SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Quarter Ended March 31, 1996 Commission file number 0-16213
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GBC BANCORP
- ---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-3586596
- ----------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
800 West 6th Street, Los Angeles, California 90017
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 213/972-4172
----------------
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Former name address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
------------ ----------
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the close of the
period covered by this report.
Common stock, no par value, 6,696,389 shares issued and
---------
outstanding as of March 31, 1996.
--------------
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION .......................................
Item 1. Financial Statements .........................................
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................
PART II OTHER INFORMATION ...........................................
Item 1. Legal Proceedings ............................................
Item 2. Changes In Securities ........................................
Item 3. Default Upon Senior Securities ...............................
Item 4. Submission Of Matters To A Vote Of Securities Holders ......
Item 5. Other Information ............................................
Item 6. Exhibits And Reports On Form 8-K ............................
PART III SIGNATURES ..................................................
PART I - FINANCIAL INFORMATION
GBC Bancorp and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March December
(In Thousands) 1996 1995
- ---------------------------------------------------------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and Due From Banks $38,988 $38,837
Federal Funds Sold and Securities Purchased Under
Agreements to Resell 148,900 125,000
Securities Available for Sale, at Fair Value 632,253 507,141
Securities Held to Maturity (Fair Value of $30,749 and
$34,370 at March 31, 1996 and December 31, 1995,
Respectively) 30,176 33,553
Loans and Leases 484,441 471,944
Less: Allowance for Credit Losses (16,306) (16,674)
Deferred Loan Fees (3,141) (3,379)
----------- ---------
Loans and Leases, Net 464,994 451,891
Bank Premises and Equipment, Net 6,226 6,101
Other Real Estate Owned, Net 10,452 7,686
Due From Customers on Acceptances 4,427 4,703
Real Estate Held for Investment 11,115 12,142
Accrued Interest Receivable and Other Assets 18,188 17,452
----------- ---------
Total Assets $1,365,719 $1,204,506
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $131,316 $137,048
Interest Bearing Demand 238,561 200,614
Savings 150,360 129,202
Time Certificates of Deposit of $100,000 or More 500,072 408,289
Other Time Deposits 188,454 171,047
--------- --------
Total deposits 1,208,763 1,046,200
Federal Funds Purchased and Securities Sold Under
Repurchase Agreements $24,000 $24,000
Subordinated Debt 15,000 15,000
Acceptances Outstanding 4,427 4,703
Accrued Expenses and Other Liabilities 12,263 15,126
--------- ---------
Total Liabilities 1,264,453 1,105,029
Stockholders' Equity:
Common Stock, No Par or Stated Value;
20,000,000 Shares Authorized; 6,696,389 and
6,679,661 Shares Outstanding at March 31, 1996 and
December 31, 1995, Respectively 45,934 45,658
Retained Earnings 55,876 52,103
Securities Valuation Allowance, Net of Tax (537) 1,723
Foreign Currency Translation Adjustments (7) (7)
---------- ---------
Total Stockholders' Equity 101,266 99,477
---------- ---------
Total Liabilities and Stockholders' Equity $1,365,719 $1,204,506
========= ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
GBC Bancorp and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans and Leases, Including Fees $12,279 $12,359
Securities Available for Sale 8,117 5,207
Securities Held to Maturity 648 1,444
Federal Funds Sold and Securities
Purchased under Agreements to Resell 2,240 1,524
Other - 5
----------- --------
Total Interest Income 23,284 20,539
INTEREST EXPENSE
Interest Bearing Demand 1,144 1,088
Savings 931 1,345
Time Deposits of $100,000 or More 5,678 3,837
Other Time Deposits 2,178 1,773
Federal Funds Purchased and Securities
Sold under Repurchase Agreements 336 -
Borrowings from the Federal Home
Loan Bank - 348
Subordinated Debt 399 399
---------- ---------
Total Interest Expense 10,666 8,790
Net Interest Income 12,618 11,749
Provision for Credit Losses 1,500 5,100
----------- ---------
Net Interest Income after Provision
for Credit Losses 11,118 6,649
NON-INTEREST INCOME
Service Charges and Commissions 1,548 1,381
Gain/(Loss) on Sale of Loans, Net 85 (49)
Gain on Sale of Real Estate Investment 101 -
Other 98 175
---------- ---------
Total Non-Interest Income 1,832 1,507
NON-INTEREST EXPENSE
Salaries and Employee Benefits 3,386 2,547
Occupancy Expense 675 686
Furniture and Equipment Expense 396 402
Net Other Real Estate Owned Expense 487 1,031
Other 1,644 1,950
----------- ----------
Total Non-Interest Expense 6,588 6,616
Income before Income Taxes 6,362 1,540
Provision/(Benefit) for Income Taxes 2,053 (79)
------------ ---------
Net Income $4,309 $1,619
============= ==========
Earnings Per Share $0.62 $0.24
============= ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
GBC Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31
(IN THOUSANDS) 1996 1995
- ---------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $4,309 $1,619
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation 273 272
Net Amortization/(Accretion) of
Premiums/Discounts on Securities (638) (1,460)
Writedowns on Real Estate Held for
Investment 429 194
Provision for Credit Losses 1,500 5,100
Provision for Losses on Other Real
Estate Owned 400 618
Amortization of Deferred Loan Fees (730) (632)
(Gain)/Loss on Sale of Loans (85) 49
Gain on Sale of Real Estate Investment (101) -
Gain on Sale of Other Real Estate
Owned (11) (8)
Loans Originated for Sale (15,204) (5,078)
Proceeds from Sale of Loans 15,321 7,886
Net Increase in Interest Receivable
and Other Assets 519 497
Net Decrease in Accrued Expenses and
Other Liabilities (2,468) (1,306)
Other, Net - 66
----------------------
Net Cash Provided by Operating 3,514 7,817
Activities
INVESTING ACTIVITIES:
Purchases of Securities Available for
Sale (322,317) (180,732)
Proceeds from Maturities of Securities
Available for Sale 193,928 169,969
Proceeds from Maturities of Securities
Held to Maturity 3,384 14,197
Purchases of Securities Held to
Maturity - (5,365)
Net (Increase)/Decrease in Loans and
Leases (18,124) 2,352
Proceeds from Sale of Other Real
Estate Owned 1,063 1,878
Purchases of Bank Premises and
Equipment (399) (196)
Proceeds from Sale of Real Estate
Investment 699 1,065
Purchases/Additions to Real Estate
Held for Investment - (329)
------------- ------------
Net Cash Provided/(Used) by
Investing Activities (141,766) 2,839
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
(IN THOUSANDS) 1996 1995
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES:
<S> <C> <C>
Net Decrease in Demand Deposits ($5,732) ($14,170)
Net Increase/(Decrease) in Interest-Bearing
Demand Accounts 37,947 (7,670)
Net Increase/(Decrease) in Savings Deposits 21,158 (4,264)
Net Increase/(Decrease) in Certificates of
Deposits 109,190 (825)
Cash Dividend Paid (536) (532)
Proceeds from Exercise of Stock Options 276 18
--------------------------
Net Cash Provided (Used) by Financing
Activities 162,303 (27,443)
Net Change in Cash and Cash Equivalents 24,051 (16,787)
Cash and Cash Equivalents at Beginning of
Period 163,837 112,359
---------------------------
Cash and Cash Equivalents at End of Period $187,888 $95,572
==========================
Supplemental Disclosures of Cash Flow
Information:
Cash Paid during This Period for:
Interest Paid (Net of Capitalized
Interest) $5,839 $5,156
Income Taxes 1,500 -
==========================
Noncash Investing Activities:
Loans Transferred to Other Real Estate
Owned at Fair Value $4,481 $2,162
Loans to facilitate the sale of Other Real
Estate Owned 262 290
============================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
GBC Bancorp and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In the opinion of management, the consolidated
financial statements of GBC Bancorp and its subsidiaries
(the "Company") as of March 31, 1996 and December 31, 1995
and the three months ended March 31, 1996 and 1995, reflect
all adjustments (which consist only of normal recurring
adjustments) necessary for a fair presentation. In the
opinion of management, the aforementioned financial
statements are in conformity with general accepted
accounting principles.
Statement of Financial Accounting Standards No. 122
On May 12, 1995, the Financial Accounting Standards
Board ("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 and the servicing rights are
retained. Where a definitive plan to sell 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.
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 Company adopted SFAS 122 on January 1, 1996. The
adoption resulted in the recognition of $30,000 of mortgage
servicing rights and a $30,000 increase to non-interest
income for the quarter ending March 31, 1996.
Earnings Per Share
Earnings per share are computed based on the weighted
average shares outstanding including common stock
equivalents for the periods disclosed.
Consolidated Statements of Cash Flows
Cash and cash equivalents consist of cash and due from
banks, and federal funds sold and securities purchased under
agreements to resell.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
For the quarter ended March 31, 1996, net income
totaled $4,309,000, an increase of $2,690,000, or 166% from
the $1,619,000 earned during the corresponding period of
1995. Earnings per share for the quarter ended March 31,
1996 were $0.62 per share compared to $0.24 per share for
the same period of 1995.
The net income for the quarter ended March 31, 1996
represented the highest quarterly net income in the
Company's history. The increase over the corresponding
period of a year ago was primarily due to a lower provision
for credit losses and an increase in net interest income.
The decline of the provision for credit losses in 1996
was caused by the reduction of nonaccrual loans, which were
$27.5 million at March 31, 1996, as compared to $43.7
million at December 31, 1995. Additionally, net charge-offs
decreased $2.5 million in the first quarter of 1996,
compared to the same quarter of 1995. The allowance for
credit losses was $16.3 million as of March 31, 1996, as
compared to $16.7 million as of December 31, 1995,
representing 3.51% and 3.69% of loans, net of allowance for
credit losses, respectively.
The annualized return on average assets ("ROA") for the
Company was 1.38% and 0.62% for the quarters ended March 31,
1996 and 1995, respectively. The annualized return on
average stockholders' equity ("ROE") for the quarters ended
March 31, 1996 and 1995 was 17.06% and 7.33% respectively.
The improvement of these ratios is the result of the factors
mentioned above.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income before the provision for loan
losses for the quarter ended March 31, 1996 amounted to
$12,618,000, an increase of $869,000 or 7.4%, from
$11,749,000 for the same period of 1995.
Total interest income for the three months ended March
31, 1996 was $23,284,000 compared to $20,539,000 for the
corresponding period of a year ago. The increase of
$2,745,000, or 13.4%, was due to an increase of average
earning assets. For the quarters ending March 31, 1996 and
1995, average earning assets were $1,194 million and $1,005
million, respectively, representing a $189 million, or
18.8%, growth. The additional interest associated with the
growth was partially offset by a reduced yield on earning
assets. For the quarters ending March 31, 1996 and 1995,
the yield on earning assets was 7.84% and 8.29%,
respectively, representing a 45 basis point, or 5.4%,
decline.
The reduced yield was primarily due to two factors.
The average national prime rate of interest for the quarter
ended March 31, 1996 was 8.84% compared to 9.33% for the
quarter ended March 31, 1995. In addition, there was a
shift in the composition of earning assets. For the quarter
ended March 31, 1995, average loan and leases, the highest
yielding assets, net of average nonaccrual loans, comprised
47% of total average earning assets, net of nonaccrual
loans. For the quarter ended March 31, 1996, average loans
and leases, net of average nonaccrual loans, comprised 37%
of total average earning assets, net of nonaccrual loans.
The impact of the change in asset composition was partially
offset by a decline of average nonaccrual loans. For the
quarter ended March 31, 1996, average nonaccrual loans were
$45.6 million, down $5.9 million, or 11.5%, from $51.5
million for the quarter ended March 31, 1995. The shift in
the asset composition is the result of the growth in average
deposits, which was invested in federal funds sold,
securities purchased under agreements to resell and
investment securities.
Total interest expense for the quarter ended March 31,
1996 was $10,666,000 compared to $8,790,000 for the
corresponding period of a year ago. The increase of
$1,876,000, or 21.3%, was due to an increase of average
deposits. For the quarters ended March 31, 1996 and 1995
average interest bearing deposits were $973 million and $799
million, respectively, an increase of $174 million, or
21.8%. For the quarters ended March 31, 1996 and 1995, the
rates paid on interest bearing deposits were 4.10% and
4.08%, respectively.
While interest rates were generally lower during the
quarter ended March 31, 1996 compared to the corresponding
period of a year ago, this was offset by the deposit growth
occurring in the higher-costing time certificates of
deposit. Of the growth of average interest bearing deposits
for the quarters ending March 31, 1996 and 1995 totaling
$174 million, $133 million was in the category of time
certificates of deposit of $100,000 or more, the most costly
deposit product.
The net interest spread is defined as the yield on
earning assets less the rates paid on interest bearing
liabilities. Due to the reduced yield on earning assets for
reasons explained above, and the slight increase in the
rates paid on interest bearing deposits, also explained
above, the net interest spread declined. For the quarters
ended March 31, 1996 and 1995, the spread was 3.60% and
4.07%, respectively.
The net interest margin is defined as the difference
between interest income and interest expense divided by
average earning assets. For the quarter ended March 31,
1996 and 1995, the net interest margin was 4.25% and 4.71%,
respectively. The decrease in the margin is the result of
the growth of earning assets and the reduced net interest
spread.
Provision for Credit Losses
For the quarter ended March 31, 1996, the provision was
$1,500,000, compared to $5,100,000 for the same period of
1995, a decrease of $3,600,000, or 70.6%.
The decline of the provision for credit losses in 1996
was primarily caused by the reduction of nonaccrual loans.
As of March 31, 1996, nonaccrual loans outstanding totaled
$27.5 million, the lowest level of nonaccrual loans since
December 31, 1993. As of December 31, 1995, nonaccrual
loans totaled $43.7 million. The combination of loans
returned to non-accrual and repayments were the major
contributors to the reduction of non-accruals during the
quarter.
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 for the quarter ended March 31,
1996 totaled $1,832,000 compared to $1,507,000 for the same
period ended March 31, 1995. The net increase of $325,000
was primarily attributable to the receipt of a $400,000 fee
in exchange for which the Bank released a guarantor of a
real estate loan. In addition, during the first quarter
ended March 31, 1996 the Bank recorded a $101,000 gain on
the sale of the final condominium unit of a real estate
investment project. There remains one project on the books
for which there is anticipated no gain or loss. The above
were partially offset by reduced service charges (primarily
due to decreased commissions on international transactions)
and escrow fees. Escrow fees are included in non-interest
income-other.
Non-Interest Expense
Non-interest expense for the quarter ended March 31,
1996 totaled $6,588,000, a decrease of $28,000, or 0.4%,
over the $6,616,000 recorded in the same period of 1995.
The net decrease reflects substantial reductions of net
other real estate owned expense and the cost of FDIC
insurance. The reduced cost of the Bank's FDIC insurance
(from $565,000 to $73,000 for the quarters ending March 31,
1995, and 1996, respectively) was the result of the
upgrading of the Bank's rating for deposit insurance
purposes. The above were offset by an increase in salaries
and employee benefits of $839,000 due in large measure to
the bonus accrual. The bonus is a function of the Bank's
pre-tax income with certain adjustments. The Company's
efficiency ratio, defined as non-interest expense divided by
the sum of net interest income plus non-interest income,
improved, declining from 49.9% for the quarter ended March
31, 1995, to 45.6% for the quarter ended March 31, 1996.
Provision for Income Taxes
For the quarter ended March 31, 1996 the provision for
income taxes was $2,053,000, representing 32% of pre-tax
income. The provision is based on anticipated annual 1996
pre-tax income and the annual accrual of tax credits from
the Bank's low income housing investment. The provision for
the quarter ended March 31, 1996 represents an increase of
$2,132,000 compared to the tax benefit of $79,000 for the
quarter ended March 31, 1995. The tax benefit resulted
primarily from management's decision to reduce the valuation
allowance for deferred tax assets and the continued accrual
of tax credits.
FINANCIAL CONDITION
Total assets as of March 31, 1996, were $1,366 million,
an increase of $161 million from total assets of $1,205
million as of December 31, 1995. The increase was due to
the growth of deposits that was invested primarily in
securities available for sale. As of March 31, 1996 and
December 31, 1995, total deposits were $1,209 million and
$1,046 million, respectively.
Loans
As of March 31, 1996, total loans and leases totaled
$484 million, representing a $12 million, or 2.5%, increase
from total loans and leases of $472 million as of December
31, 1995. The net increase was primarily due to $20 million
growth of term federal funds sold. Offsetting this increase
was a $12.6 million decline of conventional real estate
loans. This decline was primarily the result of loan pay-
offs and transfers to OREO.
The following table sets forth the amount of loans and
leases outstanding by category and the percentage of each
category to the total loans and leases outstanding:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
(IN THOUSANDS) Amount Percentage Amount Percentage
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $153,023 31.59% $151,709 32.15%
Real Estate -
Construction 56,512 11.67% 53,423 11.32%
Real Estate -
Conventional 226,380 46.73% 239,016 50.64%
Installment 220 0.05% 231 0.05%
Other Loans 23,055 4.76% 22,310 4.73%
Leveraged Leases 251 0.05% 255 0.05%
Term Fed Funds Sold 25,000 5.16% 5,000 1.06%
- -------------------------------------------------------------
Total $484,441 100.00% $471,944 100.00%
</TABLE>
Nonperforming Assets
A certain degree of risk is inherent in the extension
of credit. Management believes that it has credit policies
in place to minimize the level of loan losses and
nonperforming 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 a loan impaired under SFAS 114) which are 90 days
past due as to principal and/or interest as nonaccrual loans
unless management determines that the fair value of
underlying collateral is substantially in excess of the loan
amount or circumstances justify treating the loan as fully
collectible. After a loan is placed on nonaccrual 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 nonaccrual 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, nonaccrual loans,
restructured loans and other real estate owned, net, at the
dates indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) March 31, 1996 December 31, 1995
<S> <C> <C>
Loans 90 Days or More
Past Due and Still Accruing $9 $9
Nonaccrual Loans 27,539 43,712
Total Past Due Loans 27,548 43,721
Restructured Loans 20,103 10,151
Total Nonperforming Loans 47,651 53,872
Other Real Estate Owned, Net 10,452 7,686
Total Nonperforming $58,103 $61,558
Assets
</TABLE>
Total nonperforming assets declined $3,455,000 from
$61,558,000 as of December 31, 1995 to $58,103,000, as of
March 31, 1996. Nonaccrual loans reflected a $16,173,000
decline from $43,712,000 outstanding as of December 31, 1995
to $27,539,000 as of March 31, 1996, representing the lowest
level since December 31, 1993.
The following table analyzes the decline in nonaccrual
loans during the three months ended March 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1995 $43,712
Add: Loans placed on nonaccrual 5,522
Less: Charge-offs (1,749)
Returned to accrual status (11,093)
Repayments (3,878)
Transfer to OREO (4,975)
Balance, March 31, 1996 $27,539
</TABLE>
Conventional real estate and construction loans as a
group comprise 76.6% of the total nonaccrual loans, as of
March 31, 1996. Management believes the collateral provides
substantial protection against the loss of principal.
The following table breaks out the Company's nonaccrual
loans by category as of March 31, 1996 and December 31,
1995:
<TABLE>
<CAPTION>
(IN THOUSANDS) March 31, 1996 December 31, 1995
<S> <C> <C>
Commercial $6,401 $3,802
Real Estate-
Construction 1,184 3,630
Real Estate-
Conventional 19,901 36,241
Other Loans 53 39
Total $27,539 $43,712
</TABLE>
Restructured loans consist of twelve real estate
credits with a balance of $20,103,000 as of March 31, 1996.
This compares to nine real estate credits with a balance of
$10,151,000 as of December 31, 1995. The increase of the
balance of restructured loans was primarily due to the
return to accrual status of certain restructured loans. A
loan is returned to accrual status only when the borrower
has demonstrated the ability to make future payments of
principal and interest as scheduled, and the borrower has
demonstrated a sustained period of repayment performance in
accordance with the contractual terms. Restructured loans
which are nonaccrual are not included in the balance of
restructured loans, although they are restructured. The
weighted average yield of the restructured loans as of March
31, 1996, was 10.15%.
The following table breaks out the restructured loans
by accrual status as of the dates indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) March 31, 1996 December 31, 1995
- -----------------------------------------------------------
RESTRUCTURED LOANS:
<S> <C> <C>
On Accrual Status $20,103 $10,151
On Nonaccrual Status 7,714 16,727
- -----------------------------------------------------------
Total $27,817 $26,878
</TABLE>
There are no commitments to lend additional funds on
any of the restructured loans including those on an accrual
status and on nonaccrual status. As of March 31, 1996, all
restructured loans (on accrual status) were performing as
per the restructured terms.
Other real estate owned ("OREO"), net of valuation
allowance of $897,000, totaled $10,452,000, representing an
increase of $2,766,000, or 36.0%, from the net balance of
$7,686,000, net of valuation allowance of $611,000, as of
December 31, 1995. As of March 31, 1996 and December 31,
1995, OREO consisted of 20 properties and 14 properties,
respectively.
The following table sets forth OREO by property type
for the dates as indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) March 31, 1996 December 31,1995
PROPERTY TYPE
<S> <C> <C>
Single-Family Residential $ 11 $ 11
Condominium 509 509
Multi-Family Residential 1,171 978
Warehouse - 188
Land for Residential 3,783 1,054
Retail Facilities 5,386 5,289
Office 489 268
Less: Valuation Allowance (897) (611)
Total $10,452 $7,686
</TABLE>
The properties are all included in the Bank's market
area. As of March 31, 1996, four properties comprised the
land category. The Company does not intend to develop these
properties.
Management cannot predict the extent to which the
current economic environment, including the real estate
market, may improve, persist or worsen, or the full impact
such environment may have on the Bank's loan portfolio.
Furthermore, as the Bank's primary regulators review the
loan portfolio as part of their routine, periodic
examinations of the Bank, their assessment of specific
credits may affect the level of the Bank's nonperforming
loans. Accordingly, there can be no assurance that other
loans will not become non-performing in the future.
Allowance for Credit Losses
SFAS 114, Accounting by Creditors for Impairment of a
Loan, as amended by SFAS 118, was adopted on January 1,
1995. The following table discloses pertinent information
as it relates to the Company's impaired loans for and as of
the dates indicated:
<TABLE>
<CAPTION>
As of and for the
Impaired Loans three months
ended March 31,
(IN THOUSANDS) 1996 1995
<S> <C> <C>
Recorded Investment with Related
Allowance $35,393 $45,150
Recorded Investment with no Related
Allowance 2,259 228
Total Recorded Investment 37,652 45,378
Allowance for Impaired Loans 4,201 7,081
Average Balance of Impaired Loans
before Allowance $41,757 $45,378
</TABLE>
For the three months ended March 31, 1996, interest
income recognized for impaired loans was $571,000. No
interest income was recognized on a cash basis.
The table below summarizes the activity in the total
allowance for credit losses (which amount includes the
allowance on impaired loans), for the 3 month periods ended
as indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) March 31, 1996 March 31, 1995
<S> <C> <C>
Balance, Beginning of
Period $16,674 $23,025
Provision for Credit
Losses 1,500 5,100
Charge-offs (2,746) (4,447)
Recoveries 878 11
Net Charge-offs (1,868) (4,436)
Balance, End of Period $16,306 $23,689
</TABLE>
As of March 31, 1996, the allowance represents 3.37% of
outstanding loans and leases. This compares to an allowance
of 3.53% of outstanding loans and leases as of December 31,
1996. As of March 31, 1996, the allowance represents 34.22%
of nonperforming loans. As of December 31, 1995, the
allowance represented 30.95% of nonperforming loans.
Management believes that the allowance for credit
losses is adequate to cover known and inherent losses
related to loans and leases outstanding as of March 31,
1996.
Securities
The Company classifies its securities as held to
maturity or available for sale. Securities classified as
held to maturity are those that the Company has the positive
intent and ability to hold until maturity. These securities
are carried at amortized cost.
Securities that could be sold in response to changes in
interest rates, increased loan demand, liquidity needs,
capital requirements or other similar factors are classified
as securities available for sale. These securities are
carried at market value, with unrealized gains or losses
reflected net of tax in stockholders' equity.
As of March 31, 1996, the Company recorded gross
unrealized losses of $932,000 on its available-for-sale
portfolio and the inclusion as a separate deduction of
stockholders' equity of $537,000 representing the unrealized
holding loss, net of tax.
The amortized cost, gross unrealized gains, gross
unrealized losses and fair value of securities at March 31,
1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
March 31,1996 December 31, 1995
- ----------------------------------------------------------------------------------------------
(IN AMORTIZED GROSS GROSS FAIR AMORTIZED GROSS GROSS FAIR
THOUSANDS) COST UNREALIZED UNREALIZED VALUE COST UNREALIZED UNREALIZED VALUE
GAINS LOSSES GAINS LOSSES
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities
Held to
Maturity
State &
Municipal
Securities $6,096 $127 - $6,223 $6,460 $154 - $6,614
Collateralized
Mortgage
Obligations 74 8 - 82 82 8 - 90
Asset Backed
Securities 24,006 438 - 24,444 27,011 655 - 27,666
Total
Securities
Held to
Maturity $30,176 $573 - $30,749 $33,553 $817 $0 $34,370
</TABLE>
<TABLE>
<CAPTION>
March 31,1996 December 31, 1995
- ----------------------------------------------------------------------------------------------
(IN AMORTIZED GROSS GROSS FAIR AMORTIZED GROSS GROSS FAIR
THOUSANDS) COST UNREALIZED UNREALIZED VALUE COST UNREALIZED UNREALIZED VALUE
GAINS LOSSES GAINS LOSSES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities
Available for
Sale
U.S.
Treasuries $1,941 - ($38) $1,903 $16,948 - ($4) $16,944
U.S.
Government
Agencies 268,576 - ($434) 268,142 222,578 950 - 223,528
Mortgage
Backed
Securities 58,839 - ($484) 58,355 61,987 212 - 62,199
Corporate
Notes 27,015 985 - 28,000 27,016 1,299 - 28,315
Collateralized
Mortgage
Obligations 209,128 - ($1,086) 208,042 133,611 346 - 133,957
Auction
Preferred Stock 57,800 - - 57,800 32,200 - - 32,200
Other
Securities 9,886 125 - 10,011 9,823 175 - 9,998
Total
Securities
Available for
Sale $633,185 $1,110 ($2,042) $632,253 $504,163 $2,982 ($4) $507,141
</TABLE>
There were no sales of securities available for sale
during the quarters ended March 31, 1996 and 1995. There
were no sales of securities held to maturity for the
quarters ended March 31, 1996 and 1995.
Deposits
The Company's deposits totaled $1,209 million as of
March 31, 1996, representing a $162 million , or 15.6%,
increase from total deposits of $1,046 million as of
December 31, 1995. With the exception of non-interest
bearing demand, all deposit categories reflected increases
comparing March 31, 1996 to December 31, 1995. The largest
deposit growth was in the time certificates of deposit of
$100,000 or more, which increased $92 million, or 22.5%.
Interest bearing demand also reflected a large increase of
$38 million, or 18.9%. The Company believes that the growth
of deposits during the first quarter of 1996 was largely
attributable to the political tensions during that period
associated with the national elections in Taiwan.
Therefore, it is possible that a portion of the increase in
deposits could be withdrawn. There is sufficient liquidity
in federal funds sold and securities purchased under
agreements to resell, as well as in securities available for
sale, to fund any such withdrawals. The Company believes
that the majority of its deposit customers have strong ties
to the Bank and there is no large concentration with any
major depositors.
The maturity schedule of time certificates of deposit
of $100,000 or more as of March 31, 1996 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
3 Months or Less $224,701
Over 3 Months Through One Year 274,551
Over One Year through 5 Years 820
Total $500,072
</TABLE>
Regulatory Matters
On April 23, 1996, the Bank was notified by its primary
regulator, the Federal Deposit Insurance Corporation
("FDIC"), that the Memorandum of Understanding dated August
17, 1995, had been terminated based upon the results of a
safety and soundness examination dated January 8, 1996.
The Company's Board of Directors received a
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 March 31, 1996, 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. The Federal Reserve is reviewing the
results of the most recent examination, but has not yet
communicated with the Company on the status of the above
notification.
Capital Resources
As of March 31, 1996, stockholders' equity totaled
$101,266,000, an increase of $1,789,000, or 1.8%, from
$99,477,000, as of December 31, 1995. The increase was due
primarily to net income of $4,309,000, less cash dividends
payable to shareholders of $536,000, less the net change in
the securities valuation allowance, net of tax, of
$2,260,000 for the three months ended March 31, 1996.
Additionally, $276,000 of the increase was the result of the
exercise of stock options and the related tax benefit.
Capital ratios for the Company and for the Bank were as
follows:
<TABLE>
<CAPTION>
Well- March 31 December 31
Capitalized
Standards 1996 1995
GBC Bancorp
<S> <C> <C> <C>
Tier 1 Leverage Ratio 5% 8.00% 8.27%
Tier 1 Risk-Based
Capital Ratio 6 12.77 13.83
Total Risk-Based
Capital Ratio 10 14.40 15.51
General Bank
Tier 1 Leverage Ratio 5% 8.74% 9.10%
Tier 1 Risk-Based
Capital Ratio 6 13.98 15.26
Total Risk-Based
Capital Ratio 10 15.23 16.51
</TABLE>
Liquidity and Interest Rate Sensitivity
Liquidity measures the ability of the Company to meet
fluctuations in deposit levels, to fund its operations and
to provide for customers' credit needs. Asset liquidity is
provided by cash and short-term financial instruments which
include federal funds sold and securities purchased under
agreements to resell, unpledged securities held to maturity
maturing within one year and unpledged securities available
for sale. These sources of liquidity amounted to
$771,161,000, or 56.4% of total assets as of March 31, 1996,
compared to $614,022,000, or 51.1% of total assets at
December 31, 1995.
To further supplement its liquidity, the Company has
established federal funds lines with correspondent banks and
three master repurchase agreements with major brokerage
companies. In August, 1992 the Federal Home Loan Bank of
San Francisco ("FHLB") granted the Bank a line of credit
equal to 20 percent of assets with terms up to 240 months.
As of March 31, 1996 the Company has no borrowing
outstanding under this financing facility with the FHLB.
Management believes its liquidity sources to be stable and
adequate.
As of March 31, 1996, total loans and leases
represented 40.1% of total deposits. This compares to 45.1%
at December 31, 1995. The decline in this ratio is
primarily due to the investment of the deposit growth in the
securities portfolio and in federal funds sold and
securities purchased under agreements to resell.
Effective asset/liability management includes
maintaining adequate liquidity and minimizing the impact of
future interest rate changes on net interest income. The
Company attempts to manage its interest rate sensitivity on
an on-going basis through the analysis of the repricing
characteristics of its loans, investments, and deposits, and
managing the estimated net interest income volatility by
adjusting the terms of its interest-earning assets and
liabilities, and through the use of derivatives as needed.
The Company has only limited involvement with
derivative financial instruments and does not use them for
trading purposes. They are used to manage the interest rate
risk from the origination of fixed rate residential mortgage
loans for sale in the secondary markets.
The Company utilizes Treasury note futures and forward
sales of mortgage-backed securities to hedge interest rate
risk associated with its residential mortgage banking
activities. Futures and forward sale contracts provide for
sale of the underlying securities, including mortgage-backed
securities, at a specified future date, at a specified price
or yield.
The amount of the futures and forward sale contracts is
determined by the aggregate amount of fixed rate commitments
for mortgage loans that are expected to be funded plus the
amount of fixed rate residential mortgages categorized as
being held for sale that have not been sold. The fair value
of the underlying futures and forward sale contracts is
expected to move inversely to the change in fair value of
the mortgage loans.
The Company never intends to deliver the underlying
securities that the futures and forward sale contracts
commit to sell, rather it purchases offsetting contracts to
eliminate the obligation. The Company is exposed to the
risk that the fair value of futures contracts, being based
on the value of the Treasury note will not move
proportionately with the change in value of the mortgage
loans being hedged. This basis risk is unpredictable and
can result in economic loss to the Company. There is no
basis risk related to the use of forward sale contracts on
mortgage-backed securities since their fair value is based
on similar mortgage loans. However, a gain or loss will
arise from the difference between the fair value and the
forward sale price of the mortgage-backed security.
At March 31, 1996 and December 31, 1995 there were
outstanding fixed rate mortgages held for sale of $2,600,000
and $6,300,000 and a notional value of derivative
instruments of $500,000 and $0, respectively. For the three
months ended March 31, 1996 and 1995 the Company had
realized net losses of $7,813 and $75,800 with unrealized
losses of $1,719 and $8,062, 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.
While no single measure can completely identify the
impact of changes in interest rates on net interest income,
one gauge of interest rate sensitivity is to measure, over
various time periods, the differences in the amounts of the
Company's rate sensitive assets and rate sensitive
liabilities. These differences, or "gaps", provide an
indication of the extent that net interest income may be
affected by future changes in interest rates. However,
these "gaps" do not take into account timing differences
between the repricing of assets and the repricing of
liabilities.
Since interest rate changes do not affect all
categories of assets and liabilities equally or
simultaneously, a cumulative gap analysis alone cannot be
used to evaluate the Company's interest rate sensitivity
position. To supplement traditional gap analysis, the
Company uses simulation modeling to estimate the potential
effects of changing interest rates. This process allows the
Company to more fully explore the complex relationships
within the gap over time and various interest rate
scenarios.
The following table indicates the Company's interest
rate sensitivity position as of March 31, 1996; it may not
be reflective of positions in subsequent periods:
<TABLE>
<CAPTION>
Interest Sensitivity Period
- ------------------------------------------------------------------------------------------
0 to 90 91 to 365 Over 1 Over Non-
Year Interest
(IN THOUSANDS) Days Days to 5 5 Years Erng/Bearing Total
Years
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Securities Available
for Sale $187,150 $57,137 $181,927 $206,039 - $632,253
Securities Held to
Maturity 190 465 25,417 4,104 - 30,176
Federal Funds Sold 148,900 - - - - 148,900
Loans (1) (2) 317,220 34,289 55,388 25,006 - 431,903
Loans to Depository
Insititutions 25,000 - - - - 25,000
Non-Earning Assets (2) - - - - 97,487 97,487
- ------------------------------------------------------------------------------------------
Total Assets $678,460 $91,891 $262,732 $235,149 $97,487 $1,365,719
==========================================================================================
Source of Funds for
Assets:
Deposits:
Demand $ - $ - $ - $ - $131,316 $131,316
Interest Bearing
Demand 238,561 - - - - 238,561
Savings 150,360 - - - - 150,360
TCD'S Under
$100,000 114,707 72,684 1,063 - - 188,454
TCD'S $100,000 and
Over 356,084 143,168 820 - - 500,072
- ------------------------------------------------------------------------------------------
Total Deposits 859,712 215,852 1,883 - 131,316 1,208,763
==========================================================================================
Securities Sold
Under Repurchase
Agreements $24,000 - - - - $24,000
Subordinated Debt 15,000 - 15,000
Other Liabilities - - - - 16,690 16,690
Stockholders' Equity - - - - 101,266 101,266
- ------------------------------------------------------------------------------------------
Total Liabilities
and Stockholders'
Equity $883,712 $215,852 $16,883 - $249,272 $1,365,719
==========================================================================================
Interest Sensitivity
Gap ($205,252) ($123,961) $245,849 $235,149 ($151,785)
Cumulative Interest
Sensivity
Gap ($205,252) ($329,213) ($83,364) $151,785 -
Gap Ratio (% of
Total Assets) -15.0% -9.1% 18.0% 17.2% -11.1%
Cumulative Gap Ratio -15.0% -24.1% -6.1% 11.1% 0.0%
<FN>
(1) Loans are before unamortized deferred loan fees and allowance for loan losses.
(2) Nonaccrual loans are included in non-earning assets.
</TABLE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Bank is a defendant in various lawsuits arising
from the normal course of business. No material legal
proceedings to which the Registrant or its subsidiaries is a
party have been initiated or terminated during the quarter
ended March 31, 1996. There have been no significant
developments in any material pending legal proceedings
involving the Registrant or its subsidiaries during this
same quarter.
Item 2. CHANGES IN SECURITIES
There have been no changes in the securities of the
Registrant during the quarter ended March 31, 1996.
Item 3. DEFAULT UPON SENIOR SECURITIES
This item is not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company
security holders during the quarter ended March 31, 1996.
Item 5. OTHER INFORMATION
There are no events to be reported under this item.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: None.
b) Reports on Form 8-K: None.
PART III - SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
GBC Bancorp
(Registrant)
Dated: __________________ s/ ______________________
Li-Pei Wu, Chairman,
President and Chief
Executive Officer
Dated: ___________________ s/ _______________________
Peter Lowe, Executive
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 38988
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 148900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 632253
<INVESTMENTS-CARRYING> 30176
<INVESTMENTS-MARKET> 30749
<LOANS> 484441
<ALLOWANCE> 16306
<TOTAL-ASSETS> 1365719
<DEPOSITS> 1208763
<SHORT-TERM> 24000
<LIABILITIES-OTHER> 16690
<LONG-TERM> 15000
<COMMON> 45934
0
0
<OTHER-SE> 55332
<TOTAL-LIABILITIES-AND-EQUITY> 1365719
<INTEREST-LOAN> 12279
<INTEREST-INVEST> 11005
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 23284
<INTEREST-DEPOSIT> 9931
<INTEREST-EXPENSE> 10666
<INTEREST-INCOME-NET> 12618
<LOAN-LOSSES> 1500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6588
<INCOME-PRETAX> 6362
<INCOME-PRE-EXTRAORDINARY> 6362
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4309
<EPS-PRIMARY> .62
<EPS-DILUTED> .61
<YIELD-ACTUAL> 4.25
<LOANS-NON> 27539
<LOANS-PAST> 9
<LOANS-TROUBLED> 20103
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16674
<CHARGE-OFFS> 2746
<RECOVERIES> 878
<ALLOWANCE-CLOSE> 16306
<ALLOWANCE-DOMESTIC> 16306
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
