Before it was sold to First Union Corp. in 1998, the $44 billion-asset CoreStates Financial Corp. of Philadelphia was widely regarded as a top-performing company that despite its size was sincerely committed to relationship banking.
So when Thomas A. Bracken, a former CoreStates executive, was hired in 2001 to take over the troubled Sun Bancorp Inc. in Vineland, N.J., he saw it as an opportunity to re-create CoreStates on a smaller scale.
It has proved to be a winning strategy. A company that had been operating under an enforcement order with its regulators when Mr. Bracken arrived - it was also facing a rising tide of nonperforming loans and struggling with a costly branch system - is coming off its most profitable quarter. And Mr. Bracken, its president and chief executive, says it is poised to build on that momentum.
"We've totally transformed this place in three and a half years, and the impact in 2005 is going to be positive," he told investors Friday at the Mid-Atlantic Super-Community Bank Conference in Philadelphia.
Mr. Bracken junked Sun's underwriting guidelines and replaced them with "the entire CoreStates lending philosophy"; reorganized Sun's banking operations into five regions, similar to the ones he presided over while at CoreStates; and established a department for Small Business Administration lending, a CoreStates specialty.
But the biggest changes under Mr. Bracken, who worked more than three decades for CoreStates and New Jersey National Bank (which CoreStates bought in 1996 to enter the state), have been in personnel. He has hired more than 60 people who worked with him at CoreStates; eight members of Sun's nine-person senior management team are CoreStates alumni, as are 12 of Sun's top 15 regional managers and more than 40 loan officers.
At the investor conference, which was organized by Margolin & Associates Inc., Mr. Bracken quipped, "We decided it was time to get back together and try to do it again."
He drew up a five-year turnaround plan when he took the helm at Sun, and says the company is ahead of schedule in most respects. Sun spent much of 2002 weeding out nonperforming and questionable loans, and now its asset quality is back in line with its peers' - nonperforming credits were 0.79% of its $1.7 billion loan portfolio on Sept. 30. And with problem loans well in hand, Sun was able to clear up its regulatory issues in fall 2002.
Mr. Bracken has invested $6 million in operating systems and other information technology.
"When we got here, we didn't have things like voice mail, e-mail, laptop computers, or Blackberries," he said in an interview Monday. "It was pretty much a Flintstones type of operation."
Sun has also restructured its branch network, pruning 22 underperforming offices while adding 23 new ones, including eight bought from New York Community Bancorp in December 2003 and some it picked up by acquiring Community Bancorp of New Jersey, of Freehold, in July (it also started up some branches). As a result of these moves, deposits in Sun's branches average $33 million, against $20 million in 2001.
Richard D. Weiss, an analyst who covers Sun for Janney Montgomery Scott LLC in Philadelphia, called Sun "a great turnaround story." Its rapid growth from 1994 and 2000 was scattershot, he said - there was no attempt to fine-tune the infrastructure to accommodate the thousands of new customers.
"They started buying assets like crazy, but they didn't change the platform at all," Mr. Weiss said. "It was a $2 billion company being run like a $300 million bank."
According to Mr. Bracken, Sun's biggest unmet challenge is to raise its profitability ratios.
Its return on equity approached 15% in the late 1990s but had fallen to the single digits when Mr. Bracken joined, and it dropped further as he charged off bad loans, upgraded systems, and closed underperforming branches.
The $12.9 million that Sun earned through the first nine months of 2004 put it on pace to surpass the $13.3 million it reported for last year, but its third-quarter ROE actually trailed last year's, partly because of the $44 million of capital it added at the end of 2003 and partly because of the Community Bancorp acquisition.
Mr. Weiss said Sun's success under Mr. Bracken - its stock price has more than tripled since he took over - makes it an obvious target for bigger companies looking to expand in New Jersey. But he said a sale in the near future is unlikely; chairman Bernard A. Brown owns 27% of the company and has given no indication he wants to sell.
