SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Quarter Ended September 30, 2000 Commission file number 0-16213
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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 Identification
incorporation or organization) No.)
800 West 6th Street, Los Angeles, California 90017
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 213/972-4172
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Former name address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the close of the
period covered by this report.
Common stock, no par value, 11,537,427 shares issued
and outstanding as of September 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 .................... 9
PART II - OTHER INFORMATION ...................................... 37
Item 1. Legal Proceedings ...................................... 38
Item 2. Changes In Securities .................................. 38
Item 3. Default Upon Senior Securities ......................... 38
Item 4. Submission Of Matters To A Vote Of Securities Holders... 38
Item 5. Other Information ...................................... 38
Item 6. Exhibits And Reports On Form 8-K ....................... 38
PART III - SIGNATURES ............................................. 39
PART I - FINANCIAL INFORMATION
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars In Thousands) 2000 1999
------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Due From Banks $ 48,366 $ 26,120
Federal Funds Sold and Securities Purchased
Under Agreements to Resell 176,500 80,000
----------- -----------
Cash and Cash Equivalents 224,866 106,120
Securities Available for Sale at Fair Value
(Amortized Cost of $849,244 and $697,300
at September 30, 2000 and December 31, 1999,
respectively) 854,891 683,017
Securities Held to Maturity (Fair Value of
$1,036 and $1,241 at September 30, 2000
and December 31, 1999, respectively) 1,097 1,300
Trading Securities 253 1,114
Loans and Leases 953,264 925,957
Less: Allowance for Credit Losses (21,018) (19,808)
Deferred Loan Fees (4,029) (4,149)
----------- -----------
Loans and Leases, Net 928,217 902,000
Bank Premises and Equipment, Net 5,495 5,435
Other Real Estate Owned, Net 663 8,170
Due From Customers on Acceptances 9,248 7,197
Real Estate Held for Investment 4,250 5,522
Other Investments 15,519 9,801
Accrued Interest Receivable and Other Assets 14,032 14,524
----------- -----------
Total Assets
$ 2,058,531 $ 1,744,200
=========== ===========
Liabilities and Stockholders' Equity
Deposits:
Demand $ 200,183 $ 174,753
Interest Bearing Demand 476,714 323,451
Savings 68,010 78,050
Time Certificates of Deposit of $100,000
or More 818,058 712,398
Other Time Deposits 189,507 202,159
----------- -----------
Total Deposits 1,752,472 1,490,811
Forward Sales Equity Securities - 828
Borrowings from the Federal Home Loan Bank 50,000 50,000
Subordinated Debt 39,105 39,007
Acceptances Outstanding 9,248 7,197
Accrued Expenses and Other Liabilities 30,601 23,319
----------- -----------
Total Liabilities 1,881,426 1,611,162
Stockholders' Equity:
Common Stock, No Par or Stated Value;
40,000,000 Shares Authorized;
11,537,427(net of 71,007 shares held
in trust) and 11,523,019 Shares
Outstanding at September 30, 2000
and December 31, 1999, respectively $ 61,260 $ 57,289
Retained Earnings 111,010 84,035
Accumulated Other Comprehensive Gain (Loss) 3,264 (8,286)
Shares Held in Trust for Deferred Compensation 1,571 -
----------- -----------
Total Stockholders' Equity 177,105 133,038
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,058,531 $ 1,744,200
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
(In Thousands, Except Per Share Data) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and Leases, Including Fees $ 25,834 $ 20,887 $ 75,077 $ 58,652
Securities Available for Sale 13,807 11,745 38,261 34,027
Securities Held to Maturity 17 26 56 423
Federal Funds Sold and Securities
Purchased under Agreements to Resell 2,404 460 6,287 2,471
Other 3 1 12 3
-------------------------------------------------------
Total Interest Income 42,065 33,119 119,693 95,576
INTEREST EXPENSE
Interest Bearing Demand 3,717 2,032 9,956 5,419
Savings 437 481 1,399 1,332
Time Certificates of Deposits of
$100,000 or More 11,614 7,865 31,049 22,435
Other Time Deposits 2,587 2,362 7,390 7,832
Federal Funds Purchased and Securities
Sold under Repurchase Agreements 13 43 47 68
Borrowings from the Federal Home Loan
Bank 620 620 1,845 1,736
Subordinated Debt 870 870 2,611 2,611
-------------------------------------------------------
Total Interest Expense 19,858 14,273 54,297 41,433
Net Interest Income 22,207 18,846 65,396 54,143
(Benefit)Provision for Credit Losses 1,000 1,500 (500) 3,500
-------------------------------------------------------
Net Interest Income after Provision
for Credit Losses 21,207 17,346 65,896 50,643
NON-INTEREST INCOME
Service Charges and Commissions 2,041 1,987 6,276 5,434
Gain on Sale of Loans, Net 3 9 8 120
Gain on Sale of Fixed Assets - - 7 22
Trading Account(Loss)Revenue (226) - 7,806 -
Income from Other Investments 658 - 376 -
Other 144 164 272 379
-------------------------------------------------------
Total Non-Interest Income 2,620 2,160 14,745 5,955
NON-INTEREST EXPENSE
Salaries and Employee Benefits 5,698 5,026 16,876 14,461
Occupancy Expense 807 818 2,484 2,391
Furniture and Equipment Expense 502 452 1,506 1,522
Loss on Sale of Securities
Available for Sale - - 104 -
Net Other Real Estate Owned Income (1,447) (579) (1,138) (805)
Other 1,961 1,713 5,698 5,237
-------------------------------------------------------
Total Non-Interest Expense 7,521 7,430 25,530 22,806
Income before Income Taxes 16,306 12,076 55,111 33,792
Provision for Income Taxes 6,234 4,584 21,314 12,719
-------------------------------------------------------
Net Income $ 10,072 $ 7,492 $ 33,797 $ 21,073
=======================================================
Earnings Per Share:
Basic $ 0.87 $ 0.64 $ 2.93 $ 1.65
Diluted 0.85 0.62 2.87 1.62
=======================================================
Weighted Average Basic Shares
Outstanding 11,569,516 11,772,330 11,535,268 12,740,335
=======================================================
Weighted Average Diluted Shares
Outstanding 11,889,530 12,012,477 11,780,917 12,983,954
=======================================================
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In Thousands, Except per Share Amounts)
Accumulated
Other Total
Common Stock Retained Comprehensive Comprehensive Stockholders'
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 33,797 $ 33,797 33,797
Other Comprehensive Income, Net
of Tax
Net Changes in Securities
Valuation Allowance 11,550 11,550 11,550
---------
Comprehensive Income $ 45,347
=========
Stock Issued for Executive
Compensation 114 2,401 2,401
Stock Held by Executive
Obligation Trust (71) (1,571) 1,571 -
Stock Options Exercised 131 2,346 2,346
Tax Benefit-Stock Options Exercised 795 795
Stock Repurchase (160) (3,473) (3,473)
Cash Dividend- $.29 per Share (3,349) (3,349)
------------------------------------------- ----------
Balance at September 30, 2000 $ 11,537 $ 61,260 $ 112,581 $ 3,264 $ 177,105
========================================== =========
</TABLE>
<TABLE>
<CAPTION>
Disclosure of Reclassification Amount: For the Nine Months For the Year
Ended September 30,2000 Ended December 31, 1999
<S> <C> <C>
Net Change of Unrealized Gains (Losses)
Arising During Period, Net of Tax
Expense (Benefit) of $8,425, ($7,655)
in 2000 and 1999, respectively $ 11,490 $ (10,550)
Less: Reclassification Adjustment for Losses
Included in Net Income, Net of Tax
(Expense) Benefit of $44 and $316 in
2000 and 1999, respectively 60 435
-------- ---------
Net Change of Unrealized (Losses) Gains on
Securities Net of Tax (Benefit ) Expense of
$8,381 and ($7,339) in 2000 and 1999,
respectively. $ 11,550 $ (10,115)
======== ==========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
------------------------------------------------------------------------------------
(In Thousands) 2000 1999
------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net Income $ 33,797 $ 21,073
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation 1,054 942
Net (Accretion)/Amortization of Premiums
on Securities (304) 1,037
Net Unrealized Holding Gains on Trading
Securities and Liabilities 948 -
Proceeds from Sale of Trading Securities 10,322 -
Gain on Sale of Trading Securities (8,754) -
Cash Purchases of Trading Securities (200) -
Accretion of Discount on Subordinated
Notes 98 98
Writedown on Real Estate Held for
Investment 1,272 1,087
(Benefit)Provision for Credit Losses (500) 3,500
Provision for Losses on Other Real
Estate Owned 389 900
Amortization of Deferred Loan Fees (2,799) (3,454)
Loss on Sale of Securities Available
for Sale 104 -
Gain on Sale of Other Real Estate Owned (1,593) (2,302)
Gain on Sale of Fixed Assets (7) (22)
Net (Increase)/Decrease in Accrued
Interest Receivable and Other Assets (6,820) (6,601)
Net Increase/(Decrease) in Accrued
Expenses and Other Liabilities 255 (29,112)
Other, net 1 348
---------- ----------
Net Cash Provided (Used) by Operating
Activities $ 27,263 $ (12,506)
---------- ----------
Investing Activities:
Purchases of Securities Available for
Sale (233,251) (256,267)
Proceeds from Maturities of Securities
Available for Sale 74,945 233,103
Proceeds from Maturities of Securities
Held to Maturity 203 23,224
Proceeds from Sales of Securities
Available for Sale 6,762 -
Net Increase in Loans and Leases (22,939) (142,249)
Proceeds from Sales of Other Real
Estate Owned 8,733 7,954
Capitalized Costs of Other Real
Estate Owned - (322)
Purchases of Premises and Equipment (1,114) (870)
Proceeds from Sales of Bank Premises
and Equipment 8 27
---------- ----------
Net Cash Used by Investing Activities (166,653) (135,400)
---------- ----------
Financing Activities:
Net Increase in Demand, Interest Bearing
Demand and Savings Deposits 168,653 55,346
Net Increase in Time Certificates of
Deposit 93,008 30,969
Net Increase in Federal Funds Purchased
and Securities Sold Under Agreements
to Repurchase - 15,000
Net Increase in Borrowings from the
Federal Home Loan Bank - 15,000
Stock Repurchase Program (3,473) (46,782)
Cash Dividends Paid (3,226) (2,990)
Proceeds from Exercise of Stock Options 2,345 451
Issuance of Stock 829 -
---------- ----------
Net Cash Provided by Financing Activities 258,136 66,994
---------- ----------
Net Change in Cash and Cash Equivalents 118,746 (80,912)
Cash and Cash Equivalents at Beginning
of Period 106,120 128,514
---------- ----------
Cash and Cash Equivalents at End of
Period $ 224,866 $ 47,602
========== ==========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During This Period for:
Interest $ 53,536 $ 41,405
Income Taxes 19,872 11,363
========== ==========
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 - 313
========== ==========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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 September 30, 2000 and the three and
nine months ended September 30, 2000 and 1999, reflect all
adjustments (which consist only of normal recurring
adjustments) necessary for a fair presentation. Operating
results for the nine months ended September 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 third quarter of 2000 was
$10,072,000 or $0.85 diluted earnings per share, compared to
$7,492,000, or $0.62 diluted earnings per share, for the
corresponding period of 1999. The $2,580,000 or 34.4%,
increase was mainly the result of the increase in net
interest income plus the reduction in the provision for
credit losses. The $0.23, or 37.1%, increase of the diluted
earnings per share was primarily the result of higher net
income.
For the nine months ended September 30, 2000, net
income totaled $33,797,000, an increase of $12,724,000, or
60.4%, from the $21,073,000 earned during the corresponding
period of 1999. Diluted earnings per share for the nine
months ended September 30, 2000 were $2.87 compared to $1.62
for the same period of 1999. The increase in net income was
primarily due to an increase in the net interest income, a
reduction of the provision for credit losses and higher non-
interest income. The above were partially offset by higher
non-interest expense. The $1.25, or 77.2%, increase of
diluted earnings per share is due to both the increase of
net income and a reduction of the average number of diluted
shares. The decrease of diluted shares is due primarily to
stock repurchases.
In October, 2000 and not included in the financial
results reported herein, a $1.4 million non-accrual loan was
paid off and a resulting $500,000 interest recovery was
recognized.
For the quarter ended September 30, 2000 and 1999, the
annualized return on average assets ("ROA") was 2.04% and
1.72%, respectively, and the annualized return on average
stockholders' equity ("ROE") was 25.2% and 22.2%,
respectively.
For the nine months ended September 30, 2000 and 1999,
the ROA was 2.40% and 1.66%, respectively, and the ROE was
30.7% and 18.7%, respectively.
RESULTS OF OPERATIONS
---------------------
Net Interest Income-Quarterly Results
-------------------------------------
For the quarter ended September 30, 2000 and 1999, net
interest income before the provision for credit losses was
$22,207,000 and $18,846,000, respectively, representing an
increase of $3,361,000, or 17.8%.
Total interest income for the quarter ended September
30, 2000 was $42,065,000, representing a $8,946,000, or
27.0%, increase from the corresponding quarter of a year
ago. The increase was due to both an increase of average
earning assets and the yield earned thereon. Average earning
assets increased $222.4 million, or 13.3%, from $1,673.0
million to $1,895.4 million for the quarter ended September
30, 1999 and 2000, respectively.
The $222.4 million growth of average earning assets was
comprised of increases of $106.5 million, $49.6 million and
$66.3 million for federal funds sold and securities
purchased under agreements to resell, securities and loans
and leases.
The yield on earning assets increased 98 basis points
from 7.85% during the third quarter of 1999 to 8.83% during
the corresponding period of 2000. The increase in the yield
on earning assets was the result of higher yields on all
categories of earning assets primarily due to increases in
the prime rate of interest. The most notable increase was
the yield on loans and leases, which increased 144 basis
points. The increase was primarily due to the 140 basis
point increase of the average prime rate of interest. The
average daily prime rate was 8.10% during the quarter ended
September 30, 1999 compared to 9.50% for the corresponding
quarter of 2000. Other factors contributing to the loan
yield increase included a reduced level of non-accrual loans
and the receipt of interest recoveries. During the quarter
ended September 30, 2000 and 1999, non-accrual loans
averaged $13.9 million and $40.8 million, respectively.
During the quarter ended September 30, 2000, there were net
interest recoveries of $656,000, primarily due to the pay-
off of a restructured loan and a non-accrual loan. For the
quarter ended September 30, 1999, there were net interest
income charge-offs of $175,000. An interest income charge-
off results when a loan becomes non-accrual and the accrued
interest is reversed.
The yield on federal funds sold and securities
purchased under agreements to resell was 6.79% and 5.34% for
the quarters ended September 30, 2000 and 1999,
respectively. The yield on securities was 6.85% and 6.19%
for the quarters ended September 30, 2000 and 1999,
respectively.
Total interest expense for the quarter ended September
30, 2000 was $19,858,000, representing a $5,585,000 or
39.1%, increase from the corresponding quarter of a year
ago. The increase was due to the increase of the cost of
funds of 96 basis points and increase of average interest
bearing liabilities of $179.4 million.
For the quarter ended September 30, 2000, the cost of
funds was 5.03% compared to 4.07% for the corresponding
period of a year ago. This increase was the result of an
increase in the rates paid on all interest bearing deposits,
which increased to 4.93% from 3.89% for the quarters ended
September 30, 2000 and 1999, respectively. The main reason
for the 104 basis point increase of the rates paid on
interest bearing deposits was the movement of the prime rate
of interest as discussed above. For the quarters ended as
indicated, the average balance and the rates paid for the
deposit products of General Bank (the "Bank") were as
follows:
<TABLE>
<CAPTION>
For the Quarter Ended September 30,
2000 1999
-----------------------------------
<S> <C> <C>
Interest bearing demand -
Average balance $ 405,272 $ 309,884
Rate 3.65% 2.60%
Savings - Average balance 71,075 85,612
Rate 2.45% 2.23%
Time certificates of deposit
of $100,000 or more - Average
balance 808,634 683,823
Rate 5.71% 4.56%
Other time deposits -
Average balance 196,460 220,502
Rate 5.24% 4.25%
</TABLE>
Partially offsetting the across-the-board increase of
the rates paid on deposits was a shift in the composition of
the average interest-bearing deposits. For the quarter ended
September 30, 2000 average interest-bearing demand and time
deposits represented 27.4% and 67.9% of total average
interest bearing deposits, respectively. For the quarter
ended September 30, 1999, average interest-bearing demand
and time deposits represented 23.8% and 69.6% of average
interest bearing deposits, respectively. Interest bearing
demand represents a lower costing source of interest bearing
deposits whereas time deposits represents the most expensive
source.
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 September
30, 2000 and 1999, the net interest spread was 3.80% and
3.78%, respectively, reflecting approximately the same
increase for both the yield on earning assets and the cost
of funds.
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 September 30, 2000 and 1999, the net interest
margin was 4.66% and 4.47%, respectively. The margin
increased more than the net interest spread due to a higher
percentage of average non-interest bearing sources funding
average interest earning assets. For the quarter ended
September 30, 2000 the total of average non-interest bearing
demand and stockholders' equity, excluding other
comprehensive income, was $366.0 million, or 19.3% of
average earning assets. For the quarter ended September 30,
1999 the total average non-interest bearing demand and
stockholders equity, excluding other comprehensive income,
was $308.0 million, or 18.4% of average earning assets.
Net Interest Income - Nine-Month Results
----------------------------------------
For the nine months ended September 30, 2000, net
interest income before the provision for credit losses was
$65,396,000, representing an $11,253,000, or 20.8%, growth
over the corresponding period of a year ago.
Total interest income for the nine months ended
September 30, 2000 was $119,693,000 compared to $95,576,000
for the corresponding period of a year ago. The
$24,117,000, or 25.2%, increase is the result of an increase
in the balance of average interest earning assets and an
increase of the yield earned thereon. Average interest
earning assets increased to $1,815.1 million for the nine
months ended September 30, 2000 from $1,650.9 million for
the corresponding period of a year ago, representing a
$164.2 million, or 9.9%, increase. The growth was
represented primarily by increases of $85.2 million and
$65.1 million for loans and leases and for federal funds
sold and securities purchased under agreements to resell,
respectively.
The yield on average earning assets increased 107 basis
points to 8.81% for the nine months ended September 30, 2000
from 7.74% for the corresponding period of a year ago. The
yields on all categories of earning assets increased with
the most notable increase being the yield on loans and
leases which increased from 9.29% to 10.79%. The year 2000
yield of 10.79% was impacted by significant interest
recoveries received in the year 2000 amounting to
$3,892,000. Excluding the interest recoveries , the yield on
loans and leases for the 9 months ended September 30, 2000
was 10.23%. There was no significant net interest charge-
offs / recoveries during the nine months ended September 30,
1999. The yield increase from 9.29% to 10.23% was primarily
the result of the prime rate increases. In addition, there
was a reduction of the balance of average non-accrual loans.
For the nine months ended September 30, 2000 and 1999,
average non-accrual loans were $19.0 million and $37.7
million, respectively, representing an $18.7 million or
49.8% decline.
The yield on federal funds sold and securities
purchased under agreements to resell was 6.47% and 5.11% for
the nine months ended September 30, 2000 and 1999,
respectively. The increase was the result of the 128 basis
point increase of the average prime rate of interest. The
yield on securities was 6.77% and 6.21% for the nine months
ended September 30, 2000 and 1999, respectively.
Total interest expense for the nine months ended
September 30, 2000, was $54,297,000 compared to $41,433,000
for the corresponding period of a year ago. The increase
of $12,864,000, or 31.0%, was due to both the 70 basis point
increase in the cost of funds from 4.09% to 4.79% and a
$161.5 million increase in average interest bearing
liabilities. The increase of the cost of funds is due to
rate increases in all the categories of interest bearing
deposits, resulting in a 76 basis point increase of the
rates paid on interest bearing deposits. The rate increase
is the result of the prime rate increases previously
discussed and the Company's intent to remain competitive in
the market place. A substantial portion of the growth of
interest bearing demand was the result of large deposits
from technology companies and venture capital funds in
northern California.
The average balance and the rates paid on deposit
categories for the nine months ended September 30, 2000 were
as follows:
<TABLE>
<CAPTION>
2000 1999
-------------------------
<S> <C> <C>
Interest bearing demand -
Average balance $ 385,637 $ 292,864
Rate 3.45% 2.47%
Savings - Average balance 75,716 82,253
Rate 2.47% 2.17%
Time certificates of deposit
of $100,000 or more -
Average balance 764,782 651,713
Rate 5.42% 4.60%
Other time deposits -
Average balance 198,813 238,522
Rate 4.97% 4.39%
</TABLE>
For the nine months ended September 30, 2000 and 1999,
the net interest spread was 4.02% and 3.65%, respectively,
representing a 37 basis point increase. Excluding the year
2000 interest recoveries, the net interest spread is 3.73%
representing an 8 basis point increase over the
corresponding period of a year ago.
For the nine months ended September 30, 2000 and 1999,
the net interest margin was 4.81% and 4.38%, respectively,
representing a 43 basis point increase. The net interest
margin excluding the year 2000 interest income recoveries
was 4.53% for the nine months of 2000, representing a 15
basis point increase.
Provision for Credit Losses
---------------------------
For the quarter ended September 30, 2000, a provision
for credit losses of $1,000,000, was recorded compared to
$1,500,000 provision for credit losses for the corresponding
quarter of a year ago. Net charge-offs of $0.4 million were
recorded in the quarter and non-accrual loans increased from
$12.6 million at June 30, 2000 to $15.6 million at September
30, 2000. After the review of the adequacy of the allowance
for credit losses as of September 30, 2000, a provision for
credit losses of $1.0 million was recorded in the third
quarter.
For the nine months ended September 30, 2000, there was
a negative provision for credit losses of $500,000. This
balance was the result of the third quarter charge and a
negative provision of $1,500,000 recorded in the second
quarter, due primarily to recoveries on loans previously
charged off. For the nine months ended September 30, 1999,
there was a $3,500,000 provision for credit losses.
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 September 30,
2000 totaled $2,620,000, representing a $460,000, or 21.3%,
increase compared to $2,160,000 for the quarter ended
September 30, 1999. The increase was primarily due to the
income from other investments of $658,000 recorded in the
third quarter of 2000. Income from other investments
includes the Company's partnership interests. These
interests include various venture capital funds that invest
in technology companies and a 10% equity interest in an
aircraft finance trust ("AFT"). These partnership interests
are accounted for using the equity method of accounting. The
interest in AFT was purchased on September 30, 1999.
For the nine months ended September 30, 2000, non-
interest income totaled $14,745,000 representing a
$8,790,000, or 148%, increase compared to $5,955,000 for the
nine months ended September 30, 1999. Non-interest income
increased primarily due to recognition of trading account
revenue of $7.8 million during the nine months ended
September 30, 2000. Trading account revenue was first
recognized in the fourth quarter of 1999.
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 whose fair value cannot be determined are carried
at their cost in other assets until the time they are
exercised and the underlying securities are received. If
there exists a readily determinable fair value for the
warrants, warrants will be categorized as securities
available for sale and marked to market through other
comprehensive income. The Company has received rights to
acquire stock in the form of warrants issued by 26 companies
as of September 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. As noted above the Company has
acquired interests in venture capital funds that invest in
technology companies. At September 30, 2000, there were
$16.6 million of commitments, and $7.5 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.
At November 7, 2000, there was $21.1 million of
potential pre-tax income from warrants whose underlying
equity securities are public but restricted-from-sale and
from undistributed shares of public companies currently held
by venture capital funds. $11.4 million is from the value of
warrants from public company whose shares are subject to a
lockup agreement expiring in December, 2000, and $8.9
million is from the value of warrants from a public company
whose shares are subject to a lockup agreement expiring in
April, 2001. This 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 are 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 September 30, 2000, non-
interest expense was $7,521,000, representing a $91,000, or
1.22%, increase from $7,430,000 for the corresponding period
of a year ago. The increase was primarily due to the
increase of salaries and employee benefits. The $672,000, or
13.4%, increase of salaries and employee benefits is
primarily the result of incentive compensation expense which
increased $233,000 and deferred compensation expense which
increased $203,000. The increase of salaries and employee
benefits was offset by an $868,000 increase of net other
real estate owned income. For both quarters this expense
category reflected income because of net gains on the sale
of OREO. For the quarter ended September 30, 2000 and 1999,
net gains on sale of OREO were $1,477,000 and $1,582,000,
respectively. However, for the quarter ended September 30,
1999, there was a $900,000 provision for write-down of OREO.
For the quarter ended September 30, 2000, there was no
provision for write-down.
For the quarter ended September 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 30.3% and 35.4%, respectively.
For the nine months ended September 30, 2000, non-
interest expense was $25,530,000 representing a $2,724,000,
or 11.9% increase from the $22,806,000 reported for the
corresponding period of a year ago. The net increase was
primarily due to the increase in salaries and employee
benefits which increased $2,415,000, or 16.7%. The reason
for the increase is as noted above. In addition, other
expense increased $461,000, or 8.80%. Included in other
expense is legal fees and real estate investment expense
which increased $190,000 and $185,000 respectively.
Partially offsetting the above increase was the
increase of net other real estate owned income, primarily
the result of the 1999 provision for loss write-down of
$900,000 as discussed above.
For the nine months ended September 30, 2000, the
Company's efficiency ratio declined to 31.9%, comparing
favorably to 38.0% 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 September 30, 2000 and 1999, the
provision for income taxes was $6,234,000 and $4,584,000,
respectively, representing effective tax rates of 38.2% and
38.0%
For the nine months ended September 30, 2000 and 1999,
the provision for income taxes was $21,314,000 and
$12,719,000, representing effective tax rates of 38.7% and
37.6%, respectively.
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
tax years ending December 31, 2000 and 1999.
FINANCIAL CONDITION
-------------------
As of September 30, 2000, the total assets were
$2,058.5 million, a $314.3 million increase, or 18.0%, from
$1,744.2 million, as of December 31, 1999. The balance of
total assets as of September 30, 2000 represents a record
level.
As of September 30, 2000, total deposits were $1,752.5
million, up $261.7 million, or 17.6%, from $1,490.8
million, as of December 31, 1999. Stockholders' equity was
$177.1 million, up $44.1 million, or 33.2% from $133.0
million, as of December 31, 1999.
Loans and Leases
----------------
As of September 30, 2000, total loans and leases were
$953.3 million compared to $926.0 million as of December 31,
1999, representing a $27.3 million, or 3.0% growth. This
also represented a record level for total loans and leases.
The loan growth from year-end 1999 was mainly due to
increases of $49.5 million in the commercial loan portfolio.
This growth was primarily in the trade financing area which
increased $35.2 million, reflecting a continuing 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 commercial loan growth,
was a $33.0 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,
1999) and other pay-offs during the nine months ended
September 30, 2000.
The following table sets forth the amount of loans and
leases outstanding by category and the percentage of each
category to the total loans and leases outstanding as of the
dates indicated:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
(In Thousands) Amount Percentage Amount Percentage
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 447,891 46.98% $ 398,379 43.02%
Real Estate - Construction 162,148 17.01% 195,133 21.07%
Real Estate - Conventional 302,361 31.72% 295,614 31.93%
Installment 5 N/A 11 N/A
Other Loans 23,901 2.51% 20,238 2.19%
Leveraged Leases 16,958 1.78% 16,582 1.79%
--------------------------------------------
Total $ 953,264 100.00% $ 925,957 100.00%
============================================
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) September 30, 2000 December 31, 1999
-----------------------------------------------------------------------------
<S> <C> <C>
Loans 90 Days or More Past Due
and Still Accruing $ 4,039 $ -
Non-accrual Loans 15,599 44,521
Total Past Due Loans 19,638 44,521
Restructured Loans (on Accrual
Status) 5,547 7,249
Total Non-performing and
Restructured Loans 23,710* 51,770
Other Real Estate Owned, Net 663 8,170
-----------------------------------------------------------------------------
Total Non-performing Assets $ 24,373 $ 59,940
-----------------------------------------------------------------------------
* Amount excludes $1,475 representing a credit included in
both the categories of loans 90 days or more past due and
still accruing and restructured loans.
</TABLE>
Total non-performing assets decreased to $24.4 million,
as of September 30, 2000, from $59.9 million, as of December
31, 1999, representing a $35.5 million, or 59.3%, decrease.
Loans 90 Days or More Past Due and Still Accruing
-------------------------------------------------
Three credits comprise the balance of loans 90 days
past due and still accruing. There is not anticipated any
loss of contractual principal or interest on any of these
loans.
Non-Accrual Loans
-----------------
As of September 30, 2000 non-accrual loans totaled
$15.6 million, a decrease of $28.9 million from year-end
1999. The pay off of Sunrise Suites which had a balance of
$30.9 million as of December 31, 1999, was primarily
responsible for the reduction. A $5.8 million commercial
loan was placed on non accrual during the quarter, resulting
in the $3.0 million increase of non-accrual loans from June
30, 2000.
In October, and not included in the financial results,
a $1.4 million non-accrual loan was repaid in full, and a
$0.5 million interest recovery will be recognized in the
fourth quarter, 2000.
The following table breaks out the Company's non-
accrual loans by category as of the dates indicated:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
(IN THOUSANDS) September 30, 2000 December 31, 1999
------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 14,187 $ 8,567
Real Estate- Construction 1,374 35,694
Real Estate- Conventional 38 221
Other Loans - 39
------------------------------------------------------------------------
Total $ 15,599 $ 44,521
------------------------------------------------------------------------
</TABLE>
The following table analyzes the change in non-accrual
loans during the nine months ended September 30, 2000:
<TABLE>
<CAPTION>
-----------------------------------------------------
Non-Accrual Loans (In Thousands)
-----------------------------------------------------
<S> <C>
Balance, December 31, 1999 $ 44,521
Add: Loans placed on non-accrual 14,951
Less: Charge-offs (802)
Returned to accrual status (2,013)
Repayments (41,058)
Transfer to OREO -
-----------------------------------------------------
Balance, September 30, 2000 $ 15,599
-----------------------------------------------------
</TABLE>
Restructured Loans
------------------
The balance of restructured loans as of September 30,
2000 was $5.5 million compared to $7.2 million as of
December 31, 1999, representing a $1.7 million, or 23.6%
decrease. The decline was primarily due to the pay-off in
full of $1.2 million of restructured loans during the second
quarter of 2000. A loan is categorized as restructured if
the original interest rate on such loan, the repayment
terms, or both, are modified due to a deterioration in the
financial condition of the borrower. Restructured loans may
also be put on a non-accrual status in keeping with the
Bank's policy of classifying loans which are 90 days past
due as to principal and/or interest. Restructured loans
which are non-accrual loans are not included in the balance
of restructured loans. As of September 30, 2000, two
restructured loans totaling $168,000 were on non-accrual
status and accordingly, were included in the balance of non-
accrual loans. As of September 30, 2000, restructured loans
excluding the two non-accrual loans consisted of seven loans
compared to eleven loans as of December 31, 1999. Included
in the balance of restructured loans is a $1,475,000 real
estate credit which is also included in loans 90 days or
more past due and still accruing. The weighted average
yield of the restructured loans was 10.55% as of September
30, 2000.
There are no commitments to lend additional funds on
any of the restructured loans.
Other Real Estate Owned
-----------------------
As of September 30, 2000, other real estate owned
("OREO"), net of valuation allowance of $1.2 million,
totaled $0.7 million, representing a decrease of $7.5
million, or 91.9%, from the net balance of $8.2 million, net
of valuation allowance of $3.0 million, as of December 31,
1999. During the third quarter ended September 30, 2000, an
OREO property with a net carrying value of $6.1 million, on
the books since the second quarter of 1999, was sold for
$7.5 million. As of September 30, 2000 and December 31,
1999, OREO consisted of 6 properties and 12 properties,
respectively.
The outstanding OREO properties are all physically
located in the Bank's market area. As of September 30, 2000,
with the exception of a retail facility, all outstanding
properties are represented by land. The Company intends to
enter into a partnership to develop one of the land
properties. There is no intent to develop the other
properties.
The following table sets forth OREO by property type as
of the dates indicated:
<TABLE>
<CAPTION>
----------------------------------------------------------------
September 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 - 8,550
--------------------------
Less: Valuation Allowance (1,224) (3,015)
--------------------------
Total $ 663 $ 8,170
==========================
</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 $17.5 million of outstanding impaired loans as of
September 30, 2000, $2.0 million are included in the balance
of restructured loans. The following table discloses
pertinent information as it relates to the Company's
impaired loans as of the dates indicated:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
(IN THOUSANDS) Sep. 30, 2000 Dec. 31, 1999
----------------------------------------------------------------------
<S> <C> <C>
Recorded Investment with Related
Allowance $ 13,542 $ 42,881
Recorded Investment with no
Related Allowance 3,943 4,003
Total Recorded Investment 17,485 46,884
Allowance for Impaired Loans 4,933 5,806
----------------------------------------------------------------------
</TABLE>
The $29.4 million decrease of the recorded investment
of impaired loans is due to the pay-off of Sunrise Suites
non-accrual loan as discussed above.
The average balance of impaired loans before the
allowance was $22.8 million for the nine months ended
September 30, 2000 and $46.5 million for the twelve months
ended December 31, 1999.
For the nine months ended September 30, 2000 and 1999,
interest income recognized on impaired loans was $472,000
and $499,000, respectively. Of the amount of interest income
recognized during the nine months ended September 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 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 September 30, 2000, the balance of the allowance
for credit losses was $21.0 million, representing 2.20% 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 total
allowance for credit losses (which amount includes the
specific allowance on impaired loans) for the nine-month
periods ended as indicated:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
(IN THOUSANDS) September 30, 2000 September 30, 1999
---------------------------------------------------------------------------
<S> <C> <C>
Balance, Beginning of Period $ 19,808 $ 19,381
Provision (Benefit) for Credit
Losses (500) 3,500
Charge-offs (1,008) (5,684)
Recoveries 2,718 2,348
Net Recoveries (Charge-offs) 1,710 (3,336)
Balance, End of Period $ 21,018 $ 19,545
---------------------------------------------------------------------------
</TABLE>
As of September 30, 2000, the allowance represents
88.6% and 135% 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
and restructured loans and of non-accrual loans,
respectively.
The provision for credit losses is an 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
determining the amount of the allowance for credit losses.
The balance of the allowance for credit losses is an
accounting estimate of probable but unconfirmed losses in
the Bank's loan portfolio as of September 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 non-performing
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
September 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.
Common shares of companies 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. Warrants that have a
readily determinable fair value are categorized as available
for sale securities and marked to market through other
comprehensive income.
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 reported in other comprehensive income.
As of September 30, 2000, the Company recorded net
unrealized holding gains of $5,647,000 on its available-for-
sale portfolio. Accumulated other comprehensive income has
been increased by $3,273,000 representing the net
unrealized holding gain, net of tax.
The net unrealized holding gains of $5,647,000 is
attributed to the valuation of warrants included in
securities available for sale which had a fair value of
$17.5 million in excess of the cost. Excluding the warrant,
as of September 30, 2000 net unrealized losses before taxes
was $11.8 million.
The amortized cost, gross unrealized gains, gross
unrealized losses and fair value of securities at September
30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Gross Gross
(In Thousands) Amortized Unrealized Unrealized Fair
September 30, 2000 Cost Gains Losses Value
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to Maturity
U.S. Government Agencies $ 1,097 $ - $ (61) $ 1,036
-----------------------------------------------
Total $ 1,097 $ - $ (61) $ 1,036
==============================================
Securities Available for Sale
U.S. Government Agencies $ 20,847 $ - $ (38) $ 20,809
Mortgage Backed Securities 168,429 - (3,367) 165,062
Commercial Mortgage Backed
Securities 70,417 791 - 71,208
Corporate Notes 93,768 - (3,757) 90,011
Collateralized Mortgage
Obligations 175,500 - (2,989) 172,511
Asset Backed Securities 317,010 - (2,485) 314,525
Other Securities 3,273 17,492 - 20,765
-----------------------------------------------
Total $ 849,244 $ 18,283 $ (12,636) $ 854,891
==============================================
Trading Account Securities
Equity Issues $ - $ - $ - $ 253
-----------------------------------------------
$ - $ - $ - $ 253
==============================================
</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. 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
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 nine months ended September 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 nine months ended
September 30, 1999. There were no sales of securities held
to maturity during the nine months ended September 30, 2000
and 1999.
In the fourth quarter, the market price of a corporate
debt issue declined. As of November 7, 2000 there was an
unrealized loss of $5.4 million. As of September 30, 2000
$15 million of bonds was included in the available-for-sale
portfolio with a mark to market loss of a $4.0 million
included in other comprehensive income.
Other Investments
-----------------
As of September 30, 2000, other investments totaled
$15.5 million. Included in the balance is $7.5 million of
investments in various venture capital funds which in turn
invest in technology companies. As of September 30, 2000
undisbursed commitments to invest in these various funds
totaled $8.6 million. 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 $7.6
million as of September 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 $1,752.5 million as of
September 30, 2000, representing an $261.7 million, or
17.6%, increase from total deposits of $1,490.8 million as
of December 31, 1999. The growth for the nine months ended
September 30, 2000, was primarily due to increases in
interest bearing demand, which grew $153.3 million, or
47.4%. As previously noted, 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. Time certificates deposit of $100,000
or more reflected an increase of $105.7 million, or 14.8%,
and reflects the competitive rate offering for these
deposits. The growth of the above mentioned deposit
categories was partially offset by a $12.7 million and $10.0
million decline of other time deposits and savings,
respectively.
As of September 30, 2000 and December 31, 1999, there
were no brokered deposits outstanding. The Company believes
that the majority of its deposit customers has 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, historically, the depositors have
generally renewed their deposits upon 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 September 30, 2000, is as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------
(IN THOUSANDS)
---------------------------------------------------
<S> <C>
3 Months or Less $ 481,709
Over 3 Months Through 6 Months 194,529
Over 6 Months Through 12 Months 122,134
Over 12 Months 19,686
---------------------------------------------------
Total $ 818,058
---------------------------------------------------
</TABLE>
Other Borrowings
----------------
As of September 30, 2000, the Company has two sources
of outstanding 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 equal to 25
percent of its assets. The following describes the four
outstanding advances as of September 30, 2000:
<TABLE>
<CAPTION>
------------------------------------------------------------------
Maturity Amount Fixed Rate of Interest
(In Thousands)
------------------------------------------------------------------
<S> <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
September 30, 2000 has a composite fixed rate of interest of
4.85%.
Forward Sales-Equity Securities
-------------------------------
As of September 30, 2000, there were no forward sales
contracts outstanding.
Capital Resources
-----------------
As of September 30, 2000, stockholders' equity totaled
$177.1 million, an increase of $44.1 million, or 33.1%, 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 33,797
Cash Dividends (3,349)
Change in Securities Valuation, Net of Tax 11,550
Stock Issuance (Includes $1,571 cost of shares
held in Trust for Deferred Compensation) 4,747
Tax Benefits related to Exercise of Stock Options 795
------------------------------------------------------------------
Balance as of September 30, 2000 $ 177,105
------------------------------------------------------------------
</TABLE>
As indicated above, the change in securities valuation,
net of tax, of $11.6 million was due to the warrant, carried
at fair value as of September 30, 2000.
Capital ratios for the Company and for the Bank were as
follows as of the dates indicated:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Well-Capitalized Sept. 30, December 31,
Standards 2000 1999
----------------------------------------------------------------------------
<S> <C> <C> <C>
GBC Bancorp
Tier 1 Leverage Ratio 5% 8.78% 8.06%
Tier 1 Risk-Based Capital Ratio 6% 9.60% 9.07%
Total Risk-Based Capital Ratio 10% 13.36% 12.83%
General Bank
Tier 1 Leverage Ratio 5% 9.92% 9.58%
Tier 1 Risk-Based Capital Ratio 6% 10.93% 10.82%
Total Risk-Based Capital Ratio 10% 12.10% 12.07%
----------------------------------------------------------------------------
</TABLE>
For the nine months ended September 30, 2000, the ratio
of the Company's average stockholders' equity to average
assets was 7.81%. 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
September 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. 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 $870.7
million, or 42.3% of total assets, as of September 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
currently equal to 25 percent of assets with terms up to 360
months. As of September 30, 2000, the Company has $50
million outstanding under this financing facility
representing 2.43% of total assets. Management believes its
liquidity sources to be stable and adequate.
As of September 30, 2000, total loans and leases
represented 54.4% of total deposits. This compares to 57.8%
and 62.1% as of June 30, 2000 and December 31, 1999,
respectively.
The liquidity of the parent company, GBC Bancorp
("GBC"), 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 nine months ended
September 30, 2000, the Bank declared cash dividends of $6.9
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 September 30, 2000, there was a cumulative one-
year negative "gap" of $672.8 million, compared to a one-
year negative gap of $591.4 million as of December 31, 1999.
The following table indicates the Company's interest
rate sensitivity position as of September 30, 2000, and is
based on contractual maturities. It may not be reflective
of positions in subsequent periods:
<TABLE>
<CAPTION>
Interest Sensitivity Period
-------------------------------------------------------------------------------------
0 to 90 91 to 365 Over 1 Year Over Non-Interest
(In Thousands) Days Days to 5 Years 5 Years Earning/Bearing Total
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Securities Available for Sale $ 9,239 $ - $ 149,878 $ 678,282 $ 17,492 $ 854,891
Securities Held to Maturity - - 1,097 - - 1,097
Trading Account Securities - - - - 253 253
Federal Funds Sold &
Securities Purchased Under
Agreement to Resell 176,500 - - - - 176,500
Loans and Leases (1)(2) 687,491 23,542 112,724 113,908 - 937,665
Non-Earning Assets (2) - - - - 88,125 88,125
-------------------------------------------------------------------------------------
Total Earning Assets $ 873,230 $ 23,542 $ 263,699 $ 792,190 $ 105,870 $2,058,531
=====================================================================================
Source of Funds for Assets:
Deposits:
Demand - N/B $ - $ - $ - $ - $ 200,183 $ 200,183
Interest Bearing Demand 476,714 - - - - 476,714
Savings 68,010 - - - - 68,010
TCD'S Under $100,000 84,627 96,851 8,029 - - 189,507
TCD'S $100,000 and Over 481,708 316,663 19,687 - - 818,058
-------------------------------------------------------------------------------------
Total Deposits $1,111,059 $ 413,514 $ 27,716 $ - $ 200,183 $1,752,472
=====================================================================================
Borrowings from the Federal
Home Loan Bank $ 25,000 $ 20,000 $ 5,000 $ - $ - $ 50,000
Subordinated Debt - - - 39,105 - 39,105
Other Liabilities - - - - 39,849 39,849
Stockholders' Equity - - - - 177,105 177,105
-------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $1,136,059 $ 433,514 $ 32,716 $ 39,105 $ 417,137 $2,058,531
=====================================================================================
Interest Sensitivity Gap $ (262,829) $ (409,972) $ 230,983 $ 753,085 $(311,267)
Cumulative Interest
Sensitivity Gap $ (262,829) $ (672,801) $(441,818) $ 311,267 $ -
Gap Ratio (% of Total
Assets) -12.8% -19.9% 11.2% 36.6% -15.1%
Cumulative Gap Ratio -12.8% -32.7% -21.5% 15.1% 0.0%
(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.
</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 September 30, 2000:
<TABLE>
<CAPTION>
Interest Sensitivity Period
-------------------------------------------------------------------
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 $ 36,383 $ 80,941 $ 584,607 $ 135,468 $ 837,399
Securities Held to Maturity 1,097 - - - 1,097
Federal Funds Sold &
Securities Purchased Under
Agreements to Resell 176,500 - - - 176,500
Loans and Leases (1) 687,491 23,542 112,724 113,908 937,665
-------------------------------------------------------------------
Total Interest-earning Assets $ 901,471 $ 104,483 $ 697,331 $ 249,376 $ 1,952,661
==================================================================
Interest-sensitive Liabilities:
Deposits:
Interest Bearing Demand $ 16,256 $ 48,771 $ 316,972 $ 94,715 $ 476,714
Savings 2,267 6,801 45,340 13,602 68,010
Time Deposit of Certificates 566,335 413,514 27,716 - 1,007,565
-------------------------------------------------------------------
Total Deposits $ 584,858 $ 469,086 $ 390,028 $ 108,317 $ 1,552,289
==================================================================
Federal Funds Purchased
& Securities Sold Under
Repurchsed Agreements $ - $ - $ - $ - $ -
Borrowing from FHLB 25,000 20,000 5,000 - 50,000
Subordinated Debt - - - 39,105 39,105
-------------------------------------------------------------------
Total Interest-sensitive
Liabilities $ 609,858 $ 489,086 $ 395,028 $ 147,422 $ 1,641,394
==================================================================
(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 September
30, 2000:
<TABLE>
<CAPTION>
Net Interest Market Value of
Change in Interest Income Volatility Portfolio Equity Volatility
Rates (Basis Points) September 30, 2000 (1) September 30, 2000 (2)
----------------------------------------------------------------------------
<S> <C> <C>
+200 -2.08% -10.65%
+100 -1.06% -5.46%
-100 -1.23% +5.12%
-200 -3.66% +8.41%
(1) The percentage change in this column represents the change in net
interest income for 12 months under various rate scenarios.
(2) The percentage change in this column represents the change in net
portfolio equity value of the Bank under 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.
Forward-Looking Statements
--------------------------
Certain statements contained herein, including, without
limitation, statements containing the words "believes,"
"intends," "should", "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 Interest Rate Sensitivity, Market Risk, and
Recent Accounting 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 (i.e., 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. If FASB Statement No. 133 were implemented on
October 1,2000, the fair value of the warrant whose lock up
expires on April 3, 2001 might be recognized.
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 FASB No. 133, "Accounting for Derivative Instruments
and Hedging Activities". FASB 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.
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 September 30, 2000.
Item 3. DEFAULT UPON SENIOR SECURITIES
---------------------------------------
This item is not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
------------------------------------------------------------
HOLDERS
-------
No matters were submitted to a vote of security holders
during the quarter ended September 30, 2000.
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)
Li-Pei Wu
Dated: __________________ s/ ______________________
Li-Pei Wu, Chairman and
Chief Executive Officer
Peter Lowe
Dated: ___________________ s/ _______________________
Peter Lowe, Executive
Vice President and
Chief Financial Officer
