Opus Bank in Irvine, Calif. is feeling the sting of a niche business it once targeted for expansion.
The $7.5 billion-asset company disclosed Monday that it will lose money in the third quarter after charging off nearly $39 million in loans, with more than half of the amount tied to technology credits.
The prospect of even a small quarterly loss is a shock to some who follow the company. Opus earned roughly $29 million in the first half of 2016, which was slightly off the pace of the $60 million it brought in last year.
Opus, however, had also grown quickly in recent years; total assets increased nearly 50% between the end of 2014 and the middle of this year. Most of that growth has come from hiring lenders and adding specialty lending businesses.
Technology lending seemed to fit that profile.
The company in January hired veteran technology lender Raed Alfayoumi from Union Bank to focus on venture-backed and publicly traded middle-market firms.
Kevin McBride, who oversaw technology banking at Opus, said in a release announcing Alfayoumi's hiring that the division was in expansion mode, expressing a desire to "get a lot of business done."
By July, Alfayoumi was reassigned to become head of the financial sponsors group in the company's merchant banking division. McBride's stint as group head of technology banking also seemed to end around that time, according to his LinkedIn profile.
Management had recently vowed to deemphasize technology banking after the business contributed to an elevated loan-loss provision in the second quarter. Technology credits made up 5% of total loans at June 30, with roughly $280 million in outstanding balances.
Calls to Nicole Carrillo, Opus' chief financial officer, were not returned. The company plans to report its quarterly results next Monday.
Analysts are sure to parse over the results for clues on where credit quality is headed.
Brian Zabora, an analyst at Hovde Group, called Monday's announcement "surprising." Issues tied to one of the troubled technology credits seemed to be stabilizing, he said, referencing remarks management made at the company's inaugural investor day last month.
"At this point it is challenging to determine if the company has 'cleared the decks' or if there will be further deterioration in future quarters," Zabora said.
Opus noted in its release that it had issues in other businesses during the third quarter. The company charged off about $17 million in loans originated by its commercial and specialty banking units. Opus didn't provide many other details on those relationships.
The company noted in a presentation for the recent investor day that 4% of the loans in its $548 million commercial portfolio are considered criticized, though only 0.08% were delinquent. In comparison, nearly 7% of the loans in Opus' $461 million health care book were criticized, with a 3.7% delinquency rate.
The aggressive chargeoffs should help Opus long-term credit metrics. The company said in Monday's release that nonperforming assets would total $44.8 million at Sept. 30, or 0.58% of total assets. That compares to $79.4 million at June 30.