News Column

CU Bancorp Reports Net Income of $2.4 Million and Core Net Income of $2.9 Million for Second Quarter of 2014 with Loan Growth of 11%

July 25, 2014

ENCINO, Calif.--(BUSINESS WIRE)-- CU Bancorp (NASDAQ: CUNB), the parent company of wholly owned California United Bank, today reported net income of $2.4 million for the second quarter of 2014, an increase of 2.8% from net income of $2.3 million for the second quarter of 2013, or $0.21 and $0.22 per fully diluted share, respectively. Core net income (defined below) for the second quarter of 2014 was $2.9 million, or $0.26 per diluted share, an increase of 24% from core net income of $2.3 million, or $0.22 per share for the second quarter of 2013.

The second quarter of 2014 included $497 thousand in non-tax deductible merger-related charges associated with the Bank’s pending merger with 1stEnterprise Bank. The Company calculates core net income by adding back the merger-related charges to GAAP earnings for the quarter because the Company believes the use of core net income, a non-GAAP measure, facilitates the assessment of its banking operations and peer comparability. A reconciliation to GAAP is included in tabular form at the end of this release.

Second Quarter 2014 Highlights

  • Net income increased to $2.4 million, or $0.21 per fully diluted share, from net income of $2.3 million, or $0.22 per fully diluted share, for second quarter of 2013
  • Core net income of $2.9 million, compared to $2.3 million in the second quarter of 2013 and $2.7 million in the first quarter of 2014
  • Total loans increased $95 million or 10.7% from June 30, 2013 to $980 million at June 30, 2014
  • Total deposits increased$148 million or 13.4% from June 30, 2013 to $1.2 billion at June 30, 2014; cost of deposits fell to a new low of 0.11%
  • Non-interest bearing demand deposits increased$111 million or 19.5% from June 30, 2013, representing 55% of total deposits
  • Non-performing assets to total assets declined to 0.51% at June 30, 2014, from 1.06% at June 30, 2013
  • Net interest margin increased to 3.88% from 3.82% for the prior quarter ended March 31, 2014
  • Tangible book value per share increased $0.29 over March 31, 2014, to $11.66
  • Announcement of mergerwith 1stEnterprise Bank
  • On June 3, 2014, CU Bancorp, the parent of California United Bank, and 1stEnterprise Bank announced the execution of a definitive agreement and plan of merger whereby 1stEnterprise Bank will merge into California United Bank
  • The merger combines two of the leading commercial banking franchises in Southern California with more than $2.2 billion in combined assets and offices in Los Angeles, Orange, Ventura and San Bernardino counties; in the second quarter of 2014, both franchises experienced loan growth of more than 10% over the prior year same quarter
  • The transaction, currently expected to close in the fourth quarter of 2014, is subject to customary conditions, including the approval of bank regulatory agencies and shareholders of both companies

    “We are very pleased to report that core net income of $2.9 million is up 24% over the second quarter of 2013 and 8% over the first quarter of 2014,” said David Rainer, President and Chief Executive Officer of CU Bancorp and California United Bank. “Total loans grew 11% over the year ago period and 4% over the linked quarter, with strong net organic loan growth of $48 million, the highest quarterly net organic loan growth we have experienced in six quarters. Loan growth was driven primarily by an increase in commercial and industrial loans and owner-occupied nonresidential properties. We continue to focus on establishing new relationships and offering a more personalized banking experience than that available from larger institutions, and this is reflected in the 21% increase in commercial and industrial lines of credit over the previous year.

    “The merger with 1stEnterprise Bank continues on track and we are very excited about the potential of our combined bank, especially given the loan growth both banks experienced in the second quarter. We believe our collective banking experience and mutual focus on exceptional customer service will create the premier business banking franchise in Southern California.”

    Second Quarter 2014 Summary Results

    Net Income and Profitability Ratios

    Net income was $2.4 million, or $0.21 per fully diluted share, for the second quarter of 2014, compared with net income of $2.3 million, or $0.22 per fully diluted share, for the second quarter of 2013. Net income for the second quarter of 2014 was impacted by $497 thousand in merger-related expenses; the second quarter of 2013 had no merger-related expenses. Excluding merger-related charges, net income before the provision for income taxes in the second quarter of 2014 was $4.8 million, compared to net income before the provision for income taxes of $3.8 million in the second quarter of 2013.

    Net income in the second quarter of 2014 of $2.4 million was $280 thousand lower than net income of $2.7 million in the first quarter of 2014, due to merger-related expenses incurred in the second quarter. Net income before the provision for income tax expense, excluding merger-related expenses, in the second quarter of 2014 was $4.8 million, compared to net income before the provision for income tax expense of $4.3 million in the first quarter of 2014.

    The following table shows certain of the Company’s performance ratios for the second quarter of 2014, the first quarter of 2014 and the second quarter of 2013, as well as a column calculating performance ratios based on core net income for the second quarter of 2014:

                                       
    Q2 2014Core

    Q2 2014

    Q1 2014Q2 2013
    Return on average assets 0.69% 0.83% 0.78% 0.73%
    Return on average equity 6.63% 8.01%

    7.70%

    7.16%

    Efficiency ratio

    68% 64% 68% 65%
     


    Net Interest Income and Net Interest Margin

    Net interest income before the provision for loan losses totaled $12.6 million for the second quarter of 2014 and the second quarter of 2013. However, net interest income in the second quarter of 2013 benefited from the recognition of $891 thousand in discount earned on early loan payoffs of acquired loans, compared to $483 thousand earned in the second quarter of 2014. Additionally, during the second quarter of 2013, the Company recorded $162 thousand of interest income related to the recovery of interest on a non-accrual loan that was paid off.

    Net interest income before the provision for loan losses for the second quarter of 2014 increased $405 thousand or 3.3% from the first quarter of 2014. The increase was primarily driven by net organic loan growth.

    The Company’s net interest income continued to be positively impacted in both the first and second quarter of 2014 by the recognition of the fair value discount earned on early payoffs of acquired loans. The Company recorded $519 thousand and $483 thousand in discount earned on early loan payoffs of acquired loans in the first and second quarter of 2014, respectively, with a positive impact on the net interest margin of 16 and 15 basis points, respectively.

    As of June 30, 2014, the Company had $6.8 million of accretable yield discount remaining on acquired loans.

    Net interest margin in the second quarter of 2014 was 3.88%, compared to 4.25% in the second quarter of 2013. The decrease in net interest margin is primarily attributable to the higher level of fair value discount earned on early payoffs of acquired loans and the recovery of interest income on the non-accrual loan that was paid off during the second quarter of 2013, the combination of which had a positive impact of 36 basis points on the year ago quarter’s net interest margin.

    Net interest margin in the second quarter of 2014 was 3.88%, compared to 3.82% in the first quarter of 2014. Average loans increased by $35.2 million over the previous quarter, which positively impacted the net interest margin in the second quarter.

    The Company’s average yield on loans was 5.18% in the second quarter of 2014, compared to 5.24% in the first quarter of 2014. The core loan yield was 4.97% in the second quarter of 2014, compared to 5.01% in the first quarter of 2014.

    The Company’s cost of funds was 0.15% in the second quarter of 2014, a decrease from 0.19% in the second quarter of 2013 and equal to 0.15% for the first quarter of 2014.

    Non-Interest Income

    Non-interest income was $1.8 million in the second quarter of 2014, an increase of $93 thousand or 5.5% from $1.7 million in the same quarter of the prior year. The increase was primarily attributable to a $225 thousand settlement related to an other real estate owned property sold last year and included in other non-interest income in the second quarter of 2014. Non-interest income in the second quarter of 2013 benefited from a $250,000 insurance settlement also included in other non-interest income.

    Non-interest income in the second quarter of 2014 decreased $7 thousand or 0.4% from the first quarter of 2014. The decrease in non-interest income from the prior quarter was primarily attributable to a decrease in the gain on sale of SBA loans in the second quarter, partially offset by the settlement related to the previously mentioned other real estate owned property.

    Non-Interest Expense

    Non-interest expense for the second quarter of 2014 increased $417 thousand or 4.5% over the second quarter of 2013. The increase was primarily due to merger-related expenses of $497 thousand and the annual granting of stock-based compensation to senior management. Merger expenses include investment banking costs associated with a fairness opinion and legal fees for the drafting of the definitive agreement.

    Non-interest expense for the second quarter of 2014 increased $149 thousand over the first quarter of 2014. The increase was primarily due to merger-related expenses, partially offset by a reduction in salaries and employee benefits, which are seasonally higher in the first quarter due to 401(k) employee contribution matches and FICA. Additionally, the lower gain on sale of SBA loans resulted in lower commissions paid in the second quarter.

    Non-interest expense for both quarters benefited from reduced legal and professional fees, down $161 thousand from the year ago quarter and $112 thousand from the previous quarter, due to the Company’s varying utilization of outside consultants and legal counsel.

    Income Tax

    The Company’s merger-related expenses of $497 thousand are not tax deductible, which had the consequence of increasing its effective tax rate for the quarter to 43.9%, compared to 39.5% for the second quarter of 2013.

    Balance Sheet

    Assets

    Total assets at June 30, 2014, were $1.4 billion, a year-over-year increase of $152 million or 11.9% from June 30, 2013, primarily resulting from growth in total deposits. Total assets increased $48 million or 3.5% quarter-over-quarter from March 31, 2014, primarily resulting from growth in total deposits, including $31 million in non-interest bearing deposits.

    Loans

    Total loans were $980 million at June 30, 2014, an increase of $34 million or 3.6% from $946 million at the end of the prior quarter. This also represents an increase of $95 million or 10.7% from June 30, 2013. During the second quarter of 2014, the Company had approximately $48 million of net organic loan growth, which was partially offset by approximately $13 million in loan run-off from acquired portfolios.

    The increase in total loans from the prior quarter included a $13.9 million increase in the commercial and industrial loan portfolio and a $13.8 million increase in the owner-occupied nonresidential properties portfolio; these two portfolios now represent 52% of total loans. Commercial and industrial lines of credit increased to $439 million in the second quarter of 2014, up 20.8% from the prior year and 3.5% from the previous quarter.

    Deposits

    Total deposits at June 30, 2014, were $1.2 billion, an increase of $42 million or 3.5% from March 31, 2014. This also represents an increase of $148 million or 13.4% from June 30, 2013. The increase in deposits from the end of the prior quarter primarily reflects increases in non-interest bearing demand deposits and interest bearing transaction accounts from existing customers, as well as new relationships, partially offset by reductions in money market accounts and certificates of deposit.

    Non-interest bearing demand deposits at June 30, 2014, were $682 million, an increase of $30.7 million or 4.7% from March 31, 2014. Non-interest-bearing demand deposits represented 55% of total deposits at June 30, 2014, up from 54% at the end of the prior quarter. Cost of deposits for the quarter was 0.11%, down from 0.12% in the prior quarter.

    Asset Quality

    Total non-performing assets were $7.2 million, or 0.51% of total assets at June 30, 2014, compared with $8.2 million or 0.60% of total assets, at March 31, 2014. Approximately 71% of the total non-performing assets at June 30, 2014, were acquired loans that were marked to fair value at the time of acquisition.

    Of the total non-performing assets at June 30, 2014, the other real estate owned category consisted of one industrial condominium located in Palm Desert, which is carried on the books at $219 thousand. The property was sold in the third quarter of 2014 for approximately book value.

    During the second quarter of 2014, the Company recorded net recoveries of $53 thousand, compared with net recoveries of $145 thousand during the first quarter of 2014.

    The Company recorded a loan loss provision of $408 thousand for the second quarter of 2014. The loan loss provision reflects strong organic loan growth, recoveries recorded in the quarter and an improving credit quality environment.

    The allowance for loan losses as a percentage of loans (excluding acquired loans that have been marked to fair value and the related allowance) was 1.45% at June 30, 2014, compared with 1.48% at March 31, 2014, and 1.50% at June 30, 2013.

    Capital

    CU Bancorp remained well capitalized at June 30, 2014, with total risk weighted assets of $1,212,027,000. All of the Company’s capital ratios are above minimum regulatory standards for “well capitalized” institutions.

                         
    June 30, 2014

    Minimum Capital to Be

    Considered

    “Well-Capitalized”

    CU Bancorp

    Total Risk-Based Capital Ratio 10% 12.75%
    Tier 1 Risk-Based Capital Ratio 6% 11.79%
    Tier 1 Leverage Capital Ratio 5% 10.38%
     


    At June 30, 2014, tangible common equity was $130.8 million with common shares issued and outstanding of 11,222,235 as of the same date, resulting in tangible book value per common share of $11.66. This compares to tangible common equity of $127.5 million with a tangible book value per common share of $11.37 at March 31, 2014. The increase in tangible book value per common share from the prior quarter primarily reflects the net income generated during the second quarter of 2014.

    About CU Bancorp and California United Bank

    CU Bancorp is the parent of California United Bank. Founded in 2005, California United Bank provides a full range of financial services, including credit and deposit products, cash management, and internet banking to businesses, non-profits, entrepreneurs, professionals and investors throughout Southern California from offices in the San Fernando Valley, the Santa Clarita Valley, the Conejo Valley, Simi Valley, Los Angeles, South Bay, and Orange County. California United Bank is an SBA Preferred Lender. To view CU Bancorp’s most recent financial information, please visit the Investor Relations section of the Company’s website. Information on products and services may be obtained by calling 818-257-7700 or visiting the Company’s website at www.cunb.com.

    FORWARD-LOOKING STATEMENTS

    This press release contains certain forward-looking information about CU Bancorp (the “Company”), 1stEnterprise Bank and the combined company after the close of the transaction that is intended to be covered by the safe harbor for “forward looking statements” provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. Forward-looking statements speak only as of the date they are made and we assume no duty to update such statements. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, implied or projected by, such forward-looking statements. Risks and uncertainties include, but are not limited to: lower than expected revenues; credit quality deterioration or a reduction in real estate values could cause an increase in the allowance for credit losses and a reduction in net earnings; increased competitive pressure among depository institutions; the Company’s ability to complete future acquisitions, successfully integrate such acquired entities, or achieve expected beneficial synergies and/or operating efficiencies within expected time-frames or at all; the possibility that personnel changes will not proceed as planned; the cost of additional capital is more than expected; a change in the interest rate environment reduces net interest margins; asset/liability repricing risks and liquidity risks; legal matters could be filed against the Company and could take longer or cost more than expected to resolve or may be resolved adversely to the Company; general economic conditions, either nationally or in the market areas in which the Company does or anticipates doing business, are less favorable than expected; environmental conditions, including natural disasters and drought, may disrupt our business, impede our operations, negatively impact the values of collateral securing the Company’s loans and leases or impair the ability of our borrowers to support their debt obligations; the economic and regulatory effects of the continuing war on terrorism and other events of war, including the conflicts in the Middle East; legislative or regulatory requirements or changes adversely affecting the Company’s business; changes in the securities markets; regulatory approvals for any capital activities cannot be obtained on the terms expected or on the anticipated schedule; and, other risks that are described in CU Bancorp’s public filings with the U.S. Securities and Exchange Commission (the “SEC”). Additional risks and uncertainties relating to the proposed transaction with 1st Enterprise Bank include, but are not limited to: the ability to complete the proposed transaction, including obtaining regulatory approvals and approvals by the shareholders of CU Bancorp and 1st Enterprise Bank; the length of time necessary to consummate the proposed transaction; the ability to successfully integrate the two institutions and achieve expected synergies and operating efficiencies on the expected timeframe; unexpected costs relating to the proposed transaction; and the potential impact on the institutions’ respective businesses as a result of uncertainty surrounding the proposed transaction. If any of these risks or uncertainties materializes or if any of the assumptions underlying such forward-looking statements proves to be incorrect, CU Bancorp’s results could differ materially from those expressed in, implied or projected by such forward-looking statements. CU Bancorp assumes no obligation to update such forward-looking statements. For a more complete discussion of risks and uncertainties, investors and security holders are urged to read CU Bancorp’s annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed by CU Bancorp with the SEC. The documents filed by CU Bancorp with the SEC may be obtained at CU Bancorp’s website at www.cubancorp.com or at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge from CU Bancorp by directing a request to: CU Bancorp c/o California United Bank, 15821 Ventura Boulevard, Suite 100, Encino, CA 91436. Attention: Investor Relations. Telephone 818-257-7700.

    CU BANCORP, CALIFORNIA UNITED BANK AND 1ST ENTERPRISE BANK MERGER ANNOUNCEMENT

    On June 3, 2014, CU Bancorp announced that it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) among CU Bancorp, California United and 1stEnterprise Bank, a California state-chartered commercial bank (“1st Enterprise”) pursuant to which CU Bancorp will acquire 1stEnterprise Bank by merging 1stEnterprise Bank with and into California United Bank (the “Merger”). California United Bank will survive the Merger and will continue the commercial banking operations of the combined bank following the Merger. Under the terms of the Merger Agreement, holders of 1stEnterprise Bank common stock will receive shares of CU Bancorp common stock based upon a fixed exchange ratio of 1.3450 shares of CU Bancorp common stock for each share of 1stEnterprise Bank common stock. The U.S. Treasury, as the holder of all outstanding shares of 1stEnterprise Bank preferred stock granted in connection with 1st Enterprise’s participation in the Treasury’s Small Business Lending Fund program, will receive, in exchange for these shares, a new series of CU Bancorp preferred stock having the same rights (including with respect to dividends), preferences, privileges, voting powers, limitations and restrictions as the 1st Enterprise preferred stock. The Merger is subject to customary closing conditions, including regulatory and shareholder approvals.

    ADDITIONAL INFORMATION ABOUT THE PROPOSED TRANSACTION WITH 1ST ENTERPRISE BANK AND WHERE TO FIND IT

    Investors and security holders are urged to carefully review and consider each of CU Bancorp’s public filings with the SEC, including but not limited to its annual reports on Form 10-K, proxy statements, current reports on Form 8-K and quarterly reports on Form 10-Q. The documents filed by CU Bancorp with the SEC may be obtained free of charge at CU Bancorp’s website at www.cubancorp.com or at the SEC website at www.sec.gov. These documents may also be obtained free of charge from CU Bancorp by directing a request to: CU Bancorp c/o California United Bank, 15821 Ventura Boulevard, Suite 100, Encino, CA 91436. Attention: Investor Relations. Telephone 818-257-7700. The information on CU Bancorp’s website is not, and shall not be deemed to be, a part of this filing or incorporated into other filings CU Bancorp makes with the SEC.

    In connection with the proposed merger of California United Bank with 1stEnterprise Bank, CU Bancorp intends to file a registration statement on Form S-4 with the SEC to register the shares of CU Bancorp common stock to be issued to shareholders of 1stEnterprise Bank. The registration statement will include a joint proxy statement of CU Bancorp and 1st Enterprise and a prospectus of CU Bancorp, and each party will file other documents regarding the proposed transaction with the SEC. Before making any voting or investment decision, investors and security holders of CU Bancorp and 1stEnterprise Bank are urged to carefully read the entire registration statement and joint proxy statement/prospectus, when they become available, as well as any amendments or supplements to these documents, because they will contain important information about the proposed transaction. A definitive joint proxy statement/prospectus will be sent to the shareholders of each institution seeking any required stockholder approvals. Investors and security holders will be able to obtain the registration statement and the joint proxy statement/prospectus free of charge from the SEC’s website or from CU Bancorp by writing to the address provided in the paragraph above.

    PARTICIPANTS IN THE SOLICITATION

    CU Bancorp and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of CU Bancorp and 1stEnterprise Bank in connection with the transaction. Information about the directors and executive officers of CU Bancorp is set forth in its annual report on Form 10-K/A filed with the SEC on April 29, 2014.

    1stEnterprise Bank and its directors and executive officers may also be deemed to be participants in the solicitation of proxies from the shareholders of CU Bancorp and 1stEnterprise Bank in connection with the Merger.

    Additional information regarding the interests of these participants and other persons who may be deemed participants in the Merger may be obtained by reading the proxy statement/prospectus regarding the Merger when it becomes available.

    This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.

     
    CU BANCORP
    CONSOLIDATED BALANCE SHEETS
    (Dollars in thousands)
                           
    June 30, March 31, December 31, June 30,
    2014 2014 2013 2013
    Unaudited Unaudited Audited Unaudited
    ASSETS
    Cash and due from banks $ 40,657 $ 34,421 $ 23,156 $ 28,246
    Interest earning deposits in other financial institutions   179,409     172,573     218,131     161,552  
    Total Cash and Cash Equivalents 220,066 206,994 241,287 189,798
    Certificates of deposit in other financial institutions 64,577 63,107 60,307 28,304
    Investment securities available-for-sale, at fair value 102,143 102,155 106,488 109,955
    Loans 979,890 945,507 933,194 885,027
    Allowance for loan loss   (11,284 )   (10,823 )   (10,603 )   (9,412 )
    Net loans 968,606 934,684 922,591 875,615
    Premises and equipment, net 3,785 3,916 3,531 3,193
    Deferred tax assets, net 11,018 11,090 11,835 13,155
    Other real estate owned, net 219 3,112
    Goodwill 12,292 12,292 12,292 12,292
    Core deposit and leasehold right intangibles 2,349 2,455 2,525 1,581
    Bank owned life insurance 21,507 21,352 21,200 20,891
    Accrued interest receivable and other assets   23,751     24,318     25,760     20,765  
    Total Assets $ 1,430,313   $ 1,382,363   $ 1,407,816   $ 1,278,661  
     
    LIABILITIES AND SHAREHOLDERS' EQUITY
    LIABILITIES
    Non-interest bearing demand deposits $ 682,300 $ 651,645 $ 632,192 $ 571,045
    Interest bearing transaction accounts 143,312 124,045 155,735 127,585
    Money market and savings deposits 361,936 365,405 380,915 338,885
    Certificates of deposit   57,732     62,303     63,581     60,192  
    Total deposits 1,245,280 1,203,398 1,232,423 1,097,707
    Securities sold under agreements to repurchase 13,852 11,965 11,141 29,612
    Subordinated debentures, net 9,459 9,419 9,379 9,283
    Accrued interest payable and other liabilities   16,284     15,323     16,949     12,492  
    Total Liabilities   1,284,875     1,240,105     1,269,892     1,149,094  
    SHAREHOLDERS' EQUITY
    Common stock 122,760 122,697 121,675 118,938
    Additional paid-in capital 9,354 8,865 8,377 7,275
    Retained earnings 13,129 10,743 8,077 2,768
    Accumulated other comprehensive income (loss)   195     (47 )   (205 )   586  
    Total Shareholders' Equity   145,438     142,258     137,924     129,567  
    Total Liabilities and Shareholders' Equity $ 1,430,313   $ 1,382,363   $ 1,407,816   $ 1,278,661  
     
     
     

    CU BANCORP

    CONSOLIDATED STATEMENTS OF INCOME
    (Dollars in thousands, except per share data)
                             
    For the Three Months Ended
    June 30,

    2014
    March 31,

    2014
    June 30,

    2013
    Unaudited Unaudited Unaudited
    Interest Income
    Interest and fees on loans $ 12,366 $ 11,924 $ 12,462
    Interest on investment securities 467 501 495
    Interest on interest bearing deposits in other financial institutions   206   211   157
    Total Interest Income   13,039   12,636   13,114
    Interest Expense
    Interest on interest bearing transaction accounts 66 58 64
    Interest on money market and savings deposits 222 234 249
    Interest on certificates of deposit 55 56 74
    Interest on securities sold under agreements to repurchase 11 8 21
    Interest on subordinated debentures   107   107   126
    Total Interest Expense   461   463   534
    Net Interest Income 12,578 12,173 12,580
    Provision for loan losses   408   75   1,153
    Net Interest Income After Provision For Loan Losses   12,170   12,098   11,427
    Non-Interest Income
    Gain on sale of securities, net
    Gain on sale of SBA loans, net 167 438 60
    Deposit account service charge income 630 630 583
    Other non-interest income   986   722   1,047
    Total Non-Interest Income   1,783   1,790   1,690
    Non-Interest Expense
    Salaries and employee benefits 5,328 5,605 5,438
    Stock compensation expense 479 408 217
    Occupancy 985 986 1,019
    Data processing 476 475 479
    Legal and professional 411 523 572
    FDIC deposit assessment 180 221 189
    Merger related expenses 497
    OREO valuation write-downs and expenses 6 23
    Office services expenses 238 264 259
    Other operating expenses   1,098   1,067   1,085
    Total Non-Interest Expense   9,698   9,549   9,281
    Net Income Before Provision for Income Tax 4,255 4,339 3,836
    Provision for income tax   1,869   1,673   1,515
    Net Income $ 2,386 $ 2,666 $ 2,321
     
    Earnings Per Share
    Basic earnings per share $ 0.22 $ 0.25 $ 0.22
    Diluted earnings per share $ 0.21 $ 0.24 $ 0.22
    Average shares outstanding 10,952,000 10,874,000 10,502,000
    Diluted average shares outstanding 11,159,000 11,095,000 10,660,000
     
     
     

    CU BANCORP

    CONSOLIDATED STATEMENTS OF INCOME
    (Dollars in thousands, except per share data)
                         
    For the Six Months Ended June 30,
    2014 2013
    Unaudited Unaudited
    Interest Income
    Interest and fees on loans $ 24,290 $ 23,887
    Interest on investment securities 968 979
    Interest on interest bearing deposits in other financial institutions   417   317
    Total Interest Income   25,675   25,183
    Interest Expense
    Interest on interest bearing transaction accounts 124 116
    Interest on money market and savings deposits 456 509
    Interest on certificates of deposit 111 150
    Interest on securities sold under agreements to repurchase 19 40
    Interest on subordinated debentures   214   250
    Total Interest Expense   924   1,065
    Net Interest Income 24,751 24,118
    Provision for loan losses   483   1,287
    Net Interest Income After Provision For Loan Losses   24,268   22,831
    Non-Interest Income
    Gain on sale of securities, net 5
    Gain on sale of SBA loans, net 605 410
    Deposit account service charge income 1,260 1,151
    Other non-interest income   1,708   1,550
    Total Non-Interest Income   3,573   3,116
    Non-Interest Expense
    Salaries and employee benefits 10,933 10,855
    Stock compensation expense 887 475
    Occupancy 1,971 2,083
    Data processing 951 961
    Legal and professional 934 1,079
    FDIC deposit assessment 401 435
    Merger related expenses 497 43
    OREO valuation write-downs and expenses 6 49
    Office services expenses 502 525
    Other operating expenses   2,165   2,085
    Total Non-Interest Expense   19,247   18,590
    Net Income Before Provision for Income Tax 8,594 7,357
    Provision for income tax   3,542   2,881
    Net Income $ 5,052 $ 4,476
     
    Earnings Per Share
    Basic earnings per share $ 0.46 $ 0.43
    Diluted earnings per share $ 0.45 $ 0.42
    Average shares outstanding 10,913,000 10,494,000
    Diluted average shares outstanding 11,127,000 10,689,000
     
     
     
    CU BANCORP
    CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEETS AND YIELD ANALYSIS
    (Dollars in thousands)
                               
    For the Three Months Ended
    June 30, 2014 (Unaudited) March 31, 2014 (Unaudited)

    Average

    Balance

    Interest

    Average

    Yield/Rate

    Average

    Balance

    Interest

    Average

    Yield/Rate

    Interest-Earning Assets:
    Deposits in other financial institutions $ 240,335 $ 206 0.34 % $ 265,750 $ 211 0.32 %
    Investment securities 101,410 467 1.84 % 104,767 501 1.91 %
    Loans   958,129   12,366 5.18 %   922,971   11,924 5.24 %
    Total interest-earning assets 1,299,874 13,039 4.02 % 1,293,488 12,636 3.96 %
    Non-interest-earning assets   90,383   92,357
    Total Assets $ 1,390,257 $ 1,385,845
     
    Interest-Bearing Liabilities:
    Interest bearing transaction accounts $ 139,425 $ 66 0.19 % $ 138,006 $ 58 0.17 %
    Money market and savings deposits 353,962 222 0.25 % 373,258 234 0.25 %
    Certificates of deposit   60,752   55 0.36 %   62,964   56 0.36 %
    Total Interest Bearing Deposits 554,139 343 0.25 % 574,228 348 0.25 %
    Securities sold under agreements to repurchase 15,425 11 0.29 % 11,951 8 0.27 %
    Subordinated debentures and other debt   9,439   107 4.48 %   9,399   107 4.55 %
    Total Interest Bearing Liabilities 579,003 461 0.32 % 595,578 463 0.32 %
    Non-interest bearing demand deposits   652,094   633,233
    Total funding sources 1,231,097 1,228,811
    Non-interest bearing liabilities 14,733 16,595
    Shareholders' Equity   144,427   140,439
    Total Liabilities and Shareholders' Equity $ 1,390,257 $ 1,385,845
    Net interest income $ 12,578 $ 12,173
    Net interest margin 3.88 % 3.82 %
     
     
     
    CU BANCORP
    CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEETS AND YIELD ANALYSIS
    (Dollars in thousands)
                               
    For the Three Months Ended
    June 30, 2014 (Unaudited) June 30, 2013 (Unaudited)

    Average

    Balance

    Interest

    Average

    Yield/Rate

    Average

    Balance

    Interest

    Average

    Yield/Rate

    Interest-Earning Assets:
    Deposits in other financial institutions $ 240,335 $ 206 0.34 % $ 208,871 $ 157 0.30 %
    Investment securities 101,410 467 1.84 % 106,706 495 1.86 %
    Loans   958,129   12,366 5.18 %   872,048   12,462 5.73 %
    Total interest-earning assets 1,299,874 13,039 4.02 % 1,187,625 13,114 4.43 %
    Non-interest-earning assets   90,383   92,770
    Total Assets $ 1,390,257 $ 1,280,395
     
    Interest-Bearing Liabilities:
    Interest bearing transaction accounts $ 139,425 $ 66 0.19 % $ 132,392 $ 64 0.19 %
    Money market and savings deposits 353,962 222 0.25 % 334,729 249 0.30 %
    Certificates of deposit   60,752   55 0.36 %   67,914   74 0.44 %
    Total Interest Bearing Deposits 554,139 343 0.25 % 535,035 387 0.29 %
    Securities sold under agreements to repurchase 15,425 11 0.29 % 27,913 21 0.30 %
    Subordinated debentures and other debt   9,439   107 4.48 %   9,599   126 5.26 %
    Total Interest Bearing Liabilities 579,003 461 0.32 % 572,547 534 0.37 %
    Non-interest bearing demand deposits   652,094   566,018
    Total funding sources 1,231,097 1,138,565
    Non-interest bearing liabilities 14,733 11,820
    Shareholders' Equity   144,427   130,010
    Total Liabilities and Shareholders' Equity $ 1,390,257 $ 1,280,395
    Net interest income $ 12,578 $ 12,580
    Net interest margin 3.88 % 4.25 %
     
     
     
    CU BANCORP
    CONSOLIDATED YEAR-TO-DATE AVERAGE BALANCE SHEETS AND YIELD ANALYSIS
    (Dollars in thousands)
                               
    For the Six Months Ended
    June 30, 2014 (Unaudited) June 30, 2013 (Unaudited)

    Average

    Balance

    Interest

    Average

    Yield/Rate

    Average

    Balance

    Interest

    Average

    Yield/Rate

    Interest-Earning Assets:
    Deposits in other financial institutions $ 252,973 $ 417 0.33 % $ 211,520 $ 317 0.30 %
    Investment securities 103,080 968 1.88 % 109,537 979 1.79 %
    Loans   940,648   24,290 5.21 %   857,224   23,887 5.62 %
    Total interest-earning assets 1,296,701 25,675 3.99 % 1,178,281 25,183 4.31 %
    Non-interest-earning assets   91,362   92,776
    Total Assets $ 1,388,063 $ 1,271,057
     
    Interest-Bearing Liabilities:
    Interest bearing transaction accounts $ 138,720 $ 124 0.18 % $ 125,416 $ 116 0.19 %
    Money market and savings deposits 363,556 456 0.25 % 342,502 509 0.30 %
    Certificates of deposit   61,852   111 0.36 %   72,057   150 0.42 %
    Total Interest Bearing Deposits 564,128 691 0.25 % 539,975 775 0.29 %
    Securities sold under agreements to repurchase 13,698 19 0.28 % 26,889 40 0.30 %
    Subordinated debentures and other debt   9,419   214 4.52 %   9,400   250 5.36 %
    Total Interest Bearing Liabilities 587,245 924 0.32 % 576,264 1,065 0.37 %
    Non-interest bearing demand deposits   642,716   553,808
    Total funding sources 1,229,961 1,130,072
    Non-interest bearing liabilities 15,658 12,328
    Shareholders' Equity   142,444   128,657
    Total Liabilities and Shareholders' Equity $ 1,388,063 $ 1,271,057
    Net interest income $ 24,751 $ 24,118
    Net interest margin 3.85 % 4.13 %
     
     
     
    CU BANCORP
    LOAN COMPOSITION
    (Dollars in thousands)
                             

    June 30,

    2014

    March 31,

    2014

    December 31,

    2013

    Unaudited Unaudited Audited
     
     
    Commercial and Industrial Loans: $ 303,870 $ 290,000 $ 299,473
     
    Loans Secured by Real Estate:
    Owner-Occupied Nonresidential Properties 208,936 195,151 197,605
    Other Nonresidential Properties 296,629 286,198 271,818
    Construction, Land Development and Other Land 61,165 56,706 47,074
    1-4 Family Residential Properties 64,583 62,128 65,711
    Multifamily Residential Properties   36,727   39,869   33,780
    Total Loans Secured by Real Estate   668,040   640,052   615,988
     
    Other Loans:   7,980   15,455   17,733
               
    Total Loans $ 979,890 $ 945,507 $ 933,194
     
     
     
    COMMERCIAL AND INDUSTRIAL LINE OF CREDIT UTILIZATION
    (Dollars in thousands)
                                 
    June 30, 2014March 31, 2014December 31, 2013
    Unaudited Unaudited Unaudited
     
    Disbursed $ 194,469 44 % $ 179,610 42 % $ 196,044 49 %
    Undisbursed   244,249 56 %   244,087 58 %   201,860 51 %
    Total Commitment $ 438,718 100 % $ 423,697 100 % $ 397,904 100 %
     
     
     
    CU BANCORP
    SUPPLEMENTAL DATA
    (Dollars in thousands)
                           
    June 30,

    2014

    March 31,

    2014

    December 31,

    2013

    June 30,

    2013

    Unaudited Unaudited Unaudited Unaudited
    Capital Ratios Table:
    Tier 1 leverage capital ratio 10.38 % 10.19 % 9.57 % 9.85 %
    Tier 1 risk-based capital ratio 11.79 % 12.02 % 11.84 % 11.69 %
    Total risk-based capital ratio 12.75 % 12.99 % 12.80 % 12.60 %
     
    Asset Quality Table:
    Loans originated by the Bank on non-accrual $ 2,046 $ 1,585 $ 1,657 $ 3,750
    Loans acquired thru acquisition that are on non-accrual   4,982     6,642     7,899     6,719  
    Total non-accrual loans 7,028 8,227 9,556 10,469
    Other Real Estate Owned   219             3,112  
    Total non-performing assets $ 7,247   $ 8,227   $ 9,556   $ 13,581  
     
    Net charge-offs/(recoveries) year to date $ (198 ) $ (145 ) $ 1,052 $ 678
     
    Net charge-offs/(recoveries) quarterly $ (53 ) $ (145 ) $ 369 $ 582
     
    Non-accrual loans to total loans 0.72 % 0.87 % 1.02 % 1.18 %
     
    Total non-performing assets to total assets 0.51 % 0.60 % 0.68 % 1.06 %
     
    Allowance for loan losses to total loans 1.15 % 1.14 % 1.14 % 1.06 %
     
    Allowance for loan losses to total loans accounted at historical cost, which excludes purchased loans acquired by acquisition 1.45 % 1.48 % 1.50 % 1.50 %
     
    Net year to date charge-offs/(recoveries) to average year to date loans (0.02 )% (0.02 )% 0.12 % 0.08 %
     
    Allowance for loan losses to non-accrual loans accounted at historical cost, which excludes non-accrual purchased loans acquired by acquisition and related allowance 551.4 % 682.0 % 639.8 % 251.0 %
     
    Allowance for loan losses to total non-accrual loans 160.5 % 131.6 % 111.0 % 89.9 %
     


    As of June 30, 2014, there were no restructured loans or loans over 90 days past due and still accruing.

     
    CU BANCORP
    GAAP RECONCILIATIONS
     

    These non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for analyses of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

     
    TCE Calculation and Reconciliation to Total Shareholders' Equity
    The Company utilizes the term Tangible Common Equity (TCE), a non-GAAP financial measure. CU Bancorp’s management believes TCE is useful because it is a measure utilized by both regulators and market analysts in evaluating a consolidated bank holding company’s financial condition and capital strength. TCE represents common shareholders’ equity less goodwill and certain intangible assets. A reconciliation of CU Bancorp’s total shareholders’ equity to TCE is provided in the table below for the periods indicated:
     

    (Dollars in thousands, except per share data)

                           

    June 30,

    2014

    March 31,

    2014

    December 31,

    2013

    June 30,

    2013

    Unaudited Unaudited Unaudited Unaudited
    Tangible Common Equity Calculation
    Total shareholders' equity $ 145,438 $ 142,258 $ 137,924 $ 129,567
    Less: Goodwill 12,292 12,292 12,292 12,292
    Less: Core deposit and leasehold right intangibles   2,349   2,455   2,525   1,581
    Tangible Common Equity $ 130,797 $ 127,511 $ 123,107 $ 115,694
     
    Common shares issued and outstanding 11,222,235 11,213,908 11,081,364 10,734,250
    Tangible book value per common share $ 11.66 $ 11.37 $ 11.11 $ 10.78
    Book value per common share $ 12.96 $ 12.69 $ 12.45 $ 12.07
     
     
     
    CU BANCORP
    GAAP RECONCILIATIONS
     
    Core Net Income, ROAA, ROAE, EPS, Efficiency Ratio
    (Unaudited)
     

    The Company utilizes the term Core Net Income, a non-GAAP financial measure. CU Bancorp’s management believes Core Net Income is useful because it is a measure utilized by management and market analysts to understand the effects of merger expenses and provides an alternative view of the Company’s performance over time and in comparison to the Company’s competitors. Core net income should not be viewed as a substitute for net income. A reconciliation of CU Bancorp’s Net Income to Core Net Income, as well as related ratios is presented in the tables below for the periods indicated:

                     

    (Dollars in thousands, except per share data)

     
    Three Months Ended
    June 30, 2014March 31, 2014June 30, 2013
    Net Income $ 2,386 $ 2,666 $ 2,321

    Add back: Merger-related expenses

      497          
    Core Net Income $ 2,883   $ 2,666   $ 2,321  
     
    Average Assets $ 1,390,257 $ 1,385,845 $ 1,280,395
    ROAA 0.69 % 0.78 % 0.73 %
    Core ROAA* 0.83 % 0.78 % 0.73 %
    Average Equity $ 144,427 $ 140,439 $ 130,010
    ROAE 6.63 % 7.70 % 7.16 %
    Core ROAE** 8.01 % 7.70 % 7.16 %
    Diluted Average Shares Outstanding 11,159,000 11,095,000 10,660,000
    Diluted Earnings Per Share $ 0.21 $ 0.24 $ 0.22
    Core Diluted Earnings Per Share*** $ 0.26 $ 0.24 $ 0.22
     
    * Core ROAA: Annualized core net income/average assets
    ** Core ROAE: Annualized core net income/average equity
    *** Core Diluted Earnings Per Share: Annualized core net income/diluted average shares outstanding
     
     
    Three Months Ended
    June 30, 2014March 31, 2014June 30, 2013
    Net Interest Income $ 12,578 $ 12,173 $ 12,580
    Non-Interest Income 1,783 1,790 1,690
    Non-Interest Expense 9,698 9,549 9,281

    Subtract: Merger-related expenses

      497          
    Core Non-Interest Expense $ 9,201   $ 9,549   $ 9,281  
     
    Efficiency Ratio 68 % 68 % 65 %
    Core Efficiency Ratio* 64 % 68 % 65 %
     

    * Core Efficiency Ratio: Core non-interest expense/(non-interest income + net interest income)

     





    CU Bancorp

    David Rainer, 818-257-7776

    Chairman, President and CEO

    or

    Karen Schoenbaum, 818-257-7700

    Chief Financial Officer

    Source: CU Bancorp


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