<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark One
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
---------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
---------- ----------
COMMISSION FILE NUMBER: 333-19081
GBC Bancorp, Inc.
-------------------------------------
(Exact name of small business issuer as specified in its charter)
Georgia 58-2265327
- ------------------------------- -------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
318 WEST PIKE STREET, SUITE 475, LAWRENCEVILLE, GEORGIA 30246
-------------------------------------------------------------
(Address of principal executive offices)
(770) 995-0000
---------------------------
(Issuer's telephone number)
N/A
---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of August 1, 1998: 950,080; $1 par value
Transitional Small Business Disclosure Format (Check One) Yes No X
--- ---
1
<PAGE> 2
GBC BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET - JUNE 30, 1998......................3
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS - THREE MONTHS ENDED
JUNE 30, 1998 AND SIX MONTHS ENDED JUNE 30, 1998...............4
CONSOLIDATED STATEMENT OF CASH FLOWS - SIX
MONTHS ENDED JUNE 30, 1998.....................................5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............7
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.........................13
SIGNATURES........................................................14
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS
GBC BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and due from banks $ 1,016,493
Federal funds sold 5,840,000
Securities available-for-sale, at fair value 3,998,065
Loans 12,950,232
Less allowance for loan losses 196,382
-------------
Loans, net 12,753,850
Premises and equipment 316,019
Other assets 347,651
-------------
Total assets $ 24,272,078
=============
Liabilities and Stockholders' Equity
Deposits
Demand $ 3,587,278
Interest-bearing demand 3,632,680
Savings 1,746,435
Time 6,958,475
-------------
Total deposits 15,924,868
Other liabilities 105,785
-------------
Total liabilities 16,030,653
-------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $1; 3,000,000 shares authorized;
950,080 shares issued and outstanding 950,080
Capital surplus 8,526,827
Accumulated deficit (1,236,593)
Accumulated other comprehensive income 1,111
-------------
Total stockholders' equity 8,241,425
-------------
Total liabilities and stockholders' equity $ 24,272,078
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
GBC BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
THREE MONTHS ENDED JUNE 30, 1998 AND SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
------------------ ----------------
<S> <C> <C>
Interest income
Loans $ 413,212 $ 601,711
Taxable securities 61,391 83,589
Federal funds sold 113,686 276,373
------------------ ----------------
Total interest income 588,289 961,673
Interest expense on deposits 144,423 234,908
------------------ ----------------
Net interest income 443,866 726,765
Provision for loan losses 89,254 167,686
------------------ ----------------
Net interest income after provision for loan losses 354,612 559,079
------------------ ----------------
Other operating income 4,479 8,290
Other expenses
Salaries and other employee benefits 274,353 535,084
Occupancy and equipment expenses 88,726 140,990
Other operating expenses 104,806 201,456
------------------ ----------------
Total other expenses 467,885 877,530
------------------ ----------------
Net loss before income taxes (108,794) (310,161)
Income tax expense - -
------------------ ----------------
Net loss (108,794) (310,161)
------------------ ----------------
Other comprehensive income:
Unrealized gains on securities available-for-sale
arising during period 1,111 1,111
------------------ ----------------
Comprehensive loss (107,683) (309,050)
================== ================
Basic and diluted losses per common share $ (0.11) $ (0.33)
================== ================
Weighted average shares outstanding (basic and diluted) 950,080 950,080
================== ================
Cash dividends per share of common stock $ - $ -
================== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
GBC BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
1998
-------------
<S> <C>
OPERATING ACTIVITIES
Net loss $ (310,161)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 62,240
Provision for loan losses 167,686
Increase in interest receivable (157,015)
Increase in interest payable 77,696
Other operating activities 2,099
-------------
Net cash used in operating activities (157,455)
-------------
INVESTING ACTIVITIES
Purchase of securities available-for-sale (3,996,954)
Net decrease in Federal funds sold 3,860,000
Net increase in loans (11,079,763)
Purchase of premises and equipment (221,678)
-------------
Net cash used in investing activities (11,438,395)
-------------
FINANCING ACTIVITIES
Net increase in deposits 11,653,226
-------------
Net cash provided by financing activities 11,653,226
-------------
Net increase in cash and due from banks 57,376
Cash and due from banks, beginning of period 959,117
-------------
Cash and due from banks, end of period $ 1,016,493
=============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest: $ 157,212
NONCASH TRANSACTION
Unrealized gains on securities available-for-sale $ 1,111
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
GBC BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The consolidated financial information included herein is
unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement
of results for the interim period.
The results of operations for the six month period ended June
30, 1998 is not necessarily indicative of the results to be
expected for the full year.
NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS
The adoption of the provisions of SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" that became effective on
January 1, 1998 did not have a material effect on the
Company's financial statements.
The adoption of SFAS No. 130, "Reporting Comprehensive
Income", that became effective on January 1, 1998 required the
Company to report comprehensive income in the Company's
Statements of Operations and Comprehensive Loss.
The Financial Accounting Standards Board has issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments imbedded in other contracts and for
hedging activities. It requires that all derivatives be
recognized as either assets or liabilities at fair value. The
accounting for changes in the fair value of derivative
instruments (gains and losses) depends on the intended use of
the derivative. Designated uses are fair value hedges, cash
flow hedges, and foreign currency hedges. The effective date
of this statement is for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company has not assessed
the impact that this statement will have on the financial
statements.
In April of 1998, the Accounting Standards Executive Committee
issued Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start Up Activities". SOP 98-5 requires that costs of
start-up activities and organization costs be expensed as
incurred. SOP 98-5 becomes effective for financial statements
for fiscal years beginning after December 15, 1998. However,
early adoption is encouraged for fiscal years in which
financial statements have not been issued. As of June 30,
1998, the Company had $150,938 of unamortized organization
costs which will be required to be written off upon adoption
of SOP 98-5.
There are no other recent accounting pronouncements that have
had, or are expected to have, a material effect on the
Company's financial statements.
6
<PAGE> 7
GBC BANCORP, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of
certain significant factors which have affected the financial
position and operating results of the Company and its bank
subsidiary, Gwinnett Banking Company (the "Bank"), during the
periods included in the accompanying consolidated financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the liquidity ratio of the Bank, as
determined under guidelines established by regulatory
authorities, was satisfactory.
At June 30, 1998, the capital ratios of the Company and the
Bank were adequate based on regulatory minimum capital
requirements. The minimum capital requirements and the actual
capital ratios for the Company and the Bank are as follows:
<TABLE>
<CAPTION>
ACTUAL
--------------------
GBC GWINNETT
BANCORP, BANKING REGULATORY
INC. COMPANY REQUIREMENT
-------- --------- -----------
<S> <C> <C> <C>
Leverage capital ratios 34.63% 33.16% 4.00%
Risk-based capital ratios:
Core capital 54.26 51.95 4.00
Total capital 55.50 53.20 8.00
</TABLE>
As the Company continues to grow, the capital ratios will
decrease rapidly to levels closer to, but still in excess of
regulatory minimum requirements.
7
<PAGE> 8
FINANCIAL CONDITION
Following is a summary of the Company's balance sheets for the periods
indicated:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997 INCREASE (DECREASE)
--------- ------------ -------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENT
------------------------ -------- --------
<S> <C> <C> <C> <C>
Cash and due from banks $ 1,016 $ 959 $ 57 5.94%
Securities 3,998 -- 3,998 --
Federal funds sold 5,840 9,700 (3,860) (39.79)
Loans, net 12,754 1,842 10,912 592.40
Premises and equipment 316 139 177 127.34
Other assets 348 210 138 65.71
-------- -------- --------
$ 24,272 $ 12,850 $ 11,422 88.89
======== ======== ========
Deposits $ 15,925 $ 4,272 $ 11,653 272.78%
Other liabilities 106 28 78 278.57
Stockholders' equity 8,241 8,550 (309) (3.61)
-------- -------- --------
$ 24,272 $ 12,850 $ 11,422 88.89
======== ======== ========
</TABLE>
As indicated in the above table, the Company's total assets grew at a rate of
88.89%. This high rate of growth is not uncommon for a de novo bank. Significant
deposit growth of $11,653,000 and a decrease in Federal funds sold of $3,860,000
has been invested in loans and securities. The Company's loan to deposit ratio
has increased from 43.78% at December 31, 1997 to 81.32% at June 30, 1998,
indicating strong loan demand in the Company's primary market area of Gwinnett
County.
8
<PAGE> 9
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND FOR THE SIX
MONTHS ENDED JUNE 30, 1998
Following is a summary of the Company's operations for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1998
---------------------------------
(DOLLARS IN THOUSANDS)
---------------------------------
<S> <C> <C>
Interest income $ 588 $ 962
Interest expense 144 235
Net interest income 444 727
Provision for loan losses 89 168
Other income 4 8
Other expense 468 877
Net loss (109) (310)
</TABLE>
The Company's net interest income was $444,000 and $727,000 for the three and
six month periods in 1998. The Company's net interest margin increased to 8.01%
during the first six months of 1998 as compared to 5.74% for the previous year.
The increase in the net interest margin is due primarily to the significant loan
growth and related loan fees.
The provision for loan losses was $89,000 and $168,000 for the three and six
months periods in 1998. This amount is due exclusively to loan growth. The
Company's allowance for loan losses amounted to 1.52% at June 30, 1998 as
compared to 1.53% at December 31, 1997. The allowance for loan losses is
maintained at a level that is deemed appropriate by management to adequately
cover all known and inherent risks in the loan portfolio. Management's
evaluation of the loan portfolio includes a continuing review of loan loss
experience, current economic conditions which may affect the borrower's ability
to repay and the underlying collateral value.
9
<PAGE> 10
Information with respect to nonaccrual, past due and restructured loans at June
30, 1998 is as follows:
<TABLE>
<CAPTION>
JUNE 30,
1998
-------------
(DOLLARS IN
THOUSANDS)
-------------
<S> <C>
Nonaccrual loans $ -
Loans contractually past due ninety days or more as to interest
or principal payments and still accruing -
Restructured loans -
Loans, now current about which there are serious doubts as to the
ability of the borrower to comply with loan repayment terms -
Interest income that would have been recorded on nonaccrual
and restructured loans under original terms -
Interest income that was recorded on nonaccrual and restructured loans -
</TABLE>
It is the policy of the Bank to discontinue the accrual of interest income when,
in the opinion of management, collection of such interest becomes doubtful. This
status is accorded such interest when (1) there is a significant deterioration
in the financial condition of the borrower and full repayment of principal and
interest is not expected and (2) the principal or interest is more than ninety
days past due, unless the loan is both well-secured and in the process of
collection.
As of June 30, 1998, the Company had no loans classified for regulatory
purposes.
10
<PAGE> 11
Information regarding certain loans and allowance for loan loss data through
June 30, 1998 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1998
-----------
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
Average amount of loans outstanding $ 7,065
========
Balance of allowance for loan losses at beginning of period $ 29
--------
Loans charged off
Commercial and financial $ -
Real estate mortgage -
Instalment -
--------
-
--------
Loans recovered
Commercial and financial -
Real estate mortgage -
Instalment -
--------
-
--------
Net charge-offs -
--------
Additions to allowance charged to operating expense during period 167
--------
Balance of allowance for loan losses at end of period $ 196
========
Ratio of net loans charged off during the period to
average loans outstanding 0%
========
</TABLE>
Other income was $4,000 and $8,000 for the second quarter and first six months
of 1998 consisting of service charges on deposit accounts and other
miscellaneous fees.
Other expenses were $468,000 and $877,000 for the second quarter and first six
months of 1998. Salaries and employee benefits of $274,000 and $551,000,
respectively, were the largest components of total other expenses.
The Company has recorded no provision for income taxes due to cumulative net
operating losses.
The Company was still in its organizational stage as of June 30, 1997.
Therefore, statements of operations and cash flows for the three and six month
periods ended June 30, 1997 and a comparative analysis to June 30, 1998 are not
presented.
11
<PAGE> 12
Capability of Data Processing Software to Accommodate the Year 2000
The Company relies heavily on computers for the daily conduct of their business
and for data processing generally. There is concern among industry experts that
commencing on January 1, 2000, computers will be unable to "read" the new year
and there may be widespread computer malfunctions.
The Company has conducted a comprehensive review of its computer systems,
programs, applications and other electronic components used in the operations of
the Company to identify the areas that should be affected by the Year 2000
issue, and has developed a plan to identify non-compliant components. This is a
continuing process as testing will be performed throughout the remainder of 1998
and 1999. Based on the review of computer and other components, management does
not believe the cost of compliance will be material to the Company's financial
statements, although there can be no assurances in this regard. Management also
believes that the Company is in substantial compliance with regulatory timetable
requirements regarding the year 2000 issue.
The Company is not aware of any known trends, events or uncertainties, other
than the effect of events as described above, that will have or that are
reasonably likely to have a material effect on its liquidity, capital resources
or operations. The Company is also not aware of any current recommendations by
the regulatory authorities which, if they were implemented, would have such an
effect.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C>
(a) Exhibits.
3.1 Articles of Incorporation of the Company, as
amended (incorporated by reference from
Exhibit 3.1 to the Registration Statement on
Form SB-2, as amended (Registration No.
333-19081)).
3.2 Bylaws of the Company (incorporated by
reference from Exhibit 3.2 to the
Registration Statement on Form SB-2, as
amended (Registration No. 333-19081)).
4.1 Specimen Common Stock Certificate
(incorporated by reference from Exhibit 4.2
to the Registration Statement on Form SB-2 as
amended (Registration No. 333-19081)).
10.1 Provesa, Inc. Data Processing Agreement
(incorporated by reference from Exhibit 10.3 to
the Registration Statement on Form SB-2, as
amended (Registration No. 333-19081)).
10.2 Real Estate Commercial Lease Contract dated
as of March 17, 1998, by and between GBC
Properties, LLC and Gwinnett Banking Company
(incorporated by reference from Exhibit 10.4
to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997).
21.1 Subsidiaries of the Registrant (incorporated
by reference from Exhibit 21.1 to the
Registration Statement on Form SB-2, as
amended (Registration No. 333-19081)).
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
None.
</TABLE>
13
<PAGE> 14
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GBC BANCORP, INC.
(Registrant)
DATE: 8/12/98 BY: /s/ Larry D. Key
--------------------- ---------------------------------------
Larry D. Key, President and
Chief Executive Officer
DATE: 8/12/98 BY: /s/ John Hopkins
--------------------- ----------------------------------------
John Hopkins, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,016,493
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,840,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,998,065
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 12,950,232
<ALLOWANCE> 196,382
<TOTAL-ASSETS> 24,272,078
<DEPOSITS> 15,924,868
<SHORT-TERM> 0
<LIABILITIES-OTHER> 105,785
<LONG-TERM> 0
0
0
<COMMON> 950,080
<OTHER-SE> 7,391,345
<TOTAL-LIABILITIES-AND-EQUITY> 24,272,078
<INTEREST-LOAN> 601,711
<INTEREST-INVEST> 83,589
<INTEREST-OTHER> 276,373
<INTEREST-TOTAL> 961,673
<INTEREST-DEPOSIT> 234,908
<INTEREST-EXPENSE> 234,908
<INTEREST-INCOME-NET> 726,765
<LOAN-LOSSES> 167,686
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 877,530
<INCOME-PRETAX> (310,161)
<INCOME-PRE-EXTRAORDINARY> (310,161)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (310,161)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> .33
<YIELD-ACTUAL> 8.01
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 29,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 196,000
<ALLOWANCE-DOMESTIC> 196,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
