Thomas A. Bracken, the president and chief executive of the $3.1 billion-asset Sun Bancorp Inc. in Vineland, N.J., was understandably elated when a May deposit promotion brought in $200 million, far more than expected.
But adding deposits is only half the battle. The promotion attracted about 1,700 customers who had no previous connection with Sun, and Mr. Bracken said the challenge now is to sell them other products and services.
"Our goal was not just to sell some certificates of deposit," he said this month. "Now the job is to deepen those relationships."
To do that, Sun must flesh out its retail product line, Mr. Bracken and analysts who cover the company said. New customers had to open Sun checking accounts to get the promotional rates, but though other banks its size would probably follow up with well-honed pitches for insurance and investment products, Sun has little in the way of fee-based offerings.
For example, though it lends to dozens of family-owned businesses, it has no asset-management or trust offerings to serve their wealth-management needs.
Richard D. Weiss, who covers Sun for Janney Montgomery Scott LLC in Philadelphia, said that unlike other banking companies its size, Sun has done little to supplement its earnings with fee-based products.
Noninterest income amounted to 16% of revenue at midyear. That is "light," Mr. Weiss said; "a number in the 20s would be better."
First-half earnings of $9.9 million were a company record, but return on equity was a mediocre 7.02%.
Mr. Weiss said that "all other things being equal," more noninterest income would almost certainly improve Sun's ROE.
Mr. Bracken said that Sun hopes to push noninterest income past 20% of revenue and that he would seriously consider buying nonbank financial service companies to do so. "We are very open to any complementary acquisition that enhances our community banking" product line, he said.
One area in which Sun has no cause for concern is deposit gathering. Mr. Bracken said the May promotion was its biggest retail marketing push since he became CEO in 2001.
It was not especially complex, consisting primarily of attractive rates on certificates of deposit, money market accounts, and other deposit products. In fact, that simplicity may be why the response was such a surprise.
"It vastly exceeded our expectations," Mr. Bracken said, adding "we know we can generate deposits - if we need the money, we have the ability to get it."
Chris Stulpin of Cohen Brothers & Co., also of Philadelphia, said the attention Sun has paid to retail banking in the past two months represents something of a change of course. He said Sun, which has not made a nonbank acquisition since it bought two small mortgage companies in the early 1990s, "has made a point of its commercial focus in the recent past."
In the past four years Mr. Bracken has revamped underwriting standards, hired dozens of commercial lenders, and created a small-business lending unit that is now one of the most active in New Jersey.
In that light, Mr. Stulpin said, the consumer push was surprising. "The promotion was probably a harbinger," he said. "Now that they have all these new customers, they are trying to diversify."
Mr. Bracken, though, said Sun has hardly been ignoring its retail side for the past four years. Indeed, he said the May promotion came after a thorough overhaul of its branch network.
Over the past few years Sun has installed a new technology platform and replaced a number of branch managers. It has also, in Mr. Bracken's words, "rationalized" its branch network, shuttering more than 20 underperformers and replacing them with about two dozen new ones.
Sun bought some of the branches from New York Community Bancorp Inc. of Westbury at the end of 2003. The others were outlets of Community Bancorp of New Jersey, a Freehold company Sun bought last July.
"We've done a lot internally," Mr. Bracken said.
The May promotion hurt Sun's bottom line by reducing its net interest margin. The margin, which was 3.55% at the end of the first quarter, shrank by 7 basis points in the second.
But Mr. Weiss said that if the company can put the new deposits to work funding loans, the promotion will turn out to have been a good move. And if second-quarter results are any guide, Sun should have little problem doing so; organic loan growth totaled $207 million in the 12 months through June, the company said.
Mr. Bracken said that, all things considered, margin contraction is "probably one of the better problems you can have."
Mr. Stulpin agreed. "The fact that they went out and got all those new customers was pretty aggressive," he said. "They went out on a limb, but they have a definite plan, and it's a good management team."
