-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K+xSljNUT/4Id+rwPCIHEPeNqfgSigEiJx+8ZsKwb/XJZsKjGofjMghxWnksYdrv cJTwWzJQ3+bJj88/c7rwJQ== 0000351710-97-000007.txt : 19970515 0000351710-97-000007.hdr.sgml : 19970515 ACCESSION NUMBER: 0000351710-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GBC BANCORP CENTRAL INDEX KEY: 0000351710 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953586596 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10731 FILM NUMBER: 97603329 BUSINESS ADDRESS: STREET 1: 800 W. 6TH STREET STREET 2: 15TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90017 BUSINESS PHONE: 2139724172 MAIL ADDRESS: STREET 1: 800 W. 6TH ST STREET 2: 15TH FL CITY: LOS ANGELES STATE: CA ZIP: 90017 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------- Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 ------------- For Quarter Ended March 31, 1997 Commission file number 0-16213 -------------- ---------- GBC BANCORP - ------------------------------------------------------------------ (Exact name of registrant as specified in its charter) California 95-3586596 - ------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 800 West 6th Street, Los Angeles California 90017 - ----------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code 213/972- 4172 --------------- - ----------------------------------------------------------------- Former name address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------------ ------------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Common stock, no par value, 6,786,589 shares issued and ------------------ outstanding as of March 31, 1997. ------------------ TABLE OF CONTENTS PART I FINANCIAL INFORMATION....................... Item 1. Financial Statements................ Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. PART II OTHER INFORMATION........................... Item 1. Legal Proceedings................... Item 2. Changes In Securities............... Item 3. Default Upon Senior Securities...... Item 4. Submission Of Matters To A Vote Of Securities Holders ................. Item 5. Other Information................... Item 6. Exhibits And Reports On Form 8-K.... PART III SIGNATURES.............................. PART I - FINANCIAL INFORMATION GBC BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, (In Thousands) 1997 1996 - --------------------------------------------------------------------------- ASSETS Cash and Due From Banks $ 43,285 $ 46,809 Federal Funds Sold and Securities Purchased Under Agreements to Resell 110,000 140,200 Securities Available for Sale at Fair Value (Amortized Cost of $545,395 and $518,701 at March 31, 1997 and December 31, 1996, Respectively) 541,739 519,821 Securities Held to Maturity (Fair Value of $12,061 and $12,463 at March 31, 1997 and December 31, 1996, Respectively) 11,981 12,274 Loans and Leases 610,798 602,354 Less: Allowance for Credit Losses (15,206) (16,209) Deferred Loan Fees (3,434) (3,638) ---------- ---------- Loans and Leases, Net 592,158 582,507 Bank Premises and Equipment, Net 5,646 5,806 Other Real Estate Owned, Net 15,866 12,988 Due From Customers on Acceptances 6,610 6,535 Real Estate Held for Investment 9,355 9,686 Accrued Interest Receivable and Other Assets 16,937 15,489 ---------- ---------- Total Assets $1,353,577 $1,352,115 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-Interest Bearing Demand $133,891 $158,728 Interest Bearing Demand 223,118 213,697 Savings 117,960 119,315 Time Certificates of Deposit of $100,000 or More 550,421 545,578 Other Time Deposits 174,530 164,195 ---------- ---------- Total Deposits $1,199,920 $1,201,513 Subordinated Debt 15,000 15,000 Acceptances Outstanding 6,610 6,535 Accrued Expenses and Other Liabilities 12,787 12,431 ---------- ---------- Total Liabilities $1,234,317 $1,235,479 Stockholders' Equity: Common Stock, No Par or Stated Value; 20,000,000 Shares Authorized; 6,786,589 and 6,766,469 Shares Outstanding at March 31, 1997 and December 31, 1996, Respectively $47,729 $47,281 Securities Valuation Allowance, Net of Tax (2,108) 646 Retained Earnings 73,646 68,716 Foreign Currency Translation Adjustments (7) (7) Total Stockholders' Equity 119,260 116,636 ---------- ---------- Total Liabilities and Stockholders' Equity $1,353,577 $1,352,115 ========== ==========
See Accompanying Notes to Consolidated Financial Statements GBC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, (In Thousands, Except Per Share Data) 1997 1996 - -------------------------------------------------------------------------- INTEREST INCOME Loans and Leases, Including Fees $15,293 $12,279 Securities Available for Sale 8,288 8,117 Securities Held to Maturity 259 648 Federal Funds Sold and Securities Purchased under Agreements to Resell 1,894 2,240 ------- ------- Total Interest Income 25,734 23,284 ------- ------- INTEREST EXPENSE Interest Bearing Demand 1,158 1,144 Savings 764 931 Time Deposits of $100,000 or More 6,777 5,678 Other Time Deposits 1,950 2,178 Federal Funds Purchased and Securities Sold under Repurchase Agreements 2 336 Subordinated Debt 399 399 ------- ------- Total Interest Expense 11,050 10,666 ------- ------- Net Interest Income 14,684 12,618 Provision for Credit Losses 1,000 1,500 ------- ------- Net Interest Income after Provision for Credit Losses 13,684 11,118 NON-INTEREST INCOME Service Charges and Commissions 1,342 1,548 Gain on Sale of Loans, Net 50 85 Gain on Sale of Real Estate Investment - 101 Other 132 98 ------- ------- Total Non-Interest Income 1,524 1,832 NON-INTEREST EXPENSE Salaries and Employee Benefits 3,769 3,386 Occupancy Expense 694 675 Furniture and Equipment Expense 420 396 Net Other Real Estate Owned Expense 243 487 Other 1,664 1,644 ------- ------- Total Non-Interest Expense 6,790 6,588 Income before Income Taxes 8,418 6,362 Provision for Income Taxes 2,674 2,053 ------- ------- Net Income $5,744 $4,309 Earnings Per Share $0.82 $0.62
See Accompanying Notes to Consolidated Financial Statements GBC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, (In Thousands, Except Per Share Data) 1997 1996 - -------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Income $5,744 $4,309 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 294 273 Net Accretion of Discounts on Securities (59) (638) Writedown on Real Estate Held for Investment 332 429 Provision for Credit Losses 1,000 1,500 Provision for Losses on Other Real Estate Owned - 400 Amortization of Deferred Loan Fees (850) (730) Deferred Income Taxes - - Gain on Sale of Loans (50) (85) Gain on Sale of Real Estate Investment - (101) Loss/(Gain) on Sale of Other Real Estate Owned 24 (11) Loans Originated for Sale (7,660) (15,204) Proceeds from Sales of Loans Originated for Sale 7,965 15,321 Net Decrease in Accrued Interest Receivable and Other Assets 574 519 Net Increase/ (Decrease) in Accrued Expenses and Other Liabilities 219 (2,468) Other, Net (1) - --------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES $7,532 $3,514 INVESTING ACTIVITIES: Purchases of Securities Available for Sale (149,273) (322,317) Proceeds from Maturities of Securities Available for Sale 122,624 193,928 Proceeds from Maturities of Securities Held to Maturity 307 3,384 Net Increase in Loans and Leases (13,481) (18,124) Proceeds from Sales of Other Real Estate Owned 523 1,063 Proceeds from Sales of Real Estate Investments - 699 Purchases of Premises and Equipment (134) (399) --------- -------- NET CASH USED BY INVESTING ACTIVITIES $(39,434) $(141,766) FINANCING ACTIVITIES: Net (Decrease)/Increase in Demand, Interest Bearing Demand and Savings Deposits (16,771) 53,373 Net Increase in Time Certificates of Deposits 15,178 109,190 Cash Dividend Paid (677) (536) Proceeds from Exercise of Stock Options 448 276 --------- -------- NET CASH (USED)/PROVIDED BY FINANCING ACTIVITIES $(1,822) $162,303 --------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS (33,724) 24,051 Cash and Cash Equivalents at Beginning of Period 187,009 163,837 --------- -------- Cash and Cash Equivalents at End of Period $153,285 $187,888 --------- -------- Supplemental Disclosures of Cash Flow Information: Cash Paid During This Period Interest $11,568 $10,898 Income Taxes - 1,500 Noncash Investing Activities: Loans Transferred to Other Real Estate Owned at Fair Value $3,425 $4,481 Loans to Facilitate the Sale of Other Real Estate Owned - 262
See Accompanying Notes to Consolidated Financial Statements. GBC Bancorp and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In the opinion of management, the consolidated financial statements of GBC Bancorp and its subsidiaries (the "Company") as of March 31, 1997 and December 31, 1996 and the three months ended March 31, 1997 and 1996, reflect all adjustments (which consist only of normal recurring adjustments) necessary for a fair presentation. In the opinion of management, the aforementioned financial statements are in conformity with general accepted accounting principles. Earnings Per Share Earnings per share are computed based on the weighted average shares outstanding including common stock equivalents for the periods disclosed. Consolidated Statements of Cash Flows Cash and cash equivalents consist of cash and due from banks, and federal funds sold and securities purchased under agreements to resell. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW For the quarter ended March 31, 1997, net income totaled $5,744,000, an increase of $1,435,000, or 33.3% from the $4,309,000 earned during the corresponding period of 1996. Earnings per share for the quarter ended March 31, 1997 were $0.82 per share compared to $0.62 per share for the same period of 1996. The net income for the quarter ended March 31, 1997 continues the trend of the highest quarterly net income in the Company's history, the current quarter representing the fifth consecutive quarter of record-setting net income. The increase over the corresponding period of a year ago is primarily due to an increase of net interest income and a reduced provision for credit losses. The increase of net interest income was due to both an increase of average earning assets and an increase in the net interest spread. The net interest spread is defined as a yield on earning assets less the rates paid on interest bearing liabilities. The decline of the provision for credit losses in 1997 was caused by the reduction of non-accrual loans, which were $9.1 million as of March 31, 1997, as compared to $27.5 million as of March 31, 1996. It also is a reflection of the improvement of the Southern California economy, in general, and the quality of the Bank's real estate loan portfolio, in particular. The annualized return on average assets ("ROA") for the Company was 1.73% and 1.38% for the quarters ended March 31, 1997 and 1996, respectively. The annualized return on average stockholders' equity ("ROE") for the quarters ended March 31, 1997 and 1996 was 19.55% and 17.06%, respectively. The improvement of these ratios is the result of the increased profitability of the Company. RESULTS OF OPERATIONS Net Interest Income Net interest income before the provision for loan losses for the quarter ended March 31, 1997 amounted to $14,684,000, an increase of $2,066,000, or 16.4%, from $12,618,000 for the same period of 1996. Total interest income for the three months ended March 31, 1997 was $25,734,000 compared to $23,284,000 for the corresponding period of a year ago. The increase of $2,450,000, or 10.5%, was due to an increase of average earning assets and an increased yield on earning assets. For the quarter ending March 31, 1997 and 1996, average earning assets were $1,276 million and $1,194 million, respectively, representing an $82 million, or 6.9%, growth. For the quarters ending March 31, 1997 and 1996, the yield on earning assets was 8.18% and 7.84%, respectively, representing a 34 basis point increase. The $82 million net growth of average earning assets was the result of $133 million increase of average loans and leases, offset by reductions of average securities and federal funds sold and securities purchased under agreements to resell, of $28 million and $23 million, respectively. The net growth of $82 million was primarily funded by the growth of interest-bearing deposits which increased $83 million and average non-interest bearing deposits which increased $10 million. The growth in average deposits was partially offset by the maturity of $24 million of securities sold under repurchase agreements. The increase in the yield on earning assets was caused by the increased percentage of average accruing loans to average total earning assets, a decline in average non- accrual loans, and an increase in the yield on securities. The percentage of average accruing loans to average total earning assets for the quarter ended March 31, 1997 and 1996 was 42% and 35%, respectively. Average non-accrual loans for the quarter ended March 31, 1997 and 1996 were $11.8 million and $45.6 million, respectively. The yield on the securities portfolio increased to 6.40% from 6.26% for the quarters ended March 31, 1997 and 1996, respectively. Total interest expense for the quarter ended March 31, 1997 was $11,050,000 compared to $10,666,000 for the corresponding period of a year ago. The increase of $384,000, or 3.6%, was due to a $59.4 million growth of average interest-bearing liabilities. The impact of this increase of interest-bearing liabilities on interest expense was partially offset by a decrease of the rates paid to 4.18% from 4.24% for the quarters ended March 31, 1997 and 1996, respectively. The maturity of securities sold under repurchase agreements contributed towards the reduction of the rate paid on interest-bearing liabilities. The rates paid on interest-bearing deposits was 4.09% for the quarter ended March 31, 1997, compared to 4.10% for the corresponding quarter of a year ago, a decrease of one basis point. While the higher costing average time certificates of deposit of $100,000 or more increased as a percentage of average total interest-bearing deposits (52% compared to 45%), this was offset by the decline in the rates paid on this deposit product. For the quarters ended March 31, 1997 and 1996, the rate paid on time certificates of deposit of $100,00 or more were 5.00% and 5.22%, respectively. The net interest spread is defined as the yield on earning assets less the rates paid on interest bearing liabilities. Benefiting from both the increased yield on earning assets and the slight decrease in the rates paid on interest bearing liabilities, the net interest spread increased. For the quarter ended March 31, 1997 and 1996, the spread was 4.00% and 3.60%, respectively. The net interest margin is defined as the difference between interest income and interest expense divided by average earning assets. For the quarter ended March 31, 1997 and 1996, the net interest margin was 4.67% and 4.25%, respectively. The increase in the margin is primarily the result of the increased net interest spread. Provision for Credit Losses For the quarter ended March 31, 1997, the provision was $1,000,000, compared to $1,500,000 for the same period of 1996, a decrease of $500,000, or 33.3%. The decline of the provision for credit losses in 1997 was primarily caused by the reduction of non-accrual loans. As of March 31, 1997, non-accrual loans outstanding totaled $9.1 million. As of March 31, 1996, non-accrual loans totaled $27.5 million. The decline of the provision also is a reflection of the improvement of the Southern California economy, in general, and the quality of the Bank's real estate loan portfolio, in particular. The amount of the provision for credit losses is determined by management and is based upon the quality of the loan portfolio, management's assessment of the economic environment, evaluations made by regulatory authorities, historical loan loss experience, collateral values, assessment of borrowers' ability to repay, and estimates of potential future losses. Please refer to the discussion "Allowance for Credit Losses", following. Non-Interest Income Non-interest income for the quarter ended March 31, 1997 totaled $1,524,000 compared to $1,832,000 for the same period ended March 31, 1996. The net decrease of $308,000, or 16.8%, was primarily attributable to the receipt of a $400,000 fee in exchange for which the Bank released a guarantor of a real estate loan, in the quarter ended March 31, 1996. In addition, during the first quarter ended March 31, 1996 the Bank recorded a $101,000 gain on the sale of the final condominium unit of a real estate investment project. Non-Interest Expense Non-interest expense for the quarter ended March 31, 1997 totaled $6,790,000, a $202,000, or 3.1%, increase over the $6,588,000 recorded in the same period of 1996. The increase is primarily due to higher salaries and a higher incentive expense. The Bank's incentive expense is a function of the higher level of pre-tax income. The Company's efficiency ratio, defined as non-interest expense divided by the sum of net interest income plus non-interest income, improved, declining to 41.9% for the quarter ended March 31, 1997 from 45.6% for the corresponding quarter of a year ago. Provision for Income Taxes For the quarter ended March 31, 1997 the provision for income taxes was $2,674,000, representing 32% of pre-tax income. The provision is based on anticipated annual 1997 pre-tax income and the annual accrual of tax credits from the Bank's low income housing investments. The provision for the quarter ended March 31, 1996 was $2,053,000, also representing 32% of pre-tax income. FINANCIAL CONDITION Total assets as of March 31, 1997, were $1,354 million, a slight increase from total assets of $1,352 million as of December 31, 1996. Total deposits, however, decreased slightly from year-end. As of March 31, 1997 and December 31, 1996, total deposits were $1,200 million and 1,202 million, respectively. The increased assets were primarily funded by the profitable operations during the first quarter. Loans As of March 31, 1997, total loans and leases were $611 million, representing a $9 million, or 1.5%, increase from total loans and leases of $602 million as of December 31, 1996. The net increase was primarily from the growth of trade-financing loans of $10.4 million which are included in unsecured commercial loans. The growth of this category of loan reflects the growth in international trade resulting primarily from new customer relationships. Real estate- construction loans increased $2.3 million, or 3.5%. However, real estate-conventional loans decreased $3.9 million, or 1.4%, primarily due to the transfer of non- accrual loans to other real estate owned ("OREO") status. The $6.7 million growth of other loans is primarily attributable to a $4.0 million increase in cash collateralized commercial loans. The following table sets forth the amount of loans and leases outstanding by category and the percentage of each category to the total loans and leases outstanding:
March 31, 1997 December 31, 1996 (IN THOUSANDS) Amount Percentage Amount Percentage - ------------------------------------------------------------ Commercial $191,575 31.36% $183,268 30.43% Real Estate - Construction 68,907 11.28% 66,572 11.05% Real Estate - Conventional 268,880 44.02% 273,081 45.34% Installment 98 0.02% 86 0.01% Other Loans 29,067 4.76% 22,361 3.71% Leveraged Leases 7,271 1.19% 6,986 1.16% Term Fed Funds Sold 45,000 7.37% 50,000 8.30% - ------------------------------------------------------------ Total $610,798 100.00% $602,354 100.00%
Non-performing Assets A certain degree of risk is inherent in the extension of credit. Management believes that it has credit policies in place to minimize the level of loan losses and non- performing loans. The Company performs a quarterly assessment of the credit portfolio to determine the appropriate level of the allowance. Included in the assessment is the identification of loan impairment. A loan is identified as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. Loan impairment is measured by estimating the expected future cash flows and discounting them at the respective effective interest rate or by valuing the underlying collateral. The Company has a policy of classifying loans (including impaired loans) which are 90 days past due as to principal and/or interest as non-accrual loans unless management determines that the fair value of underlying collateral is substantially in excess of the loan amount or circumstances justify treating the loan as fully collectible. After a loan is placed on non-accrual status, any interest previously accrued, but not yet collected, is reversed against current income. A loan is returned to accrual status only when the borrower has demonstrated the ability to make future payments of principal and interest as scheduled, and the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms. Interest received on non-accrual loans generally is either applied against principal or reported as recoveries on amounts previously charged-off, according to management's judgment as to the collectibility of principal. The following table provides information with respect to the Company's past due loans, non-accrual loans, restructured loans and other real estate owned, net, as of the dates indicated:
(IN THOUSANDS) March 31, 1997 December 31, 1996 - ---------------------------------------------------------------- Loans 90 Days or More Past Due and Still Accruing $ 5,109 $ 6,779 Non-accrual Loans 9,096 11,719 - ---------------------------------------------------------------- Total Past Due Loans 14,204 18,498 Restructured Loans (on Accrual Status) 22,240 23,125 - ---------------------------------------------------------------- Total Non-performing Loans 36,444 41,623 Other Real Estate Owned, Net 15,866 12,988 - ---------------------------------------------------------------- Total Non-performing Assets $52,311 $54,611
Total non-performing assets declined $2.3 million to $52.3 million, as of March 31, 1997, from $54.6 million, as of December 31, 1996. With the exception of other real estate owned, net, all categories of non-performing assets reflected declines from their levels as of December 31, 1996. Loans 90 days or more past due and still accruing declined $1.7 million from December 31, 1996, and is comprised of one credit. This credit is collaterized by a mobile home park with an appraised value substantially in excess of the loan balance. Interest payments continue to be made on a monthly basis approximately 45 days late. It is expected that either the property will be sold by the borrower with the bank providing financing or it will be paid in full within 45 days. Non-accrual loans declined to $9.1 million as of March 31, 1997 from $11.7 million as of December 31, 1996, representing a $2.6 million, or 22.2%, decrease. The following table analyzes the decline in non-accrual loans during the three months ended March 31, 1997:
Non-Accrual Loans (In Thousands) Balance, December 31, 1996 $11,719 Add: Loans placed on non-accrual 5,259 Less: Charge-offs (889) Returned to accrual status (1,681) Repayments (1,903) Transfer to OREO (3,410) -------- Balance, March 31, 1997 $9,096 --------
The following table breaks out the Company's non- accrual loans by category as of March 31, 1997 and December 31, 1996:
(IN THOUSANDS) March 31, 1997 December 31, 1996 - --------------------------------------------------------------- Commercial $ 3,508 $ 3,219 Real Estate- Construction 700 477 Real Estate- Conventional 4,888 8,023 - --------------------------------------------------------------- Total $9,096 $11,719
The balance of restructured loans as of March 31, 1997, was $22.2 million compared to $23.1 million as of December 31, 1996, representing a $0.9 million, or 3.9%, decrease. A loan is categorized as restructured if the original interest rate on such loan, the repayment terms, or both, are modified due to a deterioration in the financial condition of the borrower. Restructured loans may also be put on a non-accrual status in keeping with the Bank's policy of classifying loans which are 90 days past due as to principal and/or interest. Restructured loans which are non-accrual loans are not included in the balance of restructured loans. As of March 31, 1997, restructured loans consisted of fifteen real estate credits. This compares to sixteen real estate credits as of December 31, 1996. The weighted average yield of the restructured loans as of March 31, 1997, was 10.23%. All restructured loans are performing pursuant to the terms and conditions of the restructuring. The following table breaks out the restructured loans by accrual status as of the dates indicated:
(IN THOUSANDS) March 31, 1997 December 31, 1996 - ------------------------------------------------------------- RESTRUCTURED LOANS: On Accrual Status $22,240 $23,125 On Non-accrual Status 229 2,820 - ------------------------------------------------------------- Total $22,469 $25,945
There are no commitments to lend additional funds on any of the restructured loans. As of March 31, 1997, other real estate owned ("OREO"), net of valuation allowance of $1.5 million, totaled $15.9 million, representing an increase of $2.9 million, or 22.3%, from the net balance of $13.0 million, net of valuation allowance of $1.8 million, as of December 31, 1996. As of March 31, 1997 and December 31, 1996, OREO consisted of 27 properties and 26 properties, respectively. The net increase in OREO is the result of continued management emphasis on resolving non-accrual loans. During 1997, properties with a lower of cost or fair value of $3.4 million were transferred to OREO. During 1997, OREO with a carrying value of $0.9 million was sold. The net loss sustained on the sales for 1997 was $24,000. During the first quarter of 1996, properties with a lower of cost or fair value of $4.5 million were transferred to OREO. During 1996, OREO with a carrying value of $1.4 million was sold. The net gain on the sales for the first three months of 1996 was $10,600. The outstanding OREO properties are all included in the Bank's market area. They include single family residences, condominiums, commercial buildings, and land both for commercial and residential improvement. Eight properties comprise the land category of OREO. The Company does not intend to develop these properties; rather, it will sell the land undeveloped. The following table sets forth OREO by property type as of the dates indicated:
(IN THOUSANDS) March 31, 1997 December 31,1996 - ---------------------------------------------------------------- PROPERTY TYPE Single-Family $1,556 $ 901 Residential Condominium 6,303 6,284 Land for Residential 1,147 1,413 Land for Commercial 735 735 Retail Facilities 7,643 5,228 Office - 250 Less: Valuation Allowance (1,518) (1,823) - ---------------------------------------------------------------- Total $15,866 $12,988
In accordance with SFAS 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS 118, a loan is identified as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. Loan impairment is measured by estimating the expected future cash flows and discounting them at the respective effective interest rate, or by valuing the underlying collateral. The following table discloses pertinent information as it relates to the Company's impaired loans as of and for the dates indicated:
As of and for the three months ended March 31, (IN THOUSANDS) 1997 1996 - --------------------------------------------------------------------- Recorded Investment with Related Allowance $17,588 $35,393 Recorded Investment with no Related Allowance 8,174 2,259 Total Recorded Investment 25,762 37,652 Allowance for Impaired Loans 1,881 4,201 Average Balance of Impaired Loans before Allowance for the Period Indicated 24,637 41,757 Interest Income Recognized 564 571
Income recognition on impaired loans uses methods existing for non-accrual loans but can include the accrual of interest. While a loan is in non-accrual status, some or all of the cash payments received may be treated as interest income on a cash basis as long as the remaining book balance of the loan (i.e., after charge-off of identified losses, if any) is deemed to be fully collectible. The Bank's determination as to the ultimate collectibility of the loan's remaining book balance must be supported by a current, well documented credit evaluation of the borrower's financial condition and prospects for repayment, including consideration of the borrower's historical repayment performance and other relevant factors. Of the amount of interest income recognized during the three months ended March 31, 1997 and 1996, no interest was recognized under the cash basis method. Management cannot predict the extent to which the current economic environment, including the real estate market, may improve or worsen, or the full impact such environment may have on the Bank's loan portfolio. Furthermore, as the Bank's primary regulators review the loan portfolio as part of their routine, periodic examinations of the Bank, their assessment of specific credits may affect the level of the Bank's non-performing loans. Accordingly, there can be no assurance that other loans will not be placed on non-accrual, become 90 days or more past due, have terms modified in the future, or become OREO. Allowance for Credit Losses As of March 31, 1997, the balance of the allowance for credit losses was $15.2 million, representing 2.49% of outstanding loans and leases. This compares to an allowance for credit losses of $16.2 million as of December 31, 1996, representing 2.69% of outstanding loans and leases. The table below summarizes the activity in the allowance for credit losses (which amount includes the allowance on impaired loans), for the three-month periods ended as indicated:
(IN THOUSANDS) March 31, 1997 March 31, 1996 - ------------------------------------------------------------- Balance, Beginning of Period $16,209 $16,674 Provision for Credit Losses 1,000 1,500 Charge-offs (2,458) (2,746) Recoveries 455 878 Net Charge-offs (2,003) (1,868) ---------- ---------- Balance, End of Period $15,206 $16,306
As of March 31, 1997, the allowance represents 167% and 41.7% of non-accrual loans and non-performing loans, respectively. As of December 31, 1996, the allowance represented 138% and 38.9% of non-accrual loans and non- performing loans, respectively. Management believes that the allowance for credit losses is adequate to cover known and inherent losses as they may relate to loans and leases outstanding as of March 31, 1997. Securities The Company classifies its securities as held to maturity or available for sale. Securities classified as held to maturity are those that the Company has the positive intent and ability to hold until maturity. These securities are carried at amortized cost. Securities that could be sold in response to changes in interest rates, increased loan demand, liquidity needs, capital requirements or other similar factors, are classified as securities available for sale. These securities are carried at fair value, with unrealized gains or losses reflected net of tax in stockholders' equity. As of March 31, 1997, the Company recorded net unrealized losses of $3,656,000 on its available for sale portfolio which is included as a separate component of stockholders' equity amounting to $2,108,000, which represents the net unrealized losses, net of tax. The amortized cost, gross unrealized gains, gross unrealized losses and fair value of securities at March 31, 1997 and December 31, 1996 were as follows:
Gross Gross (In Thousands) Amortized Unrealized Unrealized Fair March 31, 1997 Cost Gains Losses Value - -------------------------------------------------------------------------- Securities Held to Maturity State and Municipal Securities 1,988 16 - 2,004 Asset Backed Securities 9,993 64 - 10,057 - -------------------------------------------------------------------------- Total 11,981 80 - 12,061 Securities available for sale U. S. Treasuries 1,911 - (41) 1,870 U.S. Government Agencies 159,645 - (1,281) 158,364 Mortgage Backed Securities 49,407 - (869) 48,538 Corporate Notes 19,010 416 - 19,426 Collateralized Mortgage Obligations 181,438 - (1,234) 180,204 Asset Backed Securities 80,047 - (672) 79,375 Auctioned Preferred Stock 43,748 - - 43,748 Other Securities 10,189 25 - 10,214 - -------------------------------------------------------------------------- Total 545,395 441 (4,097) 541,739 Gross Gross (In Thousands) Amortized Unrealized Unrealized Fair December 31, 1996 Cost Gains Losses Value - ------------------------------------------------------------------------ Securities Held to Maturity State and Municipal Securities 2,222 28 - 2,250 Collateralized Mortgage Obligations 56 6 - 62 Asset Backed Securities 9,996 155 - 10,151 - ------------------------------------------------------------------------ Total 12,274 189 - 12,463 Securities available for sale U. S. Treasuries 1,918 - (27) 1,891 U.S. Government Agencies 160,718 - (52) 160,666 Mortgage Backed Securities 51,503 - (247) 51,256 Corporate Notes 19,014 580 - 19,594 Collateralized Mortgage Obligations 165,517 281 - 165,798 Asset Backed Securities 37,474 460 - 37,934 Auctioned Preferred Stock 72,450 - - 72,450 Other Securities 10,107 125 - 10,232 - ------------------------------------------------------------------------ Total 518,701 1,446 (326) 519,821
There were no sales of securities available for sale during the quarters ended March 31, 1997 and 1996. There were no sales of securities held to maturity for the quarters ended March 31, 1997 and 1996. Deposits The Company's deposits totaled $1,200 million as of March 31, 1997, a modest decrease of $2 million from $1,202 million as of December 31, 1996. With the exception of savings deposits which decreased $1.4 million, all categories of interest-bearing deposits increased. The net increase of interest-bearing deposits of $24.6 million was more than offset by a $24.8 million decline of non-interest bearing demand. There are no brokered deposits outstanding. The Company believes that the majority of its deposit customers have strong ties to the Bank. Although the Company has a significant amount of time certificates of deposit of $100,000 or more having maturities of one year or less, the depositors have generally renewed their deposits in the past at their maturity. Accordingly, the Company believes its deposit source to be stable. The maturity schedule of time certificates of deposit of $100,000 or more as of March 31, 1997 is as follows:
(IN THOUSANDS) - ----------------------------------------------------- 3 Months or Less $249,237 Over 3 Months Through One Year 299,079 Over One Year through 5 Years 2,105 - ---------------------------------------------------- Total $550,421 =========
Other Borrowings On August 31, 1990, the Company issued $15.0 million of subordinated debentures through private placement with an annual interest of 10.52% and stated maturity of September 1, 2000. The table below is a summary of required repayment schedule, as specified in the Debenture Purchase Agreement ("the Agreement").
(IN THOUSANDS) - ------------------------------------------------ September 1, 1997 $3,750 September 1, 1998 $3,750 September 1, 1999 $3,750 September 1, 2000 $3,750 -------- Total $15,000
The Agreement includes several covenants which restrict the payment of dividends, amount of indebtedness, certain acquisitions and the sale of assets. In the opinion of management, the Company was in compliance with the provisions of the Agreement as of March 31, 1997. Regulatory Matters During the first quarter of 1997, the annual safety and soundness examination was conducted by the Federal Deposit Insurance Corporation ("FDIC") and the State Banking Department. Although the report has not been received, no material adverse findings are expected. Capital Resources Stockholders' equity totaled $119.3 million as of March 31, 1997, an increase of $2.7 million, or 2.3% from $116.6 million as of December 31, 1996. The increase from year-end 1996 was primarily due to net income of $5,744,000, less cash dividends declared to shareholders of $814,000, and less the net change in the securities valuation account of $2,754,000. Additionally, $449,000 of the increase was the result of the exercise of stock options and the related tax benefit. Capital ratios for the Company and for the Bank were as follows as of the dates indicated:
Well- Capitalized March 31, December 31, Requirements 1997 1996 - ---------------------------------------------------------------------- GBC Bancorp Tier 1 Leverage Ratio 5% 8.98% 8.74% Tier 1 Risk-Based Capital Ratio 6% 12.51% 11.97% Total Risk-Based Capital Ratio 10% 14.23% 13.69% General Bank Tier 1 Leverage Ratio 5% 8.45% 8.61% Tier 1 Risk-Based Capital Ratio 6% 11.79% 11.81% Total Risk-Based Capital Ratio 10% 13.05% 13.06% Liquidity and Interest Rate Sensitivity Liquidity measures the ability of the Company to meet fluctuations in deposit levels, to fund its operations and to provide for customers' credit needs. Asset liquidity is provided by cash and short-term financial instruments which include federal funds sold and securities purchased under agreements to resell, unpledged securities held to maturity maturing within one year and unpledged securities available for sale. These sources of liquidity amounted to $703.8 million, or 52.0% of total assets as of March 31, 1997, compared to $717.0 million, or 53.0% of total assets as of December 31, 1996. To further supplement its liquidity, the Company has established federal funds lines with correspondent banks and three master repurchase agreements with major brokerage companies. In August, 1992 the Federal Home Loan Bank of San Francisco ("FHLB") granted the Bank a line of credit equal to 25 percent of assets with terms up to 240 months. Management believes its liquidity sources to be stable and adequate. As of March 31, 1997, total loans and leases represented 50.9% of total deposits. This compares to 50.1% as of December 31, 1996. The liquidity of the parent company, GBC Bancorp, is primarily dependent on the payment of cash dividends by its subsidiary, General Bank, subject to the limitations imposed by the Financial Code of the State of California. For the three months ending March 31, 1997, General Bank declared cash dividends of $5.8 million to GBC Bancorp. Effective asset/liability management includes maintaining adequate liquidity and minimizing the impact of future interest rate changes on net interest income. The Company attempts to manage its interest rate sensitivity on an on-going basis through the analysis of the repricing characteristics of its loans, investments, and deposits, and managing the estimated net interest income volatility by adjusting the terms of its interest-earning assets and liabilities, and through the use of derivatives as needed. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. As of March 31, 1997, two contracts totaling $1.0 million were outstanding. These instruments are used to manage the interest rate risk from the origination of fixed rate residential mortgage loans for sale in the secondary markets. The Company utilizes Treasury note futures and forward sales of mortgage-backed securities to hedge interest rate risk associated with its residential mortgage banking activities. Futures and forward sale contracts provide for sale of the underlying securities, including mortgage-backed securities, at a specified future date, at a specified price or yield. The amount of the futures and forward sale contracts is determined by the aggregate amount of fixed rate commitments for mortgage loans that are expected to be funded plus the amount of fixed rate residential mortgages categorized as being held for sale that have not been sold. The fair value of the underlying futures and forward sale contracts is expected to move inversely to the change in fair value of the mortgage loans. The Company never intends to deliver the underlying securities that the futures and forward sale contracts commit to sell. Rather, it purchases offsetting contracts to eliminate the obligation. The Company is exposed to the risk that the fair value of futures contracts, being based on the value of the Treasury note will not move proportionately with the change in value of the mortgage loans being hedged. This basis risk is unpredictable and can result in economic loss to the Company. There is no basis risk related to the use of forward sale contracts on mortgage-backed securities since their fair value is based on similar mortgage loans. However, a gain or loss will arise from the difference between the fair value and the forward sale price of the mortgage-backed security. As of March 31, 1997 and December 31, 1996 there were outstanding fixed rate mortgages held for sale of $1.7 million and $1.9 million, and a notional value of derivative instruments of $1.0 million and $0.5 million, respectively. For the three months ended March 31, 1997 and 1996, the Company had realized net gains/(losses) of $17,422 and $(7,813) with unrealized gains/(losses) of $3,750 and $(1,719), respectively, related to its hedging activities. Initial margin requirements and daily calls on future contracts are met in cash. There are no margin requirements nor daily calls on forward sale contracts since whole loans are expected to be delivered to fulfill the commitment. While no single measure can completely identify the impact of changes in interest rates on net interest income, one gauge of interest rate sensitivity is to measure, over a variety of time periods, the differences in the amounts of the Company's rate sensitive assets and rate sensitive liabilities. These differences, or "gaps", provide an indication of the extent that net interest income may be affected by future changes in interest rates. However, these "gaps" do not take into account timing differences between the repricing of assets and the repricing of liabilities. A positive gap exists when rate sensitive assets exceed rate sensitive liabilities and indicates that a greater volume of assets than liabilities will reprice during a given period. This mismatch may enhance earnings in a rising rate environment and may inhibit earnings when rates decline. Conversely, when rate sensitive liabilities exceed rate sensitive assets, referred to as a negative gap, it indicates that a greater volume of liabilities than assets will reprice during the period. In this case, a rising interest rate environment may inhibit earnings and declining rates may enhance earnings. "Gap" reports originated as a means to provide management with a tool to monitor repricing differences, or "gaps", between assets and liabilities repricing differences, or "gaps", between assets and liabilities repricing in a specified period, based upon their underlying contractual rights. The use of "gap" reports is thus limited to a quantification of the "mismatch" between assets and liabilities repricing within a unique specified timeframe. "Gap" reports cannot be used to quantify exposure to interest rate changes because they do not take into account timing differences between repricing assets and liabilities, and changes in the amount of repayments. The Company uses a simulation analysis to attempt to predict changes in the yields earned on different asset categories and the rates paid on liabilities in relation to changes in market interest rates. The analysis has concluded that the Bank's liabilities reprice more slowly than it's assets, and the Company's balance sheet has a positive gap when the timing of repricing is taken into account. This results in an interest rate sensitivity profile for the Company where it has exposure to a downward shift in interest rates. The Company has established an internal policy to manage its net interest income volatility to a change of 10% when the simulation is using an assumed instant change of money market rates of 100 basis points. As of March 31, 1997, the Company was well within that policy limit. As of March 31, 1997 there was a cumulative one year negative "gap" of $382.0 million, up from $311.4 million as of December 31, 1996. The $70.6 million increase in the gap was caused by the purchase of intermediate maturity investment securities and loan activity. The negative gaps would appear to be predictive of an increase in the net interest margin if interest rates were to fall significantly. However, as discussed above, due to the lag in the downward repricing of the rates paid on liabilities versus the immediate downward repricing of its assets, the Company would not anticipate a corresponding increase in the net interest margin should rates decline. The following table indicates the Company's interest rate sensitivity position as of March 31, 1997, and may not be reflective of positions in subsequent periods: MARCH 31, 1997 INTEREST SENSITIVITY PERIOD
0 to 90 91 to 365 Over 1 Year Over Non-Interest (In Thousands) Days Days to 5 Years 5 Years Erng/Bearing Total - ---------------------------------------------------------------------------------------------------- Earning Assets: Securities Available for Sale 75,197 13,100 157,666 295,776 - 541,739 Securities Held to Maturity 525 7,449 - 4,007 - 11,981 Federal Funds Sold 110,000 - - - - 110,000 Loans and Leases (1) (2) 371,842 61,093 70,159 53,608 - 556,702 Loans to Depository Institutions 45,000 - - - - 45,000 Non-Earning Assets (2) - - - - 88,155 88,155 - ---------------------------------------------------------------------------------------------------- Total Assets 602,564 81,642 227,825 353,391 88,155 1,353,577 Source of Funds for Assets: Deposits: Demand - - - - 133,891 133,891 Interest Bearing Demand 223,118 - - - - 223,118 Savings 117,960 - - - - 117,960 TCD'S Under $100,000 94,004 78,989 1,537 - - 174,530 TCD'S $100,000 and Over 273,133 275,283 2,005 - - 550,421 - ---------------------------------------------------------------------------------------------------- Total Deposits 708,215 354,272 3,542 - 133,891 1,199,920 Subordinated Debt - 3,750 11,250 - - 15,000 Other Liabilities - - - - 19,397 19,397 Stockholders' Equity - - - - 119,260 119,260 - ---------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity 708,215 358,022 14,792 - 272,548 1,353,577 - ---------------------------------------------------------------------------------------------------- Interest Sensitivity Gap ($105,651) ($276,380) $213,033 $353,391 ($184,393) Cumulative Interest Sensitivity Gap ($105,651) ($382,031) ($168,998) $184,393 $ - Gap Ratio (% of Total Assets) -7.8% -20.4% 15.7% 26.1% -13.6% Cumulative Gap Ratio -7.8% -28.2% -12.5% 13.6% 0.0%
(1) Loans and leases are before unamortized deferred loan fees and allowance for credit losses. (2) Nonaccrual loans are included in non-earning assets. Forward-Looking Statements This report contains forward-looking statements, usually containing the words "estimate," "project," "expected," or similar expressions. These statements are subject to uncertainties, including those discussed in this report. Sections having such statements include Provision for Credit Losses, Non-Performing Assets, Allowance for Credit Losses, Regulatory Matters and Liquidity and Interest Rate Sensitivity. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS In the normal course of business, the Company is subject to pending and threatened legal actions. Management believes that the outcome of such actions will not have a material adverse effect on the financial condition or the operations of the Company. Item 2. CHANGES IN SECURITIES There have been no changes in the securities of the Registrant during the quarter ended March 31, 1997. Item 3. DEFAULT UPON SENIOR SECURITIES This item is not applicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company security holders during the quarter ended March 31, 1997. Item 5. OTHER INFORMATION There are no events to be reported under this item. Item 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: None. b) Reports on Form 8-K: None. PART III - SIGNATURES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GBC Bancorp (Registrant) Dated: __________________ s/ ______________________ Li-Pei Wu, Chairman, President and Chief Executive Officer Dated: ___________________ s/ _______________________ Peter Lowe, Executive Vice President and Chief Financial Officer EX-27 2
9 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 43,285 0 110,000 0 541,739 11,981 12,061 610,798 15,206 1,353,577 1,199,920 3,750 19,397 11,250 47,729 0 0 71,531 1,353,577 15,293 10,441 0 25,734 10,649 11,050 14,684 1,000 0 6,790 8,418 8,418 0 0 5,744 0.82 0.82 4.67 9,096 5,109 22,240 0 16,209 2,458 455 15,206 15,206 0 0
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