SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Quarter Ended September 30, 1996 Commission file number 0-16213
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GBC BANCORP
- --------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-3586596
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
800 West 6th Street, Los Angeles, California 90017
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 213/972-4172
------------
Former name address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 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
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Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the close of the
period covered by this report.
Common stock, no par value, 6,744,685 shares issued and
---------
outstanding as of September 30, 1996.
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION..........................
Item 1. Financial StatementS...........................
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..
PART II OTHER INFORMATION..............................
Item 1. Legal Proceedings..............................
Item 2. Changes In Securities..........................
Item 3. Default Upon Senior Securities.................
Item 4. Submission Of Matters To A Vote Of Securities
Holders .......................................
Item 5. Other Information..............................
Item 6. Exhibits And Reports On Form 8-K...............
PART III SIGNATURES.....................................
PART I - FINANCIAL INFORMATION
GBC Bancorp and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
September 30, December 31,
(In Thousands) 1996 1995
- ---------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and Due From Banks $30,058 $38,837
Federal Funds Sold and Securities Purchased Under
Agreements to Resell 95,000 125,000
Securities Available for Sale at Fair Value 562,065 507,141
Securities Held to Maturity (Fair Value of $15,715 and
$34,370 at September 30, 1996 and December 31, 1995,
Respectively) 15,490 33,553
Loans and Leases 565,745 471,944
Less: Allowance for Credit Losses (16,862) (16,674)
Deferred Loan Fees (3,386) (3,379)
----------------------------
Loans and Leases, Net 545,497 451,891
Bank Premises and Equipment, Net 5,940 6,101
Other Real Estate Owned, Net 13,961 7,686
Due From Customers on Acceptances 4,165 4,703
Real Estate Held for Investment 10,018 12,142
Accrued Interest Receivable and Other Assets 18,435 17,452
----------------------------
Total Assets $1,300,629 $1,204,506
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $138,850 $137,048
Interest Bearing Demand 198,291 200,614
Savings 125,853 129,202
Time Certificates of Deposit of $100,000 or More 508,404 408,289
Other Time Deposits 163,765 171,047
---------------------------
Total Deposits 1,135,163 1,046,200
Federal Funds Purchased and Securities Sold Under
Repurchase Agreements $24,000 $24,000
Subordinated Debt 15,000 15,000
Acceptances Outstanding 4,165 4,703
Accrued Expenses and Other Liabilities 11,920 15,126
---------------------------
Total Liabilities 1,190,248 1,105,029
Stockholders' Equity:
Common Stock, No Par or Stated Value;
20,000,000 Shares Authorized; 6,744,685 and
6,679,661 Shares Outstanding at September 30,
1996 and December 31, 1995, Respectively 46,846 45,658
Securities Valuation Allowance, Net of Tax (765) 1,723
Retained Earnings 64,307 52,103
Foreign Currency Translation Adjustments (7) (7)
----------------------------
Total Stockholders' Equity 110,381 99,477
----------------------------
Total Liabilities and Stockholders' Equity $1,300,629 $1,204,506
============================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
GBC Bancorp and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
(In Thousands, Except Per Share Data) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and Leases, Including Fees $13,245 $11,989 $38,513 $37,039
Securities Available for Sale 8,834 5,336 26,159 15,992
Securities Held to Maturity 354 1,774 1,579 4,841
Federal Funds Sold and Securities
Purchased under Agreements to Resell 1,756 1,770 5,717 4,547
Other - - - 5
-------------------------------------
Total Interest Income 24,189 20,869 71,968 62,424
INTEREST EXPENSE
Interest Bearing Demand 1,094 986 3,349 3,128
Savings 882 1,001 2,763 3,541
Time Deposits of $100,000 or More 6,227 4,633 18,164 12,602
Other Time Deposits 1,958 2,010 6,276 5,706
Federal Funds Purchased and
Securities Sold under Repurchase
Agreements 333 - 1,002 -
Borrowings from the Federal Home Loan
Bank - 360 - 1,064
Subordinated Debt 399 399 1,197 1,197
------------------------------------
Total Interest Expense 10,893 9,389 32,751 27,238
Net Interest Income 13,296 11,480 39,217 35,186
Provision for Credit Losses 1,000 5,550 3,500 15,650
------------------------------------
Net Interest Income after Provision
for Credit Losses 12,296 5,930 35,717 19,536
NON-INTEREST INCOME
Service Charges and Commissions 1,351 1,358 4,156 4,131
Gain/(Loss) on Sale of Loans, Net 20 72 121 54
Gain on Sale of Fixed Assets 5 - 13 9
Gain on Sale of Real Estate Investment - - 101 -
Other 180 130 399 477
-----------------------------------
Total Non-Interest Income 1,556 1,560 4,790 4,671
NON-INTEREST EXPENSE
Salaries and Employee Benefits 3,376 2,574 10,202 7,733
Occupancy Expense 704 698 2,066 2,062
Furniture and Equipment Expense 459 422 1,250 1,213
Net Other Real Estate Owned
(Income)/Expense (310) 735 596 2,272
Other 2,059 1,962 5,505 5,984
------------------------------------
Total Non-Interest Expense 6,288 6,391 19,619 19,264
Income before Income Taxes 7,564 1,099 20,888 4,943
Provision for Income Taxes 2,584 218 6,937 989
------------------------------------
Net Income $4,980 $881 $13,951 $3,954
====================================
Earnings Per Share $0.70 $0.13 $1.96 $0.59
====================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
GBC Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
For the Nine Months Ended
September 30,
(In Thousands) 1996 1995
- ----------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $13,951 $3,954
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 839 783
Net Amortization/(Accretion) of
Premiums/Discounts
on Securities (1,093) (2,579)
Writedowns on Real Estate Held for Investment 1,092 718
Provision for Credit Losses 3,500 15,650
Provision for Losses on Other Real Estate Owned 554 1,218
Amortization of Deferred Loan Fees (2,289) (1,882)
Gain on Sale of Loans (121) (54)
Gain on Sale of Real Estate Investment (101) -
(Gain)/Loss on Sale of Other Real Estate Owned (491) 208
Gain on Sale of Fixed Assets (13) (9)
Loans Originated for Sale (26,617) (41,276)
Proceeds from Sale of Loans Originated for Sale 26,718 32,374
Net Increase in Interest Receivable and
Other Assets (422) (657)
Net Decrease in Accrued Expenses and other
Liabilities (1,951) (1,556)
Other, Net 0 (16)
-------------------------
Net Cash Provided by Operating Activities 13,556 6,876
INVESTING ACTIVITIES:
Purchases of Securities Available for Sale (585,635) (380,275)
Proceeds from Maturities of Securities Available
for Sale 527,475 381,329
Proceeds from Maturities of Securities Held to
Maturity 18,088 46,452
Purchases of Securities Held to Maturity - (54,158)
Net Increase in Loans and Leases (104,301) (2,366)
Capitalized Cost of Other Real Estate Owned (702) -
Proceeds from Sale of Other Real Estate Owned 3,868 6,507
Purchases of Bank Premises and Equipment (689) (553)
Proceeds from Sale of Bank Premises and Equipment 23 18
Proceeds from Sale of Real Estate Investment 1,134 4,235
Purchases/Additions to Real Estate Held for
Investment - (355)
---------------------------
Net Cash (Used)/Provided by Investing
Activities (140,739) 834
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
For the Nine Months Ended
September 30,
(In Thousands) 1996 1995
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES:
<S> <C> <C>
Net Increase/(Decrease) in Demand Deposits $1,802 ($13,531)
Net Decrease in Interest-Bearing Demand Accounts (2,323) (1,605)
Net Decrease in Savings Deposits (3,349) (19,863)
Net Increase in Certificates of Deposits 92,833 97,445
Cash Dividend Paid (1,747) (1,599)
Proceeds from Exercise of Stock Options 1,188 95
----------------------------
Net Cash Provided/(Used) by Financing
Activities 88,404 60,942
----------------------------
Net Change in Cash and Cash Equivalents (38,779) 68,652
Cash and Cash Equivalents at Beginning of Period 163,837 112,359
---------------------------
Cash and Cash Equivalents at End of Period $125,058 $181,011
===========================
Supplemental Disclosures of Cash Flow
Information:
Cash Paid during This Period for:
Interest Paid (Net of Capitalized Interest) $33,373 $27,594
Income Taxes (Net of Tax Refunds) 7,647 450
===========================
Noncash Investing Activities:
Loans Transferred to Other Real Estate Owned $12,209 $8,892
Loans to Facilitate the Sale of Other Real
Estate Owned 2,705 350
===========================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
GBC Bancorp and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In the opinion of management, the consolidated
financial statements of GBC Bancorp and its subsidiaries
(the "Company") as of September 30, 1996 and December 31,
1995, and the three and nine months ended September 30, 1996
and 1995, reflect all adjustments (which consist only of
normal recurring adjustments) necessary for a fair
presentation. In the opinion of management, the
aforementioned consolidated financial statements are in
conformity with generally accepted accounting principles.
Earnings Per Share
Earnings per share are computed based on the weighted
average shares outstanding including common stock
equivalents for the periods disclosed.
Consolidated Statements of Cash Flows
Cash and cash equivalents consist of cash and due from
banks, and federal funds sold and securities purchased under
agreements to resell.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
For the nine months ended September 30, 1996, net
income totaled $13,951,000, an increase of $9,997,000, or
253% from the $3,954,000 earned during the corresponding
period of 1995. Earnings per share for the nine months
ended September 30, 1996 were $1.96 per share compared to
$0.59 per share for the same period of 1995.
The increase in net income was primarily due to a lower
provision for credit losses with an increase in net interest
income also contributing.
The decline of the provision for credit losses in 1996
was caused by the reduction of non-accrual loans, and a
decrease in charge-offs. Non-accrual loans decreased to
$24.1 million at September 30, 1996, as compared to $43.7
million at December 31, 1995, a decline of $19.6 million, or
44.9%. Net charge-offs of $3.3 million were recorded during
the nine months ended September 30, 1996 as compared to
$19.9 million during the corresponding period of 1995. The
allowance for credit losses was $16.9 million as of
September 30, 1996, compared to $16.7 million as of December
31, 1995, representing 3.09% and 3.69% of net loans,
respectively.
Net income for the third quarter of 1996 was
$4,980,000, or $0.70 per share compared to $881,000, or
$0.13 per share, for the corresponding period of 1995. The
quarter represented the third consecutive record quarterly
earnings in the Company's history. As was the case for the
nine months ended September 30, 1996, the increase in the
net income for the third quarter was primarily the result of
a reduced provision for credit losses and an increase in net
interest income.
For the nine months ended September 30, 1996 and 1995,
the return on average assets ("ROA") was 1.43% and 0.49%,
respectively. For the nine months ended September 30, 1996
and 1995, the return on average stockholders' equity ("ROE")
was 17.94% and 5.68%, respectively. The improvement of
these ratios is as explained above.
For the quarter ended September 30, 1996 and 1995, ROA
was 1.51% and 0.32%, respectively, and ROE was 18.6% and
3.6%, respectively. The improvement of these ratios is the
same as for the nine month comparison.
RESULTS OF OPERATIONS
Net Interest Income
For the nine months ended September 30, 1996, net
interest income before the provision for credit losses was
$39,217,000, an increase of $4,031,000, or 11.5%, compared
to the corresponding period of 1995. The increase is
explained in the following paragraphs.
Total interest income for the nine months ended
September 30, 1996 was $71,968,000 compared to $62,424,000
for the corresponding period of a year ago. The $9,544,000,
or 15.3%, increase is primarily the result of a $219.6
million, or 21.7%, increase of average earning assets. The
effect of the increase in average earning assets was
partially offset by a reduced yield. For the nine months
ended September 30, 1996, the yield on average earning
assets was 7.80% compared to 8.24% for the nine months of
the corresponding period of last year.
The reduced yield was primarily due to two factors.
The average national prime rate of interest for the nine
months ended September 30, 1996 was 8.28% compared to 8.86%
for the nine months ended September 30, 1995. In addition,
there was a shift in the composition of earning assets. For
the nine months ended September 30, 1996, average loans and
leases, the highest yielding assets, net of average non-
accrual loans, comprised 39% of total average earning
assets, net of non-accrual loans. For the nine months ended
September 30, 1995, average loans and leases, net of average
non-accrual loans, comprised 46% of total average earning
assets, net of non-accrual loans. The impact of the change
in asset composition was partially offset by a decline of
average non-accrual loans. For the nine months ended
September 30, 1996, average non-accrual loans were $30.2
million, down $19.2 million, or 38.9%, from $49.4 million
for the nine months ended September 30, 1995. The shift in
the asset composition is the result of the growth in average
deposits which was invested primarily in lower yielding
federal funds sold and securities purchased under agreements
to resell and securities available for sale.
Total interest expense for the nine months ended
September 30, 1996 was $32,751,000 compared to $27,238,000
for the corresponding period of a year ago. The increase of
$5,513,000, or 20.2%, was due to an increase of average
deposits. For the nine months ended September 30, 1996 and
1995, average interest bearing deposits were $1,010.3
million and $803.0 million, respectively, an increase of
$207.3 million, or 25.8%. The effect of the interest
bearing deposit increase was partially offset by a reduction
on the rates paid on interest bearing deposits. For the
nine months ended September 30, 1996 and 1995, the rates
paid were 4.04% and 4.16%, respectively. While interest
rates were generally lower during the nine months ended
September 30, 1996, compared to the corresponding period of
a year ago, this was partially offset by the deposit growth
occurring in the higher-costing time certificates of
deposit. For the nine months ending September 30, 1996,
average interest bearing deposits grew $207.3 million
compared to the corresponding period of a year ago. $165.8
million of this increase was in the category of time
certificates of deposit of $100,000 or more, the most costly
deposit product. For the nine months ended September 30,
1996 and 1995, average time certificates of deposit amounted
to $483.1 million and $317.3 million respectively,
representing 48% and 40% of average interest bearing
deposits, respectively.
The net interest spread is defined as the yield on
earning assets less the rates paid on interest bearing
liabilities. For the nine months ending September 30, 1996
and 1995, the net interest spread was 3.63% and 3.95%,
respectively. The decline of the spread is due to the
reasons as described above.
The net interest margin is defined as the difference
between interest income and interest expense divided by
average earning assets and annualized. For the nine months
ended September 30, 1996 and 1995, the net interest margin
was 4.25% and 4.64%, respectively. The decrease in the
margin is the result of the growth of earning assets and the
reduced net interest spread discussed above.
For the quarter ended September 30, 1996 and 1995, net
interest income before the provision for credit losses was
$13,296,000 and $11,480,000, respectively, representing an
increase of $1,816,000, or 15.8%.
Total interest income for the quarter ended September
30, 1996 was $24,189,000, representing a $3,320,000, or
15.9%, increase over the corresponding quarter of a year
ago. The increase was due to a growth of $204.7 million, or
19.8%, of average earning assets, partially offset by a
reduced yield on earning assets. For the quarter ended
September 30, 1996 and 1995, the yield on earning assets was
7.77% and 8.00%, respectively. The decline was for the
reasons described above.
Total interest expense for the quarter ended September
30, 1996 was $10,893,000, representing a $1,504,000, or
16.0%, increase over the corresponding quarter of a year
ago. The increase was due to a growth of $186.3 million of
average interest bearing liabilities, partially offset by a
reduced rate paid on interest bearing liabilities. For the
quarter ended September 30, 1996 and 1995, the rate paid on
interest-bearing liabilities was 4.12% and 4.31%,
respectively. The decline was for the reasons described
above.
Provision for Credit Losses
For the nine months ended September 30, 1996, the
provision for credit losses was $3,500,000, compared to
$15,650,000 for the same period of 1995, a decrease of
$12,150,000, or 77.6%.
The decline of the provision for credit losses was
primarily due to the reduction of non-accrual loans and a
decrease in charge-offs. As of September 30, 1996, non-
accrual loans totaled $24.1 million compared with $43.7
million and $52.1 million as of December 31, 1995 and
September 30, 1995, respectively. Despite the addition of
loans totaling $23.6 million to non-accrual status, the
combination of loans returned to accrual status, repayments
and transfers to OREO caused the reduction of non-accrual
loans. Please refer to the discussion "Non-Performing
Assets," following.
Net charge-offs of $3.3 million were recorded during
the nine months ended September 30, 1996, as compared to
$19.9 million for the corresponding period of 1995.
The amount of the provision for credit losses is
determined by management and is based upon the quality of
the loan portfolio, management's assessment of the economic
environment, evaluations made by regulatory authorities,
historical loan loss experience, collateral values,
assessment of borrowers' ability to repay, and estimates of
potential future losses. Please refer to the discussion
"Allowance for Credit Losses", following.
Non-Interest Income
For the nine months ended September 30, 1996, non-
interest income totaled $4,790,000 representing a $119,000
or 2.5% increase compared to $4,671,000 for the nine months
ended September 30, 1995. The net increase was primarily
due to increases in the net gain on sale of loans and the
recording of a gain on the sale of a real estate investment,
partially offset by a reduction of other income. The
reduction of $78,000 of other income is primarily due to
reduced escrow fees from the Bank's escrow subsidiary.
Non-interest income for the quarter ended September 30,
1996, totaled $1,556,000, representing a $4,000, or 0.3%,
decline compared to $1,560,000 for the quarter ended
September 30, 1995. There were no major changes in any of
the non-interest income categories.
Non-Interest Expense
For the nine months ended September 30, 1996, non-
interest expense was $19,619,000, representing a $355,000,
or 1.8%, increase over $19,264,000 reported for the
corresponding period of a year ago. The increase was due to
a $2,469,000, or 31.9%, growth of salaries and employee
benefits, caused primarily by higher incentive compensation
which is a function of the higher level of pre-tax income.
This was partially offset by reductions of $1,676,000
(73.8%) and $479,000 (8.0%) in net other real estate owned
(income) expense and other expense, respectively. The
reduced net other real estate owned (income) expense was due
to both a reduced amount of OREO expense primarily as a
result of a reduction of $664,000 in the provision for
losses and the inclusion of a net gain from the sale of
properties amounting to ($491,000) compared to the inclusion
of a net loss of $208,000 for the nine months ended
September 30, 1995. The decline of other expense was
primarily attributable to reduced FDIC deposit insurance
expense down $1,300,000 as a result of the upgrading of the
Bank's rating for deposit insurance purposes. This was
partially offset by an increase of legal fee expenses. The
increase of legal expense was due to problem credits.
For the three months ended September 30, 1996, non-
interest expense was $6,288,000, representing a $103,000, or
1.6%, decrease over $6,391,000 reported for the
corresponding period of a year ago. An increase of $802,000
of salaries and employee benefits for reasons as explained
above was more than offset by a $1,045,000 reduction of net
other real estate owned (income) expense. This reduction
was also explained above.
Provision for Income Taxes
For the nine months ended September 30, 1996, the
provision for income taxes was $6,937,000, representing
33.2% of pre-tax income. The provision for the nine months
ended September 30, 1995, was $989,000, representing 20.0%
of pre-tax income. The difference in the effective tax rate
is due to the federal income tax credits related to the low-
income housing investments. As the tax credit has remained
relatively fixed during the nine month periods ended
September 30, 1996 and 1995, and income before income taxes
has increased to $20,888,000 from $4,943,000, the effective
tax rate increased.
For the quarter ended September 30, 1996 and 1995, the
provision for income taxes was $2,584,000 and $218,000,
respectively, representing effective tax rates of 34.2% and
19.8%. The increase in the effective tax rate is as
explained above.
FINANCIAL CONDITION
Total assets as of September 30, 1996, were $1,300.6
million, an increase of $96.1 million from total assets of
$1,204.5 million as of December 31, 1995. The increase was
due to the growth of deposits that was invested primarily in
securities available for sale. As of September 30, 1996 and
December 31, 1995, total deposits were $1,135.2 million and
$1,046.2 million, respectively.
Loans
As of September 30, 1996, total loans and leases
totaled $565.7 million, representing a $93.8 million, or
19.9%, increase from total loans and leases of $471.9
million as of December 31, 1995. With the exception of
installment loans which represents the smallest component of
the Bank's loan portfolio, all categories reflected growth
compared to levels as of December 31, 1995. Such loan
growth is in line with management's intentions for
increasing the loan to deposit ratio of the Company. Please
refer to the discussion "Liquidity and Interest Rate
Sensitivity", following.
The following table sets forth the amount of loans and
leases outstanding by category and the percentage of each
category to the total loans and leases outstanding:
<TABLE>
September 30, 1996 December 31, 1995
(IN THOUSANDS) Amount Percentage Amount Percentage
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $166,034 29.35% $151,709 32.15%
Real Estate -
Construction 68,804 12.16% 53,423 11.32%
Real Estate -
Conventional 261,085 46.15% 239,016 50.64%
Installment 120 0.02% 231 0.05%
Other Loans 28,874 5.10% 22,310 4.73%
Leveraged Leases 828 0.15% 255 0.05%
Term Fed Funds Sold 40,000 7.07% 5,000 1.06%
- ---------------------------------------------------------------------
Total $565,745 100.00% $471,944 100.00%
=====================================================================
</TABLE>
Non-performing Assets
A certain degree of risk is inherent in the extension
of credit. Management believes that it has credit policies
in place to minimize the level of loan losses and non-
performing loans. The Company performs a quarterly
assessment of the credit portfolio to determine the
appropriate level of the allowance. Included in the
assessment is the identification of loan impairment. A loan
is identified as impaired when it is probable that interest
and principal will not be collected according to the
contractual terms of the loan agreement. Loan impairment is
measured by estimating the expected future cash flows and
discounting them at the respective effective interest rate
or by valuing the underlying collateral.
The Company has a policy of classifying loans
(including an impaired loan) which are 90 days past due as
to principal and/or interest as non-accrual loans unless
management determines that the fair value of underlying
collateral is substantially in excess of the loan amount or
circumstances justify treating the loan as fully
collectible. After a loan is placed on non-accrual status,
any interest previously accrued, but not yet collected, is
reversed against current income. A loan is returned to
accrual status only when the borrower has demonstrated the
ability to make future payments of principal and interest as
scheduled, and the borrower has demonstrated a sustained
period of repayment performance in accordance with the
contractual terms. Interest received on non-accrual loans
generally is either applied as principal reduction or
reported as recoveries on amounts previously charged-off,
according to management's judgment as to the collectability
of principal.
The following table provides information with respect
to the Company's past due loans, non-accrual loans,
restructured loans and other real estate owned, net, as of
the dates indicated:
<TABLE>
(IN THOUSANDS) September 30, 1996 December 31, 1995
- ------------------------------------------------------------------
<S> <C> <C>
Loans 90 Days or More Past
Due and Still Accruing $7,448 $9
Non-accrual Loans 24,098 43,712
Total Past Due Loans 31,546 43,721
Restructured Loans 23,202 10,151
Total Non-performing Loans 54,748 53,872
Other Real Estate Owned, Net 13,961 7,686
- ------------------------------------------------------------------
Total Non-performing Assets $68,709 $61,558
==================================================================
</TABLE>
Total non-performing assets increased from $61.6
million as of December 31, 1995 to $68.7 million, as of
September 30, 1996. The net increase of $7.2 million was
due to a $7.4 million increase in loans 90 days or more past
due and still accruing. Non-accrual loans declined $19.6
million from December 31, 1995 to September 30, 1996, which
was offset by an increase of restructured loans by $13.0
million and an increase of Other Real Estate Owned, net, by
$6.3 million.
The category of loans 90 days or more past due and
still accruing totaling $7.4 million, up from $9,000 at year-
end 1995, was comprised of three credits. One of the three
credits representing $5.1 million is well collateralized
with no loss of principal and accrued interest anticipated.
The second credit representing $2.2 million is expected to
be refinanced by another financial institution at full
value.
Non-accrual loans increased by $5.1 million from June
30, 1996 to September 30, 1996 due primarily to one project.
Due to the value of the collateral of this project,
management does not anticipate a loss.
The following table analyzes the decline in non-accrual
loans during the nine months ended September 30, 1996:
<TABLE>
NON-ACCRUAL LOANS (IN THOUSANDS)
- ------------------------------------------------------
<S> <C>
Balance, December 31, 1995 $43,712
Add: Loans placed on non-accrual 23,572
Less: Charge-offs (3,382)
Returned to accrual status (16,043)
Repayments (10,347)
Transfer to OREO (13,414)
Balance, September 30, 1996 $24,098
- ------------------------------------------------------
</TABLE>
Real estate-construction and real estate-conventional
loans as a group comprise 88.5% of the total non-accrual
loans, as of September 30, 1996. Management believes the
collateral underlying these loans provides substantial
protection against the loss of principal.
The following table breaks out the Company's non-
accrual loans by category as of September 30, 1996 and
December 31, 1995:
<TABLE>
(IN THOUSANDS) September 30, 1996 December 31, 1995
- ---------------------------------------------------------------
<S> <C> <C>
Commercial $2,761 $3,802
Real Estate-Construction 7,139 3,630
Real Estate-Conventional 14,198 36,241
Other Loans - 39
- ---------------------------------------------------------------
Total $24,098 $43,712
===============================================================
</TABLE>
Restructured loans consist of sixteen real estate
credits with a balance of $23.2 million as of September 30,
1996. This compares to nine real estate credits with a
balance of $10.2 million as of December 31, 1995. The
increase of the balance of restructured loans was primarily
due to the return to accrual status of six restructured
loans totaling $11.2 million during the nine months ended
September 30, 1996. A loan is returned to accrual status
only when the borrower has demonstrated the ability to make
future payments of principal and interest as scheduled, and
the borrower has demonstrated a sustained period of
repayment performance in accordance with the contractual
terms. Restructured loans which are non-accrual are not
included in the balance of restructured loans, but are
reported as part of the total non-accrual loans. The
weighted average yield of the restructured loans (on accrual
status) as of September 30, 1996, was 10.19% and all were
performing pursuant to the terms and conditions of the
restructuring.
The following table breaks out the restructured loans
by accrual status as of the dates indicated:
<TABLE>
(IN THOUSANDS) September 30, 1996 December 31, 1995
- --------------------------------------------------------------
<S> <C> <C>
RESTRUCTURED LOANS:
On Accrual Status $23,202 $10,151
On Non-accrual Status 3,853 16,727
- --------------------------------------------------------------
Total $27,055 $26,878
==============================================================
</TABLE>
There are no commitments to lend additional funds on
any of the restructured loans including those both on an
accrual status and on non-accrual status.
Other real estate owned ("OREO"), net of valuation
allowance of $1.0 million, totaled $14.0 million,
representing an increase of $6.3 million, or 81.6%, from the
balance of $7.7 million, net of valuation allowance of $0.6
million, as of December 31, 1995. As of September 30, 1996
and December 31, 1995, OREO consisted of 22 properties and
14 properties, respectively. With the exception of 7
properties, all currently outstanding properties were
transferred to OREO status in 1996.
The following table sets forth OREO by property type for the
dates as indicated:
<TABLE>
(IN THOUSANDS) September 30, 1996 December 31, 1995
- ----------------------------------------------------------------
PROPERTY TYPE
<S> <C> <C>
Single-Family Residential $536 $11
Condominium 2,584 509
Multi-Family Residential - 978
Warehouse 77 188
Land for Residential 1,319 1,054
Land for Commercial 735 -
Retail Facilities 5,775 5,289
Office 377 268
Hotel 3,600 -
Less: Valuation Allowance (1,042) (611)
- ----------------------------------------------------------------
Total $13,961 $7,686
================================================================
</TABLE>
The above properties are all included in the Bank's
market area.
Management cannot predict the extent to which the
current economic environment, including the real estate
market, may improve, persist or worsen, or the full impact
such environment may have on the Bank's loan portfolio.
Furthermore, as the Bank's primary regulators review the
loan portfolio as part of their routine, periodic bank
examinations, their assessment of specific credits may
affect the level of the Bank's non-performing loans.
Accordingly, there can be no assurance that other loans will
not become non-performing in the future.
Allowance for Credit Losses
As of September 30, 1996, the balance of the allowance
for credit losses was $16.9 million, representing 2.99% of
outstanding loans and leases. This compares to an allowance
for credit losses of $16.7 million as of December 31, 1995,
representing 3.54% of outstanding loans and leases.
SFAS 114, Accounting by Creditors for Impairment of a
Loan, as amended by SFAS 118, was adopted on January 1,
1995. The following table discloses pertinent information
as it relates to the Company's impaired loans as of and for
the dates indicated:
<TABLE>
As of and for the nine
Impaired Loans months ended Sept. 30,
- -------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995
<S> <C> <C>
Recorded Investment with Related Allowance $31,660 $47,948
Recorded Investment with no Related
Allowance 2,222 2,966
Total Recorded Investment 33,882 50,914
Allowance for Impaired Loans 3,679 7,655
Average Balance of Impaired Loans before
Allowance $38,067 $42,812
- -------------------------------------------------------------------------
</TABLE>
For the nine months ended September 30, 1996, interest
income recognized for impaired loans was $1,696,000. No
interest income was recognized on a cash basis.
The table below summarizes the activity in the total
allowance for credit losses (which amount includes the
allowance on impaired loans), for the nine month periods
ended as indicated:
<TABLE>
(IN THOUSANDS) September 30, 1996 September 30, 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Balance, Beginning of Period $16,674 $23,025
Provision for Credit Losses 3,500 15,650
Charge-offs (5,077) (20,214)
Recoveries 1,765 309
Net Charge-offs (3,312) (19,905)
Balance, End of Period $16,862 $18,770
- ---------------------------------------------------------------------
</TABLE>
As of September 30, 1996, the allowance represents
30.8% of non-performing loans. As of December 31, 1995, the
allowance represented 31.0% of non-performing loans. As of
September 30, 1996, the allowance represents 70.0% of non-
accrual loans. As of December 31, 1995, the allowance
represented 38.1% of non-accrual loans.
Management believes that the allowance for credit
losses is adequate to cover known and inherent losses
related to loans and leases outstanding as of September 30,
1996.
Securities
The Company classifies its securities as held to
maturity or available for sale. Securities classified as
held to maturity are those that the Company has the positive
intent and ability to hold until maturity. These securities
are carried at amortized cost.
Securities that could be sold in response to changes in
interest rates, increased loan demand, liquidity needs,
capital requirements or other similar factors, are
classified as securities available for sale. These
securities are carried at market value, with unrealized
gains or losses reflected net of tax in stockholders'
equity.
As of September 30, 1996, the Company recorded gross
unrealized losses of $1,326,000 on its available-for-sale
portfolio and the inclusion as a separate deduction of
stockholders' equity of $765,000 representing the unrealized
holding loss, net of tax.
The amortized cost, gross unrealized gains, gross
unrealized losses and fair value of securities at September
30, 1996 and December 31, 1995 were as follows:
<TABLE>
September 30, 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AMORTIZED GROSS GROSS FAIR VALUE AMORTIZED GROSS GROSS FAIR
COST UNREALIZED UNREALIZED COST UNREALIZED UNREALIZED VALUE
GAINS LOSSES GAINS LOSSES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Held to
Maturity
State and Municipal
Securities $2,430 $41 - $2,471 $6,460 $154 - $6,614
Collateralized
Mortgage
Obligations 61 6 - 67 82 8 - 90
Asset Backed
Securities 12,999 178 - 13,177 27,011 655 - 27,666
Total Securities
Held to Maturity $15,490 $225 - $15,715 $33,553 $817 - $34,370
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
September 30, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AMORTIZED GROSS GROSS FAIR VALUE AMORTIZED GROSS GROSS FAIR
COST UNREALIZED UNREALIZED COST UNREALIZED UNREALIZED VALUE
GAINS LOSSES GAINS LOSSES
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities
available for sale
U. S. Treasuries $1,926 $- ($42) $1,884 $16,948 $- ($4) $16,944
U.S. Government
Agencies 180,803 - (855) 179,948 222,578 950 - 223,528
Mortgage Backed
Securities 53,282 - (774) 52,508 61,987 212 - 62,199
Corporate Notes 27,016 619 - 27,635 27,016 1,299 - 28,315
Collateralized
Mortgage
Obligations 214,334 - (553) 213,781 133,611 346 - 133,957
Asset Backed
Securities 37,453 204 - 37,657 - - - -
Convertible Bond 250 - - 250 - - - -
Auctioned Preferred
Stock 38,300 - - 38,300 32,200 - - 32,200
Other Sescurities 10,027 75 - 10,102 9,823 175 - 9,998
Total Securities
Available for Sale $563,391 $898 ($2,224) $562,065 $504,163 $2,982 ($4) $507,141
- -----------------------------------------------------------------------------------------------------------
</TABLE>
There were no sales of securities available for sale
during the nine months ended September 30, 1996 and 1995.
There were no sales of securities held to maturity for the
nine months ended September 30, 1996 and 1995.
Deposits
The Company's deposits totaled $1,135.2 million as of
September 30, 1996, representing a $89.0 million , or 8.5%,
increase from total deposits of $1,046.2 million as of
December 31, 1995. The growth is almost entirely represented
by the increase in time certificates of deposit of $100,000
or more, which increased $100.0 million, or 24.5%. The
Company believes that the majority of its deposit customers
have strong ties to the Bank and there is no large
concentration with any major depositors.
The maturity schedule of time certificates of deposit
of $100,000 or more as of September 30, 1996 is as follows:
<TABLE>
(IN THOUSANDS)
- ----------------------------------------------------
<S> <C>
3 Months or Less $366,094
Over 3 Months Through One Year 140,991
Over One Year through 5 Years 1,319
- ----------------------------------------------------
Total $508,404
====================================================
</TABLE>
Regulatory Matters
On April 23, 1996, the Bank was notified by its primary
regulator, the Federal Deposit Insurance Corporation
("FDIC"), that the Memorandum of Understanding dated August
17, 1995, had been terminated based upon the results of a
safety and soundness examination dated January 8, 1996.
The Company's Board of Directors received a letter,
dated July 19, 1996, from the Federal Reserve Bank of San
Francisco (the "Federal Reserve") that indicates that the
existing board resolution which required the Company to
inform the Federal Reserve prior to: (a) declaring cash or
in-kind dividends; (b) incurring debt; (c) repurchasing
stock; or (d) entering into any agreements to acquire any
entities or portfolios, is no longer required. The
Company's Board rescinded the resolution at its August Board
Meeting.
Capital Resources
As of September 30, 1996, stockholders' equity totaled
$110.4 million, an increase of $10.9 million, or 10.96%,
from $99.5 million, as of December 31, 1995. The increase
was due primarily to net income of $14.0 million, less cash
dividends declared to stockholders of $1.8 million, less the
net change in the securities valuation allowance, net of
tax, of $2.5 million for the nine months ended September 30,
1996. In addition, common stock increased by $1.2 million
primarily due to the exercise of the Company's stock
options.
The Company declared a dividend of $0.10 per share
effective for the dividend paid on October 15, 1996, which
was a 25% increase from the former dividend rate of $0.08
per share.
Capital ratios for the Company and for the Bank were as
follows as of the dates indicated:
<TABLE>
Well-Capitalized September 30 December 31
Standards 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
GBC Bancorp
Tier 1 Leverage Ratio 5% 8.23% 8.27%
Tier 1 Risk-Based Capital Ratio 6 12.30 13.83
Total Risk-Based Capital Ratio 10 14.06 15.51
- -----------------------------------------------------------------------
General Bank
Tier 1 Leverage Ratio 5% 8.67% 9.10%
Tier 1 Risk-Based Capital Ratio 6 12.99 15.26
Total Risk-Based Capital Ratio 10 14.24 16.51
- -----------------------------------------------------------------------
</TABLE>
Liquidity and Interest Rate Sensitivity
Liquidity measures the ability of the Company to meet
fluctuations in deposit levels, to fund its operations and
to provide for customers' credit needs. Asset liquidity is
provided by cash and short-term financial instruments which
include federal funds sold and securities purchased under
agreements to resell, unpledged securities held to maturity
maturing within one year and unpledged securities available
for sale. These sources of liquidity amounted to $671.7
million, or 51.6% of total assets as of September 30, 1996,
compared to $614.0 million, or 51.1% of total assets at
December 31, 1995.
To further supplement its liquidity, the Company has
established federal funds lines with correspondent banks and
three master repurchase agreements with major brokerage
companies. In August, 1992 the Federal Home Loan Bank of
San Francisco ("FHLB") granted the Bank a line of credit
equal to 20 percent of assets with terms up to 240 months.
As of September 30, 1996, the Company has no borrowing
outstanding under this financing facility with the FHLB.
Management believes its liquidity sources to be stable and
adequate.
As of September 30, 1996, total loans and leases
represented 49.8% of total deposits. This compares to 45.1%
at December 31, 1995.
Effective asset/liability management includes
maintaining adequate liquidity and minimizing the impact of
future interest rate changes on net interest income. The
Company attempts to manage its interest rate sensitivity on
an on-going basis through the analysis of the repricing
characteristics of its loans, investments, and deposits, and
managing the estimated net interest income volatility by
adjusting the terms of its interest-earning assets and
liabilities, and through the use of derivatives as needed.
As of September 30, 1996, there were no outstanding
derivative contracts.
The Company has only limited involvement with
derivative financial instruments and does not use them for
trading purposes. They are used to manage the interest rate
risk from the origination of fixed rate residential mortgage
loans for sale in the secondary markets.
The Company utilizes Treasury note futures and forward
sales of mortgage-backed securities to hedge interest rate
risk associated with its residential mortgage banking
activities. Futures and forward sale contracts provide for
sale of the underlying securities, including mortgage-backed
securities, at a specified future date, at a specified price
or yield.
The amount of the futures and forward sale contracts is
determined by the aggregate amount of fixed rate commitments
for mortgage loans that are expected to be funded plus the
amount of fixed rate residential mortgages categorized as
being held for sale that have not been sold. The fair value
of the underlying futures and forward sale contracts is
expected to move inversely to the change in fair value of
the mortgage loans.
The Company never intends to deliver the underlying
securities that the futures and forward sale contracts
commit to sell, rather it purchases offsetting contracts to
eliminate the obligation. The Company is exposed to the
risk that the fair value of futures contracts, being based
on the value of the Treasury note will not move
proportionately with the change in value of the mortgage
loans being hedged. This basis risk is unpredictable and
can result in economic loss to the Company. There is no
basis risk related to the use of forward sale contracts on
mortgage-backed securities since their fair value is based
on similar mortgage loans. However, a gain or loss will
arise from the difference between the fair value and the
forward sale price of the mortgage-backed security.
As of September 30, 1996 and December 31, 1995, there
were outstanding fixed rate mortgages held for sale of $1.3
million and $6.3 million. There were no related derivative
instruments outstanding as of September 30, 1996 and
December 31, 1995. For the nine months ended September 30,
1996 and 1995, the Company had realized net losses of $7,000
and $108,000 related to its hedging activities. There were
no unrealized gains/losses related to hedging activities as
of September 30, 1996 and 1995.
Initial margin requirements and daily calls on futures
contracts are met in cash. There are no margin requirements
nor daily calls on forward sale contracts since whole loans
are expected to be delivered to fulfill the commitment.
While no single measure can completely identify the
impact of changes in interest rates on net interest income,
one gauge of interest rate sensitivity is to measure, over
various time periods, the differences in the amounts of the
Company's rate sensitive assets and rate sensitive
liabilities. These differences, or "gaps", provide an
indication of the extent that net interest income may be
affected by future changes in interest rates. However,
these "gaps" do not take into account timing differences
between the repricing of assets and the repricing of
liabilities.
Since interest rate changes do not affect all
categories of assets and liabilities equally or
simultaneously, a cumulative gap analysis alone cannot be
used to evaluate the Company's interest rate sensitivity
position. To supplement traditional gap analysis, the
Company uses simulation modeling to estimate the potential
effects of changing interest rates. This process allows the
Company to more fully explore the complex relationships
within the gap over time and various interest rate
scenarios.
The following table indicates the Company's interest
rate sensitivity position as of September 30, 1996; it may
not be reflective of positions in subsequent periods:
<TABLE>
SEPTEMBER 30, 1996
INTEREST SENSITIVITY PERIOD
- --------------------------------------------------------------------------------------------------------
0 to 90 91 to Over 1 Over Non-
365 Year Interest
(In Thousands) Days Days to 5 5 Years Erng/ Total
Years Bering
- --------------------------------------------------------------------------------------------------------
Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Securities Available for Sale $109,023 $22,989 $186,321 $243,732 $- $562,065
Securities Held to Maturity 3,220 7,254 937 4,079 - 15,490
Federal Funds Sold and
Securities Purchased Under
Agreements to Resell 95,000 - - - - 95,000
Loans (1) (2) 337,632 46,699 77,392 39,924 - 501,647
Loans to Depository
Insititutions 40,000 - - - - 40,000
Non-Earning Assets (2) - - - - 86,427 86,427
---------------------------------------------------------------------
Total Assets $584,875 $76,942 $264,650 $287,735 $86,427 $1,300,629
=====================================================================
Source of Funds for Assets:
Deposits:
Demand $- $- $- $- $138,850 $138,850
Interest Bearing Demand 198,291 - - - - 198,291
Savings 125,853 - - - - 125,853
TCD'S Under $100,000 119,988 42,819 958 - - 163,765
TCD'S $100,000 and Over 366,094 140,991 1,319 - - 508,404
--------------------------------------------------------------------
Total Deposits 810,226 183,810 2,277 - 138,850 1,135,163
====================================================================
Securities Sold Under
Repurchase Agreements $24,000 - - - - $24,000
Subordinated Debt - 3,750 11,250 - - 15,000
Other Liabilities - - - - 16,085 16,085
Stockholders' Equity - - - - 110,381 110,381
--------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $834,226 $187,560 $13,527 $0 $265,316 $1,300,629
=======================================================================
Interest Sensitivity Gap ($249,351) ($110,618) $251,123 $287,735 ($178,889)
Cumulative Interest Sensitivity
Gap
($249,351) ($359,969) ($108,846) $178,889 -
Gap Ratio (% of Total Assets) -19.2% -8.5% 19.3% 22.1% -13.8%
Cumulative Gap Ratio -19.2% -27.7% -8.4% 13.8% 0.0%
</TABLE>
(1) Loans are before unamortized deferred loan fees and
allowance for loan losses.
(2) Nonaccrual loans are included in non-earning assets.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Bank is a defendant in various lawsuits arising
from the normal course of business. No material legal
proceedings to which the Registrant or its subsidiaries is a
party have been initiated or terminated during the quarter
ended September 30, 1996. There have been no significant
developments in any material pending legal proceedings
involving the Registrant or its subsidiaries during this
same quarter.
Item 2. CHANGES IN SECURITIES
There have been no changes in the securities of the
Registrant during the quarter ended September 30, 1996.
Item 3. DEFAULT UPON SENIOR SECURITIES
This item is not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the quarter ended September 30, 1996.
Item 5. OTHER INFORMATION
There are no events to be reported under this item.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: None.
b) Reports on Form 8-K: None.
PART III - SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
GBC Bancorp
(Registrant)
Dated: __________________ s/ ______________________
Li-Pei Wu, Chairman,
President and
Chief Executive Officer
Dated: ___________________ s/ _______________________
Peter Lowe, Executive
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 30,058
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 95,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 562,065
<INVESTMENTS-CARRYING> 15,490
<INVESTMENTS-MARKET> 15,715
<LOANS> 565,745
<ALLOWANCE> 16,862
<TOTAL-ASSETS> 1,300,629
<DEPOSITS> 1,135,163
<SHORT-TERM> 27,750
<LIABILITIES-OTHER> 16,085
<LONG-TERM> 11,250
<COMMON> 46,846
0
0
<OTHER-SE> 63,535
<TOTAL-LIABILITIES-AND-EQUITY> 1,300,629
<INTEREST-LOAN> 38,513
<INTEREST-INVEST> 33,455
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 71,968
<INTEREST-DEPOSIT> 30,552
<INTEREST-EXPENSE> 32,751
<INTEREST-INCOME-NET> 39,217
<LOAN-LOSSES> 3,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 19,619
<INCOME-PRETAX> 20,888
<INCOME-PRE-EXTRAORDINARY> 20,888
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,951
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.94
<YIELD-ACTUAL> 4.25
<LOANS-NON> 24,098
<LOANS-PAST> 7,448
<LOANS-TROUBLED> 23,202
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,674
<CHARGE-OFFS> 5,077
<RECOVERIES> 1,765
<ALLOWANCE-CLOSE> 16,862
<ALLOWANCE-DOMESTIC> 16,862
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
