Now that its long search for a president and chief executive officer is complete, Sun Bancorp Inc. in Vineland, N.J., says it could start buying banks again.
But analysts say they would be surprised if the $3.3 billion-asset company strikes a deal anytime soon, given that it is still trying to improve its efficiency ratio years after previous acquisitions left it bloated.
Thomas X. Geisel, a regional president at KeyBank, was introduced Thursday as Sun’s new president and CEO. In a conference call, Sidney R. Brown, Sun’s vice chairman and interim president and CEO, stressed that Mr. Geisel’s immediate focus would be to continue improving the company’s financial performance.
Still, Mr. Geisel is also a former investment banker, and Mr. Brown said that his experience could open doors to dealmaking.
“Sometime over the next 12 to 24 months, I think there is going to be a huge amount of opportunities in the landscape, given what’s happening in the banking environment,” Mr. Brown said. “And then I think that Sun will be well-positioned to look at acquisition opportunities.”
He said the CEO search went on for several months longer than expected but that Mr. Geisel was the “right” choice.
For two years Mr. Geisel has headed the northeast region — which also includes parts of Florida — for KeyBank, a unit of the $97 billion-asset KeyCorp in Cleveland. He joined KeyCorp in 1999 as a managing director of investment banking at its KeyBanc Capital Markets unit.
Mr. Geisel, 46, is to succeed Mr. Brown at the company and its Sun National Bank on Jan. 7.
Mr. Brown, whose family owns more than 20% of Sun’s stock, became interim president and CEO in early February, shortly after the board ousted Thomas A. Bracken because of lackluster earnings.
Analysts said they have been pleased with Sun’s progress since then. Though still not in line with its peers, it achieved a record efficiency ratio of 69.4% for the third quarter, improving from 73.8% the previous quarter.
In the conference call, Mr. Geisel said that he would focus “intensively” on continuing to improve the company’s performance.
“These are tough times for banks,” he said. “But contrary to many of the trends that we’re seeing in the community banking ranks these days, Sun’s financial performance has been consistently improving. So things are solid as we sit today and moving forward in the right direction in many, many areas.”
Sun’s third-quarter net income jumped 20% from the year earlier, to $5.9 million. Its earning per share went up 18%, to 26 cents, beating the average of analysts’ estimates by two cents, according to Thomson Financial.
But analysts were most impressed that, after adjusting for one-time items, Sun’s net interest margin improved by 27 basis points from the previous quarter, to 3.53%, because of higher loan yields and lower funding costs.
Mr. Geisel noted in the conference call that Sun would become the second-largest banking company based in New Jersey once Toronto-Dominion Bank’s TD Banknorth Inc. closes its deal for Commerce Bancorp Inc. in Cherry Hill, N.J. The $12 billion-asset Valley National Bancorp will be the largest.
In an interview later, Joseph Fenech, an analyst at Sandler O’Neill & Partners LP, said he believes that Sun is eyeing the No. 1 spot — not inconceivable if an out-of-state company happens to acquire Valley National. “Sun is not a big bank at this point,” he said. “But at some point down the road, I think you’ll see them try to take the company to the next level from a size perspective.”
Mr. Fenech said the new leader’s challenge is to continue the positive earnings momentum. He said he suspects that any potential acquisition would come toward the end of the two-year time frame Mr. Brown cited.
“It’s going to be a challenge to improve operating results with what’s going on in the industry,” he said.
Gerard Cassidy of the RBC Capital Markets unit of Royal Bank of Canada said he would not be surprised if Sun becomes a buyer again, given that the board has a dealmaking history. Sun bought more than 65 branches in 11 deals from 1995 to 2003 and has bought two banks since mid-2004.
Still, Mr. Cassidy said Sun would be wise to hold off on acquisitions for now.
“Before they go out and do any deals, they really need to get their efficiency ratio down into the 50% range. So they have a ways to go,” he said. “I suppose they could justify in their minds doing a deal and cutting expenses from the transaction and becoming more efficient that way. But their track record in integrating prior deals is not very good.”
Despite Sun’s repeated insistence that it would not sell itself, investors have long suspected otherwise, a hope that may have grown when the company took so long to find a new CEO, said Richard D. Weiss, an analyst at Janney Montgomery Scott LLC.
“Maybe now people will believe that this is a company that wants to stay independent,” he said.
Mr. Cassidy said he believes some investors have yet to give up on the sale possibility. About a 20% takeover premium is still built in to Sun’s stock price, he said, as it trades above its tangible book value of $9.50 a share. It was trading at $15.09 late Friday, down nearly 3% from Thursday’s close.
