Suffolk Bancorp (SUBK) in Riverhead, N.Y., is back in the black and going on the offensive faster than anyone, including its chief executive, would have expected.
The $1.6 billion company, based on Long Island, took its lumps in 2012, pursuing bulk loan sales to purge its balance sheet and turning to institutional investors to help fund the aggressive clean-up. The strategy was shepherded by Howard Bluver, a former consultant that the company hired as chief executive last January.
Though Suffolk lost $1.7 million last year, the company finished the year strong by earning $2 million in the fourth quarter. Total loans rose 2% from a quarter earlier in a development that exceeded Bluver's expectations. Nonperforming loans make up less than 2% of total loans, compared to more than 8% a year earlier.
In a wide-ranging interview, Bluver discussed his approach to addressing Suffolk's problems, plans to expand in 2013, and whether he would consider selling the cleaned-up company. Here is an excerpt:
Suffolk made a quite a turnaround last year. How did you approach that job?
BLUVER: When I was hired last January, I made it clear that 2012 was going to be about cleaning up and getting rid of bad assets, raising capital and using the year to put legacy issues behind us to hit 2013 running. We've done that and we're well ahead of schedule, which is gratifying.
We were able to put all the legacy issues behind us at financial terms that were better than what we assumed heading into it. We got much better pricing on the bulk sales and we worked with many borrowers to cure nonperforming loans through payoffs or restructuring.
On top of that, we were able to raise a good chunk of capital. Institutional investors like the story and the management team. What is left is easily manageable. We have strong capital ratios to support strong growth going forward and we have the right people in place.
Total loans rose by 2% from the third quarter. How did that happen?
BLUVER: We're quite ahead of schedule on loan growth. We had told the world that we would focus on credit issues and that our loan book would hit the bottom at the end of last year and that the growth would really begin in 2013. Instead, it hit the bottom toward the end of third quarter, so we were able to grow loans in the fourth quarter.
We added a new chief credit officer in March. We opened a loan-production office in Melville, staffed it, and now have a very strong pipeline. This year, we should be able to accelerate loan growth.
What was the key catalyst for such a quick turnaround?
BLUVER: When you have the credit issues that we had, you can work it out yourself by looking at each loan and deciding to foreclose or work it out with the borrower without selling anything. It was a viable way to go, and we would've probably gotten a high price.
But you also give up speed. In Suffolk County, the average time it takes to foreclose could be four years. So we made a conscious decision to rapidly use the year to clean up and do bulk sales even if we had to do discounts to get the loans off our books. Instead of 90 cents on the dollar, we got prices that varied between 60 to 80 cents. It was a tough decision to give up value but it made sense to do it quickly and let the buyers worry about the foreclosures.
Institutional investors seem to prefer quick clean ups, right?
BLUVER: Our new investors certainly do. Many of our existing investors were supportive but there was a little bit of dilution there. On balance, it was very compelling, and many of our existing investors participated in the new capital raise.
What can you tell us about the loan-production office?
BLUVER: We opened in November and staffed it with two full teams. We have a strong pipeline emanating from that office and we rented enough space where we can add more staff as we get more momentum. We're making loans in middle market, small business and C&I. Our sweet spot are loans ranging from $2 to $8 million.
How is the competition?
BLUVER: It's very, very intense. We fight for every deal. Now that our gloves are off we can compete with anyone because our funding costs are as low as anyone's. But we will not compromise on credit. We spent a year cleaning up our balance sheet and cutting our nonperforming loans from 9% [of total loans] to 2%. We will not let that happen again.
Suffolk is getting more involved with mortgages. Are you holding or selling them?
BLUVER: It's a little bit of both. We've got a whole new staff and systems and a real opportunity on the east end of Long Island. In the Hamptons there are a lot of high-quality jumbo loans for people in New York looking for second homes. Historically, we never looked at that. But it is a real opportunity now that we have the people in place. Funding is up. Fees are up. And we have room in our portfolio to hold high-quality jumbo loans.
You had a credit loan-loss allowance in the fourth quarter. Should we expect more of that this year?
BLUVER: It was math. We have quite a sophisticated system that our CFO and other people have put in place. There are certain qualitative factors that you can lower as you feel better about the local economy, but we want to see several more quarters before we do that.
We're still cautious. We still have, even after all the clean-up and the reduction in nonperformers, uncertainty on Long Island because of the economy. The area is typically slow to recover when a recovery starts. Though we see positive signs and are cautiously optimistic, we think our allowance is appropriately placed at this time.
Any need for more capital?
BLUVER: We're very strong from capital standpoint. Our total risk-based capital was over 18% in the fourth quarter. We have a nice excess capital position to fund growth.
Several banks have cleaned up only to end up selling. Could that happen to Suffolk?
BLUVER: No. We've got an unbelievable franchise. We've been here for 120 years. Our focus is on growing, performing and executing. That is what we're all focused on.