Sun Bancorp To Cut Workforce By 38%, Consolidate Branches In Restructuring Plan

(RTTNews) - Sun Bancorp, Inc. (SNBC) said Thursday that it will cut its workforce by 38 percent as well as sell or consolidate 30 percent of its branch locations as part of a comprehensive restructuring. The New Jersey-based lender intends to reduce operating complexity and re-align its business lines with a focus on returning to profitability.

Sun Bancorp, the holding company for Sun National Bank, expects to incur a one-time charge of about $20 million in the second quarter of 2014 as a result of the restructuring plan that is expected to generate annual cost savings of about $16.8 million. Despite the charge, the company expects to be in full compliance with its internal capital ratio limits.

Sun Bancorp will cease the operations of Sun Home Loans, it's retail mortgage banking platform, as the company noted that the residential home loan product is becoming significantly less profitable and more highly regulated. Sun Home Loans will stop accepting new applications with immediate effect. The bank expects this decision to result in annual cost savings of about $9.5 million.

In commercial specialty lending, the company will exit the Healthcare and the Asset-Based Lending or ABL markets that it entered in 2009, and close its syndicated lending desk. The company expects annual cost savings of about $1.4 million.

The company also said it will accelerate disposition of $96 million of problem loans to improve efficiency and drive risk substantially lower.

The company's board declared a one-for-five reverse stock split with an effective date of August 11, 2014 for shareholders of record as of August 8, 2014. The reverse stock split will reduce the number of outstanding shares from about 86.8 million as of March 31, 2014 to about 17.3 million shares.

Effective July 2, 2014, following the receipt of the official non-objection from the Federal Reserve Bank and the Office of the Comptroller of the Currency, the company's board has elected Thomas O'Brien as a director as well as President and CEO of the company and bank.

O'Brien will complete the term of former director Steven Kass, who resigned from the boards of the company and the bank, effective June 30, 2014, with the acquisition of his accounting firm, Rothstein-Kass, by KPMG LLP.

Sun Bancorp expects to reduce its overall workforce by 38 percent, or 242 full-time employees, after completion of the restructuring plan. The company expects to offer severance and career transition assistance for the affected employees, subject to regulatory approval.

In addition, Sun Bancorp has stopped providing certain executives with company-owned automobiles. The company will also reduce vacation allotments for officers, redesign benefit plans for greater efficiency, and increase the value proposition for employees, along with other operating changes.

Effective July 1, 2014, the board adopted company stock ownership requirements for its executive officers. Additionally, all executives and directors will be required to retain stock awarded under the company's equity plans for a period of two years following vesting.

Sun Bancorp said it will execute a purchase and assumption agreement with Sturdy Savings Bank in Cape May Courthouse, New Jersey, for the sale of its six offices in Cape May County as well as one office in Atlantic County.

The company will sell its Somers Point, Tuckahoe, Cape May Court House, Cape May, Rio Grande, Wildwood Crest and North Wildwood branches, for a premium on deposits of 8.765 percent to be calculated at closing. These branches have combined total deposits of more than $180 million and combined local branch loans of over $60 million.

The company noted that the sale of these branches will also allow to re-focus efforts in its core markets and enable banking services to continue to be provided in these markets. The transaction is expected to be completed during the first quarter of 2015.

Following the closing of the transactions, the company will save about $3.1 million annually in operating expense and expects to record a net gain on sale of about $10 million to $12 million.

In addition, the company will consolidate its retail branch system by consolidating four overlapping branches - Branchburg, Holland, Hillsborough and Freehold Downtown Main Street. The Branchburg branch was closed on June 20, 2014, while the remaining three consolidations are expected to occur prior to year-end.

The company will explore further initiatives, including additional branch sales or consolidations, to further reduce its operating costs by exiting certain portions of its retail network in slower growth portions of Southern New Jersey, with the objective of right-sizing its branch network by the end of the first quarter of 2015.

According to Sun Bancorp, a strategic evaluation by the company found that the Central and Northern regions of New Jersey provide better opportunity for growth.

The company said it reduced non-accrual loans held-for-investment to $11.1 million, or 0.6 percent of total loans at June 30, 2014, from $37.3 million at March 31, 2014.

Sun Bancorp is changing its address of record for its headquarters to 350 Fellowship Road, Suite 101, Mount Laurel, New Jersey. The company noted that the change reflects the executive office relocation that occurred in 2009, and will establish a centralized headquarters.

The company anticipates the strategic restructuring to reduce its non-interest expense to about $20 million per quarter, while non-interest income is expected to be about $3 million to $4 million per quarter, and net interest income will be about $18 million to $20 million per quarter.

SNBC is trading at $4.30, up $0.21 or 5.13 percent on a volume of 67,574 shares.