Shares of New Jersey's Sun Bancorp plummeted 30.4% Wednesday, a day after the $1.9 billion-asset holding company stunned analysts with lower-than-expected third-quarter earnings.
Analysts said they had no warning that Sun's earnings would fall far short of their projections.
"Simply stated, we have lost confidence in Sun Bancorp's ability to manage earnings," said Anthony J. Polini, an analyst with Advest Inc., New York. Mr. Polini downgraded Sun to "market perform" from "strong buy."
Sun's stock fell $4.5625, to $10.4375 on Wednesday. After the market closed Tuesday, the company reported net income of $2.5 million for the third quarter, off from $2.4 million in 1998. On a per-share basis, earnings dropped to 25 cents, from 31 cents.
Philadelphia-based Janney Montgomery Scott LLC, which had expected Sun to earn 32 cents a share, cut its 1999 earnings projections for the banking company to $1.15 per share, from $1.25, and its 2000 estimate to $1.15, from $1.43. The firm changed its rating on the stock to "hold," from "accumulate."
Sun's per-share earnings would have been a penny less loan-loss reserves had not slipped to 1.00% of loans, from 1.05%, Janney noted.
Robert F. Mack, Sun's chief financial officer, said in an interview Wednesday that the company itself was surprised. "We felt we were on track and meeting expectations" until near the end of September, when figures came in from Sun's new Delaware bank, he said.
Sun formed the Delaware unit last December when it bought eight branches from Beneficial Corp. Only a month later the unit's two top executives, inherited from Beneficial, quit.
The departures were unexpected, Mr. Mack said. Since then, Sun has had to build a new management team.
Sun also was hurt by its purchase earlier this year of two mortgage companies, just before the mortgage lending industry hit the skids. The two companies were merged into a new unit, Sun Mortgage.
As if that were not enough, Sun also opened a loan production office in Philadelphia, a costly venture.
Mr. Mack said that Sun expected it to lose money in its first year and included such projections internally, but that analysts were not aware of it. But Advest's Mr. Polini said Sun "did not fully appreciate the expenses that would come with the mortgage company and loan production office in the expensive center-city Philadelphia."