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 September 30, 2007

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.

9,715,592 SHARES OF COMMON STOCK OUTSTANDING AS OF November 1, 2007

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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 September 30, 2007 and 2006	5
	Consolidated Statements of Income, For the Nine Months Ended September 30, 2007 and 2006	6
	Consolidated Statements of Cash Flows, For the Nine Months Ended September 30, 2007 and 2006	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		16
Item 4. Controls and Procedures		16
Part II - Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		17
Item 6. Exhibits and Reports on Form 8-K		17
Signatures		18
Certifications of Periodic Report		19

Page 3

SUFFOLK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

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

	September 30, 2007			December 31, 2006
	unaudited
ASSETS
Cash & Due From Banks	$	49,453		$	43,576
Investment Securities:
Available for Sale, at Fair Value		391,402			403,246
Held to Maturity (Fair Value of $15,042 and $15,647, respectively)
Obligations of States & Political Subdivisions		8,455			9,913
Federal Reserve Bank Stock		638			638
Federal Home Loan Bank Stock		5,320			4,446
Corporate Bonds & Other Securities		100			100
Total Investment Securities		405,915			418,343
Total Loans		934,102			891,447
Less: Allowance for Loan Losses		7,459			7,551
Net Loans		926,643			883,896
Premises & Equipment, Net		21,985			22,471
Accrued Interest Receivable, Net		8,068			7,609
Excess of Cost Over Fair Value of Net Assets Acquired		814			814
Other Assets		14,250			15,940
TOTAL ASSETS	$	1,427,128		$	1,392,649
LIABILITIES & STOCKHOLDERS’ EQUITY
Demand Deposits	$	417,387		$	426,924
Saving, N.O.W. & Money Market Deposits		416,751			438,190
Time Certificates of $100,000 or more		127,482			81,842
Other Time Deposits		198,778			192,119
Total Deposits		1,160,398			1,139,075
Federal Home Loan Bank Borrowings		88,000			67,000
Repurchase Agreements		53,790			53,135
Dividend Payable on Common Stock		2,143			2,253
Accrued Interest Payable		2,481			3,373
Other Liabilities		15,172			19,247
TOTAL LIABILITIES		1,321,984			1,284,083
STOCKHOLDERS’ EQUITY
Common Stock (par value $2.50; 15,000,000 shares authorized; 9,715,592 and 10,242,292 shares outstanding at September 30, 2007 and December 31, 2006, respectively)		33,911			33,911
Surplus		20,111			19,931
Treasury Stock at Par (3,848,799 and 3,322,099 shares, respectively)		(9,622	)		(8,305	)
Retained Earnings		63,425			67,099
		107,825			112,636
Accumulated Other Comprehensive Loss, Net of Tax		(2,681	)		(4,070	)
TOTAL STOCKHOLDERS’ EQUITY		105,144			108,566
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	1,427,128		$	1,392,649

See accompanying notes to consolidated financial statements.

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SUFFOLK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

	For the Three Months Ended
	September 30, 2007		September 30, 2006
	unaudited		unaudited
INTEREST INCOME
Federal Funds Sold	$	53	$	63
United States Treasury Securities		99		96
Obligations of States & Political Subdivisions		1,407		1,078
Mortgage-Backed Securities		1,891		1,961
U.S. Government Agency Obligations		1,083		1,218
Corporate Bonds & Other Securities		96		87
Loans		17,845		17,355
Total Interest Income		22,474		21,858
INTEREST EXPENSE
Saving, N.O.W. & Money Market Deposits		1,221		1,293
Time Certificates of $100,000 or more		1,408		594
Other Time Deposits		2,076		1,796
Federal Funds Purchased and Repurchase Agreements		739		728
Interest on Other Borrowings		983		1,027
Total Interest Expense		6,427		5,438
Net-interest Income		16,047		16,420
Provision for Loan Losses		22		345
Net-interest Income After Provision for Loan Losses		16,025		16,075
OTHER INCOME
Service Charges on Deposit Accounts		1,339		1,359
Other Service Charges, Commissions & Fees		784		898
Fiduciary Fees		363		298
Other Operating Income		270		195
Total Other Income		2,756		2,750
OTHER EXPENSE
Salaries & Employee Benefits		6,062		5,906
Net Occupancy Expense		1,061		956
Equipment Expense		515		531
Other Operating Expense		2,269		2,609
Total Other Expense		9,907		10,002
Income Before Provision for Income Taxes		8,874		8,823
Provision for Income Taxes		2,831		2,655
NET INCOME	$	6,043	$	6,168
Average: Common Shares Outstanding		9,765,095		10,247,565
Dilutive Stock Options		15,118		28,675
Average Total Common Shares and Dilutive Options		9,780,213		10,276,240
EARNINGS PER COMMON SHARE
Basic	$	0.61	$	0.60
Diluted	$	0.61	$	0.60

See accompanying notes to consolidated financial statements.

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SUFFOLK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

	For the Nine Months Ended
	September 30, 2007		September 30, 2006
	unaudited		unaudited
INTEREST INCOME
Federal Funds Sold	$	136	$	104
United States Treasury Securities		297		287
Obligations of States & Political Subdivisions		3,955		2,838
Mortgage-Backed Securities		5,878		5,926
U.S. Government Agency Obligations		3,518		3,662
Corporate Bonds & Other Securities		304		258
Loans		52,782		51,139
Total Interest Income		66,870		64,214
INTEREST EXPENSE
Saving, N.O.W. & Money Market Deposits		3,632		3,606
Time Certificates of $100,000 or more		3,751		1,056
Other Time Deposits		6,097		4,895
Federal Funds Purchased and Repurchase Agreements		2,180		2,234
Interest on Other Borrowings		3,096		3,179
Total Interest Expense		18,756		14,970
Net-interest Income		48,114		49,244
Provision for Loan Losses		152		945
Net-interest Income After Provision		47,962		48,299
OTHER INCOME
Service Charges on Deposit Accounts		4,015		4,213
Other Service Charges, Commissions & Fees		2,199		2,223
Fiduciary Fees		1,022		930
Other Operating Income		449		489
Total Other Income		7,685		7,855
OTHER EXPENSE
Salaries & Employee Benefits		18,396		17,919
Net Occupancy Expense		3,065		2,962
Equipment Expense		1,660		1,554
Other Operating Expense		7,428		7,466
Total Other Expense		30,549		29,901
Income Before Provision for Income Taxes		25,098		26,253
Provision for Income Taxes		8,574		9,222
NET INCOME	$	16,524	$	17,031
Average: Common Shares Outstanding		9,969,036		10,299,919
Dilutive Stock Options		20,657		29,227
Average Total Common Shares and Dilutive Options		9,989,693		10,329,146
EARNINGS PER COMMON SHARE
Basic	$	1.66	$	1.65
Diluted	$	1.65	$	1.65

See accompanying notes to consolidated financial statements.

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SUFFOLK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)

	For the Nine Months Ended
	September 30, 2007			September 30, 2006
	unaudited			unaudited
NET INCOME	$	16,524		$	17,031
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Provision for Loan Losses		152			945
Depreciation & Amortization		1,747			1,621
Stock Based Compensation		180			173
Accretion of Discounts		(108	)		(188	)
Amortization of Premiums		623			2,027
Increase in Accrued Interest Receivable		(459	)		(699	)
Decrease in Other Assets		725			467
(Decrease) Increase in Accrued Interest Payable		(892	)		875
Decrease in Other Liabilities		(2,062	)		(1,451	)
Net Cash Provided by Operating Activities		16,430			20,801
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities Available for Sale		22,009			29,276
Maturities of Investment Securities; Available for Sale		20,000			500
Purchases of Investment Securities; Available for Sale		(28,328	)		(32,150	)
Maturities of Investment Securities; Held to Maturity		2,796			4,651
Purchases of Investment Securities; Held to Maturity		(2,210	)		(2,568	)
Loan Disbursements & Repayments, Net		(42,899	)		14,489
Purchases of Premises & Equipment, Net		(1,261	)		(956	)
Net Cash (Used in) Provided by Investing Activities		(29,893	)		13,242
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposit Accounts		21,323			12,414
Dividends Paid to Shareholders		(6,641	)		(6,616	)
Treasury Shares Acquired		(16,997	)		(5,579	)
Net Proceeds from (Payments of) Other Borrowings		21,655			(15,040	)
Director Stock Gain Divestiture		—			6
Net Cash Provided by (Used in) Financing Activities		19,340			(14,815	)
Net Increase in Cash & Cash Equivalents		5,877			19,228
Cash & Cash Equivalents Beginning of Period		43,576			48,530
Cash & Cash Equivalents End of Period	$	49,453		$	67,758

See accompanying notes to consolidated financial statements.

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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, 2006.

The results of operations for the three months ended September 30, 2007 are not necessarily indicative of the results of operations to be expected for the remainder of the year.

(2) Stock-based Compensation

At September 30, 2007, 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 1,037,500 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 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 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 No. 123 required the disclosure of the effect on net income and earnings per share using fair value recognition provisions. During the three months ended September 30, 2007, $37,000 of compensation expense, net of a tax benefit of $24,000, was recorded for stock-based compensation. As of September 30, 2007, there was $65,000 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 2.86 months.

The following table presents the options granted, exercised, or expired during the nine months ended September 30, 2007:

	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 September 30, 2007	141,500	$	27.61

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There were no options granted, exercised or expired during the quarter ended September 30, 2007.

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		32.90		34.95
Outstanding stock options		42,000		60,500		39,000
Weighted-average remaining life		2.85		7.66		7.56
Weighted-average exercise price	$	14.60	$	32.04	$	34.73
Exercisable stock options		42,000		36,500		39,000
Weighted-average remaining life		2.85		6.55		7.56
Weighted-average exercise price	$	14.60	$	31.48	$	34.39
			Weighted-average
At all prices	Options		price		life (yrs)
Total outstanding		141,500	$	27.61		6.20
Total exerciseable		117,500	$	26.52		5.56

(3) Recent Accounting Pronouncements

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. The impact of FAS. No. 156 on Suffolk’s financial condition, results of operations, and disclosures has been determined not to be material.

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. Suffolk has adopted the provisions of FIN 48 as of January 1, 2007. The cumulative effect of applying the provisions of FIN 48 were recorded as a credit adjustment to the opening balance of retained earnings in the amount of $2,013,000. As of September 30, 2007, Suffolk had a liability for unrecognized tax benefits in the amount of $158,000. There have been no material changes in unrecognized tax benefits since January 1, 2007. Suffolk recognizes interest and penalties accrued relating to unrecognized tax benefits in income tax expense.

In September 2006, FASB issued Statement No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The definition of fair value retains the exchange price notion, however this statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the principal market for the asset or liability. This statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, therefore a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. This statement clarifies that 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. This statement also expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods, focusing on the inputs used to measure fair value. This statement is effective for fiscal years beginning after November 15, 2007. Suffolk is currently evaluating the impact of FAS. No. 157 on its financial condition, results of operations, and disclosures.

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In September 2006, FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This statement requires 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 pursuant to FASB No. 87 or No. 106; measure defined benefit plan assets and obligation as of the date of the employer’s 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 gains or losses, prior service costs or credits, and transition asset and obligation. Upon initial application of this statement and subsequently, an employer should continue to apply the provisions in Statements 87, 88, and 106 in measuring plan assets and benefit obligations as of the date of its statement of financial position and in determining the amount of net periodic benefit cost. An employer with publicly traded equity securities was required to recognize initially the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. Suffolk has adopted the provisions of FAS. No. 158, which have been recorded in the accompanying consolidated statement of condition and disclosures.

In February 2007, FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. The statement defines items eligible for the measurement option. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is effective for fiscal years beginning after November 15, 2007. Suffolk is currently evaluating the impact of FAS. No. 159 on its financial condition, results of operations and disclosures.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

For the Three-Month Periods ended September 30, 2007 and 2006

Recent Developments

The yield curve for interest rates has remained inverted throughout the year until late last quarter when the curve began to flatten, and achieve upward slope. Short-term rates in general have declined during the three month period ended September 30, 2007. The overall effect was an increase in interest income but a greater increase in interest expense, resulting in slightly lower net interest income despite an increase in total net loans. Net interest margin decreased to 5.09 percent in the third quarter of 2007, down from 5.17 percent, in the third quarter of 2006.

Return on average equity decreased slightly to 24.36 percent for the third quarter in 2007, down from 24.49 percent during the third quarter of 2006, and earnings-per-share increased from $.60 in the third quarter of 2006 to $.61 in the third quarter of 2007.

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

• Continued repositioning of the investment portfolio from maturing collateralized mortgage obligations, originally purchased to provide downside protection from falling rates, to purchase municipal securities, currently providing liquidity as well as higher returns, and some protection from falling interest rates.

• 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.

• Maintaining emphasis on both commercial and personal demand deposits, while responding to increased call for time certificates of $100,000 or more.

• Consistent underwriting for lending to preserve both credit quality and yields in face of competition. Emphasis on preservation of margins over less profitable growth.

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Net Income

Net income was $6,043,000 for the quarter, down 2.0 percent from $6,168,000 posted during the same period last year. Earnings per share for the quarter were $0.61 versus $0.60, an increase of 1.7 percent.

Interest Income

Interest income was $22,474,000 for the third quarter of 2007, up 2.8 percent from $21,858,000 posted for the same quarter in 2006. Average net loans during the third quarter of 2007 totaled $912,248,000 compared to $893,092,000 for the same period of 2006. During the third quarter of 2007, the yield on a fully taxable-equivalent basis was 7.03 percent on average earning assets of $1,319,548,000 up from 6.83 percent on average earning assets of $1,313,722,000 during the third quarter of 2006. 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 third quarter of 2007 was $6,427,000, up 18.2 percent from $5,438,000 for the same period of 2006. During the third quarter of 2007, the cost of funds was 2.99 percent on average interest-bearing liabilities of $858,812,000, up from 2.55 percent on average interest-bearing liabilities of $852,458,000 during the third quarter of 2006. Interest expense increased primarily as a result of increases in market rates of interest, increases in certificates of deposits of $100,000 and other time deposits.

A portion of the Bank’s demand deposits are reclassified as savings accounts on a daily basis. The purpose of the reclassification is to reduce the non-interest-bearing reserve balances that the Bank is required to maintain with the Federal Reserve Bank, and thereby increase funds available for investment. Although these balances are classified as savings accounts for regulatory purposes, they are included in demand deposits in the accompanying consolidated statements of condition.

Net Interest Income

Net interest income, before the provision for loan losses, is the largest component of Suffolk’s earnings. It was $16,047,000 for the third quarter of 2007, down 2.3 percent from $16,420,000 during the same period of 2006. The net interest margin for the quarter, on a fully taxable-equivalent basis, was 5.09 percent compared to 5.17 percent for the same period of 2006.

Page 11

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

September 30,	2007							2006
	Average Balance		Interest			Average Rate		Average Balance		Interest			Average Rate
INTEREST-EARNING ASSETS
U.S. Treasury securities	$	9,486	$	101		4.26	%	$	9,321	$	98		4.21	%
Collateralized mortgage obligations		138,597		1,874		5.41			169,178		1,938		4.58
Mortgage backed securities		950		17		7.16			1,312		23		7.01
Obligations of states and political subdivisions		142,788		2,136		5.98			108,522		1,636		6.03
U.S. govt. agency obligations		106,120		1,083		4.08			121,884		1,218		4.00
Corporate bonds and other securities		5,389		96		7.13			5,620		87		6.19
Federal funds sold and securities purchased under agreements to resell		3,970		53		5.34			4,793		63		5.26
Loans, including non-accrual loans
Commercial, financial & agricultural loans		192,738		4,079		8.47			187,012		3,955		8.46
Commercial real estate mortgages		301,994		5,729		7.59			305,879		5,732		7.50
Real estate construction loans		88,648		2,277		10.27			74,942		1,925		10.27
Residential mortgages (1st and 2nd liens)		161,683		2,575		6.37			135,122		2,216		6.56
Home equity loans		65,949		1,399		8.49			76,645		1,629		8.50
Consumer loans		98,812		1,786		7.23			112,218		1,898		6.77
Other loans (overdrafts)		2,424		—		—			1,274		—		—
Total interest-earning assets	$	1,319,548	$	23,205		7.03	%	$	1,313,722	$	22,418		6.83	%
Cash and due from banks	$	47,611						$	48,552
Other non-interest-earning assets		41,017							43,792
Total assets	$	1,408,176						$	1,406,066
INTEREST-BEARING LIABILITIES
Saving, N.O.W. and money market deposits	$	414,431	$	1,221		1.18	%	$	469,826	$	1,293		1.10	%
Time deposits		317,379		3,484		4.39			254,673		2,390		3.75
Total saving and time deposits		731,810		4,705		2.57			724,499		3,683		2.03
Federal funds purchased and securities sold under agreement to repurchase		54,109		739		5.46			52,913		728		5.50
Other borrowings		72,893		983		5.39			75,046		1,027		5.47
Total interest-bearing liabilities	$	858,812	$	6,427		2.99	%	$	852,458	$	5,438		2.55	%
Rate spread						4.04	%						4.27	%
Non-interest-bearing deposits	$	426,369						$	439,814
Other non-interest-bearing liabilities		23,767							13,070
Total liabilities	$	1,308,948						$	1,305,342
Stockholders’ equity		99,228							100,724
Total liabilities and stockholders’ equity	$	1,408,176						$	1,406,066
Net-interest income (taxable-equivalent basis) and effective interest rate differential			$	16,778		5.09	%			$	16,980		5.17	%
Less: taxable-equivalent basis adjustment				(731	)						(560	)
Net-interest income			$	16,047						$	16,420

Page 12

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. 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 2007 over 2006 Changes Due to
	Volume			Rate			Net Change
Interest-earning assets
U.S. Treasury securities	$	2		$	1		$	3
Collateralized mortgage obligations		(359	)		295			(64	)
Mortgage-backed securities		(6	)		—			(6	)
Obligations of states & political subdivisions		513			(13	)		500
U.S. government agency obligations		(160	)		25			(135	)
Corporate bonds & other securities		(4	)		13			9
Federal funds sold & securities purchased under agreements to resell		(11	)		1			(10	)
Loans, including non-accrual loans		335			155			490
Total interest-earning assets	$	310		$	477		$	787
Interest-bearing liabilities
Saving, N.O.W., & money market deposits	$	(159	)	$	87		$	(72	)
Time deposits		648			446			1,094
Federal funds purchased & securities sold under agreements to repurchase		16			(5	)		11
Other borrowings		(29	)		(15	)		(44	)
Total interest-bearing liabilities	$	476		$	513		$	989
Net change in net interest income (taxable-equivalent basis)	$	(166	)	$	(36	)	$	(202	)

Other Income

Other income increased slightly to $2,756,000 for the three months compared to $2,750,000 the previous year. Service charges on deposits were down 1.5 percent. Service charges, including commissions and fees other than for deposits, decreased by 12.7 percent. Trust revenue was up 21.8 percent. Other operating income increased by 38.5 percent. There were no net gains on the sale of securities for the third quarter of 2007 and 2006.

Other Expense

Other expense for the third quarter of 2007 was $9,907,000, down .9 percent from $10,002,000 for the comparable period in 2006. Employee compensation increased by 2.6 percent, net occupancy expense increased 11 percent, equipment expense decreased by 3 percent, and other operating expense decreased by 13 percent.

In accordance with the requirements of Statement of Financial Accounting Standards 132R (“SFAS 132R”), Suffolk presents information concerning net periodic defined benefit pension expense for the three months ended September 30, 2007 and 2006, including the following components:

	3 months 9/30/2007			3 months 9/30/2006			9 months 9/30/2007			9 months 9/30/2006
Service cost	$	345,431		$	350,337		$	1,036,292		$	1,051,011
Interest cost		370,522			339,996			1,111,565			1,019,987
Expected return on plan assets		(470,830	)		(444,960	)		(1,412,490	)		(1,334,880	)
Amortization of prior service cost		(995	)		(995	)		(2,984	)		(2,984	)
Amortization of unrecognized net actuarial loss		33,732			66,802			101,195			200,407
Net periodic benefit expense	$	277,859		$	311,180		$	833,577		$	933,541

A contribution of approximately $1,542,000 was made to the pension plan in June of 2007. There were no additional contributions required to be made to the plan in the three months ended September 30, 2007.

Page 13

Capital Resources

Stockholders’ equity totaled $105,144,000 on September 30, 2007, a decrease of 3.2 percent from $108,566,000 on December 31, 2006. This was the result of cash dividends and the repurchase of shares, offset by net income, appreciation in the market value of securities available for sale, and the adoption of FIN 48. The ratio of equity to assets was 7.4 percent at September 30, 2007 and 7.8 percent at December 31, 2006. 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 September 30, 2007
Total Capital (to risk-weighted assets)	$	114,344	10.38	%	$	88,144	8.00	%	$	110,180	10.00	%
Tier 1 Capital (to risk-weighted assets)		106,885	9.70	%		44,072	4.00	%		66,108	6.00	%
Tier 1 Capital (to average assets)		106,885	7.60	%		56,289	4.00	%		70,362	5.00	%
As of December 31, 2006
Total Capital (to risk-weighted assets)	$	119,247	11.28	%	$	84,588	8.00	%	$	105,735	10.00	%
Tier 1 Capital (to risk-weighted assets)		111,696	10.56	%		42,294	4.00	%		63,441	6.00	%
Tier 1 Capital (to average assets)		111,696	8.02	%		55,701	4.00	%		69,627	5.00	%

Credit Risk

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

The provision for the allowance for loan losses was $22,000 for the third quarter of 2007, and $345,000 for the comparable period in 2006. During the third quarter of 2006, the remainder of a large loan that was 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.

Page 14

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
				Sept. 30 2007			June 30 2007			Mar. 31 2007			Dec. 31 2006
Allowance for loan losses
Beginning balance	$	7,527		$	7,397		$	7,286		$	7,551		$	7,527
Total charge-offs		(229	)		(22	)		(18	)		(112	)		(77	)
Total recoveries		354			62			111			101			80
Reclass to Allowance for Contingent Liabilities		(366	)		—			—			(366	)		—
Provision for loan losses		173			22			18			112			21
Ending balance	$	7,459		$	7,459		$	7,397		$	7,286		$	7,551
Coverage ratios
Loans, net of discounts: average	$	899,089		$	919,791		$	908,791		$	889,321		$	878,452
at end of period		914,058			934,102			926,552			904,091			891,486
Non-performing assets		858			952			935			719			824
Non-performing assets/total loans (net of discount)		0.09	%		0.10	%		0.10	%		0.08	%		0.09	%
Net charge-offs/average net loans (annualized)		(0.07	%)		(0.04	%)		(0.06	%)		(0.10	%)		(0.07	%)
Allowance/non-accrual, restructured, & OREO		876.09	%		783.51	%		791.12	%		1,013.35	%		916.38	%
Allowance for loan losses/net loans		0.81	%		0.80	%		0.80	%		0.81	%		0.85	%

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. The maximum potential undiscounted amount of future payments of these letters of credit as of September 30, 2007 is $21,672,000 and they expire as follows: (in thousands)

2007	$	2,658
2008		17,312
2009		1,283
2010		245
Thereafter		174
	$	21,672

Amounts due under these letters of credit would be reduced by any proceeds that Suffolk would be able to obtain in liquidating the collateral for the loans, which varies depending on the customer. The allowance for contingent liabilities includes a provision of $33,000 for losses based on the letters of credit outstanding as of September 30, 2007.

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.

Page 15

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. On January 1, 2007, Suffolk adopted FIN 48. Suffolk determined, under the guidance of FIN 48 and the information available at the time, that is was not likely that the dividend received from its Real Estate Investment Trust subsidiary, would be included in full in taxable income as calculated for purposes of New York State tax. Accordingly, the cumulative effect of applying the provisions of FIN 48 were recorded as a credit adjustment to retained earnings in the amount of $2,013,000, as a result of the review, recognition, and measurement of uncertain tax positions. As of September 30, 2007, Suffolk had a liability for unrecognized tax benefits in the amount of $158,000. There have been no material changes in unrecognized tax benefits since January 1, 2007. Suffolk recognizes interest and penalties accrued relating to unrecognized tax benefits in income tax expense.

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, 2006.

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 September 30, 2007, 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.

Page 16

PART II

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table details repurchases of common stock during the third quarter of 2007:

Quarter ending	Total shares repurchased	Average price per share		Aggregate cost
September 30, 2007	85,100	$	29.55	$	2,514,399

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 September 30, 2007.

Current Report on Form 8-K – the Company’s press release titled, “Suffolk Bancorp Announces Earnings for the Second Quarter of 2007,” dated July 16, 2007.

Current Report on Form 8-K – the Company’s press release titled, “Suffolk Bancorp Announces Regular Quarterly Dividend,” dated August 27, 2007.

Page 17

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: November 2, 2007	/s/ Thomas S. Kohlmann
	Thomas S. Kohlmann
	President & Chief Executive Officer
Date: November 2, 2007	/s/ J. Gordon Huszagh
	J. Gordon Huszagh
	Executive Vice President & Chief Financial Officer

Page 18

EX-31.1

Exhibi t 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: November 2, 2007

/s/ Thomas S. Kohlmann

Thomas S. Kohlmann

President & Chief Executive Officer

Page 19

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: November 2, 2007

/s/ J. Gordon Huszagh

J. Gordon Huszagh

Executive Vice President & Chief Financial Officer

Page 20

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 September 30, 2007 (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: November 2, 2007

/s/ Thomas S. Kohlmann

Thomas S. Kohlmann

President & Chief Executive Officer

Page 21

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 September 30, 2007 (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: November 2, 2007

/s/ J. Gordon Huszagh

J. Gordon Huszagh

Executive Vice President & Chief Financial Officer

Page 22