Of the many small California banks that have struggled in recent years, one dramatic tumaround is Encino-based CU Bancorp. "We're trying to build a |fortress balance sheet' with solid capital, solid reserves, and high loan loss provisions," says CEO Stephen G. Carpenter.

CU, parent of California United Bank, last year returned minus 1.89% on assets and minus 26.06% on equity. This year, the assets returned 0.60% and the equity 7.5%

Mr. Carpenter picked up the "fortress" term during his days at Wells Fargo & Co., San Francisco. When $331 million-asset CU Bancorp recruited him, he was vice chairman of Security Pacific Bank, Los Angeles. He took CU's helm in June 1992.

His specialty at Security was private banking and middlemarket lending. Now that Mr. Carpenter has jettisoned $100 million worth of problem assets, and built up reserves, "he's strengthened his balance sheet to where he's now in a position to take put his [middle-market] expertise into play," says Campbell Chaney, bank analyst for Dakin Securities, San Francisco.

In the past, the bank largely pursued business lending tied indirectly to real estate, and "when the realtors' business dried up, you had your defaults," Mr. Chaney says.

"What's unique," he adds, "is that the nonperformers are still decreasing. He's cut out a cancer and it turned out it be benign."

|Tremendous Opportunities'

In Southem California, "there are tremendous opportunities," Mr. Carpenter said. He agreed that environmental regulation and economic weakness are impeding a rebound, but said, "In a 60-mile radius around Los Angeles you've got the 11th largest GNP in the world.

"I want to be in position to take advantage of that when the economy turns, so we did everything in our power to get rid of the bad assets. We're also turning away from transaction banking and turning toward relationship banking with manufacturers and distributors."

Mr. Chaney says "many California banks are ... not providing for any future strategies. Those that do will survive."

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