Current Price: $14.60
Offer Price: $15.55 (updated to $20)
Upside: 7% (updated to 10%)
Expected Closing: Q4 2021
SNNY Investment case has been updated - please check the comment on the 13th of August.
This is a nano-cap ex-mutual bank acquisition by a private non-bank lender.
On the 16th of March, DLP Real Estate Capital announced the acquisition of a retail community bank Sunnyside Bancorp. Consideration stands at $15.55/share in cash. The total value of the transaction is $12m. SNNY shareholder approval will be required. Directors own 6.1% and will support the merger. Closing is expected in Q4'21. Trading volume is low, however, it should be possible to build a sizeable position over time.
SNNY operates only 1 branch in Irvington, New York. Due to the absence of scale, the bank operates unprofitably and has historically been trading at around 0.8-0.9x BV. The offer comes at a 1.04x BV multiple, which should be enough to satisfy the shareholders. Most of SNNY management has been with the bank since 2010 (pre-conversion from mutual). Their decision to sell should also support a positive voting outcome.
The buyer and strategic rationale
DLP Real Estate started out as a standard real estate firm and over time expanded into the financial services sector with real estate lending, distressed real estate investing, and asset management divisions. The group focuses mostly on multifamily real estate. Apparently, the group intends to continue expanding its financial services arm and plans to inject capital into SNNY, strengthen its digital banking capabilities, and start expansion across the US. PR:
We intend to offer private banking services to high net-worth investors and small business owners around the country but with an emphasis in the North- and Southeast. The bank is uniquely positioned to leverage DLP's real estate and investment expertise to provide a competitive and rewarding customer experience.
Overall, SNNY seems like a suitable candidate for DLP given its primary focus on multifamily real estate loans (more details below) and location in Westchester County, the second-wealthiest county in NY.
DLP is also interested in SNNY deposits ($97m assets) as it provides a cheaper source of funding compared to private placements. This seems to be the main rationale behind the recent increase of small bank takeovers by non-bank lenders (SoFi, in addition to the ones mentioned above). The whole rationale behind this trend is well-detailed in this article. DLP banking consultant Fred Reinhardt, who will take over the SNNY CEO role, commented:
The true secret’s that financial institution deposits are cheaper funds. That’s an enormous factor, particularly once you’re in a really aggressive market like residential lending.
DLP seems like a credible buyer with $1.2bn AUM, 12k properties in the portfolio, and 700 loans under management. The risk of merger termination seems to be low.
As of Q3 Sunnyside Bancorp had $97m in assets and $11.8m in shareholders' equity.
- 44.6% - loans comprised of owner-occupied, on-to-four family residential real estate loans;
- 37.2% - commercial real estate and multi-family (not owner-occupied) mortgage loans;
- 14.7% - student loans;
- 3.5% - commercial, home equity, and passbook loans.