Concerns over commercial real estate exposure factored heavily in efforts by Suffolk Bancorp in Melville, N.Y., to sell itself.
Suffolk, which feared that heightened regulatory oversight of commercial real estate would significantly stymie growth, sought out a buyer that did not have a heavy concentration in CRE loans. In fact, Suffolk ruled out three potential suitors because each had high levels of CRE on their books, according to a
People's United
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People's United Financial in Bridgeport, Conn., has agreed to buy Suffolk Bancorp in Riverhead, N.Y.
June 27 -
Suffolk Bancorp said increased oversight of commercial real estate contributed to and may have accelerated its decision to sell to People's United. Other banks could make a similar choice.
June 27 -
At least one banker has gone public with expectations that the OCC will force his institution to hold more capital. More could soon follow.
May 3
The disclosures highlight the challenges that banks with heavy CRE exposure face — as buyers or sellers — should they show an interest in mergers. While such deals are possible, Suffolk clearly had doubts as to whether regulators would sign off on such combinations.
Suffolk, meanwhile, had kept an open mind about mergers for years, holding informal talks with People's United and other institutions over time, the filing said. Suffolk, under the leadership of CEO Howard Bluver,
A meeting between Bluver and People's United CEO John Barnes last February, which involved some preliminary discussion about a merger, took on new meaning as Suffolk was coming to grips with regulators' renewed focus on banks with CRE strategies. Bluver had a similar conversation around the same time with another, unnamed institution.
Suffolk had also started to realize that it would need to significantly slow down its CRE lending or risk
In late April Suffolk's board decided to hire an investment bank, which it then authorized to contact People's United and two other institutions. Several other banks were ruled out because of their CRE concentrations, financial performance and geography, among other things.
Other banks that inquired about a deal were discouraged from doing so by Suffolk's investment bank largely because of CRE concentrations, the filing said.
People's United easily offered more than the other banks in the first round of bidding, proposing to pay an all-stock price that was 6% higher than the next closest amount. Still, each bank was allowed to conduct due diligence. One of the bidders backed out in early June.
The remaining bidders were given another chance to raise their offers. On June 20 People's United proposed paying $34.09 in stock, which was near the high end of its previous range and a 43% premium compared with Suffolk's stock price at that time. The other bank held firm with an offer of $30.93 a share.
People's United also wanted Bluver to stay after the acquisition as its New York market president; the filing said that his compensation has not yet been determined. Suffolk had already determined earlier that People's United's higher dividend rate would add another $1 per share in value.
The companies quickly finalized their agreement, announcing the merger on June 27.