Upward estimate revisions on the back of strong third quarter results – including an earnings surprise of 200.0% – have helped Sun Bancorp Inc. achieve a Zacks #1 Rank (Strong Buy) on January 1. With a solid return of 37.2% in the last year, this provider of various commercial and consumer banking services offers an attractive investment opportunity.
The Rank Drivers
Better-than-expected third quarter results, improving credit quality and strong capital ratios are the primary rank drivers for this stock.
Sun Bancorp reported its third quarter results on October 24 with earnings per share of 1 cent, beating the Zacks Consensus Estimate loss of 1 cent by 200.0%, but lagged the year-ago earnings of 3 cents by 66.7%. Higher non-interest income and reduced provision for loan losses were the positives for the quarter.
Non-interest income jumped 65.5% year over year to $9.6 million. Provision for loan losses skidded 17.4% from the year-ago quarter to $1.9 million.
Non-interest expenses, which increased 14.4% on a year-over year basis to $30.9 million and net interest income, that descended 7.3% year over year to $24.3 million, were the dampeners for the quarter. Moreover, net interest margin contracted 20 basis points year over year to 3.41%, mainly due to persistent pressure in the current interest rate environment.
Credit quality continued to exhibit improvement. The allowance for loan losses was 2.12% of gross loans as of September 30, 2012, compared with 2.39% of total loans as of September 30, 2011. Non-performing assets for the quarter were $126.4 million, dipping 10.2% from the prior-year period. Net charge-offs were $4.2 million, down 27.6% year over year.
As of September 30, 2012, Sun Bancorp’s total risk-based capital ratio was 14.30%, Tier 1 capital ratio was 12.73% and leverage capital ratio was 10.43%, above the "well-capitalized" regulatory requirements of 10.00%, 6.00% and 5.00%, respectively.
Earnings Estimate Revisions
Over the past 60 days, upward revisions of 3 out of 5 estimates pushed the Zacks Consensus Estimate for 2012 up from loss of 32 cents to 31 cents per share. The Zacks Consensus Estimate for 2013 advanced 50.0% to 3 cents.
On a price-to-book basis, the shares of Sun Bancorp are trading at 1.0x, a 23.0% discount to the peer group average of 1.3x. Given the company's strong fundamentals, the valuation looks reasonable.
About the Company
Headquartered in Vineland, New Jersey, Sun Bancorp serves as the bank holding company for Sun National Bank. It operates through 65 locations in New Jersey and offers an array of commercial and consumer banking services. The company, which was founded in 1985, has a market capitalization of roughly $304.7 million.
Other Zacks #1 Rank bank stocks include Timberland Bancorp Inc. and Pacific Continental Corp. (PCBK - Snapshot Report).