CU Bancorp Reports Record Quarterly Earnings of $0.22 Per Share for Second Quarter of 2013
ENCINO, Calif.--(BUSINESS WIRE)-- CU Bancorp (NAS: CUNB) , the parent company of wholly owned California United Bank, today reported net income of $2.3 million, or $0.22 per fully diluted share, for the second quarter of 2013, an increase of 342% from net income of $525 thousand, or $0.08 per fully diluted share, for the second quarter of 2012.
The comparability of current financial information to prior years is affected by the acquisition of Premier Commercial Bancorp and its subsidiary Premier Commercial Bank, N.A. (collectively "PCB") by CU Bancorp (the "Company"). Operating results include the operations of these acquired entities from July 31, 2012, the date of acquisition.
Second Quarter 2013 Highlights
Net income increased to $2.3 million, or $0.22 per fully diluted share, from $525 thousand, or $0.08 per fully diluted share, for second quarter of 2012
Net interest margin increased to 4.25% from 4.00% for the prior quarter ended March 31, 2013
Total loans increased $24 million or 2.8% from March 31, 2013
Total deposits increased $7 million or 0.7% from March 31, 2013
Non-interest bearing demand deposits increased $14 million or 2.4% from March 31, 2013
Non-performing assets were unchanged at $13.6 million
Tangible book value per share increased $0.18 over March 31, 2013 to $10.78
Continued status as well-capitalized, the highest regulatory category
"We are very pleased with the trends we are seeing, which led to another record level of quarterly net income for the Company," commented David Rainer, President and Chief Executive Officer of CU Bancorp and California United Bank. "We had a solid quarter of business development and added new high quality relationships, which are reflected in the 9% increase we had in our commercial and industrial portfolio during the quarter. Additionally we are generating quality loan production from each of our regional offices maintaining our diversified loan portfolio, in terms of both geography and industries. We are also seeing solid growth in core deposits, which enabled us to continue running off some of the higher cost time deposits that we added in the PCB acquisition.
"During the second quarter, we had a higher level of credit costs than our recent historical experience. This was attributable to one commercial and industrial borrower that has experienced a downturn in its business.
"We are very pleased with the operating leverage and higher level of profitability we are generating after the PCB acquisition. We continue to generate loan growth while keeping our expense levels stable. As a result, we are realizing the synergies we projected for this merger, and in less than one year of combined operations, we have earned back nearly all of the tangible book value dilution that occurred from the transaction," said Mr. Rainer.
Second Quarter 2013 Summary Results
Net Income and Profitability Ratios
Net income was $2.3 million, or $0.22 per fully diluted share, for second quarter of 2013, compared with net income of $2.2 million, or $0.20 per fully diluted share, for the first quarter of 2013. The primary driver of the improvement in profitability was a higher level of revenue, partially offset by a higher provision for loan losses.
The following table shows certain of the Company's performance ratios for the second quarter of 2013, the first quarter of 2013 and the second quarter of 2012:
Return on average assets
Return on average equity
Operating efficiency ratio
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 2013, an increase of $5.7 million or 82% over the second quarter of 2012. The increase was primarily driven by the increase in average loans following the merger with PCB, net organic loan growth, and a higher net interest margin.
Net interest income before the provision for loan losses increased $1.0 million or 9.0% from the first quarter of 2013. The increase was primarily due to interest income associated with early payoffs of acquired loans resulting in a higher net interest margin.
The Company's net interest income was positively impacted in both the first quarter of 2013 and the second quarter of 2013 by the recognition of the fair value discount earned on early payoffs of acquired loans. The Company recorded $37 thousand and $891 thousand in discount earned on early loan payoffs of acquired loans in the first quarter of 2013 and second quarter of 2013, respectively, with a positive impact on the net interest margin of 1 and 30 basis points, respectively. "Discounts earned on early loan payoffs of acquired loans can be difficult to project, but we believe the rise in the 10 year Treasury rate in the quarter influenced the refinancing of these higher rate loans," commented Karen Schoenbaum, Chief Financial Officer. As of June 30, 2013, the Company had $10.8 million of accretable income remaining on acquired portfolios.
In addition, during the second quarter of 2013, the Company recorded $162 thousand of interest income related to the recovery of interest income on a non-accrual loan that was paid off. The recovery of this interest income had a positive impact of 6 basis points on the Company's net interest margin in the second quarter of 2013.
Net interest margin in the second quarter of 2013 was 4.25%, compared to 3.37% in the second quarter of 2012 and 4.00% in the first quarter of 2013. The increase in net interest margin from the first quarter of 2013 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.
The Company's average yield on loans was 5.73% in the second quarter of 2013, compared to 5.50% in the first quarter of 2013. The increase 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.
The Company's cost of funds was 0.19% in the second quarter of 2013, unchanged from 0.19% for the first quarter of 2013.
Non-interest income was $1.7 million in the second quarter of 2013, an increase of $938 thousand or 125% from $752 thousand in the same quarter of the prior year. The increase is primarily due to the receipt of a $250 thousand insurance settlement, higher deposit account service charges resulting from the larger deposit account portfolio following the merger with PCB, higher income from bank-owned life insurance (BOLI), and increased stock dividends and derivative income.
Non-interest income in the second quarter of 2013 was $264 thousand or 18.5% more than the first quarter of 2013. The increase was primarily due to the receipt of the insurance settlement noted above and higher derivative income, partially offset by lower gain on sale of SBA loans.
Non-interest expense for the second quarter of 2013 was $9.3 million, an increase of $3.0 million or 48% 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 second quarter of 2013 was essentially unchanged from the first quarter of 2013.
Total assets at June 30, 2013 were $1.28 billion, an increase of $371 million or 41% from June 30, 2012, primarily resulting from the merger with PCB and organic growth in total deposits. Total assets increased $14 million or 1.1% from March 31, 2013, primarily resulting from organic growth in non-interest bearing deposits.
Total loans were $885 million at June 30, 2013, an increase of $24 million or 2.8% from $861 million at the end of the prior quarter. This also represents an increase of $397 million or 81% from June 30, 2012. During the second quarter of 2013, the Company had approximately $41 million of net organic loan growth, which was partially offset by approximately $17 million in loan run-off from acquired portfolios (from PCB and COSB acquisitions). The increase in total loans from the end of the prior quarter was primarily attributable to a $22 million increase in the commercial and industrial portfolio. The increase in the commercial and industrial portfolio was attributable to the addition of new customers, as well as an increase in the utilization rate of commercial lines of credit.
The utilization rate of commercial lines of credit increased to 48% at June 30, 2013, from 45% at March 31, 2013.
Total deposits at June 30, 2013 were $1.10 billion, an increase of $7 million or 0.7% from March 31, 2013. This also represents an increase of $303 million or 38% from June 30, 2012. The increase in total deposits from the end of the prior quarter primarily reflects higher balances of non-interest bearing demand deposits and interest-bearing transaction accounts, partially offset by the expected run-off of higher-cost money market accounts and certificates of deposit added in the merger with PCB.
Non-interest bearing deposits at June 30, 2013 were $571 million, an increase of $14 million or 2.4% from March 31, 2013. Non-interest-bearing deposits represented 52% of total deposits at June 30, 2013, up from 51% at the end of the prior quarter. Cost of deposits for the quarter was 0.14%, unchanged from the prior quarter.
Total non-performing assets were $13.6 million, or 1.06% of total assets at June 30, 2013, compared with $13.6 million, or 1.07% of total assets, at March 31, 2013. Approximately $6.7 million of the total non-performing assets at June 30, 2013 were acquired loans that were marked-to-market at the time of acquisition.
Of the total non-performing assets at June 30, 2013, 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 Company 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 Company 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 1.18% of total loans, at June 30, 2013, compared with $10.5 million, or 1.22% of total loans, at March 31, 2013. Excluding acquired loans, total nonaccrual loans were $3.8 million, or 0.42% of total loans, at June 30, 2013, compared with $1.7 million, or 0.20% of total loans, at March 31, 2013. The increase in total nonaccrual loans originated by the Bank was primarily attributable to two commercial and industrial loans with an aggregate outstanding balance of $2.1 million.
During the second quarter of 2013, the Company recorded net charge-offs of $582 thousand, compared with net charge-offs of $96 thousand during the first quarter of 2013. Substantially all of the net charge-offs recorded in the second quarter of 2013 were attributable to one of the previously referenced commercial and industrial loans placed on nonaccrual this quarter.
The Company recorded a loan loss provision of $1.2 million for the second quarter of 2013. The loan loss provision reflects the higher level of net charge-offs recorded in the quarter, as well as the strong level of organic growth in the loan portfolio.
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 1.50% at June 30, 2013, compared with 1.52% at March 31, 2013. The decrease in the allowance ratio was attributable to improvement in the economic conditions within the Company's markets.
CU Bancorp remained well capitalized at June 30, 2013 with total risk weighted assets of $1,064,974,000. All of the Company's capital ratios are above minimum regulatory standards for "well capitalized" institutions.
June 30, 2013
Minimum Capital to Be
Total Risk-Based Capital Ratio
Tier 1 Risk-Based Capital Ratio
Tier 1 Leverage Capital Ratio
At June 30, 2013, tangible common equity was $115.7 million with common shares issued and outstanding of 10,734,250 as of the same date, resulting in tangible book value per common share of $10.78. This compares to tangible common equity of $113.9 million with a tangible book value per common share of $10.60 at March 31, 2013. The increase in tangible book value per common share from the prior quarter primarily reflects the net income generated during the second quarter of 2013. During the second quarter of 2013, the Company's Accumulated Other Comprehensive Income (AOCI) declined by $734 thousand, due to a decline in unrealized gains in the investment portfolio. The decline in AOCI reduced tangible book value by approximately $0.07 per common share.
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
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. 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 Company'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 effect of U.S. federal government debt, budget and tax matters, (16) changes in the level of early payoffs on acquired loans and the amount of fair value discount on these loans recognized each quarter, 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 Annual Report on Form 10-K for the year ended December 31, 2012, particularly Part I, Item 1A, titled "Risk Factors."
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Cash and due from banks
Interest earning deposits in other financial institutions
Total Cash and Cash Equivalents
Certificates of deposit in other financial institutions
Investment securities available-for-sale, at fair value
Allowance for loan loss
Premises and equipment, net
Deferred tax assets, net
Other real estate owned, net
Core deposit intangibles
Bank owned life insurance
Accrued interest receivable and other assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing demand deposits
Interest bearing transaction accounts
Money market and savings deposits
Certificates of deposit
Securities sold under agreements to repurchase
Subordinated debentures, net
Accrued interest payable and other liabilities
Additional paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive income
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity