<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Quarter Ended June 30, 1999 Commission file number 0-16213
GBC BANCORP
- ----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-3586596
- ----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 West 6th Street, Los Angeles, California 90017
- ----------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 213/972-4172
- ----------------------------------------------------------------
Former name address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
------- -------
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, 12,822,798 shares issued
and outstanding as of June 30, 1999.
<PAGE>
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 ..................................................
<PAGE>
PART I - FINANCIAL INFORMATION
<PAGE>
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(In Thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 39,338 $ 27,514
Federal Funds Sold and Securities
Purchased Under Agreements to Resell 35,000 101,000
Securities Available for Sale at
Fair Value (Amortized Cost of $769,408
And $721,000 at June 30, 1999 and
December 31, 1998, Respectively) 762,952 724,172
Securities Held to Maturity (Fair Value
of $1,925 and $24
,677 at June 30, 1999
and December 31, 1998, Respectively) 1,934 24,616
Loans and Leases 848,939 788,945
Less: Allowance for Credit Losses (19,061) (19,381)
Deferred Loan Fees (4,865) (5,914)
------------- -------------
Loans and Leases, Net 825,013 763,650
Bank Premises and Equipment, Net 5,495 5,656
Other Real Estate Owned, Net 12,242 6,885
Due From Customers on Acceptances 6,798 7,249
Real Estate Held for Investment 6,371 7,034
Accrued Interest Receivable and Other Assets 11,795 13,048
------------- -------------
Total Assets $ 1,706,938 $ 1,680,824
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 168,992 $ 149,397
Interest Bearing Demand 285,022 280,294
Savings 84,195 81,051
Time Certificates of Deposit of
$100,000 or More 670,740 599,669
Other Time Deposits 228,370 270,492
------------- -------------
Total Deposits 1,437,319 1,380,903
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 1,000 -
Borrowings from the Federal Home Loan Bank 50,000 35,000
Subordinated Debt 38,941 38,876
Acceptances Outstanding 6,798 7,249
Accrued Expenses and Other Liabilities 20,407 55,766
------------- -------------
Total Liabilities 1,554,465 1,517,794
Stockholders' Equity:
Common Stock, No Par or Stated Value;
40,000,000 Shares Authorized ;
12,822,798 and 13,711,998 shares
Outstanding at June 30, 1999 and
December 31,1998, Respectively $ 56,896 $ 56,303
Accumulated Other Comprehensive
(Loss) Income (3,750) 1,829
Retained Earnings 99,327 104,898
------------- -------------
Total Stockholders' Equity 152,473 163,030
------------- -------------
Total Liabilities and Stockholders'
Equity $ 1,706,938 $ 1,680,824
============ ============
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For The Three For The Six
Months Ended Months Ended
June 30, June 30,
(In Thousands, Except Per Share Data) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and Leases,Including Fees $ 18,939 $ 17,882 $ 37,765 $ 34,452
Securities Available for Sale 11,392 10,398 22,282 20,286
Securities Held to Maturity 92 1,430 397 2,667
Federal Funds Sold and
Securities Purchased under
Agreements to Resell 879 1,483 2,011 3,468
Other 1 - 2 6
-------- -------- -------- --------
Total Interest Income 31,303 31,193 62,457 60,879
INTEREST EXPENSE
Interest Bearing Demand 1,752 1,795 3,387 3,168
Savings 433 595 851 1,243
Time Certificates of Deposits
of $100,000 or More 7,470 7,859 14,570 15,622
Other Time Deposits 2,587 3,377 5,470 6,436
Federal Funds Purchased and
Securities Sold under Repurchase
Agreements 8 12 25 16
Borrowings from the Federal Home
Loan Bank 612 - 1,116 -
Subordinated Debt 871 871 1,741 1,741
------ ------ ------ ------
Total Interest Expense 13,733 14,509 27,160 28,226
Net Interest Income 17,570 16,684 35,297 32,653
Provision for Credit Losses 500 - 2,000 -
------ ------ ------ ------
Net Interest Income after
Provision for Credit Losses 17,070 16,684 33,297 32,653
NON-INTEREST INCOME
Service Charges and Commissions 1,807 1,661 3,447 3,098
Gain on Sale of Loans, Net 12 5 111 24
Gain on Sale of Fixed Assets 22 - 22 -
Other 102 146 215 463
------ ------ ------ ------
Total Non-Interest Income 1,943 1,812 3,795 3,585
NON-INTEREST EXPENSE
Salaries and Employee Benefits 4,963 4,364 9,435 8,659
Occupancy Expense 810 758 1,573 1,486
Furniture and Equipment Expense 460 516 1,070 1,001
Net Other Real Estate Owned
(Income) Expense (272) 127 (226) 439
Other 1,820 1,741 3,524 3,225
------ ------ ------ ------
Total Non-Interest Expense 7,781 7,506 15,376 14,810
Income before Income Taxes 11,232 10,990 21,716 21,428
Provision for Income Taxes 4,216 4,147 8,135 7,954
------ ------ ------ ------
Net Income $ 7,016 $ 6,843 $ 13,581 $ 13,474
======== ======== ======== ========
Earnings Per Share:
Basic $ 0.54 $ 0.48 $ 1.03 $ 0.95
Diluted 0.53 0.48 1.01 0.94
======== ======== ======== ========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
GBC BANCORP & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION)
Accumulated
Other Total
(In Thousands, Except Common Stock Retained Comprehensive Comprehensive Stockholders'
per Share Amounts) Shares Amount Earnings Income (Loss) Income Equity
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,1997 $13,990 $53,314 $91,355 $ 1,654 $146,323
- ---------------------------
Comprehensive Income
Net Income for the year - - 28,142 - $28,142 28,142
Other Comprehensive Income,
Net of Tax
Net Changes in Securities
Valuation Allowance - - - 175 175 175
------------
Comprehensive Income $28,317
==========
Stock Options Exercised 187 1,375 - - 1,375
Tax Benefit-Stock
Options Exercised - 1,614 - - 1,614
Stock Repurchase (465) (10,386) (10,386)
Cash Dividend- $.30 per Share - - ( 4,213) - ( 4,213)
---------------------------------------------- ---------
Balance at December 31, 1998 $13,712 $56,303 $104,898 $ 1,829 $163,030
- ---------------------------- ======= ======= ======== ======= =========
Comprehensive Income
Net Income for the
Six Months - - 13,581 - $13,581 13,581
------------
Other Comprehensive Income
(Loss), Net of Tax
Net Changes in Securities
Valuation Allowance - - - (5,579) (5,579) (5,579)
------------
Comprehensive Income $ 8,002
=========
Stock Options Exercised 46 389 - - 389
Tax Benefit-Stock
Options Exercised - 204 - - 204
Stock Repurchase (935) (17,190) (17,190)
Cash Dividend-$.15 per Share - - ( 1,962) - ( 1,962)
---------------------------------------------- ---------
Balance at June 30, 1999 $12,823 $56,896 $99,327 $(3,750) $152,473
- ------------------------ ======= ======= ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
Disclosure of Reclassification Amount:
For the Six For the
Months Ended Year Ended
June 30,1999 Dec. 31,1998
------------ -----------
<S> <C> <C>
Net Change of Unrealized Holding (Losses) Gains Arising
During Period, Net of Tax (Benefit) Expense of $(4,048)
and $172 in 1999 and 1998, Respectively $ (5,579) $ 237
Less: Reclassification Adjustment for Gains Included in Net
Income, Net of Tax Expense of: $0 and $45 in 1999 and 1998,
Respectively - (62)
----------- -----------
Net Change of Unrealized (Losses) Gains on Securities
Net of Tax (Benefit) Expense of $(4,048) and $127 in 1999
and 1998, Respectively $ (5,579) $ 175
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
- ----------------------------------------------------------------------------------
(In Thousands) 1999 1998
- ----------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 13,581 $ 13,474
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 658 629
Net Amortization/(Accretion) of Premiums/Discounts
on Securities 618 76
Accretion of Discount on Subordinated Notes 65 65
Writedown on Real Estate Held for Investment 663 663
Provision for Credit Losses 2,000 -
Amortization of Deferred Loan Fees (2,184) (1,474)
Gain on Sale of Loans - (24)
Gain on Sale of Other Real Estate Owned (720) (23)
Gain on Sale of Fixed Assets (22) -
Proceeds from Sales of Loans Originated for Sale - 24
Net Increase in Accrued Interest Receivable and
Other Assets 1,253 5,693
Net Decrease in Accrued Expenses and Other
Liabilities (31,311) (3,550)
Other, Net 388 1
---------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (15,011) $ 15,554
---------- ----------
INVESTING ACTIVITIES:
Purchases of Securities Available for Sale (236,485) (189,306)
Proceeds from Maturities of Securities
Available for Sale 187,412 183,186
Purchases of Securities Held to Maturity - (50,090)
Proceeds from Maturities of Securities
Held to Maturity 22,730 30,866
Net Increase in Loans and Leases (69,951) (79,560)
Proceeds from Sales of Other Real Estate Owned 4,442 1,662
Capitalized Costs of Other Real Estate Owned (308) -
Purchases of Premises and Equipment (619) (456)
Proceeds from Sales of Bank Premises
and Equipment 27 -
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES $ (92,752) $(103,698)
---------- ----------
FINANCING ACTIVITIES:
Net Increase/(Decrease) in Demand, Interest
Bearing Demand and Savings Deposits 27,467 53,642
Net Increase in Time Certificates of Deposits 28,949 38,636
Net Increase in Federal Funds Purchased and
Securities Sold Under Agreements to Repurchase 1,000 -
Borrowings from the Federal Home Loan Bank 15,000 -
Stock Repurchase Program (17,190) -
Cash Dividends Paid (2,028) (1,900)
Proceeds from Exercise of Stock Options 389 1,187
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 53,587 $ 91,565
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (54,176) 3,421
Cash and Cash Equivalents at Beginning of Period 128,514 140,519
---------- ----------
Cash and Cash Equivalents at End of Period $ 74,338 $ 143,940
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During This Period for:
Interest $ 27,083 $ 27,811
Income Taxes 7,359 1,102
========= =========
Noncash Investing Activities:
Loans Transferred to Other Real Estate Owned
at Fair Value $ 8,772 $ 588
========= =========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
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 June 30, 1999 and December 31, 1998,
and the six and three months ended June 30, 1999 and 1998,
reflect all adjustments (which consist only of normal
recurring adjustments) necessary for a fair presentation.
In the opinion of management, the aforementioned
consolidated financial statements are in conformity with
generally accepted accounting principles.
Earnings Per Share
- ------------------
Basic earnings per share is determined by dividing net
income by the average number of shares of common stock
outstanding, while diluted earnings per share is determined
by dividing net income by the average number of shares of
common stock outstanding adjusted for the dilutive effect of
common stock equivalents.
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
- --------
Net income for the second quarter of 1999 was
$7,016,000, or $0.53 diluted earnings per share compared to
$6,843,000, or $0.48 diluted earnings per share for the
corresponding period of 1998. The $0.05, or 10.4%, increase
was primarily the result of the stock repurchase program
begun in the fourth quarter, 1998 and completed in the
second quarter, 1999. The $173,000, or 2.5%, increase in
net income for the second quarter of 1999 was primarily the
result of an increase of net interest income partially
offset by an increase of the provision for credit losses.
For the six months ended June 30, 1999, net income
totaled $13,581,000, an increase of $107,000, or 0.8%, from
the $13,474,000 earned during the corresponding period of
1998. The increase was due primarily to the growth of net
interest income partially offset by an increase of the
provision for credit losses. Diluted earnings per share for
the six months ended June 30, 1999 were $1.01, compared to
the $0.94 for the same period of 1998. As was the case with
the quarterly comparison of the diluted earnings per share,
the $0.07, or 7.4%, increase of the six month diluted
earnings per share was primarily the result of the stock
repurchase program referenced above.
As of June 30, 1999, record high levels were achieved
for loans and leases, total assets and total deposits.
For the quarter ended June 30, 1999 and 1998, the
annualized return on average assets ("ROA") was 1.66% and
1.73%, respectively, and the annualized return on average
stockholders' equity ("ROE") was 18.0% and 17.4%,
respectively.
For the six months ended June 30, 1999 and 1998, the
ROA was 1.63% and 1.74%, respectively. For the six months
ended June 30, 1999 and 1998, the ROE was 17.2% and 17.6%,
respectively.
On June 11, 1999, the Company announced that its
board of directors had authorized a Dutch Auction self
tender offer for up to 2 million shares of the Company's
common stock, representing approximately 16% of its
outstanding shares. The tender price range was from $18 to
$22 per share. On July 20, 1999, the Company purchased
approximately 1,328,000 shares that were tendered pursuant
to the offer at a price of $22 per share in accordance with
the terms of the tender offer.
RESULTS OF OPERATIONS
- ---------------------
Net Interest Income-Quarterly Results
- -------------------------------------
For the quarter ended June 30, 1999 and 1998, net
interest income before the provision for credit losses was
$17,570,000 and $16,684,000, respectively, representing an
increase of $886,000, or 5.3%.
Total interest income for the quarter ended June 30,
1999, was $31,303,000, representing a $110,000, or 0.4%,
increase over the corresponding quarter of a year ago. The
increase was due to a growth of $118.2 million, or 7.7%, of
average interest earning assets. The impact on interest
income from the growth of average interest earning assets
was partially offset by a decline in the yield on earning
assets to 7.60% from 8.15% for the quarters ending June 30,
1999 and 1998, respectively.
The $118.2 million growth of average interest earning
assets was comprised of increases of $141.5 million and $8.9
million for loans and leases and securities, respectively,
partially offset by a $32.2 million decline of federal funds
sold and securities purchased under agreements to resell.
The yields on all categories of earning assets
declined with the most notable reduction being the yield on
loans and leases, which declined 124 basis points. In
addition to a decline in the national prime rate of
interest, (the average national prime rate of interest
during the quarters ended June 30, 1999 and 1998, was 7.75%
and 8.5%, respectively), loan yields were also negatively
impacted by an increase in the average of non-accrual loans.
For the quarter ended June 30, 1999 and 1998, average non-
accrual loans were $50.3 million and $13.2 million,
respectively. The non-accrual average for the quarter ended
June 30, 1999, included two large credits, one of which was
transferred to OREO at the end of the quarter. Please refer
to the discussion "Non-Performing Assets", following. The
effect of the decline of the yield on loans and leases and
securities was partially mitigated by an increase in the
percentage of average accruing loans and leases, to total
average earning assets. For the three months ended June 30,
1999 and 1998, average accruing loans and leases comprised
47.6% and 44.5%, respectively, of total average earning
assets. Loans and leases represent the highest yielding
interest earning asset.
Total interest expense for the quarter ended June 30,
1999, was $13,733,000, representing a $776,000, or 5.3%,
decrease over the corresponding quarter of a year ago. The
decrease was due to the reduction of the cost of funds,
partially offset by a $90.1 million increase of average
interest bearing liabilities. For the quarter ended June
30, 1999 and 1998, the cost of funds was 4.08% and 4.62%,
respectively.
The decrease in the cost of funds was the result of a
decrease in the rates paid on interest-bearing deposits.
For the three months ended June 30, 1999 and 1998, rates
paid on interest-bearing deposits were 3.90% and 4.48%,
respectively. The rates paid on all categories of interest-
bearing deposits decreased. The following table displays the
average balance and rates paid for the deposit products of
General Bank (the "Bank") for the quarter ended June 30,
1999 and 1998:
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
(Dollars in Thousands) 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Interest-bearing demand - Average balance $ 286,450 $ 260,087
Rate 2.45% 2.77%
Savings - Average balance 81,700 87,930
Rate 2.13% 2.71%
Time certificates of deposit
of $100,000 or more - Average balance 654,163 600,129
Rate 4.58% 5.25%
Other time deposits - Average balance 238,027 272,026
Rate 4.36% 4.98%
</TABLE>
The 58-basis point reduction of the rates paid
on interest bearing deposits was slightly offset by an
average $50 million of borrowings from the Federal Home Loan
Banks ("FHLB") with an average rate in the quarter of 4.84%.
There were no borrowings outstanding with the FHLB during
the 3 months ended June 30, 1998.
The net interest spread is defined as the yield on
interest earning assets less the rates paid on interest-
bearing liabilities. For the three months ended June 30,
1999 and 1998, the net interest spread declined one basis
point to 3.52% from 3.53%, respectively.
The net interest margin is defined as the annualized
difference between interest income and interest expense
divided by average interest earning assets. For the three
months ended June 30, 1999 and 1998, the net interest margin
was 4.26% and 4.36% respectively. The decrease in the
margin is primarily the result of the growth of the
Company's earning assets, which include non-accrual loans,
being funded primarily by interest-bearing liabilities.
Net Interest Income-Six-Month Results
- -------------------------------------
For the six months ended June 30, 1999, net interest
income before the provision for credit losses was
$35,297,000, representing a $2,644,000, or 8.1%, growth over
the corresponding period of a year ago.
Total interest income for the six months ended June 30,
1999, was $62,457,000 compared to $60,879,000, a $1,578,000,
or 2.6%, growth over the corresponding period of a year ago.
The increase is the result of an increase of average
interest earning assets partially offset by a reduction of
the yield on interest earning assets.
The net growth of average earning assets was $134.2
million represented by increases of $149.4 million and $24.5
million for loans and leases and securities, respectively,
and a decrease of $39.8 million for federal funds sold and
securities purchased under agreements to resell.
The yield on interest earning assets declined to 7.68%
for the six months ended June 30, 1999 from 8.16% for the
corresponding period of a year ago. The yields on all
categories of earning assets declined with the most notable
reduction being the yield on loans and leases which declined
from 10.31% to 9.25%. In addition to a decline in the
national prime rate of interest (the average national prime
rate of interest during the six months ended June 30, 1999
and 1998, was 7.75% and 8.5%, respectively), loan yields
were also negatively impacted by an increase in the average
of non-accrual loans. For the six months ended June 30, 1999
and 1998, average non-accrual loans were $36.2 million and
$12.1 million, respectively.
Total interest expense for the six months ended June
30, 1999 and 1998, was $27,160,000 and $28,226,000,
respectively, representing a $1,066,000, or 3.8%, decrease.
This decrease is due to a lower cost of funds, partially
offset by an increase of average interest bearing
liabilities.
The cost of funds decreased 49-basis points to 4.11%
from 4.60%, for the six-month period ended June 30, 1999 and
1998, respectively. The decrease was primarily due to the
reduced rates paid on all categories of interest bearing
deposits. The average balance and the rates paid on the
deposit categories were as follows for the six months ended
June 30, 1999 and 1998:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Interest-bearing demand - Average balance $ 284,213 $ 246,520
Rate 2.40% 2.59%
Savings - Average balance 80,545 91,480
Rate 2.13% 2.74%
Time certificates of deposit of $100,000
or more - Average balance 635,392 598,023
Rate 4.62% 5.27%
Other time deposits - Average balance 247,681 260,785
Rate 4.45% 4.98%
</TABLE>
Partially offsetting the cost of funds reduction
due to the rates paid on average interest bearing deposits
was the 4.80% average rate paid on the $46.2 million average
FHLB borrowings. During the six months ended June 30, 1998
there were no borrowings from the FHLB.
Average interest-bearing liabilities increased
by $97.8 million during the six months ended June 30, 1999
compared to the corresponding period of a year ago. The
increase was the result of a $51.0 million growth of average
interest bearing deposits and a $46.8 million increase of
non-deposit interest-bearing liabilities, namely, the $46.2
million average FHLB borrowings as discussed above.
For the six months ended June 30, 1999 and 1998, the
net interest spread increased one basis point to 3.57% from
3.56%, respectively.
For the six months ended June 30, 1999 and 1998, the
net interest margin was 4.34% and 4.37%, respectively.
Provision for Credit Losses
- ---------------------------
For the quarter ended June 30, 1999, the provision for
credit losses was $500,000. There was no provision for
credit losses for the corresponding period of a year ago.
For the six months ended June 30, 1999, there was $2,000,000
provision for credit losses representing an increase of
$2,000,000 compared to the same period of 1998.
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 June 30,
1999, totaled $1,943,000, representing a $131,000, or 7.2%,
increase over the $1,812,000 for the quarter ended June 30,
1998. This increase was primarily due to commissions
associated with standby and commercial letters of credit,
included in service charges and commissions.
For the six months ended June 30, 1999, non-interest
income totaled $3,795,000 representing a $210,000, or 5.9%,
increase compared to $3,585,000 for the six months ended
June 30, 1998. The net increase was due to commissions
associated with standby and commercial letters of credit
offset by a reduction of income from escrow services,
included in the non-interest income category called other.
The Bank's escrow subsidiary was closed in the first quarter
of 1999.
Non-Interest Expense
- --------------------
For the three months ended June 30, 1999, non-interest
expense was $7,781,000, representing a $275,000, or 3.7%,
increase over $7,506,000 for the corresponding period of a
year ago. The increase of $599,000, or 13.7%, in salaries
and employee benefits, was primarily due to the accrual for
deferred compensation for the Company's Chairman and Chief
Executive Officer. Partially offsetting this increase was a
$399,000 decline of net other real estate owned expense
(income). The decline is primarily due to net gains on the
sale of OREO properties. During the quarter ended June 30,
1999 and 1998, net gains on the sale of OREO were $569,000
and $9,000, respectively. For the quarter ended June 30,
1999, and 1998, the Company's efficiency ratio, defined as
non-interest expense divided by the sum of net interest
income plus non-interest income, was 39.9% and 40.6%,
respectively.
For the six months ended June 30, 1999, non-
interest expense was $15,376,000, representing a $566,000,
or 3.8%, increase over $14,810,000 reported for the
corresponding period of a year ago. The net increase was due
to the increase in salaries and employee benefits of
$776,000, primarily the result of the accrual for deferred
compensation discussed above, and a $299,000 increase of the
other category of non-interest expense. The $299,000
increase was primarily due to the write-off of goodwill
associated with the escrow subsidiary which was closed in
the first quarter of 1999. The above were partially offset
by the reduced net other real estate owned expense (income)
of $665,000. The decline is primarily due to net gains on
the sale of OREO properties. During the six months ended
June 30, 1999 and 1998, net gains on the sale of OREO were
$720,000 and $23,000, respectively. For the six months ended
June 30, 1999, the Company's efficiency ratio was 39.3%,
comparing favorably to 40.9% for the corresponding period of
1998.
Provision for Income Taxes
- --------------------------
For the quarter ended June 30, 1999 and 1998, the
provision for income taxes was $4,216,000 and $4,147,000,
respectively, representing effective tax rates of 37.5% and
37.7%.
For the six months ended June 30, 1999, the provision
for income taxes was $8,135,000, and $7,954,000,
respectively, representing 37.5% and 37.1% of pre-tax
income.
FINANCIAL CONDITION
- -------------------
As of June 30, 1999, the following balance sheet
records were attained:
O Total assets of $1,706.9 million
O Total deposits of $1,437.3 million
O Total loans and leases of $848.9 million
Stockholders' equity was $152.5 million, down
from $163.0 million, as of December 31, 1998, primarily due
to the stock repurchase program initiated in the fourth
quarter, 1998 and completed in the second quarter, 1999.
The increase of total assets from December 31,
1998 to June 30, 1999 is primarily due to the growth of $60
million in gross loans and leases and $16 million in
securities funded by a $66 million reduction of federal
funds sold and securities purchased under agreements to
resell, a $56 million increase of deposits and a $15 million
increase in borrowings from the FHLB. The above were
partially offset by the repurchase of an additional $17
million of Company stock and payment of a $30 million
liability on securities awaiting payment as of December 31,
1998.
Loans
- -----
The $60.0 million, or 7.6%, growth was represented
primarily by a $30.7 million and $22.7 million increase of
commercial loans and real estate conventional loans,
respectively. The 10.0% growth in the commercial loan
portfolio was primarily in the trade-financing area which
increased $27.0 million. The growth of this category of
loan reflects the growth in international trade and new
customer relationships. Trade financing loans are made by
the Bank's International Division which, in addition to
granting loans to finance the import and export of goods
between the United States and countries in the Pacific Rim,
also provides letters of credit and other related services.
The Bank does not make loans to foreign banks, foreign
government or their central banks, or commercial and
industrial loans to entities domiciled outside of the United
States, except for the extension of overdraft privileges to
its foreign correspondent banks on a limited, case by case,
basis.
The 8.6% growth in the real estate conventional
loans portfolio was due to a $15.3 million increase of real
estate conventional loans secured by first trust deeds and a
$7.5 million increase of commercial loans secured by junior
real estate liens.
The following table sets forth the amount of loans and
leases outstanding by category and the percentage of each
category to total loans and leases outstanding:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
(In Thousands) Amount Percentage Amount Percentage
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $339,878 40.04% $309,198 39.19%
Real Estate - Construction 185,501 21.85% 177,737 22.53%
Real Estate - Conventional 286,574 33.76% 263,869 33.45%
Installment 22 N/A 37 N/A
Other Loans 20,725 2.44% 22,302 2.83%
Leveraged Leases 16,239 1.91% 15,802 2.00%
--------------------------------------------
Total $848,939 100.00% $788,945 100.00%
============================================
N/A = Percentage less than 0.01
</TABLE>
Non-Performing Assets
- ---------------------
A certain degree of risk is inherent in the extension
of credit. Management has credit policies in place to
minimize the level of loan losses and non-performing loans.
The Company performs a quarterly assessment of the credit
portfolio to determine the appropriate level of the
allowance. Included in the assessment is the identification
of loan impairment. A loan is identified as impaired when
it is probable that interest and principal will not be
collected according to the contractual terms of the loan
agreement. Loan impairment is measured by estimating the
expected future cash flows and discounting them at the
respective effective interest rate or by valuing the
underlying collateral.
The Company has a policy of classifying loans
(including an impaired loan) which are 90 days past due as
to principal and/or interest as non-accrual loans unless
management determines that the fair value of underlying
collateral is substantially in excess of the loan amount or
other circumstances justify treating the loan as fully
collectible. After a loan is placed on non-accrual status,
any interest previously accrued, but not yet collected, is
reversed against current income. A loan is returned to
accrual status only when the borrower has demonstrated the
ability to make future payments of principal and interest as
scheduled, and the borrower has demonstrated a sustained
period of repayment performance in accordance with the
contractual terms. Interest received on non-accrual loans
generally is either applied as principal reduction or
reported as recoveries on amounts previously charged off,
according to management's judgment as to the collectability
of principal.
The following table provides information with respect
to the Company's past due loans, non-accrual loans,
restructured loans and other real estate owned, net, as of
the dates indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS) June 30, 1999 December 31, 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Loans 90 Days or More
Past Due and Still
Accruing $ - $ 780
Non-Accrual Loans 41,032 20,790
Total Past Due Loans 41,032 21,570
Restructured Loans 8,865 10,440
Total Non-Performing Loans 49,897 32,010
Other Real Estate
Owned, Net 12,242 6,885
- ------------------------------------------------------------------------
Total Non-Performing Assets $ 62,139 $ 38,895
========== ==========
</TABLE>
Total non-performing assets increased to $62.1 million,
as of June 30, 1999, from $38.9 million, as of December 31,
1998, representing a $23.2 million, or 59.8%, increase.
Loans 90 Days or More Past Due and Still Accruing
- -------------------------------------------------
There are no loans that are 90 days or more past due
and still accruing as of June 30, 1999.
Non-Accrual Loans
- -----------------
As of June 30, 1999, non-accrual loans were $41.0
million, an increase of $20.2 million from year-end 1998,
but a decline from the end of the first quarter 1999. The
increase from December 31, 1998 is primarily due to a $30.9
million construction loan for a casino in Las Vegas. The
loan is collateralized by a first trust deed on the
building, second trust deeds on an associated hotel and on a
RV park, and by a first trust deed on undeveloped land.
There also was a take-out commitment from another financial
institution to pay off the loan at the end of construction.
A review of the collateral indicates sufficient value for
the full recapture of principal, interest and estimated
expenses. However, the Company cannot determine the timing
of the liquidation of the assets nor the actual values at
that time.
The balance of non-accrual loans was positively
impacted by an $8.6 million transfer to other real estate
owned ("OREO") and a charge-off of $2.3 million related to a
$12.6 million loan placed on non-accrual status in November,
1998.
The following table breaks out the Company's non-
accrual loans by category as of June 30, 1999 and December
31, 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS) June 30, 1999 December 31, 1998
- ------------------------------------------------------------
<S> <C> <C>
Commercial $ 8,238 $ 19,202
Real Estate - Construction 30,944 277
Real Estate - Conventional 1,850 1,309
Other Loans - 2
- ------------------------------------------------------------
Total $ 41,032 $ 20,790
======== ========
</TABLE>
The $11.0 million decline of commercial non-
accrual loans is due to the transfer to OREO, discussed
above. The $30.7 million increase of real estate
construction non-accrual loans is for the reason discussed
above.
Of the $41.0 million of non-accrual loans, $32.8
million are collateralized by real estate property with
appraisal value considerably in excess of the carrying value
of the loans, providing substantial protection against the
loss of principal.
The following table analyzes the increase in non-
accrual loans during the six months ended June 30, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
(IN THOUSANDS)
- ------------------------------------------------------------
<S> <C>
Balance, December 31, 1998 $ 20,790
Add: Loans placed on non-accrual 37,490
Less: Charge-offs (4,192)
Returned to accrual status (1,502)
Repayments (2,767)
Transfer to OREO (8,787)
- ------------------------------------------------------------
Balance, June 30, 1999 $ 41,032
==========
</TABLE>
Restructured Loans
- ------------------
The balance of restructured loans as of June 30, 1999
was $8.9 million compared to $10.4 million as of December
31, 1998, representing a $1.6 million, or 15.1%, decrease.
The decrease was primarily due to the pay-off in full of a
$1.4 restructured loan in the second quarter of 1999, which
also resulted in a $1.0 million recovery to the allowance
for credit losses. 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, however, included in
the balance of restructured loans, but are included in the
total of non-accrual loans. As of June 30, 1999, three
restructured loans totaling $612,000 were on non-accrual
status. As of June 30, 1999, restructured loans excluding
those on non-accrual status totaled $8.9 million and
consisted of 10 loans compared to $10.4 million and 11 loans
as of December 31, 1998. The weighted average yield of the
restructured loans was 9.80% as of June 30, 1999.
There are no commitments to lend additional funds on
any of the restructured loans.
Other Real Estate Owned
- -----------------------
As of June 30, 1999, other real estate owned, net of
valuation allowance of $2.0 million, totaled $12.2 million,
representing an increase of $5.4 million, or 77.8%, from the
net balance of $6.9 million, net of valuation allowance of
$2.0 million, as of December 31, 1998. The increase is
mainly due to the Company's taking title to the primary
collateral on the $12.6 million non-accrual loan discussed
above. As of June 30, 1999 and December 31, 1998, OREO
consisted of 16 properties and 22 properties, respectively.
The outstanding OREO properties are all physically
located in the Bank's market area. They include single
family residences, condominiums, commercial buildings,
industrial facilities and land. Eight properties comprise
the land category of OREO. The Company does not intend to
develop these properties; rather, the intent is to sell the
land undeveloped.
The following table sets forth OREO by property type as of
the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
- ------------------------------------------------------------
(In Thousands) 1999 1998
- ------------------------------------------------------------
<S> <C> <C>
Property Type
- -------------
Single-Family Residential $ 266 $ 752
Condominium - 485
Land 3,536 3,621
Retail Facilities 1,890 4,027
Industrial Facilities 8,550 -
-------- --------
Less: Valuation Allowance (2,000) (2,000)
-------- --------
Total $ 12,242 $ 6,885
======== ========
</TABLE>
Impaired Loans
- --------------
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. Of
the $47.0 million of outstanding impaired loans as of June
30, 1999, $2.1 million are included in the balance of
restructured loans and are performing pursuant to the terms
and conditions of the restructuring. The following table
discloses pertinent information as it relates to the
Company's impaired loans as of the dates indicated:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(In Thousands) Jun.30, 1999 Dec.31, 1998
- ------------------------------------------------------------------
<S> <C> <C>
Recorded Investment with Related
Allowance $47,032 $20,746
Recorded Investment with no
Related Allowance - 1,519
Total Recorded Investment 47,032 22,265
Allowance for Impaired Loans 4,960 3,250
- ------------------------------------------------------------------
</TABLE>
The increase in the recorded investment of
impaired loans is due to the $31 million casino construction
loan discussed above.
The average balance of impaired loans before the
allowance was $44.6 million for the six months ended June
30, 1999 and $13.5 million for the twelve months ended
December 31, 1998.
For the six months ended June 30, 1999 and 1998,
interest income recognized on impaired loans was $548,000
and $583,000, respectively. Of the amount of interest
income recognized during the six months ended June 30, 1999
and 1998, 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 continue to 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 June 30, 1999, the balance of the allowance for
credit losses was $19.1 million, representing 2.25% of
outstanding loans and leases. This compares to an allowance
for credit losses of $19.4 million as of December 31, 1998,
representing 2.46% of outstanding loans and leases.
The table below summarizes the activity in the total
allowance for credit losses (which amount includes the
allowance on impaired loans) for the six months ended as
indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
(IN THOUSANDS) June 30, 1999 June 30, 1998
- -------------------------------------------------------------
<S> <C> <C>
Balance, Beginning of Period $ 19,381 $ 16,776
Provision for Credit Losses 2,000 -
Charge-offs (4,157) (1,639)
Recoveries 1,837 401
Net Charge-offs (2,320) (1,238)
Balance, End of Period $ 19,061 $ 15,538
- -------------------------------------------------------------
</TABLE>
As of June 30, 1999, the allowance represents 38.2% and
46.5% of non-performing loans and of non-accrual loans,
respectively. As of December 31, 1998, the allowance
represented 60.5% and 93.2% of non-performing loans and of
non-accrual loans, respectively. The decline of these
ratios is due to the increase of non-accrual loans as
discussed above.
The amount of the provision for credit losses is
that required to maintain an allowance for credit losses
that is adequate to cover probable credit losses related to
specifically identified loans as well as probable credit
losses inherent in the remainder of the loan and lease
portfolio. Management evaluates the loan portfolio, the
economic environment, historical loan loss experience,
collateral values and assessments of borrowers' ability to
repay in determining the amount of the allowance for credit
losses.
The allowance is based on ongoing, quarterly
assessments of the probable estimated losses inherent in the
loan and lease portfolio, and to a lesser extent, unused
commitments to provide financing. The Company's methodology
for assessing the appropriateness of the allowance consists
primarily of the use of a formula allowance.
This formula allowance is calculated by applying loss
factors to outstanding loans and leases and certain unused
commitments, in each case based on the internal risk rating
of such loans, pools of loans, leases or commitments.
Changes in risk rating of both performing and nonperforming
loans affect the amount of the formula allowance. Loss
factors are based on the Company's historical loss
experience and may be adjusted for significant factors that,
in management's judgement, affect the collectibility of the
portfolio as of the evaluation date. Loss factors are
described as follows:
- Problem graded loan loss factors represent percentages
which have proven accurate over time. Such factors are
checked against and supported by migration analysis which
tracks loss experience over a five-year period.
- Pass graded loan loss factors are based on the
approximate average annual net charge-off rate over an eight-
year period.
- Pooled loan loss factors (not individually graded
loans) are based on probable net charge-offs. Pooled loans
are loans and leases that are homogeneous in nature, such as
residential mortgage loans and small business 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 June 30, 1999.
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 June 30, 1999, the Company recorded net
unrealized losses of $6,456,000 on its available-for-sale
portfolio. Stockholders' equity includes $3,742,000,
representing the net unrealized loss, net of tax.
The amortized cost, gross unrealized gains, gross
unrealized losses and fair value of securities at June 30,
1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Gross Gross
(In Thousands) Amortized Unrealized Unrealized Fair
June 30, 1999 Cost Gains Losses Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to Maturity
- ---------------------------
U.S. Government Agencies $ 1,919 $ - $ (9) $ 1,910
Collateralized Mortgage Obligations 15 - - 15
----------------------------------------------
Total Securities Held to Maturity $ 1,934 $ - $ (9) $ 1,925
==============================================
Securities Available for Sale
- -----------------------------
U.S. Government Agencies $ 19,347 $ - $ (12) $ 19,335
Mortgage Backed Securities 153,106 - (3,277) 149,829
Corporate Notes 50,019 - (468) 49,551
Collateralized Mortgage Obligations 252,528 - (1,795) 250,733
Asset Backed Securities 288,342 - (904) 287,438
Other Securities 6,066 - - 6,066
----------------------------------------------
Total Securities Available for Sale $ 769,408 $ - $ (6,456) $ 762,952
==============================================
Gross Gross
(In Thousands) Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
- ----------------------------------------------------------------------------------
Securities Held to Maturity
- ---------------------------
U.S. Government Agencies $ 24,594 $ 61 $ - $ 24,655
Collateralized Mortgage Obligations 22 - - 22
----------------------------------------------
Total Securities Held to Maturity $ 24,616 $ 61 $ - $ 24,677
==============================================
Securities Available for Sale
- -----------------------------
U. S. Treasuries $ 1,859 $ 3 $ - $ 1,862
U. S. Government Agencies 59,604 171 - 59,775
Mortgage Backed Securities 72,799 408 - 73,207
Corporate Notes 34,925 - (1) 34,924
Collateralized Mortgage Obligations 246,026 621 - 246,647
Asset Backed Securities 257,638 1,970 - 259,608
Commercial Papaer 39,860 - - 39,860
Other Securities 8,289 - - 8,289
----------------------------------------------
Total Securities Available for Sale $ 721,000 $ 3,173 $ (1) $ 724,172
==============================================
</TABLE>
<PAGE>
There were no sales of securities during the six months
ended June 30, 1999 and 1998.
Deposits
- --------
The Company's deposits totaled $1,437.3 million as of
June 30, 1999, representing a $56.4 million, or 4.1%,
increase from total deposits of $1,380.9 million as of
December 31, 1998. All deposit categories experienced
increases with the exception of other time deposits which
decreased $42.1 million, or 15.6%. Time certificates of
deposit of $100,000 or more and demand deposits increased
$71.1 million or 11.9%, and $19.6 million, or 13.1%,
respectively, representing the largest growth components.
There were no brokered deposits outstanding as of June
30, 1999 and December 31, 1998. 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 deposits of $100,000 or more having maturities of one
year or less, in the past the depositors have generally
renewed their deposits 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 June 30, 1999, is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS)
- -------------------------------------------------------
<S> <C>
3 Months or Less $ 442,875
Over 3 Months Through 6 Months 115,756
Over 6 Months Through 12 Months 111,670
Over 12 Months 439
- -------------------------------------------------------
Total $ 670,740
==========
- -------------------------------------------------------
</TABLE>
Other Borrowings
- ----------------
As of June 30, 1999, the Company has three sources of
other borrowings.
Subordinated debt is comprised of a $40 million public
offering issuance of 8.375% subordinated notes due August 1,
2007. Proceeds of $38.7 million, net of underwriting
discount of $1.3 million, were received by the Company at
date of issuance. The discount is amortized as a yield
adjustment over the 10-year life of the notes.
The Bank has obtained advances from the Federal Home
Loan Bank of San Francisco (the "FHLB") totaling $50.0
million. The advances are under an existing line of credit
whereby the FHLB has granted the Bank a line of credit equal
to 25 percent of its assets. The following relates to the
four outstanding advances as of June 30, 1999:
<TABLE>
<CAPTION>
Maturity Amount Fixed Rate of Interest
-------- ------ ----------------------
<S> <C> <C>
Nov. 1, 2000 $25,000,000 4.53%
Jan.31, 2001 10,000,000 5.19%
Apr.30, 2001 10,000,000 4.92%
Jul.15, 2002 5,000,000 5.61%
</TABLE>
The total outstanding of $50 million of advances as of June
30, 1999 has a composite fixed rate of interest of 4.85%.
As of June 30, 1999, the Bank had $1 million
outstanding of federal funds purchased, representing an
overnight borrowing from one of its major correspondents.
The rate of interest paid on the federal funds purchased was
5.25%. (Reference also discussion of liquidity following.)
Capital Resources
- -----------------
Stockholders' equity totaled $152.5 million as of June
30, 1999, a decrease of $10.6 million, or 6.5%, from $163.0
million as of December 31, 1998. The net decrease from year-
end 1998 was due to the repurchase of $17.2 million of the
Company's stock. The stock repurchase program was completed
in the second quarter. A total of 1.4 million shares were
repurchased, at a total cost of $27.6 million. The decline
of stockholders' equity due to the repurchase was partially
offset by net income of $13.6 million less cash dividends
declared of $2.0 million less the net change in securities'
valuation of $5.6 million plus the exercise of stock options
and related tax benefits of $0.6 million.
Capital ratios for the Company and for the Bank were as
follows as of the dates indicated:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Well-Capitalized Jun.30, Dec.31,
Requirements 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
GBC Bancorp
Tier 1 Leverage Ratio 5% 9.23% 9.75%
Tier 1 Risk-Based Capital Ratio 6% 10.61% 11.06%
Total Risk-Based Capital Ratio 10% 14.51% 14.98%
General Bank
Tier 1 Leverage Ratio 5% 10.00% 9.49%
Tier 1 Risk-Based Capital Ratio 6% 11.50% 10.77%
Total Risk-Based Capital Ratio 10% 12.75% 12.02%
- ----------------------------------------------------------------------------
</TABLE>
For the six months ended June 30, 1999, the ratio of
the Company's average stockholders' equity to average assets
was 9.49%. For the year ended December 31, 1998, this ratio
was 10.01%. The decrease of the ratio is mainly the result
of the stock repurchase program.
As previously discussed, pursuant to the Dutch
Auction self tender program, the Company repurchased
approximately 1,328,000 of its shares at $22 per share on
July 20, 1999. The transaction will reduce the capital
ratios of the Company and the Bank as a $16 million dividend
from the Bank to the Company was used to partially fund the
purchase. Notwithstanding these transactions, the Company's
and the Bank's capital ratios remain in excess of regulatory
requirements.
Liquidity and Market Risk
- -------------------------
Liquidity measures the ability of the Company to meet
fluctuations in deposit levels, to fund its operations and
to provide for customers' credit needs. Liquidity is
monitored by management on an on-going basis. Asset
liquidity is provided by cash and short-term financial
instruments which include 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 $658.4 million, or 38.6% of total assets, as of
June 30, 1999, compared to $666.7 million, or 39.7% of total
assets, as of December 31, 1998.
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 payment terms up to 360
months. Management believes its liquidity sources to be
stable and adequate.
As of June 30, 1999, total loans and leases represented
59.1% of total deposits. This compares to 60.0% and 57.1%
as of March 31, 1999 and December 31, 1998, respectively.
The liquidity of the parent company, GBC Bancorp, is
primarily dependent on the payment of cash dividends by its
subsidiary, General Bank, (the "Bank") subject to the
limitations imposed by the Financial Code of the State of
California. For the six months ended June 30, 1999, the
Bank declared cash dividends of $2.0 million to GBC Bancorp.
As previously discussed, pursuant to the Dutch Auction self
tender program, GBC Bancorp repurchased approximately
1,328,000 of its shares at $22 per share on July 20, 1999. A
$16 million cash dividend by the Bank to GBC Bancorp was
used to partially fund the repurchase. The transaction will
reduce the capital ratios of the Bank. Notwithstanding the
dividend payment, the Bank's capital ratios remain in excess
of regulatory requirements.
"GAP" measurement
- -----------------
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, contractual 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 contractual "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 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.
Contractual "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 prepayments.
As of June 30, 1999, there was a cumulative one-year
negative "gap" of $613.2 million, up from $448.2 million as
of December 31, 1998.
The following table indicates the Company's interest
rate sensitivity position as of June 30, 1999, and is based
on contractual maturities. It may not be reflective of
positions in subsequent periods:
<TABLE>
<CAPTION>
JUNE 30, 1999
INTEREST SENSITIVITY PERIOD
----------------------------------------------------------------------------------
0 to 90 91 to 365 Over 1 Year Over Non-Interest
(In Thousands) Days Days to 5 Years 5 Years Earning/Bearing Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Securities Available for Sale $ 14,515 $ 10,554 $ 60,731 $ 677,152 $ - $ 762,952
Securities Held to Maturity - - 1,919 15 - 1,934
Federal Funds Sold & Securities
Purchased Under Agreement to
Resell 35,000 - - - - 35,000
Loans and Leases (1) (2) 579,621 15,356 99,696 113,234 - 807,907
Non-Earning Assets (2) - - - - 99,145 99,145
----------------------------------------------------------------------------------
Total Assets $ 629,136 $ 25,910 $ 162,346 $ 790,401 $ 99,145 $1,706,938
========= ========= ========= ========= ========= ==========
Source of Funds for Assets:
Deposits:
Demand - N/B $ - $ - $ - $ - $ 168,992 $ 168,992
Interest Bearing Demand 285,022 - - - - 285,022
Savings 84,195 - - - - 84,195
TCD'S Under $100,000 134,869 92,895 606 - - 228,370
TCD'S $100,000 and Over 443,080 227,221 439 - - 670,740
----------------------------------------------------------------------------------
Total Deposits $ 947,166 $ 320,116 $ 1,045 $ - $ 168,992 $1,437,319
========= ========= ========= ========= ========= ==========
Federal Funds Purchased &
Securities Sold Under
Agreement to Resell $ 1,000 $ - $ - $ - $ - $ 1,000
Borrowings from the Federal
Home Loan Bank - - 50,000 - - 50,000
Subordinated Debt - - - 38,941 - 38,941
Other Liabilities - - - - 27,205 27,205
Stockholders' Equity - - - - 152,473 152,473
----------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 948,166 $ 320,116 $ 51,045 $ 38,941 $ 348,670 $1,706,938
========= ========= ========= ========= ========= ==========
Interest Sensitivity Gap $(319,030) $(294,206) $ 111,301 $ 751,460 $(249,525)
Cumulative Interest
Sensitivity Gap (319,030) (613,236) (501,935) 249,525 -
Gap Ratio (% of
Total Assets) -18.7% -17.2% 6.5% 44.0% -14.6%
Cumulative Gap Ratio -18.7% -35.9% -29.4% 14.6% 0.0%
(1) Loans and leases are before unamortized deferred loan fees and allowance for credit losses.
(2) Nonaccrual loans are included in non-earning assets.
</TABLE>
Effective asset/liability management includes
maintaining adequate liquidity and minimizing the impact of
future interest rate changes on net interest income. The
Company attempts to manage its interest rate sensitivity on
an on-going basis through the analysis of the repricing
characteristics of its loans, securities, and deposits, and
managing the estimated net interest income volatility by
adjusting the terms of its interest-earning assets and
liabilities, and through the use of derivatives as needed.
Market risk
- -----------
Market risk is the risk of financial loss arising from
adverse changes in market prices and interest rates. The
Company's market risk is inherent in its lending and deposit
taking activities to the extent of differences in the
amounts maturing or degree of repricing sensitivity.
Adverse changes in market prices and interest rates may
therefore result in diminished earnings and ultimately an
erosion of capital.
Since the Company's profitability is affected by
changes in interest rates, management actively monitors how
changes in interest rates may affect earnings and ultimately
the underlying market value of equity. Management monitors
interest rate exposure through the use of three basic
measurement tools in conjunction with established risk
limits. These tools are the expected maturity gap report,
net interest income volatility and market value of equity
volatility reports. The gap report details the expected
maturity mismatch or gap between interest earning assets and
interest bearing liabilities over a specified timeframe.
The expected gap differs from the contractual gap report
shown earlier in this section by adjusting contractual
maturities for expected prepayments of principal on loans
and amortizing securities as well as the projected timing of
repricing non-maturity deposits. The following table shows
the Company's financial instruments that are sensitive to
changes in interest rates categorized by their expected
maturity, as of June 30, 1999:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
0 to 90 91 to 365 Over 1 Year Over
(In Thousands) Days Days to 5 Years 5 Years Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-sensitive Assets:
Securities Available for Sale $ 32,909 $ 91,897 $ 512,848 $ 125,298 $ 762,952
Securities Held to Maturity 1,934 - - - 1,934
Federal Funds Sold & Securities
Purchased Under Agreements to
Resell 35,000 - - - 35,000
Loans and Leases (1) 579,621 15,356 99,696 113,234 807,907
--------- --------- --------- --------- -----------
Total Interest-earning Assets $ 649,464 $ 107,253 $ 612,544 $ 238,532 $ 1,607,793
========= ========= ========= ========= ===========
Interest-sensitive Liabilities:
Deposits:
Interest Bearing Demand $ 10,097 $ 30,289 $ 188,653 $ 55,983 $ 285,022
Savings 2,806 8,420 56,130 16,839 84,195
Time Certificates of Deposit 577,647 320,418 1,045 - 899,110
--------- --------- --------- --------- -----------
Total Deposits $ 590,550 $ 359,127 $ 245,828 $ 72,822 $ 1,268,327
========= ========= ========= ========= ===========
Federal Funds Purchased &
Securities Sold Under
Repurchased Agreements $ 1,000 $ - $ - $ - $ 1,000
Borrowing from FHLB - - 50,000 - 50,000
Subordinated Debt - - - 38,941 38,941
--------- --------- --------- --------- -----------
Total Interest-sensitive Liabilities $ 591,550 $ 359,127 $ 295,828 $ 111,763 $ 1,358,268
========= ========= ========= ========= ===========
(1) Loans and leases are net of non-accrual loans and before unamortized deferred loan fees and allowance for
credit losses.
</TABLE>
Expected maturities of assets are contractual
maturities adjusted for projected payment based on
contractual amortization and unscheduled prepayments of
principal as well as repricing frequency. Expected
maturities for deposits are based on contractual maturities
adjusted for projected rollover rates and changes in pricing
for non-maturity deposits. The Company utilizes assumptions
supported by documented analysis for the expected maturities
of its loans and repricing of its deposits and relies on
third party data providers for prepayment projections for
amortizing securities. The actual maturities of these
instruments could vary significantly if future prepayments
and repricing differ from the Company's expectations based
on historical experience.
The Company uses a computer simulation analysis to
attempt to predict changes in the yields earned on assets
and the rates paid on liabilities in relation to changes in
market interest rates. The net interest income volatility
and market value of equity volatility reports measure the
exposure of earnings and capital respectively, to immediate
incremental changes in market interest rates as represented
by the prime rate change of 100 to 200 basis points. Market
value of portfolio equity is defined as the present value of
assets minus the present value of liabilities and off
balance sheet contracts. The table below shows the
estimated impact of changes in interest rates on net
interest income and market value of equity as of June 30,
1999:
<TABLE>
<CAPTION>
NET INTEREST MARKET VALUE OF
CHANGE IN INTEREST INCOME VOLATILITY EQUITY VOLATILITY
RATES (BASIS POINTS) JUNE 30, 1999 (1) JUNE 30, 1999 (2)
- --------------------------------------------------------------------
<C> <C> <C>
+200 -4.90% -13.00%
+100 -2.60% - 6.60%
-100 -0.80% 5.30%
-200 -4.00% 7.00%
(1) The percentage change in this column represents net interest income
for 12 months in a stable interest rate environment versus the net
interest income in the various rate scenarios.
(2) The percentage change in this column represents net portfolio value of
the Bank in a stable interest rate environment versus the net
portfolio value in the various rate scenarios.
</TABLE>
The Company's primary objective in managing interest
rate risk is to minimize the adverse effects of changes in
interest rates on earnings and capital. In this regard the
Company has established internal risk limits for net
interest income volatility given a 100 and 200 basis point
decline in rates of 10% and 15%, respectively, over a twelve
month horizon. Similarly, risk limits have been established
for market value of portfolio equity volatility in response
to a 100 and 200 basis point increase in rates of 10% and
15%, respectively.
Year 2000
- ---------
The Company's main software systems have been licensed
from large vendors who have provided certifications of year
2000 compliance. Tests have confirmed such compliance for
these main software systems. Certain ancillary systems that
operate on personal computers are also licensed and the
vendors have informed the Company that releases conforming
to year 2000 requirements will be received in 1999. The
Bank has budgeted $100,000 of expenses related to Year 2000
compliance. Expenses to date have been approximately
$60,000. Total expenses are expected to be under the
budgeted amount. Management believes that there are no
material risks to the Company from its computer systems
related to the Year 2000.
Certain operations, such as payroll and the
administration of the Company's 401(k) plan, are outsourced
to outside companies. The Company has obtained
certification of their Year 2000 compliance. Management
believes that there are no material risks to the Company
from its outsourced operations related to the Year 2000.
Non-information technology systems are expected to
function well in year 2000 and beyond. The Company has
requested written certification for Year 2000 compliance
from the utilities companies and the telecommunications
companies and has received acknowledgement from each company
that they are on target with Year 2000 compliance.
A Business Resumption Plan (the "Plan") is in place
including a back-up site for data processing in the event of
failure of the Bank's mainframe computer. In the unlikely
event that the testing and certification procedures of the
Bank utilized software did not discover a problem, the Bank
has in place manual processing procedures that have been
tested which would be followed until correction of the
software problem by the Bank's vendors.
The Company has sent questionnaires to selected
borrowers representing more than 70% of outstanding credit
commitments by dollar volume at the time of the mailing. All
questionnaires have now been received and reviewed. The
questionnaire review process, along with ongoing oversight,
has resolved all issues where potential adverse impact on
credit quality was a factor if Year 2000 issues were not
addressed.
Three credits, with total commitments of $11
million have been judged "not sure" in their ability to
ensure year 2000 compliance. These credits have been placed
on the "Watch" list to ensure high visibility and ongoing
monitoring. Any borrowers unable to confirm Year 2000
compliance in a timely manner will be evaluated to ensure an
adequate specific allocation to the allowance for credit
losses. Year 2000 compliance will be a factor in all credit
decisions and in the specific allocations of a required
allowance for credit losses. Management believes the Year
2000 does represent an area of potential risk for credit
losses, but also believes the risk is manageable. However,
credit losses could be realized by the Company due to Year
2000 problems affecting a borrower's businesses. The amount
of such losses would be a function of the value of the
collateral associated with the individual credits. Whether
such potential losses would require an additional provision
for credit losses would be determined in conjunction with
the normal quarterly analysis of the adequacy of the
allowance for credit losses.
Forward-Looking Statements
- --------------------------
Certain statements contained herein, including, without
limitation, statements containing the words "believes,"
"intends," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the
following: general economics and business conditions in
those areas in which the Company operates; demographic
changes; competition; fluctuations in interest rates;
changes in business strategy or development plans; changes
in governmental regulation; credit quality; and other
factors referenced herein, including, without limitation,
under the captions Provision for Credit Losses, Non-
Performing Assets, Allowance for Credit Losses, Liquidity
and Market Risk, Interest Rate Sensitivity, and Recent
Developments. Given these uncertainties, the reader is
cautioned not to place undue reliance on such foward-looking
statements. The Company disclaims any obligation to update
any such factors or to publicly announce the results of any
revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
Recent Accounting Developments
- ------------------------------
Disclosure about Segments of an Enterprise and Related
Information
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of
an Enterprise and Related Information". This statement
establishes standards for the way public business
enterprises are to report information about operating
segments in annual financial statements and requires those
enterprises to report selected information about operating
segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic areas,
and major customers. SFAS 131 supersedes SFAS 14,
"Financial Reporting for Segments of a Business Enterprise",
but retains the requirement to report information about
major customers. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997.
Management and the Board of Directors do not utilize profit
center reporting to manage the organization. Therefore,
segment reporting will not be disclosed.
Accounting for Derivative Instruments and Hedging Activities
Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging
Activities", ("SFAS No. 133"), establishes accounting and
reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a
hedge of the foreign currency exposure of a net investment
in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency
denominated forecasted transaction. The accounting for
changes in fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and
the resulting designation.
SFAS 133 was originally scheduled to be effective for
all fiscal quarters of fiscal years beginning after June 15,
1999. However, the FASB recently issued SFAS 137,
"Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB
Statement No.133 " which amended the effective date of the
application of SFAS 133 to be effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.
Initial application of SFAS 133 must be as of the beginning
of an entity's fiscal quarter; on that date, hedging
relationships must be designated anew and documented
pursuant to the provisions of SFAS 133. SFAS 133 is not to
be applied retroactively to financial statements of prior
periods. Management does not believe that there will be a
material adverse impact on the financial position or results
of operations of the Company upon adoption of SFAS 133.
<PAGE>
PART II - OTHER INFORMATION
<PAGE>
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 Company's financial condition
or results of operations.
Item 2. CHANGES IN SECURITIES
- ------------------------------
There have been no changes in the securities of the
Registrant during the quarter ended June 30, 1999.
Item 3. DEFAULT UPON SENIOR SECURITIES
- ---------------------------------------
This item is not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
At the Annual Meeting of Shareholders held on April 22,
1999, a proposal to elect fourteen directors to the
Board of Directors of the Registrant to hold office
until the next meeting and until their successors are
elected and qualified was approved by shareholders.
This proposal received the following votes:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Helen Y. Chen 12,138,380 192,653
Thomas C.T. Chiu 12,138,380 192,653
Chuang-I Lin 12,138,380 192,653
Ko-Yen Lin 12,138,380 192,653
Ting Yung Liu 12,138,380 192,653
John Wang 12,134,380 196,653
Kenneth Wang 11,983,980 347,053
Chien-Te Wu 12,138,380 192,653
Julian Wu 12,138,380 192,653
Li-Pei Wu 12,136,180 194,853
Peter Wu 12,138,380 192,653
Ping C. Wu 12,138,380 192,653
Walter Wu 12,138,380 192,653
Chin-Liang Yen 12,138,380 192,653
</TABLE>
There was also a proposal to approve the GBC
Bancorp 1999 Employee Stock Incentive Plan. The proposal
received the following votes:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<C> <C> <C>
8,217,236 2,594,934 21,854
</TABLE>
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
<PAGE>
PART III - SIGNATURES
<PAGE>
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)
August 5, 99 Li-Pei Wu
Dated: __________________ s/ ______________________
Li-Pei Wu, Chairman and
Chief Executive Officer
August 5, 99 Peter Lowe
Dated: __________________ s/ ______________________
Peter Lowe, Executive
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 39,338
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 35,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 762,952
<INVESTMENTS-CARRYING> 1,934
<INVESTMENTS-MARKET> 1,925
<LOANS> 848,939
<ALLOWANCE> 19,061
<TOTAL-ASSETS> 1,706,938
<DEPOSITS> 1,437,319
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 27,205
<LONG-TERM> 88,941
0
0
<COMMON> 56,896
<OTHER-SE> 95,577
<TOTAL-LIABILITIES-AND-EQUITY> 1,706,938
<INTEREST-LOAN> 37,765
<INTEREST-INVEST> 24,690
<INTEREST-OTHER> 2
<INTEREST-TOTAL> 62,457
<INTEREST-DEPOSIT> 24,278
<INTEREST-EXPENSE> 27,160
<INTEREST-INCOME-NET> 35,297
<LOAN-LOSSES> 2,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 15,376
<INCOME-PRETAX> 21,716
<INCOME-PRE-EXTRAORDINARY> 13,581
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,581
<EPS-BASIC> 1.03
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 4.34
<LOANS-NON> 41,032
<LOANS-PAST> 0
<LOANS-TROUBLED> 8,865
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 19,381
<CHARGE-OFFS> 4,157
<RECOVERIES> 1,837
<ALLOWANCE-CLOSE> 19,061
<ALLOWANCE-DOMESTIC> 19,061
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
