The brass at CU Bancorp in Encino, Calif., just released from federal marching orders, believe their big-bank backgrounds helped save the small bank.

They're even describing their $297 million-asset California United Bank as a "small commercial regional bank."

That's because the bank is taking small-business borrowers away from California's big players, says CEO Stephen G. Carpenter, formerly of Security Pacific in Los Angeles and Wells Fargo in San Francisco.

Mr. Carpenter took the reins in mid-1992. On June 30 of that year, when the Office of the Comptroller of the Currency issued its orders, hopes for CU's future were plummeting, along with Southern California real estate values.

But now the bank, having jettisoned overhead and bad assets, is back in the game.

In the Black

On Sept. 30, CU posted $566,000 in net income for the third quarter. It had lost $863,000 in the year-earlier quarter.

"We turned it around in just 18 months, and we did it during the lousiest economy I've seen in 32 years of banking," Mr. Carpenter says.

As a result of the rebound, on Nov. 4 the Comptroller's office released the bank from special requirements including the maintenance of 10.5% of Tier 1 capital.

When the Comptroller's orders were issued, the bank had a seemingly healthy 12.2% Tier 1 ratio. But the real estate that served as collateral for its business loans was deteriorating in value, and "the bank had a certain arrogance about it," says Mr. Carpenter.

That attitude and "personality conflicts with the OCC" were among the reasons the agency issued its orders, he adds.

Nonperformers Slashed

In mid-1992, the bank held $21 million of nonperforming loans, an amount slashed to $1 million by Sept. 30 of this year. Nonperforming assets, which totaled $26 million when the orders were issued. now total $4 million.

One of the executives hired to perform asset triage is chief credit officer Anne Williams, formerly with Security Pacific and Bank of America.

Ms. Williams says California United "brought to bear the tools available" at larger institutions.

"We established a true credit department, along with departments for problem loans, workouts, and collateral monitoring," Ms. Williams says.

"We've also dramatically shifted our portfolio away from real estate," she adds. The dollar volume of California United's unsecured loans and those secured by real estate has fallen 45% since mid-1992.

Middle market lending, the bank's primary business, is now secured by the assets of the businesses themselves.

"And we don't want any concentrations of businesses, either," Mr. Carpenter adds. "We want diversity."

To that end, the bank has established departments for marketing, international banking and Small Business Administration loans. Those steps helped add $100 million in loan commitments since the start of the year, says chief operating officer David Rainer, formerly of Security Pacific and Bank of America.

"Only 15% of those commitments represent previous customers," Mr. Rainer says. "The market is wide open for healthy community banks to serve the smaller entrepreneurs. The big banks are mainly after the upper end of the market."

Staff Chopped

Meanwhile, Mr. Rainer adds, CU "hasn't wasted a minute" going after overhead. "We had $21 million in expenses for the commercial side in 1992, and we think it'll be down to $14 million this year."

Total staffing, 175 in June 1992, had fallen to 114 at the start of this year and will drop to 95 after CU hands over to Republic Bancorp of Ann Arbor, Mich., the keys to its mortgage operations. Republic is buying the business for $4 million.

"We're retaining the service portfolio and the long-term earn-out," Mr. Carpenter says. He adds that $80 million of mortgages that California United is holding for sale will, indeed, be sold - and poured back into asset-based middle market loans.

Mr. Carpenter says California United, whose branches are in Encino and Westwood, will add at least two loan production office by the end of the year. CU BancorpAt a Glance Headquarters Encino, Calif. CEO Stephen G. Carperter Founded 1982 Assets $297 million ROA 0.60% ROE 7.96% Allowance fornonperforming 142%assets Allowance fornonperforming 536%loans Share price(Wednesday a.m.) $7.00 Book value $5.97per share Sept. 30 data except as noted

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