Sun Bancorp (SNBC) in Mount Laurel, N.J., will eliminate nearly 40% of its work force as part of a major cost-cutting effort.

The $3 billion-asset company said in a press release Thursday that it will cut 242 jobs, sell and close branches and shut down its retail mortgage, health care and asset-based lending businesses. The initiative is expected to cut annual costs at Sun by nearly $17 million. Sun said it expects to record a $20 million charge in the second quarter to reflect the changes.

The bold moves are the first for Thomas O'Brien, who was officially appointed the company's president and chief executive on Wednesday. The company, which was recapitalized by Wilbur Ross and others in 2010, had lost $15 million in its last three quarters before bringing O'Brien in as a consultant.

"These unfortunate conditions require very unpleasant reductions to our staff but our decisions must be judged in view of the primary objective of returning to profitability," he said in the release. "Current staffing levels at the company are not sustainable. As a company, we must effectively address outstanding regulatory matters and build operating profitability."

Sun said unit Sun Home Loans has already stopped accepting new applications; the company will also deemphasize direct home equity lending. Shutting down the unit should save Sun about $9.5 million annually. (Sun had just hired a chief operating officer for Sun Home Loans in March.)

"The residential mortgage banking model has evolved into a highly commoditized business," O'Brien said. "The residential home loan product is further becoming significantly less profitable and much more highly regulated to the point where it has become less attractive for the bank."

The company will also close its syndicated lending desk and exit health care and asset-based lending in a move that should cut annual costs by another $1.4 million.

Sun said it has agreed to sell seven branches to Sturdy Savings Bank in Cape May Court House, N.J., in a deal that will include $180 million in deposits and more than $60 million in loans. The deposits will be sold at a premium of roughly 8.8% in a deal that is expected to close in the first quarter. The sale will help Sun save about $3.1 million in annual operating expenses. The company will record a net gain on sale of $10 million to $12 million.

The company also said it would close four overlapping branches and that its evaluating where to invest capital in central and northern New Jersey. Sun said it could sell or close more branches.

Sun also disclosed that it has sold $71 million of commercial loans at the end of the second quarter to multiple investors at a loss of roughly $12 million. The company also plans to sell another $25 million of nonaccrual and other low-quality consumer and related credit for an estimated loss of $4 million. These moves should also help cut costs; the company said it spent nearly $8 million last year managing its classified loan portfolio.

Sun hired O'Brien in April as a consultant, with an expectation that he would lead the company once the Federal Reserve Board had a chance to review the hiring. The Fed recently issued an official non-objection to the move. While waiting for the Fed approval, O'Brien had been evaluating Sun's operations before presenting his proposal to the company's board, which approved the measure unanimously.

O'Brien developed a reputation for confronting problems early and vigorously while at State Bancorp in Jericho, N.Y. Shortly after he become State's president and chief operating officer in November 2006, the company raised $36 million in a private placement, settled a longstanding legal issue and aggressively tackled issues with residential development loans. State sold itself to Valley National Bancorp (VLY) in Wayne, N.J., in April 2011.

The company also disclosed that it will hold a 1-for-5 reverse stock split on Aug. 11, which will reduce shares outstanding to 17.3 million shares from 86.8 million shares. The company also adopted stock ownership requirements for executive officers to "further align management's interests with stockholders." Sun's board also adopted a policy requiring all executives to retain stock awarded in the company's equity plans for two years following vesting.

Sun's stock was up more than 6% in late morning trading on the news.

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