As the sun continues to set on Smithtown Bancorp and its subsidiary, the Bank of Smithtown, a newly filed document shows the bank was in such bad shape that more than a dozen potential buyers walked away from an invitation to acquire it.
In the end, People's United Financial of Connecticut agreed in July to take over Smithtown in a deal worth about $60 million. Smithtown shareholders will vote on whether to approve the deal at a special meeting on Nov. 19.
People's United officials declined to comment on the most recent Smithtown filing, a 264- page proxy statement being sent to shareholders in advance of the vote and also submitted Friday to the Securities and Exchange Commission. Bradley Rock, Smithtown's chairman and chief executive, did not respond Friday to a request for comment.
The statement recounts how the formerly healthy bank, with assets of $2.3 billion and 30 branches in Nassau, Suffolk and Manhattan, fell apart as its portfolio of commercial real estate loans soured. The company lost $11.8 million in 2009, and another $43 million so far this year.
"Smithtown Bancorp projects that these trends in loan losses will continue for the foreseeable future," the proxy statement said.
Bank officials realized they would be unable to meet regulatory requirements to raise capital, so in late May they asked the investment bank Sandler O'Neill to recruit buyers. Sandler O'Neill found 14 potential buyers, the proxy statement said.
Ten of them quickly dropped out, some of them citing "uncertainty as to the extent of future losses in Bank of Smithtown's loan portfolio."
The remaining four included People's United, two other banks and a group of investors who said they could raise enough capital to save Smithtown. But Smithtown officials lacked confidence in the investors' proposal, and the other two banks backed out, leaving People's United as the only remaining suitor. The proxy statement names none of the other potential buyers.
Smithtown's board recommends that shareholders approve the deal, noting that the bank faces likely enforcement action and possible failure without it. Also, as part of the merger agreement, Smithtown must pay People's United $2.4 million if it backs out of the deal.
The merger is expected to be completed by the end of the year.When that happens, the century-old Bank of Smithtown name will disappear and branches will be renamed People's United Bank.