<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 SEPTEMBER 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.)
165 NASH STREET, LAWRENCEVILLE, GEORGIA 30046
---------------------------------------------
(Address of principal executive offices)
(770) 995-9561
---------------------------------------------
(Issuer's telephone number)
318 WEST PIKE STREET, SUITE 475, LAWRENCEVILLE, GEORGIA 30246
- -------------------------------------------------------------------------------
(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 November 1, 1998: 950,080; $1 par value
Transitional Small Business Disclosure Format (Check One) Yes No X
---- ----
<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 - September 30, 1998........................ 3
Consolidated Statements of Operations and
Comprehensive Loss - Three Months Ended
September 30, 1998 and Nine Months Ended September 30, 1998........... 4
Consolidated Statement of Cash Flows - Nine
Months Ended September 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
SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 1,473,443
Federal funds sold 3,970,000
Securities available-for-sale, at fair value 4,011,145
Loans 20,416,389
Less allowance for loan losses (307,938)
-----------
Loans, net 20,108,451
Premises and equipment 423,902
Other assets 317,554
-----------
TOTAL ASSETS $30,304,495
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
Demand $ 6,033,608
Interest-bearing demand 5,671,462
Savings 2,441,290
Time 7,733,951
-----------
TOTAL DEPOSITS 21,880,311
Other liabilities 200,853
-----------
TOTAL LIABILITIES 22,081,164
-----------
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 (1,267,827)
Accumulated other comprehensive income 14,251
-----------
TOTAL STOCKHOLDERS' EQUITY 8,223,331
-----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $30,304,495
===========
</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 SEPTEMBER 30, 1998
AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Interest income
Loans $ 634,988 $ 1,236,699
Taxable securities 60,824 144,413
Federal funds sold 59,657 336,030
------------------ ------------------
Total interest income 755,469 1,717,142
Interest expense on deposits 178,829 413,737
------------------ ------------------
Net interest income 576,640 1,303,405
Provision for loan losses 111,554 279,240
------------------ ------------------
Net interest income after provision for loan losses 465,086 1,024,165
------------------ ------------------
Other operating income 9,675 17,965
------------------ ------------------
Other expenses
Salaries and other employee benefits 283,200 818,284
Occupancy and equipment expenses 79,062 220,052
Other operating expenses 143,733 345,189
------------------ ------------------
Total other expenses 505,995 1,383,525
------------------ ------------------
Net loss before income taxes (31,234) (341,395)
Income tax expense -- --
------------------ ------------------
Net loss (31,234) (341,395)
------------------ ------------------
Other comprehensive income:
Unrealized gains on securities available-for-sale
arising during period 13,140 14,251
------------------ ------------------
Comprehensive loss $ (18,094) $ (327,144)
================== ==================
Basic and diluted losses per common share $ (0.03) $ (0.36)
================== ==================
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 STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss $ (341,395)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 96,935
Provision for loan losses 279,240
Increase to interest receivable (136,089)
Increase in interest payable 125,193
Other operating activities 50,241
------------
Net cash provided by operating activities 74,125
------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (3,996,894)
Net decrease in Federal funds sold 5,730,000
Net increase in loans (18,545,918)
Purchase of premises and equipment (355,656)
------------
Net cash used in investing activities (17,168,468)
------------
FINANCING ACTIVITIES
Net increase in deposits 17,608,669
------------
Net cash provided by financing activities 17,608,669
------------
Net increase in cash and due from banks 514,326
Cash and due from banks, beginning of period 959,117
------------
Cash and due from banks, end of period $ 1,473,443
============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest: $ 288,544
NONCASH TRANSACTION
Unrealized gains on securities available-for-sale $ 14,251
</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 nine month period ended September 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 September 30, 1998,
the Company had $142,194 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 September 30, 1998, the liquidity ratio of the Bank, as
determined under guidelines established by regulatory authorities, was
satisfactory.
At September 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 29.28 % 28.04 % 4.00 %
Risk-based capital ratios:
Core capital 36.70 35.15 4.00
Total capital 37.95 36.40 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>
SEPTEMBER 30, DECEMBER 31,
1998 1997 INCREASE (DECREASE)
------------------ ----------------- --------------------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENT
--------------------------------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 1,473 $ 959 $ 514 53.60 %
Securities 4,011 - 4,011 -
Federal funds sold 3,970 9,700 (5,730) (59.07)
Loans, net 20,108 1,842 18,266 991.64
Premises and equipment 424 139 285 205.04
Other assets 318 210 108 51.43
------------------ ----------------- --------------
$ 30,304 $ 12,850 $ 17,454 135.83
================== ================= ==============
Deposits $ 21,880 $ 4,272 $ 17,608 412.17 %
Other liabilities 201 28 173 617.86
Stockholders' equity 8,223 8,550 (327) (3.82)
------------------ ----------------- --------------
$ 30,304 $ 12,850 $ 17,454 135.83
================== ================= ==============
</TABLE>
As indicated in the above table, the Company's total assets grew at a rate of
135.83%. This high rate of growth is not uncommon for a de novo bank.
Significant deposit growth of $17,608,000 and a decrease in Federal funds sold
of $5,730,000 has been invested in loans and securities. The Company's loan to
deposit ratio has increased from 43.78% at December 31, 1997 to 93.31% at
September 30, 1998, indicating continued strong loan demand in the Company's
primary market area of Gwinnett County.
8
<PAGE> 9
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998
Following is a summary of the Company's operations for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1998
--------------------- --------------------
(DOLLARS IN THOUSANDS)
-------------------------------------------
<S> <C> <C>
Interest income $ 756 $ 1,717
Interest expense 179 414
Net interest income 577 1,303
Provision for loan losses 112 279
Other income 10 18
Other expense 506 1,383
Net loss (31) (341)
</TABLE>
The Company's net interest income was $577,000 and $1,303,000 for the three and
nine month periods in 1998. The Company's net interest margin increased to 8.33%
during the first nine 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 on short-term construction loans.
The provision for loan losses was $112,000 and $279,000 for the three and nine
months periods in 1998. This amount is due exclusively to loan growth. The
Company's allowance for loan losses amounted to 1.51% at September 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
September 30, 1998 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 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 September 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
September 30, 1998 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1998
----------------
(DOLLARS IN
THOUSANDS)
----------------
<S> <C>
Average amount of loans outstanding $ 10,774
================
Balance of allowance for loan losses at beginning of period $ 29
----------------
Loans charged off
Commercial and financial $ -
Real estate mortgage -
Installment -
----------------
-
----------------
Loans recovered
Commercial and financial -
Real estate mortgage -
Installment -
----------------
-
----------------
Net charge-offs -
----------------
Additions to allowance charged to operating expense during period 279
----------------
Balance of allowance for loan losses at end of period $ 308
================
Ratio of net loans charged off during the period to
average loans outstanding 0%
================
</TABLE>
Other income was $10,000 and $18,000 for the third quarter and first nine months
of 1998 consisting of service charges on deposit accounts and other
miscellaneous fees.
Other expenses were $506,000 and $1,383,000 for the third quarter and first nine
months of 1998. Salaries and employee benefits of $283,000 and $818,000,
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 September 30, 1997.
Therefore, statements of operations and cash flows for the three and nine month
periods ended September 30, 1997 and a comparative analysis to September 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. Further, these systems and components which have been identified as
mission critical are currently being independently tested to insure Year 2000
compliance and will continue to be tested throughout the remainder of 1998 and
1999. In addition, the Company has developed contingency plans to insure Year
2000 risks are minimal. Based on these reviews and tests, management does not
believe the cost of Year 2000 compliance will be material to the Company's
financial statements. 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.
(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.
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: November 13, 1998 BY: /s/ Larry D. Key
---------------------------------------
Larry D. Key, President and Chief
Executive Officer
DATE: November 13, 1998 BY: /s/ John Hopkins
---------------------------------------
John Hopkins, Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,473,443
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,970,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,011,145
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 20,416,389
<ALLOWANCE> 307,938
<TOTAL-ASSETS> 30,304,495
<DEPOSITS> 21,880,311
<SHORT-TERM> 0
<LIABILITIES-OTHER> 200,853
<LONG-TERM> 0
0
0
<COMMON> 950,080
<OTHER-SE> 7,273,251
<TOTAL-LIABILITIES-AND-EQUITY> 30,304,495
<INTEREST-LOAN> 1,236,699
<INTEREST-INVEST> 144,413
<INTEREST-OTHER> 336,030
<INTEREST-TOTAL> 1,717,142
<INTEREST-DEPOSIT> 413,737
<INTEREST-EXPENSE> 413,737
<INTEREST-INCOME-NET> 1,303,405
<LOAN-LOSSES> 279,240
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,383,525
<INCOME-PRETAX> (341,395)
<INCOME-PRE-EXTRAORDINARY> (341,395)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (341,395)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
<YIELD-ACTUAL> 8.33
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 29,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 308,000
<ALLOWANCE-DOMESTIC> 308,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
