Unprofitable Sunnyside's scarcity value drives bidding war

Potential buyers are battling for a New York community bank with $95.3 million in total assets, one branch and consecutive net losses since the third quarter of 2018.

After striking a deal in the first quarter, two additional suitors have emerged for Irvington, N.Y.-based Sunnyside Bancorp Inc. The bank is currently locked into a merger agreement with Rhodium BA Holdings LLC, a New York-based private equity group, but a bidding war has ensued after a local investor submitted a higher bid. That investor's current offer stands more than $6 per share above the original price in March when DLP Bancshares, a unit of DLP Real Estate Capital Inc., struck a deal at $15.55 in cash per share.

"It's a scarcity thing. There's not a lot of smaller institutions in the Northeast that are small enough that you could build from them and are in good geographies that you could compete if you put enough capital in them," said Richard Trauger Jr., managing director at Kafafian Group, a bank consulting group that advised DLP on its offer.

DLP's deal was terminated in June after Rhodium wooed Sunnyside in April with an offer of $18.50 per share in cash.

Then, in August, investor Kenneth Torsoe escalated the bidding war by publicly offering $20.00 per share in cash.

Three weeks after Torsoe's public offer, Rhodium and Sunnyside amended their merger agreement, raising the bid to $20.25 per share and modifying the deal's provisions. One board member, Desmond Lyons, resigned from the board, citing a disagreement over provisions in the amendment that would restrict additional third-party negotiations, according to an Aug. 26 regulatory filing. Lyons declined to comment for this story. Following Rhodium's higher bid, Torsoe increased his offer to $22.00 per share.

While Sunnyside's small size and lack of profitability likely make it unattractive for bank buyers, nonbanks and investors see opportunity, said Paul Davis, director of market intelligence for advisory firm Strategic Resource Management. While it is "unusual" to see such interest in a small, money-losing bank, the activity fits a recent trend of nonbanks purchasing bank charters, Davis said.

"The thing that Sunnyside has to somebody like Rhodium or [DLP] is ... the deposits, the chance of getting a bank charter and the potential to put a little capital into this thing and see if you can get a return," he said.

Both Rhodium and Sunnyside did not reply to multiple requests to comment for this story.

Torsoe's interest

Torsoe's interest in acquiring the bank dates back to September 2019 when he first approached Sunnyside, according to Jay Hack, a partner with Gallet Dreyer & Berkey LLP, who represents Torsoe.

The investor's goal in potentially acquiring Sunnyside is to maintain a local community bank, particularly after the region saw a slew of M&A this year, Hack said in an interview. Community banks being scooped up, such as Valley National Bancorp's pending acquisition of Westchester Bank Holding Corp., and larger institutions booking large deals, such as M&T Bank Corp.'s deal with People's United Financial Inc., has created a "vacuum that can be filled by community banks," Hack said.

Sunnyside posted a net loss of $410,585 in the second quarter. Torsoe believes the key to making Sunnyside a profitable entity is to grow its loan portfolio, Hack said. Torsoe plans to invest capital into the institution and hire a chief loan officer and a handful of lenders to "aggressively" grow the bank's loan portfolio with a focus on small business lending.

"Really, except for [Paycheck Protection Program] loans and other loans that they're acquiring from other entities, they're not originating loans and haven't originated any material amount of loans," Hack said. "A reasonable rise in loans as a percentage of total assets, [Sunnyside] becomes a profitable institution."

Sunnyside reported a loan-to-deposit ratio of 47.8% as of June 30. The industry-wide aggregate ratio was 58.0%, according to data from S&P Global Market Intelligence.

Torsoe also believes expanding the bank's footprint by opening a branch in Rockland County and possibly another in Orange County would also bolster its growth. Sunnyside currently operates one branch in Westchester County.

"He wants to increase the capital and open a branch across the [Hudson] river ... and build up a loan portfolio and engage in traditional community banking," Hack said.

If Torsoe were to strike a deal for Sunnyside, it would not be his first transaction with a community bank in the area. In 2008, he invested almost $24 million in Community Bank of Orange, which later changed its name to Greater Hudson Bank and then announced its sale to ConnectOne Bancorp Inc. in July 2018 with an announced deal value of $76.3 million.

But Sunnyside has yet to engage in discussions with Torsoe throughout his almost two years of interest in the bank, Hack said. Torsoe's current offer of $22 per share stands until Sept. 10, and if Sunnyside does not engage in negotiations with him by that date, he will "walk away," Hack said.

"We pushed our chips into the middle of the table, and we're waiting for them to decide what they want to do," Hack said. "To the best of my knowledge, there's no material differences other than price. ... [But] they won't talk to us, and we don't know why."