-----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, TB9k/0adqMNQhnP8mcsUf4Mz81WWzlP/jGULdeCvsSEyyfZrBGTayOEVlAV126Ct lhNhgRm1BdexdpxlfsHzkA== 0000351710-99-000001.txt : 19990517 0000351710-99-000001.hdr.sgml : 19990517 ACCESSION NUMBER: 0000351710-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99621130 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 FORM 10-Q Quarterly Report under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Quarter Ended March 31, 1999 Commission file number 0-16213 -------------- ------- GBC BANCORP - -------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 95-3586596 - -------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 800 West 6th Street, Los Angeles, California 90017 - -------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code 213/972-4172 - -------------------------------------------------------------------- Former name address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Common stock, no par value, 13,327,998 shares issued and outstanding as of March 31, 1999. 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, (Dollars In Thousands) 1999 1998 - ---------------------------------------------------------------------- ASSETS Cash and Due From Banks $ 31,149 $ 27,514 Federal Funds Sold and Securities Purchased Under Agreements to Resell 40,000 101,000 Securities Available for Sale at Fair Value (Amortized Cost of $745,406 and $721,000 at March 31, 1999 and December 31, 1998, Respectively) 747,551 724,172 Securities Held to Maturity (Fair Value of $6,033 and $24,677 at March 31, 1999 and December 31, 1998, Respectively) 6,014 24,616 Loans and Leases 824,450 788,945 Less: Allowance for Credit Losses (20,492) (19,381) Deferred Loan Fees (5,553) (5,914) ----------- ----------- Loans and Leases, Net 798,405 763,650 Bank Premises and Equipment, Net 5,474 5,656 Other Real Estate Owned, Net 5,570 6,885 Due From Customers on Acceptances 7,684 7,249 Real Estate Held for Investment 6,702 7,034 Accrued Interest Receivable and Other Assets 11,755 13,048 ----------- ----------- Total Assets $ 1,660,304 $ 1,680,824 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand $ 153,001 $ 149,397 Interest Bearing Demand 266,233 280,294 Savings 84,595 81,051 Time Certificates of Deposit of $100,000 or More 624,144 599,669 Other Time Deposits 246,251 270,492 ----------- ----------- Total Deposits 1,374,224 1,380,903 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 6,000 - Borrowings from the Federal Home Loan Bank 50,000 35,000 Subordinated Debt 38,908 38,876 Acceptances Outstanding 7,684 7,249 Accrued Expenses and Other Liabilities 24,004 55,766 ----------- ----------- Total Liabilities 1,500,820 1,517,794 Stockholders' Equity: Common Stock, No Par or Stated Value; 40,000,000 Shares Authorized ; 13,327,998 and 13,711,998 shares Outstanding at March 31, 1999 and December 31,1998, Respectively $ 56,875 $ 56,303 Accumulated Other Comprehensive Income 1,234 1,829 Retained Earnings 101,375 104,898 ----------- ----------- Total Stockholders' Equity 159,484 163,030 ----------- ----------- Total Liabilities and Stockholders' Equity $ 1,660,304 $ 1,680,824 =========== =========== See Accompanying Notes to Consolidated Financial Statements
GBC Bancorp & Subsidiaries Consolidated Statements of Income
For The Three Months Ended March 31, (In Thousands, Except Per Share Data) 1999 1998 - ---------------------------------------------------------------------- INTEREST INCOME Loans and Leases, Including Fees $ 18,826 $ 16,570 Securities Available for Sale 10,890 9,888 Securities Held to Maturity 305 1,237 Federal Funds Sold and Securities Purchased under Agreements to Resell 1,132 1,985 Other 1 6 -------- -------- Total Interest Income 31,154 29,686 INTEREST EXPENSE Interest Bearing Demand 1,635 1,373 Savings 418 648 Time Certificates of Deposits of $100,000 or More 7,100 7,763 Other Time Deposits 2,883 3,059 Federal Funds Purchased and Securities Sold under Repurchase Agreements 17 4 Borrowings from the Federal Home Loan Bank 504 - Subordinated Debt 870 870 -------- -------- Total Interest Expense 13,427 13,717 Net Interest Income 17,727 15,969 Provision for Credit Losses 1,500 - -------- -------- Net Interest Income after Provision for Credit Losses 16,227 15,969 NON-INTEREST INCOME Service Charges and Commissions 1,640 1,437 Gain on Sale of Loans, Net 99 19 Other 113 317 -------- -------- Total Non-Interest Income 1,852 1,773 NON-INTEREST EXPENSE Salaries and Employee Benefits 4,472 4,295 Occupancy Expense 763 728 Furniture and Equipment Expense 610 485 Net Other Real Estate Owned Expense 46 312 Other 1,704 1,484 -------- -------- Total Non-Interest Expense 7,595 7,304 Income before Income Taxes 10,484 10,438 Provision for Income Taxes 3,919 3,807 -------- -------- Net Income $ 6,565 $ 6,631 ======== ======== Earnings Per Share: Basic $ 0.48 $ 0.47 Diluted 0.47 0.46 ======== ========
See Accompanying Notes to Consolidated Financial Statements GBC BANCORP & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except per Share Amounts) Accumulated Other Total Common Stock Retained Comprehensive Comprehensive Stockholders' Shares Amount Earnings Income Income Equity ----------------------------------------------------------------------------------- Balance at December 31,1997 13,990 $53,314 $ 91,355 $1,654 $146,323 - --------------------------- Comprehensive Income Net Income for the year - - 28,142 - $28,142 28,142 Other Comprehensive Income, --------- Net of Tax Net Changes in Securities Valuation Allowance - - - 175 175 175 Foreign Currency Translation Adjustment - - ---------- Comprehensive Income $28,317 ======= Stock Options Exercised 187 1,375 - - 1,375 Tax Benefit-Stock Options Exercised - 1,614 - - 1,614 Stock Repurchase (465) (10,386) (10,386) Cash Dividend- $30 per Share - - (4,213) - (4,213) ------------------------------------------- ----------- Balance at December 31 ,1998 $13,712 $56,303 $104,898 $1,829 $163,030 ======= ======= ======== ====== ======== Comprehensive Income Net Income for the Quarter - - 6,565 - $6,565 6,565 ---------- Other Comprehensive Income, Net of Tax Net Changes in Securities Valuation Allowance - - - (595) (595) (595) Foreign Currency Translation Adjustment - - - ---------- Comprehensive Income $5,970 ====== Stock Options Exercised 39 376 - - 376 Tax Benefit-Stock Options - 196 - - 196 Exercised Stock Repurchase (423) (9,088) (9,088) Cash Dividend-$.075 per Share - - (1,000) - (1,000) ------------------------------------------- ----------- Balance at March 31, 1999 13,328 $56,875 $101,375 $1,234 $159,484 ====== ======= ======== ====== ========
Disclosure of Reclassification Amount: For the Quarter For the Year Ended Mar.31,99 Ended Dec.31,98 Net Change of Unrealized Holding Gains (Losses) Arising During Period Net of Tax Expense(Benefit) of $(433,000) and $172,000 in 1999 and 1998, Respectively $ (596) $ 237 Less: Reclassification Adjustment for Gains Included in Net Income Net of Tax Expense of $0 and $45,000 in 1999 and 1998, Respectively - (62) Net Change of Unrealized Gains on Securities Net of Tax Expense (Benefit) ----------- ------------ of $(433,000) and $127,000 in 1999 and 1998, Respectively. $ (596) $ 175 =========== ============
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) 1999 1998 - ----------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Income $ 6,565 $ 6,631 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 360 313 Net Amortization/(Accretion) of Premiums/Discounts on Securities 159 (83) Accretion of Discount on Subordinated Notes 32 32 Writedown on Real Estate Held for Investment 332 331 Write-off of Goodwill 256 - Provision for Credit Losses 1,500 - Amortization of Deferred Loan Fees (1,130) (710) Gain on Sale of Loans (99) (19) Gain on Sale of Other Real Estate Owned (151) (14) Proceeds from Sales of Loans Originated for Sale - 19 Net Increase in Accrued Interest Receivable and Other Assets 1,293 1,744 Net Decrease in Accrued Expenses and Other Liabilities (31,231) (2,937) Other, Net - 1 ---------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (22,114) $ 5,308 ---------- ----------- INVESTING ACTIVITIES: Purchases of Securities Available for Sale (155,697) (70,947) Proceeds from Maturities of Securities Available for Sale 131,087 95,339 Purchases of Securities Held to Maturity - (50,090) Proceeds from Maturities of Securities Held to Maturity 18,648 13,933 Net Increase in Loans and Leases (35,189) (34,077) Proceeds from Sales of Other Real Estate Owned 1,812 832 Capitalized Costs of Other Real Estate Owned (283) - Purchases of Premises and Equipment (211) (257) ---------- ----------- NET CASH USED BY INVESTING ACTIVITIES $ (39,833) $ (45,267) ---------- ----------- FINANCING ACTIVITIES: Net Increase/(Decrease) in Demand, Interest Bearing Demand and Savings Deposits (6,913) 16,853 Net Increase in Time Certificates of Deposits 234 43,487 Net Increase in Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 6,000 - Borrowings from the Federal Home Loan Bank 15,000 - Stock Repurchase Program (9,087) - Cash Dividends Paid (1,028) (839) Proceeds from Exercise of Stock Options 376 1,076 --------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES $ 4,582 $ 60,577 --------- ---------- NET CHANGE IN CASH AND CASH EQUIVALENTS (57,365) 20,618 Cash and Cash Equivalents at Beginning of Period 128,514 140,519 -------- ------- Cash and Cash Equivalents at End of Period $ 71,149 $ 161,137 ======== ========= Supplemental Disclosures of Cash Flow Information: Cash Paid During This Period for: Interest $ 13,205 $ 13,453 Income Taxes 1,155 350 ======== ========= Noncash Investing Activities: Loans Transferred to Other Real Estate Owned at Fair Value $ 64 $ 151 ======== =========
See Accompanying Notes to Consolidated Financial Statements GBC Bancorp and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ In the opinion of management, the unaudited consolidated financial statements of GBC Bancorp and its subsidiaries (the "Company") as of March 31, 1999 and December 31, 1998 and the quarter ended March 31, 1999 and 1998, reflect all adjustments (which consist only of normal recurring adjustments) necessary for a fair presentation. Operating results for the three months ended March 31, 1999, are not necessarily indicative of the results that may be expected for the full year ending December 31, 1999. In the opinion of management, the aforementioned consolidated financial statements are in conformity with general accepted accounting principles. Earnings Per Share - ------------------ Basic earnings per share is determined by dividing net income by the weighted average number of shares of common stock outstanding, while diluted earnings per share is determined by dividing net income by the weighted average number of shares of common stock outstanding adjusted for the dilutive effect of common stock equivalents. Earnings per share for the three months ended March 31, 1998 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 - -------- For the quarter ended March 31, 1999, net income totaled $6,565,000, or $0.47 diluted earnings per share, compared to $6,631,000, or $0.46 diluted earnings per share for the first quarter of 1998. The 1998 earnings per share reflect the 2 for 1 split of the stock to shareholders of record on April 30, 1998 and issued and distributed on May 15, 1998. During the first quarter, the Company announced that a borrower with an outstanding loan balance of $31 million informed its subsidiary bank, General Bank (the "Bank"), that it has filed a bankruptcy proceeding. Accordingly, the Bank placed the loan on non-accrual. The loan was for the construction of a casino in Las Vegas, Nevada, and is collateralized by a first trust deed on the building. In addition, the loan is collateralized by second trust deeds on an associated hotel and on an RV park and by a first trust deed on undeveloped land, all of which are also located in Las Vegas, Nevada. There was also a take-out commitment from another financial institution to pay off the loan at the end of construction. A review of the collateral indicates sufficient value to repay the loan's principal balance, together with interest and expenses. The $66,000, or 1.0%, decrease in net income from the same period of 1998 was primarily caused by a $1,500,000 provision for credit losses recorded in 1999. For the quarter ended March 31, 1998, there was no provision for credit losses recorded. At quarter-end, an allocation of the allowance for credit losses for the $31 million non-accrual loan was made. Substantially all of the remaining construction loans are for the construction of residential properties, and the loans are disbursed in phases as the developers complete and sell portions of the projects. Excluding the casino loan, there are nine real estate lending commitments exceeding $10 million, of which five have loans outstanding in excess of $10 million and the largest such loan is $17 million. There also is a $20 million real estate term loan commitment. In addition, there also are twelve commercial loan lending commitments exceeding $10 million, of which five have loans outstanding exceeding $10 million and the largest such loan is $21 million. The risk potential of loans is a function of many factors, including the type and amount of collateral associated with the loan, in addition to the amount of the loan outstanding. The annualized return on average assets ("ROA") for the Company was 1.59% and 1.75% for the quarter ended March 31, 1999 and 1998, respectively. The annualized return on average stockholders' equity ("ROE") for the quarter ended March 31, 1999 and 1998 was 16.3% and 17.8%, respectively. RESULTS OF OPERATIONS - --------------------- Net Interest Income - ------------------- For the quarter ended March 31, 1999 and 1998, net interest income before the provision for credit losses was $17,727,000 and $15,969,000, respectively, representing an increase of $1,758,000, or 11.0%. The components explaining this increase are discussed below. Interest Income - --------------- Total interest income for the quarter ended March 31, 1999 was $31,154,000 compared to $29,686,000 for the corresponding period of a year ago. The increase of $1,468,000, or 4.9%, was due to an increase of average earning assets. For the quarter ended March 31, 1999 and 1998, average earning assets were $1,627 million and $1,476 million, respectively, representing a $151 million, or 10.2%, growth. The impact of the growth of average earning assets was partially offset by a decrease of the yield on earning assets from 8.16% to 7.77%, for the quarter ended March 31, 1998 and 1999, respectively. The reduction of the yield is due to decreases of the yield on all interest-earning categories, primary among which was an 88- basis decline of the yield on loans and leases. The average prime rate of interest during the quarter ended March 31, 1999 and 1998 was 7.75% and 8.50%, respectively. The reduced yields on all categories of earning assets was partially offset by the increase of average loans and leases, the highest yielding earning assets, as a percent of total average earning assets. For the quarter ended March 31, 1999 and 1998, average loans and leases represented 49.7% and 44.1%, respectively, of total average earning assets. Interest Expense - ---------------- Total interest expense for the quarter ended March 31, 1999 was $13,427,000 compared to $13,717,000 for the corresponding period of a year ago. The decrease of $290,000, or 2.1%, was due to the decline of the cost of funds from 4.59% for the quarter ended March 31, 1998 to 4.13% for the quarter ended March 31, 1999. The rates paid on all categories of deposit products decreased with the largest impact in time certificates of deposit of $100,000 or more which declined 61-basis points from 5.28% to 4.67%. The result of the above was a 49-basis point decrease in the rates paid on interest-bearing deposits. For the quarter ended as indicated, average balance and rates paid for the deposit categories were as follows:
For the Quarter Ended March 31, (Dollars in Thousands) 1999 1998 - ----------------------------------------------------------------- Interest-bearing demand - Average balance $ 281,950 $ 232,803 Rate 2.35% 2.39% Savings - Average balance 79,379 95,070 Rate 2.14% 2.76% Time certificates of deposit of $100,000 or more - Average balance 616,412 595,894 Rate 4.67% 5.28% Other time deposits - Average balance 257,443 249,417 Rate 4.54% 4.97%
The impact on interest expense of the rate reduction of the cost of funds was partially offset by an increase of the average interest-bearing liabilities. For the quarter ended March 31, 1999 and 1998 average interest-bearing liabilities were $1,317.8 million and $1,212.3 million, respectively, an increase of $105.5 million, or 8.7%. Included in this increase was $42.4 million of advances with the Federal Home Loan Bank of San Francisco. The net interest spread, defined as the yield on earning assets less the rates paid on interest-bearing liabilities, increased to 3.64% for the quarter ended March 31, 1999 from 3.57% for the corresponding period of a year ago. The increase is primarily due to the reduced cost of funds as explained above. The net interest margin, defined as the annualized difference between interest income and interest expense divided by average interest earning assets, increased to 4.42% for the quarter ended March 31, 1999, from 4.39% for the corresponding period of a year ago. Provision for Credit Losses - --------------------------- For the quarter ended March 31, 1999, the provision for credit losses was $1,500,000. For the quarter ended March 31, 1998, there was no provision for credit losses. At quarter end, the Company made an allocation of the allowance for credit losses for the $31 million construction loan placed on non-accrual in the first quarter and discussed above. Although the Company anticipates the full recapture of principal, interest and estimated expenses, it cannot determine the timing of the liquidation of the assets nor the actual values at that time. For the quarter ended March 31,1999 and 1998, net charge- offs were $389,000 and $928,000, respectively. The amount of the provision for credit losses is determined by management and is based upon the quality of the loan portfolio, management's assessment of the economic environment, evaluations made by regulatory authorities, historical loan loss experience, collateral values, assessment of borrowers' ability to repay, and estimates of potential future losses. Please refer to the discussion "Allowance for Credit Losses", following. Non-Interest Income - ------------------- Non-interest income for the quarter ended March 31, 1999 totaled $1,852,000 compared to $1,773,000 for the same period ended March 31, 1998. The net increase of $79,000, or 4.5%, was primarily attributable to an increase in service charges and commissions due mainly to increases of commissions on both standby and commercial letters of credit. There was a reduction in other income in the current quarter, as compared to the first quarter of 1998, due primarily to the closure of the Bank's escrow subsidiary. Non-Interest Expense - -------------------- Non-interest expense for the quarter ended March 31, 1999, totaled $7,595,000, a $291,000, or 4.0%, increase over the $7,304,000 recorded in the same period of 1998. Included in other expense, which increased $220,000 for the first quarter, was a $256,000 write-off of the intangible asset associated with the Bank's escrow subsidiary. The assets of this subsidiary were sold to a third party. For the quarter ended March 31,1999, the Company's efficiency ratio, defined as non-interest expense divided by the sum of net interest income plus non-interest income, declined to 38.8%, comparing favorably to 41.2% for the corresponding period of 1998. Provision for Income Taxes - -------------------------- For the quarter ended March 31, 1999, the provision for income taxes was $3,919,000, representing 37.4% of pre-tax income. The provision for the quarter ended March 31, 1998 was $3,807,000, representing 36.5% of pre-tax income. The increase of the effective tax rate was primarily responsible for the $112,000 increase of the tax provision. The increase of the effective tax rate was mainly the result of the expiration on November 30, 1998 of the Los Angeles Revitalization Zone California tax incentive. FINANCIAL CONDITION - ------------------- Total assets as of March 31, 1999, were $1,660.3 million representing a $20.5 million, or 1.2%, decrease from total assets of $1,680.8 million as of December 31, 1998. The decline of total assets from December 31, 1998 to March 31, 1999 is primarily due to the settlement in January of $30 million of securities that were traded in December and the continued repurchase of Company stock pursuant to the stock repurchase program. For the quarter ended March 31, 1998, $9.1 million was paid for 423,100 shares. In addition, deposits declined $6.7 million from December 31, 1998 to March 31, 1999 primarily due to $14.1 million decline of interest-bearing demand deposits. Offsetting the above was a $15.0 million increase in borrowings from the FHLB. Loans - ----- As of March 31, 1999, total loans and leases were $824.5 million compared to $788.9 million as of December 31, 1998, representing a $35.6 million, or 4.5% increase. All major categories of loans experienced growth during the first quarter of 1999, led by increases of $17.9 million, or 6.8%, in the real estate- conventional portfolio. This increase was primarily the result of five loans totaling $20 million. Each loan is secured by real property collateral with loan to value ratios from 50% to 75%. 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, 1999 December 31, 1998 (In Thousands) Amount Percentage Amount Percentage - ------------------------------------------------------------------------------ Commercial $ 315,448 38.27% $ 309,198 39.19% Real Estate -Construction 188,742 22.89% 177,737 22.53% Real Estate -Conventional 281,809 34.18% 263,869 33.45% Installment 29 0.00% 37 0.00% Other Loans 22,395 2.72% 22,302 2.83% Leveraged Leases 16,027 1.94% 15,802 2.00% ------------------------------------------------ Total $ 824,450 100.00% $ 788,945 100.00% ================================================
Trade financing loans which are included in commercial loans, declined $8.1 million from December 31, 1998, to $222.4 million as of March 31, 1999. Trade financing loans are made by the Bank's International Division which, in addition to granting loans to finance the import and export of goods between the United Sates and countries in the Pacific Rim, also provides letters of credit and other related services. The Bank does not make loans to foreign banks, foreign government or their central banks, or commercial and industrial loans to entities domiciled outside of the United States, except for the extension of overdraft privileges to its foreign correspondent banks on a limited, case by case, basis. During 1998 and continuing into 1999, significant disruptions to certain financial markets in Asia have continued. Although the Company engages in international trade financing, the majority of the business involves imports and all of the Company's loans are denominated in U.S. dollars. The primary source of payment 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 disruption, but at this time, management believes that negative impacts, if any, should not be significant. 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 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 as principal reduction or reported as recoveries on amounts previously charged-off, in accordance with management's judgment as to the collectability of principal. The following table provides information on 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, 1999 December 31, 1998 - --------------------------------------------------------------- Loans 90 Days or More Past Due and Still Accruing $ 569 $ 780 Non-accrual Loans 50,623 20,790 Total Past Due Loans 51,192 21,570 Restructured Loans (on Accrual Status) 10,373 10,440 Total Non-performing and Restructured Loans 61,565 32,010 Other Real Estate Owned, Net 5,570 6,885 ----------------------------- Total Non-performing Assets $ 67,135 $ 38,895 =========== =========
Total non-performing assets increased from $38.9 million to $67.1 million from December 31, 1998 to March 31, 1999, respectively. The $28.2 million or 72.6%, increase was due to the increase of non-accrual loans, discussed below. Loans 90 Days or More Past Due - ------------------------------ One credit comprises this category which is anticipated to be current in the second quarter. Non-accrual loans - ----------------- The $29.8 million or 143.5%, increase of non-accrual loans, is due to the inclusion of a $31 million construction loan for a casino in Las Vegas. The loan is collateralized by a first trust deed on the building, second trust deeds on an associated hotel and on a RV park, and by a first trust deed on undeveloped land. There also was a take-out commitment from another financial institution to pay off the loan at the end of construction. A review of the collateral indicates sufficient value for the full recapture of principal, interest and estimated expenses. However, the Company cannot determine the timing of the liquidation of the assets nor the actual values at that time. The following table analyzes the increase in non-accrual loans during the three months ended March 31, 1999:
Non-Accrual Loans (In Thousands) -------------------------------------------- Balance, December 31, 1998 $20,790 Add: Loans placed on non-accrual 33,474 Less: Charge-offs (1,075) Returned to accrual status (476) Repayments (2,026) Transfer to OREO (64) Balance, March 31, 1999 50,623 --------------------------------------------
The following table breaks out the Company's non-accrual loans by category as of March 31, 1999 and December 31, 1998:
- ------------------------------------------------------------- (IN THOUSANDS) March 31, 1999 December 31, 1998 - ------------------------------------------------------------- Commercial $17,885 $19,202 Real Estate-Construction 31,102 277 Real Estate-Conventional 1,635 1,309 Installment 1 2 --------------------------- Total $50,623 $20,790 ======= =======
Restructured Loans - ------------------ As of March 31, 1999, the balance of restructured loans was $10.4 million, unchanged from the balance as of December 31, 1998. 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, 1999, there were three loans on non-accrual status totaling $667,000. As of March 31, 1999, restructured loans, excluding the three non-accrual loans, consisted of eleven real estate credits, unchanged from year-end 1998. The weighted average yield of the restructured loans as of March 31, 1999 was 9.95%. There are no commitments to lend additional funds on any of the restructured loans. Other Real Estate Owned - ----------------------- As of March 31, 1999, other real estate owned ("OREO"), net of valuation allowance of $2.0 million, totaled $5.6 million, representing a decrease of $1.3 million, or 18.8%, from the net balance of $6.9 million, net of valuation allowance of $2.0 million, as of December 31, 1998. As of March 31, 1999, OREO consisted of 16 properties of which one is a multi-family condominium project. As of March 31, 1999, the sales of this project have resulted in the repayment of its carrying value. As of December 31, 1998, OREO consisted of 22 properties. The OREO properties are all physically located in the Bank's market area. They include single family residences, condominiums, commercial buildings, and land. Nine 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 the Bank's OREO by property type as of the dates indicated:
March 31, December 31, - ------------------------------------------------------------ (In Thousands) 1999 1998 - ------------------------------------------------------------ Property Type Single-Family Residential $ 550 $ 752 Condominium - 485 Land 3,626 3,621 Retail Facilities 3,394 4,027 Less : Valuation Allowance (2,000) (2,000) -------------------------- Total $ 5,570 $ 6,885 ========= =========
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. The following table discloses pertinent information as it relates to the Company's impaired loans as of and for the dates indicated:
- ---------------------------------------------------------------------- (IN THOUSANDS) March 31, Dec. 31, 1999 1998 - ---------------------------------------------------------------------- Recorded Investment with Related Allowance $53,009 $20,746 Recorded Investment with no Related Allowance 1,517 1,519 Total Recorded Investment 54,526 22,265 Specific Allowance on Impaired Loans 6,816 3,250 - ----------------------------------------------------------------------
The increase of the recorded investment of impaired loans is due to the $31 million casino construction loan discussed above. The average balance of total recorded investment in impaired loans was $38.4 million for the three months ended March 31, 1999 and $13.5 million for the twelve months ended December 31, 1998. For the quarter ended March 31, 1999 and 1998, interest income recognized on impaired loans was $180,000 and $355,000, respectively. Of the amount of interest income recognized during the quarters ended March 31, 1999 and 1998, no interest was recognized under the cash basis method. Management cannot predict the extent to which the current economic environment, including the real estate market, may continue to improve or worsen, or the full impact such environment may have on the Bank's loan portfolio. Furthermore, as the Bank's primary regulators review the loan portfolio as part of their routine, periodic examinations of the Bank, their assessment of specific credits may affect the level of the Bank's non-performing loans. Accordingly, there can be no assurance that other loans will not be placed on non-accrual, become 90 days or more past due, have terms modified in the future, or become OREO. Allowance for Credit Losses - --------------------------- As of March 31, 1999, the balance of the allowance for credit losses was $20.5 million, representing 2.49% of outstanding loans and leases. This compares to an allowance for credit losses of $19.4 million as of December 31, 1998, representing 2.46% of outstanding loans and leases. At quarter end, an allocation of the allowance for credit losses for the $31 million non-accrual loan as discussed above was made. Although the Company anticipates the full recapture of principal, interest and estimated expenses, it cannot determine the timing of the liquidation of the assets nor the actual values at that time. The table below summarizes the activity in the allowance for credit losses (which amount includes the allowance on impaired loans), for the three-month period ended as indicated:
- --------------------------------------------------------------- (IN THOUSANDS) March 31, 1999 March 31, 1998 - --------------------------------------------------------------- Balance,Beginning of Period $19,381 $16,776 Provision for Credit Losses 1,500 - Charge-offs (1,056) (1,099) Recoveries 667 171 Net Charge-offs (389) (928) Balance,End of Period $20,492 $15,848 - ---------------------------------------------------------------
As of March 31, 1999, the allowance represents 40.5% of non- accrual loans and 33.3% of non-performing and restructured loans combined. As of December 31, 1998, the allowance represented 93.2% of non-accrual loans and 60.6% of non-performing and restructured loans combined. The decline of these ratios is due to the increase of non-accrual loans as discussed above. The amount of the provision for credit losses is that required to maintain an allowance for credit losses that is adequate to cover probable credit losses related to specifically identified loans as well as probable credit losses inherent in the remainder of the loan and lease portfolio. Management evaluates the loan portfolio, the economic environment, historical loan loss experience, collateral values and assessments of borrowers' ability to repay in determining the amount of the allowance for credit losses. The allowance is based on ongoing, quarterly assessments of the probable estimated losses inherent in the loan and lease portfolio, and to a lesser extent, unused commitments to provide financing. The Company's methodology for assessing the appropriateness of the allowance consists primarily of the use of a formula allowance. This formula allowance is calculated by applying loss factors to outstanding loans and leases and certain unused commitments, in each case based on the internal risk rating of such loans, pools of loans, leases or commitments. Changes in risk rating of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on the Company's historical loss experience and may be adjusted for significant factors that, in management's judgement, affect the collectibility of the portfolio as of the evaluation date. Loss factors are described as follows: - Problem graded loan loss factors represent percentages which have proven accurate over time. Such factors are checked against and supported by migration analysis which tracks loss experience over a five-year period. - Pass graded loan loss factors are based on the approximate average annual net charge-off rate over an eight-year period. - Pooled loan loss factors (not individually graded loans) are based on probable net charge-offs. Pooled loans are loans and leases that are homogeneous in nature, such as residential mortgage loans and small business loans. Management believes that the allowance for credit losses is adequate to cover known and inherent losses related to loans and leases outstanding as of March 31, 1999. Securities - ---------- The Company classifies its securities as held to maturity or available for sale. Securities classified as held to maturity are those that the Company has the positive intent and ability to hold until maturity. These securities are carried at amortized cost. Securities that could be sold in response to changes in interest rates, increased loan demand, liquidity needs, capital requirements or other similar factors, are classified as securities available for sale. These securities are carried at fair value, with unrealized gains or losses reflected net of tax in accumulated other comprehensive income. As of March 31, 1999, the Company recorded net unrealized gains of $2,145,000 on its available for sale portfolio. Other comprehensive income includes $1,243,000, representing the net unrealized gains, net of tax. The amortized cost, gross unrealized gains, gross unrealized losses and fair value of securities at March 31, 1999 and December 31, 1998 were as follows:
(In Thousands) Gross Gross March 31, 1999 Amortized Unrealized Unrealized Fair Cost Gains Losses Value - -------------------------------------------------------------------------------------- Securities Held to Maturity U.S.Government Agencies $ 5,996 $ 19 $ - $ 6,015 Collateralized Mortgage Obligations 18 - - 18 ------------------------------------------------- Total Securities Held to Maturity $ 6,014 $ 19 $ - $ 6,033 ================================================= Securities Available for Sale U.S.Treasuries 1,851 1 - 1,852 U.S.Government Agencies 19,388 99 - 19,487 Mortgage Backed Securities 127,560 - (211) 127,349 Corporate Notes 50,054 - (75) 49,979 Collateralized Mortgage Obligations 258,305 460 - 258,765 Asset Backed Securities 279,858 1,871 - 281,729 Other Securities 8,390 - - 8,390 ------------------------------------------------- Total Securities Available for Sale $ 745,406 $ 2,431 $ (286) $ 747,551 =================================================
(In Thousands) Gross Gross December 31, 1998 Amortized Unrealized Unrealized Fair Cost Gains Losses Value - -------------------------------------------------------------------------------------- Securities Held to Maturity U.S. Government Aencies $ 24,594 $ 61 $ - $ 24,655 Collateralized Mortgage Obligation 22 - - 22 ------------------------------------------------- Total Securities Held to Maturity $ 24,616 $ 61 $ - $ 24,677 ================================================= Securities Available for Sale U. S. Treasuries $ 1,859 $ 3 $ - $ 1,862 U.S. Government Agencies 59,604 171 - 59,775 Mortgage Backed Securities 72,799 408 - 73,207 Corporate Notes 34,925 - (1) 34,924 Collateralized Mortgage Obligations 246,026 621 - 246,647 Asset Backed Securities 257,638 1,970 - 259,608 Commercial Papaer 39,860 - - 39,860 Other Securities 8,289 - - 8,289 ------------------------------------------------- Total Securities Available for Sale $ 721,000 $ 3,173 $ (1) $ 724,172 =================================================
There were no sales of securities available for sale or securities held to maturity during the quarter ended March 31, 1999 and 1998. Deposits The Company's deposits totaled $1,374.2 million as of March 31, 1999, a decrease of $6.7 million from $1,380.9 million as of December 31, 1998. Other time deposits and interest-bearing demand deposits declined $24.2 million and $14.1 million, respectively. This decrease was partially offset by a $24.5 million increase of time certificates of deposit of $100,000 or more. There were no brokered deposits outstanding as of March 31, 1999 and December 31, 1998. The Company believes that the majority of its deposit customers have strong ties to the Bank. Although the Company has a significant amount of time certificates of deposit of $100,000 or more having maturities of one year or less, and has experienced growth in this area, the depositors have generally renewed their deposits in the past at their maturity. The maturity schedule of time certificates of deposit of $100,000 or more as of March 31, 1999 is as follows:
(IN THOUSANDS) - ---------------------------------------------------- 3 Months or Less $359,182 Over 3 Months Through 6 Months 137,548 Over 6 Months through 12 Months 127,129 Over 12 Months 285 -------- Total $624,144 ========
Other Borrowings As of March 31, 1999, the Company has three sources of other borrowings. Subordinated debt is comprised of a $40 million public offering issuance of 8.375% subordinated notes due August 1, 2007. Proceeds of $38.7 million, net of underwriting discount of $1.3 million, were received by the Company. The discount is amortized as a yield adjustment over the 10-year life of the notes. The Bank has obtained advances from the Federal Home Loan Bank of San Francisco (the "FHLB") totaling $50.0 million. The advances are under an existing line of credit whereby the FHLB has granted the Bank a line of credit equal to 25 percent of its assets. The following relates to the four outstanding advances as of March 31, 1999:
Maturity Amount Fixed Rate of Interest ---------- ------------ ------------------------ Nov. 1, 2000 $25,000,000 4.53% Jan. 31, 2001 10,000,000 5.19% Apr. 30, 2001 10,000,000 4.92% July 15, 2002 5,000,000 5.61%
The total outstanding of $50 million of advances as of March 31, 1999 has a composite fixed rate of interest of 4.85%. As of March 31, 1999, the Bank had $6 million outstanding of federal funds purchased, an overnight borrowing from one of its major correspondents. The rate of interest paid on the federal funds purchased was 5.50%. (Reference also discussion of liquidity following.) Regulatory Matters During the first quarter of 1999, the annual safety and soundness examination was conducted concurrently by the Federal Deposit Insurance Corporation ("FDIC") and the California Department of Financial Institutions. No reports have yet been issued, but no significant findings are anticipated. Capital Resources Stockholders' equity totaled $159.5 million as of March 31, 1999, a decrease of $3.5 million, or 2.2%, from $163.0 million as of December 31, 1998. The net decrease from year-end 1998 was primarily due to the repurchase of $9.1 million of the Company's stock, which was partially offset by net income of $6.6 million, less cash dividends declared to shareholders of $1.0 million less the net change in securities' valuation of $0.6 million, plus the exercise of stock options and related tax benefits of $0.6 million. On September 17, 1998, the Board of Directors authorized a stock repurchase program of up to 1.4 million shares of the Company's stock. As of March 31, 1999, 888,400 shares had been repurchased at an average cost of $21.92 per share. As of April 30, 1999, 1,302,000 shares had been repurchased for $25.9 million, for an average cost of $19.85 per share. Capital ratios for the Company and for the Bank were as follows as of the dates indicated:
Well-Capitalized March 31, December 31, Requirements 1999 1998 ---------------- ----------- -------------- GBC Bancorp Tier 1 Leverage Ratio 5% 9.48% 9.75% Tier 1 Risk-Based Capital Ratio 6% 11.11% 11.06% Total Risk-Based Capital Ratio 10% 15.09% 14.98% General Bank Tier 1 Leverage Ratio 5% 9.75% 9.49% Tier 1 Risk-Based Capital Ratio 6% 11.43% 10.77% Total Risk-Based Capital Ratio 10% 12.68% 12.02%
For the quarter ended March 31, 1999, the ratio of the Company's average stockholders' equity to average assets was 9.77%. For the year ended December 31, 1998, this ratio was 10.01%. The decrease of the ratio is mainly the result of the stock repurchase program. 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 $643.6 million, or 38.8%, of total assets, as of March 31, 1999, compared to $666.7 million, or 39.7%, of total assets, as of December 31, 1998. To further supplement its liquidity, the Company has established federal funds lines with correspondent banks and three master repurchase agreements with major brokerage companies. In August, 1992 the Federal Home Loan Bank of San Francisco ("FHLB") granted the Bank a line of credit equal to 25 percent of assets with terms up to 360 months. As of March 31, 1999, there were four draws under this financing facility with the FHLB for a total $50 million, and a blended fixed rate of interest of 4.85%. Management believes its liquidity sources to be stable and adequate. As of March 31, 1999, total loans and leases represented 60.0% of total deposits. This compares to 57.1% as of December 31, 1998. 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, 1999, General Bank declared cash dividends of $1.0 million to GBC Bancorp. "GAP" Measurement While no single measure can completely identify the impact of changes in interest rates on net interest income, one gauge of interest rate sensitivity is to measure, over a variety of time periods, contractual differences in the amounts of the Company's rate sensitive assets and rate sensitive liabilities. These differences, or "gaps", provide an indication of the extent that net interest income may be affected by future changes in interest rates. However, these contractual "gaps" do not take into account timing differences between the repricing of assets and the repricing of liabilities. A positive gap exists when rate sensitive assets exceed rate sensitive liabilities and indicates that a greater volume of assets than liabilities will reprice during a given period. This mismatch may enhance earnings in a rising rate environment and may inhibit earnings when rates decline. Conversely, when rate sensitive liabilities exceed rate sensitive assets, referred to as a negative gap, it indicates that a greater volume of liabilities than assets will reprice during the period. In this case, a rising interest rate environment may inhibit earnings and declining rates may enhance earnings. "Gap" reports are utilized 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 March 31, 1999 there is a cumulative one year negative "gap" of $594.0 million, up from $448.2 million of December 31, 1998. The following table indicates the Company's interest rate sensitivity position as of March 31, 1999, and is based on contractual maturities. It may not be reflective of positions in subsequent periods.
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 $ 19,331 $ 678 $ 71,760 $ 655,782 $ - $ 747,551 Securities Held to Maturity - - - 6,014 - 6,014 Federal Funds Sold & Securities Purchased Under Agreement to Resell 40,000 - - - - 40,000 Loans and Leases (1)(2) 548,706 23,511 92,304 109,306 - 773,827 Non-Earning Assets (2) - - - - 92,912 92,912 -------- ---------- ----------- --------- ----------- ----------- Total Assets $608,037 $ 24,189 $164,064 $ 771,102 92,912 $1,660,304 ======== ========== =========== ========= =========== =========== Source of Funds for Assets: Deposits: Demand - N/B $ - $ - $ - $ - $ 153,001 $ 153,001 Interest Bearing Demand 266,233 - - - - 266,233 Savings 84,595 - - - - 84,595 TCD'S Under $100,000 125,877 119,661 713 - - 246,251 TCD'S $100,000 and Over 360,228 263,631 285 - - 624,144 --------- ---------- ----------- --------- ----------- ------------ Total Deposits $ 836,933 $383,292 $ 998 $ - $ 153,001 $1,374,224 ========= ======== ======== ======== ========= ========== Federal Funds Purchased & Securities Sold Under Agreement to Resell $ 6,000 $ - $ - $ - $ - $ 6,000 Borrowings from the Federal Home Loan Bank - - 50,000 - - 50,000 Subordinated Debt - - - 38,908 - 38,908 Other Liabilities - - - - 31,688 31,688 Stockholders' Equity - - - - 159,484 159,484 --------- --------- -------- -------- --------- --------- Total Liabilities and Stockholders'Equity $ 842,933 $ 383,292 $ 50,998 $ 38,908 $ 344,173 $1,660,304 ========= ========= ======== ======== ========= ========== Interest Sensitivity Gap $(234,896) $(359,103) $113,066 $732,194 $(251,261) Cumulative Interest Sensitivity Gap $(234,896) $(593,999) $(480,933) $251,261 - Gap Ratio (% of Total Assets) -14.1% -21.6% 6.8% 44.1% -15.1% Cumulative Gap Ratio -14.1% -35.8% -29.0% 15.1% 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. 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 indicates the Company's financial instruments that are sensitive to changes in interest rates categorized by their expected maturity, as of March 31, 1999:
----------------------------------------------------------- 0 to 90 91-365 Over 1 Year Over (In Thousands) Days Days to 5 Years 5 Years Total - ------------------------------------------------------------------------------------------------ Interest-sensitive Assets: Securities Available for Sale $ 42,833 $ 106,549 $ 515,241 $ 82,928 $ 747,551 Securities Held to Maturity 6,014 - - - 6,014 Federal Funds Sold & Securities Purchased Under Agreement to Resell 40,000 - - - 40,000 Loans and Leases (1) 548,706 23,511 92,304 109,306 773,827 ---------- ---------- --------- --------- ---------- Total Interest-earning Assets $ 637,553 $ 130,060 $ 607,545 $ 192,234 $1,567,392 ========== ========== ========== ========= ========== Interest-sensitive Liabilities: Deposits: Interest Bearing Demand $ 9,573 $ 28,721 $ 175,891 $ 52,048 $ 266,233 Savings 2,820 8,459 56,397 16,919 84,595 Time Deposit of Certificates 484,565 384,832 998 - 870,395 ---------- ---------- ---------- --------- ---------- Total Deposits $ 496,958 $ 422,012 $ 233,286 $ 68,967 $1,221,223 ---------- ---------- ---------- --------- ---------- Federal Funds Purchased & Securities Sold Under Repurchased Agreements $ 6,000 $ - $ - $ - $ 6,000 Borrowing from FHLB - - 50,000 - 50,000 Subordinated Debt - - - 38,908 38,908 ---------- ---------- ---------- --------- ---------- Total Interest-sensitive Liabilities $ 496,958 $ 422,012 $ 233,286 $ 107,875 $1,316,131 ========== ========== ========== ========= ==========
(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 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 March 31, 1999:
NET INTEREST CHANGE IN INCOME MARKET VALUE OF INTEREST VOLATILITY EQUITY VOLATILITY RATES (BASIS MARCH 31, 1999 MARCH 31, 1999 POINTS) (1) (2) - ---------------------------------------------------- +200 -3.60% -12.30% +100 -1.80% -6.10% -100 -1.90% 3.40% -200 -5.90% 4.30%
(1) The percentage change in this column represents net interest income for 12 months in a stable interest rate environment versus the net interest income in the various rate scenarios. (2) The percentage change in this column represents net portfolio value of the Bank in a stable interest rate environment versus the net portfolio value in the various rate scenarios. The Company's primary objective in managing interest rate risk is to minimize the adverse effects of changes in interest rates on earnings and capital. In this regard the Company has established internal risk limits for net interest income volatility given a 100 and 200 basis point decline in rates of 10% and 15% respectively, over a twelve month horizon. Similarly, risk limits have been established for market value of equity volatility in response to a 100 and 200 basis point increase in rates of 10% and 15%, respectively. Year 2000 - --------- The Company's main software systems have been licensed from large vendors who have provided certifications of year 2000 compliance. Tests have confirmed such compliance for these main software systems. Certain ancillary systems that operate on personal computers are also licensed and the vendors have informed the Company that releases conforming to year 2000 requirements will be received in 1999. The Bank has budgeted $100,000 of expenses related to Year 2000 compliance. Expenses to date have been approximately $35,000. Personal computers including hardware and software that are not in compliance will be replaced or modified by June, 1999. Total expenses are expected to be under the budgeted amount. Management believes that there are no material risks to the Company from its computer systems related to the Year 2000. Certain operations, such as payroll and the administration of the Company's 401(k) plan, are outsourced to outside companies. The Company has obtained certification of their Year 2000 compliance. Management believes that there are no material risks to the Company from its outsourced operations related to the Year 2000. Non-information technology systems are expected to function well in year 2000 and beyond. The Company has requested written certification for Year 2000 compliance from the utilities companies and the telecommunications companies and has received acknowledgement from each company that they are on target with Year 2000 compliance. A Business Resumption Plan (the "Plan") is in place including a back-up site for data processing in the event of failure of the Bank's mainframe computer. In the unlikely event that the testing and certification procedures of the Bank utilized software did not discover a problem, the Bank has in place manual processing procedures which would be followed until correction of the software problem by the Bank's vendors. The Company has sent questionnaires to selected borrowers representing more than 70% of the outstanding credit commitments by dollar volume at the time of the mailing. As of March 31, 1999, 98% of the questionnaires have been received and reviewed. The review process identified two credits with commitments of $6 million that continue to represent potential adverse impact on credit quality if Year 2000 issues are not addressed. Ongoing oversight has identified an additional six credits where Y2K issues are not resolved, bringing the total to $30.5 million represented by eight credits, as of April 30, 1999. These credits have been placed on the "Watch" list to ensure high visibility and ongoing monitoring. Any borrowers unable to confirm Year 2000 compliance in a timely manner will be evaluated to ensure an adequate specific allocation to the allowance for credit losses. Year 2000 compliance will be a factor in all credit decisions and in the specific allocations of a required allowance for credit losses. Management believes the Year 2000 does represent an area of potential risk for credit losses, but also believes the risk is manageable. However, credit losses could be realized by the Company due to Year 2000 problems affecting the businesses of borrowers. The amount of such losses would be a function of the value of the collateral associated with the individual credits. Whether such potential losses would require an additional provision for credit losses would be determined in conjunction with the normal quarterly analysis of the adequacy of the allowance for credit losses. Forward-Looking Statements - -------------------------- Certain statements contained herein, including, without limitation, statements containing the words "indicates," "anticipates," "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, Market Risk, Liquidity and Interest Rate Sensitivity, and Year 2000. Given these uncertainties, the reader is cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. Recent Accounting Developments - ------------------------------ Disclosure about Segments of an Enterprise and Related Information In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information". This statement establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of a Business Enterprise", but retains the requirement to report information about major customers. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. Management and the Board of Directors do not utilize profit center reporting to manage the organization. Therefore, segment reporting will not be disclosed. Accounting for Derivative Instruments and Hedging Activities Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133"), establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign currency denominated forecasted transaction. The accounting for changes in fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. SFAS 133 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 - ------------------------- In the normal course of business, the Company is subject to pending and threatened legal actions. Management believes that the outcome of such actions will not have a material adverse effect on the Company's financial condition or results of operations. Item 2. CHANGES IN SECURITIES - ------------------------------ There have been no changes in the securities of the Registrant during the quarter ended March 31, 1999. 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, 1999. 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: May 13, 1999 s/ Li-Pei Wu ------------------ ------------------------ Li-Pei Wu, Chairman and Chief Executive Officer Dated: May 13, 1999 s/ Peter Lowe ------------------ ------------------------ Peter Lowe, Executive Vice President and Chief Financial Officer EX-27 2
9 3-MOS DEC-31-1999 MAR-31-1999 31,149 0 40,000 0 747,551 6,014 6,033 824,450 20,492 1,660,304 1,374,224 6,000 31,688 88,908 0 0 56,875 102,609 1,660,304 18,826 12,327 1 31,154 12,036 13,427 17,727 0 0 7,595 10,484 10,484 0 0 6,565 0.48 0.47 4.42 50,623 569 10,373 0 19,381 1,056 667 20,492 20,492 0 0
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