26
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 June 30, 1994, 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 June 30, 1994, the Registrant has outstanding 4,437,312 shares of its
Common stock, no par value.
CU BANCORP
Quarter Ended June 30, 1994
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:
-June 30, 1994, and December 31, 1993. 21
Consolidated Statements of Income:
-Three and Six Month Periods Ended June 30, 1994, and
June 30, 1993. 22
Consolidated Statements of Cash Flows:
-Six Month Periods Ended June 30, 1994, and
June 30, 1993. 23
Notes to Consolidated Financial Statements 24
Signatures 27
Part II. Other Information
Item 1. Legal Proceedings 28
Item 2. Changes in Securities 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits and Filings on Form 8-K 28
MANAGEMENT DISCUSSION AND ANALYSIS
OVERVIEW
The Company earned $608 thousand, or $0.13 per share, during the second
quarter of 1994, compared to $557 thousand, or $0.12 per share, during the
same period in 1993. This represented the sixth consecutive quarter of
increased profits. Second quarter 1994 earnings included profitable
performance by the bank and a gain on the sale of a portion of the mortgage
servicing rights retained by the Bank when its mortgage origination network
was sold in 1993.
The Bank's asset quality ratios continue to be exceptionally strong. At
June 30, 1994, nonperforming assets were $1.0 million, down $0.1 million,
or 9%, from the prior quarter, and nearly $9.0 million, or 90% from the
second quarter of 1993. At June 30, 1994, the Bank did not have any real
estate acquired through foreclosure. The improvement in asset quality over
the past year is illustrated by Graph 1: Nonperforming Assets. The Bank's
allowance for loan losses as a percent of both nonperforming loans and
nonperforming assets at the end of the second quarter of 1994 was 699%,
compared to second quarter 1993 levels of 118% and 77%, respectively. This
trend can be seen in Graph 2: Ratio of Allowance for Loan Losses to
Nonperforming Assets.
GRAPH 1 DATA: NONPERFORMING ASSETS
June 30, September 30, December 31, March 31, June 30,
1993 1993 1993 1994 1994
------ ------ ------ ------ ------
Nonperforming Loans $6,530 $1,065 $1,378 $1,108 $1,042
Nonperforming Assets 9,988 4,034 2,298 1,108 1,042
The allowance for loan losses as a percentage of nonperforming loans and
assets has increased as both nonperforming categories were reduced. During
the first half of 1994, the Bank enjoyed a net recovery as recoveries
exceeded chargeoffs for the second consecutive quarter. Net recoveries
further increase the allowance's coverage of the nonperforming loans and
assets.
GRAPH 2 DATA: ALLOWANCE FOR LOAN LOSSES TO NONPERFORMING ASSETS
June 30, September 30, December 31, March 31, June 30,
1993 1993 1993 1994 1994
---- ---- ---- ---- ----
Allowance to:
Nonperforming Loans 118% 536% 473% 652% 699%
Nonperforming Assets 77% 142% 283% 652% 699%
Capital ratios are strong, substantially exceeding levels required to be in
the "well capitalized" category established by bank regulators. The Total
Risk-Based Capital Ratio was 17.2%, the Tier 1 Risk-Based Capital Ratio was
15.9%, and the Leverage Ratio was 10.6% at June 30, 1994, compared to
16.7%, 15.4%, and 9.2%, respectively, at year-end 1993. 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 successful results in 1993 concerning asset quality, regulatory
relations, growth of middle market lending and strategic focus make
expansion and growth possible in 1994. Two new loan production offices were
opened in January 1994. These offices will allow expanded market
penetration and commercial portfolio diversification. On April 1, 1994,
the Bank acquired the deposits of the Encino branch of Mechanics National
Bank from the FDIC, to expand and improve deposit mix.
BALANCE SHEET ANALYSIS
LOAN PORTFOLIO COMPOSITION AND CREDIT RISK
Loan portfolio quality continues to be a focal point of management's
attention. As a result, considerable improvements have been made. Credit
policies have been established to promote quality production. Target
markets have been redefined to emphasize middle market commercial lending
and reduce real estate concentrations. Further, the Bank's credit policy
limits concentrations of loans in any industry or collateral.
The Bank's focus on middle market lending, in its infancy at year-end 1992,
gained momentum in 1993 and 1994. While total loans decreased from
December 31, 1993 to June 30, 1994 the assets of the core commercial bank
increased. Offsetting this, the remaining Held for Sale mortgages of $10.4
million at December 31, 1993 were sold in the first quarter of 1994.
Excluding this planned liquidation, loans increased by $13 million, or 9%,
for the six months ended June 30, 1994.
TABLE 1 LOAN PORTFOLIO COMPOSITION
Amounts in thousands of dollars June 30, December 31, June 30,
1994 1993 1993
-------- -------- --------
Commercial & Industrial Loans $135,725 $120,513 $125,583
Real Estate Loans:
Held for Sale 0 10,426 59,032
Mortgages 6,456 8,496 11,578
Construction 846 1,226 244
Other Loans 223 0 481
-------- -------- --------
Total loans net of unearned fees $143,250 $140,661 $196,918
======== ======== ========
Historically, the Bank's real estate loans secured by single family
residences were principally mortgages held for sale that were originated by
the Mortgage Banking Operation. These were sold to investors through firm
commitments, generally in less than 90 days. The loans amounted to $10.4
million, or 7.4% of the December 31, 1993, loan portfolio. This part of
the loan portfolio historically presents almost no credit risk. The
mortgage origination operation sale eliminated this loan concentration.
The remainder of real estate loans are generally collateralized by a first
or second trust deed position.
Lending efforts have been directed away from commercial real estate, as
well as construction and multifamily lending. The Bank is now focused on
business lending to middle market customers. Current credit policy now
permits commercial real estate lending generally only as part of a complete
commercial banking relationship with a middle market customer. Existing
commercial real estate loans, 16% of the loan portfolio, or $23 million at
June 30, 1994, compared to $27 million at year-end 1993, are secured by
first or second liens on office buildings and other structures. The loans
are secured by real estate that had appraisals in excess of loan amounts at
origination.
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 2 ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
Amounts in thousands of dollars June 30, December 31, June 30,
1994 1993 1993
------ ------ ------
Commercial & Industrial Loans $5,971 $5,699 $6,672
Real estate loans - Held for Sale 0 67 238
Real estate loans - Mortgages 643 225 407
Real estate loans - Construction 100 10 37
Other loans 2 0 11
------ ------ ------
Loans 6,716 6,001 7,365
Unfunded commitments and letters of credit 563 512 368
------ ------ ------
Total Allowance for loan losses $7,279 $6,513 $7,733
====== ====== ======
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.
Activity in the allowance, classified by type of loan, is as follows:
TABLE 3 ANALYSIS OF THE CHANGES IN THE ALLOWANCE FOR LOAN LOSS
Amounts in thousands of dollars For the Periods Ended
June 30, December 31, June 30,
1994 1993 1993
------- ------- -------
Balance at January 1 $6,513 $12,986 $12,986
------- ------- -------
Loans charged off:
Real estate secured loans 361 3,266 2,223
Commercial loans secured and unsecured 501 6,582 4,614
Loans to individuals, installment and other loans 0 901 339
------- ------- -------
Total charge-offs 862 10,749 7,176
------- ------- -------
Recoveries of loans previously charged off:
Real estate secured loans 519 393 2
Commercial loans secured and unsecured 1,106 3,189 1,434
Loans to individuals, installment and other loans 3 244 187
------- ------- -------
Total recoveries of loans previously charged off 1,628 3,826 1,623
------- ------- -------
Net charge-off (recovery) (766) 6,923 5,553
Provision for loan losses 0 450 300
------- ------- -------
Balance at end of period $7,279 $6,513 $7,733
======= ======= =======
Net loan charge-offs (recoveries) as a
percentage of average gross loans outstanding
during the period ended (0.56%) 3.49% 2.68%
======= ======= =======
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 June 30, 1994, nonperforming loans
amounted to $1.0 million, down 24% from $1.4 million at December 31, 1993.
TABLE 4: NONPERFORMING ASSETS
Amounts in thousands of dollars June 30, December 31, June 30,
1994 1993 1993
------ ------ ------
Loans not performing (1) $342 $378 $3,853
Insubstance foreclosures 700 1,000 2,677
------ ------ ------
Total nonperforming loans 1,042 1,378 6,530
Other real estate owned 0 920 3,458
------ ------ ------
Total nonperforming assets $1,042 $2,298 $9,988
====== ====== ======
Allowance for loan losses as a percent of:
Nonperforming loans 699% 473% 118%
Nonperforming assets 699% 283% 77%
Nonperforming assets as a percent of total assets 0.4% 0.8% 3.3%
Nonperforming loans as a percent of total loans 0.7% 1.0% 3.0%
Note 1:
Loans not performing
Performing as agreed $118 $9 $1,361
Partial performance 99 369 2,415
Not performing 125 0 77
------ ------ ------
$342 $378 $3,853
====== ====== ======
Nonaccrual:
Loans $342 $378 $3,071
Troubled debt restructurings 0 0 782
(a) Past due with respect to principal and/or interest and continuing to accrue interest.
SECURITIES
The securities portfolio at June 30, 1994, totaled $58 million, compared to
$88 million at year-end 1993. The securities are all held in a Held for
Investment portfolio. This portfolio is recorded at amortized cost. It is
the Bank's intention to hold these securities to their individual maturity
dates. There was no held for sale portfolio at June 30, 1994 or year-end
1993.
There have been no realized gains or losses on securities in the first half
of 1994. Gains of $77 thousand were realized in the first six months of
1993. At June 30, 1994, there were unrealized gains of $22 thousand and
losses of $1.5 million in the securities portfolio.
Additional information concerning securities is provided in the footnotes
to the accompanying financial statements.
OTHER REAL ESTATE OWNED
At June 30, 1994, there was no Other Real Estate Owned on the Bank's
balance sheet, compared with $920 thousand at December 31, 1993. The
carrying values of these properties are at fair value, 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 an allowance
for real estate owned losses created by charging a provision to other
operating expenses. Expenses related to Other Real Estate Owned were $12
thousand in the six months ended June 30, 1994, with no expenses incurred
in the second quarter. This compares to $75 thousand and $88 thousand in
the three and six month periods ended June 30, 1993.
DEPOSIT CONCENTRATION
Due to its historic focus on real estate-related activities, the Bank
developed a concentration of deposit accounts from title insurance and
escrow companies. These deposits are generally noninterest bearing
transaction accounts that contribute to the Bank's interest margin.
Noninterest expense related to these deposits is included in other
operating expense. The Bank monitors the profitability of these accounts
through an account analysis procedure.
The Bank offers products and services allowing customers to operate with
increased efficiency. A substantial portion of the services, provided
through third party vendors, are automated data processing and accounting
for trust balances maintained on deposit at the Bank. These and other
banking related services, such as messenger and deposit courier services,
will be limited or charged back to the customer if the deposit relationship
profitability does not meet the Bank's expectations.
Noninterest bearing deposits represent nearly the entire title and escrow
relationship. These balances have been reduced substantially as the Bank
focused on middle market business loans. The balance at June 30, 1994, was
$60.9 million compared to $58.1 million at December 31, 1993. Costs
relative to servicing the above relationships are the significant portion
of the Bank's customer data processing and messenger and courier costs.
There have been no significant changes in these costs in the first six
months of 1994.
TABLE 5 REAL ESTATE ESCROW AND TITLE INSURANCE COMPANY DEPOSITS
Average Balance
Six Months Ended Six months ended
Amounts in thousands of dollars June 30, 1994 June 30, 1994
Percent of Percent of
Amount Total Percent of Amount Total Percent of
Deposits Class Deposits Class
-------- -------- -------- -------- -------- --------
June 30, 1994 Balances
Noninterest bearing demand deposits $60,904 25% 49% $51,112 23% 47%
Interest-bearing demand & savings deposits 1,063 1% 1% 2,227 1% 2%
-------- -------- -------- -------- -------- --------
Total deposit concentration $61,967 26% $53,339 24%
======== ======== ========
December 31, 1993 - Year to Date Balances $58,943 25% $70,238 26%
======== ======== ======== ========
The Bank had $15.9 million in certificates of deposit larger than $100
thousand dollars at June 30, 1994. The maturity distribution of these
deposits is relatively short term, with $11.2 million maturing within 3
months and the balance maturing within 12 months.
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.
Sources of liquidity include cash and cash equivalents (net of Federal
Reserve requirements to maintain reserves against deposit liabilities),
securities eligible for pledging to secure borrowings from dealers pursuant
to repurchase agreements, loan repayments, deposits, and borrowings from a
$20 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.
During 1993, the Bank maintained a $20 million line of credit with a major
purchaser of the mortgage loans originated by the mortgage origination
operation. This warehouse line was terminated in conjunction with the sale
of that operation.
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.
The Bank had no Federal Funds purchased or borrowings under repurchase
agreements in the first six months of 1994.
The Bank's historical portfolio of large certificates of deposit (those of
$100 thousand or more) has not been significant relative to the total
deposit base. At June 30, 1994 this funding source was 6.5% of average
deposits, compared to 7.3% at December 31, 1993. This funding source has
traditionally been used to manage liquidity needs within the deposit
portfolio.
TABLE 6 INTEREST RATE MATURITIES OF EARNING ASSETS AND FUNDING LIABILITIES AT JUNE 30, 1994
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
--------- --------- --------- --------- ---------
Earning Assets
Gross Loans $134,149 $803 $2,178 $423 $5,697
Securities 3,036 4,391 3,000 3,003 45,953
Federal funds sold & other 33,000 --- --- --- ---
--------- --------- --------- --------- ---------
Total earning assets 170,185 5,194 5,178 3,426 51,650
--------- --------- --------- --------- ---------
Interest-bearing deposits:
Now and money market 81,346
Savings 8,951
Time certificates of deposit:
Under $100 8,397 2,650 1,225 1,399 106
$100 or more 11,156 3,181 600 835 105
Non interest-bearing demand deposits 45,159 --- --- --- ---
--------- --------- --------- --------- ---------
Total funding liabilities 155,009 5,831 1,825 2,234 211
--------- --------- --------- --------- ---------
Interest rate sensitivity gap 15,176 (637) 3,353 1,192 51,439
--------- --------- --------- --------- ---------
Cumulative interest rate sensitivity gap 15,176 14,539 17,892 19,084 70,523
Off balance sheet financial instruments 0 0 0 0 0
--------- --------- --------- --------- ---------
Net cumulative gap $15,176 $14,539 $17,892 $19,084 $70,523
========= ========= ========= ========= =========
Adjusted cumulative ratio of rate sensitive
assets to rate sensitive liabilities (1) 1.10% 1.09% 1.11% 1.12% 1.43%
========= ========= ========= ========= =========
(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.
Assets and liabilities shown on Table 6 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 $28.2 million at June 30, 1994, compared to
$27.0 million at year-end 1993. This increase was due to earnings, plus the
exercise of stock options. The Bank 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 1994 and
1993, the Bank's capital levels exceeded the "well-capitalized" standards,
the highest classification established by bank regulators.
TABLE 7 CAPITAL RATIOS
Regulatory Standards
June 30, December 31, Adequately Well
1994 1993 Capitalized Capitalized
---- ---- ---- ----
Total Risk Based Capital 17.2% 16.7% 8.0% 10.0%
Tier 1 Risk Base Capital 15.9 15.4 4.0 6.0
Leveraged Capital 10.6 9.2 4.0 5.0
No dividends have been paid in 1994 or 1993. Capital being generated by
current earnings is currently expected to be used to support anticipated
growth of the Bank.
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.
TABLE 8 STOCK PRICES - UNAUDITED
1994 1993
High Low High Low
---- ---- ---- ----
First Quarter $7.50 $6.50 $6.25 $3.38
Second Quarter 7.00 5.75 7.00 4.75
Third Quarter --- --- 6.25 5.00
Fourth Quarter --- --- 7.25 5.75
EARNINGS BY LINE OF BUSINESS
Prior to the sale of the mortgage origination network in November, 1993,
the Bank operated a commercial bank and a mortgage bank as two distinct
business segments. In 1994, real estate lending is generally only done as
part of a commercial banking relationship. For 1994, therefore, the Bank
consists of only a single segment, the commercial banking operation.
Tables 9A and 9B show the pre-tax operating contributions by the Commercial
Banking and Mortgage Banking divisions for the three and six months ended
June 30, 1994 and 1993.
TABLE 9A PRE-TAX OPERATING CONTRIBUTION BY LINE OF BUSINESS (I)
Amounts in thousands of dollars For the three For the three
months ended months ended
June 30, 1994 June 30, 1993
------------- -------------
Commercial Mortgage
Consolidated Consolidated Banking Banking
------------ ------------ ------- -------
Net interest income $3,320 $3,830 $3,479 $351
Provisions for loan losses 0 150 75 75
------ ------ ------ -----
3,320 3,680 3,404 276
Noninterest revenue 592 5,985 179 5,806
------ ------ ------ -----
Total revenues 3,912 9,665 3,583 6,082
------ ------ ------ -----
Salaries and related benefits 1,536 2,822 1,648 1,174
Other operating expenses 2,016 5,906 1,845 4,061
------ ------ ------ -----
Total operating expenses 3,552 8,728 3,493 5,235
------ ------ ------ -----
Operating income 360 937 90 847
Gain on sale of mortgage servicing portfolio 720 --- --- ---
------ ------ ------ -----
Income before taxes $1,080 $937 $90 $847
====== ====== ====== ======
(i) Inter-divisional transactions have been eliminated at the division
level.
TABLE 9B PRE-TAX OPERATING CONTRIBUTION BY LINE OF BUSINESS (I)
Amounts in thousands of dollars For the six For the six
months ended months ended
June 30, 1994 June 30, 1993
------------- -------------
Commercial Mortgage
Consolidated Consolidated Banking Banking
------------ ------------ ------- -------
Net interest income $6,072 $7,644 $7,006 $638
Provisions for loan losses 0 300 225 75
------ ------ ------ ------
6,072 7,344 6,781 563
Noninterest revenue 1,495 10,334 463 9,871
------ ------ ------ ------
Total revenues 7,567 17,678 7,244 10,434
------ ------ ------ ------
Salaries and related benefits 3,079 5,303 3,243 2,060
Other operating expenses 3,958 10,796 3,782 7,014
------ ------ ------ ------
Total operating expenses 7,037 16,099 7,025 9,074
------ ------ ------ ------
Operating income 530 1,579 219 1,360
Gain on sale of mortgage servicing portfolio 1,558 --- --- ---
------ ------ ------ ------
Income before taxes $2,088 $1,579 $219 $1,360
====== ====== ====== ======
(i) Inter-divisional transactions have been eliminated at the division
level.
The Bank continues to take steps to facilitate the expansion and market
penetration of the commercial bank including the creation of loan
production offices, establishment of a Small Business Administration
("SBA") loan production group, and development of an international trade
services group.
Loan production offices have been established in two strategic locations in
southern California. These will serve the San Gabriel Valley area and the
South Bay area. The offices are staffed with seasoned commercial lenders
whose primary focus is business development. Such offices are cost
effective approaches to business development and allow the Bank access to
wider market exposure. While these offices are primarily staffed with
existing personnel, when appropriate, key people with specific market
knowledge and experience have been hired.
The Bank has established a group of lenders to focus on the production of
commercial loans that can be participated with the SBA. These loans are
subject to the same credit quality policies and procedures as all
commercial loan production. Fees generated from the sale of the guaranteed
portion of the loans will be an important new source of noninterest income.
Another new product was added with the creation of an international trade
services group. Many of the Bank's existing commercial customers and
prospects are involved in import and/or export. This product line includes
letters of credit, foreign exchange, and foreign collections, and is
another important element in the total banking relationship offered to our
business customers.
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 $3.3 million and $6.1 million for the three and six month
periods ended June 30, 1994, compared to $3.8 million and $7.6 million for
the comparable periods in 1993. The change is primarily attributable to
changes in volume. As a result of efforts to deal with credit quality
issues and refocus the Bank on middle market business customers, loans
outside target markets have been motivated to leave the Bank. Initially
this has an adverse affect on net interest margin but subsequent growth of
the middle market loan portfolio replaces these assets and provides a more
reliable and valuable source of interest margin.
Table 10 Analysis of Changes in Net Interest Income (1)
Amounts in thousands of dollars Six months ended June 30, Six months ended June 30,
1994 compared to 1993 1993 compared to 1992
--------------------- ---------------------
Increases(Decreases) Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- -------
Interest Income
Loans, net $(2,811) $52 $(2,759) $(2,634) $(92) $(2,726)
Investments 449 (25) 424 (652) (532) (1,184)
Federal Funds Sold 256 39 295 (305) (102) (407)
------- ---- ------- ------- ------- -------
Total interest income (2,106) 66 (2,040) (3,591) (726) (4,317)
------- ---- ------- ------- ------- -------
Interest Expense
Interest-bearing deposits:
Demand 56 (72) (16) (185) (348) (533)
Savings (70) (3) (73) (62) (77) (139)
Time Certificates of deposit:
Under $100 (84) (1) (85) 262 (47) 215
$100 or more (209) 12 (197) (202) (167) (369)
Federal funds purchased / Repos 0 (43) (43) (16) (4) (20)
Other borrowings (60) 6 (54) 0 242 242
------- ---- ------- ------- ------- -------
Total interest expense (367) (101) (468) (203) (401) (604)
------- ---- ------- ------- ------- -------
Net interest income $(1,739) $167 $(1,572) $(3,388) $(325) $(3,713)
======= ==== ======= ======= =======
(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.
Yields on earning assets were approximately 7.5% and 7.1% for the three and
six months ended June 30, 1994, compared to an 8.1% yield for both periods
in 1993. The lower average yield on earning assets in 1994 is largely due
to the higher mix of Fed Funds and government securities held in 1994
compared with higher concentrations of mortgage loans in 1993. Through
October 8, 1993, net interest income continued to benefit from an interest
rate swap agreement, discussed below. Rates on interest-bearing deposits
resulted in an average cost of funds of 2.7% in 1994, compared to 2.9% for
the same period in 1993.
Shrinkage in the Bank's earning asset and funding liability portfolios
contributed to the reduction in net interest income. Average loans during
the second quarter of 1994 decreased $60 million from $191 million in the
second quarter of 1993. As previously discussed, this resulted from the
sale of the held for sale mortgage loans, discussed below, and management's
efforts to improve the quality of the loan portfolio and redirect
production to middle market commercial loans. Earning assets averaged $220
million in 1994, down $23 million from $243 million in the same period of
1993.
Following the sale of the mortgage origination operation, the Bank's funded
warehouse inventory was sold in the normal course of business. The
liquidation of this mortgage loan portfolio is being used to increase the
Bank's investment portfolio and liquidity position. This liquidity will
fund the expected growth of the Bank's core commercial loan portfolio.
While this transition will have a temporary adverse impact on net interest
margin, it facilitates the commercial loan growth planned for 1994.
TABLE 11 AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
Six months ended Six months ended
Amounts in thousands of dollars June 30, 1994 June 30, 1993
------------- -------------
Interest Interest
Income or Annual Income or Annual
Balance Expense Yield or Rate Balance Expense Yield or Rate
-------- -------- ------------- -------- -------- -------------
Interest Earning Assets
Loans, Net $130,601 $6,043 9.25% $191,361 $8,802 9.20%
Investments 65,755 1,290 3.92 40,486 826 4.08
Certificates of Deposit in other banks 1,377 32 4.65 3,903 72 3.69
Federal Funds Sold 22,594 399 3.53 7,652 104 2.72
-------- -------- ---- -------- -------- ----
Total Earning Assets 220,327 7,764 7.05 243,402 9,804 8.06
Non Earning Assets
Cash & Due From Banks 28,762 49,440
Other Assets 8,009 16,795
-------- --------
Total Assets $257,098 $309,637
Interest-bearing Liabilities
Demand $66,945 778 2.32 $62,384 794 2.55
Savings 8,283 101 2.44 14,082 174 2.47
Time Certificates of Deposits
Less Than $100 19,260 349 3.62 23,932 434 3.63
More Than $100 17,318 276 3.19 30,454 473 3.11
Fed Funds Purchased / Repos --- --- --- 2,588 43 3.32
-------- -------- ---- -------- -------- ----
Total Interest-bearing Liabilities 111,806 1,504 2.69 133,440 1,918 2.87
Noninterest-bearing Deposits 109,787 141,375
-------- --------
Total Deposits 221,593 1,504 1.36 274,815 1,918 1.40
Other Borrowings 5,476 188 6.87 7,221 242 6.70
-------- -------- ---- -------- -------- ----
Total Funding Liabilities 227,069 1,692 1.49 282,036 2,160 1.53
Other Liabilities 2,812 2,306
Shareholders' Equity 27,217 25,295
-------- --------
Total Liabilities and Shareholders' Equity $257,098 $309,637
======== ========
Net Interest Income $6,072 5.51% $7,644 6.28%
======== ==== ======== ====
Shareholders' Equity to Total Assets 10.59% 8.17%
===== =====
Expressing net interest income as a percent of average earning assets is
referred to as margin. Margin was 6.03% and 5.51% for the three and six
months ended June 30, 1994, compared to 6.30 and 6.28% for the same periods
in 1993. The Bank's margin is strong because it has funded itself with a
significant amount of noninterest bearing deposits. The lower margin in
1994 is largely due to the maturing of the interest rate swap discussed
below.
Through October 8, 1993, the Bank continued to benefit from an interest
rate swap agreement entered into October 8, 1991, which had a notional
value of $100 million. Under this arrangement, the Bank received a fixed
rate of 8.18% and paid interest at prime rate, which was 6.0% during 1993.
The income earned from the interest rate swap agreement was $543 thousand
and $1.1 million in the three and six month periods ending June 30, 1993.
OTHER OPERATING INCOME
The majority of other operating income in prior years was earned as the
Mortgage Banking Operation originated and sold mortgage loans. The trends
and composition of other operating income are shown in the following table.
TABLE 12A OTHER OPERATING INCOME
Amounts in thousands of dollars For the three For the three
months ended months ended
June 30, 1994 June 30, 1993
------------- -------------
Commercial Mortgage
Consolidated Consolidated Banking Banking
------------ ------------ ------- -------
Processing fees $333 $333
Capitalization of excess servicing rights 128 128
Fees on loans sold $15 311 311
Premium on sales of mortgage loans 15 4,168 4,168
Servicing income 249 523 523
Documentation fees 22 277 $27 250
Other service fees and charges 291 245 160 85
Securities & other nonoperating gains 0 0 0 0
Gain on sale of mortgage servicing portfolio 720 --- --- ---
------ ------ ------ ------
Total $1,312 $5,985 $187 $5,798
====== ====== ====== ======
TABLE 12B OTHER OPERATING INCOME
Amounts in thousands of dollars For the six For the six
months ended months ended
June 30, 1994 June 30, 1993
------------- -------------
Commercial Mortgage
Consolidated Consolidated Banking Banking
------------ ------------ ------- -------
Processing fees $566 $566
Capitalization of excess servicing rights 199 199
Fees on loans sold $15 708 708
Premium on sales of mortgage loans 83 6,793 6,793
Servicing income 714 1,003 1,003
Documentation fees 44 485 $60 425
Other service fees and charges 639 503 324 179
Securities & other nonoperating gains 0 77 77 0
Gain on sale of mortgage servicing portfolio 1,558 --- --- ---
------- ------- ------- -------
Total $3,053 $10,334 $461 $9,873
======= ======= ======= =======
The Mortgage Banking Operation earned fee income on loans originated, and
gains as loans were sold to permanent investors. Loans for which servicing
was retained are conventional mortgages under approximately $200 thousand
which were sold to the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation, and other institutional investors. Excess
servicing rights were capitalized, and related gains recognized, based on
the present value of the servicing cash flows discounted over a period of
seven years. When loan prepayments occur within this period, the remaining
capitalized cost associated with the loan is written off.
The servicing rights were retained by the bank following sale of the
mortgage origination operation. The Bank has entered into an agreement with
the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation to dispose of any remaining portion of this portfolio
by the end of 1994 because, with the sale of the mortgage origination
operation, the Bank is no longer a qualified seller/servicer of such loans.
During the first half of 1994, the bank sold a portion of the retained
servicing rights realizing gains of $838 thousand in the first quarter and
$720 thousand in the second quarter.
OPERATING EXPENSE
Total operating expense for the commercial bank was $3.6 million and $7.0
million in the three and six months ended June 30, 1994, compared to $3.5
million and $7.0 million for the same periods in 1993. Operating expenses
for the consolidated Bank have declined in 1994, primarily due to the sale
of the mortgage origination operation at the end of 1993. The current
level of operating expense is deemed to be adequate and will be leveraged
further as the core middle market business is expanded.
PROVISION FOR LOAN LOSSES
The Bank's made no provision for loan losses in 1994 compared with $150
thousand in the second quarter of 1993. This change in provision was made
possible by the significant reduction of nonperforming loans. The
relationship between the level and trend of the allowance for loan losses
and nonperforming assets, combined with the results of the ongoing review
of credit quality, determine the level of provisions.
LEGAL AND REGULATORY MATTERS
In June 1992, the Bank entered into an agreement with the Office of the
Comptroller of the Currency (OCC), the Bank's primary federal regulator,
which required the implementation of certain policies and procedures for
the operation of the bank to improve lending operations and management of
the loan portfolio. In November 1993, after completion of its annual
examination, the OCC released the Bank from the Formal Agreement.
Following this, the Federal Reserve Bank of San Francisco ("Fed") notified
the Company on November 29, 1993, that the Memorandum of Understanding,
which it had signed, was terminated because the requirements of the
agreement were satisfied.
Consolidated Statements of Financial Condition CU Bancorp and Subsidiary
Amounts in thousands of dollars June 30, December 31,
1994 1993
Assets ---- ----
Cash and due from banks $42,500 $18,440
Federal funds sold 33,000 28,000
------ ------
Total cash and cash equivalents 75,500 46,440
Time deposits with other financial institutions 1,377 1,377
Investment securities (Market value of $56,502 and $87,889
June 30, 1994 and December 31, 1993, respectively) 58,005 88,034
Loans, (Net of allowance for loan losses of $7,279 and $6,513 at
June 30, 1994, and December 31, 1993, respectively) 135,971 134,148
Premises and equipment, net 790 924
Other real estate owned, net 0 920
Accrued interest receivable and other assets 6,754 7,363
-------- --------
Total Assets $278,397 $279,206
======== ========
Liabilities and Shareholders' equity
Deposits:
Demand deposits $122,739 $125,665
Savings deposits 90,297 66,214
Time deposits under $100 13,777 27,753
Time deposits of $100 or more 15,877 19,296
------- -------
Total deposits 242,690 238,928
Accrued interest payable and other liabilities 7,477 13,288
------- -------
Total liabilities 250,167 252,216
------- -------
Shareholders' equity:
Preferred stock, no par value:
Authorized -- 10,000,000 shares
No shares issued or outstanding in 1994 or 1993 --- ---
Common stock, no par value:
Authorized - 20,000,000 shares
Issued and outstanding - 4,437,312 in 1994, and
4,424,306 in 1993. 26,304 26,250
Retained earnings 1,926 740
------- -------
Total Shareholders' equity 28,230 26,990
-------- --------
Total Liabilities and Shareholders' equity $278,397 $279,206
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Income CU Bancorp
and Subsidiary
Amounts in thousands of dollars, For the three months For the six months
except per share data ended June 30, ended June 30,
1994 1993 1994 1993
---- ---- ---- ----
Revenue from earning assets:
Interest and fees on loans $3,211 $3,948 $6,043 $7,721
Benefits of interest rate hedge transactions 0 543 0 1,081
Interest on taxable investment securities 647 343 1,288 805
Interest on tax exempt investment securities 1 11 2 21
Interest on time deposits with other financial institutions 16 35 32 72
Interest on federal funds sold 252 58 399 104
----- ----- ----- -----
Total revenue from earning assets 4,127 4,938 7,764 9,804
----- ----- ----- -----
Cost of funds:
Interest on interest-bearing demand deposits 417 375 778 794
Interest on savings deposits 56 82 101 174
Interest on time deposits under $100 135 272 349 434
Interest on time deposits of $100 or more 133 273 276 473
Interest on federal funds purchased & securities sold
under agreements to repurchase 0 16 0 43
Interest on other borrowings 66 90 188 242
Total cost of funds 807 1,108 1,692 2,160
----- ----- ----- -----
Net revenue from earning assets before provision for
loan losses 3,320 3,830 6,072 7,644
Provision for loan losses 0 150 0 300
----- ----- ----- -----
Net revenue from earning assets 3,320 3,680 6,072 7,344
----- ----- ----- -----
Other operating revenue:
Capitalization of excess servicing rights 0 128 0 199
Servicing income - mortgage loans sold 249 523 714 1,003
Other fees & charges - commercial 301 179 530 385
Fees on loans sold 15 311 15 708
Premium on sales of mortgage loans 15 4,168 83 6,793
Other fees and charges - mortgage 12 676 153 1,169
Gain on sale of mortgage servicing portfolio 720 --- 1,558 ---
Gain on sale of investment securities (before taxes of $0,
and $11, in 1994, 1993, respectively) 0 0 0 28
Gain on sale of securities held for sale (before taxes of $0
and $20 in 1994 and 1993, respectively) 0 0 0 49
----- ----- ----- ------
Total other operating revenue 1,312 5,985 3,053 10,334
----- ----- ----- ------
Other operating expenses:
Salaries and related benefits 1,536 2,822 3,079 5,261
Selling expenses - mortgage loans 120 3,081 246 5,169
Other operating expenses 1,896 2,825 3,712 5,669
----- ----- ----- ------
Total operating expenses 3,552 8,728 7,037 16,099
----- ----- ----- ------
Income before provision for income taxes 1,080 937 2,088 1,579
Provision for income taxes 472 380 902 638
----- ----- ------ ------
Net income $608 $557 $1,186 $941
===== ===== ====== ======
Earnings per share $0.13 $0.12 $0.26 $0.21
===== ===== ====== ======
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statement of Cash Flows CU Bancorp and Subsidiary
Amounts in thousands of dollars For the six months ended June 30,
Increase(decrease) in cash and cash equivalents 1994 1993
---- ----
Cash flows from operating activities
Net income $1,186 $940
------ ------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization 251 416
Amortization of real estate mortgage servicing rights 15 183
Provision for losses on loans and other real estate owned -- 300
Gain on sale of investment securities, net 0 (77)
(Increase) decrease in other assets 1,686 (4,167)
(Decrease) in other liabilities (5,759) (2,436)
(Increase) Decrease in accrued interest receivable (172) 549
Increase in deferred loan fees 84 62
Capitalization of excess mortgage servicing rights 0 (199)
(Decrease) in accrued interest payable (52) (4)
Net amortization of premium on securities 592 149
Accrued benefits from interest rate hedge transactions 0 34
Total adjustments (3,355) (5,190)
------ ------
Net cash provided by operating activities (2,169) (4,250)
------ ------
Cash flows from investing activities
Proceeds from investment securities sold or matured 49,851 58,115
Purchase of investment securities (20,414) 0
Net decrease in time deposits with other financial institutions 0 (2,901)
Net (increase) decrease in loans (1,907) 4,096
(Purchases) of premises and equipment, net (117) (256)
------ ------
Net cash provided by (used in) investing activities 27,413 59,054
------ ------
Cash flows from financing activities
Net increase (decrease) in demand and savings deposits 21,157 (32,700)
Net increase (decrease) in time certificates of deposit (17,395) 11,087
Proceeds from exercise of stock options and director warrants 54 190
------ -------
Net cash provided (used) by financing activities 3,816 (21,423)
------ -------
Net increase in cash and cash equivalents 29,060 33,381
Cash and cash equivalents at beginning of year 46,440 55,989
------- -------
Cash and cash equivalents at end of year $75,500 $89,370
======= =======
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
June 30, 1994
UNAUDITED
Note A. BASIS OF PRESENTATION
The accounting and reporting policies of CU Bancorp ("the Company") and its
wholly owned subsidiary, California United Bank, N.A. ("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.
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.
NOTE C. SECURITIES
The Bank has the intent and ability to hold its investment securities until
maturity. Accordingly, investment 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 no securities classified as "held for sale", indicating the
willingness to sell these securities under certain conditions. These
securities would be 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 financial condition and in the
statements of shareholders' equity.
The following tables set forth the book value and market value, of
investment securities at June 30, 1994.
Gross Gross
Book Unrealized Unrealized Market
(Thousands of dollars) Value Gains Losses Value
------- ------ -------- -------
U.S. Treasury Securities $50,960 $(1,488) $49,472
U.S. Government Agency Securities 5,862 (37) 5,825
State and Municipal Securities 750 $22 772
Federal Reserve Bank Stock 433 433
------- --- ------- -------
Total $58,005 $22 $(1,525) $56,502
======= === ======= =======
At June 30, 1994, investment securities with a book value of $40.5 million
were pledged to secure U.S. District Court deposits and for other purposes
as required or permitted by law. Included in interest on investment
securities is $2 thousand of interest from tax-exempt securities.
Note D. AVERAGE FEDERAL RESERVE BALANCES
The average cash reserve required to be maintained at the Federal Reserve
Bank was approximately $5.8 million, $9.0 million, and $8.8 million for the
periods ending June 30, 1994 and December 31 and June 30, 1993,
respectively.
Note E. 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 F. OTHER REAL ESTATE OWNED
Real estate owned, acquired either through foreclosure or deed in lieu of
foreclosure, is carried at the lower of cost or fair value. When acquired,
any excess of the loan amount over the 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 no
other real estate owned as of June 30, 1994. Other real estate owned at
December 31, and June 30, 1993 was $0.9 million and $3.5 million,
respectively.
Note G. INCOME TAXES
Effective January 1, 1993, the Bank implemented the provisions of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
implementation had no significant impact on the financial condition or
operations of the Bank. 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 H. 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
collectibility 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.
Note I. RECLASSIFICATIONS
Certain items have been reclassified in the prior period financial
statements presented herein, in order to conform to classifications
followed for June 30, 1994.
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, other than as set forth below, pending or threatened
litigation involving the Bank will have no adverse material effect upon its
financial condition, or results of operations.
The Bank is 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, consist 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 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 allege 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 allege that false representations were made, and the investment
merely constituted a "Ponzi" scheme. Other charges relate 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 allege 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 denies the
allegations of wrongdoing.
Damages in excess of $100 million have been alleged, and compensatory and
punitive damages have been sought generally against all defendants,
although no specific damages have been prayed for with regard to the Bank,
nor has there been any apportioning of liability among defendants or
attributable to the various claims asserted. A former officer and director
of the Bank has also been named as a defendant. The Bank and the named
officer/director have notified the Bank's insurance carriers of the various
lawsuits.
In August 1994, the Bank entered into a settlement agreement with the
representatives of the various plaintiffs, which, if approved as more fully
set forth below, will dismiss 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 will release 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 has 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 loans have been charged off, previously. The Bank
will also make a cash payment to the Plaintiffs in connection with the
settlement. In connection with the settlement the Bank will assign its
rights, if any, under various insurance policies, to the Plaintiffs. The
settlement does not resolve the claims asserted against the
officer/director.
The settlement requires the approval of each of the courts in which actions
have been filed, and the Federal Bankruptcy Court. There are a number of
technical issues related to the settlement which must be resolved prior to
its effectiveness.
Note K. REGULATORY MATTERS
On November 2, 1993, the Office of the Comptroller of the Currency ("OCC"),
after completion of their annual examination of the Bank, terminated the
Formal Agreement entered into in June, 1992. In December 1993, the Fed
terminated the Memo of Understanding entered into in August, 1992. The
Formal Agreement had been entered into in June 1992 and required the
implementation of certain policies and procedures for the operation of the
Bank to improve lending operations and management of the loan portfolio.
The Memorandum of Understanding was executed in August 1992.
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
August 11, 1994
By: PATRICK HARTMAN
---------------
Patrick Hartman
Chief Financial Officer
Part II - Other Information
Item 1. Legal Proceedings
Please refer to Notes J and K, on page 26 above, for a complete
discussion of both legal and regulatory 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 Information
None.
Item 6. Exhibits and Filings on Form 8-K
(a) Exhibits:
(10) Material Contracts
(i) Mortgage Servicing Purchase and Sale Agreement
Dated April 1, 1994 pg. 29
(b) Reports on Form 8-K:
None.