34
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
/X/ For the Quarterly Period Ended September 30, 1996 or
Transition Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the transition period from _________ to _________.
Commission File Number 0-11008
CU BANCORP
(Exact name of registrant as specified in its charter)`
California 95-3657044
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
818-907-9122
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address, and former fiscal year if changes since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
As of September 30, 1996, the Registrant has 11,267,010 outstanding shares of
its Common stock, no value.
<PAGE> 1
CU Bancorp
Quarter Ended September 30, 1996
Table of Contents - Form 10-Q
Page
Part I. Financial Information
Item 1. Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operation. 3
Consolidated Statements of Financial Condition:
-September 30, 1996, and December 31, 1995. 12
Consolidated Statements of Income:
-Three and Nine Month Periods Ended September 30, 1996, and
September 30, 1995. 13
Consolidated Statements of Cash Flows:
-Nine Month Periods Ended September 30, 1996 and
September 30, 1995. 14
Notes to Consolidated Financial Statements 15
Signatures 20
Part II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holder 21
Item 5. Other Information 21
Item 6. Exhibits and Filings on Form 8-K 22
<PAGE> 2
Management Discussion and Analysis
Overview
On August 9, 1996, the merger between CU Bancorp, the holding company for
California United Bank, and Home Interstate Bancorp, the holding company for
Home Bank, became final. The merger was accomplished through a tax-free
exchange of stock, using the pooling method of accounting. The financial
statements for the quarter ended September 30, 1996 reflect the combined
operations of the two merged banks, including the substantial costs incurred
associated with completing the merger. The Company reported a net loss of $5.1
million, or $.44 per share for the third quarter of 1996, compared to income
of $1,710 thousand, or $.16 per share, during the same period in 1995. Income
for the current quarter was reduced by non-recurring costs totaling $.62 per
share related to merger activity. Net income for the quarter ended September
30, 1996 would have been $.18 per share without the non-recurring expenses
discussed below.
The Company recognized several large expenses during the quarter ended September
30, 1996 reflecting the costs of completing the merger activity and valuing the
loan and real estate portfolios on a single consistent and conservative basis.
A loan loss provision of $4.1 million, plus an additional loss of $2.6 million
related to real estate owned was recorded in the quarter. This was a result of
combining the valuation reserve methodologies of California United Bank and
Home Bank, as well as reflecting the ongoing intent of the merged bank to manage
potential problems in the portfolio aggressively and maintain conservative
standards for valuation. Other large expenses for the quarter include the costs
of terminating the data processing contracts for the combining banks,
converting all major operating systems to a single platform, payments to
employees for severance and change of control agreements and the various legal,
advisory and accounting fees associated with the merger itself. Total non-
recurring expenses, including the charges for loan and real estate losses,
totaled $11.5 million for the quarter. After the effect of income taxes, these
expenses reduced net income by $7.2 million, or $.62 per share.
The Company's commitment to a conservative approach to valuing portfolios is
reflected the asset quality ratios at September 30, 1996. Non performing assets
decreased to $3.8 million by the end of September 1996. This compares with
$9.3 million at December 31, 1995 and $11.3 million September 30, 1995. Real
estate acquired through foreclosure totaled $ 1.1 million at September 30, 1996,
compared with $4.9 million at December 31, 1995 and $5.6 million September 30,
1995. The Bank's allowance for loan losses as a percent of nonperforming loans
was 360 % at September 30, 1996, compared with 89 % at the comparable quarter
of 1995.
Capital ratios continue to substantially exceed levels required for the "well
capitalized" category established by bank regulators. The Total Risk-Based
Capital Ratio was 13.7%, the Tier 1 Risk-Based Capital Ratio was 12.4%, and the
Leverage Ratio was 9.7% at September 30, 1996, compared to 17.3%, 16.0%, and
10.8%, respectively, at year-end 1995. Regulatory requirements for Total Risk-
Based, Tier 1 Risk-Based, and Leverage capital ratios are a minimum of 8%, 4%,
and 3%, respectively, and for classification as well capitalized, 10%, 6%, and
5%, respectively.
The Company has continued to successfully grow its core business through the
production of new loan commitments to middle market commercial customers.
During the third quarter of 1996, the Bank generated approximately $ 51 million
in new loan commitments and $ 125 million in new loan commitments for the nine
months ended September 30, 1996.
Balance Sheet Analysis
Loan Portfolio Composition and Credit Risk
Total loans at September 30 ,1996 increased by $ 84 million compared with
December 31, 1995. Loan growth during the current year includes both the
acquisition of Corporate Bank and the Bank's internally generated loan growth.
Internal loan growth was strong in the commercial, real estate and construction
portfolios. Growth in the commercial loan portfolio consists primarily of
asset based loans to middle market commercial customers and results from the
Bank's ongoing success at generating new commercial loan commitments. The
composition of <PAGE> 3
the Bank's loan portfolio in summarized below in Table 1:
<TABLE>
Table 1 Loan Portfolio Composition
<CAPTION>
Amounts in thousands of dollars September 30, December 31, September 30,
1996 1995 1995
<S> <C> <C> <C> <C> <C> <C>
Commercial & Industrial Loans $262,914 54% $243,343 61% $239,768 62%
Real Estate Loans:
Commercial 126,121 26 90,648 23 81,523 21
Mortgages 24,912 5 9,400 2 8,621 2
Construction 31,339 7 16,933 4 15,857 4
Total Real Estate Loans 182,372 38 116,981 29 106,001 27
Other loans 40,309 8 41,525 10 42,527 11
Total loans net of unearned fees $485,595 100% $401,849 100% $388,296 100%
</TABLE>
<TABLE>
Table 1a Loan Portfolio Maturities
(in thousands)
Remaining Maturity
<CAPTION>
Within After One After
One but Within Five
Year Five Years Years Total
<S> <C> <C> <C> <C>
Commercial & Industrial Loans $126,691 $85,446 $50,777 $262,914
Real Estate loans 105,556 49,867 26,949 182,372
Other loans 30,720 5,445 4,144 40,309
Total loans $262,967 $140,758 $81,870 $485,595
Loans due after one year with
predetermined interest rates $67,769 $46,582
Loans due after one year with 72,989 35,288
floating or adjustable rates
$140,758 $81,870
</TABLE>
Table 1a above summarizes the maturities of the loan portfolio based upon the
contractual terms of the loans. The Bank does not automatically rollover any
loans at maturity. Maturing loans are subject to the Bank's normal credit
approval process in order to establish a new maturity date.
Monitoring and controlling the Bank's allowance for loan losses is a continuous
process. All loans are assigned a risk grade, as defined by credit policies, at
origination and are monitored to identify changing circumstances that could
modify their inherent risks. These classifications are one of the criteria
considered in determining the adequacy of the allowance for loan losses.
The amount and composition of the allowance for loan losses is as follows:
<TABLE>
Table 2 Allocation of Allowance for Loan Losses
<CAPTION>
Amounts in thousands of dollars September 30, December 31, September 30,
<S> <C> <C> <C>
1996 1995 1995
Commercial & Industrial Loans(1) $11,448 $9,167 $8,438
Real estate loans - Construction Loans 532 256 1,047
Real estate loans - other 423 221 0
Installment and other loans 586 63 72
Unfunded commitments and letters of credit 561 336 496
Total Allowance for loan losses $13,550 $10,043 $10,053
(1) Including Commercial loans secured by
real estate
</TABLE>
<PAGE> 4
Adequacy of the allowance is determined using management's estimates of the risk
of loss for the portfolio and individual loans. Included in the criteria used to
evaluate credit risk are, wherever appropriate, the borrower's cash flow,
financial condition, management capabilities, and collateral valuations, as well
as industry conditions. A portion of the allowance is established to address the
risk inherent in general loan categories, historic loss experience, portfolio
trends, economic conditions, and other factors. Based on this assessment a
provision for loan losses may be charged against earnings to maintain the
adequacy of the allowance. The allocation of the allowance based upon the risks
by type of loan, as shown in Table 2, implies a degree of precision that is not
possible when using judgments. While the systematic approach used does consider
a variety of segmentations of the portfolio, management considers the allowance
a general reserve available to address risks throughout the entire loan
portfolio.
During the third quarter of 1996, the Bank had net charge offs of $2 million,
and $3.7 million for the nine months ended September 30, 1996. This compares
with $ 1.2 million for the three and nine month periods ending September 30,
1995. Charge offs for the current year include the impact of the Bank's
aggressive and disciplined approach to credit management applied to the
portfolio acquired in the Corporate Bank transaction.
Activity in the allowance, classified by type of loan, is as follows:
<TABLE>
Table 3 Analysis of the Changes in the Allowance for Loan Loss
<CAPTION>
Amounts in thousands of dollars For the Periods Ended
September 30, December 31, September 30,
1996 1995 1995
<S> <C> <C> <C>
Balance at January 1 $10,043 $10,245 $10,245
Loans charged off:
Real estate secured loans 1,766 1,907 1,290
Commercial loans secured and unsecured 2,542 1,247 791
Loans to individuals, installment and other loans 264 366 228
Credit cards and related plans 44 52 18
Total charge-offs 4,616 3,572 2,327
Recoveries of loans previously charged off:
Real estate secured loans 235 535 517
Commercial loans secured and unsecured 610 672 542
Loans to individuals, installment and other loans 21 44 43
Credit cards and related plans 5 19 8
Total recoveries of loans previously charged 871 1,270 1,110
off
Net charge-off (recovery) 3,745 2,302 1,217
Provision for loan losses 4,400 2,100 1,025
Allowance of acquired bank 2,852 0 0
Balance at end of period $13,550 $10,043 $10,053
Net loan charge-offs (recoveries) as a percentage
of average gross loans outstanding during the .81% .59% 32%
period ended
</TABLE>
The Bank's policy concerning nonperforming loans is more conservative than is
generally required. It defines nonperforming assets as all loans ninety days or
more delinquent, loans classified nonaccrual, and foreclosed, or in substance
foreclosed real estate. Nonaccrual loans are those whose interest accrual has
been discontinued because the loan has become ninety days or more past due or
there exists reasonable doubt as to the full and timely collection of principal
or interest. When a loan is placed on nonaccrual status, all interest previously
accrued but uncollected is reversed against operating results. Subsequent
payments on nonaccrual loans are treated as principal reductions. At September
30, 1996, nonperforming loans amounted to $ 2.7 million compared with $4.4
million at December 31, 1995.
Potential problem loans are defined as loans as to which there are serious
doubts about the ability of the borrowers to comply with present loan repayment
terms. It is the policy of the Bank to place all potential problem loans on
nonaccrual status. At September 30, 1996, therefore, the Bank had no potential
problem loans other than those disclosed in Table 4 as nonperforming loans.
<PAGE> 5
<TABLE>
Table 4: Nonperforming Assets
<CAPTION>
Amounts in thousands of dollars September 30, December 31, September 30,
1996 1995 1995
<S> <C> <C> <C>
Non accrual loans $2,705 $4,256 $5,384
Loans 90 days or more past due and still accruing 0 106 232
Total nonperforming loans 2,705 4,362 5,616
Other real estate owned 1,063 4,918 5,643
Total nonperforming assets $3,768 $9,280 $11,259
Allowance for loan losses as a percent of:
Nonperforming loans 500% 230% 179%
Nonperforming assets 360 108 89
Nonperforming assets as a percent of total assets .5 1.2 1.5
Nonperforming loans as a percent of total loans .5 1.1 1.4
</TABLE>
Securities
The Securities Held to Maturity portfolio totaled $148 million at September
30, 1996, compared with $80 million at year-end 1995. Included in the Held to
Maturity portfolio at September 30, 1996 is approximately $65 million in
commercial paper. The Bank has invested in high quality, short term commercial
paper as a diversification from Federal Funds sold. Commercial paper held is
less than six months in maturity, and is rated A1/P1 by Standard and Poors. At
September 30, 1996, there were unrealized losses of $676 thousand and
unrealized gains of $121 thousand in the Securities Held to Maturity portfolio.
The Securities Available for Sale portfolio totaled $ 88 million at September
30, 1996 compared with $127 million in investments being included in this
category at December 31, 1995. The investment portfolio of the Corporate Bank,
acquired in January, 1996, was classified as available for sale at the purchase
date. The securities acquired in this transaction may be sold as needed to
match the investment strategies and balance sheet needs of the Bank. The
September 30. 1996 balance had a $67 thousand net unrealized gain, compared
with a net unrealized gain of $ 1.1 million at December 31, 1995.
In the first three quarters of 1996, the Bank realized a gains of $114 thousand
on the sale of securities available for sale. Gains realized for the comparable
period of 1995 totaled $46 thousand.
Additional information concerning securities is provided in the footnotes to the
accompanying financial statements.
Other Real Estate Owned
There was $1.1 million of Other Real Estate Owned on the Bank's balance sheet at
September 30, 1996, compared with $ 4.9 million and $5.6 million at December 31,
1995 and September 30, 1995, respectively. The Bank's policy is to carry
properties acquired in foreclosure at fair value less estimated selling costs,
which is determined using recent appraisal values adjusted, if necessary, for
other market conditions. Loan balances in excess of fair value are charged to
the allowance for loan losses when the loan is reclassified to other real
estate. Subsequent declines in fair value are charged against a valuation
allowance for other real estate owned, created by charging a provision to other
operating expenses. During the third quarter of 1996, the Bank recorded losses
on real estate owned of $2.6 million, which brought year to date losses to $3.2
million. This compares with $.6 million in losses recorded for the nine months
ended September 30, 1995.
Liquidity and Interest Rate Sensitivity
The objective of liquidity management is to ensure the Bank's ability to meet
cash requirements. The liquidity position is managed giving consideration to
both on and off-balance sheet sources and demands for funds.
<PAGE> 6
Sources of liquidity include cash and cash equivalents (net of Federal Reserve
requirements to maintain reserves against deposit liabilities), investments in
commercial paper, securities eligible for pledging to secure borrowings from
dealers pursuant to repurchase agreements, loan repayments, deposits, and
borrowings from a $25 million overnight federal funds line available from a
correspondent bank. Potential significant liquidity requirements are withdrawals
from noninterest bearing demand deposits and funding of commitments to loan
customers.
From time to time the Bank may experience liquidity shortfalls ranging from one
to several days. In these instances, the Bank will either purchase federal
funds, and/or sell securities under repurchase agreements. These actions are
intended to bridge mismatches between funding sources and requirements, and are
designed to maintain the minimum required balances. Borrowings under repurchase
agreements and fed funds purchased have averaged less than $1 million during
1996. Balances borrowed were primarily the result of periodic tests by the Bank
of available borrowing arrangements, and securities repurchase agreements to
accommodate customer needs.
As a part of the process of managing current liquidity and interest rate risk in
the balance sheet, the Bank maintains a portfolio of certificates of deposit
from customers from outside the Bank's normal service area. These out of area
deposits are certificates of deposit of $90,000 or greater, that are priced
competitively with similar certificates from other financial institutions
throughout the country. At September 30, 1996, the Bank had approximately $78
million of these out of area deposits, compared to $83 million at December 31,
1995. The decline in out of area deposits during 1996 has been the result of
carefully managing these balances to a lower level, as the acquisition of
Corporate Bank and the merger with Home Bank provided additional liquidity. The
Bank's experience with raising out of area deposits for the past three years
indicates that the balances are quite stable when priced to the current market.
The Bank's portfolio of large certificates of deposit (those of $100 thousand or
more), includes both deposits from its base of commercial customers and out of
area deposits. At September 30, 1996 this funding source was 11% of average
deposits, compared to 10% at December 31, 1995. The Bank had $83 million in
certificates of deposit larger than $100 thousand dollars at September 30,1996.
The maturity distribution of these deposits is relatively short term, with $60
million maturing within 3 months and $82 million maturing within 12 months.
Table 5 Interest Rate Maturities of Earning Assets and Funding Liabilities at
September 30, 1996
<TABLE>
<CAPTION>
Amounts in thousands of dollars Amounts
Maturing or
Repricing in
More Than 3 More Than 6 More Than 9
Months But Months But Months But
Less Than Less Than Less Than Less than 12 Months
3 Months 6 Months 9 Months 12 Months & Over
<S> <C> <C> <C> <C> <C>
Earning Assets
Gross Loans $346,376 $5,313 $9,176 $10,382 $114,351
Securities 91,538 12,431 15,472 19,295 97,772
Federal funds sold & other 0 0 0 0 0
Total earning assets $437,914 $17,744 $24,648 $29,677 $212,123
Interest-bearing deposits:
Now, money market, savings 251,563
Time certificates of deposit:
Under $100 53,097 29,196 21,112 28,505 10,395
$100 or more 59,215 12,019 4,495 6,883 804
Total interest-bearing 363,875 41,213 25,607 35,388 11,199
liabilities
Interest rate sensitivity gap 74,039 (23,469) (959) (5,711) 200,924
Cumulative interest rate 74,039 50,570 49,611 43,900 244,824
sensitivity gap
Off balance sheet financial 0 0 0 0 0
instruments
Net cumulative gap $74,039 $50,570 $49,611 $43,900 $244,824
Adjusted cumulative ratio of rate 1.2% 1.12% 1.12% 1.09% 1.51%
sensitive assets to rate sensitive
liabilities (1)
(1) Ratios greater than 1.0 indicate a net asset sensitive position. Ratios
less than 1.0 indicate a liability sensitive position. A ratio of 1.0
indicates a risk neutral position.
</TABLE>
<PAGE> 7
Assets and liabilities shown on Table 5 are categorized based on contractual
maturity dates. Maturities for those accounts without contractual maturities are
estimated based on the Bank's experience with these customers. Noninterest
bearing deposits of title and escrow companies, having no contractual maturity
dates, are considered subject to more volatility than similar deposits from
commercial customers. The net cumulative gap position shown in the table above
indicates that the Bank does not have a significant exposure to interest rate
fluctuations during the next twelve months.
Capital
Total shareholders' equity was $86 million at September 30, 1996, compared to
$84 million at year-end 1995. This increase was due to the issuance of stock to
acquire Corporate Bank and the exercise of stock options, offset by the net
loss for the year and dividends paid. The Company is guided by statutory capital
requirements, which are measured with three ratios, two of which are sensitive
to the risk inherent in various assets and which consider off-balance sheet
activities in assessing capital adequacy. During 1996 and 1995, the Company's
capital levels substantially exceeded the "well capitalized" standards, the
highest classification established by bank regulators.
<TABLE>
Table 7 Capital Ratios
<CAPTION>
Regulatory Standards
September 30, December 31, Well
1996 1995 Capitalized Minimum
<S> <C> <C> <C> <C>
Total Risk Based Capital 13.7% 17.3% 10.0% 8.00%
Tier 1 Risk Based Capital 12.4 16.0 6.0 4.00
Equity to Average Assets 9.7 10.8 5.0 3.00
</TABLE>
The Company declared an increase in the quarterly dividend to $.0625 per share
payable November 25, 1996 to shareholders of record November 6, 1996. The
Company declared and paid cash dividends totaling of $.045 for the quarter ended
September 30, 1996, and $.13 per share for the nine months ended September 30,
1996. Dividends paid for the comparable periods of 1995 were $.042 and $.12,
respectively. The dividend payout ratio was a negative 30% for the nine month
period ended September 30, 1996, compared with 27% for the comparable period of
1995.
The common stock of the Company is listed on the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market Systems where it
trades under the symbol CUBN.
Market Expansion and Acquisitions
The Bank is committed to expanding the market penetration of the commercial
bank, including the creation of new branches and pursuing acquisition
opportunities. In January, 1996, the Company completed the acquisition of
Santa Ana based Corporate Bank. This acquisition brought two Orange County
branches to the Bank, representing an important geographic expansion. During
1995, the Bank converted its former loan production offices in Ventura County,
the San Gabriel Valley and the South Bay to full service banking offices in
improved facilities. These moves expanded the Bank's branch system to seven
full service locations serving the greater Los Angeles area. Additionally,
during the second quarter of 1996, the Bank started two new business units to
serve its customer base. The Investment Services Group and the Private Banking
group were formed to meet the growing financial services needs of the customers.
In February 1996, the Bank conusmmated a deposit purchase agreement with
Southern California Bank in which the Bank purchased the deposits of Southern
California Bank's Signal Hill office. The deposits purchased in the transaction
totaled $1,656 thousand.
<PAGE> 8
On August 9, 1996, the merger between CU Bancorp, parent of California United
Bank, and Home Interstate Bancorp, parent of Home Bank, was completed. With the
completion of this merger, the Bank is now the eleventh largest independent bank
headquartered in Southern California, with twenty two branches in Westwood, the
San Gabriel and San Fernando valleys, the South Bay, and Ventura and Orange
counties.
Net Interest Income and Interest Rate Risk
Net interest income is the difference between interest and fees earned on
earning assets and interest paid on funding liabilities. Net interest income was
$ 11.4 million for the quarter ended September 30, 1996 compared to $9.8
million for the same period in 1995. The increased margin in 1996 is primarily
due to the increased volumes of loans and deposits, due to both the acquisition
of Corporate Bank, and the commercial loan growth generated over the past year.
Net interest income for the nine months ended September 30, 1996 increased to
$33.5 million, from $29.8 million for the comparable period of 1995.
<TABLE>
Table 8 Analysis of Changes in Net Interest Income (1)
<CAPTION>
Amounts in thousands of dollars Nine months ended September 30, Nine months ended September 30,
1996 compared to 1995 1995 compared to 1994
Increases(Decreases) Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans, net $6,422 $(1,216) $5,206 $3,134 $3,129 $6,263
Investments (94) (118) (212) 608 1,025 1,633
Federal Funds Sold (16) (198) (214) (74) 611 537
Total interest income 6,312 (1,532) 4,780 3,668 4,765 8,433
Interest Expense
Interest-bearing deposits:
Demand and Savings 396 (119) 277 (371) 213 (158)
Time Certificates of deposit:
Under $100 912 (18) 894 818 758 1,576
$100 or more 154 (290) (136) 1,758 1,557 3,315
Federal funds purchased / Repos (8) (8) 8 14 22
Other borrowings 53 52 105 (62) (29) (91)
Total interest expense 1,507 (375) 1,132 2,151 2,513 4,664
Net interest income $4,805 $(1,157) $3,648 $1,517 $2,252 $3,769
(1) The change in interest income or interest expense that is attributable to
both change in average balance and average rate has been allocated to the
changes due to (i) average balance and (ii) average rate in proportion to the
relationship of the absolute amounts of the changes in each.
</TABLE>
Yields on earning assets were approximately 8.8% for the nine months ended
September 30, 1996, compared to 8.8% yield for the same period of 1995. The
decrease in the prime rate from an average of 8.8% to an average of 8.3% in
1996 was offset by an increasing percentage of assets being held in loans.
Rates on interest bearing liabilities resulted in an average cost of funds of
3.7% for the nine months ended September 30, 1996, compared with 3.8% for the
comparable period of 1995. The decline in rates on certificates of deposit
reflected the lower interest rate environment in 1996.
Expressing net interest income as a percent of average earning assets is
referred to as margin. Margin was 6.3% for the year to date in 1996, compared
to 6.3 % for the same period in 1995. The Bank's margin is strong because it
has funded itself with a significant amount of noninterest bearing deposits.
The deposit portfolio of Corporate Bank, which is included in the first quarter
1996 totals, was similar in composition to the Bank's deposits, resulting in
very little change in the Bank's margin.
<PAGE> 9
<TABLE>
Table 9 Average Balance Sheets and Analysis of Net Interest Income
<CAPTION>
Nine months ended Nine months ended
Amounts in thousands of dollars September 30, 1996 September 30, 1995
Interest Annual Interest Annual
Income or Yield or Income or Yield or
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets
Loans, Net $451,467 $35,849 10.59% $371,070 $30,643 11.01%
Investments 213,896 9,049 5.64 216,207 9,266 5.71
Certificates of Deposit
in other banks 201 8 5.30 93 3 4.30
Federal Funds Sold 41,479 1,609 5.17 41,854 1,823 5.81
Total Earning Assets 707,043 46,515 8.77 629,224 41,735 8.86
Non Earning Assets
Cash & Due From Banks 70,735 61,870
Other Assets 39,264 35,193
Total Assets $817,042 $726,287
Interest-bearing Liabilities
Demand and savings $246,687 $4,226 2.28% $223,719 $3,949 2.35%
Time Certificates of Deposits
Less Than $100 75,239 3,206 5.68 136,635 2,312 5.73
More Than $100 140,553 5,325 5.05 53,833 5,461 5.33
Fed Funds Purchased/Repos 420 19 6.03 592 27 6.08
Total interest-bearing 462,899 12,776 3.68 414,779 11,749 3.78
Noninterest-bearing Deposits 248,349 221,697
Total Deposits 711,248 12,776 2.40 636,476 11,749 2.46
Other Borrowings 4,878 238 7.33 3,797 163 5.72
Total Funding Liabilities 716,126 13,044 2.43 640,273 11,912 2.48
Other Liabilities 10,284 7,870
Shareholders' Equity 90,632 78,144
Total Liabilities and $817,042 $726,287
Shareholders' Equity
Net Interest Income $33,471 6.31% $29,823, 6.32%
Shareholders' Equity to Total 11.09% 10,76%
Assets
</TABLE>
Other Operating Income
Total non interest income was $1.7 million and $5.6 million for the three and
nine month periods ended September 30, 1996, and $1.8 million and $5.6 million
for the comparable periods of 1995. Service charges and other fees have
increased in 1996, reflecting the acquisition of Corporate Bank and growth in
the deposit portfolios. These increases in 1996 offset gains on sales of
servicing and other real estate owned that occurred in 1995.
The Bank reported no gains on sale of servicing during 1996. The Bank reported
a gain of $383 thousand in the first nine months of 1995 on the sale of mortgage
servicing rights, representing final settlement payments received related to
open issues on servicing sales from prior quarters. No servicing sales have
been made in 1996, and no further servicing rights are owned at September 30,
1996. Gains on the sale of real estate owned totaled $139 thousand for the
three and nine month periods ended September 30, 1995, with no net gains being
recorded in 1996.
Operating income for the first quarter of 1996 includes a gain of $114 thousand
on the sale of available for sale securities. This compared with a gain of $46
thousand for the nine months ended September 30, 1995. No securities gains were
realized in the current quarter of 1996.
Operating Expense
Total operating expenses for the Bank were $ 17.0 million for the quarter ended
September 30, 1996 , compared to $ 8.6 million for the same period in 1995.
Included in the current quarter's totals is $ 7.5 million in non-recurring
expenses that arose due to the completion of the merger between Home Interstate
Bancorp and CU Bancorp. Severance and compensation payments due to the change
in control totaled $1.2 million for the quarter. Reserves for losses on other
real estate owned were $2.6 million, reflecting the combined Bank's intent
<PAGE> 10
to aggressively manage and conservatively value all real estate owned. An
additional $3.7 million in other operating expense were incurred in the current
quarter for direct merger expenses and costs of systems conversions.
Excluding the effect of the non-recurring expenses discussed above, total
operating expenses for the three and nine month periods ending September 30,
1996 would have been $9.5 million and $29.1 million, respectively. The increase
from $8.6 million and $26.6 million for the three and nine month periods ended
September 30, 1995 relate primarily to the additional staff and facilities
acquired in the Corporate Bank transaction.
Provision for Loan Losses
The Bank has made a provision for loan losses of $4.1 million in the third
quarter of 1996, for a total of $4.4 million for the year. In 1995, the Bank
had provided $100 thousand in the third quarter, and $1.0 million for the nine
months year to date. The increased provision in 1996 was the result of
combining the valuation reserve methodologies of California United Bank and
Home Bank, as well as reflecting the ongoing intent of the merged bank to manage
potential problems in the portfolio aggressively and maintain conservative
standards for valuation.
Legal and Regulatory Matters
In the normal course of business, the Bank occasionally becomes party to
litigation. In the opinion of management, the Bank believes that pending or
threatened litigation involving the Bank will have no material adverse effect
on its financial condition or results of operations.
As a registered bank holding company, and a California state chartered bank,
the Company and the Bank are subject to supervision and regulation by the
Federal Reserve Board, the Superintendent of Banks of the State of California
and the Federal Deposit Insurance Corporation, among others. Regulatory issues
have not had a significant impact on the Bank's operations for the past three
years, apart from the normal ongoing process of monitoring compliance with
relevant federal and state law. Management remains committed to maintaining a
positive and proactive relationship with its primary regulators.
<PAGE> 11
<TABLE>
Consolidated
Statements of Financial Condition
CU
Bancorp and Subsidiary
<CAPTION>
September 30, December 31,
Amounts in thousands of dollars, except share data 1996 1995
<S> <C> <C>
Assets
Cash and due from banks $84,329 $67,173
Federal funds sold 0 47,100
Total cash and cash equivalents 84,329 114,273
Securities held to maturity (Market value of $147,742 and $80,293 at 148,317 79,866
September 30, 1996 and December 31, 1995, respectively)
Securities available for sale, at market value 88,191 127,100
Total Securities 236,508 206,966
Loans, (Net of allowance for loan losses of $13,550 and $10,043 at
September 30, 1996 and December 31, 1995, respectively) 472,047 391,806
Premises and equipment, net 16,558 15,476
Other real estate owned 1,063 4,918
Accrued interest receivable and other assets 24,821 15,661
Total Assets $835,326 $749,100
Liabilities and Shareholders' equity
Deposits:
Demand, non-interest bearing $253,905 $226,307
Savings and interest bearing demand 251,563 227,304
Time deposits under $100 142,304 135,693
Time deposits of $100 or more 83,414 63,237
Total deposits 731,186 653,541
Accrued interest payable and other liabilities 17,922 11,137
Total liabilities 749,108 664,678
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
Authorized -- 10,000,000 shares
No shares issued or outstanding in 1996 or 1995 --- ---
Common stock, no par value:
Authorized - 24,000,000 shares
Issued and outstanding - 11,267,010 in 1996, and 10,592,125 in 1995 75,347 70,123
Retained earnings 10,830 13,818
Unrealized gain on securities available for sale, net of taxes 41 663
Unearned Compensation 0 (182)
Total Shareholders' equity 86,218 84,422
Total liabilities and shareholders' equity $835,326 $749,100
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE> 12
<TABLE>
Consolidated Statements of Income CU Bancorp and
Subsidiary
<CAPTION>
For the three months ended For the nine months
September 30, ended September 30,
Amounts in thousands of dollars, except per share 1996 1995 1996 1995
data
<S> <C> <C> <C> <C>
Revenue from earning assets:
Interest and fees on loans $12,107 $10,309 $35,849 $30,643
Interest on investment securities 3,235 2,902 9,057 9,269
Interest on federal funds sold 588 720 1,609 1,823
Total revenue from earning assets 15,899 13,931 46,515 41,735
Cost of funds:
Interest on savings and interest bearing demand 1,460 1,317 4,226 3,949
Interest on time deposits under $100 1,874 1,943 5,325 5,461
Interest on time deposits of $100 or more 1,046 840 3,206 2,312
Interest on other borrowings 80 60 287 190
Total cost of funds 4,460 4,160 13,044 11,912
Net revenue from earning assets before 11,439 9,771 33,471 29,823
provision for loan losses
Provision for loan losses 4,050 100 4,400 1,025
Net revenue from earning assets 7,389 9,671 29,071 28,798
Other operating revenue:
Service charges and other fees 1,303 1,025 3,975 3,017
Gain on sale of mortgage servicing portfolio 0 0 383
Gain on other real estate owned 139 0 139
Gain on sale of securities available for sale
(before taxes of $47 in 1996 and $19 in 1995) 0 4 114 46
Other operating revenue 445 651 1,532 1,984
Total other operating revenue 1,748 1,819 5,621 5,569
Other operating expenses:
Salaries and related benefits 5,905 4,347 15,614 13,063
Occupancy expense 2,233 763 4,934 2,272
Other operating expenses 8,842 3,511 16,088 11,288
Total operating expenses 16,980 8,621 36,636 26,623
Income before provision for income taxes (7,843) 2,869 (1,944) 7,744
Provision for income taxes (2,725) 1,159 (177) 3.036
Net income $(5,118) $1,710 $(1,767) $4,708
Earnings per common and equivalent share $(.44) $0.16 $(.15) $0.44
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<PAGE> 13
<TABLE>
Consolidated Statements of Cash Flows CU Bancorp and Subsidiary
<CAPTION>
Amounts in thousands of dollars For the nine months
ended September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net income $(1,767) $4,708
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization 1,060 1,073
Provision for losses on loans 4,400 1,025
Provision (benefit) of deferred taxes (526) 690
Goodwill amortization 494 342
(Increase)/decrease in other assets (4,685) (7,913)
Increase/(decrease) in other liabilities 1,774 (2,555)
(Increase)/decrease in accrued interest receivable 844 978
Amortization of deferred loan fees and costs (951) (637)
Amortization of deferred compensation 185 0
Net gain on sale of securities (114) (46)
Net (gain) loss on sale of premises, furniture and 0 26
equipment
Net gain loss on real estate owned 783 564
Increase/(decrease) in accrued interest payable 166 344
Net amortization of (discount)/premium on investment 1,444 1,610
securities
Total adjustments 4,874 (4,499)
Net cash provided by operating activities 3,107 209
Cash flows from investing activities
Proceeds from investment securities sold or matured 22,417 64,677
Purchase of investment securities (49,771) (23,793)
Purchase of business 18,316 0
Proceeds from sale of real estate owned 2,779 2,668
Proceeds from sale of premises, furniture and 0 11
equipment
Net (increase)/decrease in loans (38,183) (15,626)
Purchases of premises and equipment, net (1,799) (2,288)
Net cash provided (used in) by investing activities (46,241) 25,649
Cash flows from financing activities
Net increase/(decrease) in demand and savings deposits (808) (47,168)
Net increase/(decrease) in time certificates of 14,662 33,303
deposit
Net increase/ (decrease) in securities sold under (100)
agreements to repurchase
Proceeds from exercise of stock options and director 458 601
warrants
Cash dividend paid (1,221) (1,567)
Net cash provided (used) by financing activities 13,091 (14,931
Net increase (decrease) in cash and cash equivalents (30,043) 10,927
Cash and cash equivalents at beginning of year 114,273 104,393
Cash and cash equivalents at end of year $84,230 $115,320
Supplemental disclosure of cash flow information
Cash paid during the year:
Interest $12,878 $11,568
Taxes 2,635 2,845
Supplemental disclosure of noncash investing
activities:
Loans transferred to OREO 890 6,700
The accompanying notes are an integral part of these
consolidated statements
</TABLE>
<PAGE> 14
Notes to Consolidated Financial Statements
September 30, 1996
UNAUDITED
Note A. BASIS OF PRESENTATION
The accounting and reporting policies of CU Bancorp ("the Company") and its
wholly owned subsidiary, California United Bank, ("the Bank"), are prepared in
accordance with generally accepted accounting principles used in the banking
industry. All material inter company balances have been eliminated and all
material interim period adjustments which, in the opinion of management, are
necessary for a fair presentation of financial condition, results of operations,
and cash flow have been made. All interim period adjustments that have been
made have been of a normal and recurring nature.
Note B. EARNINGS PER SHARE
Net income per share is computed using the weighted average number of shares of
common stock and common stock equivalents outstanding during the periods
presented, except when the effect of the latter would be anti-dilutive.
Weighted average shares outstanding for the three month and nine month periods
ended September 30, 1996 were 11,587,703 and 11,524,060, compared with
10,669,361 and 10,656,361 for the comparable periods of 1995.
NOTE C. SECURITIES
The Bank has the intent and ability to hold its Securities Held to Maturity
until maturity. Accordingly, these securities are carried at cost, adjusted for
amortization of premiums and accretion of discounts on a straight-line basis,
which approximates the effective interest method. Gains and losses recognized on
the sale of investment securities are based upon the adjusted cost and
determined using the specific identification method.
The Bank has $ 88 million in securities classified as "Available for sale",
indicating the willingness to sell these securities under certain conditions.
These securities are carried at current market value with unrealized gains or
losses not recognized as current income but reported as an increase or decrease
to capital in the statements of
<PAGE> 15
financial condition and in the statements of shareholders' equity.
The following tables set forth the book value and market value, of investment
securities at September 30, 1996.
A summary of Securities Held to Maturity at September 30, 1996 is as follows:
<TABLE>
<CAPTION>
Held To Maturity Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $67,999 $114 $505 $67,608
Commercial Paper 64,717 0 0 64,717
U.S. Government Agency Securities 8,267 2 70 8,199
Corporate Bonds 551 3 548
Municipal Securities 6,783 5 98 6,690
Total portfolio $148,317 $121 $676 $147,762
</TABLE>
A summary of Securities Available for Sale for September 30, 1996 is as follows:
<TABLE>
<CAPTION>
Available For Sale Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $50,507 $ 198 $ 220 $50,705
U.S. Agency securities 19,017 40 109 18,948
Corporate Bonds 13,480 32 70 13,442
Federal Reserve stock 1,151 1 1,151
Municipal securities 3,969 44 68 3,945
Total portfolio $88,124 $ 336 $ 269 $88,191
</TABLE>
At September 30, 1996, investment securities with a book value of $ 55 million
were pledged to secure court deposits and for other purposes as required or
permitted by law.
Note D. PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Amortization of leasehold improvements is
also computed using the straight-line method over the shorter of the useful life
of the improvement or the term of the lease.
Note E. OTHER REAL ESTATE OWNED
Real estate owned, acquired either through foreclosure or deed in lieu of
foreclosure, is recorded at the lower of the loan balance or estimated fair
market value. When acquired, any excess of the loan balance over the estimated
fair value is charged to the allowance for loan losses. Subsequent write-downs,
if any, are charged to operation expenses in the periods that they become known.
There was $ 1.1 million of other real estate owned as of September 30, 1996.
There was $5.6 and $ 4.9 million of other real estate owned as of September 30,
1995 and December 31, 1995.
Note F. INCOME TAXES
Effective January 1, 1993, the Bank implemented the provisions of Financial
Accounting Standards (SFAS) No. <PAGE> 16
109, "Accounting for Income Taxes." SFAS No. 109 utilizes the liability method
and deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws.
Note G. LOANS
Loans are carried at face amount, less payments collected, allowance for loan
losses, and unamortized deferred fees. Interest on loans is accrued monthly on a
simple interest basis. The general policy of the Bank is to discontinue the
accrual of interest and transfer loans to nonaccrual (cash basis) status where
reasonable doubt exists with respect to the timely collection of such interest.
Payments on nonaccrual loans are accounted for using a cost recovery method.
Loan origination fees and commitment fees, offset by certain direct loan
origination costs, are deferred and recognized over the contractual life of the
loan as a yield adjustment.
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can reasonably be anticipated. Management considers
current economic conditions, historical loan loss experience, and other factors
in determining the adequacy of the allowance. The allowance is based on
estimates and ultimate losses may differ from current estimates. These estimates
are reviewed periodically and as adjustments become necessary, they are charged
to earnings in the period in which they become known. The allowance is increased
by provisions charged to operating expenses, increased for recoveries of loans
previously charged-off, and reduced by charge-offs.
The Bank adopted Statement of Financial Standards (SFAS) 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures," as of January 1, 1995.
SFAS 114 requires that impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate.
When the measure of the impaired loan is less than the recorded balance of the
loan, the impairment is recorded through a valuation allowance included in the
allowance for loan losses. The Bank had previously measured the allowance for
loan losses using methods similar to the prescribed in SFAS 114. As a result,
no additional provision was required by the adoption of this pronouncement.
The Bank considers all loans where reasonable doubt exists as to the payment of
interest or principal to be impaired loans. All loans that are ninety days or
more past due are automatically included in this category. An impaired loan
will be charged off when the Bank determines that repayment of principal has
become unlikely or subject to a lengthy collection process. All loans that are
six months or more past due and not well secured or in the process of collection
are charged off.
At September 30, 1996, the Bank had $ 2.7 million in impaired loans, against
which a loss allowance of $850 thousand has been provided. The recorded
investment in all impaired loans has been calculated based on the present value
of expected cash flows discounted at the loan's effective interest rate. All
impaired loans are included in nonaccrual status, and as such no interest income
is recognized. For the third quarter of 1996 and the nine months ended
September 30, 1996, the Bank had an average investment in impaired loans of
approximately $3.5 million.
Note H. Mergers and Acquisitions
On August 9, 1996, Home Interstate Bancorp, the holding company of Home Bank,
was merged into CU Bancorp, the holding company of California United Bank. Each
share of Home Interstate Stock was converted into 1.409 shares of CU Bancorp
stock. Simultaneously with the merger of the two holding companies, California
United Bank was merged into Home Bank, with the surviving Bank being renamed
California United Bank. The merger of the two holding companies was
accomplished in an all stock transaction, except for the effect of fractional
shares, and has been accounted for using the pooling-of-interests method. A
total of 5,955,000 shares of CU Bancorp stock were issued in this transaction.
<PAGE> 17
Using the pooling-of-interests method of accounting, the assets, liabilities,
equity and results of operations for all prior periods have been restated to
include CU Bancorp and Home Interstate Bancorp as if they had been combined from
the beginning of the earliest period presented. There were no intercompany
eliminations or adjustments for accounting changes that were required in
presenting the combined history for the two companies. Revenues and earnings of
the two separate companies, relating to prior to the merger date of August 9,
1996, that are included in the combined income statements are as follows:
<TABLE>
<CAPTION>
CU Bancorp Home
Interstate
Bancorp
Six months ended June 30, 1996:
<S> <C> <C>
Net interest income $9,762 $12,270
Net income 1,360 1,991
Nine months ended September 30, 1995
Net interest income $11,447 $18,376
Net income 2,113 2,595
</TABLE>
On January 12, 1996, the Company completed the acquisition of Corporate Bank, a
Santa Ana, California based commercial bank. The acquisition was accounted
for as a purchase. The Company issued 649 thousand shares of common stock, and
paid $1.7 million in cash, for a total purchase price of $6.5 million. The
acquired operations of Corporate Bank have been included in the Statement of
Income from the acquisition date of January 12, 1996. The Company's income for
the first nine months of 1996 would not have been materially different if the
combination had been completed as of January 1, 1996. The pro forma results of
operations for the nine months of 1995, had the acquisition been completed on
January 1, 1995, would have been as follows:
Net interest income $33,375
Income before provision for income taxes 7,499
Net income 4,488
Earnings per common and equivalent share $ .40
The fair value of assets acquired from Corporate Bank was $72.7 million, with
liabilities assumed of $68.6 million. Cash and cash equivalents acquired, net
of cash paid, totaled $20 million. Goodwill of $2.4 million generated by the
purchase transaction is being amortized on a straight line basis over a ten year
period.
Note I. RECLASSIFICATIONS
Certain items have been reclassified in the prior period financial statements
presented herein, in order to conform to classifications followed for September
30, 1996.
Note J. LEGAL MATTERS
In the normal course of business the Bank occasionally becomes a party to
litigation. In the opinion of management, based upon consultation with legal
counsel, the Bank believes that pending or threatened litigation involving the
Bank will have no adverse material effect upon its financial condition, or
results of operations. Until third quarter 1995, the Bank was a defendant in
multiple lawsuits related to the failure of two real estate investment
companies, Property Mortgage Company, Inc., ("PMC") and S.L.G.H., Inc. ("SLGH").
The lawsuits, consisted of a federal action by investors in PMC and SLGH (the
"Federal Investor Action"), at least three state court actions by groups of
Investors (the "State Investor Actions"), and an action filed by the Resolution
Agent for the combined and reorganized bankruptcy estate of PMC and SLGH (the
"Neilson" Action). An additional action was filed by an individual investor and
his related pension and profit sharing plans (the "Individual Investor Action").
Other defendants in these multiple actions and in related <PAGE> 18
actions include financial institutions, title companies, professionals, business
entities and individuals, including the principals of PMC and SLGH. The Bank
was a depository bank for PMC, SLGH and related companies and was a lender to
certain principals of PMC and SLGH ("Individual Loans"). Plaintiffs alleged
that PMC/SLGH was or purported to be engaged in the business of raising money
from investors by the sale and issuance of interests in loans evidenced by
promissory notes secured by real property. Plaintiffs alleged that false
representations were made, and the investment merely constituted a "Ponzi"
scheme. Other charges related to the Bank's conduct with regard to the
depository accounts, the lending relationship with the principals and certain
collateral taken , pledged by PMC and SLGH in conjunction with the Individual
Loans. The lawsuits alleged inter alia violations of federal and state
securities laws, fraud, negligence, breach of fiduciary duty, and conversion as
well as conspiracy and aiding and abetting counts with regard to these
violations. The Bank denied all allegations of wrongdoing. Damages in excess
of $100 million were alleged, and compensatory and punitive damages were sought
generally against all defendants, although no specific damages were prayed for
with regard to the Bank. A former officer and director of the Bank was also
been named as a defendant.
The Bank has settled with the representatives of the various plaintiffs, with
the dismissal of all of the above referenced cases, with prejudice, against
the Bank, its officers and directors, with the exception of the officer/
director previously named. In connection with the settlement, the Bank
released its security interest in certain disputed collateral and cash
proceeds thereof, which the Bank received from PMC, SLGH, or the principals,
in connection with the Individual Loans. This collateral had been a
subject of dispute in the Neilson Action, with both the Bank and the
representatives of PMC/SLGH asserting the right to such collateral. All the
Individual Loans have been charged off. The Bank also made a cash payment t0
the Plaintiffs in connection with the settlement. The effect of this settlement
on CU Bancorp or the Bank's financial statements was immaterial. In connection
with the settlement the Bank assigned its rights, if any, under various
insurance policies, to the Plaintiffs. The settlement does not resolve the
claims asserted against the officer/director. At this time the only viable
claims which remain against the former director/employee are claims of
negligence in connection with certain depository relationships with PMC/SLGH.
As of May 10, 1996, the Bank and the Insurer orally agreed that the Insurer
would assume all future costs of defense of the former director/employee, and
would repay the Bank $75,000 for certain of the prior costs expended. The
agreement has not yet been finalized due to the pendancy of a global resolution
of all matters relative to these plaintiffs and defendants. Such a settlement
is subject to a number of contingencies and approvals.
<PAGE> 19
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the Registrant has caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CU BANCORP
November 13, 1996
By:___________________
Patrick Hartman
Chief Financial Officer
<PAGE>20
Part II - Other Information
Item 1. Legal Proceedings
Please refer to Note J , on page 18 above, for a discussion of legal and
matters.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Matters
<PAGE>21
Item 6. Exhibits and Filings on Form 8-K
(a) Exhibits:
(10) Material Contracts
(b) Reports on Form 8-K: Form 8-K, Item 2, Acquisition or Disposition of
Assets, was filed August 23, 1996 concerning the merger between CU Bancorp and
Home Interstate Bancorp.
<PAGE> 22
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 84329
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88191
<INVESTMENTS-CARRYING> 148317
<INVESTMENTS-MARKET> 147762
<LOANS> 485595
<ALLOWANCE> 13550
<TOTAL-ASSETS> 835326
<DEPOSITS> 731186
<SHORT-TERM> 0
<LIABILITIES-OTHER> 17922
<LONG-TERM> 0
0
0
<COMMON> 75347
<OTHER-SE> 10871
<TOTAL-LIABILITIES-AND-EQUITY> 835326
<INTEREST-LOAN> 35849
<INTEREST-INVEST> 10660
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 46515
<INTEREST-DEPOSIT> 12757
<INTEREST-EXPENSE> 13044
<INTEREST-INCOME-NET> 33471
<LOAN-LOSSES> 4400
<SECURITIES-GAINS> 114
<EXPENSE-OTHER> 36636
<INCOME-PRETAX> (1944)
<INCOME-PRE-EXTRAORDINARY> (1767)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1767)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
<YIELD-ACTUAL> 6.31
<LOANS-NON> 2705
<LOANS-PAST> 0
<LOANS-TROUBLED> 1027
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10043
<CHARGE-OFFS> 4616
<RECOVERIES> 871
<ALLOWANCE-CLOSE> 13550
<ALLOWANCE-DOMESTIC> 13550
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
