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RIVERHEAD, N.Y.--([ BUSINESS WIRE ])--Suffolk Bancorp (the aCompanya) (NASDAQ - SUBK), parent company of Suffolk County National Bank (the aBanka), today reported first quarter 2012 net income of $1.2 million, or $0.12 per diluted common share, compared to a net loss of $7.6 million, or $0.78 per diluted common share, a year ago.

The increase in 2012 first quarter earnings was the result of a $20.0 million reduction in the provision for loan losses. The reduction in the provision for loan losses resulted from a lower level of criticized and classified assets in the first quarter of 2012 coupled with positive results from ongoing workout activities. Somewhat offsetting the foregoing improvements were a $4.2 million (22.8%) reduction in net interest income and an $832 thousand (6.0%) increase in total operating expenses, principally due to non-recurring fees paid to the Companyas former independent registered public accounting firm in 2012. The reduction in net interest income resulted from a lower level of average interest-earning assets, primarily loans, coupled with a narrowing of the net interest margin in 2012 when compared to the year ago period. The reduction in the net interest margin is due to the higher level of non-accrual loans along with an increase in low-yielding overnight interest-bearing deposits in 2012.

Commenting on the first quarter 2012 results, President and CEO Howard C. Bluver stated, aI am pleased to report that we made real progress in the first quarter cleaning up many of the management and credit-related issues that posed significant challenges to the Bank in past years. First and foremost, we now have in place an executive and senior management team that I believe is second to none in the community banking sector. With the additions during the first quarter of a new Chief Financial Officer, a new Chief Lending Officer, a new Comptroller and a new head of Credit Administration, all of whom have significant industry experience, our team is now complete and ready to move forward.

Secondly, our team made real progress on the asset side of the balance sheet. Although non-accrual loans increased slightly from year-end 2011, the Bankas criticized and classified loan totals declined in the first quarter, versus both March 31 and December 31, 2011, as a result of more focused workout activities, securing additional collateral in certain cases, and upgrading loans where improving financial results warranted such action. We expect to continue an aggressive credit remediation posture throughout 2012 on both the non-accrual and criticized and classified loan pools and expect to see additional improvements in credit quality as the year progresses. The pace of these improvements, however, will depend in large part on local economic conditions. We remain comfortable with our allowance for loan losses, which amounted to $40.0 million at March 31, 2012, representing 4.26% of total loans outstanding.

The Companyas capital position remains strong with all ratios well in excess of the regulatory standard for a awell capitalizeda institution. Our deposit franchise is among the best in the region with 80% of our total deposits in low cost, stable core deposit products, including 39% in demand deposit accounts. This product mix has served us well and provided the Company with a cost of funds of approximately 32 basis points during the first quarter of 2012; well below our peers.

I am confident that the Bankas strong franchise, our new management team and a commitment to credit remediation and cost containment will yield improved financial results in the coming quarters.a

Performance Highlights

• Capital a" The Companyas Tier I Leverage ratio was 8.76% at March 31, 2012 versus 7.94% at March 31, 2011 and 8.85% at December 31, 2011. The Companyas Total Risk-Based Capital ratio was 14.42% at March 31, 2012 versus 12.32% at March 31, 2011 and 14.26% at December 31, 2011. The Companyas Tangible Common Equity ratio (non-GAAP financial measure) was 9.02% at March 31, 2012 versus 7.97% at March 31, 2011 and 9.05% at December 31, 2011.
• Asset Quality a" Total non-accrual loans increased to $83.2 million or 8.85% of loans outstanding at March 31, 2012 versus $48.3 million or 4.40% of loans outstanding at March 31, 2011 and $80.8 million or 8.33% of loans outstanding at December 31, 2011. Total accruing loans delinquent 30 days or more amounted to 2.35% of loans outstanding at March 31, 2012 versus 1.64% of loans outstanding at March 31, 2011 and 3.56% of loans outstanding at December 31, 2011. Net loan recoveries of $51 thousand were recorded in the first quarter of 2012 versus net charge-offs of $851 thousand in the first quarter of 2011 and $4.5 million in the fourth quarter of 2011. The allowance for loan losses totaled $40.0 million at March 31, 2012, $47.5 million at March 31, 2011 and $40.0 million at December 31, 2011, representing 4.26%, 4.33% and 4.12% of total loans, respectively, at such dates. The allowance for loan losses as a percentage of non-accrual loans, excluding non-accrual loans categorized as held for sale, was 48%, 98% and 49% at March 31, 2012, March 31, 2011 and December 31, 2011, respectively. The Company held other real estate owned of $2 million at March 31, 2012, $3 million at March 31, 2011 and $2 million at December 31, 2011.
• Core Deposits a" Core deposits totaled $1.0 billion at March 31, 2012 versus $1.1 billion at both March 31, 2011 and December 31, 2011. Core deposits represented 80% of total deposits in the quarter ended March 31, 2012, 79% of total deposits for the quarter ended March 31, 2011 and 81% for the quarter ended December 31, 2011. Demand deposits increased by 5.3% to $508 million at March 31, 2012 versus $482 million at March 31, 2011 and declined by 3.3% from $525 million at December 31, 2011. Demand deposits represented 39% of total deposits at March 31, 2012, 34% at March 31, 2011 and 40% at December 31, 2011.
• Loans a" Loans outstanding at March 31, 2012 declined by 14.5% to $940 million when compared to March 31, 2011 and by 3.1% from December 31, 2011.
• Net Interest Margin a" Net interest margin was 4.24% in the first quarter of 2012 versus 4.99% in the first quarter of 2011 and 4.75% in the fourth quarter of 2011.
• Performance Ratios a" Return on average assets and return on average common stockholdersa equity were 0.31% and 3.44%, respectively, in the first quarter of 2012 and (1.86%) and (22.47%), respectively, in the comparable 2011 period. For the fourth quarter of 2011, return on average assets and return on average common stockholdersa equity were 0.30% and 3.28%, respectively.

Suffolk Bancorp is a one-bank holding company engaged in the commercial banking business through the Suffolk County National Bank, a full service commercial bank headquartered in Riverhead, New York. aSCNBa is Suffolk Bancorpas wholly owned subsidiary. Organized in 1890, the Suffolk County National Bank has 30 offices in Suffolk County, New York.

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

This press release includes statements which look to the future. These can include remarks about Suffolk, the banking industry, the economy in general, expectations of the business environment in which Suffolk 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 and are beyond Suffolkas control and are subject to a variety of uncertainties that could cause future results to vary materially from Suffolkas historical performance, or from current expectations. Factors that could affect Suffolk Bancorp include particularly, but are not limited to: a failure by Suffolk to meet the deadlines under SEC rules for filing its periodic reports (or any permitted extension thereof), changes in interest rates; increases or decreases in retail and commercial economic activity in Suffolkas 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; results of regulatory examinations; any failure by Suffolk to comply with our written agreement with the OCC (the aAgreementa) or the individual minimum capital ratios for the Bank established by the OCC; the cost of compliance with the Agreement; any failure by Suffolk to maintain effective internal controls over financial reporting; larger-than-expected losses from the sale of assets; potential litigation or regulatory action relating to the matters resulting in Suffolkas failure to file on time its Quarterly Report on Form 10-Q for the quarters ended March 31, 2011, June 30, 2011, and September 30, 2011 or resulting from the revisions to earnings previously announced on April 12, 2011 or the restatement of its financial statements for the quarterly period ended September 30, 2010 and year ended December 31, 2010; and the potential that net charge-offs are higher than expected or for further increases in our provision for loan losses. Further, it could take Suffolk longer than anticipated to implement its strategic plans to increase revenue and manage non-interest expense, or it may not be possible to implement those plans at all. Finally, new and unanticipated legislation, regulation, or accounting standards may require Suffolk to change its practices in ways that materially change the results of operations.