-----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, Q4hDX4L2hyokC8KXoFDhwaW8v8KKacn7rBM8llUFnNCrhYbRyMOpbQOJTwlV+pxN Phx26r5/3xtncNrXK1Jg7A== 0000351710-98-000007.txt : 19980817 0000351710-98-000007.hdr.sgml : 19980817 ACCESSION NUMBER: 0000351710-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 001-10731 FILM NUMBER: 98687158 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 June 30, 1998 Commission file number 0-16213 GBC BANCORP - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 95-3586596 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. incorporation or organization) of Employer 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) 972-4174 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 --------- --------- Number of shares of common stock outstanding as of June 30, 1998: 14,157,698. TABLE OF CONTENTS ------------------- PART I - FINANCIAL INFORMATION............................................. 3 Item 1. Financial Statements.............................................. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 8 PART II - OTHER INFORMATION................................................. 31 Item 1. Legal Proceedings................................................. 32 Item 2. Changes In Securities............................................. 32 Item 3. Default Upon Senior Securities.................................... 32 Item 4. Submission Of Matters To A Vote Of Securities Holders............. 32 Item 5. Other Information................................................. 33 Item 6. Exhibits And Reports On Form 8-K.................................. 33 PART III - SIGNATURES........................................................ 34 PART I - FINANCIAL INFORMATION GBC Bancorp and Subsidiaries Consolidated Balance Sheets
June 30, December 31, (Dollars In Thousands) 1998 1997 - ------------------------------------------------------------------------------- ASSETS Cash and Due From Banks $ 39,290 $ 32,519 Federal Funds Sold and Securities Purchased Under Agreements to Resell 104,650 108,000 Securities Available for Sale at Fair Value (Amortized Cost of $646,681 and $640,791 at June 30, 1998 and December 31, 1997, Respectively) 651,076 643,660 Securities Held to Maturity (Fair Value of $77,525 and $58,169 at June 30, 1998 and December 31, 1997, Respectively) 77,423 58,045 Loans and Leases 718,819 638,829 Less: Allowance for Credit Losses (15,538) (16,776) Deferred Loan Fees (5,230) (4,448) ------------- ------------- Loans and Leases, Net 698,051 617,605 Bank Premises and Equipment, Net 5,517 5,709 Other Real Estate Owned, Net 6,837 7,871 Due From Customers on Acceptances 10,892 11,768 Real Estate Held for Investment 7,697 8,360 Accrued Interest Receivable and Other Assets 9,565 15,900 ------------- ------------- Total Assets $ 1,610,998 $ 1,509,437 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand $ 150,729 $ 149,616 Interest Bearing Demand 282,046 218,729 Savings 85,552 96,340 Time Certificates of Deposit of $100,000 or More 585,394 595,077 Other Time Deposits 280,389 232,070 ------------- ------------- Total Deposits 1,384,110 1,291,832 Subordinated Debt 38,810 38,745 Acceptances Outstanding 10,892 11,768 Accrued Expenses and Other Liabilities 15,960 20,769 ------------- ------------- Total Liabilities 1,449,772 1,363,114 Stockholders' Equity: Common Stock, No Par or Stated Value; 40,000,000 and 20,000,000 Shares Authorized at June 30, 1998 and December 31, 1997, Respectively; 14,157,698 and 6,995,049 Shares Outstanding at June 30, 1998 and December 31, 1997, Respectively 55,982 53,314 Accumulated Other Comprehensive Income 2,538 1,654 Retained Earnings 102,706 91,355 ------------- ------------- Total Stockholders' Equity 161,226 146,323 ------------- ------------- Total Liabilities and Stockholders' Equity $ 1,610,998 $ 1,509,437 ============= =============
See Accompanying Notes to Consolidated Financial Statements GBC Bancorp and Subsidiaries Consolidated Statements of Income
Three Months Ended Six Months Ended (In Thousands, Except June 30, June 30, Per Share Data) 1998 1997 1998 1997 - ------------------------------------------------------------------------------- INTEREST INCOME Loans and Leases, Including Fees $ 17,882 $ 15,677 $ 34,452 $ 30,970 Securities Available for Sale 10,398 8,801 20,286 17,089 Securities Held to Maturity 1,430 505 2,667 764 Federal Funds Sold and Securities Purchased under Agreements to Resell 1,483 2,176 3,468 4,070 Other - - 6 - ---------- ---------- ---------- ---------- Total Interest Income 31,193 27,159 60,879 52,893 INTEREST EXPENSE Interest Bearing Demand 1,795 1,319 3,168 2,477 Savings 595 799 1,243 1,563 Time Deposits of $100,000 or More 7,859 7,311 15,622 14,088 Other Time Deposits 3,377 2,121 6,436 4,071 Federal Funds Purchased and Securities Sold under Repurchase Agreements 12 - 16 2 Subordinated Debt 871 399 1,741 798 ---------- ---------- ---------- ---------- Total Interest Expense 14,509 11,949 28,226 22,999 Net Interest Income 16,684 15,210 32,653 29,894 Provision for Credit Losses - - - 1,000 ---------- ---------- ---------- ---------- Net Interest Income after Provision for Credit Losses 16,684 15,210 32,653 28,894 NON-INTEREST INCOME Service Charges and Commissions 1,661 1,424 3,098 2,766 Gain on Sale of Loans, Net 5 24 24 74 Other 146 153 463 285 ---------- ---------- ---------- ---------- Total Non-Interest Income 1,812 1,601 3,585 3,125 NON-INTEREST EXPENSE Salaries and Employee Benefits 4,364 4,032 8,659 7,801 Occupancy Expense 758 714 1,486 1,408 Furniture and Equipment Expense 516 453 1,001 873 Net Other Real Estate Owned Expense 127 236 439 479 Other 1,741 1,387 3,225 3,051 ---------- ---------- ---------- ---------- Total Non-Interest Expense 7,506 6,822 14,810 13,612 Income before Income Taxes 10,990 9,989 21,428 18,407 Provision for Income Taxes 4,147 3,529 7,954 6,203 ---------- ---------- ---------- ---------- Net Income $ 6,843 $ 6,460 $ 13,474 $ 12,204 ========== ========== ========== ========== Earnings Per Share Basic $ 0.48 $ 0.48 $ 0.95 $ 0.90 Diluted 0.48 0.46 0.94 0.88 ========== ========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements GBC Bancorp and Subsidiaries Consolidated Statements of Comprehensive Income
For Three Months Ended For Six Months Ended June 30, June 30, (In Thousands) 1998 1997 1998 1997 - ------------------------------------------------------------------------------- Net Income $ 6,843 $ 6,460 $ 13,474 $ 12,204 ---------- ---------- ---------- ---------- Other Comprehensive Income, Net of Tax: Change in Unrealized Gains/ (Losses) on Securities During Period 855 2,165 884 (532) ---------- ---------- ---------- ---------- Other Comprehensive Income 855 2,165 884 (532) ---------- ---------- ---------- ---------- Comprehensive Income $ 7,698 $ 8,625 $ 14,358 $ 11,672 ========== ========== ========== ==========
GBC Bancorp and Subsidiaries Consolidated Statements of Cash Flows
For the Six Months Ended June 30, - -------------------------------------------------------------------------------- (In Thousands) 1998 1997 - -------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Income $ 13,474 $ 12,204 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 629 584 Net Amortization/(Accretion) of Premiums/ Discounts on Securities 76 (127) Accretion of Discount on Subordinated Notes 65 - Writedown on Real Estate Held for Investment 663 663 Amortization of Deferred Loan Fees (1,474) (1,137) Gain on Sale of Loans (24) (74) (Gain)/Loss on Sale of Other Real Estate Owned (23) 10 Loans Originated for Sale - (14,369) Proceeds from Sales of Loans Originated for Sale 24 15,596 Net Decrease in Accrued Interest Receivable and Other Assets 5,693 1,044 Net Increase/ (Decrease) in Accrued Expenses and Other Liabilities (3,550) 2,829 Other, Net 1 1,000 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES $ 15,554 $ 18,223 ------------ ------------ INVESTING ACTIVITIES: Purchases of Securities Available for Sale (189,306) (246,952) Proceeds from Maturities of Securities Available for Sale 183,186 203,118 Purchases of Securities Held to Maturity (50,090) (42,940) Proceeds from Maturities of Securities Held to Maturity 30,866 781 Net Increase in Loans and Leases (79,560) (13,895) Proceeds from Sales of Other Real Estate Owned 1,662 1,996 Capitalized Costs of Other Real Estate Owned - (368) Purchases of Premises and Equipment (456) (505) ------------ ------------ NET CASH USED BY INVESTING ACTIVITIES $ (103,698) $ (98,765) ------------ ------------ FINANCING ACTIVITIES: Net (Decrease)/Increase in Demand, Interest Bearing Demand and Savings Deposits 53,642 (3,048) Net Increase in Time Certificates of Deposits 38,636 60,056 Cash Dividend Paid (1,900) (1,491) Proceeds from Exercise of Stock Options 1,187 657 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES $ 91,565 $ 56,174 ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS 3,421 (24,368) Cash and Cash Equivalents at Beginning of Period 140,519 187,009 ------------ ------------ Cash and Cash Equivalents at End of Period $ 143,940 $ 162,641 ============ ============ Supplemental Disclosures of Cash Flow Information: Cash Paid During This Period Interest $ 27,811 $ 23,075 Income Taxes (Amount net of $1,148 of tax refunds plus interest) 1,102 920 ============ ========== Noncash Investing Activities: Loans Transferred to Other Real Estate Owned at Fair Value $ 588 $ 3,862 ============ ==========
See Accompanying Notes to Consolidated Financial Statements GBC Bancorp and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - ------------------------------------------------------- In the opinion of management, the consolidated financial statements of GBC Bancorp and its subsidiaries (the "Company") as of June 30, 1998 and December 31, 1997, and the six and three months ended June 30, 1998 and 1997, reflect all adjustments (which consist only of normal recurring adjustments) necessary for a fair presentation. In the opinion of management, the aforementioned consolidated financial statements are in conformity with generally accepted accounting principles. Earnings Per Share - ------------------- Basic earnings per share is determined by dividing net income by the average number of shares of common stock outstanding, while diluted earnings per share is determined by dividing net income by the average number of shares of common stock outstanding adjusted for the dilutive effect of common stock equivalents. Earnings per share for the three month and six month periods ended June 30, 1997 have been restated to reflect a 2 for 1 stock split to shareholders of record on April 30, 1998 and issued and distributed on May 15, 1998. Consolidated Statements of Cash Flows - -------------------------------------- Cash and cash equivalents consist of cash and due from banks, and federal funds sold and securities purchased under agreements to resell. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ---------------------------------------------------------------- RESULTS OF OPERATIONS ---------------------- OVERVIEW - --------- Net income for the second quarter of 1998 was $6,843,000, or $0.48 diluted earnings per share compared to $6,460,000, or $0.46 diluted earnings per share for the corresponding period of 1997. The increase in net income for the second quarter of 1998 was primarily the result of an increase of net interest income and higher non-interest income which were partially offset by an increase of non-interest expense. For the six months ended June 30, 1998, net income totaled $13,474,000, an increase of $1,270,000, or 10.4%, from the $12,204,000 earned during the corresponding period of 1997. Diluted earnings per share for the six months ended June 30, 1998 were $0.94, up 6.8% from the $0.88 for the same period of 1997. The increase of year-to-date net income was due to the growth of net interest income, the absence of a provision for credit losses, and higher non- interest income, which were partially offset by higher non-interest expense. As of June 30, 1998, record high levels were achieved for loans and leases, total assets, total deposits, and stockholders' equity. For the quarter ended June 30, 1998 and 1997, the annualized return on average assets ("ROA") was 1.73% and 1.87%, respectively, and the annualized return on average stockholders' equity ("ROE") was 17.4% and 21.2%, respectively. For the six months ended June 30, 1998 and 1997, the ROA was 1.74% and 1.80%, respectively. For the six months ended June 30, 1998 and 1997, the ROE was 17.6% and 20.4%, respectively. Subsequent to June 30, 1998, and not included in the financial results of the second quarter, a performing, restructured loan was repaid, with a resulting reduction of restructured loans of approximately $7 million, a recovery of allowance for credit losses of approximately $1.7 million, and an interest recovery of approximately $1 million. RESULTS OF OPERATIONS - ---------------------- Net Interest Income-Quarterly Results - -------------------------------------- For the quarter ended June 30, 1998 and 1997, net interest income before the provision for credit losses was $16,684,000 and $15,210,000, respectively, representing an increase of $1,474,000, or 9.7%. Total interest income for the quarter ended June 30, 1998 was $31,193,000, representing a $4,034,000, or 14.9%, increase over the corresponding quarter of a year ago. The increase was due to a growth of $225.8 million, or 17.3%, of average interest earning assets. The impact on interest income from the growth of average interest earning assets was partially offset by a decline in the yield on earning assets to 8.15% from 8.33% for the quarters ending June 30, 1998 and 1997, respectively. The $225.8 million growth of average interest earning assets was comprised of increases of $172.5 million and $102.1 million for securities and loans and leases, respectively, partially offset by a $48.8 million decline of federal funds sold and securities purchased under agreements to resell. Excluding the $27.0 million average balance of loans to depository institutions during 1997 which are included in loans, the loan growth was $129.1 million. The Bank had no outstanding loans to depository institutions during 1998. The 18-basis point decline of the yield was primarily the result of a decline of the yield on loans and leases. For the quarters ended June 30, 1998 and 1997, the yield on loans and leases was 10.30% and 10.59%, respectively. Excluding the lower yielding loans to depository institutions outstanding during 1997, the decline was from 10.82% to 10.30%. In addition to the decline of the yield on loans and leases, there was an 11-basis point decrease of the yield on securities to 6.47% from 6.58% for the quarters ended June 30, 1998 and 1997, respectively (excluding the impact of the average balance of unrealized gains/ losses on securities available for sale). The effect of the decline of the yield on loans and leases and securities was partially mitigated by an increase in the percentage of average loans and leases, (excluding lower yielding loans to depository institutions) to total average earning assets. For the three months ended June 30, 1998 and 1997, average loans and leases, excluding loans to depository institutions, comprised 45.4% and 43.3%, respectively, of total average earning assets. Loans and leases represent the highest yielding interest earning asset. Total interest expense for the quarter ended June 30, 1998 was $14,509,000, representing a $2,560,000, or 21.4%, increase over the corresponding quarter of a year ago. The increase was due to a growth of $153.0 million of average interest bearing liabilities, and an increased cost of funds. For the quarter ended June 30, 1998 and 1997, the cost of funds was 4.62% and 4.33%, respectively. The increase in the cost of funds was primarily the result of an increase in the rates paid on interest-bearing deposits. For the three months ended June 30, 1998 and 1997 rates paid on interest-bearing deposits were 4.48% and 4.24%, respectively. With the exception of savings deposits whose average balance declined in the second quarter 1998 compared to second quarter 1997, the rates paid on all interest-bearing deposits increased. In addition, the increase in the average amount of subordinated debt increased interest expense. For the quarters ended as indicated, the average balance and the cost of funds for subordinated debt were as follows:
For the Quarter Ended June 30 1998 1997 Average Balance $38,789 15,000 Cost of Funds 8.98% 10.64%
The following table displays the average balance and rates paid for the Bank's deposit products for the three months ended June 30, 1998 and 1997.
For the Quarter Ended June 30, (Dollars in Thousands) 1998 1997 - ------------------------------------------------------------------------------- Interest bearing demand - Average balance $ 260,087 $ 228,191 Rate 2.77% 2.32% Savings - Average balance 87,930 114,342 Rate 2.71% 2.80% Time certificates of deposit of $100,000 or more - Average balance 600,129 571,265 Rate 5.25% 5.13% Other time deposits - Average balance 272,026 177,965 Rate 4.98% 4.78%
In addition, upward pressure on the rates paid on deposits was exerted as a result of the increased percentage of average certificates of deposits to average total interest-bearing deposits. This percentage was 71.5% and 68.6% for the quarters ended June 30, 1998 and 1997, respectively. Certificates of deposits represent the most costly deposit product for the Bank. The net interest spread is defined as the yield on interest earning assets less the rates paid on interest-bearing liabilities. For the three months ended June 30, 1998 and 1997, the net interest spread declined to 3.53% from 4.00%, respectively. The decrease is for the reasons discussed above. The net interest margin is defined as the annualized difference between interest income and interest expense divided by average interest earning assets. For the three months ended June 30, 1998 and 1997, the net interest margin was 4.36% and 4.66% respectively. The decrease in the margin is primarily the result of the reduced net interest spread and the growth of the Company. Net Interest Income-Six-Month Results - -------------------------------------- For the six months ended June 30, 1998, net interest income before the provision for credit losses was $32,653,000, representing a $2,759,000, or 9.2%, growth over the corresponding period of a year ago. Total interest income for the six months ended June 30, 1998 was $60,879,000 compared to $52,893,000, a $7,986,000, or 15.1%, growth over the corresponding period of a year ago. The increase is the result of an increase of average interest earning assets partially offset by a reduction of the yield on interest earning assets. The net growth of average earning assets was $213.2 million represented by increases of $75.7 million and $162.3 million for loans and leases and securities, respectively, and a decrease of $24.8 million for federal funds sold and securities purchased under agreements to resell. The yield on interest earning assets declined to 8.16% for the six months ended June 30, 1998 from 8.25% for the corresponding period of a year ago. The primary reason for the yield decline was a decrease of the yield on loans and leases. For the six months ended June 30, 1998 and 1997, the yield on loans and leases was 10.31% and 10.44%, respectively. Factoring out the average balance of loans to depository institutions included in loans, the decline was 45 basis points. Total interest expense for the six months ended June 30, 1998 and 1997 was $28,226,000 and $22,999,000, respectively, representing a $5,227,000, or 22.7%, increase. This increase is due to both the growth of interest-bearing liabilities and the cost of funds. Average interest-bearing liabilities increased by $147.0 million with the majority of the increase provided by certificates of deposit. The average balance of certificates of deposit was $858.8 million and $734.5 million for the six-month period ending June 30, 1998 and 1997, respectively, representing a $124.3 million, or 16.9%, increase. The cost of funds increased by 34-basis points to 4.60% from 4.26%, for the six-month periods ended June 30, 1998 and 1997, respectively. The increase continues as the result primarily of both the increased percentage of total average interest bearing deposits represented by certificates of deposits and the increased rates paid on all categories of interest bearing deposits. For the six month period ended June 30, 1998 and 1997, certificates of deposits as a percentage of total average interest-bearing deposits were 71.8% and 68.4%, respectively. Certificates of deposits represent the most costly deposit product for the Bank. The average balance and the rates paid on the deposit categories were as follows for the six months ended as indicated:
For Six Months Ended June 30, (Dollars in Thousands) 1998 1997 - ------------------------------------------------------------------------------- Interest bearing demand - Average balance $ 246,520 $ 223,703 Rate 2.59% 2.23% Savings - Average balance 91,480 115,956 Rate 2.74% 2.72% Time certificates of deposit of $100,000 or more - Average balance 598,023 560,241 Rate 5.27% 5.07% Other time deposits - Average balance 260,785 174,211 Rate 4.98% 4.71%
In addition, interest expense increased as a result of the increase in the average amount of subordinated debt. For the six-month period ended June 30, 1998 and 1997, the average balance and the cost of funds for subordinated debt were as shown on the table preceding for the quarter ended June 30. For the six months ended June 30, 1998 and 1997, the net interest spread declined to 3.56% from 3.99%, respectively. The compression of the spread is the result of the decline of the yield on interest earning assets and the increase of the rates paid on interest bearing liabilities, as discussed in the above paragraphs. For the six months ended June 30, 1998 and 1997, the net interest margin was 4.37% and 4.67%, respectively. The decrease in the margin is primarily the result of the reduced net interest spread and the growth of the Company. Provision for Credit Losses - ---------------------------- For the quarter ended June 30, 1998, there was no provision for credit losses, unchanged from the corresponding period of a year ago. For the six months ended June 30, 1998, there was no provision for credit losses compared to $1,000,000 for the same period of 1997, a decrease of $1,000,000. For the six months ended June 30, 1998 the absence of a provision for credit losses reflects management's assessment of the adequacy of the allowance 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 June 30, 1998 totaled $1,812,000, representing a $211,000, or 13.2%, increase over the $1,601,000 for the quarter ended June 30, 1997. The net increase was the result of a $237,000 increase in service charges and commissions. This increase was primarily due to letter of credit activity associated with the trade financing operation of the Bank. In addition, effective from the last quarter of 1997, the Bank is receiving fees for residential mortgage loan referrals. The fees received during the quarter ended June 30, 1998 were $106,000. For the six months ended June 30, 1998, non-interest income totaled $3,585,000 representing a $460,000, or 14.7%, increase compared to $3,125,000 for the six months ended June 30, 1997. The net increase was due to a $332,000 increase in service charges and commissions and a $178,000 increase of other non-interest income partially offset by a reduction of $50,000 of net gain on sale of loans. The increase in service charges and commissions is explained above. The increase of other non-interest income is primarily the result of interest received on a tax refund in the first quarter of 1998. Non-Interest Expense - --------------------- For the three months ended June 30, 1998, non-interest expense was $7,506,000, representing a $684,000, or 10.0%, increase over $6,822,000 for the corresponding period of a year ago. The increase of $332,000 in salaries and employee benefits, which accounted for almost one half of this net increase, was primarily due to the growth of salaries reflecting both an increase of employees and salary increases. In addition, other non-interest expense increased $354,000 primarily the result of an increase in legal expense. During the three months ended June 30, 1997, the Bank recorded recoveries of $198,000 of previously incurred legal fees. For the three-months ended June 30, 1998, the Company's efficiency ratio, defined as non-interest expense divided by the sum of net interest income plus non-interest income, remained at 40.6%, unchanged from the corresponding period of a year ago. For the six months ended June 30, 1998, non-interest expense was $14,810,000, representing a $1,198,000, or 8.8%, increase over $13,612,000 reported for the corresponding period of a year ago. The increase in salaries and employee benefits was $858,000, primarily the result of growth of salaries. The reason for the increase is as explained above. For the six months ended June 30, 1998, the Company's efficiency ratio declined to 40.9%, comparing favorably to 41.2% for the corresponding period of 1997. Provision for Income Taxes - --------------------------- For the quarter ended June 30, 1998 and 1997, the provision for income taxes was $4,147,000 and $3,529,000, respectively, representing effective tax rates of 37.7% and 35.3%. For the six months ended June 30, 1998, the provision for income taxes was $7,954,000, representing 37.1% of pre-tax income. The provision for the six months ended June 30, 1997, was $6,203,000, representing 33.7% of pre-tax income. The increase in the effective tax rates for the 3-month and 6-month periods ended June 30, 1998 compared to the corresponding periods of a year ago is due to legislated discontinuance of the Los Angeles Revitalization Zone California tax incentive and the reduced holdings of tax preference securities in 1998. In addition, for the three and six month periods ending June 30, 1998, pre-tax income increased 10.0% and 16.4%, respectively, over the year ago periods while the low income housing tax credit remained constant. FINANCIAL CONDITION - -------------------- Total assets as of June 30, 1998 were $1,611 million, an increase of $102 million from total assets of $1,509 million as of December 31, 1997. The increase was the result of a growth of deposits that was invested primarily in loans and leases and securities. As of June 30, 1998 and December 31, 1997, total deposits were $1,384 million and $1,292 million, respectively. Loans - ------ As of June 30, 1998, loans and leases totaled $718.8 million, representing an $80.0 million, or 12.5%, increase from the balance of $638.8 million as of December 31, 1997. Growth in the commercial loan portfolio representing $57.5 million was primarily in the trade-financing area which increased $46.5 million. The growth of this category of loan reflects the growth in international trade and new customer relationships. In addition, there was an increase of $18.7 million of real estate-construction. The following table sets forth the amount of loans and leases outstanding by category and the percentage of each category to total loans and leases outstanding:
June 30, 1998 December 31, 1997 (DOLLARS IN THOUSANDS) Amount Percentage Amount Percentage - -------------------------------------------------------------------------------- Commercial $ 290,847 40.46% $ 233,309 36.52% Real Estate-Construction 109,244 15.20% 90,560 14.18% Real Estate-Conventional 281,976 39.23% 276,350 43.26% Installment 55 0.01% 54 0.01% Other Loans 21,425 2.98% 23,993 3.75% Leveraged Leases 15,272 2.12% 14,563 2.28% ----------- --------- ----------- --------- Total $ 718,819 100.00% $ 638,829 100.00%
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:
(IN THOUSANDS) June 30, 1998 December 31, 1997 - -------------------------------------------------------------------------------- Loans 90 Days or More Past Due and Still Accruing $ 1,745 $ 2,778 Non-accrual Loans 12,531 9,834 Total Past Due Loans 14,276 12,612 Restructured Loans 18,232 20,323 Total Non-performing Loans 32,508 32,935 Other Real Estate Owned, Net 6,837 7,871 Total Non-Performing Assets $ 39,345 $ 40,806
Total non-performing assets decreased to $39.3 million, as of June 30, 1998, from $40.8 million, as of December 31, 1997, representing a $1.5 million, or 3.6%, reduction. All categories of non-performing assets declined with the exception of non-accrual loans. Loans 90 Days or More Past Due and Still Accruing - -------------------------------------------------- This category of loans is comprised of two credits of approximately equal balances. One of the two is in process of collection and demand for pay-off is in escrow. Non-accrual Loans - ------------------ As of June 30, 1998 non-accrual loans were $12.5 million, an increase of $2.7 million from year-end 1997, but a decline from the end of the first quarter 1998. The following table breaks out the Company's non-accrual loans by category as of June 30, 1998 and December 31, 1997:
(IN THOUSANDS) June 30, 1998 December 31, 1997 - -------------------------------------------------------------------------------- Commercial $ 9,248 $ 5,957 Real Estate-Construction 455 455 Real Estate-Conventional 2,822 3,414 Other Loans 6 8 ---------- ---------- Total $ 12,531 $ 9,834 ========== ==========
Of the $12.5 million of non-accrual loans, $3.3 million are collateralized by real property with appraisal value considerably in excess of the carrying value of the loans, providing substantial protection against the loss of principal. The increase in the non-accrual loans classified as commercial is primarily in the trade financing portfolio. These loans are collateralized by a variety of business assets and the Bank does not anticipate any significant losses. The following table analyzes the increase in non-accrual loans during the six months ended June 30, 1998:
(IN THOUSANDS) - ---------------------------------------------------------------- Balance, December 31, 1997 $ 9,834 Add: Loans placed on non-accrual 10,545 Less: Charge-offs (1,639) Returned to accrual status (1,448) Repayments (4,174) Transfer to OREO (587) Balance, June 30, 1998 $ 12,531
Restructured Loans - ------------------- The balance of restructured loans as of June 30, 1998 was $18.2 million compared to $20.3 million as of December 31, 1997, representing a $2.1 million, or 10.3%, 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 June 30, 1998, one restructured loan totaling $685,000 was on non-accrual status. As of June 30, 1998, restructured loans excluding the $685,000, totaled $18.2 million and consisted of 15 loans compared to $20.3 million and 15 loans as of December 31, 1997. The weighted average yield of the restructured loans was 10.32% as of June 30, 1998. There are no commitments to lend additional funds on any of the restructured loans. Subsequent to June 30, 1998, and not included in the financial results of the second quarter, a performing, restructured loan was repaid, with a resulting reduction of restructured loans of approximately $7 million, a recovery of allowance from credit losses of approximately $1.7 million, and an interest recovery of approximately $1 million. Other Real Estate Owned - ------------------------ As of June 30, 1998, other real estate owned ("OREO"), net of valuation allowance of $2.0 million, totaled $6.8 million, representing a decrease of $1.0 million, or 13.1%, from the net balance of $7.9 million, net of valuation allowance of $2.1 million, as of December 31, 1997. As of June 30, 1998 and December 31, 1997, OREO consisted of 16 properties and 17 properties, respectively. The outstanding OREO properties are all physically located in the Bank's market area. They include single family residences, condominiums, commercial buildings, and land. Seven 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) June 30, 1998 December 31, 1997 - -------------------------------------------------------------------------------- PROPERTY TYPE Single-Family Residential $ 217 $ 380 Condominium 1,540 2,598 Multi-Family Residential - 220 Land for Residential 3,715 3,715 Land for Agriculture 15 15 Retail Facilities 3,350 3,003 Less: Valuation Allowance (2,000) (2,060) --------- --------- Total $ 6,837 $ 7,871 ========= =========
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 $13 million of outstanding impaired loans as of June 30, 1998, $9 million are included in the balance of restructured loans and are performing pursuant to the terms and conditions of the restructuring. Included in the $9 million is $7 million which amount was repaid subsequent to June 30, 1998, and accordingly was not included in the financial results of the second quarter. The following table discloses pertinent information as it relates to the Company's impaired loans as of the dates indicated:
(IN THOUSANDS) June 30, 1998 Dec. 31, 1997 - -------------------------------------------------------------------------------- Recorded Investment with Related Allowance $ 13,315 $ 16,095 Recorded Investment with no Related Allowance - 1,022 Total Recorded Investment 13,315 17,117 Allowance for Impaired Loans 1,073 1,544
The average balance of impaired loans before the allowance was $15 million for the six months ended June 30, 1998 and $22.4 million for the twelve months ended December 31, 1997. For the six months ended June 30, 1998 and 1997, interest income recognized on impaired loans was $583,000 and $832,000, respectively. Of the amount of interest income recognized during the six months ended June 30, 1998 and 1997, no interest was recognized under the cash basis method. Management cannot predict the extent to which the current economic environment, including the real estate market, may continue to improve or worsen, or the full impact such environment may have on the Bank's loan portfolio. Furthermore, as the Bank's primary regulators review the loan portfolio as part of their routine, periodic examinations of the Bank, their assessment of specific credits may affect the level of the Bank's non-performing loans. Accordingly, there can be no assurance that other loans will not be placed on non-accrual, become 90 days or more past due, have terms modified in the future, or become OREO. Allowance for Credit Losses - ---------------------------- As of June 30, 1998, the balance of the allowance for credit losses was $15.5 million, representing 2.16% of outstanding loans and leases. This compares to an allowance for credit losses of $16.8 million as of December 31, 1997, representing 2.63% of outstanding loans and leases. The table below summarizes the activity in the total allowance for credit losses (which amount includes the allowance on impaired loans) for the six months ended as indicated:
(IN THOUSANDS) June 30, 1998 June 30, 1997 - -------------------------------------------------------------------------------- Balance, Beginning of Period $ 16,776 $ 16,209 Provision for Credit Losses - 1,000 Charge-offs (1,639) (3,622) Recoveries 401 1,349 Net Charge-offs (1,238) (2,273) Balance, End of Period $ 15,538 $ 14,936
As of June 30, 1998, the allowance represents 47.8% and 124% of non-performing loans and of non-accrual loans, respectively. As of December 31, 1997, the allowance represented 50.9% and 171% of non-performing loans and of non-accrual loans, respectively. On a quarterly basis, management reviews all criticized credits as identified both internally and by outside sources, including the Bank's regulators. Specific allocations of a required allowance are made based on these reviews, as well as on the historical loss experience of criticized credits. In addition, a percentage of non-criticized credits is also computed for purposes of the allowance requirement. The sum of these two allocations is compared with the actual allowance for sufficiency. Based on its quarterly review as of June 30, 1998, management believes no provision for credit losses was necessary. Management believes that the allowance for credit losses is adequate to cover known and inherent losses related to loans and leases outstanding as of June 30, 1998. Securities - ----------- The Company classifies its securities as held to maturity or available for sale. Securities classified as held to maturity are those that the Company has the positive intent and ability to hold until maturity. These securities are carried at amortized cost. Securities that could be sold in response to changes in interest rates, increased loan demand, liquidity needs, capital requirements or other similar factors, are classified as securities available for sale. These securities are carried at fair value, with unrealized gains or losses reflected net of tax in stockholders' equity. As of June 30, 1998, the Company recorded net unrealized gains of $4,395,000 on its available-for-sale portfolio. Stockholders' equity includes $2,547,000, representing the net unrealized gain, net of tax. The amortized cost, gross unrealized gains, gross unrealized losses and fair value of securities at June 30, 1998 and December 31, 1997 were as follows:
Gross Gross (In Thousands) Amortized Unrealized Unrealized Fair June 30, 1998 Cost Gains Losses Value - ---------------------------------------------------------------------------------------------------- Securities Held to Maturity U.S. Government Agencies $ 77,392 $ 102 $ - $ 77,494 Collateralized Mortgage Obligations 31 - - 31 ----------- --------- ------ ----------- Total Securities Held to Maturity $ 77,423 $ 102 $ - $ 77,525 =========== ========= ====== =========== Securities Available for Sale U. S. Treasuries $ 1,874 $ - $ (3) $ 1,871 U.S. Government Agencies 132,850 103 - 132,953 Mortgage Backed Securities 49,511 372 - 49,883 Corporate Notes 9,002 55 - 9,057 Collateralized Mortgage Obligations 245,659 1,095 - 246,754 Asset Backed Securities 201,956 2,773 - 204,729 Other Securities 5,829 - - 5,829 ----------- --------- ------ ----------- Total Securities Available for Sale $ 646,681 $ 4,398 $ (3) $ 651,076 =========== ========= ====== =========== Gross Gross (In Thousands) Amortized Unrealized Unrealized Fair December 31,1997 Cost Gains Losses Value - --------------------------------------------------------------------------------------------------- Securities Held to Maturity U.S. Government Agencies $ 58,003 $ 124 $ - $ 58,127 Collateralized Mortgage Obligations 42 - - 42 ----------- --------- ------ ----------- Total Securities Held to Maturity $ 58,045 $ 124 $ - $ 58,169 =========== ========= ====== =========== Securities Available for Sale U. S. Treasuries $ 6,889 $ 11 $ - $ 6,900 U.S. Government Agencies 220,205 187 - 220,392 Mortgage Backed Securities 57,167 326 - 57,493 Corporate Notes 9,006 175 - 9,181 Collateralized Mortgage Obligations 188,092 460 - 188,552 Asset Backed Securities 135,263 1,710 - 136,973 Auctioned Preferred Stock 18,500 - - 18,500 Other Securities 5,669 - - 5,669 ----------- --------- ------ ----------- Total Securities Available for Sale $ 640,791 $ 2,869 $ - $ 643,660 =========== ========= ====== ===========
There were no sales of securities during the six months ended June 30, 1998 and 1997. Deposits - --------- The Company's deposits totaled $1,384.1 million as of June 30, 1998, representing a $92.3 million, or 7.1%, increase from total deposits of $1,291.8 million as of December 31, 1997. The net growth was primarily due to increases in interest-bearing demand deposits and other time deposits which grew $63.3 million and $48.3 million, respectively. Included in the balance of time certificates of deposit of $100,000 or more is $93 million of deposits from the state of California, up $15 million from December 31, 1997, and unchanged from March 31, 1998. Factoring out the $15 million growth of these deposits during the first quarter ended March 31, 1998, time certificates of deposits of $100,000 or more declined $24.7 million as of June 30, 1998 compared to December 31, 1997. There were no brokered deposits outstanding as of June 30, 1998. The Company believes that the majority of its deposit customers have strong ties to the Bank. Although the Company has a significant amount of time deposits of $100,000 or more having maturities of one year or less, in the past the depositors have generally renewed their deposits at their maturity. Accordingly, the Company believes its deposit source to be stable. The maturity schedule of time certificates of deposit of $100,000 or more, as of June 30, 1998, is as follows:
(IN THOUSANDS) - ------------------------------------------------------------ 3 Months or Less $ 287,422 Over 3 Months Through One Year 295,203 Over One Year through 5 Years 2,769 ----------- Total $ 585,394 ===========
Subordinated Debt - ------------------ 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. The discount is amortized as a yield adjustment over the 10-year life of the notes. Capital Resources - ------------------ As of June 30, 1998, stockholders' equity totaled $161.2 million, an increase of $14.9 million, or 10.2%, from $146.3 million as of December 31, 1997. The increase was due to net income of $13.5 million, less cash dividends declared to stockholders of $2.1 million, plus the net change in other comprehensive income, net of tax, of $0.9 million, plus the exercise of stock options and related tax benefit totaling $2.6 million. Capital ratios for the Company and for the Bank were as follows as of the dates indicated:
Well-Capitalized June 30, December 31, Requirements 1998 1997 - -------------------------------------------------------------------------------- GBC Bancorp Tier 1 Leverage Ratio 5% 9.98% 9.58% Tier 1 Risk-Based Capital Ratio 6% 12.85% 13.57% Total Risk-Based Capital Ratio 10% 17.25% 18.47% General Bank Tier 1 Leverage Ratio 5% 9.05% 8.78% Tier 1 Risk-Based Capital Ratio 6% 11.66% 12.45% Total Risk-Based Capital Ratio 10% 12.91% 13.71%
For the six months ended June 30, 1998, the ratio of the Company's average stockholders' equity to average assets was 9.88%. For the year ended December 31, 1997, this ratio was 9.11%. The increase of the ratio is due to average capital increasing more rapidly than the growth of average assets. Liquidity and Market Risk - -------------------------- Liquidity measures the ability of the Company to meet fluctuations in deposit levels, to fund its operations and to provide for customers' credit needs. Liquidity is monitored by management on an on-going basis. Asset liquidity is provided by cash and short-term financial instruments which include federal funds sold and securities purchased under agreements to resell, unpledged securities held to maturity maturing within one year and unpledged securities available for sale. These sources of liquidity amounted to $678.9 million, or 42.1% of total assets, as of June 30, 1998, compared to $696.3 million, or 46.1% of total assets, as of December 31, 1997. 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 360 months. Management believes its liquidity sources to be stable and adequate. As of June 30, 1998, total loans and leases represented 51.9% of total deposits. This compares to 49.8 and 49.5% as of March 31, 1998 and December 31, 1997, respectively. The liquidity of the parent company, GBC Bancorp, is primarily dependent on the payment of cash dividends by its subsidiary, General Bank, subject to the limitations imposed by the Financial Code of the State of California. For the six months ended June 30, 1998, General Bank declared cash dividends of $2.2 million to GBC Bancorp. Derivatives - ------------ As of June 30, 1998 and December 31, 1997, there were no derivative financial instruments. As of June 30, 1997, the amount of derivative financial instruments outstanding was $2 million. "GAP" measurement - ------------------ While no single measure can completely identify the impact of changes in interest rates on net interest income, one gauge of interest rate sensitivity is to measure, over a variety of time periods, contractual differences in the amounts of the Company's rate sensitive assets and rate sensitive liabilities. These differences, or "gaps", provide an indication of the extent that net interest income may be affected by future changes in interest rates. However, these contractual "gaps" do not take into account timing differences between the repricing of assets and the repricing of liabilities. A positive gap exists when rate sensitive assets exceed rate sensitive liabilities and indicates that a greater volume of assets than liabilities will reprice during a given period. This mismatch may enhance earnings in a rising rate environment and may inhibit earnings when rates decline. Conversely, when rate sensitive liabilities exceed rate sensitive assets, referred to as a negative gap, it indicates that a greater volume of liabilities than assets will reprice during the period. In this case, a rising interest rate environment may inhibit earnings and declining rates may enhance earnings. "Gap" reports originated as a means to provide management with a tool to monitor repricing differences, or "gaps", between assets and liabilities repricing in a specified period, based upon their underlying contractual rights. The use of "gap" reports is thus limited to a quantification of the "mismatch" between assets and liabilities repricing within a unique specified timeframe. Contractual "Gap" reports cannot be used to quantify exposure to interest rate changes because they do not take into account timing differences between repricing assets and liabilities, and changes in the amount of prepayments. As of June 30, 1998, there was a cumulative one-year negative "gap" of $514.8 million, up from $462.7 million as of December 31, 1997. The negative gaps would appear to be predictive of an increase in the net interest margin had the average prime rate of interest declined. There was, however, no change in the prime rate of interest between the fourth quarter of 1997 and the first and second quarters of 1998. The following table indicates the Company's interest rate sensitivity position as of June 30, 1998, and is based on contractual maturities. It may not be reflective of positions in subsequent periods:
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 - ---------------------------------------------------------------------------------------------------------------------------- Earning Assets: Securities Available for Sale $ 47,883 $ 34,925 $ 92,912 $ 475,356 $ - $ 651,076 Securities Held to Maturity - - 56,454 20,969 - 77,423 Federal Funds Sold & Securities Purchased Under Agreement to Resell 104,650 - - - - 104,650 Loans and Leases (1) (2) 510,383 16,060 85,068 94,777 - 706,288 Non-interest Earning Assets (2) - - - - 71,561 71,561 ----------- ----------- ----------- ----------- ----------- ------------- Total Assets $ 662,916 $ 50,985 $ 234,434 $ 591,102 $ 71,561 $ 1,610,998 =========== =========== =========== =========== =========== ============= Source of Funds for Assets: Deposits: Demand - N/B $ - $ - $ - $ - $ 150,729 $ 150,729 Interest Bearing Demand 282,046 - - - - 282,046 Savings 85,552 - - - - 85,552 TCD'S Under $100,000 123,391 155,047 1,951 - - 280,389 TCD'S $100,000 and Over 288,239 294,386 2,769 - - 585,394 ----------- ----------- ----------- ----------- ----------- ------------- Total Deposits $ 779,228 $ 449,433 $ 4,720 $ - $ 150,729 $ 1,384,110 ----------- ----------- ----------- ----------- ----------- ------------- Subordinated Debt $ - $ - $ - $ 38,810 $ - $ 38,810 Other Liabilities - - - - 26,852 26,852 Stockholders' Equity - - - - 161,226 161,226 ----------- ----------- ----------- ----------- ----------- ------------- Total Liabilities and Stockholders' Equity $ 779,228 $ 449,433 $ 4,720 $ 38,810 $ 338,807 $ 1,610,998 =========== =========== =========== =========== =========== ============= Interest Sensitivity Gap $(116,312) $(398,448) $ 229,714 $ 552,292 $(267,246) Cumulative Interest Sensitivity Gap $(116,312) $(514,760) $(285,046) $ 267,246 - Gap Ratio (% of Total Assets) -7.2% -24.7% 14.3% 34.3% -16.6% Cumulative Gap Ratio -7.2% -32.0% -17.7% 16.6% 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-interest earning assets. Effective asset/liability management includes maintaining adequate liquidity and minimizing the impact of future interest rate changes on net interest income. The Company attempts to manage its interest rate sensitivity on an on-going basis through the analysis of the repricing characteristics of its loans, securities, and deposits, and managing the estimated net interest income volatility by adjusting the terms of its interest-earning assets and liabilities, and through the use of derivatives as needed. Market risk - ------------ Market risk is the risk of financial loss arising from adverse changes in market prices and interest rates. The Company's market risk is inherent in its lending and deposit taking activities to the extent of differences in the amounts maturing or degree of repricing sensitivity. Adverse changes in market prices and interest rates may therefore result in diminished earnings and ultimately an erosion of capital. Since the Company's profitability is affected by changes in interest rates, management actively monitors how changes in interest rates may affect earnings and ultimately the underlying market value of equity. Management monitors interest rate exposure through the use of three basic measurement tools in conjunction with established risk limits. These tools are the expected maturity gap report, net interest income volatility and market value of equity volatility reports. The gap report details the expected maturity mismatch or gap between interest earning assets and interest bearing liabilities over a specified timeframe. The expected gap differs from the contractual gap report shown earlier in this section by adjusting contractual maturities for expected prepayments of principal on loans and amortizing securities as well as the projected timing of repricing non-maturity deposits. The following table shows the Company's financial instruments that are sensitive to changes in interest rates categorized by their expected maturity, as of June 30, 1998:
INTEREST SENSITIVITY -------------------------------------------------------------------------- 0 to 90 91 to 365 Over 1 Year Over (In Thousands) Days Days to 5 Years 5 Years Total - ------------------------------------------------------------------------------------------------------------------- Interest-sensitive Assets: Securities Available for Sale $ 65,498 $ 170,440 $ 367,446 $ 47,692 $ 651,076 Securities Held to Maturity 14,729 33,633 29,061 - 77,423 Federal Funds Sold & Securities Purchased Under Agreement to Resell 104,650 - - - 104,650 Loans and Leases (1) 510,383 16,060 85,068 94,777 706,288 ----------- ----------- ----------- ----------- ------------- Total Interest-sensitive Assets $ 695,260 $ 220,133 $ 481,575 $ 142,469 $ 1,539,437 =========== =========== =========== =========== ============= Interest-sensitive Liabilities: Deposits: Interest Bearing Demand $ 14,562 $ 43,688 $ 223,796 $ - $ 282,046 Savings 4,277 12,833 68,442 - 85,552 Time Deposits 409,097 451,902 4,784 - 865,783 ----------- ----------- ----------- ----------- ------------- Total Deposits $ 427,936 $ 508,423 $ 297,022 $ - $ 1,233,381 ----------- ----------- ----------- ----------- ------------- Subordinated Debt $ - $ - $ - $ 38,810 $ 38,810 ----------- ----------- ----------- ----------- ------------- Total Interest-sensitive Liabilities $ 427,936 $ 508,423 $ 297,022 $ 38,810 $ 1,272,191 =========== =========== =========== =========== =============
(1) Loans and leases are net of non-accrual loans and before unamortized deferred loan fees and allowance for credit losses. Expected maturities of assets are contractual maturities adjusted for projected payment based on contractual amortization and unscheduled prepayments of principal as well as repricing frequency. Expected maturities for deposits are based on contractual maturities adjusted for projected rollover rates and changes in pricing for non-maturity deposits. The Company utilizes assumptions supported by documented analysis for the expected maturities of its loans and repricing of its deposits and relies on third party data providers for prepayment projections for amortizing securities. The actual maturities of these instruments could vary significantly if future prepayments and repricing differ from the Company's expectations based on historical experience. The Company uses a computer simulation analysis to attempt to predict changes in the yields earned on assets and the rates paid on liabilities in relation to changes in market interest rates. The net interest income volatility and market value of equity volatility reports measure the exposure of earnings and capital respectively, to immediate incremental changes in market interest rates as represented by the prime rate change of 100 to 200 basis points. Market value of portfolio equity is defined as the present value of assets minus the present value of liabilities and off balance sheet contracts. The table below shows the estimated impact of changes in interest rates on net interest income and market value of equity as of June 30, 1998:
NET INTEREST MARKET VALUE OF CHANGE IN INTEREST INCOME VOLATILITY PORTFOLIO EQUITY VOLATILITY RATES (BASIS POINTS) JUNE 30, 1998 (1) JUNE 30, 1998 (2) - -------------------------------------------------------------------------------- +200 2.85% -11.98% +100 1.66% -5.48% -100 -5.76% 1.81% -200 -12.06% 3.32%
(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. 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. Recent Developments - -------------------- During 1998, significant disruptions to certain financial markets in Asia have continued. Although the Company engages in significant international trade financing, the majority of the business involves imports and is U.S. dollar denominated. The Company has no outstanding foreign loans in its loan portfolio as of June 30, 1998. The primary source of repayment for substantially all of the Company's loans is from the cash flow generated from the borrowers' operations, which are located within the United States. There could be adverse financial impacts on individual borrowers as they adjust their businesses to the changes caused by the financial disruptions, but at this time, management believes that negative impacts, if any, could be outweighed by increased business for the Company's customers. Year 2000 - ---------- The Company's main software systems have been licensed from large vendors who have provided certifications of year 2000 compliance. Tests have confirmed such compliance for these main software systems. Certain ancillary systems that operate on personal computers are also licensed and the vendors have informed the Company that releases conforming to year 2000 requirements will be received this year. Management formed a task force in 1997 to oversee year 2000 compliance and does not expect that there will be material impact nor expense for its systems. The Company has sent questionnaires regarding the impact of Year 2000 to its major loan customers, and is awaiting the completion of these questionnaires. It then will prepare an assessment of year 2000 risk of its customers. Forward-Looking Statements - --------------------------- Certain statements contained herein, including, without limitation, statements containing the words "believes," "intends," "expects" and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economics and business conditions in those areas in which the Company operates; demographic changes; competition; fluctuations in interest rates; changes in business strategy or development plans; changes in governmental regulation; credit quality; and other factors referenced herein, including, without limitation, under the captions Provision for Credit Losses, Non-Performing Assets, Allowance for Credit Losses, Market Risk Liquidity and Interest Rate Sensitivity, and Recent Developments. Given these uncertainties, the reader is cautioned not to place undue reliance on such foward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. Recent Accounting Developments - ------------------------------- Accounting for Derivative Instruments and Hedging Activities - ------------------------------------------------------------- Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities", ("SFAS No. 133"), establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency denominated forecasted transaction. The accounting for changes in fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Initial application of SFAS 133 must be as of the beginning of an entity's fiscal quarter; on that date, hedging relationships must be designated anew and documented pursuant to the provisions of SFAS 133. SFAS 133 is not to be applied retroactively to financial statements of prior periods. Management does not believe that there will be a material adverse impact on the financial position or results of operations of the Company upon adoption of SFAS 133. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS - -------------------------- The Bank is a defendant in various lawsuits arising from the normal course of business. No material legal proceedings to which the Registrant or its subsidiaries is a party have been initiated or terminated during the quarter ended June 30, 1998. There have been no significant developments in any material pending legal proceedings involving the Registrant or its subsidiaries during this same quarter. Item 2. CHANGES IN SECURITIES - ------------------------------- There have been no changes in the securities of the Registrant during the quarter ended June 30, 1998. Item 3. DEFAULT UPON SENIOR SECURITIES - ---------------------------------------- This item is not applicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - --------------------------------------------------------------- At the Annual Meeting of Shareholders held on May 7, 1998, a proposal to elect fourteen directors to the Board of Directors of the Registrant to hold office until the next meeting and until their successors are elected and qualified was approved by shareholders. This proposal received the following votes:
For Withheld ------------- ------------- Helen Y. Chen 5,753,688 7,765 Thomas C. T. Chiu 5,758,788 2,665 Chuang-I Lin 5,758,788 2,665 Ko-Yen Lin 5,758,788 2,665 Ting Yung Liu 5,758,788 2,665 John Wang 5,758,788 2,665 Kenneth Wang 5,633,489 127,964 Chien-Te Wu 5,758,788 2,665 Julian Wu 5,758,788 2,665 Li-Pei Wu 5,758,788 2,665 Peter Wu 5,758,788 2,665 Ping C. Wu 5,758,788 2,665 Walter Wu 5,758,788 2,665 Chin-Liang Yen 5,633,489 127,964
There was also a proposal to approve the incentive compensation award program included in the employment agreement between GBC Bancorp and Mr. Li-Pei Wu. The proposal received the following votes:
For Against Withheld ----------- --------- ---------- 5,440,971 292,516 27,966 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: 08/12/98 s/ Li-Pei Wu ------------------ -------------------------- Li-Pei Wu, Chairman and Chief Executive Officer Dated: 08/12-98 s/ Peter Lowe ------------------ -------------------------- Peter Lowe, Executive Vice President and Chief Financial Officer
EX-27 2
9 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 39,290 0 104,650 0 651,076 77,423 77,525 718,819 15,538 1,610,998 1,384,110 0 26,852 38,810 55982 0 0 105,244 1,610,998 34,452 26,421 6 60,879 26,469 1,757 32,653 0 0 14,810 21,428 13,474 0 0 13,474 0.95 0.94 4.37 12,531 1,745 18,232 0 16,776 1,639 401 15,538 15,538 0 0
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