4
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, 2000 Commission file number 0-16213
GBC BANCORP
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(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, 11,456,027 shares issued
and outstanding as of June 30, 2000.
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION ............................ 3
Item 1. Financial Statements ............................. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 8
PART II - OTHER INFORMATION ................................ 35
Item 1. Legal Proceedings ................................ 36
Item 2. Changes In Securities ............................ 36
Item 3. Default Upon Senior Securities ................... 36
Item 4. Submission Of Matters To A Vote Of Securities
Holders .......................................... 36
Item 5. Other Information ................................ 37
Item 6. Exhibits And Reports On Form 8-K ................. 37
PART III - SIGNATURES ....................................... 38
PART I - FINANCIAL INFORMATION
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars In Thousands) June 30, 2000 December 31, 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Due From Banks $ 47,942 $ 26,120
Federal Funds Sold and Securities Purchased
Under Agreements to Resell 91,750 80,000
----------- -----------
Cash and Cash Equivalents 139,692 106,120
Securities Available for Sale at Fair Value
(Amortized Cost of $812,005 and $697,300
at June 30,2000 and December 31, 1999,
respectively) 794,603 683,017
Securities Held to Maturity (Fair Value of
$1,122 and $1,241 at June 30, 2000 and December
31, 1999, respectively) 1,188 1,300
Trading Securities 3,189 1,114
Loans and Leases 941,350 925,957
Less: Allowance for Credit Losses (20,433) (19,808)
Deferred Loan Fees (3,982) (4,149)
----------- -----------
Loans and Leases, Net 916,935 902,000
Bank Premises and Equipment, Net 5,593 5,435
Other Real Estate Owned, Net 6,733 8,170
Due From Customers on Acceptances 9,606 7,197
Real Estate Held for Investment 4,674 5,522
Other Investments 13,972 9,801
Accrued Interest Receivable and Other Assets 16,160 14,524
----------- -----------
Total Assets $ 1,912,345 $ 1,744,200
=========== ===========
Liabilities and Stockholders' Equity
Deposits:
Demand $ 186,024 $ 174,753
Interest Bearing Demand 379,806 323,451
Savings 71,802 78,050
Time Certificates of Deposit of $100,000
or More 787,803 712,398
Other Time Deposits 202,183 202,159
----------- -----------
Total Deposits 1,627,618 1,490,811
Federal Funds Purchased and Securities Sold
Under Repurchase Agreements 8,500 -
Forward Sales Equity Securities 674 828
Borrowings from the Federal Home Loan Bank 50,000 50,000
Subordinated Debt 39,072 39,007
Acceptances Outstanding 9,606 7,197
Accrued Expenses and Other Liabilities 24,261 23,319
----------- -----------
Total Liabilities 1,759,731 1,611,162
Stockholders' Equity:
Common Stock, No Par or Stated Value; 40,000,000
Shares Authorized; 11,456,027(net of 71,007 shares
held in trust) and 11,523,019 Shares Outstanding
at June 30, 2000 and December 31, 1999,
respectively $ 59,038 $ 57,289
Retained Earnings 102,098 84,035
Accumulated Other Comprehensive Loss (10,093) (8,286)
Shares Held in Trust for Deferred Compensation 1,571 -
----------- -----------
Total Stockholders' Equity 152,614 133,038
----------- -----------
Total Liabilities and Stockholders'Equity $ 1,912,345 $ 1,744,200
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(In Thousands, Except Per Share Data) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and Leases, Including Fees $ 26,800 $ 18,939 $ 49,243 $ 37,765
Securities Available for Sale 12,833 11,392 24,454 22,282
Securities Held to Maturity 19 92 39 397
Federal Funds Sold and Securities
Purchased under Agreements to Resell 2,212 879 3,883 2,011
Other 6 1 9 2
------------ ------------ ------------ ------------
Total Interest Income 41,870 31,303 77,628 62,457
INTEREST EXPENSE
Interest Bearing Demand 3,412 1,752 6,239 3,387
Savings 487 433 962 851
Time Certificates of Deposits of
$100,000 or More 10,385 7,470 19,435 14,570
Other Time Deposits 2,555 2,587 4,803 5,470
Federal Funds Purchased and
Securities Sold under
Repurchase Agreements 25 8 34 25
Borrowings from the Federal Home Loan
Bank 612 612 1,225 1,116
Subordinated Debt 871 871 1,741 1,741
------------ ------------ ------------ ------------
Total Interest Expense 18,347 13,733 34,439 27,160
Net Interest Income 23,523 17,570 43,189 35,297
(Benefit)Provision for Credit Losses (1,500) 500 (1,500) 2,000
------------ ------------ ------------ ------------
Net Interest Income after (Benefit)
Provision for Credit Losses 25,023 17,070 44,689 33,297
NON-INTEREST INCOME
Service Charges and Commissions 2,269 1,807 4,235 3,447
Gain on Sale of Loans, Net 2 12 5 111
Gain on Sale of Fixed Assets 3 22 7 22
Trading Account Revenue 2,831 - 8,032 -
Income(Expense) from Other
Investments (280) - (282) -
Other 61 102 128 215
------------ ------------ ------------ ------------
Total Non-Interest Income 4,886 1,943 12,125 3,795
NON-INTEREST EXPENSE
Salaries and Employee Benefits 5,698 4,963 11,178 9,435
Occupancy Expense 880 810 1,677 1,573
Furniture and Equipment Expense 489 460 1,004 1,070
Loss on Sale of Securities Available
for Sale 104 - 104 -
Net Other Real Estate Owned (Income)
Expense (297) (272) 309 (226)
Other 1,858 1,820 3,737 3,524
------------ ------------ ------------ ------------
Total Non-Interest Expense 8,732 7,781 18,009 15,376
Income before Income Taxes 21,177 11,232 38,805 21,716
Provision for Income Taxes 8,300 4,216 15,080 8,135
------------ ------------ ------------ ------------
Net Income $ 12,877 $ 7,016 $ 23,725 $ 13,581
============ ============ ============ ============
Earnings Per Share:
Basic $ 1.12 $ 0.54 $ 2.06 $ 1.03
Diluted 1.10 0.53 2.02 1.01
============ ============ ============ ============
Weighted Average Basic Shares
Outstanding 11,517,794 12,910,221 11,517,957 13,232,360
============ ============ ============ ============
Weighted Average Diluted Shares
Outstanding 11,710,200 13,132,145 11,726,439 13,477,715
============ ============ ============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
GBC BANCORP AND 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 (Loss) Equity
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 13,712 $ 56,303 $ 104,898 $ 1,829 $ 163,030
Comprehensive Income
Net Income for the year 29,988 $ 29,988 29,988
---------
Other Comprehensive Income,
Net of Tax Net Changes in
Securities Valuation Allowance (10,115) (10,115) (10,115)
---------
Comprehensive Income $ 19,873
=========
Stock Options Exercised 73 664 664
Tax Benefit-Stock
Options Exercised 322 322
Stock Repurchase (2,262) (46,817) (46,817)
Cash Dividend- $.33 per Share (4,034) (4,034)
---------------------------------------------- ----------
Balance at December 31, 1999 $ 11,523 $ 57,289 $ 84,035 $ (8,286) $ 133,038
---------------------------- ======== ======== ========= ========== ==========
Comprehensive Income
Net Income for the year 23,725 $ 23,725 23,725
---------
Other Comprehensive Income,
Net of Tax Net Changes in
Securities Valuation Allowance (1,807) (1,807) (1,807)
---------
Comprehensive Income $ 21,918
=========
Stock Issued for Executive
Compensation 114 2,401 2,401
Stock Held by Executive
Obligation Trust (71) (1,571) 1,571 -
Stock Options Exercised 50 671 671
Tax Benefit-Stock Options
Exercised 248 248
Stock Repurchase (160) (3,473) (3,473)
Cash Dividend- $.19 per Share (2,189) (2,189)
---------------------------------------------- ----------
Balance at June 30, 2000 $ 11,456 $ 59,038 $ 103,669 $ (10,093) $ 152,614
------------------------ ======== ======== ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Disclosure of Reclassification For the Six Months For the Year
Amount: Ended 6/30/2000 Ended 12/31/1999
<S> <C> <C>
Net Change of Unrealized Gains (Losses) Arising During Period,
Net of Tax Expense (Benefit) of ($1,355),($7,655) in 2000 and
1999, respectively $ (1,867) $ (10,550)
Less: Reclassification Adjustment for Losses Included in Net
Income, Net of Tax Benefit of $44 and $316 in 2000 and 1999,
respectively 60 435
----------- -----------
Net Unrealized (Losses) Gains on Securities, Net of Tax
(Benefit) Expense of ($1,311) and ($7,339) in 2000 and 1999,
respectively. $ (1,807) $ (10,115)
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
-------------------------------------------------------------------------------------
(In Thousands) 2000 1999
-------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net Income $ 23,725 $ 13,581
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 745 658
Net Amortization of Premiums on Securities 20 618
Net Unrealized Holding Gains on Trading
Securities and Liabilities (2,003) -
Proceeds from Sale of Trading Securities 7,554 -
Gain on Sale of Trading Securities (6,030) -
Cash Purchases of Trading Securities (200) -
Accretion of Discount on Subordinated Notes 65 65
Writedown on Real Estate Held for Investment 848 663
(Benefit)Provision for Credit Losses (1,500) 2,000
Provision for Losses on Other Real Estate
Owned 389 -
Amortization of Deferred Loan Fees (1,866) (2,184)
Loss on Sale of Securities Available for
Sale 104 -
Gain on Sale of Other Real Estate Owned (116) (720)
Gain on Sale of Fixed Assets (7) (22)
Net (Increase)/Decrease in Accrued
Interest Receivable and Other Assets (7,557) 1,253
Net Increase/(Decrease) in Accrued
Expenses and Other Liabilities 4,073 (31,311)
Other, net - 388
---------- ----------
Net Cash Provided (Used) by Operating
Activities 18,244 (15,011)
---------- ----------
Investing Activities:
Purchases of Securities Available for Sale (169,593) (236,485)
Proceeds from Maturities of Securities
Available for Sale 48,202 187,412
Proceeds from Maturities of Securities Held
to Maturity 112 22,730
Proceeds from Sales of Securities Available
for Sale 6,762 -
Net Increase in Loans and Leases (11,590) (69,951)
Proceeds from Sales of Other Real Estate
Owned 1,186 4,442
Capitalized Costs of Other Real Estate Owned - (308)
Purchases of Premises and Equipment (903) (619)
Proceeds from Sales of Bank Premises and
Equipment 8 27
---------- ----------
Net Cash Used by Investing Activities (125,816) (92,752)
---------- ----------
Financing Activities:
Net Increase in Demand, Interest Bearing
Demand and Savings Deposits 61,378 27,467
Net Increase in Time Certificates of Deposit 75,429 28,949
Net Increase in Federal Funds Purchased and
Securities Sold Under Agreements to
Repurchase 8,500 1,000
Net Increase in Borrowings from the Federal
Home Loan Bank - 15,000
Stock Repurchase Program (3,473) (17,190)
Cash Dividends Paid (2,190) (2,028)
Proceeds from Exercise of Stock Options 671 389
Issuance of Stock 829 -
---------- ----------
Net Cash Provided by Financing Activities 141,144 53,587
---------- ----------
Net Change in Cash and Cash Equivalents 33,572 (54,176)
Cash and Cash Equivalents at Beginning of
Period 106,120 128,514
---------- ----------
Cash and Cash Equivalents at End of Period $ 139,692 $ 74,338
========== ==========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During This Period for:
Interest $ 35,011 $ 27,083
Income Taxes 9,899 7,359
========== ==========
Noncash Investing Activities:
Loans Transferred to Other Real Estate
Owned at Fair Value 21 8,772
Loans to Facilitate the Sale of Other
Real Estate Owned - -
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
GBC Bancorp and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
------------------------------------------------------
In the opinion of management, the consolidated
financial statements of GBC Bancorp and its subsidiaries
(the "Company") as of June 30, 2000 and December 31, 1999,
and the six and three months ended June 30, 2000 and 1999,
reflect all adjustments (which consist only of normal
recurring adjustments) necessary for a fair presentation.
Operating results for the six months ended June 30, 2000 are
not necessarily indicative of the results that may be
expected for the full year ending December 31, 2000. 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 2000 was
$12,877,000, or $1.10 diluted earnings per share compared to
$7,016,000, or $0.53 diluted earnings per share for the
corresponding period of 1999. Net income increased
$5,861,000, or 83.5%. The increase was the result of growth
of net interest income, a negative provision for credit
losses and increased non-interest income. The above were
partially offset by an increase of non-interest expense.
For the six months ended June 30, 2000, net income
totaled $23,725,000, an increase of $10,144,000, or 74.7%,
from the $13,581,000 earned during the corresponding period
of 1999. Diluted earnings per share for the six months ended
June 30, 2000 were $2.02, compared to the $1.01 for the same
period of 1999. As was the case for the quarterly
comparison, the increase of net income was the result of
growth of net interest income, a negative provision for
credit losses, and increased non-interest income, partially
offset by an increase of non-interest expense.
In the second quarter, General Bank (the "Bank")
received the proceeds from the sale of collateral for the
Sunrise Suites loan which were sufficient to repay the
outstanding principal. In addition, $2.7 million of
interest income recovery was recorded. There is an
additional amount of proceeds from the bankruptcy estate
that is subject to resolution of certain remaining disputes
before the bankruptcy court.
In July, and not included in the second quarter
financial results, an OREO property recorded at $6.1 million
as of June 30, 2000 was sold, and a pre-tax gain of
approximately $0.9 million will be recognized in the third
quarter, 2000.
For the quarter ended June 30, 2000 and 1999, the
annualized return on average assets ("ROA") was 2.75% and
1.66%, respectively, and the annualized return on average
stockholders' equity ("ROE") was 35.7% and 18.0%,
respectively.
For the six months ended June 30, 2000 and 1999, the
ROA was 2.59% and 1.63%, respectively. For the six months
ended June 30, 2000 and 1999, the ROE was 33.8% and 17.2%,
respectively.
RESULTS OF OPERATIONS
---------------------
Net Interest Income-Quarterly Results
-------------------------------------
For the quarter ended June 30, 2000 and 1999, net
interest income before the (benefit) provision for credit
losses increased $5,953,000 or 33.9%, from $17,570,000 to
$23,523,000.
Total interest income for the quarter ended June 30,
2000 was $41,870,000, representing a $10,567,000, or 33.8%,
increase over the corresponding quarter of a year ago.
$2,700,000 million of this increase was due to the interest
income recovery mentioned above. This growth was due to
both a $163.5 million, or 9.9%, increase of average interest
earning assets and the increase of the yield on earning
assets from 7.60% to 9.27%. Over half of the growth of
average interest earning assets was in the increase of the
loan portfolio.
The $163.5 million growth of average interest earning
assets was comprised of increases of $85.2 million, $66.2
million and $12.1 million for loans and leases, federal
funds sold and securities purchased under agreements to
resell, and securities, respectively.
The yields on all categories of earning assets
increased. The most notable increase was the yield on loans
and leases which increased 261 basis points compared to the
corresponding period of a year ago. Excluding the $2.7
million interest income recovery from the Sunrise Suites
loan, the yield on loans and leases increased 144 basis
points from 9.07% to 10.51%. The increase is primarily
related to the 150 basis point increase in the prime rate of
interest. During the quarter ended June 30, 2000 and 1999,
the daily average prime was 9.25% and 7.75%, respectively.
In addition, the average non-accrual loans were $10.2
million during the quarter ended June 30, 2000, compared to
$50.3 million during the corresponding quarter of a year
ago. The yield on federal funds sold and securities
purchased under agreements to resell increased 149 basis
points and was related to the prime increase. The yield on
securities increased 65 basis points due to the increased
money market rates and an increase in the average maturity.
Total interest expense for the quarter ended June 30,
2000 was $18,347,000, representing a $4,614,000, or 33.6%,
increase over the corresponding quarter of a year ago. The
increase was due to both the growth of average interest
bearing liabilities and the cost of funds. The average
interest bearing liabilities increased $176.2 million or
13.1%, from the quarter ended June 30, 2000 compared to the
corresponding quarter of a year ago. The increase was almost
all in interest bearing deposits. Two categories of deposit
products accounted for this increase. Interest bearing
demand grew $106.4 million and time certificates of deposit
of $100,000 or more grew $109.5 million.
For the quarter ended June 30, 2000 and 1999, the cost
of funds was 4.84% and 4.08%, respectively. The increase in
the cost of funds was primarily the result of an increase in
the prime rate of interest as explained above. The rates
paid on all categories of interest-bearing deposits
increased. For the three months ended June 30, 2000 and
1999, rates paid on interest-bearing deposits were 4.72% and
3.90%, respectively. The following table displays the
average balance and rates paid for the deposit products of
the Bank for the quarter ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
(Dollars in Thousands) 2000 1999
----------------------------------------------------------------------------
<S> <C> <C>
Interest-bearing demand - Average balance $ 392,877 $ 286,450
Rate 3.49% 2.45%
Savings - Average balance 76,431 81,700
Rate 2.56% 2.13%
Time certificates of deposit of $100,000
or more - Average balance 763,622 654,163
Rate 5.47% 4.58%
Other time deposits - Average balance 202,624 238,027
Rate 5.07% 4.36%
</TABLE>
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,
2000 and 1999, the net interest spread increased 91 basis
points to 4.43% from 3.52%, respectively. The net interest
spread excluding the $2,700,000 interest income recovery was
3.84% for the second quarter of 2000. However, past
increases in the rates paid on time certificates of deposit
of $100,000 or more and on other time deposits are not
immediately reflected in the cost of funds due to the
average maturity of these deposits.
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, 2000 and 1999, the net interest
margin was 5.21% and 4.26%, respectively. The net interest
margin excluding the above referenced interest income
recovery was 4.62% for the second quarter of 2000.
Net Interest Income-Six-Month Results
-------------------------------------
For the six months ended June 30, 2000, net interest
income before the provision for credit losses was
$43,189,000, representing a $7,892,000, or 22.4%, growth
over the corresponding period of a year ago.
Total interest income for the six months ended June 30,
2000 was $77,628,000 compared to $62,457,000, a
$15,171,000, or 24.3%, growth over the corresponding period
of a year ago. The increase is the result of the growth of
average interest earning assets, interest income recoveries
of $3,236,000 and the increase of the yield on earning
assets.
The net growth of average earning assets was $134.9
million represented by increases of $94.8 million and $44.0
million for loans and leases and federal funds sold and
securities purchased under agreements to resell,
respectively. The increases were partially offset by a $3.9
million decrease of securities.
The yield on interest earning assets increased to 8.80%
from 7.68% for the six months ended June 30, 2000 and 1999,
respectively. The yields on all categories of earning assets
increased with the most notable increase being the yield on
loans and leases. For the six months ended June 30, 2000 and
1999, the yield on loans and leases was 10.79% and 9.25%,
respectively. As was the case with the quarterly comparison,
the increase of the loan yield was primarily the result of
the prime rate increases and net interest income recoveries
of $3,236,000, $2,700,000 of which was related to the
Sunrise Suites loan and was received in the second quarter
of 2000. The daily average prime rate of interest for the
six months ended June 30, 2000 and 1999, was 8.97% and
7.75%, respectively, or a 122 basis point increase. If the
interest income recoveries are excluded the yield on loans
and leases for the six months ended June 30, 2000 would be
10.08%. Finally, the reduction of the average balance of non-
accrual loans also contributed to the yield growth. For the
six months ended June 30, 2000 and 1999, average non-accrual
loans were $21.5 million and $36.2 million, respectively.
The yield on securities increased from 6.21% to 6.73%
for the six months ended June 30, 1999 and 2000,
respectively. The yield on federal funds sold and securities
purchased under agreement to resell increased from 5.06% to
6.29% for the six months ended June 30, 1999 and 2000,
respectively.
Total interest expense for the six months ended June
30, 2000 and 1999, was $34,439,000 and $27,160,000,
respectively, representing a $7,279,000, or 26.8%, increase.
This increase is due to the growth of average interest
bearing liabilities and a higher cost of funds.
As was the case for the quarterly comparison, the
$152.5 million growth of interest bearing liabilities was
due to a $148.6 million growth of interest bearing deposits,
in general, and interest-bearing demand and time
certificates of deposit of $100,000 or more, in particular.
A substantial portion of the growth of interest-bearing
demand was the result of deposits from technology companies
and venture capital funds in Northern California.
The cost of funds increased 55 basis points to 4.66%
from 4.11%, for the six-month period ended June 30, 2000 and
1999, respectively. The increase was primarily due to the
increased rates paid on all categories of interest bearing
deposits. For the six months ended June 30, 2000 and 1999,
the rate paid on average interest -bearing deposits was
4.53% and 3.91%, respectively. This 61 basis point increase
was primarily due to the increase of the prime rate of
interest, as discussed above. The average balance and the
rates paid on the deposit categories were as follows for the
six months ended as indicated:
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
(Dollars in Thousands) 2000 1999
---------------------------------------------------------------------------------
<S> <C> <C>
Interest-bearing demand - Average balance $ 375,711 $ 284,213
Rate 3.34% 2.40%
Savings - Average balance $ 78,062 $ 80,545
Rate 2.48% 2.13%
Time certificates of deposit of $100,000
or more - Average balance $ 742,615 $ 635,392
Rate 5.26% 4.62%
Other time deposits - Average balance $ 200,001 $ 247,681
Rate 4.83% 4.45%
</TABLE>
For the six months ended June 30, 2000 and 1999, the
net interest spread increased 57 basis points to 4.14% from
3.57%, respectively. The net interest spread excluding the
interest income recovery was 3.83% for the first six months
of 2000. The increase of the spread is for the reasons
explained above. However, past increases in the rates paid
on time certificates of deposit of $100,000 or more and on
other time deposits are not immediately reflected in the
cost of funds due to the average maturity of these deposits.
Accordingly, absent other factors, there may be some
downward pressure on the spread in subsequent quarters.
For the six months ended June 30, 2000 and 1999, the
net interest-margin was 4.89% and 4.34%, respectively. The
net interest margin excluding the interest income recovery
of $2.7 million was 4.59% for the first six months of 2000.
Provision for Credit Losses
---------------------------
For the quarter ended June 30, 2000, there was a
negative provision for credit losses of $1,500,000, compared
to $500,000 of provision for the corresponding period of a
year ago. The negative provision was based on the recoveries
on previously charged off loans. During the quarter ended
June 30, 2000, there were net recoveries of $2.0 million,
bringing the year to date net recoveries to $2.1 million.
For the six months ended June 30, 2000 and 1999, the
(benefit) / provision for credit losses was ($1,500,000) and
$2,000,000, respectively.
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,
2000, totaled $4,886,000, representing a $2,943,000, or
151%, increase over the $1,943,000 for the quarter ended
June 30, 1999. This increase was primarily due to trading
account revenue of $2.8 million recorded in the second
quarter of 2000. In addition, service charges and
commissions increased $462,000, or 25.6%, compared to the
corresponding quarter of a year ago.
Income from other investments represents the Bank's
share of income / (loss) on limited partnerships and other
interests which are accounted for under the equity method.
For the six months ended June 30, 2000, non-interest
income totaled $12,125,000 representing a $8,330,000, or
219%, increase compared to $3,795,000 for the six months
ended June 30, 1999. The net increase was primarily due to
trading account revenue of $8.0 million.
Trading account revenue is income earned on securities
classified as trading account securities. The Company's
subsidiary, GBC Venture Capital, ("VC") receives equity
securities which it holds as trading securities primarily
from two sources: a distribution from venture capital funds
in which it invests and the exercise of warrants acquired
through the lending operations of General Bank, its
affiliate. The mark to market and ultimate disposition of
these securities results in trading account revenue.
Warrants are carried at their cost in other assets until the
time they are exercised and the underlying securities are
received. The Company has received rights to acquire stock
in the form of warrants issued by 25 companies as of June
30, 2000, as an adjunct to its high technology banking
relationships. The receipt of the warrants does not change
the terms of loans provided high technology customers. The
Company also has invested in several venture capital funds
that invest in technology companies. At June 30, 2000, there
were $16.1 million of commitments, and $6.5 million of
investments were outstanding. In addition to seeking an
appropriate return for such investments, the Company seeks
to use the investments to increase its high technology
banking business using referrals from the funds. In
addition, trading account revenue also includes the mark-to-
market of outstanding forward sale transactions. As of June
30, 2000, VC had entered into forward sales of marketable
equity securities with a fair value of $0.7 million.
As of August 10, 2000, there was $13.4 million of
potential pre-tax income from currently restricted-from-sale
or undistributed shares of public companies, of which $12.2
million is from the value of warrants from a public company
whose shares are subject to a lockup agreement expiring in
December 2000. Shares are obtainable from the exercise of
warrants and also upon distribution from venture capital
funds. The $15.7 million does not include appreciated stock
of private companies or the underlying value of stock
obtainable from the exercise of warrants from private
companies. Both are expected to be an additional source of
income in the future. The timing and amount of income from
equities obtained from both warrants and venture capital
funds is largely out of the Company's control, and will
depend upon the equity markets and merger and acquisition
activity.
Non-Interest Expense
--------------------
For the three months ended June 30, 2000, non-interest
expense was $8,732,000, representing a $951,000, or 12.2%,
increase over $7,781,000 for the corresponding period of a
year ago. The increase was primarily due to the increase of
salaries and employee benefits which increased $735,000.
Included in the increase is incentive compensation expense
which is based on pre-tax earnings. For the quarter ended
June 30, 2000, and 1999, the Company's efficiency ratio,
defined as non-interest expense divided by the sum of net
interest income plus non-interest income, was 30.7% and
39.9%, respectively. The decline of this ratio was due in
large measure to the interest income recovery and trading
account revenue as discussed above.
For the six months ended June 30, 2000, non-
interest expense was $18,009,000, representing a $2,633,000,
or 17.1%, increase over $15,376,000 reported for the
corresponding period of a year ago. The net increase was
primarily due to the increase in salaries and employee
benefits for the reasons as noted above and higher deferred
compensation for the Chief Executive Officer of the Company.
The net other real estate owned (income) expense also
increased $535,000 due primarily to net expense in 2000 as
compared to net gains on sale of OREO recorded in the six
months ended June 30, 1999. For the six months ended June
30, 2000, the Company's efficiency ratio was 32.6%,
comparing favorably to 39.3% for the corresponding period of
1999. The decline of this ratio was due in large measure to
the interest income recovery and trading account revenue as
discussed above.
Provision for Income Taxes
--------------------------
For the quarter ended June 30, 2000 and 1999, the
provision for income taxes was $8,300,000 and $4,216,000,
respectively, representing effective tax rates of 39.2% and
37.5%.
For the six months ended June 30, 2000, the provision
for income taxes was $15,080,000, and $8,135,000,
respectively, representing 38.9% and 37.5% of pre-tax
income.
The above noted increases in the effective tax rates
are primarily the result of higher pre-tax earnings and a
relatively constant low income housing tax credit for the
years ending December 31, 2000 and 1999.
FINANCIAL CONDITION
-------------------
As of June 30, 2000, total assets increased $168.1
million, or 9.6%, to $1,912.3 million from $1,744.2 million
as of December 31, 1999, representing a record total asset
level.
The growth of total assets from December 31, 1999 to
June 30, 2000 is reflected in a $138.6 million increase in
earning assets funded by $136.8 million growth of total
deposits.
Loans and Leases
----------------
As of June 30, 2000, total loans and leases were $941.4
million compared to $926.0 million as of December 31, 1999,
representing a $15.4 million, or 1.7%, growth. This also
represented a record level for total loans and leases. The
increase was represented primarily by a $49.6 million
increase of commercial loans, in general, and a $39.8
million increase of trade financing loans, in particular.
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 Corporate Lending and
International Divisions 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 provide
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.
Partially offsetting the growth provided by the
commercial loan portfolio, there was a $43.8 million decline
of real estate construction loans. The decrease reflects the
pay-off of the Sunrise Suites loan (balance of $30.9
million, as of December 31, 2000) and other pay-offs during
the six months ended June 30, 2000. With the recent interest
rate increases, the Company is remaining conservative in its
underwriting criteria despite competitive pressures and
rising real estate values. This has resulted in a slowdown
of new construction loans to replace those being paid off.
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, 2000 December 31, 1999
(In Thousands) Amount Percentage Amount Percentage
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 447,986 47.59% $ 398,379 43.02%
Real Estate - Construction 151,365 16.08% 195,133 21.07%
Real Estate - Conventional 300,957 31.97% 295,624 31.93%
Installment 7 N/A 11 N/A
Other Loans 24,204 2.57% 20,238 2.19%
Leveraged Leases 16,831 1.79% 16,582 1.79%
----------------------------------------------
Total $ 941,350 100.00% $ 925,957 100.00%
==============================================
</TABLE>
N/A = Percentage less than 0.01
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, 2000 December 31, 1999
---------------------------------------------------------------------------
<S> <C> <C>
Loans 90 Days or More Past Due and
Still Accruing $ - $ -
Non-accrual Loans 12,591 44,521
Total Past Due Loans 12,591 44,521
Restructured Loans (on Accrual Status) 4,400 7,249
Total Non-performing and Restructured
Loans 16,991 51,770
Other Real Estate Owned, Net 6,733 8,170
---------------------------------------------------------------------------
Total Non-performing Assets $ 23,724 $ 59,940
---------------------------------------------------------------------------
</TABLE>
Total non-performing assets decreased to $23.7 million,
as of June 30, 2000, from $59.9 million, as of December 31,
1999, representing a $36.2 million, or 60.4%, decrease.
There were no loans 90 days or more past due and still
accruing as of December 31, 1999 or June 30, 2000. All other
categories of non-performing assets decreased from their
December 31, 1999 levels.
Non-Accrual Loans
-----------------
As of June 30, 2000, non-accrual loans were $12.6
million, representing a decrease of $31.9 million from year-
end 1999. The pay off of Sunrise Suites was primarily
responsible for the reduction.
The following table breaks out the Company's non-
accrual loans by category as of June 30, 2000 and December
31, 1999:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
(IN THOUSANDS) June 30, 2000 December 31, 1999
-------------------------------------------------------------------
<S> <C> <C>
Commercial $ 9,662 $ 8,567
Real Estate- Construction 1,374 35,694
Real Estate- Conventional 1,555 221
Other Loans - 39
-------------------------------------------------------------------
Total $ 12,591 $ 44,521
-------------------------------------------------------------------
</TABLE>
The following table analyzes the net decrease in non-
accrual loans during the six months ended June 30, 2000:
<TABLE>
<CAPTION>
----------------------------------------------------
Non-Accrual Loans (In Thousands)
----------------------------------------------------
<S> <C>
Balance, December 31, 1999 $ 44,521
Add: Loans placed on non-accrual 7,000
Less: Charge-offs (186)
Returned to accrual status -
Repayments (38,744)
Transfer to OREO -
----------------------------------------------------
Balance, June 30, 2000 $ 12,591
----------------------------------------------------
</TABLE>
Restructured Loans
------------------
The balance of restructured loans as of June 30, 2000
was $4.4 million compared to $7.2 million as of December 31,
1999, representing a $2.8 million, or 38.9%, decrease. The
decrease was primarily due to the pay-off in full of one
restructured loan of $1.2 million in the second quarter of
2000, which resulted in a $0.5 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, 2000, three restructured loans totaling $1.7 million
were on non-accrual status. As of June 30, 2000,
restructured loans, excluding those on non-accrual status,
totaled $4.4 million and consisted of 6 loans compared to
$7.2 million and 9 loans as of December 31, 1999. The
weighted average yield of the restructured loans was 10.48%
as of June 30, 2000.
There are no commitments to lend additional funds on
any of the restructured loans.
Other Real Estate Owned
-----------------------
As of June 30, 2000, other real estate owned, net of
valuation allowance of $3.4 million, totaled $6.7 million.
This represents a decrease of $1.5 million, or 18.3%, from
the balance of $8.2 million, net of valuation allowance of
$3.0 million, as of December 31, 1999. As of June 30, 2000
and December 31, 1999, OREO consisted of 7 properties and 12
properties, respectively.
As of June 30, 2000 the outstanding OREO properties are
all physically located in the Bank's market area. They
include single family residential, commercial buildings,
industrial facilities and land. Five properties comprise
the land category of OREO. The Company does not intend
to develop these properties.
The following table sets forth OREO by property type as of
the dates indicated:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
June 30, December 31,
(In Thousands) 2000 1999
-----------------------------------------------------------------
Property Type
-------------
<S> <C> <C>
Single-Family Residential $ - $ 395
Land 1,084 1,099
Retail Facilities 803 1,141
Industrial Facilities 8,250 8,550
--------------------------------
Less: Valuation Allowance (3,404) (3,015)
--------------------------------
Total $ 6,733 $ 8,170
================================
</TABLE>
Included in industrial facilities is an OREO property
which was sold in July. As of June 30, the property had a
carrying value of $6.1 million. Proceeds received on the
sale were $7.5 million, and it is estimated that a $0.9
million gain on sale will be recorded in the third quarter
2000.
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 $15.8 million of outstanding impaired loans as of June
30, 2000, $2.5 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) June 30, 2000 Dec. 31, 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Recorded Investment with Related Allowance $ 11,787 $ 42,881
Recorded Investment with no Related Allowance 4,030 4,003
Total Recorded Investment 15,817 46,884
Allowance for Impaired Loans 2,941 5,806
----------------------------------------------------------------------------------
</TABLE>
The $31.1 million decrease of the recorded
investment of impaired loans is due to the pay-off of the
Sunrise Suites non-accrual loan as discussed above.
The average balance of impaired loans before the
allowance was $25.9 million for the six months ended June
30, 2000 and $46.5 million for the twelve months ended
December 31, 1999.
For the six months ended June 30, 2000 and 1999,
interest income recognized on impaired loans was $197,000
and $548,000, respectively. Of the amount of interest
income recognized during the six months ended June 30, 2000
and 1999, 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, 2000, the balance of the allowance for
credit losses was $20.4 million, representing 2.17% of
outstanding loans and leases. This compares to an allowance
for credit losses of $19.8 million as of December 31, 1999,
representing 2.14% 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 six months ended as
indicated:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
(IN THOUSANDS) June 30, 2000 June 30, 1999
----------------------------------------------------------------------
<S> <C> <C>
Balance, Beginning of Period $ 19,808 $ 19,381
Provision for Credit Losses (1,500) 2,000
Charge-offs (194) (4,157)
Recoveries 2,319 1,837
Net Recoveries (Charge-offs) 2,125 (2,320)
Balance, End of Period $ 20,433 $ 19,061
----------------------------------------------------------------------
</TABLE>
As of June 30, 2000, the allowance represents 120% and
162% of non-performing and restructured loans and of non-
accrual loans, respectively. As of December 31, 1999, the
allowance represented 38.3% and 44.5% of non-performing
loans and of non-accrual loans, respectively. The increase
of these ratios is due to the decline of non-accrual loans
in general, and the Sunrise Suites pay-off, in particular.
The provision for credit losses is the amount
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 order to determine the amount of the allowance for
credit losses. The balance of the allowance for credit
losses is an accounting estimate of probable but unconfirmed
incurred losses in the Bank's loan portfolio as of June 30,
2000.
Such an amount 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 approximates the probable but unconfirmed incurred
losses existing in the Bank's loan portfolio, as of June 30,
2000.
Securities
----------
The Company classifies its securities as held to
maturity, trading 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 are obtained and held principally for
the purpose of selling them in the near term are classified
as trading and are reported at fair value, with unrealized
gains and losses included in earnings. Equity securities
received upon the exercise of warrants and security
distributions from venture capital funds are classified as
trading.
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, 2000, the Company recorded net
unrealized losses of $17,402,000 on its available-for-sale
portfolio. Accumulated other comprehensive loss includes
$10,085,000, representing the net unrealized losses, net of
tax.
The amortized cost, gross unrealized gains, gross
unrealized losses and fair value of securities at June 30,
2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Gross Gross
(In Thousands) Amortized Unrealized Unrealized Fair
June 30, 2000 Cost Gains Losses Value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to Maturity
U.S. Government Agencies $ 1,186 $ - $ (66) $ 1,120
Collateralized Mortgage Obligations 2 - - 2
-----------------------------------------------
Total $ 1,188 $ - $ (66) $ 1,122
===============================================
Securities Available for Sale
U.S. Government Agencies $ 20,874 $ - $ (393) $ 20,481
Mortgage Backed Securities 165,065 - (5,973) 159,092
Commercial Mortgage Backed Securities 71,145 - (118) 71,027
Corporate Notes 83,617 - (1,385) 82,232
Collateralized Mortgage Obligations 152,621 - (4,661) 147,960
Asset Backed Securities 315,481 - (4,872) 310,609
Other Securities 3,202 - - 3,202
-----------------------------------------------
Total $ 812,005 $ - $ (17,402) $ 794,603
===============================================
Trading Account Securities
Equity Issues $ - $ - $ - $ 3,189
-----------------------------------------------
$ - $ - $ - $ 3,189
===============================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
(In Thousands) Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to Maturity
U.S. Government Agencies $ 1,294 $ - $ (59) $ 1,235
Collateralized Mortgage Obligations 6 - - 6
-----------------------------------------------
Total $ 1,300 $ - $ (59) $ 1,241
===============================================
Securities Available for Sale
U.S. Treassuries
U.S. Government Agencies $ 21,591 $ - $ (217) $ 21,374
Mortgage Backed Securities 176,217 - (5,446) 170,771
Commercial Mortgage Backed Securities 30,585 - (307) 30,278
Corporate Notes 59,319 - (748) 58,571
Collateralized Mortgage Obligations 163,323 - (4,412) 158,911
Asset Backed Securities 240,155 - (3,153) 237,002
Auction Preferred Stock - - - -
Commercial Paper
Other Securities 6,110 - - 6,110
-----------------------------------------------
Total $ 697,300 $ - $ (14,283) $ 683,017
===============================================
Trading Account Securities
Equity Issues $ - $ - $ - $ 1,114
-----------------------------------------------
$ - $ - $ - $ 1,114
===============================================
</TABLE>
During the six months ended June 30, 2000 there were
sales of securities from the available for sale portfolio
wherein proceeds of $6.8 million were received and a pre-tax
loss of $104,000 incurred. There were no sales of securities
available for sale during the six months ended June 30,
1999. There were no sales of securities held to maturity
during the six months ended June 30, 2000 and 1999.
Other Investments
-----------------
As of June 30, 2000, other investments totaled $14.0
million. Included in the balance is $6.5 million of
investments in various venture capital funds which in turn
invest in technology companies. There were $16.1 million of
commitments to invest in such funds as of June 30, 2000. In
addition to seeking an appropriate return from such
investments, the Company seeks to use the investments to
increase its high technology banking business. Also included
in other investments is a 10% equity interest in an aircraft
finance trust ("AFT") totaling $7.0 million as of June 30,
2000. AFT owns a number of aircraft which it leases to
different lessees in various countries. All these
partnership interests are accounted for by the equity
method. Also included in other investments are investments
made by the Bank in corporations responsible for lending
activities qualifying under, among other things, the
Community Reinvestment Act. These investments are accounted
for by the cost method or equity method, as appropriate.
Deposits
--------
The Company's deposits totaled $1,627.6 million as of
June 30, 2000, representing a $136.8 million, or 9.2%,
increase from total deposits of $1,490.8 million as of
December 31, 1999. All deposit categories experienced
increases with the exception of saving deposits which
decreased $6.2 million, or 8.0%. Time certificates of
deposit of $100,000 or more and demand deposits increased
$75.4 million or 10.6%, and $67.6 million, or 13.6%,
respectively, representing the largest growth components.
There were no brokered deposits outstanding as of June
30, 2000 and December 31, 1999. 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, 2000, is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------
(IN THOUSANDS)
----------------------------------------------------
<S> <C>
3 Months or Less $ 477,652
Over 3 Months Through 6 Months 176,156
Over 6 Months Through 12 Months 115,788
Over 12 Months 18,207
----------------------------------------------------
Total $ 787,803
----------------------------------------------------
</TABLE>
Other Borrowings
----------------
As of June 30, 2000, the Company has three sources of
other borrowings. As of June 30, 2000, the Bank had $8.5
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
7.44%.
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
up to 25 percent of its assets. The following relates to
the four outstanding advances as of June 30, 2000:
<TABLE>
<CAPTION>
-------------------------------------------------------------
Maturity Amount Fixed Rate of Interest
(In Thousands)
-------------------------------------------------------------
<C> <C> <C>
Nov. 1, 2000 $ 25,000 4.53%
Jan. 31, 2001 10,000 5.19%
Apr. 30, 2001 10,000 4.92%
July 15, 2002 5,000 5.61%
-------------------------------------------------------------
</TABLE>
The total outstanding of $50 million of advances as of
June 30, 2000 has a composite fixed rate of interest of
4.85%.
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.
Forward Sales-Equity Securities
-------------------------------
As of June 30, 2000, the Company had $0.7 million
outstanding net of $59,000 on mark to market of forward
sales involving one equity security. Equity securities are
non-interest bearing.
Capital Resources
-----------------
Stockholders' equity totaled $152.6 million as of June
30, 2000, an increase of $19.6 million, or 14.7%, from
$133.0 million as of December 31, 1999.
An analysis of the change in stockholders' equity is as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Stockholders' Equity Amount
(In Thousands)
-----------------------------------------------------------------
<S> <C>
Balance as of December 31, 1999 $ 133,038
Repurchase of Stock (3,473)
Net Income 23,725
Cash Dividends (2,189)
Change in Securities Valuation, Net of Tax (1,807)
Stock Issuance (Includes $1,571 cost of shares held
in Trust for Deferred Compensation) 3,072
Exercise of Stock Options and related Tax Benefits 248
-----------------------------------------------------------------
Balance as of June 30, 2000 $ 152,614
-----------------------------------------------------------------
</TABLE>
Capital ratios for the Company and for the Bank were as
follows as of the dates indicated:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Well-Capitalized June 30, December 31,
Requirements 2000 1999
------------------------------------------------------------------------------------
<S> <C> <C> <C>
GBC Bancorp
Tier 1 Leverage Ratio 5% 8.54% 8.06%
Tier 1 Risk-Based Capital Ratio 6% 9.42% 9.07%
Total Risk-Based Capital Ratio 10% 12.86% 12.83%
General Bank
Tier 1 Leverage Ratio 5% 9.80% 9.58%
Tier 1 Risk-Based Capital Ratio 6% 10.86% 10.82%
Total Risk-Based Capital Ratio 10% 12.05% 12.07%
------------------------------------------------------------------------------------
</TABLE>
For the six months ended June 30, 2000, the ratio of
the Company's average stockholders' equity to average assets
was 7.66%. For the year ended December 31, 1999, this ratio
was 8.57%.
GBC Bancorp Executive Obligation Trust (the "Trust")
----------------------------------------------------
In the first quarter, 2000, the Company entered into a
trust agreement providing for the trust with Union Bank of
California as trustee. The purpose of the Trust was to
resolve accounting and administrative issues relating to the
deferred compensation payable to the Company's Chairman and
CEO pursuant to his employment agreement with the Company
(the "Agreement"). In the month of March, 71,007 shares
of Company stock were issued and transferred to the Trust,
representing the earned deferred compensation payable in
connection with the stock retention program set forth in the
Agreement.
In the consolidated financial statements, the shares held
in the Trust are reduced from common stock and included as
a separate component of retained earnings. As of June 30,
2000 this amount was $1,571,000 representing the cost of the
71,007 shares held in the Trust.
Liquidity
---------
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 $717.0 million, or 37.5% of total assets, as of
June 30, 2000, compared to $504.5 million, or 28.9% of total
assets, as of December 31, 1999.
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, 2000, total loans and leases represented
57.8% of total deposits. This compares to 56.1% and 62.1%
as of March 31, 2000 and December 31, 1999, respectively.
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 six months ended June 30, 2000, the Bank declared
cash dividends of $5.7 million to GBC Bancorp.
"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, 2000, there was a cumulative one-year
negative "gap" of $672.9 million, up from $591.4 million as
of December 31, 1999.
The following table indicates the Company's interest
rate sensitivity position as of June 30, 2000, and is based
on contractual maturities. It may not be reflective of
positions in subsequent periods:
<TABLE>
<CAPTION>
JUNE 30, 2000
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 $ 9,471 $ - $ 135,819 $ 649,313 $ - $ 794,603
Securities Held to Maturity - - 1,186 2 - 1,188
Trading Account Securities - - - - 3,189 3,189
Federal Funds Sold & Securities
Purchased Under Agreement to
Resell 91,750 - - - - 91,750
Loans and Leases (1) (2) 667,664 27,502 116,040 117,553 - 928,759
Non-Earning Assets (2) - - - - 91,356 91,356
---------------------------------------------------------------------------------------
Total Earning Assets $ 768,885 $ 27,502 $ 253,045 $ 766,868 $ 94,545 $ 1,910,845
=======================================================================================
Source of Funds for Assets:
Deposits:
Demand - N/B $ - $ - $ - $ - $ 186,024 $ 186,024
Interest Bearing Demand 379,806 - - - - 379,806
Savings 71,802 - - - - 71,802
TCD'S Under $100,000 102,418 92,151 7,614 - - 202,183
TCD'S $100,000 and Over 477,652 291,944 18,207 - - 787,803
---------------------------------------------------------------------------------------
Total Deposits $1,031,678 $ 384,095 $ 25,821 $ - $ 186,024 $ 1,627,618
=======================================================================================
Federal Funds Purchased &
Securities Sold Under
Agreement to Resell $ 8,500 $ - $ - $ - $ - $ 8,500
Forward Sales Equity Security - - - - 674 674
Borrowings from the Federal
Home Loan Bank - 45,000 5,000 - - 50,000
Subordinated Debt - - - 39,072 - 39,072
Other Liabilities - - - - 33,170 33,170
Stockholders' Equity - - - - 151,811 151,811
---------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $1,040,178 $ 429,095 $ 30,821 $ 39,072 $ 371,679 $ 1,910,845
=======================================================================================
Interest Sensitivity Gap $ (271,293) $ (401,593) $ 222,224 $ 727,796 $(277,134)
Cumulative Interest
Sensitivity Gap $ (271,293) $ (672,886) $ (450,662) $ 277,134 -
Gap Ratio(% of Total Assets) -14.2% -21.0% 11.6% 38.1% -14.5%
Cumulative Gap Ratio -14.2% -35.2% -23.6% 14.5% 0.0%
</TABLE>
(1) Loans and leases are before unamortized deferred loan fees and allowance
for credit losses.
(2) Non-accrual loans are included in non-earning assets.
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, 2000:
<TABLE>
<CAPTION>
Expected Maturity Date
June 30, 2000
(Dollars in Thousands)
-------------------------------------------------------------
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 $ 33,005 $ 84,584 $ 559,616 $ 117,398 $ 794,603
Securities Held to Maturity 1,188 - - - 1,188
Federal Funds Sold & Securities
Purchased Under Agreements to
Resell 91,750 - - - 91,750
Loans and Leases (1) 667,664 27,502 116,040 117,553 928,759
-------------------------------------------------------------
Total Interest-earning Assets $ 793,607 $ 112,086 $ 675,656 $ 234,951 $ 1,816,300
=============================================================
Interest-sensitive Liabilities:
Deposits:
Interest Bearing Demand $ 13,022 $ 39,064 $ 252,378 $ 75,342 $ 379,806
Savings 2,393 7,180 47,868 14,361 71,802
Time Deposit of Certificates 580,070 384,095 25,821 - 989,986
-------------------------------------------------------------
Total Deposits $ 595,485 $ 430,339 $ 326,067 $ 89,703 $ 1,441,594
=============================================================
Federal Funds Purchased &
Securities Sold Under
Repurchsed Agreements $ 8,500 $ - $ - $ - $ 8,500
Borrowing from FHLB - 45,000 5,000 - 50,000
Subordinated Debt - - - 39,072 39,072
-------------------------------------------------------------
Total Interest - sensitive
Liabilities $ 603,985 $ 475,339 $ 331,067 $ 128,775 $ 1,539,166 166
=============================================================
</TABLE>
(1) Loans and leases are net of non-accrual loans and before unamortized
deferred loan fees and allowance for credit losses.
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,
2000:
<TABLE>
<CAPTION>
NET INTEREST MARKET VALUE OF
CHANGE IN INTEREST INCOME VOLATILITY EQUITY VOLATILITY
RATES (BASIS POINTS) JUNE 30, 2000 (1) JUNE 30, 2000 (2)
---------------------------------------------------------------------
<C> <C> <C>
+200 -3.67% -12.16%
+100 -1.86% -6.26%
-100 -0.53% 6.19%
-200 -2.13% 11.03%
</TABLE>
(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.
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.
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 forward-
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
------------------------------
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement No. 133, " Accounting for
Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for
derivative instruments (e.g., interest rate swaps),
including some 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. In July
1999, the FASB issued Statement No. 137, " Accounting for
Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133- an amendment
of FASB Statement No. 133." This statement has delayed the
effective date of Statement No. 133 for one year. This new
standard is effective for the first quarter in 2001 and is
not to be applied retroactively to financial statements of
prior periods. Management does not believe there will be a
material adverse impact on the financial position or results
of operations of the Company upon adoption of FASB Statement
No. 133.
In June 2000, the Financial Accounting Standards Board
issued Statement No.138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". This statement
addresses a limited number of issues causing implementation
difficulties for a large number of entities getting ready to
apply Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". FASB Statement No. 138
amends the accounting and reporting standards of FASB No.
133 for certain derivative instruments and certain hedging
activities.
FASB No. 138 would be adopted concurrently with
implementation of FASB No. 133. Management does not believe
there will be a material adverse impact on the financial
position or results of operation of the Company upon
adoption of FASB 133 and 138.
In December 1999, the Securities and Exchange
Commission released Staff Accounting Bulletin No. 101 ("SAB
101"). SAB 101 provides the staff's views on the application
of generally accepted accounting principles for selected
revenue recognition issues. The release of SAB 101A and SAB
101B delayed the implementation date of SAB 101 to March 24,
2000 and June 26, 2000, respectively. Management believes
its revenue recognition included in the financial statements
is in conformity with generally accepted accounting
principles. Accordingly, the above referenced staff
accounting bulletins have no impact on the financial
position or results of operations of the Company.
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 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, 2000.
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 27,
2000, 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>
Bernard Chen 9,778,575 32,835
Thomas C.T. Chiu 9,780,027 31,383
Chuang-I Lin 9,780,027 31,383
Ko-Yen Lin 9,780,027 31,383
Ting Yung Liu 9,780,027 31,383
John Wang 9,778,575 32,835
Kenneth Wang 9,778,575 32,835
Chien-Te Wu 9,780,027 31,383
Julian Wu 9,780,027 31,383
Li-Pei Wu 9,780,027 31,383
Peter Wu 9,780,027 31,383
Ping C.Wu 9,780,027 31,383
Walter Wu 9,780,027 31,383
Chin-Liang Yen 9,778,575 32,835
</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
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)
August 11, 2000
Dated: __________________ s/ ________________________
Li-Pei Wu, Chairman and
Chief Executive Officer
August 11, 2000
Dated: __________________ s/ ________________________
Peter Lowe, Executive
Vice President and
Chief Financial Officer
