CU BANCORP Los Angeles, CA, Oct. 27, 2015 - CU Bancorp (NASDAQ: CUNB), the parent company of wholly owned California United Bank, today reported financial results for the third quarter of 2015.
The comparability of financial information for the third quarter of 2015 to the third quarter of 2014, is affected by the Company's acquisition of 1st Enterprise Bank ('1st Enterprise'), which was accomplished by a merger of California United Bank with 1st Enterprise ('the merger'), effective November 30, 2014.
Third Quarter 2015 Highlights
- Net income available to common shareholders increased to a record $6.0 million, up $1 million or 21% from the prior quarter
- Diluted earnings per share of $0.35, up 21% from the prior quarter
- Total revenues increased to $25.4 million, up $1.0 million or 4.2% from prior quarter
- Net interest income increased to $22.4 million, up $1.1 million or 5.3% from the prior quarter
- Efficiency ratio improved to 59% from 61% in the prior quarter
- Return on average tangible common equity of 11.5%, up from 10.0% in the prior quarter
- Return on average assets increased to 0.93%, up from 0.82% in the prior quarter
- Tangible book value per share increased $0.45 to $12.42 per share
- Total assets increased to $2.6 billion, up $133 million or 5.4% from the prior quarter or an annualized rate of 21.6%
- Total loans increased to $1.8 billion, up $58 million or 3.4% from the prior quarter or an annualized rate of 13.6%
- Total deposits increased to $2.3 billion, up $122 million or 5.7% from the prior quarter or an annualized rate of 22.8%
- Non-interest bearing demand deposits were 55% of total deposits
- Continued status as well-capitalized, the highest regulatory category
'I'm pleased to report another quarter of record earnings and the ongoing improvement in CUB's profitability metrics,' said David Rainer, Chairman and Chief Executive Officer of CU Bancorp and California United Bank. 'While the quarter did have some one-time net benefits, our most important performance metrics have continued to improve every quarter since the merger and in the third quarter many reached their best levels in the Company's history. Our third quarter efficiency ratio came down to an all-time low of 59% and our return on tangible common equity grew to an all-time high of 11.5%. Our return on average assets improved to a Company best of 0.93%, even as we grew total assets by 5.4% from the prior quarter, which was the result of an increase in core deposits-a key strategy for building long-term franchise value.'
'This marks the fourth quarter of double-digit loan growth since the merger and I'm especially pleased that this quarter's growth was predominantly in our commercial and industrial loan portfolio, which is at the core of our relationship-based business banking franchise,' said K. Brian Horton, President of CU Bancorp and California United Bank. 'Despite the ongoing challenging business conditions of a modestly growing economy and a very competitive lending environment, we are continuing our success in bringing in new banking relationships, as well as retaining customers of both legacy organizations. We continue to experience high levels of loan payoffs; however, CUB's loan growth in the third quarter, which included an increase in C&I utilization, mitigated the impact of those payoffs.'
Third Quarter 2015 Summary Results Net Income and Profitability Ratios
Net income for the third quarter of 2015 was $6.3 million and net income available to common shareholders was $6.0 million or $0.35 per fully diluted share, compared with net income of $2.5 million or $0.23 per fully diluted share for the third quarter of 2014. The year-over-year increase was primarily a result of the success of the merger. Merger-related expenses in the third quarter of 2015 were $211 thousand, compared to $631 thousand in the year-ago quarter. The loan loss provision for the third quarter of 2015 was $705 thousand, compared to $35 thousand in the year-ago quarter, primarily due to larger loan growth.
Core net income available to common shareholders for the third quarter of 2015 was $6.1 million or
$0.36 per fully diluted share, compared to core net income of $3.2 million or $0.28 per fully diluted share, for the third quarter of 2014.
Net income for the third quarter of 2015 was $6.3 million and net income available to common shareholders was $6.0 million or $0.35 per fully diluted share, compared with net income of $5.3 million and net income available to common shareholders of $5.0 million or $0.29 per fully diluted share in the second quarter of 2015. Third quarter 2015 merger-related expenses were $211 thousand and the loan loss provision was $705 thousand, comparable to expenses of $246 thousand and $683 thousand for the same items, respectively, in the second quarter of 2015. Net income in the third quarter of 2015 was enhanced due to various one-time events that included $881 thousand in discount and other aggregated associated payoff benefits earned on early loan payoffs, compared to
$474 thousand in discounts earned on early loan payoffs in the prior quarter. Additionally, discrete tax benefits totaling $465 thousand and assorted additional miscellaneous items also benefitted net income in the third quarter of 2015.
Core net income available to common shareholders for the third quarter of 2015 was $6.1 million or
$0.36 per fully diluted share, compared to core net income available to common shareholders of $5.1 million in the prior quarter or $0.30 per fully diluted share.
The Company calculates core net income available to common shareholders by adding back the tax- effected merger-related charges to GAAP earnings for the periods presented, because the Company believes the use of core net income available to common shareholders, 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.
The following table shows certain of the Company's performance ratios for the third quarter of 2015, the second quarter of 2015 and the third quarter of 2014, as well as a column calculating performance ratios based on core net income for all three quarters:
CORE Q3 2015 | CORE Q2 2015 | CORE Q3 2014 | Q3 2015 | Q2 2015 | Q3 2014 | |
Efficiency ratio | 59% | 60% | 64% | 59% | 61% | 68% |
Return on average assets | 0.94% | 0.85% | 0.86% | 0.93% | 0.82% | 0.69% |
Return on average tangible common equity | - | - | - | 11.48% | 10.00% | 7.59% |
Net interest income totaled $22.4 million for the third quarter of 2015, an increase of $9.6 million or 75% from the third quarter of 2014. The increase was primarily driven by the merger and strong net organic loan growth over the last year.
The Company's net interest income was positively impacted in both the third quarter of 2015 and the third quarter of 2014 by the recognition of fair value discount earned on early payoffs of acquired loans. In the third quarter of 2015 the Company recorded $560 thousand in discount earned on early loan payoffs of acquired loans and other associated payoff benefits aggregating to $321 thousand, with a positive impact on the net interest margin of 15 basis points. In the third quarter of 2014 the Company recorded $403 thousand in discount earned on early loan payoffs of acquired loans, with a positive impact on the net interest margin of 12 basis points.
The net interest margin in the third quarter of 2015 was 3.79%, compared to 3.70% in the third quarter of 2014. While the Company has experienced compression in the yields on its loan portfolio, growth in average loans and a shift to more loans in the mix of earnings assets has helped support the net interest margin.
Net interest income for the third quarter of 2015 increased $1.1 million or 5.3% from the second quarter of 2015. In the third quarter of 2015 the Company recorded $560 thousand in discount earned on early loan payoffs of acquired loans and other associated payoff benefits aggregating to
$321 thousand, with a positive impact on the net interest margin of 15 basis points. In the second quarter of 2015 the Company recorded $474 thousand in discount earned on early loan payoffs of acquired loans, with a positive impact on the net interest margin of 9 basis points.
The net interest margin in the third quarter of 2015 was 3.79%, compared to 3.87% in the second quarter of 2015. The decrease was largely the result of growth in average deposits exceeding growth in average loans.
The core loan yield for the third quarter of 2015 was 4.76%, compared to 4.84% in the second quarter of 2015, largely due to compression in yields on real estate loans.
As of September 30, 2015, the Company had $17.1 million of discount remaining on acquired accruing loans.
The Company's cost of funds was 0.12% in the third quarter of 2015, a decrease from 0.14% in the third quarter of 2014 and 0.13% in the second quarter of 2015.
Non-interest income was $3.0 million in the third quarter of 2015, an increase of $984 thousand or 49% from $2.0 million in the same quarter of the prior year. The overall increase was primarily due to an increase of $528 thousand in deposit account service charge income as a result of the merger and a
$309 thousand increase in the gain on sale of SBA loans.
Non-interest income in the third quarter of 2015 decreased by $107 thousand or 3.5% compared to the second quarter of 2015. Third quarter non-interest income's other non-interest income had no transaction fee referral income or special dividend on capital stock from the Federal Home Loan Bank of San Francisco, compared to $380 thousand and $296 thousand from these sources, respectively, in the second quarter of 2015. Third quarter other non-interest income also saw a $75 thousand decrease in SBA servicing fee income compared to the second quarter, as a result of unusually large payoffs. These decreases were partially offset by an increase of $425 thousand in gain on sale of SBA loans compared to the prior quarter.
The quarterly dividend earned from the Federal Home Loan Bank of San Francisco is included in the Company's non-interest income. In light of the consistent increase in the quarterly dividend rate, the Company now accrues for the dividend as it is earned. Previously the Company recorded the dividend as income in the period received; as a result, the accrual of $200 thousand for the dividend earned in the third quarter, which will be received early in the fourth quarter of 2015, overlaps with the second quarter dividend payment of $200 thousand received and recorded as income early in the third quarter.
Non-interest expense for the third quarter of 2015 was $15.1 million, an increase of $5.0 million, or 50% compared to non-interest expense of $10.0 million for the same period of the prior year. The increase in year-over-year non-interest expense is the result of the combined operations of the two banks after the merger in November 2014. The third quarter of 2015 included merger-related expenses of $211 thousand, compared to $631 thousand in the year ago period, and $358 thousand for three months of core deposit intangible amortization related to the merger.
Non-interest expense for the third quarter of 2015 was $15.1 million, an increase of $155 thousand, or 1% compared to non-interest expense of $14.9 million for the second quarter of 2015. In the third quarter of 2015 legal and professional expenses decreased by $244 thousand, due to a decline in the use of outside professional service providers during the quarter. Other operating expenses decreased by $238 thousand from the prior period, the largest piece of which was a decline of $61 thousand in the off balance sheet provision for credit losses, which is related to undisbursed lines of credit. While commercial and industrial utilization and total commitments did increase from the prior quarter, undisbursed totals remained constant. These declines were offset by a $461 thousand increase in salaries and employee benefits, primarily related to the additional accrual for employee bonuses based on the Company's new business growth and improved profitability. Additionally, in the third quarter of 2015 the Company recorded a charge of $133 thousand for an OREO valuation write-down,
|
distributed by
|
