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Nov 22, 2011 9:35 AMPublication: The Southampton Press

Suffolk County National Bank Plans Appeal Of NASDAQ Penalty

Nov 22, 2011 10:41 AM

Suffolk Bancorp, the company that owns Suffolk County National Bank, is appealing a decision by the NASDAQ stock exchange to stop listing its stock because it has been late in filing two quarterly reports with the U.S. Securities and Exchange Commission.

The bank holding company has been slow in filing those reports while it investigates a spike in potentially bad loans that resulted in the bank taking a $12.9 million loss in the first quarter and sent its share prices tumbling. The company’s stock, which traded at $25.86 per share a year ago, was priced at $8.48 this week.

The appeal, which was filed November 15, will prevent NASDAQ from de-listing the company’s stock until at least Wednesday, November 30, according to Frank D. Filipo, the bank’s executive vice president. He said the company asked NASDAQ to allow Suffolk Bancorp to remain listed until an appeal hearing is held on January 19, 2012, but that request has not yet been approved or denied.

Mr. Filipo said the company has failed to file its first and second quarter reports, due in March and June, while it investigates why the bank was forced to make a $29.7 million provision for loan losses in the first quarter of 2011. That represented a 236.1-percent increase in loan loss provisions over the first quarter of 2010. The sudden increase in contributions to loan loss reserves helped drive a $12.9 million net loss by the bank that quarter.

Bank officials have been trying to figure out whether the bank should or could have recognized the need for a larger loan loss allowance before it was forced to suddenly allocate such a large sum of money at once, Mr. Filipo said.

“There was recognition, in taking the large provision that we did in the first quarter, that some of that perhaps should have been recognized and allocated in prior periods,” Mr. Filipo said.

If removed from the exchange, Suffolk Bancorp stock would have to be traded “over the counter,” but regular banking operations at Suffolk County National Bank would not be affected, Mr. Filipo said. He acknowledged that the company’s stock price has been hurt by the lateness of the reports and the threat of removal from the stock exchange.

“We are taking every step, working through this and trying to avoid that happening,” he said, in reference to a potential de-listing. “We’re certainly not planning on it. Our analysis is ongoing very intensively, and we’re trying to bring it to a conclusion so we can file these reports.”

In a press release announcing the loss on April 12, bank officials said, “management identified possible deficiencies and/or weaknesses in the company’s internal controls with respect to credit administration and credit risk management, primarily with respect to the timing of the recognition of credit risk, as well as with regard to risk rating which affected the computation of the allowance for loan losses.”

Loan loss provisions are regular contributions banks make to reserve funds used to hedge against possible defaults. The size of the reserve, known as the allowance for loan losses, depends on a bank’s analysis of the riskiness of its outstanding loans.

In April, Suffolk Bancorp cited a number of reasons for the need to boost its loan loss allowance, including a lagging economic recovery, a rise in the number of borrowers showing signs of not being able to pay back loans, and an increase in past-due and non-performing loans.

The bank recognized the need for increasing its loan loss allowance after an “internal refinement and standardization” of its credit risk rating and classification system, according to the release. As a result, the bank has hired a new loan administrator and additional underwriting staff, expanded training of lenders, began re-appraising properties, changed credit policy to better identify risk, and has begun exploring asset sales.

In its attempt to “get these numbers fully vetted, fully analyzed and brought to conclusion,” the bank is also working to revise its quarterly reports from September and December 2010, Mr. Filipo said. It was unclear whether a filing was made for the third quarter of 2011.

Mr. Filipo said NASDAQ requires listed companies to file timely quarterly reports. Wayne Lee, director of corporate communications for NASDAQ, said he could not comment on potential de-listings.

Robert C. Dick, the bank’s executive vice president and chief lending officer, retired in December 2010, but Mr. Filipo would only say that he “stepped down on his own” and would not comment on whether his departure was related to the bank’s troubles. The bank hired a replacement, Karen A. Hamilton, in May.

Suffolk County National Bank is based in Riverhead and has 30 branch locations, including nine on the South Fork.

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Sounds like SCNB is trying to delay telling its stockholders the real numbers. No way it should take over 6 months to revise quarterly reports unless you are hiding something.
By EastEnd68 (888), Westhampton on Nov 23, 11 8:20 AM

SCNB, you guys are acting like you have no clue and 2008 never happened. Any sophisticated financial professional knows that delaying public information for more than 2 quarters is a sign of really bad news and even if you release decent figures later, analysts would not trust them, suspecting it is all cosmetic surgery and window dressing. You are close to losing all credibility and if I were Frank Filipo, I would realizes I am being set up as a fall guy. This should be publicly addressed ...more
By Common Sense (56), Southampton on Nov 23, 11 9:42 AM
This banks allowance for loan losses has skyrocketed. I hope they get contol of it soon or they will be looking for a bailout from the government. Unfortunately a casualty of our current economy. Dont let your deposits exceed the FDIC max.
By realistic (472), westhampton on Nov 23, 11 8:10 PM
Much more news like this, and there may be a "run" on SCNB.

I've used their main branch for several decades, and it's been increasingly less "customer friendly" over the past several years as rumors of serious mis-management continue to swirl. I understand the tightening up of what have have been problematic practices following an audit, but beating up day-to-day customers doesn't seem to be the way to conduct business.

Perhaps it's time for the SCNB Board of Directors to be ...more
By Frank Wheeler (1826), Northampton on Nov 24, 11 8:42 AM