CU Bancorp Announces Financial Results for Fourth Quarter and Full Year 2012
CU Bancorp Announces Financial Results for Fourth Quarter and Full Year 2012
ENCINO, Calif.--(BUSINESS WIRE)-- CU Bancorp (NAS: 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 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 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 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.
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.
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.
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.
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.
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
|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.
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."
|CONSOLIDATED BALANCE SHEETS|
|(Dollars in thousands)|
|December 31,||September 30,||December 31,|
|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|
|Allowance for loan loss||(8,803||)||(7,806||)||(7,495||)|
|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|
|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|
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|Non-interest bearing demand deposits||$||543,527||$||525,879||$||381,492|
|Interest bearing transaction accounts||112,747||105,585||64,057|
|Money market and savings deposits||340,466||379,364||194,369|
|Certificates of deposit||81,336||85,988||50,838|
|Securities sold under agreements to repurchase||22,857||23,578||26,187|
|Accrued interest payable and other liabilities||13,912||14,763||2,417|
|Additional paid-in capital||7,052||6,694||6,164|
|Accumulated other comprehensive income||1,394||1,341||890|
|Total Shareholders' Equity||125,623||123,551||80,844|
|Total Liabilities and Shareholders' Equity||$||1,249,637||$||1,267,821||$||800,204|
|CONSOLIDATED STATEMENTS OF OPERATIONS|
|(Dollars in thousands, except per share data)|
|For the three months ended|
|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 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|