CU Bancorp : Reports Net Income of $2.55 Million and Record Core Net Income of $3.18 Million for Third Quarter of 2014

CU Bancorp (NASDAQ: CUNB), the parent company of wholly owned California United Bank, today reported net income of $2.55 million, or $0.23 per fully diluted share, for the third quarter of 2014, an increase of 2.9% from net income of $2.48 million, or $0.23 per fully diluted share, for the third quarter of 2013. Core net income (defined below) for the third quarter of 2014 was $3.18 million or $0.28 per diluted share, an increase of 28.4% from core net income of $2.48 million, or $0.23 per share for the third quarter of 2013. Core net income for the nine months ended September 30, 2014, was $8.73 million or $0.78 per diluted share, an increase of 24.8% from core net income of $6.99 million or $0.65 per diluted share for the nine months ended September 30, 2013.

The third quarter of 2014 included $631 thousand in non-tax deductible merger-related charges associated with the Company’s pending merger with 1^st Enterprise 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.

Third Quarter 2014 Highlights

• Net income increased to $2.55 million, or $0.23 per fully diluted share, from net income of $2.48 million, or $0.23 per fully diluted share, for the third quarter of 2013
• Core net income of $3.18 million, compared to core net income of $2.48 million in the third quarter of 2013 and $2.88 million in the second quarter of 2014
• Total loans increased $69 million or 7.6% from September 30, 2013 to $979 million at September 30, 2014
• Total deposits increased $87 million or 7.4% from September 30, 2013 to $1.3 billion at September 30, 2014; cost of deposits remains at 0.11%
• Non-interest bearing demand deposits increased $89 million or 14.5% from September 30, 2013, representing 55% of total deposits
• Non-performing assets to total assets declined to 0.30% at September 30, 2014, from 1.16% at September 30, 2013
• Tangible book value per share increased $0.29 over June 30, 2014, to $11.95
• Regulatory approval of merger of 1^st Enterprise Bank with and into California United Bank

• On September 25, 2014, CU Bancorp, the parent of California United Bank, and 1^st Enterprise Bank announced they have received all regulatory approvals necessary to authorize the merger of 1^st Enterprise Bank with California United Bank. Approvals have been received from the Federal Deposit Insurance Corporation and the California Department of Business Oversight, subject to usual and customary conditions.
• California United Bank and 1^st Enterprise Bank are each holding shareholder meetings on November 14, 2014, for the purpose, among other things, of approving the principal terms of the merger.

“CUB’s third quarter core net income increased 28% over the previous year and 10% over the previous quarter,” said David Rainer, President and Chief Executive Officer of CU Bancorp and California United Bank. “Further, core earnings for the nine month year-to-date period increased 25% over the same period last year; we are pleased with the Company’s year-over-year profitability trends. Additionally, credit quality remains very strong; the ratio of non-performing assets to total assets has dropped to 0.30%, down from 0.51% in the previous quarter and 1.16% a year ago, and is now at the lowest level in five years.

“Organic loan growth for the third quarter totaled $16 million, virtually all of which came from new customers, as we continue to execute on our relationship-based, business banking model. Total loans grew 8% year over year, but were flat quarter over quarter. Two of the most significant factors affecting growth for the quarter were runoff of $17 million from the acquired portfolio and the loss of a large credit relationship due to our unwillingness to match the more aggressive terms offered by another bank.

“I am excited to report that the Bank entered October with the largest 90-day pipeline in three years and we anticipate strong loan generation in the fourth quarter.”

Third Quarter 2014 Summary Results

Net Income and Profitability Ratios

Net income was $2.55 million or $0.23 per fully diluted share for the third quarter of 2014, compared with net income of $2.48 million, or $0.23 per fully diluted share, for the third quarter of 2013. Net income increased year over year for the third quarter of 2014 despite being impacted by $631 thousand in merger-related expenses; the third quarter of 2013 had no merger-related expenses. Excluding merger-related charges, net income before the provision for income taxes in the third quarter of 2014 was $5.3 million, compared to net income before the provision for income taxes of $3.7 million in the third quarter of 2013.

Net income in the third quarter of 2014 of $2.55 million increased $163 thousand compared to net income of $2.39 million in the second quarter of 2014. Net income in the third and second quarters of 2014 was impacted by merger-related expenses of $631 thousand and $497 thousand, respectively. Net income before the provision for income tax expense, excluding merger-related expenses, in the third quarter of 2014 was $5.3 million, compared to net income before the provision for income tax expense of $4.8 million in the second quarter of 2014.

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

Net Interest Income and Net Interest Margin

Net interest income before the provision for loan losses totaled $12.8 million for the third quarter of 2014 and $12.3 million for the third quarter of 2013. The increase was driven by net organic loan growth, supplemented by a $148 thousand or 34% increase in interest on investment securities. Net interest income in the third quarter of 2014 benefitted from the recognition of $403 thousand in discount earned on early loan payoffs of acquired loans, compared to $735 thousand earned in the third quarter of 2013.

Net interest income before the provision for loan losses for the third quarter of 2014 increased $190 thousand, or 1.5% from the second quarter of 2014, primarily driven by an increase of $122 thousand in interest on investment securities. “The securities purchased were either for CRA purposes, variable rate, or fixed rate with short maturities, so duration on the investment portfolio as of September 30, 2014 was only 2.7,” said Karen Schoenbaum, Chief Financial Officer.

The Company’s net interest income continued to be positively impacted in both the second and third quarter of 2014 by the recognition of the fair value discount earned on early payoffs of acquired loans. The Company recorded $483 thousand and $403 thousand in discount earned on early loan payoffs of acquired loans in the second and third quarter of 2014, respectively, with a positive impact on the net interest margin of 15 and 12 basis points, respectively.

As of September 30, 2014, the Company had $5.9 million of accretable yield discount remaining on acquired loans.

Net interest margin in the third quarter of 2014 was 3.70%, compared to 3.95% in the third quarter of 2013. In the third quarter of 2014 the discount earned on early payoffs was $332 thousand less than the third quarter of 2013, this was coupled with a decline in the core loan yield, as newer loans were originated at lower rates than paid off loans, the combination of which had a negative impact on the third quarter 2014 net interest margin. The ongoing decline in the 10-year Treasury since the first quarter of 2014 has continued to put pressure on the loan yield.

Net interest margin in the third quarter of 2014 was 3.70%, compared to 3.88% in the second quarter of 2014. While average loans increased by $11.5 million in the third quarter of 2014, loans were a higher percentage of earning assets in the second quarter of 2014, and this, combined with newer loans originated at lower rates than paid off loans, negatively impacted the third quarter 2014 net interest margin.

The Company’s average yield on loans was 5.07% in the third quarter of 2014, compared to 5.18% in the second quarter of 2014. The core loan yield was 4.91% in the third quarter of 2014, compared to 4.97% in the second quarter of 2014.

The Company’s cost of funds was 0.14% in the third quarter of 2014, a decrease from 0.17% in the third quarter of 2013 and 0.15% for the second quarter of 2014.

Non-Interest Income

Non-interest income was $2.0 million in the third quarter of 2014, an increase of $533 thousand or 36.2% from $1.5 million in the same quarter of the prior year. The increase was primarily due to $204 thousand in transaction referral income in the third quarter of 2014, compared to none in the year-ago quarter; a $92 thousand increase in lending-related fees; a $68 thousand increase in gain on sale from SBA loans and a positive swing of $61 thousand in unhedged swaps.

Non-interest income in the third quarter of 2014 increased $221 thousand or 12.4% from the second quarter of 2014. The increase in non-interest income from the prior quarter was primarily attributable to an increase in the gain on sale of SBA loans.

Non-Interest Expense

Non-interest expense for the third quarter of 2014 increased $601 thousand or 6.4% over the third quarter of 2013. The increase was primarily due to merger-related expenses of $631 thousand, as well as increases in salaries and employee benefits, and stock-based compensation expense. The increase in salary expense was attributable to the accrual of bonus incentives related to work performed on the upcoming merger, as well as a modest increase in full time employees. The increase in stock-based compensation reflects the delay in the annual granting of stock-based compensation in 2013 which resulted in dampened expense in the third quarter of that year. Merger expenses during the quarter were primarily due to legal fees associated with the merger with 1^st Enterprise Bank and the Registration Statement and Proxy/Prospectus.

Non-interest expense for the third quarter of 2014 increased $333 thousand over the second quarter of 2014. The increase was primarily due to an increase in merger-related expenses and an increase in salaries and employee benefits, as noted above.

Income Tax

The Company’s merger-related expenses of $631 thousand are not tax deductible, which had the consequence of increasing its effective tax rate for the quarter to 45.8%, compared to 33.3% for the third quarter of 2013, which benefitted from credits on CRA investments.

Balance Sheet

Assets

Total assets at September 30, 2014 were $1.5 billion, a year-over-year increase of $105 million or 7.8% from September 30, 2013, primarily resulting from growth in total deposits, including $89 million in non-interest bearing deposits. Total assets increased $21 million or 1.5% quarter-over-quarter from June 30, 2014, primarily resulting from growth in total deposits, including $16 million in non-interest bearing deposits.

Loans

Total loans were $979 million at September 30, 2014, an increase of $69 million or 7.6% from $910 million at September 30, 2013.

During the third quarter of 2014, the Company had approximately $16 million of net organic loan growth, which was offset by $17 million in loan run-off from acquired portfolios, including $7 million in the owner-occupied nonresidential real estate portfolio. The net organic loan growth in the third quarter of 2014 was negatively impacted by a large C&I line of credit that was paid off, as the Bank maintained its firm commitment to its disciplined underwriting standards. For the nine month period ending September 30, 2014, organic loan originations totaled $88 million.

Deposits

Total deposits at September 30, 2014, were $1.3 billion, an increase of $87 million or 7.4% from September 30, 2013. This also represents an increase of $18 million or 1.5% from June 30, 2014. The increase in deposits from the end of the prior quarter was primarily due to an increase in non-interest bearing demand deposits.

Non-interest bearing demand deposits at September 30, 2014 were $698 million, an increase of $16 million or 2.4% from June 30, 2014. Non-interest-bearing demand deposits continued to represent 55% of total deposits at September 30, 2014, as they did in the prior quarter. Cost of deposits for the quarter was 0.11%, as it was in the prior quarter.

Asset Quality

Total non-performing assets were $4.4 million, or 0.30% of total assets at September 30, 2014, compared with $7.2 million, or 0.51% of total assets, at June 30, 2014.

During the third quarter of 2014, the Company recorded net recoveries of $29 thousand, compared with net recoveries of $53 thousand during the second quarter of 2014.

The Company recorded a loan loss provision of $35 thousand for the third quarter of 2014. The loan loss provision reflects modest organic loan originations, net recoveries recorded for the quarter and year-to-date period, 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 1.43% at September 30, 2014, compared with 1.45% at June 30, 2014, and 1.50% at September 30, 2013.

Capital

CU Bancorp remained well capitalized at September 30, 2014 with total risk weighted assets of $1,231,336,000. All of the Company’s capital ratios are above minimum regulatory standards for “well capitalized” institutions.

At September 30, 2014, tangible common equity was $134.2 million with common shares issued and outstanding of 11,231,801 as of the same date, resulting in tangible book value per common share of $11.95. This compares to tangible common equity of $130.8 million with a tangible book value per common share of $11.66 at June 30, 2014. The increase in tangible book value per common share from the prior quarter primarily reflects the net income generated during the third 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 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.

FORWARD-LOOKING STATEMENTS

This press release contains certain forward-looking information about CU Bancorp (the “Company”), 1^st Enterprise 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 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 registration statement on Form S-4, which was declared effective on October 7, 2014, as amended (the “S-4”), 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 1^ST 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 Bank and 1st Enterprise Bank, a California state-chartered commercial bank pursuant to which CU Bancorp will acquire 1st Enterprise Bank by merging 1st Enterprise 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 1st Enterprise 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 1st Enterprise Bank common stock. The U.S. Treasury, as the holder of all outstanding shares of 1st Enterprise 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 Bank preferred stock. The Merger is subject to customary closing conditions, including regulatory and shareholder approvals.

ADDITIONAL INFORMATION ABOUT THE PROPOSED TRANSACTION WITH 1^ST 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 the S-4, 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 1^st Enterprise Bank, CU Bancorp filed the Form S-4 with the SEC to register the shares of CU Bancorp common stock to be issued to shareholders of 1^st Enterprise Bank. The S-4 includes a joint proxy statement of CU Bancorp and 1^st Enterprise Bank and a prospectus of CU Bancorp. Before making any voting or investment decision, investors and security holders of CU Bancorp and 1^st Enterprise Bank are urged to carefully read the entire S-4 and joint proxy statement/prospectus, as well as any amendments or supplements to these documents, because they contain important information about the proposed transaction. A definitive joint proxy statement/prospectus has been sent to the shareholders of each institution seeking required stockholder approvals. Investors and security holders are able to obtain the S-4 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 1st Enterprise Bank in connection with the transaction. Information about the directors and executive officers of CU Bancorp is set forth in the S-4 and the joint proxy statement/prospectus.

1st Enterprise 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 1st Enterprise 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 S-4 and the joint proxy statement/prospectus regarding the Merger.

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.

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