Opus Bank will split the duties of chief credit officer in the wake of credit issues that will prompt the Irvine, Calif., company to report a quarterly loss next week.
The $7.5 billion-asset company also pledged on Wednesday to improve its lending processes and credit monitoring. Those assurances were made just days after the company warned that it charged off nearly $39 million tied to eight loans in the third quarter, with a large percentage of those tied to loans in its technology banking division.
The company's stock has lost nearly a third of its value since the credit disclosure on Monday. It shares were trading at $23.50 midday on Thursday.
Stephen Gordon, Opus' chairman, president and chief executive, said he would dedicate "deeper talent and resources" to handing the company's growing loan portfolio, including a plan to bifurcate the role of chief credit officer.
Opus plans to add a second credit officer to handle commercial lending and specialty banking, Gordon said. Another executive, presumably existing Chief Credit Officer Bob Granfelt, would focus on commercial real estate.
"We are also going to be lowering our in-house maximum hold limits, which we believe will reduce the risk of single event impact," Gordon said. Opus will also lower approval authority levels in an effort to "increase scrutiny and oversight in the credit approval process."
The investor call was moderated by Brett Villaume, the company's director of investor relations and a former analyst at FIG Partners, who asked detailed questions about the troubled loans and any fallout from the unexpected quarterly loss. Management did not take any questions from investors or analysts, who were instead asked to submit questions in advance. The call was intended to only address credit-related issues.
Gordon said the company would still hold an investor call next Monday to discuss quarterly results.
Opus has grown rapidly since Gordon led a $460 million recapitalization of what was a $273 million-asset bank, then called Bay Cities National Bank, in 2010. It did so by largely hiring lenders and expanding into specialty lending businesses. The company earlier this year earmarked technology as an area primed for growth; management disclosed in the second-quarter earnings release that it would deemphasize the business because it did not "meet our standards for profitability at this stage of Opus' evolution."
Wednesday's investor call brings the company's "strategic direction … into question," Tim O'Brien, an analyst at Sandler O'Neill, wrote in a note to clients. The decision to revamp credit policies "calls into question the underlying credit quality of commercial and specialty loans that are now on the balance sheet."
At the same time, it is unlikely that Opus can continue to grow as aggressively as it had in recent quarters, or as rapidly as management forecast when the company reported second-quarter earnings, O'Brien warned. During the last quarterly call, management projected that Opus would produce $2.5 billion in new loan fundings this year. As of the second quarter, it had funded $1.2 billion in loans.
Gordon and his team also outlined other areas that will be affected by the quarter's credit issues. For starters, Gordon said he will urge the board to deny him a discretionary bonus for this year. The company will withhold incentive compensation from the bankers who originated the loans, and credit-related employees tied with the chargeoffs will also be impacted.
Opus also said it will not declare a third-quarter dividend. While management said it doesn't need to raise capital to cover the expected quarterly loss, it could look to bring in new money to support continued growth.
Management also provided more details on the troubled loans, noting that the issues were largely tied to one technology loan, which contributed to 80% of the difference between the specific reserve and the chargeoffs. Overall, technology loans fell 9% in the third quarter, to $254 million at Sept. 30.
Gordon, meanwhile, said the company will continue to monitor trends elsewhere in its entire loan portfolio. "We'll continue to evaluate risk-adjusted returns and concentrations in all of our business lines," he said.