CU Bancorp Expects First Loss for Quarter, Full Year : Economy: California United Bank parent, which saw rising profits in the ‘80s, cites recession, real estate slump.


CU Bancorp in Encino has for years produced steadily increasing profits by making loans to small- and medium-size companies and for commercial property. But now the recession and the real estate slump have caught up with CU too.

CU, the parent of California United Bank, announced that it expects to post its first annual loss since it was founded in 1982 after adding $14 million to its loan-loss reserves for the third quarter ending next Monday.

“We wanted to really cover all contingencies,” CU president and chief executive John J. Keating said in an interview. “You’re looking at a California economy still in a deep recession that is not coming out and real estate that is getting worse, not better, and a regulatory environment that is very stringent. When you combine all three things, its prudent to have all bases covered.”

CU also said it expects a loss for the current third quarter--its first quarterly loss--compared with a $1.1-million profit a year earlier. The company also said it would not pay a third-quarter dividend in accordance with its policy of only paying dividends from earnings. CU had paid a 7 1/2-cent dividend per share in the second quarter.


Investors swiftly punished CU’s stock after Friday’s announcement, with the stock tumbling $1.50 a share. But it recovered 50 cents, to close to $6.25, in over-the-counter trading Monday.

After the $14-million loan-loss provision and certain charges that Keating declined to specify, the holding company’s total loan-loss reserves will stand at about $12.5 million, or 4.85% of the bank’s total loans outstanding as of next Monday. For the third quarter last year its loan-loss reserves were equal to 1.77% of total loans.

Keating said the bolstered allowance puts the company in excellent shape to cope with anticipated loan losses, and he expects CU to post a profit in the fourth quarter and next year.

CU’s problems have been building all year. Its earnings in the second quarter were down 40% from a year earlier, and its return on average assets--a key indicator of a bank’s health--had slipped to 0.89% from the 1% that is considered an excellent showing and that CU had regularly achieved.


CU, formerly named Lincoln Bancorp, turned in a string of growing profits during the mid-1980s and within six years of its founding became the second-largest banking company in the San Fernando Valley, after Independence Bank in Encino.

As of June 30, CU had $548.7 million in assets, up a mere 3% from a year earlier. That contrasts with the bank’s seemingly nonstop growth in the mid-1980’s. Its assets soared from $125 million to $300 million between 1984 and 1987.