Sunnyside Bancorp is a one branch, fly-speck bank trading at 63% of TBV. The bank has assets of $96 million and a market of $8 million.
“From the listless repose of the place, and the peculiar character of its inhabitants, who are descendants from the original Dutch settlers, this sequestered glen has long been known by name of Sleepy Hollow ... A drowsy, dreamy influence seems to hang over the land, and to pervade the very atmosphere.”
—Washington Irving, The Legend of Sleepy Hollow
Background: Sunnyside is located near Sleepy Hollow, in Irvington, NY. The town is named after Washington Irving. A further connection to the author is that the bank is named after Irving’s home in Tarrytown. The bank is located in Westchester County, which is one of the most affluent counties in the US. The bank started in 1930 as a mutual thrift and converted to stock on 7/16/2013. It is federally chartered. Bank is located two blocks from the Irvington Station on Metro-North for all you NYC folk.
Loans: Despite being a thrift, the loan book is very much slanted to commercial real estate:
Commercial real estate
Consumer home equity
All other consumer
As of 6/30/2014, NPL’s were 0.50% and provision for loan losses to NPL was 50%.
Deposits: The bank is working to shift away from CD’s, which have dropped from 47% of deposits to 42% from 2012 to 2013.
Management: Top 3 executives are relative new comers and are not exactly boxers (a pejorative term for bank executives who won’t convert or sell and only leave the bank in a box).
Timothy D. Sullivan is President and Chief Executive Officer of Sunnyside Federal, positions he has held since joining Sunnyside Federal in January 2008. Prior to this, from 1995 until 2007, Mr. Sullivan held positions of increasing responsibility at Amalgamated Bank, New York City [Note: An odd bank that is owned by a union.], where he rose to the level of executive vice president. Mr. Sullivan has over 35 years of experience in the financial institutions industry, including extensive experience in all areas of commercial, residential and consumer lending. For the first 14 years of his banking career, Mr. Sullivan had positions of increasing responsibility at Chase Manhattan Bank, including serving as a regional vice president with responsibility for a seventeen branch network and a team leader in the credit audit department.
Gerardina Mirtuono is Senior Vice President and Chief Operating Officer of Sunnyside Federal, positions she has held since joining Sunnyside Federal in March 2010. From March 2008 until March 2010, Ms. Mirtuono was senior vice president and chief compliance officer for The Park Avenue Bank, New York City. [Note: Bank failed. CEO, who owned 52% of bank, was arrested on fraud. No mention of Mirtuono in FDIC report.] Prior to this position, from 2001 until 2008 Ms. Mirtuono was senior vice president and chief compliance officer for Union State Bank, Orangeburg, New York. [Note: KeyCorp bought Union State Bank in 2008.]
Edward J. Lipkus, III, age 50, since May 2014 has served as our Chief Financial Officer. Prior to this appointment, most recently Mr. Lipkus served as chief financial officer of First National Community Bancorp, Dunmore, Pennsylvania from September 2010 until August 2012. Prior to this position, from August 2006 until August 2009, Mr. Lipkus served as chief financial officer for First Commonwealth Financial Corporation, Indiana, Pennsylvania. Mr. Lipkus is a certified public accountant and has 29 years of financial institution experience. [Note: Prior CFO was hired in 2012 and resigned this spring.]
Shareholder Ownership: The only 5%+ holder is the bank’s ESOP. Only institutional owner is Sandler ONeill with 35,000 shares. Only insider with any significant skin in the bank is Sullivan. However, the bank recently passed an equity incentive plan.
Earnings: Time to discuss earnings. Did I mention that the bank is located in the 2nd most affluent county in the US? In order to have a discussion on earnings, it would help to actually have earnings. To be honest, I don’t see how they can generate any significant earnings. Before going public, the bank typically earned in the range of $100,000-$200,000 per year. But as with a number of my investments, it is the value of the business to someone else.
Valuation: Here are my thoughts on takeout valuation. There are a lot of moving parts with respect to net income for this bank because of various expenses and what not. Let's assume that the bank gets to break-even. Current non-interest expense is $2.5 million. Let's assume $1 million in cost savings. Normally, you figure about 1/3rd cost savings but 40% for a bank like this is reasonable, especially since top 3 executives garner $500K+ in compensation. . After tax, that is $650K or about $0.80/sh. Add that to assumed current income of $0, assign a 10-12 multiple, and you get $8.00 - $9.60 for the earnings. In the past, the bank earned $100K-$200K per year, so possible $1-$2 more, but I consider it gravy. The bank is over capitalized, so need to adjust for that. Assume 8% equity to support the assets, or $95 mm X 8% = $7.6 mm. Subtract that from current equity of $12.3 mm and you get $4.7 mm or about $5.87/sh. Current takeout valuation is in the $13.87 - $15.47 range.
Generally, regulators will not approve the sale of newly converted banks until after three years, so nothing really is going to happen over the next two years.
Credit: My interest in Sunnyside stemmed from reading Nate Tobik’s oddballstocks.com. I took a different approach to looking at Sunnyside so that I was not rehashing what he wrote but check out what he wrote.
I do not hold a position of employment, directorship, or consultancy with the issuer. I and/or others I advise hold a material investment in the issuer's securities.