SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
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For Quarter Ended March 31, 1997 Commission file number 0-16213
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GBC BANCORP
- ------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-3586596
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification 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, 6,786,589 shares issued and
------------------
outstanding as of March 31, 1997.
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION.......................
Item 1. Financial Statements................
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations..............
PART II OTHER INFORMATION...........................
Item 1. Legal Proceedings...................
Item 2. Changes In Securities...............
Item 3. Default Upon Senior Securities......
Item 4. Submission Of Matters To A Vote Of
Securities Holders .................
Item 5. Other Information...................
Item 6. Exhibits And Reports On Form 8-K....
PART III SIGNATURES..............................
PART I - FINANCIAL INFORMATION
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
(In Thousands) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 43,285 $ 46,809
Federal Funds Sold and Securities Purchased
Under Agreements to Resell 110,000 140,200
Securities Available for Sale at Fair Value
(Amortized Cost of $545,395 and
$518,701 at March 31, 1997 and December 31,
1996, Respectively) 541,739 519,821
Securities Held to Maturity (Fair Value of
$12,061 and $12,463 at March 31,
1997 and December 31, 1996, Respectively) 11,981 12,274
Loans and Leases 610,798 602,354
Less: Allowance for Credit Losses (15,206) (16,209)
Deferred Loan Fees (3,434) (3,638)
---------- ----------
Loans and Leases, Net 592,158 582,507
Bank Premises and Equipment, Net 5,646 5,806
Other Real Estate Owned, Net 15,866 12,988
Due From Customers on Acceptances 6,610 6,535
Real Estate Held for Investment 9,355 9,686
Accrued Interest Receivable and Other Assets 16,937 15,489
---------- ----------
Total Assets $1,353,577 $1,352,115
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-Interest Bearing Demand $133,891 $158,728
Interest Bearing Demand 223,118 213,697
Savings 117,960 119,315
Time Certificates of Deposit of $100,000 or
More 550,421 545,578
Other Time Deposits 174,530 164,195
---------- ----------
Total Deposits $1,199,920 $1,201,513
Subordinated Debt 15,000 15,000
Acceptances Outstanding 6,610 6,535
Accrued Expenses and Other Liabilities 12,787 12,431
---------- ----------
Total Liabilities $1,234,317 $1,235,479
Stockholders' Equity:
Common Stock, No Par or Stated Value;
20,000,000 Shares Authorized; 6,786,589
and 6,766,469 Shares Outstanding at March 31,
1997 and December 31, 1996, Respectively $47,729 $47,281
Securities Valuation Allowance, Net of Tax (2,108) 646
Retained Earnings 73,646 68,716
Foreign Currency Translation Adjustments (7) (7)
Total Stockholders' Equity 119,260 116,636
---------- ----------
Total Liabilities and Stockholders' Equity $1,353,577 $1,352,115
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(In Thousands, Except Per Share Data) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans and Leases, Including Fees $15,293 $12,279
Securities Available for Sale 8,288 8,117
Securities Held to Maturity 259 648
Federal Funds Sold and Securities
Purchased under Agreements to Resell 1,894 2,240
------- -------
Total Interest Income 25,734 23,284
------- -------
INTEREST EXPENSE
Interest Bearing Demand 1,158 1,144
Savings 764 931
Time Deposits of $100,000 or More 6,777 5,678
Other Time Deposits 1,950 2,178
Federal Funds Purchased and Securities
Sold under Repurchase Agreements 2 336
Subordinated Debt 399 399
------- -------
Total Interest Expense 11,050 10,666
------- -------
Net Interest Income 14,684 12,618
Provision for Credit Losses 1,000 1,500
------- -------
Net Interest Income after
Provision for Credit Losses 13,684 11,118
NON-INTEREST INCOME
Service Charges and Commissions 1,342 1,548
Gain on Sale of Loans, Net 50 85
Gain on Sale of Real Estate Investment - 101
Other 132 98
------- -------
Total Non-Interest Income 1,524 1,832
NON-INTEREST EXPENSE
Salaries and Employee Benefits 3,769 3,386
Occupancy Expense 694 675
Furniture and Equipment Expense 420 396
Net Other Real Estate Owned Expense 243 487
Other 1,664 1,644
------- -------
Total Non-Interest Expense 6,790 6,588
Income before Income Taxes 8,418 6,362
Provision for Income Taxes 2,674 2,053
------- -------
Net Income $5,744 $4,309
Earnings Per Share $0.82 $0.62
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
(In Thousands, Except Per Share Data) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $5,744 $4,309
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 294 273
Net Accretion of Discounts on Securities (59) (638)
Writedown on Real Estate Held for Investment 332 429
Provision for Credit Losses 1,000 1,500
Provision for Losses on Other Real Estate Owned - 400
Amortization of Deferred Loan Fees (850) (730)
Deferred Income Taxes - -
Gain on Sale of Loans (50) (85)
Gain on Sale of Real Estate Investment - (101)
Loss/(Gain) on Sale of Other Real Estate Owned 24 (11)
Loans Originated for Sale (7,660) (15,204)
Proceeds from Sales of Loans Originated for Sale 7,965 15,321
Net Decrease in Accrued Interest Receivable
and Other Assets 574 519
Net Increase/ (Decrease) in Accrued Expenses
and Other Liabilities 219 (2,468)
Other, Net (1) -
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $7,532 $3,514
INVESTING ACTIVITIES:
Purchases of Securities Available for Sale (149,273) (322,317)
Proceeds from Maturities of Securities
Available for Sale 122,624 193,928
Proceeds from Maturities of Securities Held
to Maturity 307 3,384
Net Increase in Loans and Leases (13,481) (18,124)
Proceeds from Sales of Other Real Estate
Owned 523 1,063
Proceeds from Sales of Real Estate
Investments - 699
Purchases of Premises and Equipment (134) (399)
--------- --------
NET CASH USED BY INVESTING ACTIVITIES $(39,434) $(141,766)
FINANCING ACTIVITIES:
Net (Decrease)/Increase in Demand, Interest
Bearing Demand and Savings Deposits (16,771) 53,373
Net Increase in Time Certificates of Deposits 15,178 109,190
Cash Dividend Paid (677) (536)
Proceeds from Exercise of Stock Options 448 276
--------- --------
NET CASH (USED)/PROVIDED BY FINANCING
ACTIVITIES $(1,822) $162,303
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (33,724) 24,051
Cash and Cash Equivalents at Beginning of
Period 187,009 163,837
--------- --------
Cash and Cash Equivalents at End of Period $153,285 $187,888
--------- --------
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During This Period
Interest $11,568 $10,898
Income Taxes - 1,500
Noncash Investing Activities:
Loans Transferred to Other Real Estate
Owned at Fair Value $3,425 $4,481
Loans to Facilitate the Sale of Other Real
Estate Owned - 262
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
GBC Bancorp and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the consolidated
financial statements of GBC Bancorp and its subsidiaries
(the "Company") as of March 31, 1997 and December 31, 1996
and the three months ended March 31, 1997 and 1996, 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.
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, 1997, net income
totaled $5,744,000, an increase of $1,435,000, or 33.3% from
the $4,309,000 earned during the corresponding period of
1996. Earnings per share for the quarter ended March 31,
1997 were $0.82 per share compared to $0.62 per share for
the same period of 1996.
The net income for the quarter ended March 31, 1997
continues the trend of the highest quarterly net income in
the Company's history, the current quarter representing the
fifth consecutive quarter of record-setting net income. The
increase over the corresponding period of a year ago is
primarily due to an increase of net interest income and a
reduced provision for credit losses.
The increase of net interest income was due to both an
increase of average earning assets and an increase in the
net interest spread. The net interest spread is defined as
a yield on earning assets less the rates paid on interest
bearing liabilities.
The decline of the provision for credit losses in 1997
was caused by the reduction of non-accrual loans, which were
$9.1 million as of March 31, 1997, as compared to $27.5
million as of March 31, 1996. It also is a reflection of
the improvement of the Southern California economy, in
general, and the quality of the Bank's real estate loan
portfolio, in particular.
The annualized return on average assets ("ROA") for the
Company was 1.73% and 1.38% for the quarters ended March 31,
1997 and 1996, respectively. The annualized return on
average stockholders' equity ("ROE") for the quarters ended
March 31, 1997 and 1996 was 19.55% and 17.06%, respectively.
The improvement of these ratios is the result of the
increased profitability of the Company.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income before the provision for loan
losses for the quarter ended March 31, 1997 amounted to
$14,684,000, an increase of $2,066,000, or 16.4%, from
$12,618,000 for the same period of 1996.
Total interest income for the three months ended March
31, 1997 was $25,734,000 compared to $23,284,000 for the
corresponding period of a year ago. The increase of
$2,450,000, or 10.5%, was due to an increase of average
earning assets and an increased yield on earning assets.
For the quarter ending March 31, 1997 and 1996, average
earning assets were $1,276 million and $1,194 million,
respectively, representing an $82 million, or 6.9%, growth.
For the quarters ending March 31, 1997 and 1996, the yield
on earning assets was 8.18% and 7.84%, respectively,
representing a 34 basis point increase.
The $82 million net growth of average earning assets
was the result of $133 million increase of average loans and
leases, offset by reductions of average securities and
federal funds sold and securities purchased under agreements
to resell, of $28 million and $23 million, respectively.
The net growth of $82 million was primarily funded by the
growth of interest-bearing deposits which increased $83
million and average non-interest bearing deposits which
increased $10 million. The growth in average deposits was
partially offset by the maturity of $24 million of
securities sold under repurchase agreements.
The increase in the yield on earning assets was caused
by the increased percentage of average accruing loans to
average total earning assets, a decline in average non-
accrual loans, and an increase in the yield on securities.
The percentage of average accruing loans to average total
earning assets for the quarter ended March 31, 1997 and 1996
was 42% and 35%, respectively. Average non-accrual loans
for the quarter ended March 31, 1997 and 1996 were $11.8
million and $45.6 million, respectively. The yield on the
securities portfolio increased to 6.40% from 6.26% for the
quarters ended March 31, 1997 and 1996, respectively.
Total interest expense for the quarter ended March 31,
1997 was $11,050,000 compared to $10,666,000 for the
corresponding period of a year ago. The increase of
$384,000, or 3.6%, was due to a $59.4 million growth of
average interest-bearing liabilities. The impact of this
increase of interest-bearing liabilities on interest expense
was partially offset by a decrease of the rates paid to
4.18% from 4.24% for the quarters ended March 31, 1997 and
1996, respectively. The maturity of securities sold under
repurchase agreements contributed towards the reduction of
the rate paid on interest-bearing liabilities.
The rates paid on interest-bearing deposits was 4.09%
for the quarter ended March 31, 1997, compared to 4.10% for
the corresponding quarter of a year ago, a decrease of one
basis point. While the higher costing average time
certificates of deposit of $100,000 or more increased as a
percentage of average total interest-bearing deposits (52%
compared to 45%), this was offset by the decline in the
rates paid on this deposit product. For the quarters ended
March 31, 1997 and 1996, the rate paid on time certificates
of deposit of $100,00 or more were 5.00% and 5.22%,
respectively.
The net interest spread is defined as the yield on
earning assets less the rates paid on interest bearing
liabilities. Benefiting from both the increased yield on
earning assets and the slight decrease in the rates paid on
interest bearing liabilities, the net interest spread
increased. For the quarter ended March 31, 1997 and 1996,
the spread was 4.00% and 3.60%, 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,
1997 and 1996, the net interest margin was 4.67% and 4.25%,
respectively. The increase in the margin is primarily the
result of the increased net interest spread.
Provision for Credit Losses
For the quarter ended March 31, 1997, the provision was
$1,000,000, compared to $1,500,000 for the same period of
1996, a decrease of $500,000, or 33.3%.
The decline of the provision for credit losses in 1997
was primarily caused by the reduction of non-accrual loans.
As of March 31, 1997, non-accrual loans outstanding totaled
$9.1 million. As of March 31, 1996, non-accrual loans
totaled $27.5 million. The decline of the provision also is
a reflection of the improvement of the Southern California
economy, in general, and the quality of the Bank's real
estate loan portfolio, in particular.
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,
1997 totaled $1,524,000 compared to $1,832,000 for the same
period ended March 31, 1996. The net decrease of $308,000,
or 16.8%, 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 the quarter ended March
31, 1996. 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.
Non-Interest Expense
Non-interest expense for the quarter ended March 31,
1997 totaled $6,790,000, a $202,000, or 3.1%, increase over
the $6,588,000 recorded in the same period of 1996. The
increase is primarily due to higher salaries and a higher
incentive expense. The Bank's incentive expense is a
function of the higher level of pre-tax income. The
Company's efficiency ratio, defined as non-interest expense
divided by the sum of net interest income plus non-interest
income, improved, declining to 41.9% for the quarter ended
March 31, 1997 from 45.6% for the corresponding quarter of a
year ago.
Provision for Income Taxes
For the quarter ended March 31, 1997 the provision for
income taxes was $2,674,000, representing 32% of pre-tax
income. The provision is based on anticipated annual 1997
pre-tax income and the annual accrual of tax credits from
the Bank's low income housing investments. The provision
for the quarter ended March 31, 1996 was $2,053,000, also
representing 32% of pre-tax income.
FINANCIAL CONDITION
Total assets as of March 31, 1997, were $1,354 million,
a slight increase from total assets of $1,352 million as of
December 31, 1996. Total deposits, however, decreased
slightly from year-end. As of March 31, 1997 and December
31, 1996, total deposits were $1,200 million and 1,202
million, respectively. The increased assets were primarily
funded by the profitable operations during the first
quarter.
Loans
As of March 31, 1997, total loans and leases were $611
million, representing a $9 million, or 1.5%, increase from
total loans and leases of $602 million as of December 31,
1996. The net increase was primarily from the growth of
trade-financing loans of $10.4 million which are included in
unsecured commercial loans. The growth of this category of
loan reflects the growth in international trade resulting
primarily from new customer relationships. Real estate-
construction loans increased $2.3 million, or 3.5%.
However, real estate-conventional loans decreased $3.9
million, or 1.4%, primarily due to the transfer of non-
accrual loans to other real estate owned ("OREO") status.
The $6.7 million growth of other loans is primarily
attributable to a $4.0 million increase in cash
collateralized commercial loans.
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, 1997 December 31, 1996
(IN THOUSANDS) Amount Percentage Amount Percentage
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $191,575 31.36% $183,268 30.43%
Real Estate -
Construction 68,907 11.28% 66,572 11.05%
Real Estate -
Conventional 268,880 44.02% 273,081 45.34%
Installment 98 0.02% 86 0.01%
Other Loans 29,067 4.76% 22,361 3.71%
Leveraged Leases 7,271 1.19% 6,986 1.16%
Term Fed Funds Sold 45,000 7.37% 50,000 8.30%
- ------------------------------------------------------------
Total $610,798 100.00% $602,354 100.00%
</TABLE>
Non-performing Assets
A certain degree of risk is inherent in the extension
of credit. Management believes that it has credit policies
in place to minimize the level of loan losses and non-
performing loans. The Company performs a quarterly
assessment of the credit portfolio to determine the
appropriate level of the allowance. Included in the
assessment is the identification of loan impairment. A loan
is identified as impaired when it is probable that interest
and principal will not be collected according to the
contractual terms of the loan agreement. Loan impairment is
measured by estimating the expected future cash flows and
discounting them at the respective effective interest rate
or by valuing the underlying collateral.
The Company has a policy of classifying loans
(including 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 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 estate owned, net, as of
the dates indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) March 31, 1997 December 31, 1996
- ----------------------------------------------------------------
<S> <C> <C>
Loans 90 Days or More
Past Due and Still Accruing $ 5,109 $ 6,779
Non-accrual Loans 9,096 11,719
- ----------------------------------------------------------------
Total Past Due Loans 14,204 18,498
Restructured Loans (on
Accrual Status) 22,240 23,125
- ----------------------------------------------------------------
Total Non-performing Loans 36,444 41,623
Other Real Estate Owned, Net 15,866 12,988
- ----------------------------------------------------------------
Total Non-performing Assets $52,311 $54,611
</TABLE>
Total non-performing assets declined $2.3 million to
$52.3 million, as of March 31, 1997, from $54.6 million, as
of December 31, 1996. With the exception of other real
estate owned, net, all categories of non-performing assets
reflected declines from their levels as of December 31,
1996.
Loans 90 days or more past due and still accruing
declined $1.7 million from December 31, 1996, and is
comprised of one credit. This credit is collaterized by a
mobile home park with an appraised value substantially in
excess of the loan balance. Interest payments continue to
be made on a monthly basis approximately 45 days late. It
is expected that either the property will be sold by the
borrower with the bank providing financing or it will be
paid in full within 45 days.
Non-accrual loans declined to $9.1 million as of March
31, 1997 from $11.7 million as of December 31, 1996,
representing a $2.6 million, or 22.2%, decrease.
The following table analyzes the decline in non-accrual
loans during the three months ended March 31, 1997:
<TABLE>
<CAPTION>
Non-Accrual Loans (In Thousands)
<S> <C>
Balance, December 31, 1996 $11,719
Add: Loans placed on non-accrual 5,259
Less: Charge-offs (889)
Returned to accrual status (1,681)
Repayments (1,903)
Transfer to OREO (3,410)
--------
Balance, March 31, 1997 $9,096
--------
</TABLE>
The following table breaks out the Company's non-
accrual loans by category as of March 31, 1997 and December
31, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS) March 31, 1997 December 31, 1996
- ---------------------------------------------------------------
<S> <C> <C>
Commercial $ 3,508 $ 3,219
Real Estate- Construction 700 477
Real Estate- Conventional 4,888 8,023
- ---------------------------------------------------------------
Total $9,096 $11,719
</TABLE>
The balance of restructured loans as of March 31, 1997,
was $22.2 million compared to $23.1 million as of December
31, 1996, representing a $0.9 million, or 3.9%, decrease. A
loan is categorized as restructured if the original interest
rate on such loan, the repayment terms, or both, are
modified 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.
As of March 31, 1997, restructured loans consisted of
fifteen real estate credits. This compares to sixteen real
estate credits as of December 31, 1996. The weighted
average yield of the restructured loans as of March 31,
1997, was 10.23%. All restructured loans are performing
pursuant to the terms and conditions of the restructuring.
The following table breaks out the restructured loans
by accrual status as of the dates indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) March 31, 1997 December 31, 1996
- -------------------------------------------------------------
<S> <C> <C>
RESTRUCTURED LOANS:
On Accrual Status $22,240 $23,125
On Non-accrual Status 229 2,820
- -------------------------------------------------------------
Total $22,469 $25,945
</TABLE>
There are no commitments to lend additional funds on
any of the restructured loans.
As of March 31, 1997, other real estate owned ("OREO"),
net of valuation allowance of $1.5 million, totaled $15.9
million, representing an increase of $2.9 million, or 22.3%,
from the net balance of $13.0 million, net of valuation
allowance of $1.8 million, as of December 31, 1996. As of
March 31, 1997 and December 31, 1996, OREO consisted of 27
properties and 26 properties, respectively. The net
increase in OREO is the result of continued management
emphasis on resolving non-accrual loans.
During 1997, properties with a lower of cost or fair
value of $3.4 million were transferred to OREO. During
1997, OREO with a carrying value of $0.9 million was sold.
The net loss sustained on the sales for 1997 was $24,000.
During the first quarter of 1996, properties with a lower of
cost or fair value of $4.5 million were transferred to OREO.
During 1996, OREO with a carrying value of $1.4 million was
sold. The net gain on the sales for the first three months
of 1996 was $10,600.
The outstanding OREO properties are all included in the
Bank's market area. They include single family residences,
condominiums, commercial buildings, and land both for
commercial and residential improvement. Eight properties
comprise the land category of OREO. The Company does not
intend to develop these properties; rather, it will sell the
land undeveloped.
The following table sets forth OREO by property type as
of the dates indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) March 31, 1997 December 31,1996
- ----------------------------------------------------------------
<S> <C> <C>
PROPERTY TYPE
Single-Family $1,556 $ 901
Residential Condominium 6,303 6,284
Land for Residential 1,147 1,413
Land for Commercial 735 735
Retail Facilities 7,643 5,228
Office - 250
Less: Valuation Allowance (1,518) (1,823)
- ----------------------------------------------------------------
Total $15,866 $12,988
</TABLE>
In accordance with SFAS 114, "Accounting by Creditors
for Impairment of a Loan," as amended by SFAS 118, 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 following table discloses pertinent information as
it relates to the Company's impaired loans as of and for the
dates indicated:
<TABLE>
<CAPTION>
As of and for the three months ended March 31,
(IN THOUSANDS) 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Recorded Investment with Related Allowance $17,588 $35,393
Recorded Investment with no Related Allowance 8,174 2,259
Total Recorded Investment 25,762 37,652
Allowance for Impaired Loans 1,881 4,201
Average Balance of Impaired Loans
before Allowance for the Period Indicated 24,637 41,757
Interest Income Recognized 564 571
</TABLE>
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 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. Of the amount of
interest income recognized during the three months ended
March 31, 1997 and 1996, no interest was recognized under
the cash basis method.
Management cannot predict the extent to which the
current economic environment, including the real estate
market, may improve 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.
Allowance for Credit Losses
As of March 31, 1997, the balance of the allowance for
credit losses was $15.2 million, representing 2.49% of
outstanding loans and leases. This compares to an allowance
for credit losses of $16.2 million as of December 31, 1996,
representing 2.69% of outstanding loans and leases.
The table below summarizes the activity in the
allowance for credit losses (which amount includes the
allowance on impaired loans), for the three-month periods
ended as indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) March 31, 1997 March 31, 1996
- -------------------------------------------------------------
<S> <C> <C>
Balance, Beginning of Period $16,209 $16,674
Provision for Credit Losses 1,000 1,500
Charge-offs (2,458) (2,746)
Recoveries 455 878
Net Charge-offs (2,003) (1,868)
---------- ----------
Balance, End of Period $15,206 $16,306
</TABLE>
As of March 31, 1997, the allowance represents 167% and
41.7% of non-accrual loans and non-performing loans,
respectively. As of December 31, 1996, the allowance
represented 138% and 38.9% of non-accrual loans and non-
performing loans, respectively.
Management believes that the allowance for credit
losses is adequate to cover known and inherent losses as
they may relate to loans and leases outstanding as of March
31, 1997.
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 March 31, 1997, the Company recorded net
unrealized losses of $3,656,000 on its available for sale
portfolio which is included as a separate component of
stockholders' equity amounting to $2,108,000, which
represents the net unrealized losses, net of tax.
The amortized cost, gross unrealized gains, gross
unrealized losses and fair value of securities at March 31,
1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross
(In Thousands) Amortized Unrealized Unrealized Fair
March 31, 1997 Cost Gains Losses Value
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to Maturity
State and Municipal Securities 1,988 16 - 2,004
Asset Backed Securities 9,993 64 - 10,057
- --------------------------------------------------------------------------
Total 11,981 80 - 12,061
Securities available for sale
U. S. Treasuries 1,911 - (41) 1,870
U.S. Government Agencies 159,645 - (1,281) 158,364
Mortgage Backed Securities 49,407 - (869) 48,538
Corporate Notes 19,010 416 - 19,426
Collateralized Mortgage
Obligations 181,438 - (1,234) 180,204
Asset Backed Securities 80,047 - (672) 79,375
Auctioned Preferred Stock 43,748 - - 43,748
Other Securities 10,189 25 - 10,214
- --------------------------------------------------------------------------
Total 545,395 441 (4,097) 541,739
Gross Gross
(In Thousands) Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
- ------------------------------------------------------------------------
Securities Held to Maturity
State and Municipal Securities 2,222 28 - 2,250
Collateralized Mortgage
Obligations 56 6 - 62
Asset Backed Securities 9,996 155 - 10,151
- ------------------------------------------------------------------------
Total 12,274 189 - 12,463
Securities available for sale
U. S. Treasuries 1,918 - (27) 1,891
U.S. Government Agencies 160,718 - (52) 160,666
Mortgage Backed Securities 51,503 - (247) 51,256
Corporate Notes 19,014 580 - 19,594
Collateralized Mortgage
Obligations 165,517 281 - 165,798
Asset Backed Securities 37,474 460 - 37,934
Auctioned Preferred Stock 72,450 - - 72,450
Other Securities 10,107 125 - 10,232
- ------------------------------------------------------------------------
Total 518,701 1,446 (326) 519,821
</TABLE>
There were no sales of securities available for sale
during the quarters ended March 31, 1997 and 1996. There
were no sales of securities held to maturity for the
quarters ended March 31, 1997 and 1996.
Deposits
The Company's deposits totaled $1,200 million as of
March 31, 1997, a modest decrease of $2 million from $1,202
million as of December 31, 1996. With the exception of
savings deposits which decreased $1.4 million, all
categories of interest-bearing deposits increased. The net
increase of interest-bearing deposits of $24.6 million was
more than offset by a $24.8 million decline of non-interest
bearing demand.
There are no brokered deposits outstanding. The
Company believes that the majority of its deposit customers
have strong ties to the Bank. Although the Company has a
significant amount of time certificates of deposit of
$100,000 or more having maturities of one year or less, the
depositors have generally renewed their deposits in the past
at their maturity. 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 March 31, 1997 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -----------------------------------------------------
<S> <C>
3 Months or Less $249,237
Over 3 Months Through One Year 299,079
Over One Year through 5 Years 2,105
- ----------------------------------------------------
Total $550,421
=========
</TABLE>
Other Borrowings
On August 31, 1990, the Company issued $15.0 million of
subordinated debentures through private placement with an
annual interest of 10.52% and stated maturity of September
1, 2000. The table below is a summary of required repayment
schedule, as specified in the Debenture Purchase Agreement
("the Agreement").
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------
<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 March 31, 1997.
Regulatory Matters
During the first quarter of 1997, the annual safety and
soundness examination was conducted by the Federal Deposit
Insurance Corporation ("FDIC") and the State Banking
Department. Although the report has not been received, no
material adverse findings are expected.
Capital Resources
Stockholders' equity totaled $119.3 million as of March
31, 1997, an increase of $2.7 million, or 2.3% from $116.6
million as of December 31, 1996. The increase from year-end
1996 was primarily due to net income of $5,744,000, less
cash dividends declared to shareholders of $814,000, and
less the net change in the securities valuation account of
$2,754,000. Additionally, $449,000 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 as of the dates indicated:
<TABLE>
<CAPTION>
Well-
Capitalized March 31, December 31,
Requirements 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
GBC Bancorp
Tier 1 Leverage Ratio 5% 8.98% 8.74%
Tier 1 Risk-Based Capital Ratio 6% 12.51% 11.97%
Total Risk-Based Capital Ratio 10% 14.23% 13.69%
General Bank
Tier 1 Leverage Ratio 5% 8.45% 8.61%
Tier 1 Risk-Based Capital Ratio 6% 11.79% 11.81%
Total Risk-Based Capital Ratio 10% 13.05% 13.06%
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 $703.8
million, or 52.0% of total assets as of March 31, 1997,
compared to $717.0 million, or 53.0% of total assets as of
December 31, 1996.
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 25 percent of assets with terms up to 240 months.
Management believes its liquidity sources to be stable and
adequate.
As of March 31, 1997, total loans and leases
represented 50.9% of total deposits. This compares to 50.1%
as of December 31, 1996.
The liquidity of the parent company, GBC Bancorp, is
primarily dependent on the payment of cash dividends by its
subsidiary, General Bank, subject to the limitations imposed
by the Financial Code of the State of California. For the
three months ending March 31, 1997, General Bank declared
cash dividends of $5.8 million to GBC Bancorp.
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. As of March 31, 1997, two contracts
totaling $1.0 million were outstanding. These instruments
are used to manage the interest rate risk from the
origination of fixed rate residential mortgage loans for
sale in the secondary markets. The Company utilizes
Treasury note futures and forward sales of mortgage-backed
securities to hedge interest rate risk associated with its
residential mortgage banking activities. Futures and
forward sale contracts provide for sale of the underlying
securities, including mortgage-backed securities, at a
specified future date, at a specified price or yield. The
amount of the futures and forward sale contracts is
determined by the aggregate amount of fixed rate commitments
for mortgage loans that are expected to be funded plus the
amount of fixed rate residential mortgages categorized as
being held for sale that have not been sold. The fair value
of the underlying futures and forward sale contracts is
expected to move inversely to the change in fair value of
the mortgage loans.
The Company never intends to deliver the underlying
securities that the futures and forward sale contracts
commit to sell. Rather, it purchases offsetting contracts
to eliminate the obligation. The Company is exposed to the
risk that the fair value of futures contracts, being based
on the value of the Treasury note will not move
proportionately with the change in value of the mortgage
loans being hedged. This basis risk is unpredictable and
can result in economic loss to the Company. There is no
basis risk related to the use of forward sale contracts on
mortgage-backed securities since their fair value is based
on similar mortgage loans. However, a gain or loss will
arise from the difference between the fair value and the
forward sale price of the mortgage-backed security.
As of March 31, 1997 and December 31, 1996 there were
outstanding fixed rate mortgages held for sale of $1.7
million and $1.9 million, and a notional value of
derivative instruments of $1.0 million and $0.5 million,
respectively. For the three months ended March 31, 1997 and
1996, the Company had realized net gains/(losses) of $17,422
and $(7,813) with unrealized gains/(losses) of $3,750 and
$(1,719), respectively, related to its hedging activities.
Initial margin requirements and daily calls on future
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.
"Gap" reports originated as a means to provide
management with a tool to monitor repricing differences, or
"gaps", between assets and liabilities repricing
differences, or "gaps", between assets and liabilities
repricing in a specified period, based upon their
underlying contractual rights. The use of "gap" reports is
thus limited to a quantification of the "mismatch" between
assets and liabilities repricing within a unique specified
timeframe. "Gap" reports cannot be used to quantify
exposure to interest rate changes because they do not take
into account timing differences between repricing assets and
liabilities, and changes in the amount of repayments.
The Company uses a simulation analysis to attempt to
predict changes in the yields earned on different asset
categories and the rates paid on liabilities in relation to
changes in market interest rates. The analysis has
concluded that the Bank's liabilities reprice more slowly
than it's assets, and the Company's balance sheet has a
positive gap when the timing of repricing is taken into
account. This results in an interest rate sensitivity
profile for the Company where it has exposure to a downward
shift in interest rates. The Company has established an
internal policy to manage its net interest income volatility
to a change of 10% when the simulation is using an assumed
instant change of money market rates of 100 basis points.
As of March 31, 1997, the Company was well within that
policy limit.
As of March 31, 1997 there was a cumulative one year
negative "gap" of $382.0 million, up from $311.4 million as
of December 31, 1996. The $70.6 million increase in the gap
was caused by the purchase of intermediate maturity
investment securities and loan activity. The negative gaps
would appear to be predictive of an increase in the net
interest margin if interest rates were to fall
significantly. However, as discussed above, due to the lag
in the downward repricing of the rates paid on liabilities
versus the immediate downward repricing of its assets, the
Company would not anticipate a corresponding increase in the
net interest margin should rates decline.
The following table indicates the Company's interest
rate sensitivity position as of March 31, 1997, and may not
be reflective of positions in subsequent periods:
MARCH 31, 1997
INTEREST SENSITIVITY PERIOD
</TABLE>
<TABLE>
<CAPTION>
0 to 90 91 to 365 Over 1 Year Over Non-Interest
(In Thousands) Days Days to 5 Years 5 Years Erng/Bearing Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Securities Available
for Sale 75,197 13,100 157,666 295,776 - 541,739
Securities Held
to Maturity 525 7,449 - 4,007 - 11,981
Federal Funds Sold 110,000 - - - - 110,000
Loans and Leases
(1) (2) 371,842 61,093 70,159 53,608 - 556,702
Loans to Depository
Institutions 45,000 - - - - 45,000
Non-Earning Assets (2) - - - - 88,155 88,155
- ----------------------------------------------------------------------------------------------------
Total Assets 602,564 81,642 227,825 353,391 88,155 1,353,577
Source of Funds for Assets:
Deposits:
Demand - - - - 133,891 133,891
Interest Bearing
Demand 223,118 - - - - 223,118
Savings 117,960 - - - - 117,960
TCD'S Under
$100,000 94,004 78,989 1,537 - - 174,530
TCD'S $100,000
and Over 273,133 275,283 2,005 - - 550,421
- ----------------------------------------------------------------------------------------------------
Total Deposits 708,215 354,272 3,542 - 133,891 1,199,920
Subordinated Debt - 3,750 11,250 - - 15,000
Other Liabilities - - - - 19,397 19,397
Stockholders' Equity - - - - 119,260 119,260
- ----------------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders'
Equity 708,215 358,022 14,792 - 272,548 1,353,577
- ----------------------------------------------------------------------------------------------------
Interest Sensitivity
Gap ($105,651) ($276,380) $213,033 $353,391 ($184,393)
Cumulative Interest
Sensitivity Gap ($105,651) ($382,031) ($168,998) $184,393 $ -
Gap Ratio (% of
Total Assets) -7.8% -20.4% 15.7% 26.1% -13.6%
Cumulative Gap Ratio -7.8% -28.2% -12.5% 13.6% 0.0%
</TABLE>
(1) Loans and leases are before unamortized deferred loan fees and allowance
for credit losses.
(2) Nonaccrual loans are included in non-earning assets.
Forward-Looking Statements
This report contains forward-looking statements,
usually containing the words "estimate," "project,"
"expected," or similar expressions. These statements are
subject to uncertainties, including those discussed in this
report. Sections having such statements include Provision
for Credit Losses, Non-Performing Assets, Allowance for
Credit Losses, Regulatory Matters and Liquidity and Interest
Rate Sensitivity.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In the normal course of business, the Company is
subject to pending and threatened legal actions. Management
believes that the outcome of such actions will not have a
material adverse effect on the financial condition or the
operations of the Company.
Item 2. CHANGES IN SECURITIES
There have been no changes in the securities of the
Registrant during the quarter ended March 31, 1997.
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, 1997.
Item 5. OTHER INFORMATION
There are no events to be reported under this item.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: None.
b) Reports on Form 8-K: None.
PART III - SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
GBC Bancorp
(Registrant)
Dated: __________________ s/ ______________________
Li-Pei Wu, Chairman,
President and Chief
Executive Officer
Dated: ___________________ s/ _______________________
Peter Lowe, Executive
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 43,285
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 110,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 541,739
<INVESTMENTS-CARRYING> 11,981
<INVESTMENTS-MARKET> 12,061
<LOANS> 610,798
<ALLOWANCE> 15,206
<TOTAL-ASSETS> 1,353,577
<DEPOSITS> 1,199,920
<SHORT-TERM> 3,750
<LIABILITIES-OTHER> 19,397
<LONG-TERM> 11,250
<COMMON> 47,729
0
0
<OTHER-SE> 71,531
<TOTAL-LIABILITIES-AND-EQUITY> 1,353,577
<INTEREST-LOAN> 15,293
<INTEREST-INVEST> 10,441
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 25,734
<INTEREST-DEPOSIT> 10,649
<INTEREST-EXPENSE> 11,050
<INTEREST-INCOME-NET> 14,684
<LOAN-LOSSES> 1,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,790
<INCOME-PRETAX> 8,418
<INCOME-PRE-EXTRAORDINARY> 8,418
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,744
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
<YIELD-ACTUAL> 4.67
<LOANS-NON> 9,096
<LOANS-PAST> 5,109
<LOANS-TROUBLED> 22,240
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,209
<CHARGE-OFFS> 2,458
<RECOVERIES> 455
<ALLOWANCE-CLOSE> 15,206
<ALLOWANCE-DOMESTIC> 15,206
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
