<PAGE>
FORM 10K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 0-16213
----------------- -------
GBC BANCORP
------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3586596
- ---------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
800 West 6th Street, Los Angeles, CA 90017
- --------------------------------------- -----
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code (213) 972-4172
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: None Name of each exchange on which registered: None
- ------------------------- -----------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
---------------------------------
(Title of class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
As of January 31, 1996, the aggregate market value of the common stock held
by non-affiliates of the registrant was $119,576,403.
The number of shares of common stock of the registrant outstanding as of
February 29, 1996 was 6,689,589.
The following documents are incorporated by reference herein:
Part of Form 10-K
Documents Incorporated by Reference Into which Incorporated
- ----------------------------------- ------------------------
1995 Annual Report to Shareholders Part II Items 6, 7 and 8
and Part IV
Definitive Proxy Statement for the
Annual Meeting of Shareholders
filed within 120 days of the fiscal
year ended December 31, 1995 Part II Item 9 and Part III
Exhibit Index on Pages 21-23
-----
1
<PAGE>
FORM 10-K
TABLE OF CONTENTS AND CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Page in Incorporation
PART I 10-k by reference
------- -------------
<S> <C> <C> <C>
Item 1. Business............................................. 3
Item 2. Properties........................................... 12
Item 3. Legal Proceedings.................................... 13
Item 4. Submission of Matters to a Vote of Security Holders.. 13
Executive Officers of the Registrant............................... 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Security Holder Matters.............................. 15
Item 6. Selected Financial Data.............................. 16 1995 Annual Report
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 16 1995 Annual Report
Item 8. Financial Statements and Supplementary Data.......... 16 1995 Annual Report
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 16 1996 Proxy Statement
PART III
Item 10. Directors and Executive Officers of the Registrant... 17 1996 Proxy Statement
Item 11. Executive Compensation............................... 17 1996 Proxy Statement
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................... 17 1996 Proxy Statement
Item 13. Certain Relationships and Related Transactions....... 17 1996 Proxy Statement
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K............................................ 18 1995 Annual Report
SIGNATURES......................................................... 19
EXHIBIT INDEX...................................................... 21
</TABLE>
2
<PAGE>
PART I
ITEM 1 BUSINESS
GBC Bancorp (the "Company"), a California corporation incorporated in 1980,
is a registered bank holding company under the Bank Holding Company Act of 1956,
as amended, and is headquartered at 800 West 6th Street in Los Angeles,
California. The Company owns all of the outstanding stock of General Bank (the
"Bank"), a California state-chartered bank which commenced operations in March,
1980. GBC Bancorp functions primarily as a holding company for the Bank.
Under a plan of reorganization and merger agreement dated February 23,
1981, as amended on March 31, 1981 and approved by the shareholders of General
Bank, the Bank became a wholly-owned subsidiary of GBC Bancorp (the
"Registrant"), and each share of common stock of the Bank was automatically
converted into one share of common stock (no par value) of GBC Bancorp. The
merger received regulatory approval and was consummated in October, 1981.
The Bank has conducted the business of a commercial bank since March, 1980.
The Bank is a community bank that serves individuals and small to medium-sized
businesses through fifteen branch offices located in the greater Los Angeles,
San Diego and Silicon Valley areas. On March 4, 1994, the Bank moved its
headquarters to a new downtown location at 800 West 6th Street, Los Angeles, CA
90017. The Bank has an operations center in Rosemead and has branches located in
downtown Los Angeles, Monterey Park, Torrance, Artesia, Alhambra, City of
Industry, Irvine, San Diego, Arcadia, Diamond Bar, Northridge, Orange,
Cupertino, San Mateo and Fremont.
The Bank offers a variety of banking services to its customers, including
accepting checking, savings and time deposits; making secured and unsecured
loans; offering traveler's checks, safe deposit boxes, credit cards and other
fee-based services; and providing international trade related services. In
addition, as of December 31, 1993, the Bank offers escrow services through its
subsidiary, Southern Counties Escrow.
The Bank's primary emphasis is on commercial and real estate lending, real
estate construction lending, and, to a lesser extent, consumer lending and
residential mortgage lending.
The Bank maintains an International Banking Division, which facilitates
international trade by providing financing, letter of credit services and
collections, as well as other international trade-related banking services. The
Bank does not make loans to foreign banks, foreign governments or their central
banks, or commercial and industrial loans to entities domiciled outside of the
United States, except for the extension of overdraft privileges to its foreign
correspondent banks on a limited, case by case, basis.
3
<PAGE>
In November, 1989, the Bank acquired a California Small Business
Administration "SBA" lending company and established an SBA lending division to
provide loans for small to medium-sized businesses under the Small Business
Administration 7-A guarantee program. Loans range from $50,000 to $1,000,000
with maturities from 7 to 25 years. As of December 31, 1995, the Bank's SBA
servicing portfolio was approximately $83 million. The Bank currently is one of
the 30 largest lenders in the Los Angeles District Office of SBA.
In late 1992, the Bank established a Residential Mortgage Department to
expand its product lines. During 1993, the Bank became a direct lender for the
conforming loans of the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC") as well as investor's jumbo
loans. The servicing portfolio as of December 31, 1995 amounted to
approximately $68 million. Loan originations during 1995 were approximately $55
million.
In March of 1985, the Bank received approval from the California State
Banking Department to engage in real estate activities pursuant to California
Financial Code Section 751.3. GBC Real Estate Company, Inc., a subsidiary of
the Bank, was incorporated on July 26, 1989. The enactment of the Federal
Deposit Insurance Corporation Improvements Act of 1991 ("FDICIA"), among other
things, phases out the ability of banks to directly or indirectly invest in real
estate for non-banking purposes. In order to be in compliance, the Company will
close its subsidiary, by December 31, 1996, as is required by FDICIA. No
material financial impact is expected. As of December 31, 1995, the Bank's net
total investment in real estate on the books of GBC Real Estate Company, Inc.
was $1,954,000. This amount includes $825,000 of capitalized interest which is
eliminated upon consolidation of GBC Real Estate Company with its parent,
General Bank.
In November of 1988, California voters passed Proposition 103 allowing
state chartered banks or bank holding companies to be licensed as insurance
agents or brokers. GB Insurance Services, Inc., a subsidiary of the Bank, was
incorporated on March 9, 1990. Its name was changed to GBC Insurance Services,
Inc. on July 17, 1990, and it obtained its state license in August, 1990 to
operate exclusively as a full service insurance agent/broker to provide
additional financial services to the Bank's customers. As of December 31, 1995
and for the year ended December 31, 1995, GBC Insurance Services, Inc. reported
total assets of $21,000 and a net loss of $84,000, respectively.
In July, 1989, GBC Investment & Consulting Company, Inc., a subsidiary of
the Bank, was incorporated to provide specific, in-depth expertise in the areas
of investment and consultation on an international and domestic basis. A branch
office in Taipei, Taiwan was established at the end of June, 1990 to coordinate
and develop business between the Bank and prospective customers in Taiwan and
other Asian countries. As of December 31, 1995 and for the year ended December
31, 1995, GBC Investment & Consulting Company, Inc. reported total assets of
$16,000 and a net loss of $42,000, respectively.
4
<PAGE>
In December, 1993, a leasing subsidiary of the Bank was formed under the
name of GBC Leasing Company, Inc., to acquire various assets, such as equipment
on lease, promissory notes and leases and/or partnership interests in
partnerships owning such types of assets, in exchange for its common stock in
transfers qualifying as a tax free exchange of property described in Section 351
of the Internal Revenue Code of 1986, as amended. As of December 31, 1995 and
for the year ended December 31, 1995, GBC Leasing Company, Inc. reported total
assets of $407,000 and a net loss of $29,000, respectively.
In December, 1993, General Bank purchased Southern Counties Escrow, a
38-year old company which provides escrow services primarily for business and
commercial and residential developers. As of December 31, 1995 and for the year
ended December 31, 1995, Southern Counties Escrow reported total assets of
$161,000 and a net income of $48,000.
The Bank actively competes for deposits and loans with other banks and
financial institutions located in its service area. Interest rates, customer
service and legal lending limits are the principal competitive factors, and
increasing deregulation of financial institutions has expanded competition. In
order to compete with other financial institutions in its service area, the Bank
relies principally upon providing quality service to its customers, personal
contact by its officers, directors, employees and stockholders, and local
promotional activity. Competitors presently include ethnic banks serving the
Asian population in Southern and Northern California, as well as major banks
with extensive branch systems operating over a wide geographic area. Many of
the banks have greater financial resources and facilities than the Bank and many
offer certain services, such as trust services, not currently offered by the
Bank.
Congress passed legislation in 1994 to remove geographic restrictions on
bank expansion. The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 removes state law barriers to acquisitions in all states and allows
multi-state banking operations to merge into a single bank with interstate
branches. Interstate banking and branching authority will be subject to certain
conditions and restrictions, such as capital adequacy, management, and CRA
compliance. The new law replaces a patchwork of state laws with a uniform
federal standard. Under the law, bank holding companies will be able to acquire
banks in any state, subject to certain conditions. This provision became
effective one year after the date of enactment. Interstate branching will be
permitted by allowing banks to merge across state lines to form a single
institution. The interstate branching provisions will become effective on June
1, 1997 unless a state takes action before that time. A state can pass laws to
opt out completely as long as they act before June 1, 1997. California has
opted into this legislation.
As a California state-chartered bank whose accounts are insured by the
Federal Deposit Insurance Corporation (the "FDIC"), the Bank is subject to
regulation, supervision and regular examination by the California State Banking
Department and by
5
<PAGE>
the FDIC. In addition, while the Bank is not a member of the Federal Reserve
System ("FRB"), it is subject to certain regulations issued by the Board of
Governors of the FRB. The regulations of these agencies govern most aspects
of the Bank's business, including the filing of periodic reports by the Bank,
and the Bank's activities relating to dividends, investments, loans,
borrowings, capital requirements, certain check-clearing activities,
branching, mergers and acquisitions, reserves against deposits and numerous
other areas.
To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to the
provisions described. No assurance can be given that such statutes or
regulations will not change in the future.
The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, including, but not limited to, filing annual,
quarterly and other current reports with the Securities and Exchange Commission.
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "BHC Act"), and is registered as
such with the FRB. A bank holding company is required to file with the FRB
annual reports and other information regarding its business operations and those
of its subsidiaries. It is also subject to examination by the FRB and is
required to obtain FRB approval before acquiring, directly or indirectly,
ownership or control of any voting shares of any bank if, after such
acquisition, it would directly or indirectly own or control more than 5% of the
voting stock of that bank, unless it already owns a majority of the voting stock
of that bank. The BHC Act further provides that the FRB shall not approve such
acquisition that would result in or further the creation of a monopoly, or the
effect of which may be to substantially lessen competition, unless the
anticompetitive effects of the proposed transaction are clearly outweighed by
the probable effect in meeting the convenience and needs of the community to be
served.
Furthermore, under the BHC Act, a bank holding company is, with limited
exceptions, prohibited from engaging in any activity other than managing or
controlling banks. With the prior approval of the FRB, however, a bank holding
company may own shares of a company engaged in activities which the FRB
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. These activities include, but are not
limited to, operating an industrial loan company, industrial bank, mortgage
company, finance company, credit card company or factoring company; operating as
a trust company in certain instances and/or performing data processing
operations.
The FRB also has determined that certain other activities are not so
closely related to banking as to be a proper incident thereto within the meaning
of the BHC Act. Such activities include: real estate brokerage and syndication;
land development; property management; underwriting of life insurance not
related to credit transactions; and, with
6
<PAGE>
certain exceptions, securities underwriting and equity funding. In the future,
the FRB may add or delete from the list of activities permissible for bank
holding companies.
Under the BHC Act, a bank holding company and its subsidiaries are
prohibited from acquiring any voting shares of, or interest in, all or
substantially all of the assets of any bank located outside the state in which
the operations of the bank holding company's banking subsidiaries are
principally conducted, unless the acquisition is specifically authorized by the
law of the state in which the bank to be acquired is located, or unless the
transaction qualifies under federal law as an "emergency interstate acquisition"
of a closed or failing bank.
The Bank is a member of the FDIC, which currently insures the deposits of
each member bank to a maximum of $100,000 per depositor. For this protection,
the Bank pays a quarterly assessment and is subject to the rules and regulations
of the FDIC pertaining to deposit insurance and other matters.
Effective March 15, 1989, the FRB adopted risk-based capital guidelines for
bank holding companies and the FDIC adopted such guidelines effective April 20,
1989 for insured state non-member banks such as the Bank. In general, the
risk-based capital guidelines provide detailed definitions of which obligations
will be treated as capital, and assign different weights to various assets and
off-balance sheet items, depending upon the perceived degree of credit risk to
which they expose such entities. The guidelines require a minimum Tier 1
capital ratio of 4% and a minimum total capital ratio of 8% commencing
December 31, 1992. In August, 1990, the FRB also promulgated a new minimum
capital leverage standard of 3 percent Tier 1 capital to total average assets
(Tier 1 leverage ratio) effective September 7, 1990. Under this new
standard, the minimum Tier 1 leverage capital ratio for the most highly rated
banks is at 3 percent, and all other state non-member banks, such as the
Bank, are required to meet a minimum leverage ratio of not less than 4
percent. A more detailed discussion is hereby incorporated by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Capital Resources" in the Company's annual report to
stockholders.
In August of 1989, the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") was enacted. This legislation was adopted in
order to reform the regulation and supervision of financial institutions and the
insured deposits of financial institutions. Among other things, FIRREA gives
the FDIC authority to approve changes in an institution's management in certain
circumstances, imposes new limitations on certain investment activities and on
certain deposit-generating activities, amends the BHC Act to permit the
acquisition of both healthy and failing savings associations by bank holding
companies, and prohibits a bank which is "undercapitalized" from accepting
brokered deposits. Among the many major changes made by this law is a measure
requiring the FDIC to assume responsibility for insuring the deposits of
financial institutions formerly insured by the Federal Savings and Loan
Insurance Corporation. FIRREA establishes two separate insurance funds to be
administered by the FDIC. Insur-
7
<PAGE>
ance premiums on deposit insurance will be assessed by the FDIC independently
for the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund.
Under FDICIA the FDIC instituted a risk-based assessment system for insured
depository institutions in which the insurance premium relates to the
probability that the deposit insurance fund will incur a loss with respect to
the institution.
On September 15, 1992, the FDIC Board of Directors agreed to a new
risk-based system which went into effect January 1, 1993, and remained in effect
until the permanent risk-based assessment system was implemented on January 1,
1994. To arrive at a risk-based assessment, the FDIC now places each
FDIC-insured institution in one of nine risk categories using a two-step process
based on capital ratios and the supervisory evaluations of the risk posed by the
institution. The following table summarizes the nine risk categories and
assessment rates per $100 of deposits as of December 31, 1995:
Supervisory Rating
------------------------
Capital Group A B C
- ------------- --- --- ---
Well Capitalized $ 0 $.03 $.17
Adequately Capitalized .03 .10 .24
Undercapitalized .10 .24 .27
The three supervisory subgroups are Group "A" for financially sound
institutions with only a few minor weaknesses; Group "B" for those with
weaknesses which, if uncorrected, could cause substantial deterioration of the
institution and increased risk to the insurance fund; and Group "C" for those
with a substantial probability of loss to the fund absent effective corrective
action. The capital ratios used in assigning the capital group are as follows:
Well Capitalized if:
(1) Total Risk-based Capital ratio is greater than or equal to 10%; and
(2) Tier 1 Risk-based Capital ratio is greater than or equal to 6%; and
(3) Tier 1 Leverage Capital ratio is greater than or equal to 5%.
Adequately Capitalized if:
(1) Total Risk-based Capital ratio is greater than or equal to 8%; and
(2) Tier 1 Risk-based Capital ratio is greater than or equal to 4%; and
(3) Tier 1 Leverage Capital ratio is greater than or equal to 4%.
Undercapitalized if neither Well Capitalized nor Adequately Capitalized.
As of January 1, 1996, the Bank is considered by the FDIC to be well
capitalized with a supervisory rating of B. The Bank pays, accordingly, $0.03
assessment fee per $100 of deposits. Ratings will be confirmed based on
supervisory examinations.
8
<PAGE>
In addition, whenever the BIF falls below its designated reserve ratio, the
FDIC is directed by FDICA to set semi-annual assessments in an amount necessary
to increase the reserve ratio to its designated level, either within one year or
in accordance with a schedule (not longer than 15 years) to be set by the FDIC.
The designated reserve ratio under FDICIA is 1.25% of insured deposits or a
higher percentage as determined by the FDIC Board.
Under FDICIA, an insured depository institution generally may not make a
capital distribution if, after making the distribution, the institution would be
undercapitalized. In addition, an insured state-chartered bank, such as the
Bank, may not engage as principal in any type of activity that is not
permissible for a national bank, unless (1) the FDIC has determined that the
activity would pose no significant risk to the deposit insurance fund, and (2)
the bank is and continues to be adequately capitalized.
FDICIA also limits an insured state bank's ability to acquire or retain
equity investments of a type not permissible for a national bank. Among the
exceptions to this rule is a provision that states that an insured state bank
may invest as a limited partner in a partnership, the sole purpose of which is
direct or indirect investment in the acquisition, rehabilitation, or new
construction of a qualified housing project, provided that the aggregate of the
investments pursuant to this provision shall not exceed 2% of the total assets
of the bank. The Bank's investment in lower income housing projects as of
December 31, 1995 was 0.9% of total assets. The term "qualified housing
project" means residential real estate that is intended to primarily benefit
lower income people throughout the period of the investment.
FDICIA also requires uniform regulations from banking agencies for real
estate loans, i.e., loans secured by liens on interests in real estate or
extensions of credit made for the purpose of financing the construction of a
building or other improvements to real estate. In prescribing standards under
the regulations, the agencies shall consider (i) the risk posed to the deposit
insurance funds by such extensions of credit, (ii) the need for safe and sound
operation of insured depository institutions, and (iii) the availability of
credit, and no federal banking agency shall adversely evaluate an investment or
a loan made by an insured depository institution, or consider such a loan to be
nonperforming, solely because the loan is made to or the investment is in
commercial, residential, or industrial property, unless such investment or loan
may affect the institution's safety and soundness.
On December 31, 1992, the FRB, FDIC and two other federal banking agencies
jointly published uniform regulations pursuant to this statutory directive. The
regulations require all insured depository institutions to establish and
maintain written internal real estate lending policies. These policies must be
consistent with safe and sound banking practice and appropriate to the size of
the institution and nature and scope of its operations. The policies must
establish loan portfolio diversification standards, and prudent underwriting
standards (including loan-to-value limits) that are clear and measurable.
Institutions must also establish loan administration procedures for their real
9
<PAGE>
estate portfolio that include documentation, approval and reporting
requirements. These written policies are to be reviewed and approved by the
institution's board of directors at least annually. An institution is expected
to monitor the real estate market to ensure that its lending policies continue
to be appropriate for current market conditions. Finally, the regulations
provide that the lending policies established by the institution should reflect
consideration of the Interagency Guidelines for Real Estate Lending Policies
(the "Guidelines"). In general, the Guidelines identify the loan portfolio
management and underwriting considerations that should be addressed in a sound
real estate lending policy. The Guidelines also address the need to establish
loan administration procedures for real estate loans, and the need for an
appropriate review and approval process for exceptions to the institution's
general lending policies. Finally, the Guidelines provide specific guidance on
loan-to-value limits for various categories of real estate loans.
Pursuant to the provisions of FDICIA, the FDIC has adopted regulations
limiting a bank's ability to solicit or accept brokered deposits. In general,
an institution that is not well capitalized is prohibited from accepting
brokered deposits. However, the FDIC may grant a waiver for institutions that
are adequately capitalized. FDICIA now requires notification from a deposit
broker before it may solicit or place any deposit with an insured deposit
institution. FDICIA also authorizes the imposition of certain record keeping
requirements regarding brokered deposits.
FDICIA has also made regulatory improvements in other areas that may affect
the business practices of the Bank in the years to come. In December 1991, as
part of FDICIA, the Truth-in-Savings Act was enacted, which is implemented by
FRB Regulation DD. Compliance was optional until June 21, 1993. The purpose of
said Act and Regulation is to assist consumers in comparing deposit accounts
offered by depository institutions, principally through the disclosure of fees,
the annual percentage yield, the interest rate, and other account terms whenever
a consumer requests the information and before an account is opened. Such
legislation does not appear to have impacted the business of the Bank or the
Company.
The federal banking agencies issued a statement advising that, for
regulatory purposes, federally supervised banks and savings associations should
report deferred tax assets in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," ("SFAS 109"), beginning in
1993, although earlier application of SFAS No. 109 was permitted subject to
certain limitations. The federal banking agencies have limited the deferred tax
assets to amounts that can only be realized through future taxable earnings,
including the implementation of a tax planning strategy, and would be limited
for regulatory capital purposes to the lesser of (i) the amount that can be
realized within one year of the quarter-end report date or (ii) 10% of Tier 1
capital. The amount of deferred taxes in excess of this limit, if any, would be
deducted from Tier 1 capital and total assets in regulatory capital
calculations.
The federal banking agencies issued a proposal in January, 1994 seeking
public comment on whether to amend their capital definitions of leverage and
risk-based capital to conform such definitions to the SFAS No. 115, "Accounting
for Certain Investments in
10
<PAGE>
Debt and Equity Securities", which require an institution to recognize as a
separate component of stockholders' equity the amount of unrealized gains and
losses on securities, net of taxes, that are deemed to be "available for sale".
In November, 1994, the federal banking agencies reversed their earlier position
and announced their joint decision not to adopt SFAS No. 115 for regulatory
capital purposes. Risk-based and leverage capital ratios will not reflect the
impact of unrealized holding gains and losses, net of taxes, on securities
classified as "available for sale".
As part of the requirements of section 305 of FDICIA, the federal banking
agencies issued a rule in August of 1995 amending the risk-based capital
standards to include a bank's exposure to interest rate risk as a factor in
evaluating capital adequacy. This rule, FDICIA 305, states that regulators will
consider a bank's exposure to declines in economic value of capital due to
changes in interest rates as a factor in evaluating capital adequacy. The
second component of this rule addressing how regulators will calculate the
economic value of capital is expected to be issued in the form of a supervisory
statement that will allow a more objective assessment of an institution's
interest rate risk.
In August, 1994, the FDIC and the FRB approved final rules which provide
that risks from credit concentrations and nontraditional activities are to be
considered only as additional factors when assessing capital adequacy. No
specific quantitative requirements are assigned to these risks. Although
guidance has not been provided concerning the definition of "nontraditional
activities", the FRB's proposed rule suggested that general indicators of
"atypical" risk include:
* Significant volatility in the market value and profitability of a product;
* Evidence of chronic illiquidity in the market for a product or in a related
financial market;
* Rapid changes in new or developing products markets; and
* The creation of obligations, guarantees, or other potential liabilities
essential to the conduct of an activity.
On December 21, 1993, the federal banking agencies issued an interagency
policy statement on the allowance for loan and lease losses (the "Policy
Statement").
The Policy Statement requires that federally insured depository
institutions must maintain an allowance for loan and lease losses ("ALLL")
adequate to absorb credit losses associated with the loan and lease portfolio,
including all binding commitments to lend. The Policy Statement defines an
adequate ALLL for regulatory purposes as a level that in general is no less than
the sum of the following items, given the appropriate facts and circumstances as
of the evaluation date:
11
<PAGE>
(1) For loans and leases classified as substandard or doubtful, all credit
losses over the remaining effective lives of those loans and leases.
(2) For those loans and leases that are not classified, all estimated credit
losses forecasted for the upcoming twelve months.
(3) Amounts for estimated losses from transfer risk on international loans.
Additionally, an adequate level of ALLL should reflect an additional margin
for imprecision inherent in most estimates of expected credit losses.
The Policy Statement also provides guidance to examiners in evaluating the
adequacy of the ALLL. Among other things, the Policy Statement directs
examiners to check the reasonableness of ALLL methodology by comparing the
reported ALLL against the sum of the following amounts:
(a) 50 percent of the portfolio that is classified doubtful;
(b) 15 percent of the portfolio that is classified substandard; and
(c) For the portions of the portfolio that have not been classified (including
those loans designated special mention), estimated credit losses over the
upcoming twelve months given the facts and circumstances as of the evaluation
date (based on the institution's average annual rate of net charge-offs
experienced over the previous two or three years on similar loans, adjusted for
current conditions and trends).
The Policy Statement specifies that the amount of ALLL determined by the
sum of the amounts above is neither a floor nor a "safe harbor" level for an
institution's ALLL. However, examiners will review a shortfall relative to this
amount as indicating whether it is reasonable, supported by the weight of
reliable evidence and that all relevant factors have been appropriately
considered. The Company believes it is in compliance with the Policy Statement.
At December 31, 1995, the Bank had 317 full-time equivalent employees.
ITEM 2 PROPERTIES
GBC Bancorp shares common quarters with General Bank at 800 West 6th
Street, Los Angeles, California. The Bank leases approximately 41,501 square
feet of rentable area which includes the ground floor and the second, fourteenth
and fifteenth floors of the building. The initial lease term will expire in the
year 2009, and the Bank has two five-year options to renew the lease following
the expiration date of the initial term.
12
<PAGE>
As of December 31, 1995 the Bank operated full service branches at fourteen
leased locations (including the 800 West 6th street, Los Angeles location which
houses the downtown branch of the Bank) and one location, where it owns the
building and land. In addition, the Bank has certain operating and
administrative departments and subsidiaries in a location, where it owns the
building and land with approximately 27,600 square feet of space located at 4128
Temple City Boulevard, Rosemead, California. The net book value of the two
owned facilities (building and land) at December 31, 1995 was $2,484,000.
Expiration dates of the Bank's leases range from July, 1997 to February, 2009.
All the Bank's full-service branches are located in California and primarily in
the Southern California area.
Management believes that the Bank's facilities are sufficient for its needs
at the present time and the foreseeable future.
ITEM 3 LEGAL PROCEEDINGS
The Bank is a defendant in various lawsuits arising from the normal course
of business. The Company established an accrual for a potential liability that
was subsequently paid out early in 1996 at the accrued amount. There were two
credit-related cases where the Bank was named as defendant. Although
unspecified damages, including punitive damages, were being sought, management
believes that the claims are without merit. The amount of possible liabilities,
if any, could not be estimated. Management believes based upon the opinion of
legal counsel, that the ultimate resolution of the pending litigation will not
have a material effect upon the financial position of the Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1995, no matters were submitted to a vote of
the Company's security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
There are no family relationships between any of the executive officers of
the Company. The following information indicates the position and age of the
executive officers at December 31, 1995, and their business experience during
the prior five years:
<TABLE>
<CAPTION>
Age at
Name Positions and Offices presently held and business experience 12/31/95
- ---- ------------------------------------------------------------ --------
<S> <C> <C>
Li-Pei Wu Chairman, President and Chief Executive Officer of GBC 61
Bancorp and General Bank since 1984
13
<PAGE>
Peter Wu Secretary and Executive Vice President of GBC Bancorp 47
and Executive Vice President of General Bank since 1981, and
Chief Operating Officer of General Bank since January 1, 1995
Peter Lowe Executive Vice President and Chief Financial Officer of GBC 54
Bancorp and General Bank since 1994; prior thereto,
Executive Vice President and Chief Financial Officer of
Manufacturers Bank since 1990
Domenic Massei Senior Vice President, Operations Administration of General 51
Bank since 1989; prior thereto, Executive Vice President and
Chief Administrative Officer of Transnational Bank since
1984
Alan Thian Executive Vice President and Chief Operating Officer of GBC 43
Insurance Services, Inc., a subsidiary of General Bank, since
1992; Senior Vice President of General Bank from 1993 to
present; Vice President of General Bank from 1989 to 1993;
Director of United Overseas Investment, Inc. from 1978 to
present
Richard Voake Senior Vice President and Credit Administrator of 55
General Bank since 1994; prior thereto, Vice President
and Manager of Corporate Credit Examination from 1992
to 1994; Senior Vice President of Security Pacific
Corporation/Security Pacific National Bank from 1984
to 1992
</TABLE>
14
<PAGE>
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
MARKET INFORMATION
The Company's common stock is traded on the over-the-counter market and is
listed on the National Association of Securities Dealers Automated Quotations
National Market System (NASDAQ). It is quoted electronically under the symbol
GBCB.
The market makers for GBC Bancorp are: Ernst & Company; Herzog, Heine,
Geduld, Inc.; Hoefer & Arnett Inc.; Montgomery Securities; Keefe, Bruyette &
Woods, Inc.; Wedbush Morgan Securities, Inc.; Itgiy Investment Technology Group,
Inc.
The high and low last sale or bid prices for each quarter of the years 1995
and 1994, as reported by the NASDAQ, are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
High $14.25 $13.63 $13.50 $17.75
Low $12.97 $11.50 $10.50 $12.50
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter
------- ------- ------- -------
High $16.00 $15.00 $14.63 $14.25
Low $13.25 $13.25 $13.00 $11.50
</TABLE>
HOLDERS
As of February 29, 1996, there were 352 holders of record of the Company's
common stock. This number is based solely on the number of record holders and
was computed by a count of such.
DIVIDEND
Cash dividends were declared and paid on a quarterly basis for 1995 and
1994. For the years 1995 and 1994, the quarterly cash dividends declared per
share were as follows:
15
<PAGE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995 $0.08 $0.08 $0.08 $0.08
1994 $0.08 $0.08 $0.08 $0.08
</TABLE>
On April 16, 1992, the Company declared an additional 10% stock dividend to
shareholders of record on July 1, 1992, payable on July 16, 1992. The Company's
subsidiary, General Bank, is limited in the payment of dividends as explained in
footnote 17 on page 51 of the Company's Annual Report to Shareholders which is
hereby incorporated by reference.
ITEM 6 SELECTED FINANCIAL DATA
The selected financial data on page 28 of the Company's Annual Report to
Shareholders is hereby incorporated by reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations on pages 9 through 27 of the Company's Annual Report to Shareholders
is hereby incorporated by reference.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of GBC Bancorp and its subsidiaries,
together with the report thereon of KPMG Peat Marwick LLP, on pages 29 through
54 of the Company's Annual Report to Shareholders, are hereby incorporated by
reference. The report of KPMG Peat Marwick LLP contains an explanatory
paragraph relating to the change in accounting for certain investments in debt
and equity instruments effective in 1994, and the adoption of provisions for the
accounting by creditors for loan impairment and related income recognition and
disclosure effective in 1995.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There are no changes of or disagreements with accountants on matters
involving accounting and financial disclosure.
16
<PAGE>
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information relating to directors of the Company under the caption
"Election of Directors" contained on pages 4 and 5 of the Company's Definitive
Proxy Statement dated March 18, 1996 relating to the annual meeting of
shareholders to be held on April 18, 1996, which is hereby incorporated by
reference.
See the information relating to executive officers of the Company which
appears on page 13 and 14 of this Annual Report on Form 10-K.
ITEM 11 EXECUTIVE COMPENSATION
See the information regarding executive compensation under the caption
"Executive Compensation" contained on pages 6 through 10 of the Company's
Definitive Proxy Statement dated March 18, 1996, for the annual meeting of
shareholders to be held on April 18, 1996, which is hereby incorporated by
reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information regarding the security ownership of certain beneficial
owners and management under the caption "Shareholdings of Certain Beneficial
Owners and Management" contained on pages 2 to 4 of the Company's Definitive
Proxy Statement dated March 18, 1996, for the annual meeting of shareholders to
be held on April 18, 1996, which is hereby incorporated by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information regarding certain relationships and related
transactions under the caption "Certain Transactions" contained on page 12 of
the Company's Definitive Proxy Statement dated March 18, 1996, for the annual
meeting of shareholders to be held on April 18, 1996, which is hereby
incorporated by reference.
17
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)(2) Financial Statements and Schedules
PAGE IN ANNUAL REPORT
TO SHAREHOLDERS
---------------
GBC Bancorp and subsidiaries:
Independent Auditors' Report................................. Page 54
Consolidated Balance Sheets as of December 31, 1995 and
1994......................................................... Page 29
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993............................. Page 30
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1995, 1994 and
1993......................................................... Page 31
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993............................. Page 32
Notes to Consolidated Financial Statements................... Pages 33-53
All other financial statement schedules are omitted because they are not
applicable, not material or because the information is included in the financial
statements or the notes thereto.
(a)(3) Exhibit Index
(b) Reports on Form 8-K
None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, GBC Bancorp has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized:
GBC BANCORP
s/ s/
--------------------------- -------------------------------
by: Li-Pei Wu, by: Peter Lowe,
President and Chief Executive Officer Executive Vice President and Chief
Financial Officer
Date: Date:
------------------------ -------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
s/ Date:
------------------------- -----------------------
Eric W. Chang
s/ Date:
------------------------- -----------------------
Helen Chen
s/ Date:
------------------------- -----------------------
Thomas C. T. Chiu
s/ Date:
------------------------- -----------------------
Stephen C. Huang
s/ Date:
------------------------- -----------------------
Chuang-I Lin
s/ Date:
------------------------- -----------------------
Ko-Yen Lin
s/ Date:
------------------------- ----------------------
Ting Y. Liu
s/ Date:
------------------------- ----------------------
Alan Thian
s/ Date:
------------------------- ----------------------
John Wang
s/ Date:
------------------------- ----------------------
Kenneth C. Wang
s/ Date:
------------------------- ----------------------
Chien-Te Wu
s/ Date:
------------------------- ----------------------
Julian Wu
19
<PAGE>
s/ Date:
------------------------- ----------------------
Li-Pei Wu
s/ Date:
------------------------- ----------------------
Peter Wu
s/ Date:
------------------------- ----------------------
Ping C. Wu
s/ Date:
------------------------- ----------------------
Walter Wu
s/ Date:
------------------------- ----------------------
Chin-Liang Yen
20
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ----------- ------
3.1 Articles of Incorporation, as amended (incorporated herein
by this reference to Exhibit 3.1 on the Company's Form 8 to
the Company's Annual Report on Form 10-K for year ended
December 31, 1987; and to Exhibit 3.1 on the Company's
Quarterly Report on form 10-Q for the quarter ended
June 30, 1988) --
3.2 Bylaws (incorporated herein by this reference to Exhibit 3.2
on the Company's Form 8 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1987) --
3.3 Amendment to bylaws of GBC Bancorp (incorporated herein by
this reference to Exhibit 3.3 on the Company's Form 10-K for
the year ended December 31, 1991) --
10.1 Lease for ground floor and second floor space at 201 South
Figueroa Street, Los Angeles, California (incorporated herein
by this reference to Exhibit 10.1 on the Company's Form 8 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1987) --
10.2 Lease for ground floor space at 23326 Hawthorne Boulevard,
Suite 100, Torrance, California (incorporated herein by this
reference to Exhibit 10.2 on the Company's Form 8 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1987) --
10.3 Lease for ground floor space at 1420 East Valley Boulevard,
Alhambra, California (incorporated herein by this reference
to Exhibit 10.6 on the Company's Form 8 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1987) --
10.4 Lease for ground floor space at 17271 Gale Ave., City of
Industry, California (incorporated herein by this reference
to Exhibit 10.7 on the Company's Form 10-K for the year ended
December 31, 1988) --
10.5 Lease for ground floor space at 2500 South Atlantic Boulevard,
City of Commerce, California (incorporated herein by this
reference to Exhibit 10.8 on the Company's Form 10-K for the
year ended December 31, 1988) --
10.6 1988 Stock Option Plan (incorporated herein by this reference
to Exhibit 10.1 on the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1988) --
10.7 Lease for ground floor space at 4010 Barranca Parkway, Irvine,
California (incorporated herein by this reference to
Exhibit 10.11 on the Company's Form 10-K for the year ended
December 31, 1989) --
E - 1
<PAGE>
10.8 Lease for ground floor space at 4688 Convoy Street,
San Diego, California (incorporated herein by this reference
to Exhibit 10.12 on the Company's Form 10-K for the year
ended December 31, 1989) --
10.9 Lease for ground floor space at 701 S. Atlantic Boulevard,
Monterey Park, California (incorporated herein by this
reference to Exhibit 10.13 on the Company's Form 10-K for the
year ended December 31, 1990) --
10.11 Lease for ground floor space at 2783 S. Diamond Bar Boulevard,
Suite 8-B, Diamond Bar, California (incorporated herein by
this reference to Exhibit 10.11 on the Company's Form 10-K
for the year ended December 31, 1991) --
10.12 Employment Agreement among the Company, the Bank and
Li-Pei Wu, dated as of December 19, 1991 (incorporated herein
by this reference to Exhibit 10.12 on the Company's Form 10-K
for the year ended December 31, 1991) --
10.13 Non-Qualified Stock Option Agreement between the Company and
Li-Pei Wu, dated as of December 19, 1991, relating to the
grant of stock options under the Company's 1988 stock option
plan (incorporated herein by this reference to Exhibit 10.13
on the Company's Form 10-K for the year ended
December 31, 1991) --
10.14 Board of Directors resolutions adopted on February 6, 1992,
with respect to the GBC Bancorp Amended and Restated 1988 Stock
Option Plan, which, among other things, authorize the grant of
incentive stock options, eliminate certain limitations on the
vesting and exercisability, and increase the maximum number of
shares that may be issued thereunder (incorporated herein by
this reference to Exhibit 10.14 on the Company's Form 10-K for
the year ended December 31, 1991) --
10.15 GBC Bancorp Amended and Restated 1988 Stock Option Plan, as
Exhibit 28.1 to Form S-8 Registration Statement filed with the
Securities and Exchange commission on April 22, 1992,
Registration Number: 33-47452 (incorporated herein by this
reference to Exhibit 10.15 on the Company's Form 10-K for the
year ended December 31, 1992) --
10.16 Lease for ground floor space at 1139 West Huntington Drive,
Arcadia, California (incorporated herein by this reference to
Exhibit 10.16 on the Company's Form 10-K for the year ended
December 31, 1993) --
10.17 Lease for ground floor space at 2263 N. Tustin Avenue,
Orange, California (incorporated herein by this reference to
Exhibit 10.17 on the Company's Form 10-K for the year ended
December 31, 1993) --
10.19 Lease for office building space for ground and second floors
and 14th and 15th floors located at 800 West 6th Street,
Los Angeles, California (incorporated herein by this reference
to Exhibit 10.19 on the Company's Form 10-K for the year ended
December 31, 1993) --
10.21 Sublease for ground floor office building space at 1420 East
Valley Boulevard, Alhambra, California (incorporated herein by
this reference to Exhibit 10.21 on the Company's Form 10-K for
the year ended December 31, 1994) --
E - 2
<PAGE>
10.22 Addendum to standard office lease at 4010 Barranca Parkway,
Irvine, California (incorporated herein by this reference
to Exhibit 10.22 on the Company's Form 10-K for the year
ended December 31, 1994) --
10.23 Lease for ground floor office building space at 9045 Corbin
Avenue, Northridge, California (incorporated herein by this
reference to Exhibit 10.23 on the Company's Form 10-K for
the year ended December 31, 1994) --
10.24 Lease for office building space on first and second floors
located at 10001 N. De Anza Boulevard, Cupertino, California
(incorporated herein by this reference to Exhibit 10.24 on
the Company's Form 10-K for the year ended December 31, 1994) --
10.25 Lease agreement for office building space on ground floor
located at 520 South El Camino Real, San Mateo, California --
(incorporated herein by this reference to Exhibit 10.25 on
the Company's Form 10-K for the year ended December 31, 1994) --
10.26 Lease agreement for office building space on ground floor
located at 47000 Warm Springs Boulevard, Fremont, California
(incorporated herein by this reference to Exhibit 10.26 on
the Company's Form 10-K for the year ended December 31, 1994) --
13 Annual Report to Shareholders 24
22 Subsidiaries of GBC Bancorp 78
27 Financial Data Schedule 79
E - 3
<PAGE>
Exhibit 13
[LOGO]
GBC Bancorp
1995
Annual Report
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATION
Consolidated net income for GBC Bancorp and subsidiaries (the "Company")
for the year ended December 31, 1995 totaled $7.6 million. This compares to net
earnings of $7.5 million in 1994 and $11.9 million in 1993. Earnings per share
were $1.14 for 1995 compared to $1.12 for 1994, and $1.76 for 1993. The slight
increase in net income from 1994 to 1995 resulted from $3.8 million increase of
net interest income and a lower effective income tax rate, which were partially
offset by a $2.4 million increase in the provision for credit losses and a $1.8
million increase in non-interest expense.
The increase of the provision for credit losses in 1995 was caused by the
continued effect of the past increases in interest rates, and the resulting
impact on the recovery of the local economy and the commercial real estate
market. Charge-offs recorded in 1995 also reflect actions taken to implement
the regulatory interpretation of Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan," ("SFAS 114").
Charge-offs were recognized to reduce the book value of problem loans
collateralized by real estate to, or below, appraised values. Certain loans
were partially charged-off so that in the future, with contractual performance,
these loans will no longer be criticized by the regulators. It is believed
that the accounting results in a conservative valuation of such loans. Prior to
the charge-offs, the loans had allowances that represented a substantial
portion of the charge-off. Net charge-offs were $24.9 million during 1995
compared to $5.1 million during 1994.
The $3.8 million growth of net interest income was primarily the result of
an increase in interest earning assets partially offset by a reduced net
interest spread. The $1.8 million increase in non-interest expense was in large
measure a result of the increase in salaries primarily due to both higher
compensation paid to employees and a growth of personnel. As of December 31,
1995 and 1994 the full time equivalent number of employees was 317 and 289,
respectively.
Consolidated net income for the year ended December 31, 1994 was $7.5
million compared to net income of $11.9 million in 1993, a decline of 4.4
million, or 37%. The major factors contributing to the decline in net income
were an increase in the provision for credit losses of $6.9 million and the
absence of a $3.0 million gain on the sale of securities recorded in 1993, which
was partially offset by a $3.7 million increase in net interest income. The
increase in the amount of the provision for credit losses was caused by the
weakness in the Southern California economy and the effect of higher interest
rates.
NET INTEREST INCOME
Net interest income in 1995 totaled $47,708,000 compared to net interest
income of $43,893,000 in 1994. The increase was due mainly to a $114.7 million,
or 12.4%, increase in average earning assets from $925.4 million during 1994 to
$1,040.1 million during 1995. The growth in average earning assets was due to
an increase of $105.5 million in the securities portfolio and an increase of
$28.8 million of federal funds sold and securities purchased under agreements to
resell. These increases were partially offset by an $18.9 million decrease in
average loans and leases.
The growth was funded by increases of average interest bearing deposits of
$93.6 million (primarily in savings and time certificates of deposit of less
than $100,000) and an increase of non-interest bearing demand deposits of $18.2
million, partially offset by a $14.8 million reduction in other borrowings. The
reduction is in part due to the maturity in the fourth quarter of a $30 million
advance from the Federal Home Loan Bank.
Both the yields earned on assets and the rates paid on interest bearing
liabilities increased during 1995 compared to 1994. The yield on interest
earning assets for 1995 was 8.18% as compared to 7.86% in 1994. The rate paid
on interest bearing liabilities for 1995 was 4.31% as compared to 3.66% for
1994. The increase in both the yield and rate was primarily the result of
increases in short-term interest rates. For 1995, the daily average national
prime rate of interest was 8.83% compared to 7.14% for 1994, an increase of 169
basis points, or 23.7%.
Net interest income in 1994 totaled $43,893,000 compared to net interest
income of $40,162,000 in 1993. The increase was due mainly to a $78.1 million,
or 9.2%, increase in average earning assets from $847.3 million during 1993 to
$925.4 million during 1994. The growth in average earning assets was primarily
in higher federal funds sold of $51.8 million with average loans and leases
increasing $27.0 million. The growth was primarily funded by increases of
average interest bearing deposits of $79.0 million and average non-interest
bearing deposits of $20.8 million, offset by a $22.1 million reduction of
average repurchase agreements. Repurchase agreements of $24.8 million matured
in the second quarter of 1994 and were not renewed.
9
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
Both the yields earned on assets and the rates paid on interest bearing
liabilities increased during 1994 compared to 1993. The yields on interest
earning assets for 1994 was 7.86% as compared to 7.69% in 1993. The rate paid
on interest bearing liabilities for 1994 was 3.66% as compared to 3.41 % for
1993. The increase in both the yield and rate was primarily the result of the
rise in short-term interest rates during 1994 which saw five prime rate
increases, as the Federal Reserve responded to economic growth and indications
of inflationary pressures.
The following table presents the net interest spread, net interest margin,
average balances, interest income and expense, and the average yield/rates by
asset and liability component:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
(IN THOUSANDS) BALANCE INTEREST RATE% BALANCE INTEREST RATE% BALANCE INTEREST RATE%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans and Leases(1)(2) $ 488,274 $49,533 10.14% $507,161 $48,478 9.56% $480,223 $43,075 8.97%
Taxable Securities 427,878 28,193 6.59 321,464 20,030 6.23 321,155 20,360 6.34
Tax-Exempt Securities(3) 7,081 459 6.48 8,018 520 6.49 8,718 570 6.54
Interest-Bearing Deposits 49 1 2.05 717 26 3.63 995 40 4.02
Federal Funds Sold and Security
Purchased Under Agreement to Resell 116,820 6,940 5.94 88,060 3,728 4.23 36,255 1,114 3.07
---------- ------- ----- -------- ------- ----- -------- ------- -----
TOTAL INTEREST-EARNING ASSETS 1,040,102 85,126 8.18 925,420 72,782 7.86 847,346 65,159 7.69
---------- ------- ----- -------- ------- ----- -------- ------- -----
NON-INTEREST-EARNING ASSETS:
Cash and Due from Banks $ 36,319 $ 35,711 $ 28,728
Premises and Equipment, Net 6,017 5,994 4,602
Other Assets(4) 42,285 45,455 39,588
---------- -------- --------
TOTAL NON-INTEREST-EARNING ASSETS 84,621 87,160 72,918
Less: Allowance for Credit Losses (21,671) (15,514) (9,629)
Deferred Loan Fees (3,553) (3,851) (3,835)
---------- -------- --------
Less: Valuation Allowance for
Securities Available for Sale (2,035) (1,732) -
---------- -------- --------
TOTAL ASSETS $1,097,464 $991,483 $906,800
---------- -------- --------
---------- -------- --------
INTEREST-BEARING LIABILITIES:
Deposits:
Interest-Bearing Demand $ 59,625 $ 975 1.64% $ 59,623 $ 1,043 1.75% $ 57,057 $ 1,085 1.90%
Money Market 132,409 3,229 2.44 134,992 3,167 2.35 113,536 2,825 2.49
Savings 140,903 4,484 3.18 107,650 2,619 2.43 98,432 2,409 2.45
Time Deposits 494,973 25,886 5.23 432,031 18,676 4.32 386,194 14,477 3.75
Federal Funds Purchased and Securities
Sold Under Repurchase Agreement 2,959 172 5.81 10,299 360 3.50 32,280 1,177 3.65
Other Borrowed Funds 22,521 1,076 4.78 30,000 1,428 4.76 30,000 1,428 4.76
Subordinated Debt 15,000 1,596 10.64 15,000 1,596 10.64 15,000 1,596 10.64
---------- ------- ----- -------- ------- ------ -------- ------- ------
TOTAL INTEREST-BEARING LIABILITIES 868,390 37,418 4.31 789,595 28,889 3.66 732,499 24,997 3.41
---------- ------- ----- -------- ------- ------ -------- ------- ------
NON-INTEREST-BEARING LIABILITIES:
Demand Deposits $ 120,902 $102,734 $81,956
Other Liabilities 14,120 8,911 9,848
---------- -------- --------
TOTAL NON-INTEREST BEARING LIABILITIES 135,022 111,645 91,804
---------- -------- --------
Total Liabilities 1,003,412 901,240 824,303
Shareholders' Equity 94,052 90,243 82,497
---------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,097,464 $991,483 $906,800
---------- -------- --------
---------- -------- --------
NET INTEREST INCOME/SPREAD $47,708 3.87% $43,893 4.20% $40,162 4.28%
------- ------- -------
------- ------- -------
NET INTEREST MARGIN 4.59% 4.74% 4.74%
</TABLE>
(1) For the purposes of these computations, nonaccrual loans are included in the
daily average loan amounts outstanding.
(2) Loan interest includes net loan fees for the years ended December 31, 1995,
1994 and 1993 of $4,112,000, $4,096,000 and $4,208,000, respectively.
(3) Tax-exempt interest income has not been adjusted to a fully taxable
equivalent basis.
(4) Other assets includes other real estate owned, net, for the years ended
December 31, 1995, 1994 and 1993 of $5,710,000, $12,675,000 and $12,636,000,
respectively.
10
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
Total interest income increased from $72,782,000 in 1994 to $85,126,000 in
1995, a $12,344,000, or 17.0% growth. The increase was due to both the $114.6
million increase in average interest earning assets and the thirty-two basis
point increase of the yield on earning assets. However, the increase in the
yield was less than the increase in the average prime rate of interest of 169
basis points, as a result of several factors. During 1995, average earning
assets were comprised of a higher percentage of lower yielding securities and
short-term federal funds and securities purchased under agreement to resell.
For 1995 such percentage was 53.1% compared to 45.1% for 1994. In addition,
during 1995 the average balance of non-accrual loans was $50.5 million compared
to $32.3 million for 1994, representing an increase of $18.2 million, or 56.3%.
Finally, during 1995 the yield on earning assets was impacted by the net effect
of interest charge-offs and interest recoveries on non-accrual loans. In 1994,
the net impact of interest charge-offs and interest recoveries increased
interest income by $0.5 million. In 1995, the net impact of interest charge-
offs and interest recoveries reduced interest income by $1.1 million. Net
interest foregone on non-accrual loans was $5.9 million in 1995 compared to $3.1
million in 1994.
Total interest expense increased from $28,889,000 in 1994 to $37,418,000 in
1995, an $8,529,000, or 29.5% increase. The increase was due to both the growth
of $78.8 million in average interest bearing liabilities and the sixty-five
basis point rate increase paid thereon.
The net interest margin (defined as the difference between interest income
and interest expense divided by average earning assets) for 1995 was 4.59%
compared to 4.74% for 1994. The fifteen basis point decline in the net interest
margin was primarily the result of a reduced net interest spread. Net interest
spread is defined as the difference between the yield earned on earning assets
less the rates paid on interest bearing liabilities. For 1995, the net interest
spread was 3.87%, a 33 basis point, or 7.9% , decline from 4.20% for 1994.
Total interest income increased from $65,159,000 in 1993 to $72,782,000 in
1994, a $7,623,000, or 11.7% growth. The increase was due to both a $78.1
million increase in average interest earning assets and the 17 basis point yield
increase.
Total interest expense increased from $24,997,000 in 1993 to $28,889,000 in
1994, a $3,892,000, or 15.6% increase. The increase was due to both a 7.9%
increase of $57.1 million in average interest bearing liabilities and the 25
basis point rate increase paid thereon.
11
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
The following table sets forth a summary of the changes in interest earned
and paid resulting from changes in volume and changes in rates for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------
1995 COMPARED 1994 COMPARED
WITH 1994 WITH 1993
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGES IN: DUE TO CHANGES IN:
(IN THOUSANDS) VOLUME RATE CHANGE VOLUME RATE CHANGE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON (1):
Loans and Leases $(1,847) $2,902 $1,055 $2,490 $2,913 $5,403
Taxable Securities(2) 6,956 1,207 8,163 20 (350) (330)
Tax-Exempt Securities(2) (61) - (61) (45) (4) (49)
Interest-Bearing Deposits (17) (8) (25) (10) (4) (14)
Federal Funds Sold and Securities
Purchased Under Agreement to Resell 1,437 1,775 3,212 2,067 547 2,614
------- ------ ------ ------ ------ ------
TOTAL INTEREST-EARNING ASSETS 6,468 5,876 12,344 4,522 3,102 7,624
INTEREST PAID ON (1):
Deposits:
Interest-Bearing Demand - (66) (66) 47 (89) (42)
Money Market (61) 123 62 510 (168) 342
Savings 934 931 1,865 225 (15) 210
Time 2,954 4,255 7,209 1,834 2,365 4,199
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements (345) 156 (189) (771) (45) (816)
Other Borrowed Funds (357) 5 (352) - - -
Subordinated Debt - - - - - -
------- ------ ------ ------ ------ ------
TOTAL INTEREST-BEARING LIABILITIES 3,125 5,404 8,529 1,845 2,048 3,893
------- ------ ------ ------ ------ ------
CHANGE IN NET INTEREST INCOME $3,343 $ 472 $3,815 $2,677 $1,054 $3,731
------- ------ ------ ------ ------ ------
------- ------ ------ ------ ------ ------
</TABLE>
(1) CHANGES IN INTEREST INCOME AND INTEREST EXPENSE ATTRIBUTABLE TO CHANGES IN
RATE/VOLUME HAVE BEEN ALLOCATED TO THE CHANGE DUE TO VOLUME AND THE CHANGE DUE
TO RATE IN RELATION TO THE ABSOLUTE DOLLAR AMOUNT OF THE CHANGE IN EACH.
(2) INTEREST INCOME FROM MUNICIPAL BONDS AND AUCTION PREFERRED STOCKS IS NOT
ADJUSTED TO A FULLY TAXABLE EQUIVALENT BASKS.
PROVISION FOR CREDIT LOSSES
The provision for credit losses in 1995 was $18,570,000 as compared with
$16,194,000 in 1994. The increase of the provision for credit losses was caused
by the continued effect of the past increases in interest rates, and the
resulting impact on the recovery of the local economy and the commercial real
estate market. Charge-offs recorded in 1995 also reflect actions taken to
implement the regulatory interpretation of Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan,"
("SFAS 114"). Charge-offs are recognized to reduce the book value of problem
loans collateralized by real estate to, or below, appraised values. Certain
loans were partially changed off so that in the future, with contractual
performance, these loans will no longer be criticized by the regulators. It is
believed that the accounting results in a conservative valuation of such loans.
Prior to the charge-offs, the loans had allowances that represented a
substantial portion of the charge-off. Net charge-offs were $24.9 million
during 1995 compared to $5.1 million during 1994.
The provision for credit losses in 1994 was $16,194,000 as compared with
$9,300,000 in 1993. The significant increase of $6,894,000, or 74.1%, was in
response to management's assessment of the loan portfolio considering the
weakness in the Southern California economy and the real estate market. Such
assessment included the effect of higher interest rates in 1994 compared to
1993. The rate increases impacted the recovery of the local economy and the
commer-
12
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
cial real estate market, affecting the financial capabilities and liquidity of
the Company's borrowers and the values of the underlying collateral supporting
the Company's loans. The increase also reflected the higher amount of non-
performing loans and restructured loans, which increased from $38.0 million at
December 31, 1993 to $68.5 million at December 31, 1994, as well as higher
specific loan loss reserves.
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
Non-interest income consists primarily of service charges on deposit
accounts, gain on sale of securities, fees and commissions collected from the
Bank's international activities and fees from servicing Small Business
Administration (SBA) loans, and income from escrow services.
Non-interest income in 1995 totaled $6,042,000, representing an
increase of $106,000, or 1.8%, over $5,936,000 of non-interest income in
1994. The $106,000 increase is the result of a $175,000 increase in gains on
sale of loans and an increase of $79,000 in other income (primarily income
from escrow services), partially offset by reduced service charges and
commissions of $183,000. The reduced service charges and commissions was
primarily the result of reduced fees from servicing SBA loans.
Non-interest income in 1994 totaled $5,936,000, representing a decrease of
$2,350,000, or 28.4%, over $8,286,000 of non-interest income in 1993. The
reduction is due mainly to the gain on sale of securities available for sale of
$2,998,000 recorded in 1993. This reduction was partially offset by increases
in service charges and commissions and other non-interest income. The increase
of $624,000 of service charges and commissions was primarily the result of the
purchase of servicing related to $77.9 million of participated SBA loans at the
end of 1993. The increase of $354,000 of other non-interest income is primarily
due to income from Southern Counties Escrow which was purchased as of December
31, 1993. In 1994 total escrow fees were $435,000.
NON-INTEREST EXPENSE
Non-interest expense increased $1,794,000, or 7.4%, from $24,310,000, in
1994 to $26,104,000 in 1995. The net increase is primarily from the growth of
salaries and employee benefits, which increased from $9,883,000 in 1994 to
$11,201,000 in 1995, representing a $1,318,000, or 13.3% increase. Salary
expense (excluding related payroll tax and fringe benefits) increased $1,278,000
primarily due to both higher compensation paid to employees and a growth of
personnel. As of December 31, 1995 and 1994 the full time equivalent number of
employees was 317 and 289, respectively.
Contributing also to the increase of non-interest expense was a $303,000,
or 11.7%, increase in occupancy expense from $2,583,000 in 1994 to $2,886,000 in
1995. This increase primarily relates to an additional $115,000 of expense
related to the lease termination of the Company's former headquarters, whose
lease expired in August, 1995, and increased occupancy expense due to additional
lease expense for branches opened during 1994 and 1995.
Finally, other expenses increased $280,000, or 3.8% from $7,374,000 in 1994
to $7,654,000 in 1995. Other expenses is comprised of a number of expense
classifications. Significantly contributing to the $280,000 increase was a
$324,000 increase in professional services expense. This category includes
legal fees which increased $306,000 in 1995 compared to 1994. The increase in
legal fees was caused by the increase in problem loans and the resulting
collection efforts, including litigation. Increases in several other categories
were offset by a $492,000 decline from 1994 to 1995 of deposit insurance
premiums paid to the FDIC, which was caused by lower insurance rates.
Non-interest expense increased $2,298,000, or 10.4%, from $22,012,000, in
1993 to $24,310,000 in 1994. The net increase is primarily the result of
increases of all non-interest expense categories except for a significant
reduction of occupancy expense. Other non-interest expense, representing the
largest increase, grew $1,991,000, or 37.0%, in 1994 compared to 1993. Other
non-interest expense is comprised of a number of expense classifications which
may vary from year
13
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
to year. Included as other non-interest expense are expenses related to real
estate held for investment which increased $600,000 in 1994 as a result of a
partial write-down of an investment in a low income housing project. Furniture
and equipment expense increased $558,000, or 47.3%, in 1994 compared to 1993.
The increase was primarily the result of the headquarters relocation, as
discussed below, and opening of two branch offices in 1994.
Occupancy expense declined $1,098,000 in 1994 from 1993. This was due to
expense recorded in 1993 associated with the 15-year lease for its former
headquarters. In 1993, future contractual lease payments on the former
headquarters' location and leasehold improvements relating thereto, of $978,000
and $402,000, respectively, were charged to occupancy expense.
PROVISION FOR INCOME TAXES
For 1995 the Company's provision for income taxes was $1,427,000, a
decrease of $369,000, or 20.6%, from $1,796,000 recorded in 1994. The effective
tax rate in 1995 was 15.7% as compared to 19.3% in 1994. The reduced effective
tax rate was primarily due to the realization of an increased amount of low
income housing ("LIH") tax credits in 1995 compared to 1994. For 1995 the LIH
tax credit was $2,093,000 compared to $1,866,000 in 1994, with the difference
primarily being the recognition in 1995 of previous years' actual tax credits
which exceeded the Company's estimate at December 31, 1994.
For 1994 the Company's provision for income taxes was $1,796,000, a
decrease of $3,400,000 or 65.4%, from $5,196,000 recorded in 1993. The reduced
provision is a result of the reduced income before income taxes coupled with tax
credits from investments in low income housing projects. The effective tax rate
in 1994 was 19.3% as compared to 30.3% in 1993. The decrease in the effective
tax rate was due to the deduction of approximately the same amount of low income
housing tax credits from a reduced tax liability due to the lower amount of
income before taxes.
FINANCIAL CONDITION
The Company's assets totaled $1,204.5 million at December 31, 1995,
representing an increase of $122.9 million, or 11.4%, over the $1,081.6 million
total assets at December 31, 1994. The asset growth was funded by an increase
of total deposits of $112.2 million.
The increase in assets primarily reflects an increase of $161.2 million in
securities and federal funds sold and securities purchased under agreements
to resell. This increase was partially offset by a $29.0 million, or 5.8%,
decline in loans and leases outstanding from $501.0 million as of December 31,
1994 to $471.9 million as of December 31, 1995. The decrease mostly reflects
the gross charge-offs of $25.5 million effected during 1995.
LOANS
The reduction of loans outstanding as of December 31, 1995 compared to
December 31, 1994 was primarily in the conventional real estate portfolio. As
of December 31, 1994 conventional real estate loans totaled $281.2 million; as
of December 31, 1995, these loans totaled $239.0 million, representing a
decrease of $42.2 million. Of this amount of net decrease, $21.7 million of
conventional real estate loans were charged-off.
The largest component of the portfolio continued to be conventional real
estate loans. Conventional real estate loans are loans, other than construction
loans, secured by first trust deeds or junior real estate liens. As of
December 31, 1995 conventional real estate loans totaled $239.0 million, or
50.6%, of the total loan portfolio. As of December 31, 1994 conventional real
estate loans outstanding were $281.2 million, or 56.1%, of the total loan
portfolio.
Construction loans are real estate loans secured by first trust deeds. As
of December 31, 1995, construction loans totaled $53.4 million, or 11.3%, of the
total loan portfolio, an 11.9% decrease from the year earlier. As of December
31, 1994, construction loans totaled $60.6 million, or 12.1%, of the total loan
portfolio. The decrease is primarily the result of pay-downs.
The Company limits the loan to value ratio on conventional real estate and
construction loans to 75% of the appraised value. Management believes that the
Company's underwriting guidelines, including collateral requirements, and the
underlying values of real estate collateral, provide the Company with protection
against future losses on non-performing conventional real estate and
construction loans.
14
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
As the Company's borrowers have experienced the negative effects of the
prolonged depressed economic conditions of the local economy, the Company has
experienced an adverse impact on its real estate loan portfolio as reflected in
higher delinquencies, higher levels of non-performing assets and higher levels
of charge-offs. Please refer to the section "Non-performing Assets," following.
The following table sets forth the breakdown by type of collateral for
construction and conventional real estate loans at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) CONVENTIONAL CONVENTIONAL
CONSTRUCTION REAL ESTATE CONSTRUCTION REAL ESTATE
PROJECT TYPE LOANS PERCENTAGE LOANS PERCENTAGE LOANS PERCENTAGE LOANS PERCENTAGE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL:
Single-Family $20,588 38% $ 37,519 16% $10,854 18% $ 23,386 8%
Condominums 19,784 37 5,406 2 28,834 48 8,244 3
Multi-Family 11,656 22 36,108 15 7,931 13 57,138 20
Land Development - - 600 - - - 7,979 3
------- ---- -------- ---- ------- ---- -------- ----
TOTAL RESIDENTIAL $52,028 97% $ 79,633 33% $47,619 79% $ 96,747 34%
------- ---- -------- ---- ------- ---- -------- ----
NON-RESIDENTIAL:
Warehouse $ - -% $ 28,794 12% $ 2,173 3% $ 27,760 10%
Retail Facilities 1,395 3 55,790 24 2,969 5 61,193 22
Office - - 29,268 12 5,560 9 35,735 13
Hotel and Motel - - 42,681 18 2,289 4 57,107 20
Land Development - - - - - - - -
Other - - 2,850 1 - - 2,683 1
------- ---- -------- ---- ------- ---- -------- ----
TOTAL NON-RESIDENTIAL $ 1,395 3% $159,383 67% $12,991 21% $184,478 66%
------- ---- -------- ---- ------- ---- -------- ----
TOTAL $53,423 100% $239,016 100% $60,610 100% $281,225 100%
------- ---- -------- ---- ------- ---- -------- ----
------- ---- -------- ---- ------- ---- -------- ----
</TABLE>
Substantially all of the collateral securing construction and conventional
real estate loans is located in California.
Commercial loans include unsecured commercial loans, SBA loans of which
$22.7 million are government sponsor-guaranteed, and $83.3 million of trade
financing loans. As of December 31, 1995, commercial loans represented 32.2% of
the total loans outstanding compared to 26.5% at December 31, 1994. The growth
of commercial loans of $18.9 million was primarily from trade financing loans,
which increased $14.3 million.
Trade financing loans are made by the Bank's International Division which,
in addition to granting loans to finance the import and export of goods between
the United States and countries in the Pacific Rim, also provides letters of
credit and other related services. The Bank does not make loans to foreign
banks, foreign governments or their central banks, or commercial and industrial
loans to entities domiciled outside of the United States, except for the
extension of overdraft privileges to its foreign correspondent banks on a
limited, case by case, basis.
Other loans are primarily comprised of loans secured by the Bank's time
deposits and unsecured express lines of credit to professional individuals. As
of December 31, 1995, these loans totaled $22.6 million and $0.8 million,
respectively. As of December 31, 1994 these loans totaled $23.0 million and
$1.7 million, respectively.
15
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
In the ordinary course of business, the Bank has granted loans to certain
directors and companies with which they are associated. In the opinion of
management, these loans were made on substantially the same terms, including
interest rates and collateral requirements, as those prevailing at the same time
for comparable transactions with other customers. Please refer to note 5 of
notes to consolidated financial statements.
The following table sets forth the amount of loans outstanding in each
category at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
- -------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $151,709 $132,806 $126,098 $ 88,186 $ 89,370
Real Estate-Construction 53,423 60,610 79,513 78,020 95,853
Real Estate-Conventional 239,016 281,225 270,566 250,680 252,441
Installment 231 377 434 627 1,038
Other Loans 22,310 25,699 28,455 29,192 36,723
Leveraged Leases 255 273 290 - 59
Loans to Depository Institutions 5,000 - - - -
-------- -------- -------- -------- --------
TOTAL $471,944 $500,990 $505,356 $446,705 $475,484
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
The following table shows the maturity schedule of the Company's loans
outstanding as of December 31, 1995, which, based on remaining scheduled
repayments of principal, are due within one year, after one but within five
years and in more than five years. Non-accrual loans of $43,712,000 are
included in the within one year category:
<TABLE>
<CAPTION>
AFTER MORE
WITHIN ONE BUT THAN
ONE WITHIN FIVE
(IN THOUSANDS) YEAR FIVE YEARS YEARS TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 95,426 $ 7,303 $48,980 $151,709
Real Estate-Construction 44,389 8,712 322 53,423
Real Estate-Conventional 72,197 129,701 37,118 239,016
Installment 57 174 - 231
Other Loans & Leveraged Leases 22,310 - 255 22,565
Loans to Depository Institutions 5,000 - - 5,000
-------- -------- ------- --------
TOTAL $239,379 $145,890 $86,675 $471,944
-------- -------- ------- --------
-------- -------- ------- --------
</TABLE>
At December 31, 1995, excluding non-accrual loans, loans and leases
scheduled to be repriced within one year, after one but within five years, and
in more than five years, are as follows:
<TABLE>
<CAPTION>
AFTER MORE
WITHIN ONE BUT THAN
ONE WITHIN FIVE
(IN THOUSANDS) YEAR FIVE YEARS YEARS TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Fixed Rate $ 40,707 $ 40,210 $25,081 $105,998
Total Variable Rate 322,234 - - 322,234
-------- -------- ------- --------
TOTAL $362,941 $ 40,210 $25,081 $428,232
-------- -------- ------- --------
-------- -------- ------- --------
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
The balance of loans and leases includes loans held for sale totaling $6.3
million as of December 31, 1995. During 1995, approximately $55 million of
loans held for sale were originated and approximately $47 million were sold. As
of December 31, 1995, approximately $68 million of loans were serviced by the
Bank for third parties.
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 assure minimizing
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 impaired loans)
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 value
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 against principal or reported as
recoveries on amounts previously charged-off, according to management's judgment
as to the collectibility of principal.
The following table provides information with respect to the Company's past
due loans, non-accrual loans, restructured loans and other real estated
owned, net, as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loan 90 Days or More Past Due and Still Accruing $ 9 $ 999 $ 4,059 $ 87 $ -
Non-accrual Loans 43,712 46,672 22,033 15,965 9,308
------- ------- ------- ------- -------
Total Past Due Loans 43,721 47,671 26,092 16,052 9,308
Restructured Loans 10,151 20,865 11,898 - -
------- ------- ------- ------- -------
Total Non-performing Loans 53,872 68,536 37,990 16,052 9,308
Other Real Estate Owned, Net 7,686 5,051 15,541 14,713 6,681
------- ------- ------- ------- -------
TOTAL NON-PERFORMING ASSETS $61,558 $73,587 $53,531 $30,765 $15,989
------- ------- ------- ------- -------
------- ------- ------- ------- -------
NON-PERFORMING ASSETS TO
PERIOD END LOANS AND LEASES, NET,
PLUS OTHER REAL ESTATE OWNED, NET 13.39% 15.35% 10.60% 6.83% 3.39%
------ ------ ------ ----- -----
------ ------ ------ ----- -----
</TABLE>
The Company has experienced significant increases in non-accrual loans over
the last several years. From a balance at December 31, 1991 of $9.3 million,
non-accrual loans increased to a level of $46.7 million as of December 31, 1994,
and down to $43.7 million as of December 31, 1995. As indicated in the table
below, conventional real estate and construction loans represent a large
percentage of the total non-accrual loans. As of December 31, 1995 and 1994,
these percentages were 91.2% and 92.6%, respectively.
17
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
The following table breaks out the Company's non-accrual loans by loan
category at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Commercial $ 3,802 $ 3,462
Real Estate-Construction 3,630 14,099
Real Estate-Conventional 36,241 29,111
Installment - -
Other Loans 39 -
------- -------
TOTAL $43,712 $46,672
------- -------
------- -------
</TABLE>
Non-accrual loans declined from $46.7 million as of December 31, 1994 to
$43.7 million as of December 31, 1995, representing a $3 million, or 6.4%
decrease. The decrease reflects charge-offs, foreclosure proceedings, and
successful collection efforts.
The balance of restructured loans as of December 31, 1995 was $10.2
million, comprised of nine credits, representing a decrease of $10.7 million, or
51.2%, from the balance of $20.9 million as of December 31, 1994. While six
credits were restructured in 1995, several large restructured credits as of
December 31, 1994 were paid off in 1995. In addition, several credits became
non-accrual in 1995.
A loan is categorized as restructured if the original interest rate on such
loan, the repayment terms, or both, are restructured due to a deterioration in
the financial condition of the borrower. Restructured loans may also be put on
a non-accrual status in keeping with the Bank's policy of classifying loans
which are 90 days past due as to principal and/or interest. Restructured loans
which are non-accrual loans are not included in the balance of restructured
loans. There are no commitments to lend additional funds on any of the
restructured loans. As of December 31, 1995, all loans were performing as per
the restructured terms. In February, 1996, one loan with a balance of $1.5
million was placed on non-accrual status. The average yield on restructured
loans approximated 10.19% as of December 31, 1995.
Other real estate owned ("OREO"), net of valuation allowance of $0.6
million, amounted to $7.7 million at December 31, 1995, compared to $5.1
million, net of valuation allowance of $0.4 million, as of December 31, 1994.
During 1995, twenty-two properties collateralizing loans were transferred at
fair value to OREO, and seventeen properties were sold resulting in a net gain
of $163,000. The amount of the 1995 provision for losses on other real estate
owned relating to the properties disposed of in 1995 was $983,000. The total
provision for 1995 was $1,504,000. The outstanding OREO properties are all
included in the Bank's market area. They include single family residences,
condominiums, apartment buildings, commercial buildings, and land. Two
properties comprise the land category of OREO. The Company does not intend to
develop these properties; rather, it will sell the land undeveloped. With the
exception of a residential/commercial property, one of the land properties,
all outstanding OREO properties were transferred during 1995.
The following table sets forth OREO by type of property as of the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------------------------------------------------------
(IN THOUSANDS) 1995 1994
- ------------------------------------------------------------
<S> <C> <C>
PROPERTY TYPE
Single-Family Residential $ 11 $ 290
Condominium 509 3,689
Multi-Family Residential 978 -
Warehouse 188 245
Land for Residential 1,054 1,087
Retail Facilities 5,289 169
Office 268 -
Less: Valuation Allowance (611) (429)
------- -------
TOTAL $7,686 $5,051
------- -------
------- -------
</TABLE>
Management cannot predict the extent to which the current economic
environment, including the real estate market, may 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 examinations of the Bank, 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 be placed on
non-accrual, become 90 days or more past due, have terms modified in the future,
or become OREO.
18
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
The effect of non-accrual loans on interest income for the years 1995, 1994
and 1993 is presented below:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Contractual interest due $6,969 $5,844 $2,390
Interest recognized (1,098) (2,768) (945)
------- ------- -------
NET INTEREST FOREGONE $5,871 $3,076 $1,445
------- ------- -------
------- ------- -------
</TABLE>
Contractual interest due is based on original loan amounts. Any partial
charge-offs are not considered in the determination of contractual interest due.
The effect of restructured loans on interest income for the years ended
December 31, 1995, 1994 and 1993 is presented below:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Contractual interest due $1,713 $1,888 $1,031
Interest recognized (1,150) (1,559) (911)
------- ------- -------
NET INTEREST FOREGONE $ 563 $ 329 $ 120
------- ------- -------
------- ------- -------
</TABLE>
ALLOWANCE FOR CREDIT LOSSES
As of December 31, 1995, the balance of the allowance for credit losses was
$16.7 million, representing 3.53% of outstanding loans and leases. This
compares to an allowance for credit losses of $23.0 million as of December 31,
1994, representing 4.60% of outstanding loans and leases. The explanation for
the reduction of the ratio of the allowance for credit losses as a percentage of
loans and leases outstanding is discussed in the following paragraphs.
SFAS 114, "Accounting by Creditors for Impairment of a Loan," as amended by
SFAS 118, was adopted on January 1, 1995. As of December 31, 1995, the Company
had $45.9 million of recorded investment in impaired loans with a related
allowance for credit losses totaling $5,803,000. There were no impaired loans
for which there was no related allowance for credit losses determined in
accordance with SFAS 114. For the year ended December 31, 1995, the average
balance of impaired loans was $44,206,000.
Income recognition on impaired loans uses methods existing for non-accrual
loans but can include the accrual of interest. While a loan is in non-accrual
status, some or all of the cash interest payments received may be treated as
interest income on a cash basis as long as the remaining book balance of the
loan (i.e., after charge-off of identified losses, if any) is deemed to be fully
collectible. The Bank's determination as to the ultimate collectibility of the
loan's remaining book balance must be supported by a current, well documented
credit evaluation of the borrower's financial condition and prospects for
repayment, including consideration of the borrower's historical repayment
performance and other relevant factors. Interest income recognized in 1995 on
the loans identified as impaired as of December 31, 1995 amounted to $808,000.
Of this amount no interest was recognized using the cash basis method of
recognition.
The following table summarizes pertinent allowance for credit loss data.
Most of the non-performing loans are collateralized by commercial real
estate. Accordingly, losses are usually limited to a percentage of the
principal owed the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
End of Period
Allowance to Non-performing Loans 30.95% 33.60% 31.53% 46.74% 63.49%
Provision for Credit Loss as a
Percentage of Net Charge-offs 0.75 3.15 1.93 1.71 1.19
</TABLE>
19
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
The 31.0% ratio of the allowance to non-performing and restructured loans
is considered adequate based on the continuing high percentage of non-performing
loans collateralized by real estate. Also, in various cases, charge-offs were
effected to reduce the book value of problem loans collateralized by real estate
to appraised values. Such charge-offs also reflect actions taken to implement
the regulatory interpretation of SFAS 114, which for collateral dependent loans
require a write-down to appraised value as opposed to the establishing of an
allowance for credit losses allocation. In addition, in certain instances,
loans were charged off to amounts below appraised values, thereby bringing the
loan to value ratio and the debt-servicing ratio into line with Bank guidelines
for performing credits. During 1995, charge-offs of $25.5 million were recorded
compared to $5.8 million during 1994, an increase of $19.7 million. Prior to
the charge-offs, many of the loans had allowance allocations that represented a
substantial portion of the specific charge-offs. Accordingly, the resultant
allowance for credit losses is generally comprised of smaller allocations for
those loans whose possible losses have already been realized in the form of
charge-offs. Management believes that the allowance for credit losses is
adequate to cover known and inherent losses related to loans and leases
outstanding as of December 31, 1995.
A detailed analysis of the Company's allowance for credit losses, the
recoveries on loans previously charged off, and the amount of loans and leases
charged off is summarized in the following table:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, at Beginning of Year $23,025 $11,977 $7,503 $5,910 $4,655
CHARGE-OFFS:
Commercial 2,219 1,917 937 528 2,789
Real Estate 23,293 3,848 3,695 1,403 2,055
Installment 8 37 493 342 269
Leverage Leases - - - 59 1,550
------- ------- ------- ------ ------
TOTAL CHARGE-OFFS 25,520 5,802 5,125 2,332 6,663
------- ------- ------- ------ ------
RECOVERIES:
Commercial 43 423 83 88 31
Real Estate 553 218 201 - 12
Installment & Other 3 15 15 7 1
------- ------- ------- ------ ------
TOTAL RECOVERIES 599 656 299 95 44
------- ------- ------- ------ ------
Net Charge-Offs 24,921 5,146 4,826 2,237 6,619
Provision Charged to Operating Expenses 18,570 16,194 9,300 3,830 7,874
------- ------- ------- ------ ------
BALANCE AT END OF YEAR $16,674 $23,025 $11,977 $7,503 $5,910
------- ------- ------- ------ ------
------- ------- ------- ------ ------
Ratio of Net Charge-Offs to Average
Loans and Leases Outstanding 5.10% 1.01% 1.00% 0.48% 1.39%
------ ------ ----- ----- -----
------ ------ ----- ----- -----
Allowance for Credit Losses to
Year-End Loans and Leases 3.53% 4.60% 2.37% 1.72% 1.27%
------ ------ ----- ----- -----
------ ------ ----- ----- -----
Allowance for Credit Losses to
Past Due Loans 38.14% 48.30% 45.90% 46.74% 63.94%
------ ------ ----- ----- -----
------ ------ ----- ----- -----
</TABLE>
20
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
Although the Company does not normally allocate the allowance for credit
losses to specific loan categories, an allocation to the major categories has
been made for purposes of this report as set forth in the following table. These
allocations are estimates based on historical loss experience and management's
judgment. The allocation of the allowance for credit losses is not necessarily
an indication that the charge-offs will occur, or if they do occur, that they
will be in the proportion indicated in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
(DOLLARS IN THOUSANDS) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 4,239 32.2% $ 3,651 26.5% $ 2,405 25.0% $1,638 19.7% $ 585 18.8%
Real Estate-Construction 928 11.3 2,232 12.1 1,206 15.7 1,515 17.5 1,420 20.2
Real Estate-Conventional 11,167 50.6 16,809 56.2 7,217 53.5 3,393 56.1 3,250 53.1
Installment 3 0.1 4 0.1 9 0.1 20 0.1 20 0.2
Other Loans 280 4.7 327 5.1 384 5.6 442 6.6 200 7.7
Leveraged Leases - - - - - 0.1 - - - -
Unallocated 57 1.1 2 - 756 - 495 - 435 -
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
TOTAL $16,674 100.0% $23,025 100.0% $11,977 100.0% $7,503 100.0% $5,910 100.0%
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
</TABLE>
(1) AMOUNT REPRESENTS THE ALLOCATED PORTION OF THE ALLOWANCE FOR CREDIT LOSSES
TO THE CREDIT CATEGORIES FOR EACH RESPECTIVE YEAR. (2) PERCENTAGE INDICATED
REPRESENTS THE PROPORTION OF EACH LOAN CATEGORY TO TOTAL LOANS FOR EACH
RESPECTIVE YEAR.
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 fair value, with unrealized gains or losses reflected net of tax in
stockholders' equity.
As of December 31, 1995 the Company recorded net unrealized holding gains of
$2,978,000 on its available for sale portfolio which is included as a separate
component of stockholders' equity of $1,723,000 representing the unrealized
holding gain, net of taxes.
There were no sales of securities available for sale for the year ended
December 31, 1995. Proceeds from the sales of securities available for sale were
$1,140,000 for the year ended December 31, 1994. In addition, in 1994 a
$150,000 preferred stock investment in the held to maturity portfolio whose
collectibility was in doubt was charged off. There were no sales of securities
held to maturity in 1995 and 1994. Proceeds from the sales of securities
available for sale were $86,817,000 for the year ended December 31, 1993. There
were no sales of securities held to maturity in 1993. Gross realized gains on
sales of securities were $0, $124,000 and $2,998,000 for 1995, 1994 and 1993,
respectively. Excluding the charge-off of the preferred stock in 1994, there
were no realized losses on sales of securities sustained in 1995, 1994 or 1993.
On December 29, 1995, securities with amortized cost of $39.8 million were
transferred from the held to maturity classification to the available for sale
classification. As of December 31, 1995, these securities have a fair value of
$40.2 million. Such transfer was made in accordance with recent implementation
guidance issued by the Financial Accounting Standards Board ("FASB") for
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115").
21
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
The following table summarizes the carrying value of the Company's
securities held to maturity and securities available for sale for each of the
past three years:
<TABLE>
<CAPTION>
DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SECURITIES HELD TO MATURITY
U. S. Treasuries $ - $ 1,978 $ 2,008
U. S. Government Agencies - 10,726 1,133
Mortgage Backed Securities - 19,048 28,758
State and Municipal Securities 6,460 7,322 8,719
Auction Preferred Stocks - - 6,000
Commercial Paper - 2,999 2,999
Collateralized Mortgage Obligations 82 14,162 23,767
Asset Backed Securities 27,011 27,041 29,055
Other Securities - - 9,431
--------- -------- --------
TOTAL $ 33,553 $ 83,276 $111,870
--------- -------- --------
--------- -------- --------
SECURITIES AVAILABLE FOR SALE
U. S. Treasuries $ 16,944 $ 37,489 $ 37,984
U. S. Government Agencies 223,528 193,458 -
Mortgage Backed Securities 62,199 31,303 38,202
Corporate Notes 28,315 42,154 74,646
Collateralized Mortgage Obligations 133,957 44,408 48,277
Auction Preferred Stocks 32,200 - -
Other Securities 9,998 8,423 -
--------- -------- --------
TOTAL $ 507,141 $357,235 $199,109
--------- -------- --------
--------- -------- --------
</TABLE>
The following table shows the contractual maturities of securities at
December 31, 1995, and the weighted average yields. The actual maturities of
certain securities are expected to be shorter than the contractual maturities.
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
BUT WITHIN BUT WITHIN
WITHIN ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS TOTAL
(IN MILLIONS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
State and Municipal Securities $0.79 6.46% $5.67 6.50% $ - -% $ - -% $ 6.46 6.50%
Collateralized Mortgage Obligations - - - - - - 0.08 10.11 0.08 9.91
Asset Backed Securities - - 22.98 8.79 - - 4.03 8.51 27.01 8.75
------- ---- ------- ---- ------ ---- ------- ----- ------- ----
TOTAL SECURITIES HELD TO MATURITY $0.79 6.46% $28.65 8.33% - - $4.11 8.54% $33.55 8.32%
------- ---- ------- ---- ------ ---- ------- ----- ------- ----
------- ---- ------- ---- ------ ---- ------- ----- ------- ----
SECURITIES AVAILABLE FOR SALE
U.S. Treasuries $15.00 6.99% $1.94 5.12% $ - -% $ - -% $16.94 6.77%
U.S. Government Agencies 82.53 5.95 140.78 6.38 - - 0.22 7.50 223.53 6.23
Mortgage Backed Securities - - 4.67 6.58 - - 57.53 6.29 62.20 6.32
Corporate Notes 8.17 8.41 20.14 8.08 - - - - 28.31 8.17
Collateralized Mortgage Obligations - - - - 15.98 5.71 117.98 6.17 133.96 6.12
Auction Preferred Stocks 32.20 6.25 - - - - - - 32.20 6.25
Other Securities 4.82 4.90 5.18 10.74 - - - - 10.00 7.93
------- ---- ------ ---- ------ ---- ------- ----- ------- ----
TOTAL SECURITIES AVAILABLE FOR SALE $142.72 6.23% $172.71 6.70% $15.98 5.71% $175.73 6.21% $507.14 6.37%
------- ---- ------- ---- ------ ---- ------- ----- ------- ----
------- ---- ------- ---- ------ ---- ------- ----- ------- ----
</TABLE>
22
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
Other than securities issued by the U.S. Government and U.S. Government
agencies, the Company does not own securities of any single issuer in excess of
ten percent of stockholders' equity.
DEPOSITS
The Company's deposits totaled $1,046.2 million as of December 31, 1995
representing a $112.2 million, or 12.0%, increase over the $934.0 million
total deposits as of December 31, 1994. The year-end balance was the first
time that total deposits exceeded one billion for a reported balance sheet.
All categories of deposits reflected increases with the exception of savings
which declined $25.1 million, or 16.3%. The largest deposit growth was in
the time certificates of deposit of $100,000 or more and other time deposits
which increased $96.7 million, or 31.0%, and $34.7 million, or 25.5%,
respectively.
During 1995 average deposits increased to $948.8 million from $837.0
million during 1994, representing an increase of $111.8 million, or 13.4%. As
of December 31, 1995, the Bank had no outstanding brokered certificates of
deposit. As of December 31, 1994, the Bank had outstanding $8.5 million of
brokered certificates of deposits. These brokered deposits had fixed rates of
8.6% and matured in the first quarter of 1995.
The growth of deposits from the Company's customers reflects the continuing
tradition of personalized services. The Company continued its expansion of
operations in Northern California during 1995, during which time it opened one
additional full service branch. During 1994, two branches were opened in
Northern California. All branches provide deposit services.
The Company believes that the majority of its deposit customers have strong
ties to the Bank. There is no large concentration with any depositors and,
accordingly, the Company believes its deposit source to be stable.
The maturity schedule of time certificates of deposit of $100,000 or more
as of December 31, 1995 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ---------------------------------------------
<S> <C>
3 Months or Less $166,136
Over 3 Months Through 6 Months 86,273
Over 6 Months Through 12 Months 154,960
Over 12 Months 920
--------
TOTAL $408,289
--------
--------
</TABLE>
SHORT-TERM BORROWINGS
The following table sets forth information with respect to federal funds
purchased and securities sold under agreements to repurchase for the dates
indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at End of Year $24,000 $ - $24,844
Weighted Average Interest
Rate at End of Year 5.75% -% 2.69%
Average Amount Outstanding
During the Year $ 2,959 $10,299 $32,280
Weighted Average Interest
Rate During the Year 5.80% 3.50% 3.64%
Maximum Amount Outstanding
at Any Month-End $24,000 $25,438 $34,700
</TABLE>
The underlying collateral pledged for the repurchase agreement is
government agency securities. All collateral is maintained with Merrill
Lynch, Inc. who is the counterparty to the repurchase agreement. As of
December 31, 1995, the fair value of the pledged collateral totaled
$27.0 million.
OTHER BORROWINGS
In September 1992, the Company obtained an advance from the Federal Home
Loan Bank of San Francisco ("FHLB") of $30,000,000 at a 4.76% fixed rate of
interest. The advance matured on October 2, 1995 and was repaid.
In 1990, the Company issued $15,000,000 of subordinated debentures with a
contractual annual interest rate of 10.52% and a stated maturity of September 1,
2000.
REGULATORY MATTERS
In August of 1995, the Bank entered into a Memorandum of Understanding
("MOU") with the Federal Deposit Insurance Corporation ("FDIC") which resulted
from the FDIC's examination report of the Bank dated as of February 21, 1995.
As of December 31, 1995, management believes the Bank was in compliance with the
quantitative terms of the MOU, which include: (a) a $27 million reduction in
adversely classified assets within 120 days following the effective date
23
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
of the MOU and a $69 million reduction within one year (as of December 31,
1995 the reduction in previously adversely classified loans was $68 million);
(b) a maximum "volatile liability dependence ratio" of 30% (as of December
31, 1995, the ratio was 17.54%); (c) a minimum Tier 1 capital ratio (leverage
ratio) of 7% (as of December 31, 1995, the ratio was 9.10%); (d) a $19.5
million capital injection to the Bank from its holding company, GBC Bancorp.
(This capital injection was made on September 5, 1995.) The MOU also
provided that the prior written consent of the FDIC would be required before
the Bank could pay cash dividends, and such consent has been received for the
two quarters following the August, 1995 implementation of the MOU.
The MOU, among other things, also calls for limitations on new advances to
borrowers with adversely classified or charged off loans, the timely and proper
identification of problem loans, the establishment of a comprehensive policy for
determining the adequacy of the allowance for credit losses, and the adoption of
a written policy regarding internal controls and procedures.
The Company's Board of Directors received a notification letter, dated
April 25, 1994, from the Federal Reserve Bank of San Francisco (the "Federal
Reserve") that requires the Company to inform the Federal Reserve prior to its
taking any of the following actions: (a) declaring cash or in-kind dividends;
(b) incurring debt; (c) repurchasing stock; (d) entering into any agreements to
acquire any entities or portfolios. As of December 31, 1995 this notification
letter remains in effect. In November, 1995, the Company was notified that the
appointment of senior executive officers and directors was subject to review by
the Federal Reserve.
As of December 31, 1995, management believes it is in compliance with all
terms of the MOU. Management further believes that all terms of the MOU as
outlined above are being met or will be met without significant financial
detriment to the Company or to the Bank.
CAPITAL RESOURCES
Stockholders' equity totaled $99,477,000 at December 31, 1995, an increase
of $11,794,000, or 13.5%, from $87,683,000 at December 31, 1994. The increase
from year-end 1994 to year-end 1995 was due to net income of $7,649,000, less
cash dividends paid to shareholders of $2,134,000, plus the net change in
unrealized gain/(loss) on securities available for sale, net of tax, of
$5,994,000 for the year ended December 31, 1995.
For the year ended December 31, 1995 the ratio of the Company's average
stockholders' equity to average assets was 8.57%. For the year ended December
31, 1994 the ratio of the Company's average stockholders' equity to average
assets was 9.10%. The reduction of this ratio is primarily the result of the
increase of average assets.
Management is committed to maintaining capital at a sufficient level to
assure shareholders, customers and regulators that the Company is financially
sound. Risk-based capital guidelines issued by regulatory authorities in 1989
assign risk weightings to assets and off-balance sheet items. The guidelines
require a minimum Tier 1 capital ratio of 4% and a minimum total capital ratio
of 8%. Tier 1 capital consists of common stockholders' equity and
non-cumulative perpetual preferred stock, less goodwill and nonqualifying
intangible assets, while total capital includes other elements, primarily
cumulative perpetual, long-term and convertible preferred stock, subordinated
and mandatory convertible debt, plus the allowance for loan losses, within
limitations. The unrealized gain/loss on debt securities available for sale,
net of tax, is not included in either Tier 1 or the total capital computation.
In addition, a minimum Tier 1 leverage ratio of 3% is required for the
highest rated banks. All other state nonmember banks, must meet a minimum
leverage ratio of not less than 4%. Pursuant to the terms of the MOU as
described in Regulatory Matters, above, the Bank's minimum Tier 1 leverage
capital ratio is 7%. This ratio is defined as Tier 1 capital to average total
assets, net of nonqualifying intangible assets, for the most recent quarter.
During 1992, pursuant to the Federal Deposit Insurance Corporation
Improvement Act ("FDICIA"), the federal banking regulators set forth the
definitions for "adequately capitalized" and "well capitalized" institutions.
An "adequately capitalized" institution is one that meets the minimum regulatory
capital requirements. A "well capitalized" institution is one with capital
ratios as shown in the following table. As of December 31, 1995, the Company's
and the Bank's Tier 1
24
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
capital, total capital and leverage ratios exceeded the "well capitalized"
ratio requirements as follows:
<TABLE>
<CAPTION>
MINIMUM WELL
GBC GENERAL REGULATORY CAPITALIZED
BANCORP BANK REQUIREMENTS REQUIREMENTS
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 13.83% 15.26% 4% 6%
Total 15.51 16.51 8 10
Leverage Ratio 8.27 9.10 4 5
</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. Liquidity is monitored by management on an on-going basis. Asset
liquidity is provided by cash and short-term financial instruments, which
include auction preferred stocks, federal funds sold and securities purchased
under agreements to resell, unpledged securities held to maturity and maturing
within one year and unpledged securities available for sale. These sources of
liquidity amounted to $614.0 million, or 51.1%, of total assets at December 31,
1995 compared with $427.5 million, or 39.3%, of total assets at December 31,
1994.
To further supplement its liquidity, the Company has established federal
funds lines with correspondent banks and three master repurchase agreements
with major brokerage companies. The FHLB granted the Bank a line of credit
equal to 20 percent of assets with terms up to 240 months. As of December 31,
1994, the Company had a $30,000,000 fixed rate advance outstanding under this
financing availability with the FHLB, which was repaid at maturity on
October 2, 1995. Management believes its liquidity sources to be stable and
adequate.
As of December 31, 1995, total loans and leases represented 45.1% of total
deposits. This compares to 53.6% as of December 31, 1994. The decline in this
ratio is primarily due to the investment of the deposit growth in the securities
portfolio.
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, securities, 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 December 31,
1995, no such derivative contracts had been entered into for trading or
investment purposes.
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 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 it
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 the 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.
At December 31, 1995 and 1994 there were outstanding fixed rate mortgages
held for sale of $6,277,000 and $4,806,000 and a notional value of derivative
instruments of $0 and $2,500,000, respectively. For the years ended December
31, 1995 and 1994 the Company had realized net gains/(losses) of $(114,294) and
$29,125 with unrealized gains of $0 and $812, respectively, related to its
hedging activities.
25
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
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 a variety of 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.
A positive gap exists when rate sensitive assets exceed rate sensitive
liabilities and indicates that a greater volume of assets than liabilities will
reprice during a given period. This mismatch may enhance earnings in a rising
rate environment and may inhibit earnings when rates decline. Conversely, when
rate sensitive liabilities exceed rate sensitive assets, referred to as a
negative gap, it indicates that a greater volume of liabilities than assets will
reprice during the period. In this case, a rising interest rate environment may
inhibit earnings and declining rates may enhance earnings.
The following table indicates the Company's interest rate sensitivity
position as of December 31, 1995, and may not be reflective of positions in
subsequent periods.
<TABLE>
<CAPTION>
INTEREST SENSITIVITY PERIOD
- ------------------------------------------------------------------------------------------------------------------------
0 TO 90 91 TO 365 OVER 1 YEAR OVER NON-INTEREST
(IN THOUSANDS) DAYS DAYS TO 5 YEARS 5 YEARS EARNING/BEARING TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Securities Available for Sale $150,053 $ 51,186 $172,408 $133,494 $ - $ 507,141
Securities Held to Maturity 375 410 28,652 4,116 - 33,553
Federal Funds Sold 125,000 - - - - 125,000
Loans (1) (2) 318,327 39,613 40,210 25,081 - 423,231
Loans to Depository Insititutions 5,000 - - - - 5,000
Non-Earning Assets (2) - - - - 110,581 110,581
-------- --------- -------- -------- -------- ----------
TOTAL ASSETS $598,755 $ 91,209 $241,270 $162,691 $110,581 $1,204,506
-------- --------- -------- -------- -------- ----------
-------- --------- -------- -------- -------- ----------
SOURCE OF FUNDS FOR ASSETS:
Deposits:
Demand $ - $ - $ - $ - $ 137,048 $ 137,048
Interest Bearing Demand 200,614 - - - - 200,614
Savings 129,202 - - - - 129,202
TCD'S Under $100,000 83,367 86,561 1,119 - - 171,047
TCD'S $100,000 and Over 320,752 86,617 920 - - 408,289
-------- --------- -------- -------- -------- ----------
TOTAL DEPOSITS $733,935 $ 173,178 $ 2,039 $ - $ 137,048 $1,046,200
-------- --------- -------- -------- -------- ----------
-------- --------- -------- -------- -------- ----------
Securities Sold Under
Repurchase Agreements $ 24,000 $ - $ - $ - $ - $ 24,000
Subordinated Debt - - 15,000 - - 15,000
Other Liabilities - - - - 19,829 19,829
Stockholders' Equity - - - - 99,477 99,477
-------- --------- -------- -------- -------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $757,935 $ 173,178 $ 17,039 $ - $ 256,354 $1,204,506
-------- --------- -------- -------- -------- ----------
-------- --------- -------- -------- -------- ----------
Interest Sensitivity Gap $(159,180) $(81,969) $224,231 $162,691 $(145,773)
Cumulative Interest Sensivity Gap $(159,180) $(241,149) $(16,918) $145,773 $ -
Gap Ratio (% of Total Assets) -13.2% -6.8% 18.6% 13.5% -12.1%
Cumulative Gap Ratio -13.2% -20.0% -1.4% 12.1% 0.0%
</TABLE>
(1) Loans are before unamortized deferred loan fees and allowance for credit
losses.
(2) Non-accrual loans are included in non-earning assets.
26
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
RECENT ACCOUNTING DEVELOPMENTS
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, AN AMENDMENT OF FASB STATEMENT NO. 65
On May 12, 1995, the FASB issued Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights," an amendment of
FASB Statement No. 65 ("SFAS 122"). This Statement provides guidance for the
capitalization of originated as well as purchased mortgage servicing rights and
the measurement of impairment of those rights.
SFAS 122 allows for mortgage servicing rights to be capitalized when loans
are sold or securitized and the servicing rights are retained. Where a
definitive plan to sell or securitize mortgage loans is in place, the mortgage
servicing rights will be capitalized at the date of purchase or the date of
origination. Where a definitive plan is not in place, capitalization of the
mortgage servicing rights will occur at the date of sale or securitization.
Mortgage servicing rights are to be amortized in proportion to and over the
period of estimated net servicing income. The provisions of SFAS 122 are to be
applied prospectively in fiscal years beginning after December 15, 1995. The
adoption is not expected to have a material impact on the financial results of
the Company.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." ("SFAS 123").
SFAS 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. Those plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees
in amounts based on the price of the employer's stock. Examples are stock
purchase plans, stock options, restricted stock, and stock appreciation
rights. This Statement also applies to transactions in which an entity
issues its equity instruments to acquire goods or services from nonemployees.
Those transactions must be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable. The accounting requirements of SFAS
123 are effective for transactions entered into in fiscal years that begin
after December 15, 1995. The disclosure requirements of SFAS 123 are
effective for financial statements for fiscal years beginning after December
15, 1995, or for an earlier fiscal year for which SFAS 123 is initially
adopted for recognizing compensation cost. The Bank has not yet implemented
SFAS 123 and does not believe that it will have a material adverse effect on
its financial position or results of operations.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF
On March 31, 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of ("SFAS 121"). SFAS 121 provides
guidance for recognition and measurement of long-lived assets, certain
identifiable intangibles and goodwill related both to assets to be held and
used and assets to be disposed of.
SFAS 121 requires entities to perform separate calculations for assets to
be held and used to determine whether recognition of an impairment loss is
required and, if so, to measure the impairment. If the sum of the expected
future cash flows, undiscounted and without interest charges, is less than
the asset's carrying amount, an impairment loss is recognized; if the sum of
the expected future cash flows is more than the asset's carrying amount, an
impairment loss cannot be recognized. Measurement of an impairment loss is
based on the fair value of the asset. The statement also requires long-lived
assets and certain identifiable intangibles to be disposed of to be reported
at the lower of carrying amount or fair value less cost to sell, except for
assets covered by the provisions of the Accounting Principle's Board ("APB")
Opinion No. 30.
SFAS 121 is effective for financial statements issued for fiscal years
beginning after December 15, 1995. It is not expected that this statement will
have a material impact on the Company's financial results.
27
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest Income $ 85,126 $ 72,782 $ 65,159 $ 65,731 $ 73,683
Interest Expense 37,418 28,889 24,997 28,441 39,470
---------- ---------- -------- -------- --------
Net Interest Income Before Provision for Credit Losses 47,708 43,893 40,162 37,290 34,213
Provision for Credit Losses 18,570 16,194 9,300 3,830 7,874
---------- ---------- -------- -------- --------
Net Interest Income After Provision for Credit Losses 29,138 27,699 30,862 33,460 26,339
Non-Interest Income 6,042 5,936 8,286 4,420 3,863
Non-Interest Expense 26,104 24,310 22,012 18,283 15,025
---------- ---------- -------- -------- --------
Income Before Income Taxes 9,076 9,325 17,136 19,597 15,177
Provision for Income Taxes 1,427 1,796 5,196 6,585 4,132
---------- ---------- -------- -------- --------
Net Income $ 7,649 $ 7,529 $ 11,940 $ 13,012 $ 11,045
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
BALANCE SHEET DATA AS OF DECEMBER 31
Assets $1,204,506 $1,081,602 $957,260 $861,252 $791,547
Loans and Leases, Net 451,891 474,276 489,394 435,880 465,722
Securities Available for Sale 507,141 357,235 199,109 189,408 -
Investment Securities 33,553 83,276 111,870 146,731 260,914
Deposits 1,046,200 934,020 790,575 697,020 697,508
Stockholders' Equity 99,477 87,683 86,438 76,209 64,693
PER SHARE DATA
Earnings (2) $ 1.14 $ 1.12 $ 1.76 $ 1.94 $ 1.69
Cash Dividends Declared 0.32 0.32 0.32 0.32 0.32
Year End Book Value 14.89 13.17 13.00 11.51 10.81
Average Shares Outstanding (In 000's) (2) 6,729 6,720 6,774 6,707 6,543
FINANCIAL RATIOS
Return on Average Assets 0.70% 0.76% 1.32% 1.59% 1.46%
Return on Average Stockholders' Equity 8.13 8.34 14.47 18.25 18.14
Average Stockholders' Equity to Average Assets 8.57 9.10 9.10 8.72 8.03
Net Interest Margin (1)(3) 4.59 4.74 4.74 4.86 4.76
Net Charge-Offs to Average Loans and Leases 5.10 1.01 1.00 0.48 1.39
Non-performing Assets to Year End Loans and
Leases, Net, Plus Other Real Estate Owned, net (4) 13.39 15.35 10.60 6.83 3.39
Allowance for Credit Losses to Year End
Loans and Leases, Net 3.69 4.85 2.45 1.72 1.27
Cash Dividend Payout 28.07 28.57 18.18 16.49 18.96
</TABLE>
(1) Tax-exempt interest income is not adjusted to a fully taxable equivalent
basis.
(2) Per share data and average shares outstanding are adjusted for
common stock equivalents and to reflect the 10% stock dividend to
stockholders of record on January 1, 1991 and July 1, 1992.
(3) Net interest income before provision for credit losses divided by average
earning assets.
(4) Non-performing assets include loans 90 days past due still accruing,
non-accrual loans, restructured loans and other real estate owned, net.
<PAGE>
1995 ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December, 31
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 38,837 $ 48,260
Federal Funds Sold and Securities Purchased Under Agreements to Resell 125,000 64,000
Due From Financial Institutions - Time - 99
Securities Available for Sale at Fair Value 507,141 357,235
Securities Held to Maturity 33,553 83,276
(fair value of $34,370 and $81,060 at December 31, 1995 and 1994, respectively)
Loans and Leases 471,944 500,990
Less: Allowance for Credit Losses (16,674) (23,025)
Deferred Loan Fees (3,379) (3,689)
---------- ----------
Loans and Leases, Net 451,891 474,276
Premises and Equipment, Net 6,101 6,139
Other Real Estate Owned, Net 7,686 5,051
Due From Customers on Acceptances 4,703 5,132
Real Estate Held for Investment 12,142 17,897
Accrued Interest Receivable and Other Assets 17,452 20,237
---------- ----------
TOTAL ASSETS $1,204,506 $1,081,602
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Demand $ 137,048 $ 134,415
Interest Bearing Demand 200,614 197,392
Savings 129,202 154,327
Time Certificates of Deposit $100,000 or More 408,289 311,562
Other Time Deposits 171,047 136,324
---------- ----------
TOTAL DEPOSITS 1,046,200 934,020
Federal Funds Purchased and Securities
Sold under Repurchase Agreements $ 24,000 $ -
Borrowings from the Federal Home Loan Bank - 30,000
Subordinated Debt 15,000 15,000
Acceptances Outstanding 4,703 5,132
Accrued Expenses and Other Liabilities 15,126 9,767
---------- ----------
Total Liabilities 1,105,029 993,919
STOCKHOLDERS' EQUITY
Common Stock, No Par or Stated Value; 20,000,000 $ 45,658 $ 45,373
Shares Authorized; 6,679,661 and 6,660,215
Shares Outstanding at December 31, 1995 and 1994, respectively
Securities Valuation Allowance, Net of Tax 1,723 (4,271)
Retained Earnings 52,103 46,588
Foreign Currency Translation Adjustments (7) (7)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 99,477 87,683
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,204,506 $1,081,602
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For The Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans and Leases, Including Fees $49,533 $48,478 $43,075
Securities Available for Sale 22,161 14,018 11,933
Securities Held to Maturity 6,474 6,528 8,994
Due From Financial Institutions - Time 1 26 40
Federal Funds Sold and Securities Purchased Under Agreements to Resell 6,940 3,728 1,114
Other 17 4 3
------- ------- -------
TOTAL INTEREST INCOME 85,126 72,782 65,159
------- ------- -------
INTEREST EXPENSE
Interest Bearing Demand 4,204 4,211 3,910
Savings 4,484 2,618 2,409
Time Certificates of Deposit $100,000 or more 17,950 14,328 11,133
Other Time Deposits 7,936 4,348 3,344
Federal Funds Purchased and Securities
Sold under Repurchase Agreements 172 360 1,177
Borrowings from the
Federal Home Loan Bank 1,076 1,428 1,428
Subordinated Debt 1,596 1,596 1,596
------- ------- -------
TOTAL INTEREST EXPENSE 37,418 28,889 24,997
Net Interest Income 47,708 43,893 40,162
Provision for Credit Losses 18,570 16,194 9,300
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 29,138 27,699 30,862
------- ------- -------
NON-INTEREST INCOME
Service Charges and Commissions 5,205 5,388 4,764
Gain on Sale of Loans, Net 217 42 346
Gain on Sale of Securities Available for Sale - 124 2,998
Write Off of Securities Held to Maturity - (150) -
Gain on Sale of Fixed Assets 9 - -
Other 611 532 178
------- ------- -------
TOTAL NON-INTEREST INCOME 6,042 5,936 8,286
------- ------- -------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 11,201 9,883 9,166
Occupancy Expense 2,886 2,583 3,681
Furniture and Equipment Expense 1,618 1,737 1,179
Other Real Estate Owned Expense, Net 2,745 2,733 2,603
Other 7,654 7,374 5,383
------- ------- -------
TOTAL NON-INTEREST EXPENSE 26,104 24,310 22,012
------- ------- -------
Income Before Income Taxes 9,076 9,325 17,136
Provision for Income Taxes 1,427 1,796 5,196
------- ------- -------
NET INCOME 7,649 7,529 11,940
------- ------- -------
------- ------- -------
EARNINGS PER SHARE $ 1.14 $ 1.12 $ 1.76
------- ------- -------
------- ------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Securities Foreign
Valuation Currency Total
Common Stock Retained Allowance, Translation Stockholders'
(IN THOUSANDS) Shares Amount Earnings Net of Tax Adjustment Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,1992 6,622 $44,841 $31,374 $ - $(6) $76,209
Stock Options Exercised 19 242 - - - 242
Common Stock Issued to
Employee 401k Plan 10 146 - - - 146
Tax Benefit-Stock Options Exercised - 27 - - - 27
Net Income for the year - - 11,940 - - 11,940
Cash Dividend- $.32 per Share - - (2,125) - - (2,125)
Foreign Currency Translation Adjustments - - - - (1) (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31,1993 6,651 $45,256 $41,189 $ - $(7) $86,438
Stock Options Exercised 3 46 - - - 46
Common Stock Issued to
Employee 401k Plan 6 70 - - - 70
Tax Benefit-Stock Options Exercised - 1 - - - 1
Net Income for the year - - 7,529 - - 7,529
Cash Dividend- $.32 per Share - - (2,130) - - (2,130)
Unrealized Holding Losses on Securities
Available for Sale Net of Tax - - - (4,271) - (4,271)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31,1994 6,660 $45,373 $46,588 $(4,271) $(7) $87,683
Stock Options Exercised 13 173 - - - 173
Common Stock Issued to
Employee 401k Plan 7 80 - - - 80
Director's Contribution - 13 - - - 13
Tax Benefit-Stock Options Exercised - 19 - - - 19
Net Income for the year - - 7,649 - - 7,649
Cash Dividend- $.32 per Share - - (2,134) - - (2,134)
Net Change in Securities Valuation
Allowance, Net of Tax - - - 5,994 - 5,994
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31,1995 6,680 $45,658 $52,103 $ 1,723 $(7) $99,477
----- ------- -------- ------- ---- --------
----- ------- -------- ------- ---- --------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,649 $ 7,529 $ 11,940
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 1,061 1,087 1,628
Net (accretion)/amortization of premiums/discounts on securities (3,193) 1,064 1,006
Writedown on real estate held for investment 1,130 1,257 599
Provision for credit losses 18,570 16,194 9,300
Provision for losses on other real estate owned 1,504 1,111 1,550
Amortization of deferred loan fees (2,589) (3,088) (3,152)
Deferred Income Taxes 867 (3,202) (1,455)
(Gain)/Loss on sale of loans 15 (42) (346)
Gain on sale of securities available for sale - (124) (2,998)
Write-off of investment securities - 150 -
(Gain)/Loss on sale of other real estate owned (163) (235) 25
Gain on sale of Fixed Assets (9) - -
Loans originated for sale (54,998) (28,938) -
Proceeds from sales of loans originated for sale 47,770 29,009 2,816
Net increase in accrued interest receivable and other assets (327) (2,554) (800)
Net increase in accrued expenses and other liabilities 3,236 1,352 2,588
Other, net (9) (2,079) 951
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,514 18,491 23,652
---------- ---------- ----------
INVESTING ACTIVITIES:
Purchases of securities available for sale (567,830) (251,285) (89,070)
Proceeds from maturities of securities available sale 471,426 95,268 27,363
Proceeds from maturities of investment securities 70,733 31,461 84,296
Proceeds from sales of securities available for sale - 1,140 86,817
Purchase of investment securities (60,958) (12,462) (82,261)
Net (increase)/decrease in loans and leases (699) 3,249 (70,683)
Capitalized cost of other real estate owned - (328) (1,649)
Proceeds from sales of other real estate owned 10,371 9,625 5,549
Additions to real estate investment (355) (3,342) (3,261)
Proceeds from sales of real estate investment 4,980 696 -
Proceeds from sale of premises and equipment 18 - 71
Purchases of premises and equipment (1,056) (2,168) (1,746)
---------- ---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (73,370) (128,146) (44,574)
---------- ---------- ----------
FINANCING ACTIVITIES:
Net increase in demand, interest bearing demand and saving deposits 93,201 102,761 48,638
Net increase in time certificates of deposits 18,979 40,684 44,917
Net increase/(decrease) in federal funds purchased and
securities sold under agreements to repurchase 24,000 (24,844) (9,681)
Repayment of Federal Home Loan Bank advance (30,000) - -
Cash dividend paid (2,134) (2,130) (2,125)
Proceeds from exercise of stock options/sale of stock 288 117 415
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 104,334 $116,588 $ 82,164
---------- ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 51,478 6,933 61,242
Cash and cash equivalents at beginning of year 112,359 105,426 44,184
---------- ---------- ----------
Cash and cash equivalents at end of period $ 163,837 $ 112,359 $105,426
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Year For:
Interest $ 32,760 $ 28,673 $ 25,148
Income Taxes 450 5,136 5,690
---------- ---------- ----------
---------- ---------- ----------
NONCASH INVESTING ACTIVITIES:
Loans transferred to other real estate owned $ 15,105 $ 5,926 $ 12,222
Loans transferred to premises and equipment - - 1,250
Loans to facilitate the sale of other real estate owned 822 6,373 4,900
Securities held to maturity transferred to securities available for sale 39,818 8,389 32,250
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
32
<PAGE>
- --------------------------------------------------------------------------------
1995 ANUUAL REPORT
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of GBC Bancorp (the "Company") are
prepared in conformity with generally accepted accounting principles and general
practice within the banking industry. It is the Company's policy to consolidate
all majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to 1994 and 1993 data in order to conform to the current
presentation. The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported operations of the Company for the
periods presented. Actual results may differ from those estimates calculated by
the Company.
General Bank (the "Bank"), the Company's 100% owned bank, conducts the
business of a commercial bank serving individuals and small to medium-sized
businesses through fifteen branch offices located in the greater Los Angeles,
San Diego and Silicon Valley area. The Bank's deposit gathering and loan
production operations are concentrated in California, particularly in Southern
California.
A summary of the significant accounting policies used in the preparation of
the accompanying consolidated financial statements follows:
CONSOLIDATION: The consolidated financial statements include the
accounts of GBC Bancorp and its wholly owned subsidiary, General Bank, a
California state chartered bank (the "Bank"), and the Bank's wholly owned
subsidiaries, GBC Insurance Services, Inc., GBC Investment & Consulting
Company, Inc., GBC Real Estate Company, Inc., GBC Leasing Company, Inc., and
Southern Counties Escrow. All significant intercompany accounts and
transactions have been eliminated in consolidation.
SECURITIES: The Company adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"), on January 1, 1994. In accordance with SFAS 115, the Company
classifies its investment in debt and equity securities as held to maturity
securities, trading securities and available for sale securities, as applicable.
Securities available for sale are carried at fair value. The resulting
unrealized gains or losses are recorded net of tax in stockholders' equity.
Securities held to maturity are designated as such when the Company has the
positive intent and ability to hold the securities until maturity. Securities
held to maturity are carried at cost, adjusted for amortization of premiums and
accretion of discounts into interest income using a methodology which
approximates a level yield. When a decline in value has occurred and is deemed
to be other than temporary, such decline is charged to income. The discount or
premium on the Company's mortgage derivative investments is reviewed
periodically to ensure that it does not exceed the estimated discount or
premium, using current estimates of market prepayments and defaults. In the
event that actual prepayments exceed the assumptions used in determining the
rate of amortization or accretion, the amortization or accretion is adjusted to
reflect current prepayment projections. The specific identification method is
used to compute gains or losses on securities' transactions
On December 29, 1995, securities with amortized cost of $39.8 million were
transferred from the held to maturity classification to the available for sale
classification. As of December 31, 1995, these securities have a fair value of
$40.2 million. Such transfer was make in accordance with recent implementation
guidance issued by the Financial Accounting Standards Board ("FASB") for
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115").
LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES: Loans are recorded in the
consolidated balance sheets at principal amounts outstanding. Interest on loans
is accrued daily as earned. It is generally the Company's policy to place a
loan on non-accrual status in the event that the borrower is 90 days or more
delinquent or earlier if the timely collection of interest and/or principal
appears doubtful. When loans are placed on non-accrual status, the accrual of
income is
33
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORD
- --------------------------------------------------------------------------------
discontinued and previously accrued but unpaid interest is generally reversed
against income. Subsequent payments are generally applied to principal or
reported as recoveries on amounts previously charged-off. 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.
The Company provides for possible credit losses by a charge to operations
based upon the composition of the loan and lease portfolio, past loss
experience, current economic conditions, evaluations made by regulatory
authorities, and such other factors that, in management's judgment, deserve
recognition in estimating possible credit losses. The allowance for credit
losses is based on estimates, and ultimate losses may vary from current
estimates. These estimates are reviewed periodically and, as adjustments become
necessary, they are reported in earnings in the period in which they become
known. Additionally, regulatory examiners may require the institution to
recognize additions to the allowances based upon their judgments about
information available to them at the time of their examination. Charge-offs of
loans are debited to the allowance for credit losses. Recoveries on loans
previously charged off are credited to the allowance.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (as
amended by SFAS 118), as of January 1, 1995. Under SFAS 114, a loan is impaired
when it is "probable" that a creditor will be unable to collect all amounts due
(i.e., both principal and interest) according to the contractual terms of the
loan agreement. The measurement of impairment may be based on (i) the present
value of the expected future cash flows of the impaired loan discounted at the
loan's original effective interest rate, (ii) the observable market price of the
impaired loan, or (iii) the fair value of the collateral of a collateral-
dependent loan. The amount by which the recorded investment of the loan exceeds
the measure of the impaired loan is recognized by recording a valuation
allowance with a corresponding charge to the provision for losses.
Additionally, SFAS 114 eliminates the requirement that a creditor account for
certain loans as foreclosed assets until the creditor has taken possession of
the collateral. Income recognition on impaired loans uses methods existing for
non-accrual loans but can include the accrual of interest. While a loan is in
non-accrual status, some or all of the cash interest payments received may be
treated as interest income on a cash basis as long as the remaining book balance
of the loan (i.e., after charge-off of identified losses, if any) is deemed to
be fully collectible. The Bank's determination as to the ultimate
collectibility of the loans remaining book balance must be supported by a
current, well documented credit evaluation of the borrower's financial condition
and prospects for repayment, including consideration of the borrower's
historical repayment performance and other relevant factors.
LOANS HELD FOR SALE: Loans held for sale are included in loans and leases
on the balance sheet. They are recorded at the lower of cost or fair value at
the reporting date. Realized and unrealized changes in value are reported in
gain/loss on sale of loans.
Changes in fair value of futures contracts that hedge the loans held for
sale are reported as part of the gain/loss on sale of loans and are included
in the carrying amount of the loans held for sale. Please refer to note 6 of
the notes to consolidated financial statement for further discussion of
derivative financial instruments.
LOAN ORIGINATION FEES: Loan origination fees and commitment fees, offset by
certain direct loan origination costs, are deferred and recognized in income
over the contractual life of the loan as an adjustment of yield.
OTHER REAL ESTATE OWNED: Other real estate owned ("OREO") is comprised of
real estate acquired through foreclosure. These assets are recorded at the
lower of the carrying value of the receivable or the fair value of the related
real estate. The fair value of the assets is based upon an appraisal adjusted
for estimated carrying and selling costs. The excess carrying value, if any,
over the fair value of the asset received is charged to the allowance for credit
losses at the time of acquisition. Any subsequent provisions for loss on OREO
or gains and losses from sales and net operating expenses of such
assets are charged to operations and are included in Other Real Estate Owned
Expense, Net, in the accompanying consolidated statements of income.
REAL ESTATE HELD FOR INVESTMENT: Real estate held for investment is carried
at the lower of cost or fair value. Joint
34
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
venture investments are accounted for by the equity method of accounting. The
Bank is a limited partner in partnerships that invest in low income housing
projects that qualify for federal income tax credits. If the partnership
interest is less than 20%, the investment is carried at cost, unless there is a
decline in value which is other than temporary, in which case the decline would
be reported in the consolidated statements of income. If the investment is
greater than 20%, either the equity method of accounting or consolidation is
followed depending upon the percentage of the investment and the extent of
control exercised over the project.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation or amortization. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives or lease terms
of assets, whichever is shorter. The lease term is defined as the original
lease term plus option periods with a maximum of 15 years unless there is a
reason to believe that the premises will be vacated prior to the end of the
lease term.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities of the foreign office
are translated to U.S. dollars at current exchange rates. Income and expense
amounts are translated based on the average current exchange rates in effect
during the month in which the transactions are recorded. These translation
adjustments are included in Stockholders' Equity.
EARNINGS PER SHARE: Earnings per share are computed based on the weighted
average shares outstanding during each year. Common stock equivalents are
included in the calculations unless the effect is determined to be antidilutive
or immaterial. Common stock equivalents are entirely comprised of stock options
granted under an employee stock option plan. Weighted average shares
outstanding were 6,886,615, 6,720,293 and 6,774,365, for the years ended
December 31, 1995, 1994 and 1993, respectively.
INCOME TAXES: The Company files a consolidated federal income tax return
with its subsidiaries and a combined California franchise tax return.
The Company records income taxes under the asset and liability method.
Income tax expense is derived by establishing deferred tax assets and
liabilities as of the reporting date for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company's evaluation of the realizability of deferred tax assets includes
consideration of the amount and timing of future reversals of existing temporary
differences, as well as available taxable income in carryback years and
projections of future income.
STATEMENT OF CASH FLOWS: Cash and cash equivalents consist of cash and due
from banks, due from financial institutions - time and Federal funds sold and
securities purchased under agreements to resell.
RECENT ACCOUNTING DEVELOPMENTS
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, AN AMENDMENT OF FASB STATEMENT NO. 65
On May 12, 1995, the FASB issued Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights, an Amendment of
FASB Statement No. 65"("SFAS 122"). SFAS 122 provides guidance for the
capitalization of originated as well as purchased mortgage servicing rights and
the measurement of impairment of those rights.
SFAS 122 allows for mortgage servicing rights to be capitalized when loans
are sold or securitized and the servicing rights are retained. Where a
definitive plan to sell or securitize mortgage loans is in place, the mortgage
servicing rights will be capitalized at the date of purchase or the date of
origination. Where a definitive plan is not in place, capitalization of the
mortgage servicing rights will occur at the date of sale or securitization.
Mortgage servicing rights are to be amortized in proportion to and over the
period of estimated net securities income. The provisions of SFAS 122 are to be
applied prospectively in fiscal years beginning after December 15, 1995. The
adoption is not expected to have a material impact on the financial results of
the Company.
35
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October of 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." ("SFAS 123").
SFAS 123 establishes financial accounting and reporting standards for stock-
based employee compensation plans. Those plans include all arrangements by
which employees receive shares of stock or other equity instruments of the
employer or the employer incurs liabilities to employees in amounts based on the
price of the employer's stock. Examples are stock purchase plans, stock
options, restricted stock, and stock appreciation rights. SFAS 123 also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from nonemployees. Those transactions must be
accounted for based on the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.
The accounting requirements of SFAS 123 are effective for transactions entered
into in fiscal years that begin after December 15, 1995. The disclosure
requirements of SFAS 123 are effective for financial statements for fiscal years
beginning after December 15, 1995, or for an earlier fiscal year for which SFAS
123 is initially adopted for recognizing compensation cost. The Bank has not
yet implemented SFAS 123 and does not believe that it will have a material
adverse effect on its financial position or results of operations.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF
On March 31, 1995, the FASB issued Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("SFAS 121"). SFAS 121 provides guidance
for recognition and measurement of long-lived assets, certain identifiable
intangibles and goodwill related both to assets to be held and used and assets
to be disposed of.
SFAS 121 requires entities to perform separate calculations for assets to
be held and used to determine whether recognition of an impairment loss is
required and, if so, to measure the impairment. If the sum of the expected
future cash flows, undiscounted and without interest charges, is less than the
asset's carrying amount, an impairment loss is recognized; if the sum of the
expected future cash flows is more than the asset's carrying amount, an
impairment loss cannot be recognized. Measurement of an impairment loss is
based on the fair value of the asset. SFAS 121 also requires long-lived assets
and certain identifiable intangibles to be disposed of to be reported at the
lower of carrying amount or fair value less cost to sell, except for assets
covered by the provisions of APB Opinion No. 30.
SFAS 121 is effective for financial statements issued for fiscal years
beginning after December 15, 1995. It is not expected that this statement will
have a material impact on the Company's financial results.
NOTE 2 - CASH AND DUE FROM BANKS
The Company is required to maintain cash on hand and on deposit to meet
reserve requirements established by the Federal Reserve Bank. Average reserve
requirements were $9,538,000 and $8,173,000, during 1995 and 1994, respectively.
NOTE 3 - SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Securities purchased under agreements to resell are collateralized by a
combination of single family residential loans and commercial paper at December
31, 1995. For the year ended December 31, 1995, the maximum amounts of
outstanding securities purchased under agreements to resell was $90 million.
During the year ended December 31, 1995, the average amount of outstanding
securities purchased under agreements to resell was $20.6 million.
The average rate of interest of securities purchased under agreements to
resell was 6.13% and 5.95% at December 31, 1995, and for the year ended December
31, 1995, respectively.
36
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
NOTE 4 - SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
market value of securities at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
(IN THOUSANDS) AMORTIZED UNREALIZED UNREALIZED FAIR
1995 COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
State and municipal Securities $ 6,460 $ 154 $ - $ 6,614
Collateralized Mortgage Obligations 82 8 - 90
Asset Backed Securities 27,011 655 - 27,666
------------ ----------- ----------- -----------
TOTAL SECURITIES HELD TO MATURITY $ 33,553 $ 817 $ - $ 34,370
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
SECURITIES AVAILABLE FOR Sale
U. S. Treasuries $ 16,948 $ - $ (4) $ 16,944
U.S. Government Agencies 222,578 950 - 223,528
Mortgage Backed Securities 61,987 212 - 62,199
Corporate Notes 27,016 1,299 - 28,315
Collateralized Mortgage Obligations 133,611 346 - 133,957
Auction Preferred Stock 32,200 - - 32,200
Other Securities 9,823 175 - 9,998
------------ ----------- ----------- -----------
TOTAL SECURITIES AVAILABLE FOR SALE $ 504,163 $ 2,982 $ (4) $ 507,141
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
GROSS GROSS
(IN THOUSANDS) AMORTIZED UNREALIZED UNREALIZED FAIR
1994 COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY
U. S. Treasuries $ 1,978 $ - $ (185) $ 1,793
U.S. Government Agencies 10,726 - (258) 10,468
Mortgage Backed Securities 19,048 - (716) 18,332
State and Municipal Securities 7,322 124 - 7,446
Commercial Paper 2,999 - - 2,999
Collateralized Mortgage Obligations 14,162 (1,356) 12,806
Asset Backed Securities 27,041 175 - 27,216
------------ ----------- ----------- -----------
TOTAL SECURITIES HELD TO MATURITY $ 83,276 $ 299 $ (2,515) $ 81,060
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
SECURITIES AVAILABLE FOR SALE
U. S. Treasuries $ 37,556 $ - $ (67) $ 37,489
U.S. Government Agencies 194,152 - (694) 193,458
Mortgage Backed Securities 34,141 - (2,838) 31,303
Corporate Notes 42,018 136 - 42,154
Collateralized Mortgage Obligations 48,228 - (3,820) 44,408
Other Securities 8,523 - (100) 8,423
------------ ----------- ----------- -----------
TOTAL SECURITIES AVAILABLE FOR SALE $ 364,618 $ 136 $ (7,519) $ 357,235
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
The majority of the securities are actively traded in the secondary
markets. All of the securities are rated A or better by at least one of the two
major rating services at the time of purchase.
As of December 31, 1995, the yield on the collateralized mortgage
obligations held to maturity and available for sale were 9.91% and 6.12%,
respectively.
37
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
The amortized cost and fair value of securities at December 31, 1995, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES HELD TO MATURITY SECURITIES AVAILABLE FOR SALE
(IN THOUSANDS) AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in One Year or Less $ 785 $ 790 $ 142,409 $ 142,720
Due After One Year Through Five Years 28,652 29,385 170,626 172,712
Due After Five Years Through Ten Years - - 16,300 15,978
Due After Ten Years 4,116 4,195 174,828 175,731
----------- ----------- ----------- -----------
TOTAL $ 33,553 $ 34,370 $ 504,163 $ 507,141
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
There were no sales of securities available for sale for the year ended
December 31, 1995. Proceeds from the sales of securities available for sale were
$1,140,000 for the year ended December 31, 1994. In addition, in 1994 a
preferred stock investment in the held to maturity portfolio whose
collectibility was in doubt was charged off for a loss of $150,000. In 1995, a
partial recovery amounting to $25,000 was collected on this investment. There
were no sales of securities held to maturity in 1995 and 1994. Proceeds from
the sales of securities available for sale were $86,817,000 for the year ended
December 31, 1993. There were no sales of securities held to maturity in 1993.
Gross realized gains on sales of securities were $0, $124,000 and $2,998,000 for
1995, 1994 and 1993, respectively. Excluding the charge-off of the preferred
stock in 1994, there were no realized losses on sales of securities sustained in
1995, 1994 or 1993. On December 29, 1995, securities at amortized cost of
$39,818,000 were transferred from the held to maturity classification to the
available for sale classification. On December 31, 1995, these securities had a
fair value of $40,156,000. Such transfer was made in accordance with recent
implementation guidance issued by the Financial Accounting Standards Board
("FASB") for Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115").
Securities from the available for sale portfolio having a carrying value of
$42.9 million at December 31, 1995 were pledged to secure treasury, tax and loan
deposits and repurchase agreements as required or permitted by law.
Securities from the available for sale and held to maturity portfolios
having a carrying value of $15.4 million and $0.6 million, respectively, at
December 31, 1994 were pledged to secure treasury, tax and loan deposits and
public funds as required or permitted by law.
Securities from the available for sale and held to maturity portfolios
having a carrying value of $9.1 million and $3.1 million, respectively, were
pledged to secure borrowings from the Federal Reserve Bank, as of December 31,
1995.
Securities from the available for sale and held to maturity portfolios
having a carrying value of $42.9 million and $21.3 million, respectively, were
pledged to secure borrowings from the Federal Reserve Bank and the Federal Home
Loan Bank, as of December 31, 1994. On October 2, 1995, the Federal Home Loan
Bank advance matured and the pledged securities were withdrawn. In addition,
one U.S. Treasury security and a Government-sponsored agency security in the
available for sale portfolio with a carrying value of $2.7 million were pledged
for other purposes, as of December 31, 1995.
NOTE 5 - LOANS AND LEASES AND ALLOWANCE FOR CREDIT LOSSES
The composition of the Company's loan portfolio and leveraged leases as of
December 31, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 151,709 $ 132,806
Real Estate-Construction 53,423 60,610
Real Estate-Conventional 239,016 281,225
Installment 231 377
Other Loans 22,310 25,699
Leveraged Leases 255 273
Loans to Depository Insititutions 5,000 -
----------- -----------
TOTAL $ 471,944 $ 500,990
Less: Allowance for Credit Losses (16,674) (23,025)
Deferred Loan Fees (3,379) (3,689)
----------- -----------
LOAN AND LEASES, NET $ 451,891 $ 474,276
----------- -----------
----------- -----------
</TABLE>
38
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
Most of the Company's business is with customers in the state of
California. Construction loans are collateralized primarily by single family
residences and condominiums. Real estate loans are collateralized primarily by
single family residences, condominiums, apartment complexes, industrial
buildings, motels and hotels.
The following table sets forth the breakdown by type of collateral for
construction and conventional real estate loans at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995
- --------------------------------------------------------------------------------
(IN THOUSANDS) CONVENTIONAL
CONSTRUCTION REAL ESTATE
PROJECT TYPE LOANS PERCENTAGE LOANS PERCENTAGE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential
Single-Family $ 20,588 38% $ 37,519 16%
Condominiums 19,784 37 5,406 2
Multi-Family 11,656 22 36,108 15
Land Development - - 600 -
--------- --------- --------- ---------
Total Residential $ 52,028 97% $ 79,633 33%
--------- --------- --------- ---------
--------- --------- --------- ---------
Non-Residential
Warehouse $ - -% $ 28,794 12%
Retail Facilities 1,395 3 55,790 24
Office - - 29,268 12
Hotel and Motel - - 42,681 18
Land Development - - - -
Other - - 2,850 1
--------- --------- --------- ---------
Total Non-Residential $ 1,395 3% $ 159,383 67%
--------- --------- --------- ---------
Total $ 53,423 100% $ 239,016 100%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
1994
- --------------------------------------------------------------------------------
(IN THOUSANDS) CONVENTIONAL
CONSTRUCTION REAL ESTATE
PROJECT TYPE LOANS PERCENTAGE LOANS PERCENTAGE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential
Single-Family $ 10,854 18% $ 23,386 8%
Condominiums 28,834 48 8,244 3
Multi-Family 7,931 13 57,138 20
Land Development - - 7,979 3
--------- --------- --------- ---------
Total Residential $ 47,619 79% $ 96,747 34%
--------- --------- --------- ---------
--------- --------- --------- ---------
Non-Residential
Warehouse $ 2,173 3% $ 27,760 10%
Retail Facilities 2,969 5 61,193 22
Office 5,560 9 35,735 13
Hotel and Motel 2,289 4 57,107 20
Land Development - - - -
Other - - 2,683 1
--------- --------- --------- ---------
Total Non-Residential $ 12,991 21% $ 184,478 66%
--------- --------- --------- ---------
Total $ 60,610 100% $ 281,225 100%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
In the ordinary course of business, the Bank has granted loans to certain
directors and the companies with which they are associated. In the opinion of
management, the loans were made on substantially the same terms, including
interest rates and collateral requirements, as those prevailing at the time of
origination for comparable transactions with other customers and did not involve
more than the normal risk of collectibility or present other unfavorable
features. The following provides information regarding the aggregate
indebtedness of related parties:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
(In Thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, Beginning of Year $ 4,526 $ 11,800
New Loans and Advances 5,490 4,607
Repayments (5,229) (11,881)
---------- ----------
Balance End of Year $ 4,787 $ 4,526
---------- ----------
---------- ----------
</TABLE>
A summary of activity in the allowance for credit losses is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, Beginning of Year $ 23,025 $ 11,977 $ 7,503
Provision Charged to
Operating Expenses 18,570 16,194 9,300
Loans and Leases
Charged Off (25,520) (5,802) (5,125)
Recoveries 599 656 299
---------- ---------- ----------
BALANCE, END OF YEAR $ 16,674 $ 23,025 $ 11,977
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
39
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
The following table provides information with respect to the Company's past
due loans, non-accrual loans and restructured loans as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
- --------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Loan 90 Days or More
Past Due and
Still Accruing $ 9 $ 999 $ 4,059
Nonaccrual Loans 43,712 46,672 22,033
Restructured Loans 10,151 20,865 11,898
---------- ---------- ----------
TOTAL PAST DUE,
NONACCRUAL AND
RESTRUCTURED LOANS $ 53,872 $ 68,536 $ 37,990
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The effect of non-accrual loans on interest income for the years 1995, 1994
and 1993 is presented below:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Contractual Interest Due $ 6,969 $ 5,844 $ 2,390
Interest recognized (1,098) (2,768) (945)
---------- ---------- ----------
NET INTEREST FOREGONE $ 5,871 $ 3,076 $ 1,445
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Contractual interest due is based on original loan amounts. Any partial
charge-offs are not considered in the determination of contractual interest due.
The effect of restructured loans on interest income for the years 1995,
1994 and 1993 is presented below:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Contractual Interest Due $ 1,713 $ 1,888 $ 1,031
Interest recognized (1,150) (1,559) (911)
---------- ---------- ----------
NET INTEREST FOREGONE $ 563 $ 329 $ 120
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
There are no commitments to lend additional funds to borrowers associated
with restructured loans, as of December 31, 1995.
As of December 31, 1995 and 1994 there were outstanding fixed rate
mortgages held for sale of $6,277,000 and $4,806,000, respectively.
As of December 31, 1995, the Bank was servicing approximately $68 million
of loans for third parties.
SFAS 114, "Accounting by Creditors for Impairment of a Loan," as amended
by SFAS 118, was adopted on January 1, 1995. As of December 31, 1995, the
Company had $45.9 million of recorded investment in impaired loans with a
related allowance for credit losses determined in accordance with SFAS 114
totaling $5,803,000. As of December 31, 1995, impaired loans included
restructured loans with a recorded investment of $4,650,000, and a related
allowance for credit losses totaling $387,000. There were no impaired loans
for which there was no related allowance for credit losses determined in
accordance with SFAS 114. For the year ended December 31, 1995, the average
balance of impaired loans was $44,206,000.
Income recognition on impaired loans uses methods existing for non-accrual
loans but can include the accrual of interest. While a loan is in non-accrual
status, some or all of the cash interest payments received may be treated as
interest income on a cash basis as long as the remaining book balance of the
loan (i.e., after charge-off of identified losses, if any) is deemed to be fully
collectible. The Bank's determination as to the ultimate collectibility of the
loan's remaining book balance must be supported by a current, well documented
credit evaluation of the borrower's financial condition and prospects for
repayment, including consideration of the borrower's historical repayment
performance and other relevant factors. Interest income recognized in 1995 on
the loans identified as impaired as of December 31, 1995 amounted to $808,000.
Of this amount no interest was recognized using the cash basis method of
recognition.
NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS
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 origination of fixed rate residential mortgage loans
for sale in the secondary markets.
40
<PAGE>
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
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 the
sale of 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. The counterparties to the futures and forward sale contracts
are the Chicago Board of Trade ("CBOT") and the Federal Home Loan Mortgage
Corporation ("FHLMC") respectively, therefore there is little or no risk of
default.
As of December 31, 1995 and 1994 there were outstanding fixed rate mortgages
held for sale of $6,277,000 and $4,806,000 and a notional value of derivative
instruments of $0 and $2,500,000, respectively. For the years ended December
31, 1995 and 1994 the Company had realized net gains/(losses) of $(114,294) and
$29,125 with unrealized gains of $0 and $812, respectively, related to its
hedging activities.
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.
41
<PAGE>
GBC BANCORP
- --------------------------------------------------------------------------------
NOTE 7 - PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
- ----------------------------------------------------------------------
(IN THOUSANDS) 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Land $ 1,246 $ 1,246
Bank Premises 1,504 1,430
Leasehold Improvements 2,017 1,918
Furniture, Fixtures and Equipment 7,160 6,613
------- -------
11,927 11,207
Less: Accumulated Depreciation and
Amortization (5,826) (5,068)
------- -------
TOTAL $ 6,101 $ 6,139
------- -------
------- -------
</TABLE>
The Company conducts a portion of its operations in leased facilities under
non-cancelable operating leases expiring at various dates through 2009. The
following summarizes the Company's future minimum lease commitments at December
31, 1995:
<TABLE>
<CAPTION>
YEAR (IN THOUSANDS)
- ----------------------------------------------------------------------
<S> <C>
1996 $ 1,892
1997 1,899
1998 1,572
1999 1,627
2000 1,340
Thereafter 10,639
-------
TOTAL $18,969
-------
-------
</TABLE>
During 1993, the Company wrote off contractual lease payments on its former
headquarters' location and leasehold improvements relating thereto, of $978,000
and $402,000, respectively. Net rental expense included in occupancy expense
was approximately $2,177,000, $1,831,000 and $2,544,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
NOTE 8 - OTHER REAL ESTATE OWNED
As of December 31, 1995 other real estate owned ("OREO") consisted of
fourteen properties with a net carrying value of $7,686,000. As of December 31,
1994 real estate owned consisted of ten properties with a net carrying value of
$5,051,000. The following table sets forth OREO by type of property as of
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
PROPERTY TYPE
Single-Family Residential $ 11 $ 290
Condominium 509 3,689
Multi-Family Residential 978 -
Warehouse 188 245
Land for Residential 1,054 1,087
Retail Facilities 5,289 169
Office 268 -
Less: Valuation Allowance (611) (429)
------- -------
TOTAL $ 7,686 $ 5,051
------- -------
------- -------
</TABLE>
A summary of activity in the valuation allowance is as follows for the
years indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Balance, Beginning of Year $ 429 $ 1,458 $ 1,325
Provision Charged to Operations 1,504 1,111 1,550
Other Real Estate Owned
Charged Off (1,322) (2,140) (1,417)
------- ------- -------
BALANCE, END OF YEAR $ 611 $ 429 $ 1,458
------- ------- -------
------- ------- -------
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, other real
estate owned expenses, net, was comprised of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Net Loss (Gain) on Sale of
Other Real Estate Owned $ (163) $ (235) $ 25
Provision for Losses on
Other Real Estate Owned 1,504 1,111 1,550
Net Operating Expenses 1,404 1,857 1,028
------- ------- -------
OTHER REAL ESTATE OWNED
EXPENSE, NET $ 2,745 $ 2,733 $ 2,603
------- ------- -------
------- ------- -------
</TABLE>
42
<PAGE>
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
NOTE 9 - REAL ESTATE HELD FOR INVESTMENT
Real estate held for investment ("REI") at December 31, 1995 and 1994
included the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Investments in Low Income
Housing Projects $11,013 $12,063
Real Estate Development Projects 1,209 5,834
Less: Valuation Allowance (80) -
------- -------
TOTAL $12,142 $17,897
------- -------
------- -------
</TABLE>
As of December 31, 1995 and 1994, the Company had investments totaling
$11.0 million and $12.1 million, respectively, in limited partnerships formed
for the purpose of investing in real estate projects which qualify for low
income housing tax credits. The limited partnerships will generate tax
credits over a weighted average remaining period of approximately six years.
Please refer to note 12 of the notes to consolidated financial statements for
income tax effects. As of December 31, 1995 and 1994, the Company had
$1.1 million and $5.8 million, respectively, in projects formed for the purpose
of developing residential real estate. As of December 31, 1995, the Company had
one condominium unit remaining for sale in one of its two projects and 7
units remaining in the other project with original inventories of 12 and 28
units, respectively. Expenses incurred for REI were $1,388,000, $1,300,000
and $580,000 for the years ended 1995, 1994 and 1993, respectively.
Expenses for 1995 included all costs incurred for the marketing and sales
of the real estate projects amounting to $258,000 and a provision for loss of
$80,000 to adjust the carrying value of the projects to lower of cost or fair
value. In addition, REI expense includes the depreciation of the investments
in the real estate projects which qualify for low income housing tax credits,
which totaled $1,050,000, $1,257,000 and $599,000 in 1995, 1994 and 1993,
respectively.
As of December 31, 1995, of the $11,013,000 of investments in low income
housing projests, $7,791,000 was carried at cost, net of any decline in value
considered to be other than temporary, and $3,222,000 was carried under the
consolidation method of accounting.
NOTE 10 - OTHER BORROWINGS
On October 2, 1995, a $30 million advance to the Bank from the Federal Home
Loan Bank ("FHLB") matured. The Bank elected to repay the advance. The $30
million was funded on September 25, 1992 at a fixed rate of interest of 4.76%.
The advance was secured by the investment in stock of the FHLB and certain
mortgage-backed securities. The FHLB has granted the Bank a line of credit
equal to 20 percent of assets with terms up to 240 months. This line is
available to the Bank subject to certain debt covenants. There were no drawings
under the line outstanding at December 31, 1995.
The following table sets forth information with respect to federal funds
purchased and securities sold under agreements to repurchase:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Balance at End of Year $24,000 $ - $24,844
Weighted Average Interest Rate
at End of Year 5.75% -% 2.69%
Average Amount
Outstanding
During the Year $ 2,959 $10,299 $32,280
Weighted Average Interest
Rate During the Year 5.80% 3.50% 3.64%
Maximum Amount
Outstanding at
Any Month-End $24,000 $25,438 $34,700
</TABLE>
The underlying collateral pledged for the repurchase agreement consists of
government agency securities. All collateral is maintained with Merrill Lynch,
Inc., who is the counterparty to the repurchase agreement. As of December 31,
1995, the fair value of the pledged collateral totaled $27.0 million.
NOTE 11 - SUBORDINATED DEBT
On August 31, 1990, the Company issued $15,000,000 of subordinated
debentures through private placement with an annual interest rate of 10.52% and
stated maturity of September 1, 2000. The table below is a summary of the
required repayment schedule, as specified in the Debenture Purchase Agreement
("Agreement").
<TABLE>
<S> <C>
September 1, 1997 $ 3,750
September 1, 1998 3,750
September 1, 1999 3,750
September 1, 2000 3,750
-------
TOTAL $15,000
-------
-------
</TABLE>
The Agreement includes several covenants which restrict the payment of
dividends, amount of indebtedness, certain acquisitions and the sale of assets.
In the opinion of management the Company was in compliance with the provisions
of the Agreement as of December 31, 1995.
43
<PAGE>
- ------------------------------------------------------------------------------
GBC BANCORP
- ------------------------------------------------------------------------------
NOTE 12 - INCOME TAXES
Income taxes (benefit) in the accompanying consolidated statements of
income is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT TAX (BENEFIT) EXPENSE:
Federal $ (205) $3,047 $4,599
State 765 1,951 2,052
------ ------ ------
Total 560 4,998 6,651
DEFERRED TAX (BENEFIT) EXPENSE:
Federal 681 (2,293) (1,560)
State 186 (909) (145)
------ ------ ------
Total 867 (3,202) (1,705)
Change in valuation allowance for deferred tax asset - - 250
------ ------ ------
Net change in net deferred tax asset 867 (3,202) (1,455)
------ ------ ------
TOTAL INCOME TAX EXPENSE $1,427 $1,796 $5,196
------ ------ ------
------ ------ ------
Taxes charged (credited) to shareholders'equity related to
available for sale securities $4,367 $(3,112) $ -
------ ------ ------
------ ------ ------
</TABLE>
Tabulated below are the significant components of the net deferred tax
asset at December 31, 1995 and December 31, 1994 (as restated for the 1994
tax return as filed and adjusted):
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMPONENTS OF THE DEFERRED TAX ASSET:
Provision for Credit Losses $ (9,682) $(10,341)
California Franchise Taxes - (205)
Unrealized Loss on Securities - (3,112)
Loan Fee Income (32) (176)
Allowance for Other Real Estate Owned (283) (199)
Other (874) (694)
-------- --------
(10,871) (14,727)
Valuation allowance 250 250
Deferred tax asset, net of valuation allowance (10,621) (14,477)
-------- --------
-------- --------
COMPONENTS OF THE DEFERRED TAX LIABILITY:
Leveraged Leases 145 45
Low Income Housing 3,213 2,843
Unrealized Gain on Securities 1,255 -
Discount Accretion 1,325 1,740
California Franchise Taxes 58 -
Other 761 751
-------- --------
Deferred tax liability 6,757 5,379
-------- --------
NET DEFERRED TAX LIABILITY (ASSET) $ (3,864) $ (9,098)
-------- --------
-------- --------
</TABLE>
44
<PAGE>
- ------------------------------------------------------------------------------
1995 ANNUAL REPORT
- ------------------------------------------------------------------------------
The valuation allowance at December 31, 1995 and 1994, relates to the net
deductible temporary differences that cannot be realized through carrybacks to
prior periods or projection of future income. In evaluating the realizability
of its deferred tax assets, management has considered income from future
operations, the turnaround of deferred tax liabilities and current and prior
years' taxes paid.
A reconciliation of total income tax expense and the amount computed by
applying the statutory federal corporate income tax rate to consolidated income
before income tax expense follows:
<TABLE>
<CAPTION>
PERCENT OF PRE-TAX EARNINGS
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal corporate income tax rate 35.0% 35.0% 35.0%
State tax, net of federal income tax effect 6.8 7.3 7.2
INCREASE (DECREASE) RESULTING FROM:
Non-taxable interest income on municipal securities and
dividend exclusion on auction preferred stocks (3.6) (3.2) (2.1)
Valuation allowance - - 1.5
Low income housing tax credit (23.1) (20.0) (11.4)
Other, net 0.6 0.2 0.1
------ ------ ------
15.7% 19.3% 30.3%
------ ------ ------
------ ------ ------
</TABLE>
The Company had a current income tax receivable of $142,000 at December 31,
1995 and a current income tax payable of $268,000 at December 31, 1994.
NOTE 13 - PENDING LITIGATION
The Company is a defendant in various lawsuits arising from the normal
course of business. The Company established an accrual for a potential
liability that was subsequently paid out early in 1996. There were two
credit-related cases where the Bank was named as defendant. Although
unspecified damages, including punitive damages, were being sought, management
believes that the claims were without merit. The amount of possible
liabilities, if any, could not be estimated. Management believes based upon
the opinion of legal counsel, that the ultimate resolution of the pending
litigation will not have a material effect upon the financial position of the
Company.
NOTE 14 - EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
The Company has an employee stock option plan for certain key employees.
Option prices under the plan must be at least equal to the fair market value per
share of the stock at the date of grant. Options are exercisable in installments
of 20 percent per year over a five-year period or seven cumulative years for the
Company's Chairman and Chief Executive Officer ("CEO") as discussed below. If an
option expires without having been exercised, the unpurchased shares are again
available for future grants. As of December 31, 1995, 348,180 shares are
exercisable.
45
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
A summary of stock option activity and related option prices for 1995, 1994 and
1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AUTHORIZED
STOCK OPTION SHARES 1,320,000 1,320,000 1,320,000
--------- --------- ---------
--------- --------- ---------
Options Outstanding
Beginning of Year 643,169 $6.61 - $20.05 643,496 $6.61 - $20.05 618,970 $6.61 -$20.05
Granted 101,000 13.50 89,500 13.25 - 15.75 77,000 15.50 - 16.25
Exercised (12,779) 13.18 - 16.95 (3,465) 12.00 - 13.23 (18,563) 6.61 - 15.91
Expired (34,160) 13.02 - 20.05 (42,895) 6.61 - 20.05 (21,920) 13.02 - 17.27
Cancelled (22,042) 13.18 - 17.05 (43,467) 13.18 - 16.95 (11,991) 13.18 - 16.95
------- --------------- ------- --------------- ------- --------------
End of Year 675,188 $6.61 - $20.05 643,169 $6.61 - $20.05 643,496 $6.61 - $20.05
------- ------- -------
------- ------- -------
Reserved for Future Grants 512,818 557,616 560,754
------- ------- -------
------- ------- -------
</TABLE>
On December 19, 1991, the Board of Directors of the Company amended the
employment agreement of the Company's Chairman and CEO. The agreement was
approved by the shareholders on March 19, 1992 and provided for an employment
term of seven years, commencing January 1, 1992, and ending September 9, 1998
and renewable for a successive 12-month period. The Chairman and CEO was granted
462,000 stock options at $13.18 per share adjusted for the 10% stock dividend
paid on July 15, 1992. The shares are exercisable in seven cumulative annual
installments of 66,000 shares.
CONTINGENT STOCK OPTION PLAN
A contingent stock option plan issued at market is in effect which allows
certain key officers of the Bank to purchase up to an aggregate of 339,450
shares of the Company's authorized but unissued common stock at a price of $3.72
- - $20.04 per share. The stock options may be exercised by the optionee only in
the event of certain triggering events, such as a merger, sale or disposition of
all of the assets by the Company, or the Bank, or any similar event in which
neither the Company nor the Bank is a survivor. Each of the contingent stock
options is for a term of indefinite duration, provided, however, said options
shall terminate upon the death of the optionee or in the event the optionee
ceases to be employed by the Company or the Bank.
GENERAL BANK 401(k) PLAN
In 1988, the Bank established a 401(k) Plan in which all employees of the
Bank may elect to enroll each January 1 or July 1 of every year provided that
they have been employed for at least one year prior to the semi-annual
enrollment date. Employees may contribute up to 10 percent of their annual
salary with the Company matching 100 percent of the employee's contribution, but
no more than 5 percent of that employee's base salary. In 1995, 1994 and 1993,
the Bank's contribution amounted to $203,000, $155,000 and $151,000,
respectively.
In 1995, there was an amendment to the General Bank 401(k) Plan, whereby a
participant loan feature was added to allow participants to borrow against their
own fund in case of family emergency.
EXECUTIVE INCENTIVE SAVINGS PLAN
In 1992, the Board of Directors of the Bank authorized an Incentive Savings
Plan which replaced the Executive Deferred Compensation Plan established in
1988. Under the plan, if any bonus or profit sharing award is received during
the year by any vice president or any officer of the Bank ranking above such
position (including officers who are also directors), he or she is allowed to
set aside up to 30% of such bonus or profit sharing award received in the
payment year,
46
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
and the Bank will contribute additional funds for each participant to pay the
federal income tax for the portion of the bonus or award so set aside. This
arrangement is tied to a paid up life insurance program having investment
features and the participant has the right to choose different investment
vehicles for the investment of the portion of the bonus or award set aside as
described above. The Bank has accrued approximately $86,000, $98,000
and $193,000 related to this plan in 1995, 1994 and 1993, respectively.
NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The balance sheets do not reflect various commitments relating to financial
instruments which are used in the normal course of business. These instruments
include commitments to extend credit, letters of credit and futures contracts.
Management does not anticipate that the settlement of these financial
instruments will have a material effect on the Company's financial position.
These financial instruments carry various degrees of credit and market
risk. Credit risk is defined as the possibility that a loss may occur from the
failure of another party to perform according to the terms of the contract.
Market risk is the possibility that future changes in the market price may
render less valuable a financial instrument.
The contractual amounts of commitments to extend credit and letters of
credit represent the amount of credit risk. Since many of the commitments and
letters of credit are expected to expire without being drawn, the contractual
amounts do not necessarily represent future cash requirements.
Commitments to extend credit are legally binding loan commitments with set
expiration dates. They are intended to be disbursed, subject to certain
conditions, upon request of the borrower. The Bank receives a fee for providing
a commitment. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, by
the Bank upon the extension of credit is based on management's evaluation.
Collateral held varies but may include accounts receivable, inventory, property,
equipment and real estate. As of December 31, 1995, the Company's undisbursed
loan commitments amounted to approximately $128.7 million, of which $58.2
million related to construction loans. As of December 31, 1994, the Company's
undisbursed loan commitments amounted to approximately $103.3 million, of which
$40.3 million related to construction loans. $53.2 million of loan commitments
are related to a program to which the Bank and various other minority-owned
banks participate in the granting of credit to large U.S. corporations, all of
which are rated A or better by one or both of the major rating services at the
time of entering into the agreement. All of the commitments are for one year or
less. The Company does not anticipate funding in the majority of instances.
Standby letters of credit are provided to customers to guarantee their
performance, generally in the production of goods and services or under
contractual commitments in the financial markets. Commercial letters of credit
are issued to customers to facilitate foreign or domestic trade transactions.
They represent a substitution of the Bank's credit for the customer's credit.
The Company also has off-balance sheet risk associated with its involvement
with its financial futures contracts. Please refer to the discussion of
derivative financial instruments in note 6 of the notes to consolidated
financial statements.
The following is a summary of various financial instruments with
off-balance sheet risk as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
- --------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $128,747 $103,276
Standby letters of credit 11,867 14,368
Bills of lading guarantee 328 1,268
Commercial letters of credits 35,948 42,768
Financial futures contracts - 2,500
</TABLE>
At December 31, 1995 commitments to fund fixed-rate loans and
adjustable-rate loans were $10.9 million and $117.8 million, respectively.
NOTE 16 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
47
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS
For those short-term instruments whose maturity is less than 90 days, the
carrying amount is considered a reasonable estimate of fair value.
SECURITIES
For securities including securities held to maturity and securities
available for sale, fair values are based on quoted market prices or dealer
quotes. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. These portfolios were then segmented into fixed and adjustable
rate interest classifications.
Adjustable rate loans are considered to be carried at fair value.
The fair value of fixed rate loans was calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount rates
that reflect the credit and interest rate risk inherent in the loan.
The entire allowance for credit losses was applied to classified loans
including non-accruals. Accordingly, they are considered to be carried at fair
value, as fair value is presented net of the allowance for credit losses.
Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific borrower
information.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposits is estimated using the rates
the Bank was offering as of December 31, 1995 for deposits of similar remaining
maturities.
BORROWINGS FROM THE FEDERAL HOME LOAN BANK, SUBORDINATED DEBT, AND SECURITIES
SOLD UNDER REPURCHASE AGREEMENTS
Rates currently available to the Bank for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
COMMITMENTS TO EXTEND CREDIT, STANDBY AND COMMERCIAL LETTERS OF CREDIT, BILLS OF
LADING GUARANTEES AND FINANCIAL FUTURES CONTRACTS
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
guarantees and letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.
The fair value of financial futures contracts are based on quoted market
prices or dealer quotes.
The fair value disclosed hereinafter does not reflect any premium or
discount that could result from offering the instruments for sale. Potential
taxes and other expenses that would be incurred in an actual sale or settlement
are not reflected in the amounts disclosed. The fair value estimates are
dependent upon subjective estimates of market conditions and perceived risks of
financial instruments at a point in time and involve significant uncertainties
resulting in variation in estimates with changes in assumptions.
48
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
The estimated fair values of the Company's financial instruments as of
December 31 are as follows for the years indicated:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 163,837 $ 163,837 $112,359 $112,359
Securities available for sale 507,141 507,141 357,235 357,235
Securities held to maturity 33,553 34,370 83,276 81,060
Loans, net 451,891 452,543 474,276 468,104
FINANCIAL LIABILITIES:
Deposits 1,046,200 1,047,084 934,020 933,946
Securities sold under
repurchase agreements 24,000 24,000 - -
Borrowings from the
Federal Home Loan Bank - - 30,000 29,484
Subordinated debt 15,000 15,915 15,000 14,430
</TABLE>
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------------------------------------------
CONTRACT CARRYING FAIR CONTRACT CARRYING FAIR
(IN THOUSANDS) AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OFF-BALANCE SHEET
FINANCIAL INSTRUMENTS:
Commercial letters of credit $ 35,948 $- $ 90 $ 42,768 $- $ 107
Standby letters of credit 11,867 - 143 14,368 - 173
Bill of lading guarantees 328 - 1 1,268 - 1
Undisbursed loans 128,747 - 1,694 103,276 - 1,582
Financial futures contracts - - - 2,500 - 1
</TABLE>
49
<PAGE>
- --------------------------------------------------------------------------------
GBC BANCORP
- --------------------------------------------------------------------------------
NOTE 17 - CONDENSED FINANCIAL INFORMATION OF GBC BANCORP (PARENT COMPANY)
Condensed balance sheets as of December 31, 1995 and 1994 follow:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in Subsidiaries $108,578 $ 77,573
Securities Available for Sale 5,175 4,900
Advance to Bank - 19,500
Due From Bank 566 814
Other Assets 717 662
-------- --------
TOTAL ASSETS $115,036 $103,449
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends Payable $ 534 $ 533
Other Liabilities 25 233
Subordinated Debt 15,000 15,000
-------- --------
TOTAL LIABILITIES 15,559 15,766
STOCKHOLDERS' EQUITY
Common stock, no par value or stated value;
20,000,000 shares authorized; 6,679,661 and
6,660,215 shares outstanding at December 31,
1995 and 1994, respectively 45,658 45,373
Retained Earnings 52,103 46,588
Securities Valuation Allowance, Net of Tax 1,723 (4,271)
Foreign Currency Translation Adjustment (7) (7)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 99,477 87,683
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $115,036 $103,449
-------- --------
-------- --------
</TABLE>
Condensed statements of income for the years ended December 31, 1995, 1994 and
1993 follow:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income, Including Fees $1,208 $1,296 $1,021
Dividends Received from Bank 2,134 2,130 2,125
------ ------ ------
TOTAL INCOME 3,342 3,426 3,146
Interest Expense 1,596 1,596 1,596
Non-Interest Expense 48 165 45
------ ------ ------
TOTAL EXPENSE 1,644 1,761 1,641
Income Before Income Taxes 1,698 1,665 1,505
Benefit for Income Taxes (281) (293) (358)
------ ------ ------
Income Before Equity in Undistributed
Earnings of Subsidiary 1,979 1,958 1,863
Equity in Undistributed Earnings of Subsidiary 5,670 5,571 10,077
------ ------ ------
NET INCOME $7,649 $7,529 $11,940
------ ------ ------
------ ------ ------
</TABLE>
50
<PAGE>
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
Condensed statements of cash flows for the years ended December 31, 1995, 1994,
and 1993 follow:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 7,649 $ 7,529 $ 11,940
Adjustments to reconcile net income to net cash provided by
operating activities:
Net decrease/(increase) in other assets (97) 152 2,186
Equity in undistributed earnings of subsidiaries (5,670) (5,571) (10,077)
Net increase/(decrease) in other liabilities (282) 65 (125)
------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,600 2,175 3,924
------- ------- --------
INVESTING ACTIVITIES:
Net (increase)/decrease in cash invested in subsidiaries - 500 (5,000)
------- ------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES - 500 (5,000)
------- ------- --------
FINANCING ACTIVITIES:
Cash dividends paid (2,134) (2,130) (2,125)
Proceeds from issuance of common stock 286 117 415
Other, net - 2 2
------- ------- --------
NET CASH USED IN FINANCING ACTIVITIES (1,848) (2,011) (1,708)
------- ------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1) (248) 664 (2,784)
Cash and cash equivalents at beginning of year (1) 814 150 2,934
------- ------- --------
Cash and cash equivalents at end of year (1) $ 566 $ 814 $ 150
------- ------- --------
------- ------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest 1,578 1,578 1,578
Income tax refunds (293) (358) (192)
(1) CASH AND CASH EQUIVALENTS CONSISTS OF DUE FROM BANK.
</TABLE>
The Financial Code of the State of California provides that dividends paid by
the Bank in any one year may not exceed the lesser of the Bank's undivided
profits or the net income for the prior three years, less cash distributions to
stockholders during such period. As of December 31, 1995 approximately
$26,758,000 of undivided profits of the Bank are available for dividends to the
Company, subject to the subordinated debt convenant restrictions, and subject to
the prior written consent of the FDIC.
51
\<PAGE>
GBC BANCORP
- --------------------------------------------------------------------------------
NOTE 18 - REGULATORY MATTERS
In August, 1995, the Bank entered into a Memorandum of Understanding
("MOU") with the Federal Deposit Insurance Corporation ("FDIC") which resulted
from the FDIC's examination report of the Bank dated as of February 21, 1995.
As of December 31, 1995, management believes the Bank was in compliance with the
quantitative terms of the MOU, which include: (a) a $27 million reduction in
adversely classified assets within 120 days following the effective date of the
MOU and a $69 million reduction within one year (as of December 31, 1995 the
reduction in previously adversely classified loans was $68 million); (b) a
maximum "volatile liability dependence ratio" of 30% (as of December 31, 1995,
the ratio was 17.54%); (c) a minimum Tier 1 capital ratio (leverage ratio) of
7% (as of December 31, 1995, the ratio was 9.10%); (d) a $19.5 million capital
injection to the Bank from its holding company, GBC Bancorp. (This capital
injection was made on September 5, 1995.) The MOU also provided that the
prior written consent of the FDIC would be required before the Bank could pay
cash dividends, and such consent has been received for the two quarters
following the implementation of the MOU.
The MOU, among other things, also calls for limitations on new advances to
borrowers with adversely classified or charged off loans, the timely and proper
identification of problem loans, the establishment of a comprehensive policy for
determining the adequacy of the allowance for credit losses, and the adoption of
a written policy regarding internal controls and procedures.
The Company's Board of Directors received a notification letter, dated
April 25, 1994, from the Federal Reserve Bank of San Francisco (the "Federal
Reserve") that requires the Company to inform the Federal Reserve prior to its
taking any of the following actions: (a) declaring cash or in-kind dividends;
(b) incurring debt; (c) repurchasing stock; (d) entering into any agreements to
acquire any entities or portfolios. As of December 31, 1995 this notification
letter remains in effect. In November, 1995, the Company was notified that the
appointment of senior executive officers and directors was subject to review by
the Federal Reserve.
As of December 31, 1995, management believes it is in compliance with all
terms of the MOU. Management further believes that all terms of the MOU as
outlined above are being met or will be met without significant financial
detriment to the Company or to the Bank.
In August 1989, the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") was enacted. This legislation was adopted in
order to reform the regulation and supervision of financial institutions and the
insured deposits of financial institutions. Among the many major changes made
by this law is a measure requiring the FDIC to assume responsibility for
insuring the deposits of financial institutions formerly insured by the Federal
Savings and Loan Insurance Corporation. FIRREA establishes two separate
insurance funds to be administered by the FDIC. Insurance premiums on deposit
insurance will be assessed by the FDIC independently for the Bank Insurance Fund
("BIF") and the Savings Association Insurance Fund. The Omnibus Budget
Reconciliation Act of 1990 revised the assessment rates.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") provided for increased funding for FDIC deposit insurance and for
expanded regulation of the banking industry. Among other things, FDICIA
requires the federal banking regulators to take prompt corrective action with
respect to depository institutions that do not meet minimum capital
requirements. FDICIA establishes five capital ratio categories: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized."
A depository institution is well capitalized if it significantly exceeds
the minimum level required by regulation for each relevant capital measure,
adequately capitalized if it meets each such measure, undercapitalized if it
fails to meet any such measure, significantly undercapitalized if it is
significantly below any such measure, and critically undercapitalized if it
fails to meet any critical capital level set forth in the regulation. The
critical capital level must be a level of tangible equity equal to at least 2%
of total assets, but may be fixed at a higher level by regulation. A depository
institution may be deemed to be in a capitalization category that is
52
<PAGE>
1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating and may be reclassified to a lower category by
action based on other supervisory criteria. For an institution to be well
capitalized it must have a total risk-based capital ratio of at least 10%, a
Tier 1 risk-based capital ratio of at least 6%, and a leverage ratio of at least
5% and not be subject to any specific capital order or directive. For an
institution to be adequately capitalized it must have a total risk-based capital
ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 4%, and a
leverage ratio of at least 4% (3% in some cases).
NOTE 19 - SUPPLEMENTARY INFORMATION
Components of other non-interest expense in excess of 1% of the sum of
total interest income and non-interest income were as follows for the years
indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Office Supplies and Communication Expense $ 1,347 $ 1,273 $ 954
Professional Services Expense 1,756 1,432 981
FDIC Assessment Expense 1,299 1,771 1,586
Real Estate Investment Expense 1,388 1,300 580
Other 1,864 1,598 $1,282
------- ------- ------
TOTAL $ 7,654 $ 7,374 $5,383
------- ------- ------
------- ------- ------
</TABLE>
NOTE 20 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED IN 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $20,538 $21,017 $20,868 $22,703
Interest Expense 8,789 9,059 9,389 10,181
Net Interest Income 11,749 11,958 11,479 12,522
Provision for Credit Losses 5,100 5,000 5,550 2,920
Income Before Income Taxes 1,540 2,304 1,099 4,133
Net Income 1,619 1,454 881 3,695
Earnings Per Share 0.24 0.22 0.14 0.54
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED IN 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $16,690 $17,519 $18,568 $20,005
Interest Expense 6,224 7,074 7,446 8,145
Net Interest Income 10,466 10,445 11,122 11,860
Provision for Credit Losses 1,300 2,760 7,700 4,434
Gain on Sale of Securities Available for Sale 124 - - -
Loss on Sale of Securities Held to Maturity - (150) - -
Income Before Income Taxes 5,066 2,406 (649) 2,502
Net Income 3,515 1,896 146 1,972
Earnings Per Share 0.52 0.28 0.02 0.30
</TABLE>
53
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of GBC Bancorp:
We have audited the accompanying consolidated balance sheets of GBC Bancorp
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GBC Bancorp
and subsidiaries as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 1 of the notes to the consolidated financial
statements, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standard ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures" in 1995, and SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," in 1994.
KPMG Peat Marwick LLP
Los Angeles, California
January 18, 1996
54
<PAGE>
Exhibit 22
SUBSIDIARIES OF GBC BANCORP
General Bank
GBC Investment & Consulting Company, Inc.
GBC Real Estate Company, Inc.
GBC Insurance Services, Inc.
Southern Counties Escrow
GBC Leasing Company, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 38,837
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 125,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 507,141
<INVESTMENTS-CARRYING> 33,553
<INVESTMENTS-MARKET> 34,370
<LOANS> 471,944
<ALLOWANCE> 16,674
<TOTAL-ASSETS> 1,204,506
<DEPOSITS> 1,046,200
<SHORT-TERM> 24,000
<LIABILITIES-OTHER> 19,829
<LONG-TERM> 15,000
0
0
<COMMON> 45,658
<OTHER-SE> 53,819
<TOTAL-LIABILITIES-AND-EQUITY> 1,204,506
<INTEREST-LOAN> 49,533
<INTEREST-INVEST> 35,575
<INTEREST-OTHER> 18
<INTEREST-TOTAL> 85,126
<INTEREST-DEPOSIT> 34,574
<INTEREST-EXPENSE> 37,418
<INTEREST-INCOME-NET> 47,708
<LOAN-LOSSES> 18,570
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 26,104
<INCOME-PRETAX> 9,076
<INCOME-PRE-EXTRAORDINARY> 9,076
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,649
<EPS-PRIMARY> 1.137
<EPS-DILUTED> 1.111
<YIELD-ACTUAL> 4.59
<LOANS-NON> 43,712
<LOANS-PAST> 9
<LOANS-TROUBLED> 10,151
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 23,025
<CHARGE-OFFS> 25,520
<RECOVERIES> 599
<ALLOWANCE-CLOSE> 16,674
<ALLOWANCE-DOMESTIC> 11,497
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,177
</TABLE>
