CU Bancorp Announces Financial Results for Fourth Quarter and Full Year 2012
ENCINO, Calif.--(BUSINESS WIRE)--
CU Bancorp (NASDAQ: CUNB), the parent company of wholly owned California
United Bank, today reported net income of $1.6 million, or $0.15 per
fully diluted share, for the fourth quarter of 2012, up 433% from net
income of $306 thousand, or $0.05 per fully diluted share, for the
fourth quarter of 2011.
For the full year 2012, the Company reported net income of $1.7 million,
or $0.21 per fully diluted share, up 13% from net income of $1.5
million, or $0.22 per fully diluted share, for the full year 2011. Core
earnings(1) were $8.4 million for the full year 2012, which
compares to $4.5 million for the full year 2011.
The comparability of financial information is affected by the
acquisition of Premier Commercial Bancorp and its subsidiary Premier
Commercial Bank, N.A. (collectively “PCB”). Operating results include
the operations of these acquired entities from July 31, 2012, the date
of acquisition.
Fourth Quarter 2012 Highlights
Core earnings(1)were $3.9 million for
the fourth quarter of 2012, an increase of $2.3 million or 146% from
the fourth quarter of 2011
Total assets were $1.25 billion, an increase of $449 million or
56% over December 31, 2011 with gross loans representing 68% of the
total asset mix, compared to 63% for the quarter ended September 30,
2012, and 61% for the quarter ended December 31, 2011
Total loans increased $60 million or 8% from September 30, 2012
Net interest margin increased to 3.87% from 3.57% for the prior
quarter
Non-interest bearing deposits increased to 50% of total
deposits from 48% at September 30, 2012
No charge-offs recorded in the fourth quarter of 2012
Continued status as well-capitalized, the highest regulatory
category.
(1) Core earnings defined in the table labeled “Core Earnings
and Reconciliation to Net Income” at end of press release
“Our fourth quarter results represent a significant increase in our
level of profitability as we begin to realize the synergies from our
merger with PCB,” said David Rainer, President and Chief Executive
Officer of CU Bancorp and California United Bank. “Compared to the
fourth quarter of 2011, our total revenue increased 73% while our
operating expenses only increased 50%. We believe that these benefits
reflect our increased scale, which provides the opportunity to realize
additional operating leverage as our loan portfolio expands. In
addition, we are pleased with the 30 basis point increase we saw in our
net interest margin which includes an 11 basis point increase from the
effect of the PCB loan discount accretion. The increase in our net
interest margin following the PCB transaction has been driven by a full
quarter of PCB’s loans coupled with our strong organic loan growth and
our ongoing initiative to replace PCB’s higher cost deposits with lower
cost core deposits.
“Organic loan production continued to be strong resulting in an 8%
increase in total loans during the quarter. Once again, commercial and
industrial loans represented more than 50% of our loan production. We
also had a strong quarter of commercial real estate (CRE) loan
production, as we saw increased CRE investment activity heading into the
end of the year. Much of our CRE loan production occurred late in the
quarter, which is expected to positively impact our net interest income
in the first quarter of 2013. We expect another solid year of loan
growth in 2013, although we anticipate a seasonal decrease in commercial
line of credit utilization during the first quarter.
“We believe that our 2012 results reflect the maturation of our
franchise, as our earning asset base and opportunity for generating fee
income increased substantially. Looking ahead to 2013, we expect our
financial results to benefit from our continued growth in market share,
the expansion of our SBA lending business, the continued rationalization
of PCB’s deposits, continued low credit costs, and further improvement
in our operating efficiency ratio,” said Mr. Rainer.
Fourth Quarter 2012 Summary Results
Net Income/Loss
Net income was $1.6 million for the fourth quarter of 2012, compared
with a net loss of $932 thousand for the third quarter of 2012. The
primary driver of the improvement in profitability was a reduction in
merger-related expenses and higher revenue resulting from growth in
interest-earning assets.
For the fourth quarter of 2012, the Company generated an annualized
return on average assets of 0.50%, an annualized return on average
equity of 5.14%, and an operating efficiency ratio of 72%.
Net Interest Income and Net Interest Margin
Net interest income before the provision for loan losses totaled $11.8
million for the fourth quarter of 2012, an increase of $4.7 million or
66% over the fourth quarter of 2011. The increase was primarily driven
by the increase in average loans following the merger with PCB and net
organic loan growth.
Net interest income before the provision for loan losses increased $2.0
million or 20% from the third quarter of 2012. The increase was
primarily driven by the full quarter impact of the merger with PCB, net
organic loan growth, and an increase in net interest margin.
The Bank’s net interest income was positively impacted in both the third
and fourth quarters of 2012 by the recognition of the fair value
discount earned on early payoffs of acquired loans. The Bank recorded
$193 thousand and $192 thousand in discount earned on early loan payoffs
of acquired loans in the third and fourth quarters of 2012, with a
positive impact on the net interest margin of 7 and 6 basis points,
respectively.
Net interest margin in the fourth quarter of 2012 was 3.87%, compared to
3.67% in the fourth quarter of 2011 and 3.57% in the third quarter of
2012. The increase in net interest margin from the third quarter of 2012
and the fourth quarter of 2011 is primarily attributable to a higher
percentage of loans in the mix of interest-earning assets and an
increase in loan yields.
The Company’s average yield on loans was 5.71% in the fourth quarter of
2012, compared to 5.59% in the third quarter of 2012. The increase was
primarily attributable to the full quarter impact of loan discount
accretion resulting from loans acquired in the PCB merger. As of
December 31, 2012, approximately $11.6 million of the fair value
discount on the PCB loan portfolio remained to be accreted into interest
income.
The Company’s cost of funds was 0.24% in the fourth quarter of 2012
compared to 0.24% for the third quarter of 2012. Although the Company’s
cost of funds was negatively affected by the full quarter impact of
PCB’s higher cost deposit base in the fourth quarter of 2012, the
effects were mitigated by the Company’s ongoing program to reduce the
cost and restructure the mix of PCB’s deposits, as well as an increase
in non-interest bearing demand deposits.
Non-interest Income
Non-interest income was $1.4 million in the fourth quarter of 2012, an
increase of $902 thousand or 180% from $500 thousand in the same quarter
of the prior year. The increase is primarily due to higher deposit
account service charges resulting from the larger deposit account
portfolio as a result of the merger with PCB, as well as increased
contributions from SBA servicing income, income from bank-owned life
insurance (BOLI), derivative income, transaction referral income, and
gain on sale of SBA loans.
Non-interest income in the fourth quarter of 2012 was $217 thousand or
18% more than the third quarter of 2012. The increase was primarily due
to the full quarter impact of the merger with PCB on deposit account
service charges, as well as increased income contributions from
bank-owned life insurance (BOLI), transaction referral income, and gain
on sale of SBA loans, partially offset by a decline in derivative income.
Non-interest Expense
Non-interest expense for the fourth quarter of 2012 was $9.5 million, an
increase of $3.2 million or 50% from $6.3 million for the same period of
the prior year. The increase was primarily attributable to the increased
scale of the Company following the merger with PCB.
Non-interest expense for the fourth quarter of 2012 decreased by $2.3
million or 20% from the third quarter of 2012. The decrease was
primarily attributable to a $2.3 million decrease in non-recurring
merger-related expenses.
Balance Sheet
Assets
Total assets at December 31, 2012 were $1.25 billion, an increase of
$449 million or 56% from December 31, 2011, primarily resulting from the
merger with PCB and organic growth in total deposits. Total assets
decreased $18 million or 1% from September 30, 2012, primarily resulting
from the anticipated run-off of higher-costing deposits added in the
merger with PCB.
Loans
Total loans were $855 million at December 31, 2012, an increase of $60
million or 8% from $795 million at the end of the prior quarter. This
also represents an increase of $366 million or 75% from December 31,
2011. The increase in total loans from the end of the prior quarter was
attributable to a $31 million increase in the commercial and industrial
portfolio and a $23 million increase in the commercial real estate
portfolio including multifamily.
The increase in the commercial and industrial portfolio was partially
attributable to an increase in the utilization rate of commercial lines
of credit to 50% at December 31, 2012, up from 43% at September 30, 2012.
The increase in the commercial real estate portfolio was primarily
attributable to the expansion of relationships with existing customers
who saw discrete opportunities and projects.
Deposits
Total deposits at December 31, 2012 were $1.08 billion, a decrease of
$19 million or 2% from September 30, 2012. This also represents an
increase of $387 million or 56% from December 30, 2011. The decrease in
total deposits from the end of the prior quarter primarily reflects the
expected run-off of higher-cost deposits added in the merger with PCB.
Non-interest bearing deposits at December 31, 2012 were $544 million, an
increase of $18 million or 3% from September 30, 2012. Non-interest
bearing deposits represented 50% of total deposits at December 31, 2012,
up from 48% at the end of the prior quarter. Cost of deposits for the
quarter was 0.17% down from 0.18% for the prior quarter.
Asset Quality
Total non-performing assets were $13.6 million, or 1.09% of total assets
at December 31, 2012, compared with $13.5 million, or 1.07% of total
assets at September 30, 2012. The increase in non-performing assets is
attributable to the downgrading of loans acquired in the merger with
PCB, partially offset by a decrease in non-accrual loans originated by
the Company. Approximately $8.2 million of the total non-performing
assets at December 31, 2012 were acquired loans that were
marked-to-market at the time of acquisition.
Of the total non-performing assets at December 31, 2012, the other real
estate owned category consisted of one commercially zoned vacant lot
located in Los Angeles County, which is being carried on the books at
$3.1 million, the estimated fair value less costs of disposition. The
Bank has entered into a long-term escrow for the sale of this property,
which is expected to generate net sale proceeds that approximate the net
carrying value of the property. A deposit from the buyer has been
credited to the Bank in escrow. The sale of the property is expected to
be completed in the second half of 2013.
Total nonaccrual loans were $10.5 million, or 1.23% of total loans, at
December 31, 2012, compared with $10.4 million, or 1.31% of total loans,
at September 30, 2012. Excluding acquired loans, total nonaccrual loans
were $2.3 million, or 0.27% of total loans, at December 31, 2012, down
from $3.2 million, or 0.40% of total loans, at September 30, 2012.
During the fourth quarter of 2012, the Company did not record any
charge-offs, compared with net charge-offs of $44 thousand during the
third quarter of 2012. For the full year 2012, net charge-offs amounted
to 0.08% of average loans.
The Bank recorded a loan loss provision of $867 thousand for the fourth
quarter of 2012. The provision was primarily attributable to the organic
growth in the loan portfolio during the quarter.
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 1.54% at December 31, 2012, compared with 1.61% at
September 30, 2012. The decrease in the allowance for loan losses as a
percentage of loans reflects general improvement in the economy and the
low level of losses.
Capital
CU Bancorp remained well capitalized at December 31, 2012. All of the
Bank’s capital ratios are above minimum regulatory standards for “well
capitalized” institutions.
December 31, 2012
Minimum Capital to Be
Considered
“Well-Capitalized”
CU Bancorp
Total Risk-Based Capital Ratio
10%
12.35%
Tier 1 Risk-Based Capital Ratio
6%
11.46%
Tier 1 Leverage Capital Ratio
5%
9.13%
At December 31, 2012, tangible common equity was $111.6 million with
common shares issued and outstanding of 10,759,000 as of the same date,
resulting in tangible equity book value per common share of $10.37. This
compares to tangible common equity of $109.4 million with a tangible
equity book value per common share of $10.17 at September 30, 2012. The
increase in tangible equity book value per common share from the prior
quarter primarily reflects the net income generated during the fourth
quarter of 2012.
Non-GAAP Financial Disclosures
This press release contains certain non-GAAP financial disclosures. The
Company uses certain non-GAAP financial measures to provide meaningful
supplemental information regarding the Company’s operational performance
and to enhance investors’ overall understanding of such financial
performance. Given the use of tangible common equity amounts and ratios
is prevalent among banking regulators, investors and analysts, we
disclose our tangible common equity ratio in addition to
equity-to-assets ratio. Please refer to the tables at the end of this
release for a presentation of performance ratios in accordance with GAAP
and a reconciliation of the non-GAAP financial measures to the GAAP
financial measures.
About CU Bancorp and California United Bank
Founded in 2005, CU Bancorp is the parent of California United Bank.
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
high net worth individuals 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. To view CU
Bancorp’s most recent financial information, please visit the Investor
Relations section of the Company’s Web site. Information on products and
services may be obtained by calling 818-257-7700 or visiting the Bank’s
Web site at www.cunb.com.
FORWARD-LOOKING STATEMENTS
This news release (including the exhibits hereto) contains
forward-looking statements about CU Bancorp (the “Company”) and its
subsidiary California United Bank, for which the Company claims the
protection of the safe harbor provisions contained in the Private
Securities Litigation Reform Act of 1995, including forward-looking
statements relating to the Company’s current business plan and
expectations regarding future operating results. Forward-looking
statements are based on management's knowledge and belief as of today
and include information concerning the Company’s possible or assumed
future financial condition, and its results of operations, business and
earnings outlook. These forward-looking statements are subject to risks
and uncertainties. A number of factors, some of which are beyond the
Company's ability to control or predict, could cause future results to
differ materially from those contemplated by such forward-looking
statements. These factors include (1) difficult and adverse conditions
in the global and domestic capital and credit markets and the state of
California, (2) delays and difficulties in integrating or other
consequences associated with mergers and acquisitions, (3) significant
costs or changes in business practices required by new banking laws or
regulations such those related to Basel III, (4) continued weakness in
general business and economic conditions, which may affect, among other
things, the level of growth, income, non-performing assets, charge-offs
and provision expense, (5) changes in market rates and prices which may
adversely impact the value of financial products, (6) changes in the
interest rate environment and market liquidity which may reduce interest
margins and impact funding sources, (7) increased competition in the
Company's markets, (8) changes in the financial performance and/or
condition of the Company's borrowers, (9) increases in Federal Deposit
Insurance Corporation premiums due to market developments and regulatory
changes, (10) earthquake, fire, pandemic or other natural disasters,
(11) changes in accounting policies or procedures as may be required by
the Financial Accounting Standards Board or regulatory agencies, (12)
international instability, downgrading or defaults on sovereign debt,
including that of the United States of America or increased oil prices,
(13) additional downgrades of securities issued by U.S. government
sponsored or supported entities such as Fannie Mae and Freddie Mac, (14)
the impact of the Dodd-Frank Act, (15) the impact of the expiration of
the Temporary Account Guarantee Program on December 31, 2012 on the
Company’s deposit balances and deposit mix, (16) the effect of U.S.
federal government debt, budget and tax matters, and (17) the success of
the Company at managing the risks involved in the foregoing.
Forward-looking statements speak only as of the date they are made, and
the Company does not undertake to update forward-looking statements to
reflect circumstances or events that occur after the date the statements
are made, or to update earnings guidance, including the factors that
influence earnings.
For a more complete discussion of these risks and uncertainties, see CU
Bancorp's Quarterly Report on Form 10-Q for the quarter ended September
30, 2012, and California United Bank’s Annual Report on Form 10-K for
the year ended December 31, 2011, particularly Part I, Item 1A, titled
"Risk Factors.”
CU BANCORP
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
September 30,
December 31,
2012
2012
2011
Unaudited
Unaudited
Audited
ASSETS
Cash and due from banks
$
25,181
$
24,091
$
13,515
Interest earning deposits in other financial institutions
157,715
240,801
120,715
Total Cash and Cash Equivalents
182,896
264,892
134,230
Certificates of deposit in other financial institutions
27,006
25,343
35,144
Investment securities available-for-sale, at fair value
118,153
120,628
114,091
Loans
854,885
794,512
489,260
Allowance for loan loss
(8,803
)
(7,806
)
(7,495
)
Net loans
846,082
786,706
481,765
Premises and equipment, net
3,422
3,683
3,350
Deferred tax assets
13,818
13,982
6,234
Other real estate owned, net
3,112
3,112
3,344
Goodwill
12,292
12,292
6,155
Core deposit intangibles
1,747
1,830
961
Bank owned life insurance
20,583
14,414
2,650
Accrued interest receivable and other assets
20,526
20,939
12,280
Total Assets
$
1,249,637
$
1,267,821
$
800,204
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Non-interest bearing demand deposits
$
543,527
$
525,879
$
381,492
Interest bearing transaction accounts
112,747
105,585
64,057
Money market and savings deposits
340,466
379,364
194,369
Certificates of deposit
81,336
85,988
50,838
Total deposits
1,078,076
1,096,816
690,756
Securities sold under agreements to repurchase
22,857
23,578
26,187
Subordinated debentures
9,169
9,113
—
Accrued interest payable and other liabilities
13,912
14,763
2,417
Total Liabilities
1,124,014
1,144,270
719,360
SHAREHOLDERS’ EQUITY
Common stock
118,885
118,852
77,225
Additional paid-in capital
7,052
6,694
6,164
Accumulated deficit
(1,708
)
(3,336
)
(3,435
)
Accumulated other comprehensive income
1,394
1,341
890
Total Shareholders’ Equity
125,623
123,551
80,844
Total Liabilities and Shareholders’ Equity
$
1,249,637
$
1,267,821
$
800,204
CU BANCORP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
For the three months ended
December 31,
2012
September 30,
2012
December 31,
2011
Unaudited
Unaudited
Unaudited
Interest Income
Interest and fees on loans
$
11,650
$
9,571
$
6,518
Interest on investment securities
594
620
657
Interest on interest bearing deposits in other financial institutions
213
209
167
Total Interest Income
12,457
10,400
7,342
Interest Expense
Interest on interest bearing transaction accounts
61
45
33
Interest on money market and savings deposits
322
338
140
Interest on certificates of deposit
97
83
57
Interest on securities sold under agreements to repurchase
20
24
24
Interest on subordinated debentures
196
136
—
Total Interest Expense
696
626
254
Net Interest Income
11,761
9,774
7,088
Provision for loan losses
867
521
781
Net Interest Income After Provision For Loan Losses
10,894
9,253
6,307
Non-Interest Income
Gain on sale of securities, net
—
—
—
Total other-than-temporary impairment losses, net
(65
)
(30
)
(130
)
Deposit account service charge income
633
554
454
Other non-interest income
834
661
176
Total Non-Interest Income
1,402
1,185
500
Non-Interest Expense
Salaries and employee benefits
5,053
5,479
3,337
Stock compensation expense
362
272
352
Occupancy
1,039
974
769
Data processing
544
489
340
Legal and professional
475
490
244
FDIC deposit assessment
189
232
148
Merger related expense
203
2,517
198
OREO valuation write-downs and expenses
23
22
19
Office services expenses
291
361
285
Other operating expenses
1,323
987
628
Total Non-Interest Expense
9,502
11,823
6,320
Net Income (Loss) Before Provision for Income Tax Expense
(Benefit)
2,794
(1,385
)
487
Provision for income tax expense (benefit)
1,166
(453
)
181
Net Income (Loss)
$
1,628
$
(932
)
$
306
Earnings (Loss) Per Share
Basic earnings (loss) per share
$
0.16
$
(0.10
)
$
0.05
Diluted earnings (loss) per share
$
0.15
$
(0.10
)
$
0.05
Average shares outstanding
10,468,000
9,223,000
6,696,000
Diluted average shares outstanding
10,695,000
9,223,000
6,817,000
CU BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
For the Year Ended
December 31,
2012
2011
Unaudited
Audited
Interest Income
Interest and fees on loans
$
34,268
$
25,135
Interest on investment securities
2,421
2,968
Interest on interest bearing deposits in other financial institutions
807
653
Total Interest Income
37,496
28,756
Interest Expense
Interest on interest bearing transaction accounts
184
160
Interest on money market and savings deposits
927
791
Interest on certificates of deposit
264
261
Interest on securities sold under agreements to repurchase
90
99
Interest on subordinated debentures
332
—
Interest on Federal Home Loan Bank borrowings – long term
—
5
Total Interest Expense
1,797
1,316
Net Interest Income
35,699
27,440
Provision for loan losses
1,768
1,442
Net Interest Income After Provision For Loan Losses
33,931
25,998
Non-Interest Income
Gain on sale of securities, net
—
219
Total other-than-temporary impairment losses, net
(155
)
(264
)
Deposit account service charge income
2,130
1,617
Other non-interest income
1,986
790
Total Non-Interest Income
3,961
2,362
Non-Interest Expense
Salaries and employee benefits
17,609
13,885
Stock compensation expense
1,120
1,467
Occupancy
3,564
3,103
Data processing
1,905
1,207
Legal and professional
1,350
971
FDIC deposit assessment
719
764
Merger related expense
3,058
420
OREO valuation write-downs and expenses
343
216
Office services expenses
1,127
1,005
Other operating expenses
3,705
2,708
Total Non-Interest Expense
34,500
25,746
Net Income Before Provision for Income Tax
3,392
2,614
Provision for income tax expense
1,665
1,147
Net Income
$
1,727
$
1,467
Earnings Per Share
Basic earnings per share
$
0.21
$
0.23
Diluted earnings per share
$
0.21
$
0.22
Average shares outstanding
8,284,000
6,460,000
Diluted average shares outstanding
8,411,000
6,636,000
CU BANCORP
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEETS
(Dollars in thousands)
For the three months ended
December 31, 2012
September 30, 2012
December 31, 2011
Average
Balance
Average
Yield/Rate
Average
Balance
Average
Yield/Rate
Average
Balance
Average
Yield/Rate
Unaudited
Unaudited
Unaudited
Interest-Earning Assets:
Deposits in other financial institutions
$
280,455
0.30
%
$
290,594
0.28
%
$
193,014
0.34
%
Investment securities
116,010
2.05
%
118,015
2.10
%
105,232
2.50
%
Loans
811,486
5.71
%
680,545
5.59
%
467,007
5.54
%
Total interest-earning assets
1,207,951
4.10
%
1,089,154
3.80
%
765,253
3.81
%
Non-interest-earning assets
93,786
70,441
47,028
Total Assets
$
1,301,737
$
1,159,595
$
812,281
Interest-Bearing Liabilities:
Interest bearing transaction accounts
$
113,196
0.21
%
$
92,324
0.19
%
$
59,318
0.22
%
Money market and savings deposits
363,915
0.35
%
334,186
0.40
%
209,913
0.26
%
Certificates of deposit
82,768
0.47
%
77,943
0.42
%
52,527
0.43
%
Total Interest Bearing Deposits
559,879
0.34
%
504,453
0.37
%
321,758
0.28
%
Securities sold under agreements to repurchase
26,783
0.30
%
25,151
0.38
%
29,502
0.32
%
Subordinated debentures
9,135
8.58
%
6,080
8.90
%
—
—
%
Total interest bearing liabilities
595,797
0.47
%
535,684
0.46
%
351,260
0.29
%
Non-interest bearing demand deposits
566,398
504,315
378,259
Total funding sources
1,162,195
1,039,999
729,519
Non-interest bearing liabilities
13,544
9,602
2,109
Shareholders’ Equity
125,998
109,994
80,653
Total Liabilities and Shareholders' Equity
$
1,301,737
$
1,159,595
$
812,281
Net interest margin
3.87
%
3.57
%
3.67
%
CU BANCORP
LOAN COMPOSITION
(Dollars in thousands)
December 31,
2012
September 30,
2012
Unaudited
Commercial and Industrial Loans:
$
262,637
$
231,535
Loans Secured by Real Estate:
Owner-Occupied Nonresidential Properties
181,844
176,944
Other Nonresidential Properties
246,450
236,257
Construction, Land Development and Other Land
48,528
45,313
1-4 Family Residential Properties
62,037
62,187
Multifamily Residential Properties
31,610
23,365
Total Loans Secured by Real Estate
570,469
544,066
Other Loans:
21,779
18,911
Total Loans
$
854,885
$
794,512
COMMERCIAL AND INDUSTRIAL LINE OF CREDIT UTILIZATION
(Dollars in thousands)
December 31,
2012
September 30,
2012
Unaudited
Disbursed
$
183,843
50
%
$
154,875
43
%
Undisbursed
185,392
50
%
203,317
57
%
Total Commitment
$
369,235
100
%
$
358,192
100
%
CU BANCORP
SUPPLEMENTAL DATA
(Dollars in thousands)
December 31,
September 30,
December 31,
2012
2012
2011
Unaudited
Unaudited
Unaudited
Capital Ratios Table:
Tier 1 leverage ratio
9.13
%
10.01
%
8.97
%
Tier 1 risk-based capital ratio
11.46
%
11.43
%
11.87
%
Total risk-based capital ratio
12.35
%
12.24
%
13.12
%
Asset Quality Table:
Loans originated by the Bank on non-accrual
$
2,344
$
3,215
$
3,086
Loans acquired thru acquisition that are on non-accrual
8,186
7,181
3,064
Total loans on non-accrual (including non-accrual loans held for
sale)
10,530
10,396
6,150
Other Real Estate Owned
3,112
3,112
3,344
Total non-accrual loans (including non-accrual loans held for sale),
and Other Real Estate Owned
$
13,642
$
13,508
$
9,494
Net charge-offs/(recoveries) year to date
$
460
$
590
$
(193
)
Loans on non-accrual as a % of total loans, including loans held for
sale
1.23
%
1.31
%
1.26
%
Total non-accrual loans (including loans held for sale) and Other
Real Estate Owned as a % of total assets
1.09
%
1.07
%
1.19
%
Allowance for loan losses as a % of total loans, excluding loans
held for sale
1.03
%
0.98
%
1.53
%
Allowance for loan losses as a % of total loans (excluding loans
acquired thru acquisition and related allowance)
1.54
%
1.61
%
1.75
%
Net year to date charge-offs/(recoveries) as a % of average year to
date loans
0.08
%
0.11
%
(0.04
)%
Allowance for loan losses as a % of non-accrual loans (excluding
non-accrual loans acquired thru acquisition and related allowance)
375.6
%
242.8
%
242.9
%
Allowance for loan losses as a % of total non-accrual loans
(including non-accrual loans held for sale)
83.6
%
75.1
%
121.9
%
CU BANCORP
GAAP RECONCILIATIONS
(Dollars in thousands except per share data)
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 bank’s financial condition and
capital strength. TCE represents common shareholders’ equity less
goodwill and certain intangible assets. Other companies may
calculate TCE in a manner different from CU Bancorp. A
reconciliation of CU Bancorp’s total shareholders’ equity to TCE
is provided in the table below for the periods indicated:
December 31,
September 30,
December 31,
2012
2012
2011
Unaudited
Unaudited
Audited
Tangible Common Equity Calculation
Total shareholders’ equity
$
125,623
$
123,551
$
80,844
Less: Goodwill and intangible assets
14,039
14,122
7,116
Tangible shareholders’ equity
$
111,584
$
109,429
$
73,728
Common shares issued and outstanding
10,759,000
10,761,000
6,950,000
Tangible book value per common share
$
10.37
$
10.17
$
10.61
Core Earnings and Reconciliation to Net Income
The Company utilizes the term Core Earnings, a non-GAAP financial
measure. CU Bancorp’s management believes Core Earnings is useful
because it is a measure utilized by market analysts in evaluating
the Company’s ability to generate profit despite non-recurring
items such as merger expenses and provision for loan losses with
the ebbs and flows of commercial lending. Other companies may
calculate Core Earnings in a manner different from CU Bancorp. A
reconciliation of CU Bancorp’s Net Income to Core Earnings is
presented in the table below for the periods indicated:
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2012
2011
2012
2011
Unaudited
Unaudited
Unaudited
Audited
Net Income
$
1,628
$
306
$
1,727
$
1,467
Add back: Provision for income tax expense
1,166
181
1,665
1,147
Add back: Provision for loan losses
867
781
1,768
1,442
Subtract: Gain on sale of securities, net
—
—
—
219
Subtract: Other-than-temporary impairment losses, net
(65
)
(130
)
(155
)
(264
)
Add back: Merger-related expenses
203
198
3,058
420
Core Earnings
$
3,929
$
1,596
$
8,373
$
4,521
Investor Relations Contacts: California United Bank David
Rainer, Chairman, President and CEO, 818-257-7776 Karen Schoenbaum,
Chief Financial Officer, 818-257-7700
Press Release $CUNB CU Bancorp
ENCINO, Calif.--(BUSINESS WIRE)-- CU Bancorp (NASDAQ: CUNB), the parent company of wholly owned California United Bank, today reported net income of $1.6 million, or $0.15 per fully diluted share, for the fourth quarter of 2012, up 433% from net income of $306 thousand, or $0.05 per fully diluted share, for the fourth quarter of 2011.
For the full year 2012, the Company reported net income of $1.7 million, or $0.21 per fully diluted share, up 13% from net income of $1.5 million, or $0.22 per fully diluted share, for the full year 2011. Core earnings(1) were $8.4 million for the full year 2012, which compares to $4.5 million for the full year 2011.
The comparability of financial information is affected by the acquisition of Premier Commercial Bancorp and its subsidiary Premier Commercial Bank, N.A. (collectively “PCB”). Operating results include the operations of these acquired entities from July 31, 2012, the date of acquisition.
Fourth Quarter 2012 Highlights
(1) Core earnings defined in the table labeled “Core Earnings and Reconciliation to Net Income” at end of press release
“Our fourth quarter results represent a significant increase in our level of profitability as we begin to realize the synergies from our merger with PCB,” said David Rainer, President and Chief Executive Officer of CU Bancorp and California United Bank. “Compared to the fourth quarter of 2011, our total revenue increased 73% while our operating expenses only increased 50%. We believe that these benefits reflect our increased scale, which provides the opportunity to realize additional operating leverage as our loan portfolio expands. In addition, we are pleased with the 30 basis point increase we saw in our net interest margin which includes an 11 basis point increase from the effect of the PCB loan discount accretion. The increase in our net interest margin following the PCB transaction has been driven by a full quarter of PCB’s loans coupled with our strong organic loan growth and our ongoing initiative to replace PCB’s higher cost deposits with lower cost core deposits.
“Organic loan production continued to be strong resulting in an 8% increase in total loans during the quarter. Once again, commercial and industrial loans represented more than 50% of our loan production. We also had a strong quarter of commercial real estate (CRE) loan production, as we saw increased CRE investment activity heading into the end of the year. Much of our CRE loan production occurred late in the quarter, which is expected to positively impact our net interest income in the first quarter of 2013. We expect another solid year of loan growth in 2013, although we anticipate a seasonal decrease in commercial line of credit utilization during the first quarter.
“We believe that our 2012 results reflect the maturation of our franchise, as our earning asset base and opportunity for generating fee income increased substantially. Looking ahead to 2013, we expect our financial results to benefit from our continued growth in market share, the expansion of our SBA lending business, the continued rationalization of PCB’s deposits, continued low credit costs, and further improvement in our operating efficiency ratio,” said Mr. Rainer.
Fourth Quarter 2012 Summary Results
Net Income/Loss
Net income was $1.6 million for the fourth quarter of 2012, compared with a net loss of $932 thousand for the third quarter of 2012. The primary driver of the improvement in profitability was a reduction in merger-related expenses and higher revenue resulting from growth in interest-earning assets.
For the fourth quarter of 2012, the Company generated an annualized return on average assets of 0.50%, an annualized return on average equity of 5.14%, and an operating efficiency ratio of 72%.
Net Interest Income and Net Interest Margin
Net interest income before the provision for loan losses totaled $11.8 million for the fourth quarter of 2012, an increase of $4.7 million or 66% over the fourth quarter of 2011. The increase was primarily driven by the increase in average loans following the merger with PCB and net organic loan growth.
Net interest income before the provision for loan losses increased $2.0 million or 20% from the third quarter of 2012. The increase was primarily driven by the full quarter impact of the merger with PCB, net organic loan growth, and an increase in net interest margin.
The Bank’s net interest income was positively impacted in both the third and fourth quarters of 2012 by the recognition of the fair value discount earned on early payoffs of acquired loans. The Bank recorded $193 thousand and $192 thousand in discount earned on early loan payoffs of acquired loans in the third and fourth quarters of 2012, with a positive impact on the net interest margin of 7 and 6 basis points, respectively.
Net interest margin in the fourth quarter of 2012 was 3.87%, compared to 3.67% in the fourth quarter of 2011 and 3.57% in the third quarter of 2012. The increase in net interest margin from the third quarter of 2012 and the fourth quarter of 2011 is primarily attributable to a higher percentage of loans in the mix of interest-earning assets and an increase in loan yields.
The Company’s average yield on loans was 5.71% in the fourth quarter of 2012, compared to 5.59% in the third quarter of 2012. The increase was primarily attributable to the full quarter impact of loan discount accretion resulting from loans acquired in the PCB merger. As of December 31, 2012, approximately $11.6 million of the fair value discount on the PCB loan portfolio remained to be accreted into interest income.
The Company’s cost of funds was 0.24% in the fourth quarter of 2012 compared to 0.24% for the third quarter of 2012. Although the Company’s cost of funds was negatively affected by the full quarter impact of PCB’s higher cost deposit base in the fourth quarter of 2012, the effects were mitigated by the Company’s ongoing program to reduce the cost and restructure the mix of PCB’s deposits, as well as an increase in non-interest bearing demand deposits.
Non-interest Income
Non-interest income was $1.4 million in the fourth quarter of 2012, an increase of $902 thousand or 180% from $500 thousand in the same quarter of the prior year. The increase is primarily due to higher deposit account service charges resulting from the larger deposit account portfolio as a result of the merger with PCB, as well as increased contributions from SBA servicing income, income from bank-owned life insurance (BOLI), derivative income, transaction referral income, and gain on sale of SBA loans.
Non-interest income in the fourth quarter of 2012 was $217 thousand or 18% more than the third quarter of 2012. The increase was primarily due to the full quarter impact of the merger with PCB on deposit account service charges, as well as increased income contributions from bank-owned life insurance (BOLI), transaction referral income, and gain on sale of SBA loans, partially offset by a decline in derivative income.
Non-interest Expense
Non-interest expense for the fourth quarter of 2012 was $9.5 million, an increase of $3.2 million or 50% from $6.3 million for the same period of the prior year. The increase was primarily attributable to the increased scale of the Company following the merger with PCB.
Non-interest expense for the fourth quarter of 2012 decreased by $2.3 million or 20% from the third quarter of 2012. The decrease was primarily attributable to a $2.3 million decrease in non-recurring merger-related expenses.
Balance Sheet
Assets
Total assets at December 31, 2012 were $1.25 billion, an increase of $449 million or 56% from December 31, 2011, primarily resulting from the merger with PCB and organic growth in total deposits. Total assets decreased $18 million or 1% from September 30, 2012, primarily resulting from the anticipated run-off of higher-costing deposits added in the merger with PCB.
Loans
Total loans were $855 million at December 31, 2012, an increase of $60 million or 8% from $795 million at the end of the prior quarter. This also represents an increase of $366 million or 75% from December 31, 2011. The increase in total loans from the end of the prior quarter was attributable to a $31 million increase in the commercial and industrial portfolio and a $23 million increase in the commercial real estate portfolio including multifamily.
The increase in the commercial and industrial portfolio was partially attributable to an increase in the utilization rate of commercial lines of credit to 50% at December 31, 2012, up from 43% at September 30, 2012.
The increase in the commercial real estate portfolio was primarily attributable to the expansion of relationships with existing customers who saw discrete opportunities and projects.
Deposits
Total deposits at December 31, 2012 were $1.08 billion, a decrease of $19 million or 2% from September 30, 2012. This also represents an increase of $387 million or 56% from December 30, 2011. The decrease in total deposits from the end of the prior quarter primarily reflects the expected run-off of higher-cost deposits added in the merger with PCB.
Non-interest bearing deposits at December 31, 2012 were $544 million, an increase of $18 million or 3% from September 30, 2012. Non-interest bearing deposits represented 50% of total deposits at December 31, 2012, up from 48% at the end of the prior quarter. Cost of deposits for the quarter was 0.17% down from 0.18% for the prior quarter.
Asset Quality
Total non-performing assets were $13.6 million, or 1.09% of total assets at December 31, 2012, compared with $13.5 million, or 1.07% of total assets at September 30, 2012. The increase in non-performing assets is attributable to the downgrading of loans acquired in the merger with PCB, partially offset by a decrease in non-accrual loans originated by the Company. Approximately $8.2 million of the total non-performing assets at December 31, 2012 were acquired loans that were marked-to-market at the time of acquisition.
Of the total non-performing assets at December 31, 2012, the other real estate owned category consisted of one commercially zoned vacant lot located in Los Angeles County, which is being carried on the books at $3.1 million, the estimated fair value less costs of disposition. The Bank has entered into a long-term escrow for the sale of this property, which is expected to generate net sale proceeds that approximate the net carrying value of the property. A deposit from the buyer has been credited to the Bank in escrow. The sale of the property is expected to be completed in the second half of 2013.
Total nonaccrual loans were $10.5 million, or 1.23% of total loans, at December 31, 2012, compared with $10.4 million, or 1.31% of total loans, at September 30, 2012. Excluding acquired loans, total nonaccrual loans were $2.3 million, or 0.27% of total loans, at December 31, 2012, down from $3.2 million, or 0.40% of total loans, at September 30, 2012.
During the fourth quarter of 2012, the Company did not record any charge-offs, compared with net charge-offs of $44 thousand during the third quarter of 2012. For the full year 2012, net charge-offs amounted to 0.08% of average loans.
The Bank recorded a loan loss provision of $867 thousand for the fourth quarter of 2012. The provision was primarily attributable to the organic growth in the loan portfolio during the quarter.
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 1.54% at December 31, 2012, compared with 1.61% at September 30, 2012. The decrease in the allowance for loan losses as a percentage of loans reflects general improvement in the economy and the low level of losses.
Capital
CU Bancorp remained well capitalized at December 31, 2012. All of the Bank’s capital ratios are above minimum regulatory standards for “well capitalized” institutions.
Minimum Capital to Be
Considered
“Well-Capitalized”
CU Bancorp
At December 31, 2012, tangible common equity was $111.6 million with common shares issued and outstanding of 10,759,000 as of the same date, resulting in tangible equity book value per common share of $10.37. This compares to tangible common equity of $109.4 million with a tangible equity book value per common share of $10.17 at September 30, 2012. The increase in tangible equity book value per common share from the prior quarter primarily reflects the net income generated during the fourth quarter of 2012.
Non-GAAP Financial Disclosures
This press release contains certain non-GAAP financial disclosures. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. Given the use of tangible common equity amounts and ratios is prevalent among banking regulators, investors and analysts, we disclose our tangible common equity ratio in addition to equity-to-assets ratio. Please refer to the tables at the end of this release for a presentation of performance ratios in accordance with GAAP and a reconciliation of the non-GAAP financial measures to the GAAP financial measures.
About CU Bancorp and California United Bank
Founded in 2005, CU Bancorp is the parent of California United Bank. 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 high net worth individuals 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. To view CU Bancorp’s most recent financial information, please visit the Investor Relations section of the Company’s Web site. Information on products and services may be obtained by calling 818-257-7700 or visiting the Bank’s Web site at www.cunb.com.
FORWARD-LOOKING STATEMENTS
This news release (including the exhibits hereto) contains forward-looking statements about CU Bancorp (the “Company”) and its subsidiary California United Bank, for which the Company claims the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company’s current business plan and expectations regarding future operating results. Forward-looking statements are based on management's knowledge and belief as of today and include information concerning the Company’s possible or assumed future financial condition, and its results of operations, business and earnings outlook. These forward-looking statements are subject to risks and uncertainties. A number of factors, some of which are beyond the Company's ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. These factors include (1) difficult and adverse conditions in the global and domestic capital and credit markets and the state of California, (2) delays and difficulties in integrating or other consequences associated with mergers and acquisitions, (3) significant costs or changes in business practices required by new banking laws or regulations such those related to Basel III, (4) continued weakness in general business and economic conditions, which may affect, among other things, the level of growth, income, non-performing assets, charge-offs and provision expense, (5) changes in market rates and prices which may adversely impact the value of financial products, (6) changes in the interest rate environment and market liquidity which may reduce interest margins and impact funding sources, (7) increased competition in the Company's markets, (8) changes in the financial performance and/or condition of the Company's borrowers, (9) increases in Federal Deposit Insurance Corporation premiums due to market developments and regulatory changes, (10) earthquake, fire, pandemic or other natural disasters, (11) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies, (12) international instability, downgrading or defaults on sovereign debt, including that of the United States of America or increased oil prices, (13) additional downgrades of securities issued by U.S. government sponsored or supported entities such as Fannie Mae and Freddie Mac, (14) the impact of the Dodd-Frank Act, (15) the impact of the expiration of the Temporary Account Guarantee Program on December 31, 2012 on the Company’s deposit balances and deposit mix, (16) the effect of U.S. federal government debt, budget and tax matters, and (17) the success of the Company at managing the risks involved in the foregoing.
Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the statements are made, or to update earnings guidance, including the factors that influence earnings.
For a more complete discussion of these risks and uncertainties, see CU Bancorp's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, and California United Bank’s Annual Report on Form 10-K for the year ended December 31, 2011, particularly Part I, Item 1A, titled "Risk Factors.”
December 31,
2012
September 30,
2012
December 31,
2011
(0.10
)
(0.10
)
For the Year Ended
December 31,
Net Income Before Provision for Income Tax
Average
Balance
Average
Yield/Rate
Average
Balance
Average
Yield/Rate
Average
Balance
Average
Yield/Rate
December 31,
2012
September 30,
2012
December 31,
2012
September 30,
2012
GAAP RECONCILIATIONS
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 bank’s financial condition and capital strength. TCE represents common shareholders’ equity less goodwill and certain intangible assets. Other companies may calculate TCE in a manner different from CU Bancorp. A reconciliation of CU Bancorp’s total shareholders’ equity to TCE is provided in the table below for the periods indicated:
The Company utilizes the term Core Earnings, a non-GAAP financial measure. CU Bancorp’s management believes Core Earnings is useful because it is a measure utilized by market analysts in evaluating the Company’s ability to generate profit despite non-recurring items such as merger expenses and provision for loan losses with the ebbs and flows of commercial lending. Other companies may calculate Core Earnings in a manner different from CU Bancorp. A reconciliation of CU Bancorp’s Net Income to Core Earnings is presented in the table below for the periods indicated:
Three Months Ended
December 31,
Twelve Months Ended
December 31,
Add back: Merger-related expenses
Core Earnings
Investor Relations Contacts:
California United Bank
David Rainer, Chairman, President and CEO, 818-257-7776
Karen Schoenbaum, Chief Financial Officer, 818-257-7700
Source: CU Bancorp