SCNB Suffolk Bancorp

Third Quarter 2016 Highlights

• Net income increased by 11.2% to $5.5 million versus third quarter 2015

• Demand deposits, representing 45% of total deposits, increased by 8.2% versus third quarter 2015

• Total cost of funds was an extraordinarily low 0.19%

• Return on average assets (ROA) and return on average stockholders’ equity (ROE) improved to 0.99% and 10.21%. Core ROA and ROE were 1.07% and 11.01%.

• Tangible book value per share grew by 8.4% to $17.80 per share from $16.42 per share at September 30, 2015

Suffolk Bancorp (the “Company”) (NYSE:SCNB), parent company of Suffolk County National Bank (the “Bank”), today reported net income of $5.5 million, or $0.46 per diluted common share, for the third quarter of 2016 compared to $4.9 million, or $0.42 per diluted common share, a year ago. For the nine months ended September 30, 2016, the Company recorded net income of $16.1 million, or $1.35 per diluted common share, versus $14.1 million, or $1.19 per diluted common share for the comparable 2015 year-to-date period. Excluding merger-related charges, net non-accrual interest received and other real estate owned (“OREO”) related expenses incurred in 2016, core net income was $5.9 million and $16.5 million in the third quarter and September year-to-date periods, respectively.

The 11.2% increase in third quarter 2016 earnings versus the comparable 2015 period resulted from a $1.0 million increase in net interest income and a $700 thousand reduction in the provision for loan losses. Partially offsetting these improvements was a $105 thousand decline in non-interest income, a $799 thousand increase in total operating expenses and a higher effective tax rate (27.9% versus 27.5%) in 2016 when compared to the third quarter of 2015. Based upon consideration of many factors, including credit risk grades and economic conditions, in its evaluation of the various classes of the loan portfolio, the Company recorded in total a $350 thousand credit to the provision for loan losses in 2016.

President & CEO Howard C. Bluver stated: “I am very pleased to report an outstanding third quarter. While we continue to make significant progress toward ensuring a smooth and successful integration in connection with the pending merger with People’s United Financial, it is gratifying to see that our continuing Company-wide focus on high quality execution resulted in strong financial performance during the quarter.

“First, our deposit businesses had an excellent third quarter. While linked-quarter deposit levels reflected the end of summer seasonality that is inherent in many of our markets, particularly in the Hamptons on the east end of Long Island, year over year growth in deposit levels was strong. Total deposits at September 30, 2016 were $1.94 billion, compared to $1.80 billion at September 30, 2015, an increase of $148 million, or 8.3%. Even more impressive, 44% of this deposit growth came from increases in non-interest bearing demand deposits, which grew $66 million in the last year, from $801 million on September 30, 2015 to $867 million on September 30, 2016, an 8.2% increase. On September 30, 2016, 45% of our total deposits were demand deposits, resulting in an extraordinarily low cost of funds of 19 basis points during the third quarter and an attractive net interest margin of 3.72% for the quarter.

“Our attractive funding profile continues to prove that the core deposit franchise we have built over 126 years is unique in our marketplace and gives us a significant competitive advantage. At the end of the third quarter, core deposits, consisting of demand, N.O.W., savings and money market accounts, represented 89% of total deposits. The ability to establish new customer relationships, provide superior customer service and focus on low funding costs is a top priority for both our retail and lending teams, and is something we have benefitted from throughout all interest rate cycles over many decades. Our community-oriented culture and devotion to the highest levels of customer service align perfectly with People’s United. Protecting and enhancing this culture, and the low funding costs that come with it, will be the highest priority after the closing of the merger.

“Second, results in our lending businesses were strong on a year over year basis. Total loans at September 30, 2016 were $1.71 billion, compared to $1.56 billion at September 30, 2015, an increase of $151 million, or 9.7%. While total loans did decrease $19.1 million on a linked quarter basis as a result of our previously announced decision to temporarily pull back from the commercial real estate lending markets, I am pleased to report that, following implementation of enhanced risk management processes, we have reentered certain commercial real estate markets and are building a strong and diversified loan pipeline for the future.

“Third, credit quality continues to be strong in all categories. Total non-accrual loans at September 30, 2016 were $6.3 million, or 0.37% of total loans, compared to $6.9 million, or 0.40% of total loans, at June 30, 2016. All other key credit metrics remain solid and reflect our steadfast commitment to a strong and highly disciplined credit culture. Early delinquencies (30-89 days past due), which we manage aggressively as a harbinger of future credit issues, remain extremely low at $2.0 million, or 0.12% of total loans, at September 30, 2016. Given the continuous improvement we have seen in our credit profile, we believe we are well reserved. Our allowance for loan losses at September 30, 2016 was $20.5 million, or 1.20% of total loans and 324% of total non-accrual loans.

“Finally, we continue to be vigilant in controlling operating expenses and maintaining an attractive efficiency ratio. Total operating expenses in the third quarter were $13.5 million, resulting in an efficiency ratio of 63.7%. However, excluding $644 thousand in non-recurring merger related charges during the quarter, operating expenses were $12.8 million, or 3.7% lower than the $13.3 million in operating expenses incurred in the second quarter of this year and only 1.2% above the comparable 2015 quarter. This allowed us to achieve an attractive core operating efficiency ratio during the third quarter of 60.8%, compared to 61.8% in the comparable quarter a year ago. We also generated attractive returns for shareholders in the third quarter. Including non-recurring merger related charges, ROA and ROE during the third quarter were 0.99% and 10.21%, respectively. However, excluding the merger charges, net non-accrual interest received and OREO related expenses, core ROA and ROE during the quarter were 1.07% and 11.01%, respectively. Our proven ability to increase operating leverage by balancing the need for investment to generate revenue with expense saves in other areas will be a major priority after we close the merger with People’s United.”

Performance and Other Highlights

• Asset Quality – Total non-accrual loans were $6.3 million or 0.37% of loans outstanding at September 30, 2016 versus $5.5 million or 0.33% of loans outstanding at December 31, 2015 and $7.5 million or 0.48% of total loans outstanding at September 30, 2015. Total accruing loans delinquent 30 days or more were $2.0 million or 0.12% of loans outstanding at September 30, 2016 compared to $1.0 million or 0.06% of loans outstanding at December 31 and September 30, 2015. The Company recorded net loan charge-offs of $150 thousand in the third quarter of 2016 versus net loan recoveries of $35 thousand in the second quarter of 2016 and net loan charge-offs of $86 thousand in the third quarter of 2015. The allowance for loan losses totaled $20.5 million at September 30, 2016 versus $20.7 million at December 31, 2015 and $20.3 million at September 30, 2015, representing 1.20%, 1.24% and 1.30% of total loans, respectively, at such dates. The allowance for loan losses as a percentage of non-accrual loans was 324%, 374% and 271% at September 30, 2016, December 31, 2015 and September 30, 2015, respectively. The Company held OREO amounting to $650 thousand at September 30, 2016. The Company held no OREO at December 31 and September 30, 2015.
• Capital Strength – The Company’s capital ratios continue to exceed all regulatory requirements, including the individual minimum capital requirements that the OCC established for the Bank. The Company’s tier 1 leverage ratio was 10.04% at September 30, 2016 versus 9.77% at December 31, 2015 and 9.95% at September 30, 2015. The Company’s tier 1 risk-based capital ratio was 12.73% at September 30, 2016 versus 11.68% at December 31, 2015 and 11.98% at September 30, 2015. The Company’s total risk-based capital ratio was 13.93% at September 30, 2016 as compared to 12.89% at December 31, 2015 and 13.21% at September 30, 2015. The Company’s total stockholders’ equity to total assets ratio and the Company’s tangible common equity to tangible assets ratio (“TCE ratio”) were 9.77% and 9.66%, respectively, at September 30, 2016 versus 9.10% and 8.98%, respectively, at December 31, 2015 and 9.51% and 9.38%, respectively, at September 30, 2015. The ratio of total stockholders’ equity to total assets is the most comparable U.S. GAAP measure to the non-GAAP TCE ratio presented herein.
• Core Deposits – Core deposits, consisting of demand, N.O.W., savings and money market accounts, totaled $1.72 billion at September 30, 2016 versus $1.56 billion at both December 31, 2015 and September 30, 2015. Core deposits represented 89%, 87% and 87% of total deposits at September 30, 2016, December 31, 2015 and September 30, 2015, respectively. Demand deposits were $867 million at September 30, 2016, reflecting increases of 10.1% and 8.2% from $788 million and $801 million at December 31, 2015 and September 30, 2015, respectively. Demand deposits represented 45%, 44% and 45% of total deposits at September 30, 2016, December 31, 2015 and September 30, 2015, respectively.
• Loans – Loans outstanding at September 30, 2016 increased by $151 million, or 9.7%, to $1.71 billion when compared to September 30, 2015 and increased by $44 million, or 2.7%, when compared to December 31, 2015.
• Net Interest Margin – Net interest margin was 3.72% in the third quarter of 2016 versus 3.87% in the second quarter of 2016 and 3.89% in the third quarter of 2015. Adjusting for the impact of net non-accrual interest received in each period, the Company’s core net interest margin was 3.71% in the third quarter of 2016 as compared to 3.86% in the second quarter of 2016 and 3.85% in the third quarter of 2015. The average cost of funds was 0.19% in the third quarter of 2016 versus 0.20% in the second quarter of 2016 and 0.18% in the third quarter of 2015.
• Performance Ratios – Return on average assets and return on average common stockholders’ equity were 0.99% and 10.21%, respectively, in the third quarter of 2016 versus 1.05% and 11.23%, respectively, in the second quarter of 2016, and 0.97% and 10.15%, respectively, in the third quarter of 2015.

Earnings Summary for the Quarter Ended September 30, 2016

The Company recorded net income of $5.5 million during the third quarter of 2016 versus $4.9 million in the comparable quarter a year ago. The 11.2% improvement in third quarter 2016 net income resulted from a $1.0 million increase in net interest income and a $700 thousand reduction in the provision for loan losses. The Company recorded a $350 thousand credit to the provision for loan losses in the third quarter of 2016. Partially offsetting these positive factors was a $105 thousand decline in non-interest income, a $799 thousand increase in total operating expenses and an increase in the effective tax rate to 27.9% in 2016 from 27.5% a year ago.

The $1.0 million or 5.8% improvement in third quarter 2016 net interest income resulted from a $185 million (10.0%) increase in average total interest-earning assets. Partially offsetting the earning asset growth was a 17 basis point decline in the Company’s net interest margin to 3.72% in 2016 from 3.89% in 2015. The Company’s third quarter 2016 average total interest-earning asset yield was 3.90% versus 4.06% in the comparable 2015 quarterly period. The decrease in the interest-earning asset yield in 2016 resulted from a four basis point decline in the average loan yield to 4.14% in 2016 along with a shift in the average asset mix to a greater percentage of Fed funds sold, securities purchased under agreements to resell and interest-bearing deposits due from banks (short-term investments) in 2016. Average loans increased by $196 million (13.0%) versus third quarter 2015. The average securities portfolio decreased by $102 million to $229 million in the third quarter of 2016 versus the comparable 2015 period. The average yield on the investment portfolio was 3.54% in 2016 versus 3.62% a year ago. At September 30, 2016, mortgage-backed securities, at 45%, made up the largest component of the Company’s investment portfolio. The available for sale securities portfolio had an unrealized pre-tax gain of $4.2 million and the entire securities portfolio had an estimated weighted average life of 3.3 years at September 30, 2016. Average short-term investments grew by $92 million in 2016 at an average yield of 0.51%.

The Company’s average cost of total interest-bearing liabilities increased by two basis points to 0.34% in the third quarter of 2016 versus 0.32% in the comparable 2015 quarter. The Company’s total cost of funds, among the lowest in the industry, was 0.19% in the third quarter of 2016 versus 0.18% a year ago. Average core deposits increased $209 million (13.8%) to $1.7 billion during the third quarter of 2016 versus the third quarter of 2015, with average demand deposits representing 44% of third quarter 2016 average total deposits. Total deposits increased by $148 million or 8.3% to $1.9 billion at September 30, 2016 versus the comparable 2015 date. Core deposit balances, which represented 89% of total deposits at September 30, 2016, grew by $165 million or 10.6% during the same period. Average borrowings decreased by $28 million (64.9%) during the third quarter of 2016 compared to 2015. Total borrowings at September 30, 2016 were $15 million versus $50 million at the comparable 2015 date.

Non-interest income decreased by $105 thousand in the third quarter of 2016 versus the comparable 2015 period. This reduction was principally due to a decrease in net gain on the sales of portfolio loans (down $370 thousand) in the third quarter of 2016 coupled with a decline in service charges on deposits (down $226 thousand). Partially offsetting these variances was an increase in the net gain on the sale of securities available for sale (up $390 thousand).

Total operating expenses increased by $799 thousand or 6.3% in the third quarter of 2016 versus 2015 principally the result of $644 thousand of merger-related expenses incurred in 2016. Excluding these merger-related costs, operating expenses increased by $155 thousand or 1.2% when compared to the third quarter of 2015. Growth in employee compensation and benefits of $538 thousand, FDIC assessment expense of $77 thousand and equipment expense of $84 thousand were the primary reasons for the increase in operating expenses in 2016. Partially offsetting these increases were reductions in 2016 data processing costs and consulting and professional services expenses of $350 thousand and $133 thousand, respectively, versus the comparable 2015 period. The increase in employee compensation and benefits expense in 2016 resulted principally from a higher deferred expense credit in 2015 due to last year’s increased third quarter loan production. The improvement in data processing costs resulted from lower core systems expenses in 2016 resulting from the recent conversion to Fiserv. The Company’s operating efficiency ratio was 63.7% in the third quarter of 2016 versus 61.2% a year ago. Excluding merger-related expenses, net non-accrual interest received and OREO related expenses, the Company’s core operating efficiency ratio improved to 60.8% in 2016 from 61.8% in 2015.

The Company recorded a $350 thousand credit to the provision for loan losses in the third quarter of 2016 versus a $350 thousand provision taken in 2015.

The Company recorded income tax expense of $2.1 million in the third quarter of 2016 resulting in an effective tax rate of 27.9% versus an income tax expense of $1.9 million and an effective tax rate of 27.5% in the comparable period a year ago.

Earnings Summary for the Nine Months Ended September 30, 2016

The Company recorded net income of $16.1 million during the first nine months of 2016 versus $14.1 million in the comparable 2015 period. The improvement in 2016 net income resulted principally from a $4.0 million increase in net interest income in the September year-to-date 2016 period, partially offset by a $113 thousand reduction in non-interest income, a $988 thousand increase in total operating expenses and an increase in the Company’s effective tax rate in 2016. Excluding merger-related expenses incurred in 2016, total operating expenses increased by $344 thousand or 0.9% versus 2015.

The $4.0 million or 7.8% improvement in September year-to-date 2016 net interest income resulted from a $234 million increase in average total interest-earning assets, offset in part by a 22 basis point contraction of the Company’s net interest margin to 3.80% in 2016 from 4.02% in 2015. The Company’s September year-to-date 2016 average total interest-earning asset yield was 4.00% versus 4.19% in the comparable 2015 year-to-date period. A lower average yield on the Company’s loan portfolio in the first nine months of 2016 versus the comparable 2015 period, down 18 basis points to 4.17%, was the primary driver of the reduction in the interest-earning asset yield. Excluding the impact of net non-accrual interest received in each year-to-date period, the Company’s core net interest margin was 3.76% in 2016 versus 3.93% in 2015. The Company’s average loan portfolio increased by $276 million (19.2%) versus September year-to-date 2015 while the average securities portfolio decreased by $79 million (22.8%) to $267 million in the same period. The average yield on the investment portfolio was 3.59% in 2016 versus 3.74% a year ago.

The Company’s average cost of total interest-bearing liabilities increased by five basis points to 0.35% in the first nine months of 2016 versus 0.30% in the comparable 2015 period. The Company’s total cost of funds increased by four basis points to 0.21% in the first nine months of 2016 versus 2015. Average core deposits increased by $236 million (16.5%) to $1.7 billion during the first nine months of 2016 versus the comparable 2015 period, with average demand deposits representing 43% of year-to-date 2016 average total deposits. Average total deposits increased by $232 million or 14.0% to $1.9 billion during the first nine months of 2016 versus 2015. Average core deposit balances represented 88% of average total deposits during the same period.

The Company recorded a $100 thousand credit to the provision for loan losses during the first nine months of 2016 versus a provision of $600 thousand a year ago.

Total operating expenses increased by $988 thousand (2.5%) in the first nine months of 2016 versus 2015 principally due to $644 thousand in merger-related expenses coupled with growth in other operating expenses (up $598 thousand) and employee compensation and benefits (up $564 thousand), offset in part by a $1.0 million reduction in data processing costs. The Company’s operating efficiency ratio improved to 61.6% in the first nine months of 2016 from 63.5% a year ago. Excluding merger-related costs, net non-accrual interest received and OREO related expenses, the Company’s core operating efficiency ratio improved to 60.7% in 2016 versus 64.8% a year ago.

The Company recorded income tax expense of $6.3 million in the September year-to-date 2016 period resulting in an effective tax rate of 28.0% versus income tax expense of $4.7 million and an effective tax rate of 25.0% in the comparable period a year ago.

Asset Quality

Non-accrual loans totaled $6.3 million or 0.37% of loans outstanding at September 30, 2016 versus $5.5 million or 0.33% of loans outstanding at December 31, 2015 and $7.5 million or 0.48% of total loans outstanding at September 30, 2015. The allowance for loan losses as a percentage of total non-accrual loans amounted to 324%, 374% and 271% at September 30, 2016, December 31, 2015 and September 30, 2015, respectively. Total accruing loans delinquent 30 days or more amounted to $2.0 million or 0.12% of loans outstanding at September 30, 2016 compared to $1.0 million or 0.06% of loans outstanding at December 31 and September 30, 2015.

Total criticized and classified loans were $33 million at September 30, 2016 versus $21 million at December 31, 2015 and $29 million at September 30, 2015. Criticized loans are those loans that are not classified but require some degree of heightened monitoring. Classified loans were $15 million at September 30, 2016 as compared to $12 million at December 31, 2015 and $15 million at September 30, 2015. The allowance for loan losses as a percentage of total classified loans was 135%, 170% and 133%, respectively, at the same dates.

At September 30, 2016, the Company had $12 million in troubled debt restructurings (“TDRs”), primarily consisting of commercial and industrial loans, commercial real estate loans, residential mortgages and home equity loans totaling $3 million, $3 million, $5 million and $1 million, respectively. The Company had TDRs amounting to $12 million and $13 million at December 31, 2015 and September 30, 2015, respectively.

At September 30, 2016, the Company’s allowance for loan losses amounted to $20.5 million or 1.20% of period-end total loans outstanding. The allowance as a percentage of loans outstanding was 1.24% at December 31, 2015 and 1.30% at September 30, 2015. The Company recorded net loan charge-offs of $150 thousand in the third quarter of 2016 versus net loan recoveries of $35 thousand in the second quarter of 2016 and net loan charge-offs of $86 thousand in the third quarter of 2015. As a percentage of average total loans outstanding, these net amounts represented, on an annualized basis, 0.03% for the third quarter of 2016, (0.01%) for the second quarter of 2016 and 0.02% for the third quarter of 2015.

The Company held OREO amounting to $650 thousand at September 30, 2016. The Company held no OREO at December 31 and September 30, 2015.

Capital

Total stockholders’ equity was $215 million at September 30, 2016 compared to $197 million at December 31 and September 30, 2015. The increase in stockholders’ equity versus September 30, 2015 was due principally to net income recorded during the last twelve months, net of dividends paid. The Company’s return on average common stockholders’ equity was 10.21% and 10.45% for the three and nine months ended September 30, 2016 versus 10.15% and 9.95%, respectively, for the comparable 2015 periods. Excluding merger-related expenses, net non-accrual interest received and OREO related expenses, the Company’s 2016 core return on average common stockholders’ equity was 11.01% and 10.71%, respectively, for the three and nine-month periods ended September 30, 2016.

The Bank’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 9.94%, 12.61%, 12.61% and 13.81%, respectively, at September 30, 2016. Each of these ratios exceeds the regulatory guidelines for a “well capitalized” institution, the highest regulatory capital category.

The Company’s capital ratios also exceeded all regulatory requirements, including the individual minimum capital requirements that the OCC established for the Bank, at September 30, 2016. The Company’s total stockholders’ equity to total assets ratio and the Company’s TCE ratio were 9.77% and 9.66%, respectively, at September 30, 2016 versus 9.10% and 8.98%, respectively, at December 31, 2015 and 9.51% and 9.38%, respectively, at September 30, 2015. The ratio of total stockholders’ equity to total assets is the most comparable U.S. GAAP measure to the non-GAAP TCE ratio presented herein.

Corporate Information

Suffolk Bancorp is a one-bank holding company engaged in the commercial banking business through Suffolk County National Bank, a full service commercial bank headquartered in Riverhead, New York and Suffolk Bancorp’s wholly owned subsidiary. Organized in 1890, the Bank has 27 branch offices in Nassau, Suffolk and Queens Counties, New York. For more information about the Bank and its products and services, please visit www.scnb.com.

Non-GAAP Disclosure

This discussion includes non-GAAP financial measures of the Company’s TCE ratio, tangible common equity, tangible assets, core net income, core fully taxable equivalent (“FTE”) net interest income, core FTE net interest margin, core operating expenses, core non-interest income, core FTE non-interest income, core returns on average assets and stockholders’ equity and core operating efficiency ratio. A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The Company believes that these non-GAAP financial measures provide both management and investors a more complete understanding of the underlying operational results and trends and the Company’s marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other financial institutions.

With respect to the calculations of core net income, core FTE net interest income and core FTE net interest margin for the periods presented in this discussion, reconciliations to the most comparable U.S. GAAP measures are provided in the following tables. Such reconciliations for the TCE ratio, tangible common equity, tangible assets, core operating expenses, core non-interest income, core FTE non-interest income, core returns on average assets and stockholders’ equity and core operating efficiency ratio are provided elsewhere herein.

      Three Months Ended September 30, Nine Months Ended September 30, (in thousands)   2016     2015   2016     2015

CORE NET INCOME:

Net income, as reported $ 5,475 $ 4,923 $ 16,098 $ 14,050   Adjustments: Net non-accrual interest adjustment (58) (199) (184) (1,173) Merger costs 644 - 644 - OREO-related expenses   9   -   105   - Total adjustments, before income taxes 595 (199) 565 (1,173) Adjustment for reported effective income tax rate   166   (55)   158   (293) Total adjustments, after income taxes   429   (144)   407   (880)   Core net income $ 5,904 $ 4,779 $ 16,505 $ 13,170       Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2016   2015 2016   2015 CORE NET INTEREST INCOME/MARGIN:       Net interest income/margin (FTE) $ 19,109   3.72% $ 18,220 3.89% $ 58,117 3.80% $ 54,475 4.02%   Net non-accrual interest adjustment   (58)   (0.01%)   (199)   (0.04%)   (184)   (0.04%)   (1,173)   (0.09%)   Core net interest income/margin (FTE) $ 19,051   3.71% $ 18,021   3.85% $ 57,933   3.76% $ 53,302   3.93%  

Safe Harbor Statement Pursuant to the Private Securities Litigation Reform Act of 1995

Certain statements contained in this document are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These can include remarks about the Company, the proposed merger with People’s United Financial, Inc. (“People’s United”), the banking industry, the economy in general, expectations of the business environment in which the Company operates, projections of future performance, and potential future credit experience. These remarks are based upon current management expectations, and may, therefore, involve risks and uncertainties that cannot be predicted or quantified, that are beyond the Company’s control and that could cause future results to vary materially from the Company’s historical performance or from current expectations. These remarks may be identified by such forward-looking statements as “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” or similar statements or variations of such terms. Factors that could affect the Company include particularly, but are not limited to: the ability to obtain regulatory approvals and meet other closing conditions to the merger with People’s United, including the risk that regulatory approvals required for the merger are not obtained or are obtained subject to conditions that are not anticipated; delay in closing the merger; difficulties and delays in integrating the Company’s business or fully realizing cost savings and other benefits of the merger; business disruption following the merger; increased capital requirements mandated by the Company’s regulators, including the individual minimum capital requirements that the OCC established for the Bank; the Bank’s temporary limitation on the growth of its commercial real estate (“CRE”) portfolio and the potentially adverse impact thereof on the Company’s overall business, financial condition and results of operation due to the importance of the Bank’s CRE business to the Company’s overall business, financial condition and results of operation; any failure by the Bank to comply with the individual minimum capital ratios (including as a result of increases to the Bank’s allowance for loan losses), which may result in regulatory enforcement actions; the duration of the Bank’s limitation on the growth of its CRE portfolio, and the potentially adverse impact thereof on the Company’s overall business, financial condition and results of operation; the cost of compliance and significant amount of time required of management to comply with regulatory requirements; results of changes in law, regulations or regulatory practices; the Company’s ability to raise capital; competitive factors, including price competition; changes in interest rates; increases or decreases in retail and commercial economic activity in the Company’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; the Company’s ability to attract and retain key management and staff; any failure by the Company to maintain effective internal control over financial reporting; larger-than-expected losses from the sale of assets; and the potential that net charge-offs are higher than expected or for increases in our provision for loan losses. Further, it could take the Company 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 the Company to change its practices in ways that materially change the results of operations. We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document. For more information, see the risk factors described in the Company’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.

Financial Highlights Follow

      CONSOLIDATED STATEMENTS OF CONDITION (unaudited, dollars in thousands, except per share data)   September 30, 2016 December 31, 2015 September 30, 2015 ASSETS Cash and cash equivalents Cash and non-interest-bearing deposits due from banks $ 40,086 $ 75,272 $ 79,049 Interest-bearing deposits due from banks   141,843   22,814   18,751 Total cash and cash equivalents 181,929 98,086 97,800 Federal Reserve and Federal Home Loan Bank stock and other investments 4,528 10,756 5,581 Investment securities: Available for sale, at fair value 194,273 247,099 261,232 Held to maturity (fair value $19,633, $63,272 and $69,402, respectively)   18,896   61,309   66,427 Total investment securities   213,169   308,408   327,659 Loans 1,710,786 1,666,447 1,559,520 Allowance for loan losses   20,465   20,685   20,315 Net loans 1,690,321 1,645,762 1,539,205 Loans held for sale 1,504 1,666 745 Premises and equipment, net 25,289 23,240 23,144 Bank-owned life insurance 53,418 52,383 46,027 Deferred tax assets, net 12,445 15,845 14,422 Accrued interest and loan fees receivable 5,840 5,859 6,349 Goodwill and other intangibles 2,761 2,864 2,915 Other real estate owned ("OREO") 650 - - Other assets   4,621   3,723   2,997 TOTAL ASSETS $ 2,196,475 $ 2,168,592 $ 2,066,844   LIABILITIES & STOCKHOLDERS' EQUITY Demand deposits $ 867,178 $ 787,944 $ 801,212 Savings, N.O.W. and money market deposits   857,790   768,036   759,080 Subtotal core deposits 1,724,968 1,555,980 1,560,292 Time deposits   219,232   224,643   235,539 Total deposits 1,944,200 1,780,623 1,795,831 Borrowings 15,000 165,000 50,000 Unfunded pension liability 6,416 6,428 5,969 Capital leases 4,298 4,395 4,426 Other liabilities   11,863   14,888   14,078 TOTAL LIABILITIES   1,981,777   1,971,334   1,870,304 COMMITMENTS AND CONTINGENT LIABILITIES STOCKHOLDERS' EQUITY Common stock (par value $2.50; 15,000,000 shares authorized; issued 14,073,159, 13,966,292 and 13,956,250, respectively; outstanding 11,907,421, 11,800,554, and 11,790,512, respectively) 35,183 34,916 34,890 Surplus 48,520 46,239 45,656 Retained earnings 142,632 130,093 127,636 Treasury stock at par (2,165,738 shares) (5,414) (5,414) (5,414) Accumulated other comprehensive loss, net of tax   (6,223)   (8,576)   (6,228) TOTAL STOCKHOLDERS' EQUITY   214,698   197,258   196,540 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 2,196,475 $ 2,168,592 $ 2,066,844     CONSOLIDATED STATEMENTS OF INCOME (unaudited, dollars in thousands, except per share data)       Three Months Ended September 30, Nine Months Ended September 30,   2016   2015   2016   2015 INTEREST INCOME Loans and loan fees $ 17,545 $ 15,798 $ 52,808 $ 46,362 U.S. Government agency obligations 47 530 662 1,602 Obligations of states and political subdivisions 791 1,114 2,709 3,725 Collateralized mortgage obligations 91 149 270 507 Mortgage-backed securities 464 441 1,401 1,329 Corporate bonds 161 96 469 179

Federal funds sold, securities purchased under agreements to

resell and interest-bearing deposits due from banks 133 7 191 50 Dividends   92   71   275   221 Total interest income   19,324   18,206   58,785   53,975 INTEREST EXPENSE Savings, N.O.W. and money market deposits 539 338 1,562 906 Time deposits 331 396 1,015 1,043 Borrowings   66   94   474   310 Total interest expense   936   828   3,051   2,259 Net interest income 18,388 17,378 55,734 51,716 (Credit) provision for loan losses   (350)   350   (100)   600 Net interest income after (credit) provision for loan losses   18,738   17,028   55,834   51,116 NON-INTEREST INCOME Service charges on deposit accounts 523 749 1,913 2,319 Other service charges, commissions and fees 793 759 2,088 2,032 Net gain on sale of securities available for sale 523 133 547 319 Net gain on sale of portfolio loans - 370 457 568 Net gain on sale of mortgage loans originated for sale 100 85 247 290 Income from bank-owned life insurance 344 306 1,035 918 Other operating income   39   25   168   122 Total non-interest income   2,322   2,427   6,455   6,568 OPERATING EXPENSES Employee compensation and benefits 8,518 7,980 25,666 25,102 Occupancy expense 1,337 1,401 4,125 4,236 Equipment expense 494 410 1,341 1,199 Consulting and professional services 476 609 1,578 1,491 FDIC assessment 303 226 887 802 Data processing 156 506 569 1,590 Merger costs 644 - 644 - Other operating expenses   1,539   1,536   5,128   4,530 Total operating expenses   13,467   12,668   39,938   38,950 Income before income tax expense 7,593 6,787 22,351 18,734 Income tax expense   2,118   1,864   6,253   4,684 NET INCOME $ 5,475 $ 4,923 $ 16,098 $ 14,050   EARNINGS PER COMMON SHARE - BASIC $ 0.46 $ 0.42 $ 1.36 $ 1.20 EARNINGS PER COMMON SHARE - DILUTED $ 0.46 $ 0.42 $ 1.35 $ 1.19 CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.10 $ 0.10 $ 0.30 $ 0.22   CONSOLIDATED STATEMENTS OF INCOME QUARTERLY TREND (unaudited, dollars in thousands, except per share data)           Three Months Ended September 30, June 30, March 31, December 31, September 30,   2016   2016   2016   2015   2015 INTEREST INCOME Loans and loan fees $ 17,545 $ 18,041 $ 17,222 $ 16,552 $ 15,798 U.S. Government agency obligations 47 197 418 477 530 Obligations of states and political subdivisions 791 924 994 1,049 1,114 Collateralized mortgage obligations 91 100 79 86 149 Mortgage-backed securities 464 473 464 438 441 Corporate bonds 161 162 146 132 96

Federal funds sold, securities purchased under agreements to

resell and interest-bearing deposits due from banks 133 29 29 12 7 Dividends   92   108   75   59   71 Total interest income   19,324   20,034   19,427   18,805   18,206 INTEREST EXPENSE Savings, N.O.W. and money market deposits 539 510 513 477 338 Time deposits 331 336 348 379 396 Borrowings   66   166   242   132   94 Total interest expense   936   1,012   1,103   988   828 Net interest income 18,388 19,022 18,324 17,817 17,378 (Credit) provision for loan losses   (350)   -   250   -   350 Net interest income after (credit) provision for loan losses   18,738   19,022   18,074   17,817   17,028 NON-INTEREST INCOME Service charges on deposit accounts 523 614 776 723 749 Other service charges, commissions and fees 793 684 611 686 759 Net gain on sale of securities available for sale 523 18 6 - 133 Net gain on sale of portfolio loans - 457 - - 370 Net gain on sale of mortgage loans originated for sale 100 73 74 66 85 Income from bank-owned life insurance 344 345 346 356 306 Other operating income   39   50   79   195   25 Total non-interest income   2,322   2,241   1,892   2,026   2,427 OPERATING EXPENSES Employee compensation and benefits 8,518 8,482 8,666 8,344 7,980 Occupancy expense 1,337 1,346 1,442 1,439 1,401 Equipment expense 494 461 386 437 410 Consulting and professional services 476 619 483 668 609 FDIC assessment 303 291 293 280 226 Data processing 156 234 179 533 506 Merger costs 644 - - - - Nonrecurring project costs - - - 1,443 - Other operating expenses   1,539   1,886   1,703   1,860   1,536 Total operating expenses   13,467   13,319   13,152   15,004   12,668 Income before income tax expense 7,593 7,944 6,814 4,839 6,787 Income tax expense   2,118   2,159   1,976   1,202   1,864 NET INCOME $ 5,475 $ 5,785 $ 4,838 $ 3,637 $ 4,923 EARNINGS PER COMMON SHARE - BASIC $ 0.46 $ 0.49 $ 0.41 $ 0.31 $ 0.42 EARNINGS PER COMMON SHARE - DILUTED $ 0.46 $ 0.48 $ 0.41 $ 0.31 $ 0.42 CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10     STATISTICAL SUMMARY (unaudited, dollars in thousands, except per share data)   Three Months Ended September 30,   Nine Months Ended September 30,   2016     2015   2016     2015 AVERAGE BALANCES: Total assets $ 2,195,832 $ 2,013,119 $ 2,201,621 $ 1,952,270 Loans and performing loans held for sale 1,708,162 1,511,936 1,713,853 1,437,639 Investment securities 228,945 330,891 267,207 345,958 Interest-earning assets 2,045,305 1,860,118 2,043,606 1,809,579 Demand deposits 851,099 779,215 815,346 723,650 Core deposits (1) 1,721,540 1,512,580 1,667,741 1,431,436 Total deposits 1,945,334 1,754,007 1,893,856 1,661,647 Borrowings 15,000 42,783 78,203 78,464 Stockholders' equity 213,246 192,493 205,787 188,708

FINANCIAL PERFORMANCE RATIOS:

Return on average assets 0.99% 0.97% 0.98% 0.96% Core return on average assets (2) 1.07% 0.94% 1.00% 0.90% Return on average stockholders' equity 10.21% 10.15% 10.45% 9.95% Core return on average stockholders' equity (3) 11.01% 9.85% 10.71% 9.33% Average loans/average deposits 87.81% 86.20% 90.50% 86.52% Average core deposits/average deposits 88.50% 86.24% 88.06% 86.15% Average demand deposits/average deposits 43.75% 44.42% 43.05% 43.55% Net interest margin (FTE) 3.72% 3.89% 3.80% 4.02% Operating efficiency ratio (4) 63.68% 61.16% 61.56% 63.51% Core operating efficiency ratio (5) 60.80% 61.75% 60.74% 64.75% (1) Demand, savings, N.O.W. and money market deposits.

(2) Core return on average assets, the ratio of core net income to average total assets, is a non-GAAP measure and should not be considered as asubstitute for or superior to financial measures determined in accordance with U.S. GAAP.

(3) Core return on average stockholders' equity, the ratio of core net income to average total stockholders' equity, is a non-GAAP measure andshould not be considered as a substitute for or superior to financial measures determined in accordance with U.S. GAAP.

(4) The operating efficiency ratio is calculated by dividing operating expenses less OREO-related expenses by the sum of fully taxable equivalent("FTE") net interest income and non-interest income, excluding net gains and losses on sales of available for sale securities.

(5) The core operating efficiency ratio is not required by U.S. GAAP or by applicable bank regulatory requirements, but is a metric used bymanagement to evaluate core operating efficiency. Since there is no authoritative requirement to calculate this ratio, our ratio is not necessarilycomparable to similar efficiency measures disclosed or used by other companies in the financial services industry. The core operating efficiency ratiois a non-GAAP financial measure and should be considered in addition to, not as a substitute for or superior to, financial measures determined inaccordance with U.S. GAAP. The reconciliation of core operating expenses to U.S. GAAP total operating expenses and core non-interest income toU.S. GAAP total non-interest income and the calculation of the core operating efficiency ratio are set forth below:

Core operating expenses:

Total operating expenses $ 13,467 $ 12,668 $ 39,938 $ 38,950 Adjust for merger costs (644) - (644) - Adjust for OREO-related expenses   (9)   -   (105)   - Core operating expenses   12,814   12,668   39,189   38,950

Core non-interest income:

Total non-interest income 2,322 2,427 6,455 6,568 Adjustments   -   -   -   - Core non-interest income 2,322 2,427 6,455 6,568 Adjust for tax-equivalent basis   225   200   676   600 Core FTE non-interest income   2,547   2,627   7,131   7,168

Core operating efficiency ratio:

Core operating expenses   12,814   12,668   39,189   38,950 Core FTE net interest income 19,051 18,021 57,933 53,302 Core FTE non-interest income 2,547 2,627 7,131 7,168 Adjust for net gain on sale of securities available for sale   (523)   (133)   (547)   (319) Core total FTE revenue   21,075   20,515   64,517   60,151 Core operating expenses/core total FTE revenue   60.80%   61.75%   60.74%   64.75%       STATISTICAL SUMMARY (continued) (unaudited, dollars in thousands)  

RECONCILIATION OF BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

  Three Months Ended September 30, Nine Months Ended September 30, 2016 2015   2016 2015   Weighted average common shares outstanding 11,788,825 11,674,697 11,752,237 11,636,155 Weighted average unvested restricted shares 113,041 111,034   116,753 106,921 Weighted average shares for basic earnings per share 11,901,866 11,785,731 11,868,990 11,743,076 Additional diluted shares: Stock options 98,485 77,568   81,605 74,823 Weighted average shares for diluted earnings per share 12,000,351 11,863,299   11,950,595 11,817,899  

CAPITAL RATIOS:

                  September 30, June 30, March 31, December 31, September 30,   2016 2016 2016   2015 2015

Suffolk Bancorp:

Tier 1 leverage ratio 10.04% 9.66% 9.52% 9.77% 9.95% Common equity tier 1 risk-based capital ratio 12.73% 12.04% 11.48% 11.68% 11.98% Tier 1 risk-based capital ratio 12.73% 12.04% 11.48% 11.68% 11.98% Total risk-based capital ratio 13.93% 13.24% 12.65% 12.89% 13.21% Tangible common equity ratio (1) 9.66% 9.46% 8.91% 8.98% 9.38% Total stockholders' equity/total assets (2) 9.77% 9.58% 9.03% 9.10% 9.51%  

Suffolk County National Bank:

Tier 1 leverage ratio 9.94% 9.55% 9.30% 9.58% 9.78% Common equity tier 1 risk-based capital ratio 12.61% 11.90% 11.21% 11.45% 11.77% Tier 1 risk-based capital ratio 12.61% 11.90% 11.21% 11.45% 11.77% Total risk-based capital ratio 13.81% 13.10% 12.38% 12.66% 13.01% Tangible common equity ratio (1) 9.57% 9.35% 8.70% 8.79% 9.22% Total stockholders' equity/total assets (2) 9.68% 9.46% 8.81% 8.91% 9.34%  

(1) The ratio of tangible common equity to tangible assets, or TCE ratio, is calculated by dividing total common stockholders’ equity by totalassets, after reducing both amounts by intangible assets. The TCE ratio is not required by U.S. GAAP or by applicable bank regulatoryrequirements, but is a metric used by management to evaluate the adequacy of our capital levels. Since there is no authoritative requirement tocalculate the TCE ratio, our TCE ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in thefinancial services industry. Tangible common equity and tangible assets are non-GAAP financial measures and should be considered in addition to,not as a substitute for or superior to, financial measures determined in accordance with U.S. GAAP. With respect to the calculation of the actualunaudited TCE ratios at September 30, 2016, reconciliations of tangible common equity to U.S. GAAP total common stockholders’ equity andtangible assets to U.S. GAAP total assets are set forth below:

 

Suffolk Bancorp:

Total stockholders' equity $ 214,698 Total assets $ 2,196,475 9.77% Less: intangible assets   (2,761) Less: intangible assets   (2,761) Tangible common equity $ 211,937 Tangible assets $ 2,193,714 9.66%  

Suffolk County National Bank:

Total stockholders' equity $ 212,560 Total assets $ 2,196,079 9.68% Less: intangible assets   (2,761) Less: intangible assets   (2,761) Tangible common equity $ 209,799 Tangible assets $ 2,193,318 9.57%  

(2) The ratio of total stockholders' equity to total assets is the most comparable U.S. GAAP measure to the non-GAAP tangible common equityratio presented herein.

    STATISTICAL SUMMARY (continued) (unaudited, dollars in thousands, except per share data)           Periods Ended September 30, June 30, March 31, December 31, September 30,   2016   2016   2016   2015   2015  

LOAN DISTRIBUTION (1):

Commercial and industrial $ 210,510 $ 215,960 $ 195,321 $ 189,769 $ 181,116 Commercial real estate 728,562 734,586 718,934 696,787 648,132 Multifamily 418,108 426,367 480,678 426,549 392,921 Mixed use commercial 82,527 84,070 83,421 78,787 64,381 Real estate construction 43,190 40,452 37,373 37,233 32,896 Residential mortgages 180,831 178,504 181,649 186,313 186,545 Home equity 42,407 44,655 45,447 44,951 46,990 Consumer   4,651   5,280   5,249   6,058   6,539 Total loans $ 1,710,786 $ 1,729,874 $ 1,748,072 $ 1,666,447 $ 1,559,520 Sequential quarter growth rate   (1.10%)   (1.04%)   4.90%   6.86%   5.61% Period-end loans/deposits ratio   87.99%   88.76%   93.46%   93.59%   86.84%  

FUNDING DISTRIBUTION:

Demand $ 867,178 $ 863,048 $ 790,678 $ 787,944 $ 801,212 N.O.W. 127,128 134,562 143,862 130,968 123,553 Savings 362,269 350,565 337,657 326,469 326,711 Money market   368,393   374,926   368,331   310,599   308,816 Total core deposits 1,724,968 1,723,101 1,640,528 1,555,980 1,560,292 Time   219,232   225,918   229,841   224,643   235,539 Total deposits 1,944,200 1,949,019 1,870,369 1,780,623 1,795,831 Borrowings   15,000   15,000   160,000   165,000   50,000 Total funding sources $ 1,959,200 $ 1,964,019 $ 2,030,369 $ 1,945,623 $ 1,845,831 Sequential quarter growth rate - total deposits   (0.25%)   4.21%   5.04%   (0.85%)   4.51% Period-end core deposits/total deposits ratio   88.72%   88.41%   87.71%   87.38%   86.88% Period-end demand deposits/total deposits ratio   44.60%   44.28%   42.27%   44.25%   44.62% Cost of funds for the quarter   0.19%   0.20%   0.23%   0.21%   0.18%    

EQUITY:

Common shares outstanding 11,907,421 11,892,254 11,853,564 11,800,554 11,790,512 Stockholders' equity $ 214,698 $ 210,307 $ 203,717 $ 197,258 $ 196,540 Book value per common share 18.03 17.68 17.19 16.72 16.67 Tangible common equity 211,937 207,551 200,883 194,394 193,625 Tangible book value per common share 17.80 17.45 16.95 16.47 16.42     (1) Excluding loans held for sale.     ASSET QUALITY ANALYSIS (unaudited, dollars in thousands)     Three Months Ended September 30,   June 30,   March 31,   December 31,   September 30,   2016   2016   2016   2015   2015

Non-performing assets (1):

Non-accrual loans: Commercial and industrial $ 3,602 $ 4,118 $ 4,128 $ 1,954 $ 3,662 Commercial real estate 2,167 2,174 1,959 1,733 1,746 Residential mortgages 361 421 724 1,358 1,424 Home equity 185 185 186 406 548 Consumer   -   -   1   77   121 Total non-accrual loans   6,315   6,898   6,998   5,528   7,501 Loans 90 days or more past due and still accruing   -   -   -   -   - Total non-performing loans   6,315   6,898   6,998   5,528   7,501 Non-accrual loans held for sale - - - - - OREO   650   650   650   -   - Total non-performing assets $ 6,965 $ 7,548 $ 7,648 $ 5,528 $ 7,501 Additions to non-accrual loans during the quarter $ - $ 259 $ 2,519 $ 50 $ 3,118 Total non-accrual loans/total loans (2) 0.37% 0.40% 0.40% 0.33% 0.48% Total non-performing loans/total loans (2) 0.37% 0.40% 0.40% 0.33% 0.48% Total non-performing assets/total assets 0.32% 0.34% 0.34% 0.25% 0.36%  

Troubled debt restructurings ("TDRs") (2):

Total TDRs $ 12,176 $ 10,156 $ 11,343 $ 11,563 $ 12,560 Performing TDRs 7,971 8,125 9,267 9,239 10,172  

Criticized and classified loans (2):

Special mention $ 17,754 $ 14,862 $ 6,637 $ 9,197 $ 14,080 Substandard/doubtful   15,126   10,296   11,218   12,190   15,238 Total criticized and classified loans $ 32,880 $ 25,158 $ 17,855 $ 21,387 $ 29,318  

Activity in the allowance for loan losses:

Balance at beginning of period $ 20,965 $ 20,930 $ 20,685 $ 20,315 $ 20,051 Less: charge-offs 217 9 66 3 253 Recoveries 67 44 61 373 167 (Credit) provision for loan losses   (350)   -   250   -   350 Balance at end of period $ 20,465 $ 20,965 $ 20,930 $ 20,685 $ 20,315 Allowance for loan losses/non-accrual loans (1) (2) 324% 304% 299% 374% 271% Allowance for loan losses/non-performing loans (1) (2) 324% 304% 299% 374% 271% Allowance for loan losses/total loans (1) (2) 1.20% 1.21% 1.20% 1.24% 1.30%  

Net charge-offs (recoveries):

Commercial and industrial $ 168 $ (28) $ (45) $ (350) $ 114 Commercial real estate (14) (8) (10) (11) (10) Residential mortgages - (3) (2) (1) (4) Home equity (4) (3) 6 (5) (10) Consumer   -   7   56   (3)   (4) Total net charge-offs (recoveries) $ 150 $ (35) $ 5 $ (370) $ 86 Net charge-offs (recoveries) (annualized)/average loans 0.03% (0.01%) 0.00% (0.09%) 0.02%   Delinquencies and non-accrual loans

as a % of total loans (1):

Loans 30 - 59 days past due 0.12% 0.04% 0.05% 0.05% 0.05% Loans 60 - 89 days past due 0.00% 0.04% 0.02% 0.01% 0.01% Loans 90 days or more past due and still accruing   -   -   -   -   - Total accruing past due loans 0.12% 0.08% 0.07% 0.06% 0.06% Non-accrual loans   0.37%   0.40%   0.40%   0.33%   0.48% Total delinquent and non-accrual loans   0.49%   0.48%   0.47%   0.39%   0.54%   (1) At period end. (2) Excluding loans held for sale.               NET INTEREST INCOME ANALYSIS

For the Three Months Ended September 30, 2016 and 2015

(unaudited, dollars in thousands)   2016 2015

Average

Average Average Average Balance   Interest   Yield/Cost Balance   Interest   Yield/Cost

Assets:

Interest-earning assets: Investment securities (1) $ 228,945 $ 2,037 3.54% $ 330,891

$

3,022

3.62% Federal Reserve and Federal Home Loan Bank stock and other investments 4,484 92 8.16 5,251 71 5.36 Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits due from banks 103,714 133 0.51 12,040 7 0.23 Loans and performing loans held for sale (2)   1,708,162     17,783   4.14   1,511,936     15,948   4.18 Total interest-earning assets   2,045,305   $ 20,045   3.90%   1,860,118   $ 19,048   4.06% Non-interest-earning assets   150,527   153,001 Total assets $ 2,195,832 $ 2,013,119  

Liabilities and stockholders' equity:

Interest-bearing liabilities: Savings, N.O.W. and money market deposits $ 870,441 $ 539 0.25% $ 733,365 $ 338 0.18% Time deposits   223,794     331   0.59   241,427     396   0.65 Total savings and time deposits   1,094,235     870   0.32   974,792     734   0.30 Borrowings   15,000     66   1.76   42,783     94   0.88 Total interest-bearing liabilities   1,109,235     936   0.34   1,017,575     828   0.32 Demand deposits 851,099 779,215 Other liabilities   22,252   23,836 Total liabilities 1,982,586 1,820,626 Stockholders' equity   213,246   192,493 Total liabilities and stockholders' equity

$

2,195,832 $ 2,013,119 Total cost of funds 0.19% 0.18% Net interest rate spread 3.56% 3.74% Net interest income/margin 19,109 3.72% 18,220 3.89% Less tax-equivalent basis adjustment   (721)   (842) Net interest income $ 18,388 $ 17,378   (1) Interest on securities includes the effects of tax-equivalent basis adjustments of $483 and $692 in 2016 and 2015, respectively. (2) Interest on loans includes the effects of tax-equivalent basis adjustments of $238 and $150 in 2016 and 2015, respectively.               NET INTEREST INCOME ANALYSIS For the Nine Months Ended September 30, 2016 and 2015 (unaudited, dollars in thousands)   2016 2015 Average Average Average Average Balance   Interest   Yield/Cost Balance   Interest   Yield/Cost

Assets:

Interest-earning assets: Investment securities (1) $ 267,207 $ 7,180 3.59% $ 345,958 $ 9,669 3.74%

Federal Reserve and Federal Home Loan Bank stock

and other investments 7,147 275 5.14 6,609 221 4.47

Federal funds sold, securities purchased under agreements to

resell and interest-bearing deposits due from banks 55,399 191 0.46 19,373 50 0.35 Loans and performing loans held for sale (2)   1,713,853     53,522   4.17   1,437,639     46,794   4.35 Total interest-earning assets   2,043,606   $ 61,168   4.00%   1,809,579   $ 56,734   4.19% Non-interest-earning assets   158,015   142,691 Total assets $ 2,201,621 $ 1,952,270  

Liabilities and stockholders' equity:

Interest-bearing liabilities: Savings, N.O.W. and money market deposits $ 852,395 $ 1,562 0.24% $ 707,786 $ 906 0.17% Time deposits   226,115     1,015   0.60   230,211     1,043   0.61 Total savings and time deposits   1,078,510     2,577   0.32   937,997     1,949   0.28 Borrowings   78,203     474   0.81   78,464     310   0.53 Total interest-bearing liabilities   1,156,713     3,051   0.35   1,016,461     2,259   0.30 Demand deposits 815,346 723,650 Other liabilities   23,775   23,451 Total liabilities 1,995,834 1,763,562 Stockholders' equity   205,787   188,708 Total liabilities and stockholders' equity $ 2,201,621 $ 1,952,270 Total cost of funds 0.21% 0.17% Net interest rate spread 3.65% 3.89% Net interest income/margin 58,117 3.80% 54,475 4.02% Less tax-equivalent basis adjustment   (2,383)   (2,759) Net interest income $ 55,734 $ 51,716   (1) Interest on securities includes the effects of tax-equivalent basis adjustments of $1,669 and $2,327 in 2016 and 2015, respectively. (2) Interest on loans includes the effects of tax-equivalent basis adjustments of $714 and $432 in 2016 and 2015, respectively.  

View source version on businesswire.com: http://www.businesswire.com/news/home/20161027005115/en/

Suffolk BancorpInvestors and Press:Brian K. Finneran, 631-208-2400Executive Vice President & Chief Financial Officer