August 4, 2006

/s/ Thomas S. Kohlmann

Thomas S. Kohlmann

President & Chief Executive Officer

Page 19

EX-32.2

Exhibit 32.2

CERTIFICATION OF PERIODIC REPORT

I, J. Gordon Huszagh, 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 Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2006 (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: August 4, 2006

/s/ J. Gordon Huszagh

J. Gordon Huszagh

Executive Vice President & Chief Financial Officer

Page 20