-----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, KbrJ2uU2ZYjv5hoi+JUlHvcrk1TTGPkoZuEW1Movj2NiJpPfVAgKMfhBieem5Ajn 2ROE8QqG6rMRQyCiTC4m6Q== 0000351710-99-000003.txt : 19990813 0000351710-99-000003.hdr.sgml : 19990813 ACCESSION NUMBER: 0000351710-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 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: 99684757 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 Quarter Ended June 30, 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, 12,822,798 shares issued and outstanding as of June 30, 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
June 30, December 31, (In Thousands) 1999 1998 - ------------------------------------------------------------------------------- ASSETS Cash and Due From Banks $ 39,338 $ 27,514 Federal Funds Sold and Securities Purchased Under Agreements to Resell 35,000 101,000 Securities Available for Sale at Fair Value (Amortized Cost of $769,408 And $721,000 at June 30, 1999 and December 31, 1998, Respectively) 762,952 724,172 Securities Held to Maturity (Fair Value of $1,925 and $24 ,677 at June 30, 1999 and December 31, 1998, Respectively) 1,934 24,616 Loans and Leases 848,939 788,945 Less: Allowance for Credit Losses (19,061) (19,381) Deferred Loan Fees (4,865) (5,914) ------------- ------------- Loans and Leases, Net 825,013 763,650 Bank Premises and Equipment, Net 5,495 5,656 Other Real Estate Owned, Net 12,242 6,885 Due From Customers on Acceptances 6,798 7,249 Real Estate Held for Investment 6,371 7,034 Accrued Interest Receivable and Other Assets 11,795 13,048 ------------- ------------- Total Assets $ 1,706,938 $ 1,680,824 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand $ 168,992 $ 149,397 Interest Bearing Demand 285,022 280,294 Savings 84,195 81,051 Time Certificates of Deposit of $100,000 or More 670,740 599,669 Other Time Deposits 228,370 270,492 ------------- ------------- Total Deposits 1,437,319 1,380,903 Federal Funds Purchased and Securities Sold Under Repurchase Agreements 1,000 - Borrowings from the Federal Home Loan Bank 50,000 35,000 Subordinated Debt 38,941 38,876 Acceptances Outstanding 6,798 7,249 Accrued Expenses and Other Liabilities 20,407 55,766 ------------- ------------- Total Liabilities 1,554,465 1,517,794 Stockholders' Equity: Common Stock, No Par or Stated Value; 40,000,000 Shares Authorized ; 12,822,798 and 13,711,998 shares Outstanding at June 30, 1999 and December 31,1998, Respectively $ 56,896 $ 56,303 Accumulated Other Comprehensive (Loss) Income (3,750) 1,829 Retained Earnings 99,327 104,898 ------------- ------------- Total Stockholders' Equity 152,473 163,030 ------------- ------------- Total Liabilities and Stockholders' Equity $ 1,706,938 $ 1,680,824 ============ ============ See Accompanying Notes to Consolidated Financial Statements
GBC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
For The Three For The Six Months Ended Months Ended June 30, June 30, (In Thousands, Except Per Share Data) 1999 1998 1999 1998 - -------------------------------------------------------------------------------- INTEREST INCOME Loans and Leases,Including Fees $ 18,939 $ 17,882 $ 37,765 $ 34,452 Securities Available for Sale 11,392 10,398 22,282 20,286 Securities Held to Maturity 92 1,430 397 2,667 Federal Funds Sold and Securities Purchased under Agreements to Resell 879 1,483 2,011 3,468 Other 1 - 2 6 -------- -------- -------- -------- Total Interest Income 31,303 31,193 62,457 60,879 INTEREST EXPENSE Interest Bearing Demand 1,752 1,795 3,387 3,168 Savings 433 595 851 1,243 Time Certificates of Deposits of $100,000 or More 7,470 7,859 14,570 15,622 Other Time Deposits 2,587 3,377 5,470 6,436 Federal Funds Purchased and Securities Sold under Repurchase Agreements 8 12 25 16 Borrowings from the Federal Home Loan Bank 612 - 1,116 - Subordinated Debt 871 871 1,741 1,741 ------ ------ ------ ------ Total Interest Expense 13,733 14,509 27,160 28,226 Net Interest Income 17,570 16,684 35,297 32,653 Provision for Credit Losses 500 - 2,000 - ------ ------ ------ ------ Net Interest Income after Provision for Credit Losses 17,070 16,684 33,297 32,653 NON-INTEREST INCOME Service Charges and Commissions 1,807 1,661 3,447 3,098 Gain on Sale of Loans, Net 12 5 111 24 Gain on Sale of Fixed Assets 22 - 22 - Other 102 146 215 463 ------ ------ ------ ------ Total Non-Interest Income 1,943 1,812 3,795 3,585 NON-INTEREST EXPENSE Salaries and Employee Benefits 4,963 4,364 9,435 8,659 Occupancy Expense 810 758 1,573 1,486 Furniture and Equipment Expense 460 516 1,070 1,001 Net Other Real Estate Owned (Income) Expense (272) 127 (226) 439 Other 1,820 1,741 3,524 3,225 ------ ------ ------ ------ Total Non-Interest Expense 7,781 7,506 15,376 14,810 Income before Income Taxes 11,232 10,990 21,716 21,428 Provision for Income Taxes 4,216 4,147 8,135 7,954 ------ ------ ------ ------ Net Income $ 7,016 $ 6,843 $ 13,581 $ 13,474 ======== ======== ======== ======== Earnings Per Share: Basic $ 0.54 $ 0.48 $ 1.03 $ 0.95 Diluted 0.53 0.48 1.01 0.94 ======== ======== ======== ======== See Accompanying Notes to Consolidated Financial Statements
GBC BANCORP & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' 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 ------------ 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 Six Months - - 13,581 - $13,581 13,581 ------------ Other Comprehensive Income (Loss), Net of Tax Net Changes in Securities Valuation Allowance - - - (5,579) (5,579) (5,579) ------------ Comprehensive Income $ 8,002 ========= Stock Options Exercised 46 389 - - 389 Tax Benefit-Stock Options Exercised - 204 - - 204 Stock Repurchase (935) (17,190) (17,190) Cash Dividend-$.15 per Share - - ( 1,962) - ( 1,962) ---------------------------------------------- --------- Balance at June 30, 1999 $12,823 $56,896 $99,327 $(3,750) $152,473 - ------------------------ ======= ======= ======= ======== =========
Disclosure of Reclassification Amount: For the Six For the Months Ended Year Ended June 30,1999 Dec. 31,1998 ------------ ----------- Net Change of Unrealized Holding (Losses) Gains Arising During Period, Net of Tax (Benefit) Expense of $(4,048) and $172 in 1999 and 1998, Respectively $ (5,579) $ 237 Less: Reclassification Adjustment for Gains Included in Net Income, Net of Tax Expense of: $0 and $45 in 1999 and 1998, Respectively - (62) ----------- ----------- Net Change of Unrealized (Losses) Gains on Securities Net of Tax (Benefit) Expense of $(4,048) and $127 in 1999 and 1998, Respectively $ (5,579) $ 175 =========== =========== See Accompanying Notes to Consolidated Financial Statements
GBC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, - ---------------------------------------------------------------------------------- (In Thousands) 1999 1998 - ---------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Income $ 13,581 $ 13,474 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 658 629 Net Amortization/(Accretion) of Premiums/Discounts on Securities 618 76 Accretion of Discount on Subordinated Notes 65 65 Writedown on Real Estate Held for Investment 663 663 Provision for Credit Losses 2,000 - Amortization of Deferred Loan Fees (2,184) (1,474) Gain on Sale of Loans - (24) Gain on Sale of Other Real Estate Owned (720) (23) Gain on Sale of Fixed Assets (22) - Proceeds from Sales of Loans Originated for Sale - 24 Net Increase in Accrued Interest Receivable and Other Assets 1,253 5,693 Net Decrease in Accrued Expenses and Other Liabilities (31,311) (3,550) Other, Net 388 1 ---------- ---------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (15,011) $ 15,554 ---------- ---------- INVESTING ACTIVITIES: Purchases of Securities Available for Sale (236,485) (189,306) Proceeds from Maturities of Securities Available for Sale 187,412 183,186 Purchases of Securities Held to Maturity - (50,090) Proceeds from Maturities of Securities Held to Maturity 22,730 30,866 Net Increase in Loans and Leases (69,951) (79,560) Proceeds from Sales of Other Real Estate Owned 4,442 1,662 Capitalized Costs of Other Real Estate Owned (308) - Purchases of Premises and Equipment (619) (456) Proceeds from Sales of Bank Premises and Equipment 27 - ---------- ---------- NET CASH USED BY INVESTING ACTIVITIES $ (92,752) $(103,698) ---------- ---------- FINANCING ACTIVITIES: Net Increase/(Decrease) in Demand, Interest Bearing Demand and Savings Deposits 27,467 53,642 Net Increase in Time Certificates of Deposits 28,949 38,636 Net Increase in Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 1,000 - Borrowings from the Federal Home Loan Bank 15,000 - Stock Repurchase Program (17,190) - Cash Dividends Paid (2,028) (1,900) Proceeds from Exercise of Stock Options 389 1,187 ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES $ 53,587 $ 91,565 ---------- ---------- NET CHANGE IN CASH AND CASH EQUIVALENTS (54,176) 3,421 Cash and Cash Equivalents at Beginning of Period 128,514 140,519 ---------- ---------- Cash and Cash Equivalents at End of Period $ 74,338 $ 143,940 ========== ========== Supplemental Disclosures of Cash Flow Information: Cash Paid During This Period for: Interest $ 27,083 $ 27,811 Income Taxes 7,359 1,102 ========= ========= Noncash Investing Activities: Loans Transferred to Other Real Estate Owned at Fair Value $ 8,772 $ 588 ========= ========= 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, 1999 and December 31, 1998, and the six and three months ended June 30, 1999 and 1998, 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. 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 1999 was $7,016,000, or $0.53 diluted earnings per share compared to $6,843,000, or $0.48 diluted earnings per share for the corresponding period of 1998. The $0.05, or 10.4%, increase was primarily the result of the stock repurchase program begun in the fourth quarter, 1998 and completed in the second quarter, 1999. The $173,000, or 2.5%, increase in net income for the second quarter of 1999 was primarily the result of an increase of net interest income partially offset by an increase of the provision for credit losses. For the six months ended June 30, 1999, net income totaled $13,581,000, an increase of $107,000, or 0.8%, from the $13,474,000 earned during the corresponding period of 1998. The increase was due primarily to the growth of net interest income partially offset by an increase of the provision for credit losses. Diluted earnings per share for the six months ended June 30, 1999 were $1.01, compared to the $0.94 for the same period of 1998. As was the case with the quarterly comparison of the diluted earnings per share, the $0.07, or 7.4%, increase of the six month diluted earnings per share was primarily the result of the stock repurchase program referenced above. As of June 30, 1999, record high levels were achieved for loans and leases, total assets and total deposits. For the quarter ended June 30, 1999 and 1998, the annualized return on average assets ("ROA") was 1.66% and 1.73%, respectively, and the annualized return on average stockholders' equity ("ROE") was 18.0% and 17.4%, respectively. For the six months ended June 30, 1999 and 1998, the ROA was 1.63% and 1.74%, respectively. For the six months ended June 30, 1999 and 1998, the ROE was 17.2% and 17.6%, respectively. On June 11, 1999, the Company announced that its board of directors had authorized a Dutch Auction self tender offer for up to 2 million shares of the Company's common stock, representing approximately 16% of its outstanding shares. The tender price range was from $18 to $22 per share. On July 20, 1999, the Company purchased approximately 1,328,000 shares that were tendered pursuant to the offer at a price of $22 per share in accordance with the terms of the tender offer. RESULTS OF OPERATIONS - --------------------- Net Interest Income-Quarterly Results - ------------------------------------- For the quarter ended June 30, 1999 and 1998, net interest income before the provision for credit losses was $17,570,000 and $16,684,000, respectively, representing an increase of $886,000, or 5.3%. Total interest income for the quarter ended June 30, 1999, was $31,303,000, representing a $110,000, or 0.4%, increase over the corresponding quarter of a year ago. The increase was due to a growth of $118.2 million, or 7.7%, 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 7.60% from 8.15% for the quarters ending June 30, 1999 and 1998, respectively. The $118.2 million growth of average interest earning assets was comprised of increases of $141.5 million and $8.9 million for loans and leases and securities, respectively, partially offset by a $32.2 million decline of federal funds sold and securities purchased under agreements to resell. The yields on all categories of earning assets declined with the most notable reduction being the yield on loans and leases, which declined 124 basis points. In addition to a decline in the national prime rate of interest, (the average national prime rate of interest during the quarters ended June 30, 1999 and 1998, was 7.75% and 8.5%, respectively), loan yields were also negatively impacted by an increase in the average of non-accrual loans. For the quarter ended June 30, 1999 and 1998, average non- accrual loans were $50.3 million and $13.2 million, respectively. The non-accrual average for the quarter ended June 30, 1999, included two large credits, one of which was transferred to OREO at the end of the quarter. Please refer to the discussion "Non-Performing Assets", following. 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 accruing loans and leases, to total average earning assets. For the three months ended June 30, 1999 and 1998, average accruing loans and leases comprised 47.6% and 44.5%, 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, 1999, was $13,733,000, representing a $776,000, or 5.3%, decrease over the corresponding quarter of a year ago. The decrease was due to the reduction of the cost of funds, partially offset by a $90.1 million increase of average interest bearing liabilities. For the quarter ended June 30, 1999 and 1998, the cost of funds was 4.08% and 4.62%, respectively. The decrease in the cost of funds was the result of a decrease in the rates paid on interest-bearing deposits. For the three months ended June 30, 1999 and 1998, rates paid on interest-bearing deposits were 3.90% and 4.48%, respectively. The rates paid on all categories of interest- bearing deposits decreased. The following table displays the average balance and rates paid for the deposit products of General Bank (the "Bank") for the quarter ended June 30, 1999 and 1998:
For the Quarter Ended June 30, (Dollars in Thousands) 1999 1998 - ----------------------------------------------------------------------------- Interest-bearing demand - Average balance $ 286,450 $ 260,087 Rate 2.45% 2.77% Savings - Average balance 81,700 87,930 Rate 2.13% 2.71% Time certificates of deposit of $100,000 or more - Average balance 654,163 600,129 Rate 4.58% 5.25% Other time deposits - Average balance 238,027 272,026 Rate 4.36% 4.98%
The 58-basis point reduction of the rates paid on interest bearing deposits was slightly offset by an average $50 million of borrowings from the Federal Home Loan Banks ("FHLB") with an average rate in the quarter of 4.84%. There were no borrowings outstanding with the FHLB during the 3 months ended June 30, 1998. 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, 1999 and 1998, the net interest spread declined one basis point to 3.52% from 3.53%, respectively. 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, 1999 and 1998, the net interest margin was 4.26% and 4.36% respectively. The decrease in the margin is primarily the result of the growth of the Company's earning assets, which include non-accrual loans, being funded primarily by interest-bearing liabilities. Net Interest Income-Six-Month Results - ------------------------------------- For the six months ended June 30, 1999, net interest income before the provision for credit losses was $35,297,000, representing a $2,644,000, or 8.1%, growth over the corresponding period of a year ago. Total interest income for the six months ended June 30, 1999, was $62,457,000 compared to $60,879,000, a $1,578,000, or 2.6%, 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 $134.2 million represented by increases of $149.4 million and $24.5 million for loans and leases and securities, respectively, and a decrease of $39.8 million for federal funds sold and securities purchased under agreements to resell. The yield on interest earning assets declined to 7.68% for the six months ended June 30, 1999 from 8.16% for the corresponding period of a year ago. The yields on all categories of earning assets declined with the most notable reduction being the yield on loans and leases which declined from 10.31% to 9.25%. In addition to a decline in the national prime rate of interest (the average national prime rate of interest during the six months ended June 30, 1999 and 1998, was 7.75% and 8.5%, respectively), loan yields were also negatively impacted by an increase in the average of non-accrual loans. For the six months ended June 30, 1999 and 1998, average non-accrual loans were $36.2 million and $12.1 million, respectively. Total interest expense for the six months ended June 30, 1999 and 1998, was $27,160,000 and $28,226,000, respectively, representing a $1,066,000, or 3.8%, decrease. This decrease is due to a lower cost of funds, partially offset by an increase of average interest bearing liabilities. The cost of funds decreased 49-basis points to 4.11% from 4.60%, for the six-month period ended June 30, 1999 and 1998, respectively. The decrease was primarily due to the reduced rates paid on all categories of interest bearing deposits. The average balance and the rates paid on the deposit categories were as follows for the six months ended June 30, 1999 and 1998:
(Dollars in Thousands) 1999 1998 - --------------------------------------------------------------------------- Interest-bearing demand - Average balance $ 284,213 $ 246,520 Rate 2.40% 2.59% Savings - Average balance 80,545 91,480 Rate 2.13% 2.74% Time certificates of deposit of $100,000 or more - Average balance 635,392 598,023 Rate 4.62% 5.27% Other time deposits - Average balance 247,681 260,785 Rate 4.45% 4.98%
Partially offsetting the cost of funds reduction due to the rates paid on average interest bearing deposits was the 4.80% average rate paid on the $46.2 million average FHLB borrowings. During the six months ended June 30, 1998 there were no borrowings from the FHLB. Average interest-bearing liabilities increased by $97.8 million during the six months ended June 30, 1999 compared to the corresponding period of a year ago. The increase was the result of a $51.0 million growth of average interest bearing deposits and a $46.8 million increase of non-deposit interest-bearing liabilities, namely, the $46.2 million average FHLB borrowings as discussed above. For the six months ended June 30, 1999 and 1998, the net interest spread increased one basis point to 3.57% from 3.56%, respectively. For the six months ended June 30, 1999 and 1998, the net interest margin was 4.34% and 4.37%, respectively. Provision for Credit Losses - --------------------------- For the quarter ended June 30, 1999, the provision for credit losses was $500,000. There was no provision for credit losses for the corresponding period of a year ago. For the six months ended June 30, 1999, there was $2,000,000 provision for credit losses representing an increase of $2,000,000 compared to the same period of 1998. 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, 1999, totaled $1,943,000, representing a $131,000, or 7.2%, increase over the $1,812,000 for the quarter ended June 30, 1998. This increase was primarily due to commissions associated with standby and commercial letters of credit, included in service charges and commissions. For the six months ended June 30, 1999, non-interest income totaled $3,795,000 representing a $210,000, or 5.9%, increase compared to $3,585,000 for the six months ended June 30, 1998. The net increase was due to commissions associated with standby and commercial letters of credit offset by a reduction of income from escrow services, included in the non-interest income category called other. The Bank's escrow subsidiary was closed in the first quarter of 1999. Non-Interest Expense - -------------------- For the three months ended June 30, 1999, non-interest expense was $7,781,000, representing a $275,000, or 3.7%, increase over $7,506,000 for the corresponding period of a year ago. The increase of $599,000, or 13.7%, in salaries and employee benefits, was primarily due to the accrual for deferred compensation for the Company's Chairman and Chief Executive Officer. Partially offsetting this increase was a $399,000 decline of net other real estate owned expense (income). The decline is primarily due to net gains on the sale of OREO properties. During the quarter ended June 30, 1999 and 1998, net gains on the sale of OREO were $569,000 and $9,000, respectively. For the quarter ended June 30, 1999, and 1998, the Company's efficiency ratio, defined as non-interest expense divided by the sum of net interest income plus non-interest income, was 39.9% and 40.6%, respectively. For the six months ended June 30, 1999, non- interest expense was $15,376,000, representing a $566,000, or 3.8%, increase over $14,810,000 reported for the corresponding period of a year ago. The net increase was due to the increase in salaries and employee benefits of $776,000, primarily the result of the accrual for deferred compensation discussed above, and a $299,000 increase of the other category of non-interest expense. The $299,000 increase was primarily due to the write-off of goodwill associated with the escrow subsidiary which was closed in the first quarter of 1999. The above were partially offset by the reduced net other real estate owned expense (income) of $665,000. The decline is primarily due to net gains on the sale of OREO properties. During the six months ended June 30, 1999 and 1998, net gains on the sale of OREO were $720,000 and $23,000, respectively. For the six months ended June 30, 1999, the Company's efficiency ratio was 39.3%, comparing favorably to 40.9% for the corresponding period of 1998. Provision for Income Taxes - -------------------------- For the quarter ended June 30, 1999 and 1998, the provision for income taxes was $4,216,000 and $4,147,000, respectively, representing effective tax rates of 37.5% and 37.7%. For the six months ended June 30, 1999, the provision for income taxes was $8,135,000, and $7,954,000, respectively, representing 37.5% and 37.1% of pre-tax income. FINANCIAL CONDITION - ------------------- As of June 30, 1999, the following balance sheet records were attained: O Total assets of $1,706.9 million O Total deposits of $1,437.3 million O Total loans and leases of $848.9 million Stockholders' equity was $152.5 million, down from $163.0 million, as of December 31, 1998, primarily due to the stock repurchase program initiated in the fourth quarter, 1998 and completed in the second quarter, 1999. The increase of total assets from December 31, 1998 to June 30, 1999 is primarily due to the growth of $60 million in gross loans and leases and $16 million in securities funded by a $66 million reduction of federal funds sold and securities purchased under agreements to resell, a $56 million increase of deposits and a $15 million increase in borrowings from the FHLB. The above were partially offset by the repurchase of an additional $17 million of Company stock and payment of a $30 million liability on securities awaiting payment as of December 31, 1998. Loans - ----- The $60.0 million, or 7.6%, growth was represented primarily by a $30.7 million and $22.7 million increase of commercial loans and real estate conventional loans, respectively. The 10.0% growth in the commercial loan portfolio was primarily in the trade-financing area which increased $27.0 million. The growth of this category of loan reflects the growth in international trade and new customer relationships. Trade financing loans are made by the Bank's International Division which, in addition to granting loans to finance the import and export of goods between the United States and countries in the Pacific Rim, also 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. The 8.6% growth in the real estate conventional loans portfolio was due to a $15.3 million increase of real estate conventional loans secured by first trust deeds and a $7.5 million increase of commercial loans secured by junior real estate liens. 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, 1999 December 31, 1998 (In Thousands) Amount Percentage Amount Percentage - ----------------------------------------------------------------------------- Commercial $339,878 40.04% $309,198 39.19% Real Estate - Construction 185,501 21.85% 177,737 22.53% Real Estate - Conventional 286,574 33.76% 263,869 33.45% Installment 22 N/A 37 N/A Other Loans 20,725 2.44% 22,302 2.83% Leveraged Leases 16,239 1.91% 15,802 2.00% -------------------------------------------- Total $848,939 100.00% $788,945 100.00% ============================================ N/A = Percentage less than 0.01
Non-Performing Assets - --------------------- A certain degree of risk is inherent in the extension of credit. Management has credit policies in place to minimize the level of loan losses and non-performing loans. The Company performs a quarterly assessment of the credit portfolio to determine the appropriate level of the allowance. Included in the assessment is the identification of loan impairment. A loan is identified as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. Loan impairment is measured by estimating the expected future cash flows and discounting them at the respective effective interest rate or by valuing the underlying collateral. The Company has a policy of classifying loans (including an impaired loan) which are 90 days past due as to principal and/or interest as non-accrual loans unless management determines that the fair value of underlying collateral is substantially in excess of the loan amount or other circumstances justify treating the loan as fully collectible. After a loan is placed on non-accrual status, any interest previously accrued, but not yet collected, is reversed against current income. A loan is returned to accrual status only when the borrower has demonstrated the ability to make future payments of principal and interest as scheduled, and the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms. Interest received on non-accrual loans generally is either applied as principal reduction or reported as recoveries on amounts previously charged off, according to management's judgment as to the collectability of principal. The following table provides information with respect to the Company's past due loans, non-accrual loans, restructured loans and other real estate owned, net, as of the dates indicated:
(IN THOUSANDS) June 30, 1999 December 31, 1998 - ------------------------------------------------------------------------ Loans 90 Days or More Past Due and Still Accruing $ - $ 780 Non-Accrual Loans 41,032 20,790 Total Past Due Loans 41,032 21,570 Restructured Loans 8,865 10,440 Total Non-Performing Loans 49,897 32,010 Other Real Estate Owned, Net 12,242 6,885 - ------------------------------------------------------------------------ Total Non-Performing Assets $ 62,139 $ 38,895 ========== ==========
Total non-performing assets increased to $62.1 million, as of June 30, 1999, from $38.9 million, as of December 31, 1998, representing a $23.2 million, or 59.8%, increase. Loans 90 Days or More Past Due and Still Accruing - ------------------------------------------------- There are no loans that are 90 days or more past due and still accruing as of June 30, 1999. Non-Accrual Loans - ----------------- As of June 30, 1999, non-accrual loans were $41.0 million, an increase of $20.2 million from year-end 1998, but a decline from the end of the first quarter 1999. The increase from December 31, 1998 is primarily due to a $30.9 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 balance of non-accrual loans was positively impacted by an $8.6 million transfer to other real estate owned ("OREO") and a charge-off of $2.3 million related to a $12.6 million loan placed on non-accrual status in November, 1998. The following table breaks out the Company's non- accrual loans by category as of June 30, 1999 and December 31, 1998:
(IN THOUSANDS) June 30, 1999 December 31, 1998 - ------------------------------------------------------------ Commercial $ 8,238 $ 19,202 Real Estate - Construction 30,944 277 Real Estate - Conventional 1,850 1,309 Other Loans - 2 - ------------------------------------------------------------ Total $ 41,032 $ 20,790 ======== ========
The $11.0 million decline of commercial non- accrual loans is due to the transfer to OREO, discussed above. The $30.7 million increase of real estate construction non-accrual loans is for the reason discussed above. Of the $41.0 million of non-accrual loans, $32.8 million are collateralized by real estate property with appraisal value considerably in excess of the carrying value of the loans, providing substantial protection against the loss of principal. The following table analyzes the increase in non- accrual loans during the six months ended June 30, 1999:
- ------------------------------------------------------------ (IN THOUSANDS) - ------------------------------------------------------------ Balance, December 31, 1998 $ 20,790 Add: Loans placed on non-accrual 37,490 Less: Charge-offs (4,192) Returned to accrual status (1,502) Repayments (2,767) Transfer to OREO (8,787) - ------------------------------------------------------------ Balance, June 30, 1999 $ 41,032 ==========
Restructured Loans - ------------------ The balance of restructured loans as of June 30, 1999 was $8.9 million compared to $10.4 million as of December 31, 1998, representing a $1.6 million, or 15.1%, decrease. The decrease was primarily due to the pay-off in full of a $1.4 restructured loan in the second quarter of 1999, which also resulted in a $1.0 million recovery to the allowance for credit losses. A loan is categorized as restructured if the original interest rate on such loan, the repayment terms, or both, are modified due to a deterioration in the financial condition of the borrower. Restructured loans may also be put on a non-accrual status in keeping with the Bank's policy of classifying loans which are 90 days past due as to principal and/or interest. Restructured loans which are non-accrual loans are not, however, included in the balance of restructured loans, but are included in the total of non-accrual loans. As of June 30, 1999, three restructured loans totaling $612,000 were on non-accrual status. As of June 30, 1999, restructured loans excluding those on non-accrual status totaled $8.9 million and consisted of 10 loans compared to $10.4 million and 11 loans as of December 31, 1998. The weighted average yield of the restructured loans was 9.80% as of June 30, 1999. There are no commitments to lend additional funds on any of the restructured loans. Other Real Estate Owned - ----------------------- As of June 30, 1999, other real estate owned, net of valuation allowance of $2.0 million, totaled $12.2 million, representing an increase of $5.4 million, or 77.8%, from the net balance of $6.9 million, net of valuation allowance of $2.0 million, as of December 31, 1998. The increase is mainly due to the Company's taking title to the primary collateral on the $12.6 million non-accrual loan discussed above. As of June 30, 1999 and December 31, 1998, OREO consisted of 16 properties and 22 properties, respectively. The outstanding OREO properties are all physically located in the Bank's market area. They include single family residences, condominiums, commercial buildings, industrial facilities and land. Eight properties comprise the land category of OREO. The Company does not intend to develop these properties; rather, the intent is to sell the land undeveloped. The following table sets forth OREO by property type as of the dates indicated:
June 30, December 31, - ------------------------------------------------------------ (In Thousands) 1999 1998 - ------------------------------------------------------------ Property Type - ------------- Single-Family Residential $ 266 $ 752 Condominium - 485 Land 3,536 3,621 Retail Facilities 1,890 4,027 Industrial Facilities 8,550 - -------- -------- Less: Valuation Allowance (2,000) (2,000) -------- -------- Total $ 12,242 $ 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. Of the $47.0 million of outstanding impaired loans as of June 30, 1999, $2.1 million are included in the balance of restructured loans and are performing pursuant to the terms and conditions of the restructuring. The following table discloses pertinent information as it relates to the Company's impaired loans as of the dates indicated:
- ------------------------------------------------------------------ (In Thousands) Jun.30, 1999 Dec.31, 1998 - ------------------------------------------------------------------ Recorded Investment with Related Allowance $47,032 $20,746 Recorded Investment with no Related Allowance - 1,519 Total Recorded Investment 47,032 22,265 Allowance for Impaired Loans 4,960 3,250 - ------------------------------------------------------------------
The increase in the recorded investment of impaired loans is due to the $31 million casino construction loan discussed above. The average balance of impaired loans before the allowance was $44.6 million for the six months ended June 30, 1999 and $13.5 million for the twelve months ended December 31, 1998. For the six months ended June 30, 1999 and 1998, interest income recognized on impaired loans was $548,000 and $583,000, respectively. Of the amount of interest income recognized during the six months ended June 30, 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 June 30, 1999, the balance of the allowance for credit losses was $19.1 million, representing 2.25% 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. 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, 1999 June 30, 1998 - ------------------------------------------------------------- Balance, Beginning of Period $ 19,381 $ 16,776 Provision for Credit Losses 2,000 - Charge-offs (4,157) (1,639) Recoveries 1,837 401 Net Charge-offs (2,320) (1,238) Balance, End of Period $ 19,061 $ 15,538 - -------------------------------------------------------------
As of June 30, 1999, the allowance represents 38.2% and 46.5% of non-performing loans and of non-accrual loans, respectively. As of December 31, 1998, the allowance represented 60.5% and 93.2% of non-performing loans and of non-accrual loans, respectively. 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 June 30, 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 stockholders' equity. As of June 30, 1999, the Company recorded net unrealized losses of $6,456,000 on its available-for-sale portfolio. Stockholders' equity includes $3,742,000, representing the net unrealized loss, net of tax. The amortized cost, gross unrealized gains, gross unrealized losses and fair value of securities at June 30, 1999 and December 31, 1998 were as follows:
Gross Gross (In Thousands) Amortized Unrealized Unrealized Fair June 30, 1999 Cost Gains Losses Value - ---------------------------------------------------------------------------------- Securities Held to Maturity - --------------------------- U.S. Government Agencies $ 1,919 $ - $ (9) $ 1,910 Collateralized Mortgage Obligations 15 - - 15 ---------------------------------------------- Total Securities Held to Maturity $ 1,934 $ - $ (9) $ 1,925 ============================================== Securities Available for Sale - ----------------------------- U.S. Government Agencies $ 19,347 $ - $ (12) $ 19,335 Mortgage Backed Securities 153,106 - (3,277) 149,829 Corporate Notes 50,019 - (468) 49,551 Collateralized Mortgage Obligations 252,528 - (1,795) 250,733 Asset Backed Securities 288,342 - (904) 287,438 Other Securities 6,066 - - 6,066 ---------------------------------------------- Total Securities Available for Sale $ 769,408 $ - $ (6,456) $ 762,952 ============================================== Gross Gross (In Thousands) Amortized Unrealized Unrealized Fair December 31, 1998 Cost Gains Losses Value - ---------------------------------------------------------------------------------- Securities Held to Maturity - --------------------------- U.S. Government Agencies $ 24,594 $ 61 $ - $ 24,655 Collateralized Mortgage Obligations 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 during the six months ended June 30, 1999 and 1998. Deposits - -------- The Company's deposits totaled $1,437.3 million as of June 30, 1999, representing a $56.4 million, or 4.1%, increase from total deposits of $1,380.9 million as of December 31, 1998. All deposit categories experienced increases with the exception of other time deposits which decreased $42.1 million, or 15.6%. Time certificates of deposit of $100,000 or more and demand deposits increased $71.1 million or 11.9%, and $19.6 million, or 13.1%, respectively, representing the largest growth components. There were no brokered deposits outstanding as of June 30, 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 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, 1999, is as follows:
- ------------------------------------------------------- (IN THOUSANDS) - ------------------------------------------------------- 3 Months or Less $ 442,875 Over 3 Months Through 6 Months 115,756 Over 6 Months Through 12 Months 111,670 Over 12 Months 439 - ------------------------------------------------------- Total $ 670,740 ========== - -------------------------------------------------------
Other Borrowings - ---------------- As of June 30, 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 at date of issuance. The discount is amortized as a yield adjustment over the 10-year life of the notes. The Bank has obtained advances from the Federal Home Loan Bank of San Francisco (the "FHLB") totaling $50.0 million. The advances are under an existing line of credit whereby the FHLB has granted the Bank a line of credit equal to 25 percent of its assets. The following relates to the four outstanding advances as of June 30, 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% Jul.15, 2002 5,000,000 5.61%
The total outstanding of $50 million of advances as of June 30, 1999 has a composite fixed rate of interest of 4.85%. As of June 30, 1999, the Bank had $1 million outstanding of federal funds purchased, representing an overnight borrowing from one of its major correspondents. The rate of interest paid on the federal funds purchased was 5.25%. (Reference also discussion of liquidity following.) Capital Resources - ----------------- Stockholders' equity totaled $152.5 million as of June 30, 1999, a decrease of $10.6 million, or 6.5%, from $163.0 million as of December 31, 1998. The net decrease from year- end 1998 was due to the repurchase of $17.2 million of the Company's stock. The stock repurchase program was completed in the second quarter. A total of 1.4 million shares were repurchased, at a total cost of $27.6 million. The decline of stockholders' equity due to the repurchase was partially offset by net income of $13.6 million less cash dividends declared of $2.0 million less the net change in securities' valuation of $5.6 million plus the exercise of stock options and related tax benefits of $0.6 million. Capital ratios for the Company and for the Bank were as follows as of the dates indicated:
- ---------------------------------------------------------------------------- Well-Capitalized Jun.30, Dec.31, Requirements 1999 1998 - ---------------------------------------------------------------------------- GBC Bancorp Tier 1 Leverage Ratio 5% 9.23% 9.75% Tier 1 Risk-Based Capital Ratio 6% 10.61% 11.06% Total Risk-Based Capital Ratio 10% 14.51% 14.98% General Bank Tier 1 Leverage Ratio 5% 10.00% 9.49% Tier 1 Risk-Based Capital Ratio 6% 11.50% 10.77% Total Risk-Based Capital Ratio 10% 12.75% 12.02% - ----------------------------------------------------------------------------
For the six months ended June 30, 1999, the ratio of the Company's average stockholders' equity to average assets was 9.49%. 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. As previously discussed, pursuant to the Dutch Auction self tender program, the Company repurchased approximately 1,328,000 of its shares at $22 per share on July 20, 1999. The transaction will reduce the capital ratios of the Company and the Bank as a $16 million dividend from the Bank to the Company was used to partially fund the purchase. Notwithstanding these transactions, the Company's and the Bank's capital ratios remain in excess of regulatory requirements. 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 $658.4 million, or 38.6% of total assets, as of June 30, 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 payment terms up to 360 months. Management believes its liquidity sources to be stable and adequate. As of June 30, 1999, total loans and leases represented 59.1% of total deposits. This compares to 60.0% and 57.1% as of March 31, 1999 and December 31, 1998, respectively. The liquidity of the parent company, GBC Bancorp, is primarily dependent on the payment of cash dividends by its subsidiary, General Bank, (the "Bank") subject to the limitations imposed by the Financial Code of the State of California. For the six months ended June 30, 1999, the Bank declared cash dividends of $2.0 million to GBC Bancorp. As previously discussed, pursuant to the Dutch Auction self tender program, GBC Bancorp repurchased approximately 1,328,000 of its shares at $22 per share on July 20, 1999. A $16 million cash dividend by the Bank to GBC Bancorp was used to partially fund the repurchase. The transaction will reduce the capital ratios of the Bank. Notwithstanding the dividend payment, the Bank's capital ratios remain in excess of regulatory requirements. "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, 1999, there was a cumulative one-year negative "gap" of $613.2 million, up from $448.2 million as of December 31, 1998. The following table indicates the Company's interest rate sensitivity position as of June 30, 1999, and is based on contractual maturities. It may not be reflective of positions in subsequent periods:
JUNE 30, 1999 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 $ 14,515 $ 10,554 $ 60,731 $ 677,152 $ - $ 762,952 Securities Held to Maturity - - 1,919 15 - 1,934 Federal Funds Sold & Securities Purchased Under Agreement to Resell 35,000 - - - - 35,000 Loans and Leases (1) (2) 579,621 15,356 99,696 113,234 - 807,907 Non-Earning Assets (2) - - - - 99,145 99,145 ---------------------------------------------------------------------------------- Total Assets $ 629,136 $ 25,910 $ 162,346 $ 790,401 $ 99,145 $1,706,938 ========= ========= ========= ========= ========= ========== Source of Funds for Assets: Deposits: Demand - N/B $ - $ - $ - $ - $ 168,992 $ 168,992 Interest Bearing Demand 285,022 - - - - 285,022 Savings 84,195 - - - - 84,195 TCD'S Under $100,000 134,869 92,895 606 - - 228,370 TCD'S $100,000 and Over 443,080 227,221 439 - - 670,740 ---------------------------------------------------------------------------------- Total Deposits $ 947,166 $ 320,116 $ 1,045 $ - $ 168,992 $1,437,319 ========= ========= ========= ========= ========= ========== Federal Funds Purchased & Securities Sold Under Agreement to Resell $ 1,000 $ - $ - $ - $ - $ 1,000 Borrowings from the Federal Home Loan Bank - - 50,000 - - 50,000 Subordinated Debt - - - 38,941 - 38,941 Other Liabilities - - - - 27,205 27,205 Stockholders' Equity - - - - 152,473 152,473 ---------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 948,166 $ 320,116 $ 51,045 $ 38,941 $ 348,670 $1,706,938 ========= ========= ========= ========= ========= ========== Interest Sensitivity Gap $(319,030) $(294,206) $ 111,301 $ 751,460 $(249,525) Cumulative Interest Sensitivity Gap (319,030) (613,236) (501,935) 249,525 - Gap Ratio (% of Total Assets) -18.7% -17.2% 6.5% 44.0% -14.6% Cumulative Gap Ratio -18.7% -35.9% -29.4% 14.6% 0.0% (1) Loans and leases are before unamortized deferred loan fees and allowance for credit losses. (2) Nonaccrual loans are included in non-earning assets.
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, 1999:
--------------------------------------------------------------------------- 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 $ 32,909 $ 91,897 $ 512,848 $ 125,298 $ 762,952 Securities Held to Maturity 1,934 - - - 1,934 Federal Funds Sold & Securities Purchased Under Agreements to Resell 35,000 - - - 35,000 Loans and Leases (1) 579,621 15,356 99,696 113,234 807,907 --------- --------- --------- --------- ----------- Total Interest-earning Assets $ 649,464 $ 107,253 $ 612,544 $ 238,532 $ 1,607,793 ========= ========= ========= ========= =========== Interest-sensitive Liabilities: Deposits: Interest Bearing Demand $ 10,097 $ 30,289 $ 188,653 $ 55,983 $ 285,022 Savings 2,806 8,420 56,130 16,839 84,195 Time Certificates of Deposit 577,647 320,418 1,045 - 899,110 --------- --------- --------- --------- ----------- Total Deposits $ 590,550 $ 359,127 $ 245,828 $ 72,822 $ 1,268,327 ========= ========= ========= ========= =========== Federal Funds Purchased & Securities Sold Under Repurchased Agreements $ 1,000 $ - $ - $ - $ 1,000 Borrowing from FHLB - - 50,000 - 50,000 Subordinated Debt - - - 38,941 38,941 --------- --------- --------- --------- ----------- Total Interest-sensitive Liabilities $ 591,550 $ 359,127 $ 295,828 $ 111,763 $ 1,358,268 ========= ========= ========= ========= =========== (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, 1999:
NET INTEREST MARKET VALUE OF CHANGE IN INTEREST INCOME VOLATILITY EQUITY VOLATILITY RATES (BASIS POINTS) JUNE 30, 1999 (1) JUNE 30, 1999 (2) - -------------------------------------------------------------------- +200 -4.90% -13.00% +100 -2.60% - 6.60% -100 -0.80% 5.30% -200 -4.00% 7.00% (1) The percentage change in this column represents net interest income for 12 months in a stable interest rate environment versus the net interest income in the various rate scenarios. (2) The percentage change in this column represents net portfolio value of the Bank in a stable interest rate environment versus the net portfolio value in the various rate scenarios.
The Company's primary objective in managing interest rate risk is to minimize the adverse effects of changes in interest rates on earnings and capital. In this regard the Company has established internal risk limits for net interest income volatility given a 100 and 200 basis point decline in rates of 10% and 15%, respectively, over a twelve month horizon. Similarly, risk limits have been established for market value of portfolio equity volatility in response to a 100 and 200 basis point increase in rates of 10% and 15%, respectively. 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 $60,000. 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 that have been tested 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 outstanding credit commitments by dollar volume at the time of the mailing. All questionnaires have now been received and reviewed. The questionnaire review process, along with ongoing oversight, has resolved all issues where potential adverse impact on credit quality was a factor if Year 2000 issues were not addressed. Three credits, with total commitments of $11 million have been judged "not sure" in their ability to ensure year 2000 compliance. 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 a borrower's businesses. 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 "believes," "intends," "expects" and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economics and business conditions in those areas in which the Company operates; demographic changes; competition; fluctuations in interest rates; changes in business strategy or development plans; changes in governmental regulation; credit quality; and other factors referenced herein, including, without limitation, under the captions Provision for Credit Losses, Non- Performing Assets, Allowance for Credit Losses, Liquidity and Market Risk, Interest Rate Sensitivity, and Recent Developments. Given these uncertainties, the reader is cautioned not to place undue reliance on such 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 - ------------------------------ 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 was originally scheduled to be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. However, the FASB recently issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No.133 " which amended the effective date of the application of SFAS 133 to be effective for all fiscal quarters of fiscal years beginning after June 15, 2000. 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 June 30, 1999. Item 3. DEFAULT UPON SENIOR SECURITIES - --------------------------------------- This item is not applicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ At the Annual Meeting of Shareholders held on April 22, 1999, 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 12,138,380 192,653 Thomas C.T. Chiu 12,138,380 192,653 Chuang-I Lin 12,138,380 192,653 Ko-Yen Lin 12,138,380 192,653 Ting Yung Liu 12,138,380 192,653 John Wang 12,134,380 196,653 Kenneth Wang 11,983,980 347,053 Chien-Te Wu 12,138,380 192,653 Julian Wu 12,138,380 192,653 Li-Pei Wu 12,136,180 194,853 Peter Wu 12,138,380 192,653 Ping C. Wu 12,138,380 192,653 Walter Wu 12,138,380 192,653 Chin-Liang Yen 12,138,380 192,653
There was also a proposal to approve the GBC Bancorp 1999 Employee Stock Incentive Plan. The proposal received the following votes:
For Against Withheld --- ------- -------- 8,217,236 2,594,934 21,854
Item 5. OTHER INFORMATION - -------------------------- There are no events to be reported under this item. Item 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- a) Exhibits: None. b) Reports on Form 8-K: None PART III - SIGNATURES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GBC Bancorp (Registrant) August 5, 99 Li-Pei Wu Dated: __________________ s/ ______________________ Li-Pei Wu, Chairman and Chief Executive Officer August 5, 99 Peter Lowe Dated: __________________ s/ ______________________ Peter Lowe, Executive Vice President and Chief Financial Officer EX-27 2
9 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 39,338 0 35,000 0 762,952 1,934 1,925 848,939 19,061 1,706,938 1,437,319 1,000 27,205 88,941 0 0 56,896 95,577 1,706,938 37,765 24,690 2 62,457 24,278 27,160 35,297 2,000 0 15,376 21,716 13,581 0 0 13,581 1.03 1.01 4.34 41,032 0 8,865 0 19,381 4,157 1,837 19,061 19,061 0 0
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