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CRE lending figured in Suffolk Bancorp's search for partner

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CRE lending figured in Suffolk Bancorp's search for partner

Riverhead, N.Y.-based Suffolk Bancorp announced on that it had decided totemporarily pull back from the commercial real estate lending markets amid itsconcerns with the conditions in many of its local CRE markets and its primarybank regulator's public expression of broadly applicable concerns over the lastyear about overheated conditionsin many CRE markets.

Earlier that same month, on April 6, CEOJohn Barnes contacted Suffolk CEO Howard Bluver and indicated the company'sinterest in an acquisition of Suffolk, but no price or terms were presented ordiscussed.

It was not something out of the blue, as Suffolk has hadgeneral discussions with other financial institutions, including People'sUnited, regarding the possibility of a potential strategic transaction over thepast several years.

The two companies did execute a merger agreement on June 26, with People'sUnited acquiring Suffolk in an all-stocktransaction valued at about $402 million.

In its search for a partner, Suffolk had to contend with CREmatters. A financial institution whose representative contacted Suffolk'sfinancial adviser, Keefe Bruyette & Woods Inc., to inquire about theprocess, had high CRE concentration levels that would create substantialexecution risk for any potential deal.

Also, Suffolk CEO Bluver and the CEO of another institutiondiscussed the prospects for regulatory approval of a transaction given theirrespective CRE concentrations and capital levels. That institution had declinedto make a proposal. It had not been one of the institutions initially contacteddue to Suffolk's concerns about its ability to complete a deal given its CREconcentration and growth levels, which would have led to a pro forma CREconcentration level higher than the threshold that triggers enhanced regulatoryscrutiny.