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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, 2002 Commission file number 0-16213

(Exact name of registrant as specified in its charter)

(State or other jurisdiction of (I.R.S. Employer Identification No.)

incorporation or organization)

(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code 213/972-4174

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No _______

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report.

Common stock, no par value, 11,536,762 shares issued and outstanding as of June 30, 2002.

PART I - FINANCIAL INFORMATION

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company's financial condition and results of operations for the interim periods presented in this Form 10-Q have been included. Operating results for the interim periods are not necessarily indicative of financial results for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The financial statements include the accounts of GBC Bancorp (the "Bancorp") and its wholly owned subsidiaries, GBC Venture Capital, Inc., General Bank, (the "Bank"), a California state chartered bank, and the Bank's wholly owned subsidiaries, GBC Insurance Services, Inc., GBC Investment & Consulting Company, Inc., GBC Real Estate Investments, Inc., GBC Trade Services, Asia Limited and GB Capital Trust II. The Bank also holds 90% of the voting stock of GBC Leasing Company, Inc., which amount is not material.

2. Change of Accounting Principle

On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("Statement 133"). On that date a transition adjustment of $8,561,000 was recorded. The transition adjustment is presented net of tax in the amount of $4,962,000 as a cumulative effect of a change of accounting principle in the Company's consolidated statements of income. The Company has received rights to acquire stock in the form of warrants, as an adjunct to its high technology banking relationships. Most of the warrants contain a cashless exercise provision thereby qualifying them as derivatives under Statement 133, requiring they be carried at fair value. The amount represents the difference between the carrying value of the Company's derivatives and their fair value.

3. Commitments and Contingencies

In the normal course of business, there are various outstanding commitments to extend credit which are not reflected in the accompanying interim consolidated financial statements.

The following is a summary of such commitments as of June 30, 2002 and December 31, 2001:

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4. Pending Litigation

In the normal course of business, the Company is subject to pending and threatened legal actions. After reviewing pending actions with counsel, management believes that the outcome of such actions will not have a material adverse effect on the financial condition or the results of operations of the Company.

5. Earnings /(Loss) Per Share

Basic earnings / (loss) per share is determined by dividing net income/(loss) 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. In the case of a loss from operations no common stock equivalents are included in the computation of the diluted loss per share. The following table sets forth basic and diluted earnings/(loss) per share calculations:

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The average anti-dilutive equivalent shares outstanding for the three months and six months ended June 30, 2002 were 1,576,271 and 1,574,661, respectively.

6. Quarterly Dividends

In May, 2002, the Company's Board of Directors declared a quarterly common stock cash dividend of $0.12 per share payable on or about July 15, 2002 to shareholders of record on June 30, 2002.

7. Acquisition of Liberty Bank & Trust

On February 28, 2002, General Bank consummated its purchase transaction of Liberty Bank and Trust Co. of Boston. The purchase transaction was accounted for in accordance with SFAS No. 141, "Business Combinations". The assets acquired had a fair value of $44,352,000 and the fair value of liabilities assumed was $32,421,000. Goodwill in the amount of $4,855,000 and core deposit premium in the amount of $964,000 were initially recognized in accordance with SFAS No. 141. SFAS No. 142, "Goodwill and Other Intangible Assets," requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No.142. SFAS No.142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No.144, "Accounting for the Impairment or Disposal of Long-lived Assets". The core deposit premium intangible is being amortized over a 5 year period, estimated to be the useful life.

8. Recent Accounting Developments

In June of 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs would be capitalized as part of the carrying amount of the long-lived asset and depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement. Two provisions of SFAS No.143 are effective for fiscal years beginning after June 15, 2002. The adoption of this statement will have no impact on the Company.

The Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets", effective January 1, 2002. The adoption of SFAS No. 144 did not have a significant impact on the Company's financial statements.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"). SFAS No.145 will rescind SFAS No. 4 which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result of SFAS No. 145, the criteria in APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4, and is no longer necessary because SFAS No. 4 has been rescinded.

SFAS No. 44 was issued to establish accounting requirements for the effects of transition to the provisions of the Motor Carrier Act of 1980. Since the transition has been completed, SFAS No. 44 is no longer necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions.

SFAS No. 145 will be effective for fiscal years beginning after May 15, 2002, with early adoption of the provisions related to the rescission of SFAS No. 4 encouraged. Upon adoption, companies must reclassify prior period items that do not meet the extraordinary item classification criteria in APB 30. It is not anticipated that the adoption of this statement will have a material effect on the Company.

In July of 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities".  Commitment to a plan to exit an activity or dispose of long-lived assets will no longer be enough to record a one-time charge for most anticipated costs. Instead, companies will record exit or disposal costs when they are "incurred" and can be measured at fair value, and they will subsequently adjust the recorded liability for changes in estimated cash flows. SFAS No. 146 revises accounting for specified employee and contract terminations that are part of restructuring activities. Under SFAS No. 146, a company will record a liability for a cost associated with an exit or disposal activity when that liability is incurred and can be measured at fair value. A liability is incurred when an event obligates the entity to transfer or use assets - in the FASB's more demanding language, when an event leaves the company little or no discretion to avoid transferring or using the assets in the future. Commitment to an exit plan or a plan of disposal expresses only management's intended future actions and, therefore, does not meet the requirement for recognizing a liability and the related expense. The provisions of SFAS No. 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002.  Management has not yet determined the impact, if any, of adoption of SFAS No. 146.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Accounting for the allowance for credit losses involves significant judgments and assumptions by management which have a material impact on the carrying value of net loans; management considers this accounting policy to be a critical accounting policy. The judgments and assumptions used by management are based upon the evaluation of the loan portfolio, the economic environment, historical loan loss experience, collateral values and assessments of borrower's ability to repay, as described in "Allowance for Credit Losses".

Accounting for derivatives is in compliance with SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"). Implementation of SFAS No.133 has a material impact on the carrying value of derivative instruments; management considers this accounting policy to be a critical accounting policy. The judgments and assumptions used by management to mark to market derivatives are based on the most recent information available and other factors which are believed to be reasonable under the circumstances as described in "Non-Interest Income", "Non-Interest Expense" and "Cumulative Effect of a Change of Accounting Principle".

The net loss for the second quarter of 2002 was $8,010,000, or $0.69 diluted loss per share compared to $8,805,000, or $0.75 diluted earnings per share for the corresponding period of 2001. The $16,815,000 decrease is the result of a $37,350,000 increase of the provision for credit losses, partially offset by a $10,127,000 gain on sale of securities available for-sale.

For the six months ended June 30, 2002, the net loss totaled $10,916,000, a decrease of $27,068,000, from the net income of $16,152,000 earned during the corresponding period of 2001. Diluted (loss)/earnings per share for the six months ended June 30, 2002 was ($0.94), compared to the $1.36 for the same period of 2001. The decrease in net income was the result of a $49,864,000 increase of the provision for credit losses, partially offset by the $10,127,000 gain on sale of securities available-for-sale and a $5,827,000 increase in net interest income.

For the quarter ended June 30, 2002 and 2001, the annualized return on average assets ("ROA") was (1.25)% and 1.72%, respectively, and the annualized return on average stockholders' equity ("ROE") was (15.9)% and 17.6%, respectively.

For the six months ended June 30, 2002 and 2001, the ROA was (0.88)% and 1.62%, respectively. For the six months ended June 30, 2002 and 2001, the ROE was (10.7)% and 16.5%, respectively.

For the quarter ended June 30, 2002 and 2001, net interest income before the provision for credit losses increased $2,825,000 or 12.6%, from $22,381,000 to $25,206,000. The growth was due to the increase of average earning assets partially offset by a decrease of the net interest margin to 4.01% from 4.50%.

Total interest income for the quarter ended June 30, 2002 was $38,667,000, representing a $985,000, or 2.5%, decrease from the corresponding quarter of a year ago. The decrease was related to the decline of the yield on earning assets. For the quarter ended June 30, 2002 and 2001, the yield was 6.16% and 7.98%, respectively. The 182 basis point decline is primarily due to the reduction of the prime rate. For the quarter ended June 30, 2002 and 2001, the daily average prime rate of interest was 4.75% and 7.34%, respectively, or a reduction of 259 basis points. The yield on loans and leases declined to 6.76% from 9.05%, for the quarter ended June 30, 2002 and 2001, respectively, representing a 229 basis point decline. Also contributing to the decline was the inclusion of an additional $447,000 of net interest recoveries and interest adjustments for the quarter ended June 30, 2001. Partially offsetting the decline of the yield on loans and leases due to the 259 basis point decline of the average prime rate of interest was the fixed rate portion of the portfolio approximating 25% of total average loans and leases. The yield on securities declined to 5.75% from 6.98% for the quarter ended June 30, 2002 and 2001, respectively, a decline of 123 basis points. The yield on federal funds sold and securities purchased under agreements to resell declined to 1.85% from 4.36% for the quarter ended June 30, 2002 and 2001, respectively, mirroring the decline of the above-referenced average prime rate. The decline of the yield on average earning assets to 6.16% from 7.98% was also the result of a reduced percentage of average loans and leases to total average earning assets. For the quarter ended June 30, 2002 and 2001, this percentage was 48.1% and 52.2%, respectively.

Partially offsetting the reduced yield on average earning assets was the $526.1 million increase of average earning assets to $2,518.9 million from $1,992.8 million for the quarter ended June 30, 2002 and 2001, respectively. This growth of average interest earning assets was comprised of increases of $172.6 million and $363.9 million for loans and leases and investment securities, respectively.

Total interest expense for the quarter ended June 30, 2002 was $13,461,000, representing a $3,810,000, or 22.1%, decrease over the corresponding quarter of a year ago. The decrease was due to a lower cost of funds. For the quarter ended June 30, 2002 and 2001, the cost of funds was 2.57% and 4.29%, respectively, representing a 172-basis point decline.

The decrease in the cost of funds was primarily the result of a decrease in interest rates as explained above. The rates paid on all categories of interest-bearing deposits decreased. For the three months ended June 30, 2002 and 2001, rates paid on interest-bearing deposits were 2.12% and 4.12%, respectively. The following table displays the average balance and rates paid for the deposit products comprising the interest bearing deposits of the Bank for the quarter ended as indicated:

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                                                                            For the Quarter Ended June 30,

(Dollars In Thousands)                                         2002                                 2001

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Partially offsetting the impact of a reduction of the rates paid on interest bearing deposits was an increase of average interest bearing deposits. For the quarter ended June 30, 2002 average interest bearing deposits were $1,728.8 million compared to $1,479.8 million for the corresponding period of a year ago, representing a $249 million, or 16.8%, increase. The increase was represented by all deposit categories except other time deposits which declined $36.5 million or 20.4%. Interest bearing demand reflected the largest increase growing $183.6 million, or 50.7%. The increase of average borrowings from the Federal Home Loan Bank ("FHLB") had the impact of increasing interest expense from both a volume and rate perspective. The average FHLB borrowings was $333.2 million and $94.8 million for the quarter ended June 30, 2002 and 2001, respectively.

The increase in borrowings from the FHLB as a percentage of average interest bearing liabilities, partially offset the impact of the decline of short-term interest rates. The cost of these borrowings was 4.13% and 5.03% for the quarter ended June 30, 2002 and 2001, respectively. This compares to rates paid on deposits of 2.12% and 4.12%, for the quarter ended June 30, 2002 and 2001, respectively.

The net interest spread, defined as the yield on earning assets less the rates paid on interest-bearing liabilities, decreased 10 basis points to 3.59% for the quarter ended June 30, 2002, from 3.69% for the corresponding period of a year ago. The decline is due to the differential of the reduction of the cost of funds compared to the reduction of the yield on earning assets.

The net interest margin, defined as the annualized difference between interest income and interest expense divided by average interest earning assets, decreased 49 basis points to 4.01% for the quarter ended June 30, 2002, from 4.50% for the corresponding period of a year ago. The decline of the net interest margin was primarily due to the decline of the net interest spread and a reduction of the percentage of average interest-earning assets funded by non-costing sources. For the quarter ended June 30, 2002 and 2001 this percentage declined to 17.0% from 18.9%, respectively.

For the six months ended June 30, 2002, net interest income before the provision for credit losses was $49,248,000, representing a $5,827,000, or 13.4%, growth over the corresponding period of a year ago.

Total interest income for the six months ended June 30, 2002 was $75,804,000 compared to $79,310,000, a $3,506,000, or 4.4%, decline over the corresponding period of a year ago. The decrease is the result of the decline of the yield on average interest earning assets. For the six months ended June 30, 2002 and 2001, the yield was 6.22% and 8.23%, respectively. The 201 basis point decline is primarily due to the reduction of the prime rate of interest. For the six months ended June 30, 2002 and 2001, the daily average prime rate was 4.75% and 7.98%, respectively, a 323 basis point decline. In addition, the yield was compressed due to the decline of average loans and leases as a percentage of total average earning assets to 48.2% from 51.7%, for the six months ended June 30, 2002 and 2001, respectively.

The 252 basis-point decline of the yield on loans and leases for the six months ended June 30, 2002 and 2001, from 9.37% to 6.85%, was less than the decline of the average prime rate again due to the fixed rate portion of the portfolio (approximately 25% of total average loans and leases). The yield on securities declined to 5.85% from 7.15% for the quarter ended June 30, 2002 and 2001, respectively, a decline of 130 basis points. The yield on federal funds sold and securities purchased under agreements to resell declined to 1.86% from 5.14% for the six months ended June 30, 2002 and 2001, respectively, mirroring the decline of the above-referenced average prime rate of interest.

The impact of the declining yields on interest income was partially offset by a $512.1 million growth of average earning assets to $2,456.0 million from $1,943.9 million for the six months ended June 30, 2002 and 2001, respectively. This growth was mainly comprised of increases of $179.0 million and $332.0 million for loans and leases and investment securities, respectively.

Total interest expense for the six months ended June 30, 2002 and 2001, was $26,556,000 and $35,889,000, respectively, representing a $9,333,000, or 26.0%, decrease. This decrease is due to the 197 basis-point decrease of the cost of funds which decreased from 4.60% to 2.63% for the six months ended June 30, 2001 and 2002. The decrease of the cost of funds was primarily the result of the decline of deposit rates caused by the movement of the prime rate of interest as discussed above. The rate paid on average interest-bearing deposits was 2.21% and 4.46% for the six months ended June 30, 2002 and 2001, respectively.

Partially offsetting the decrease of the cost of funds was the growth of average interest-bearing liabilities, which increased $465.2 million to $2,039.8 million from $1,574.6 million for the six months ended June 30, 2002 and 2001, respectively. The growth of average interest bearing liabilities was primarily due to both a $234.9 million growth of interest bearing deposits and a $230.2 million growth of borrowings from the Federal Home Loan Bank ("FHLB"). The growth of the FHLB borrowings also had the effect of partially offsetting the decline of the cost of funds. The cost of this source of funding was 4.17% and 5.08% for the six months ended June 30, 2002 and 2001, respectively.

The average balance and the rates paid for the deposit products comprising the interest bearing deposits of the Bank were as follows for the six month periods as indicated:

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                                                                                    For the Six Months Ended June 30,

(Dollars In Thousands)                                                     2002                         2001

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For the six months ended June 30, 2002 and 2001, the net interest spread decreased to 3.60% from 3.63%, respectively.

For the six months ended June 30, 2002 and 2001, the net interest-margin was 4.04% and 4.50%, respectively. The decline of the margin was the result of the reduced spread and a reduction of the percentage of average interest-earning assets funded by non-costing sources. For the six months ended June 30, 2002 and 2001, this percentage declined to 17.3% from 19.4% percent, respectively.

For the quarter ended June 30, 2002, there was a provision for credit losses of $39,150,000, compared to a $1,800,000 provision for credit losses for the corresponding period of a year ago. Two commercial loans totaling $27 million involving two companies in the metal importing and trading business were charged-off in the 2nd quarter. As half of this amount was already provided for in the 1st quarter, as previously announced, the remaining $13.5 million was included in the provision for credit losses in the 2nd quarter. At this time, we cannot estimate the extent to which the collateral plus insurance coverage will provide any recovery of this charge-off in the future.

At quarter-end, the review of existing problem loans resulted in $47.2 million of net charge-offs in the 2nd quarter, including the credits discussed above, bringing net charge-offs for the year to $53.4 million. For the quarter, excluding the above charge-offs, the remaining $20.4 million of gross charge-offs included $20.1 million of commercial loans. For the six months, the remaining $26.7 million of gross charge-offs (after allowing for the $27 million of charge-offs noted above) were composed almost entirely of commercial loans. Of the charge-offs for the six months, $45.3 million were associated with loans originated by the New York loan production office.

As indicated above, a $39.2 million provision for credit losses was recorded in the quarter, $13.5 million of which was associated with the $27 million commercial loans in the metal importing and trading business. For the quarter, excluding the $13.5 million provision, the remaining $25.7 million of provision was predominately for commercial loans. Of the $25.7 million, $14.5 million was associated with a loan to a commodities export company. At the beginning of August, 2002, the Company was informed that this borrower had ceased operations. As a result, the loan was considered to be a loss under generally accepted accounting principles applicable to subsequent events, and was charged off. Although there is collateral owned by the borrower and the guarantors, the amount and timing of any subsequent recovery cannot be estimated. Of the $39.2 million provision for the 2nd quarter, $33.3 million was associated with loans originated by the New York loan production office. There were $24 million of loans outstanding originated by the New York loan production office as of June 30, 2002.

For the six months ended June 30, 2002 and 2001, the provision for credit losses was $57,664,000 and $7,800,000, respectively. The increase is mostly due to the problem commercial credits, as mentioned above.

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 losses. Please refer to the discussion "Allowance for Credit Losses", following.

Non-interest income for the quarter ended June 30, 2002 totaled $10,751,000, representing a $8,195,000, or 321%, increase over the $2,556,000 for the quarter ended June 30, 2001. This increase was primarily due to the gain of $10,127,000 from the sale of $206.2 million of available-for- sale securities. Partially offsetting the securities gains was the increase of $1,217,000 in expense from other investments. Expense from other investments was $1,261,000 and $44,000 for the three months ended June 30, 2002 and 2001, respectively, of which $1,117,000 and $178,000, respectively, were expenses associated with venture capital funds on the books of GBC Venture Capital. Expense from other investments is based on recording under the equity method the income or loss as reported by the partnerships of which GBC Venture Capital is a limited partner and the Trust ("AFT") in which the Bank has a 10% beneficial interest.

For the six months ended June 30, 2002, non-interest income totaled $9,248,000, representing a $2,633,000, or 39.8%, increase compared to $6,615,000 for the six months ended June 30, 2001. As was the case for the quarterly comparison, the increases of non-interest income was primarily due to the gain of $10,127,000 from the sale of securities available-for-sale. There were no sales of securities during the six months ended June 30, 2001. Offsetting the above increase were the decreases of $2,154,000 in trading revenue and the increase of $4,445,000 of expense from other investments. For the six months ended June 30, 2002 and 2001, the trading revenue was $16,000 and $2,170,000, respectively. Trading account revenue is income earned on securities classified as trading securities. The Company's subsidiary, GBC Venture Capital, ("VC") receives equity securities which it holds as trading securities primarily from two sources: a distribution from venture capital funds in which it invests and the exercise of warrants acquired through the lending operations of General Bank, its affiliate. The recognition of fair value and ultimate disposition of these securities results in trading account revenue. For the six months ended June 30, 2002 and 2001, expense from other investments was $4,624,000 and $179,000, respectively. As indicated above, expense is incurred by applying the equity method of accounting for the results of operation of the venture capital funds and AFT. For the six months ended June 30, 2002 and 2001, the (expense)/income resulting from AFT was $(3,155,000) and $165,000, respectively. Included in the 2002 expense amount was the Company's 10% share of a $28,364,000 impairment expense recorded by AFT for its fourth quarter ended December 31, 2001. The net expense recorded for the Venture Capital funds also increased from $344,000 for the six months ended June 30, 2001 to $1,469,000 for the six months ended June 30, 2002.

Non-Interest Expense

For the three months ended June 30, 2002, non-interest expense was $9,608,000, representing a $934,000, or 10.8%, increase over $8,674,000 for the corresponding period of a year ago. Non-interest expense includes the change in fair value of the Company's derivatives which are accounted for under, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). (See also "Cumulative Effect of a change in Accounting Principle," following.) As of June 30, 2002, there was an increase of $467,000 of fair value compared to March 31, 2002; as of June 30, 2001 there was a $388,000 loss of fair value compared to March 31, 2001. Excluding the change of fair value of derivatives, non-interest expense increased by $1,789,000, or 21.6%, for the quarter ended June 30, 2002 compared to the corresponding period of a year ago, due to higher salaries and employee benefits and other expense. Salaries and employee benefits increased $218,000 primarily the result of increased staff, partially offset by a reduced incentive compensation expense. The full time equivalent employees was 404.4 and 347.5 for the quarter ended June 30, 2002 and 2001, respectively. Other expense increased $736,000 primarily due to increased professional services expense which increased $1,004,000 during the quarter ended June 30, 2002 compared to the corresponding period of a year ago. The increase is primarily due to the recording of $338,000 of expense relating to the Liberty Bank acquisition and to professional services related to increasing loan problems and to the implementation of the real estate investment trust.

For the quarter ended June 30, 2002, the Company's efficiency ratio, defined as non-interest expense excluding the change of fair value of derivatives divided by the sum of net interest income plus non-interest income less trading revenue and income(loss) from venture capital fund investments and gain on sale of securities available-for-sale, increased to 37.2% from 33.0% for the corresponding year-ago period.

For the six months ended June 30, 2002, non-interest expense was $18,216,000, representing a $6,089,000, or 25.1%, decrease from $24,305,000 reported for the corresponding period of a year ago. The decrease was primarily the result of the change of the fair value of derivatives. As of June 30, 2002 the net increase in fair value from December 31, 2001 was $371,000. This compares to a decline of $7,115,000 from the value of the derivatives on January 1, 2001 at which time SFAS No. 133 was implemented (See also "Cumulative Effect of a change in Accounting Principle", following). Excluding the effect of the change in fair value of derivatives, non-interest expense increased $1,397,000, or 8.13%, for the six months ended June 30, 2002 compared to the year ago period. With the exception of salaries and employee benefits which declined $76,000, all other categories of non-interest expense increased. The largest increase was furniture and equipment expense which increased $638,000. This increase was primarily due to implementation of a new accounting system for the Company's international transactions and the associated expensing of implementation costs amounting to $289,000. In addition, depreciation expense increased $125,000 as a result of various capital expenditure projects whose economic benefit to the Company began in the second quarter of 2002.

For the six months ended June 30, 2002 and 2001, the Company's efficiency ratio (defined as above) was 35.1% and 35.8%, respectively.

For the quarter ended June 30, 2002, the benefit for income taxes was $4,791,000. The tax benefit assumes a 35% federal income tax rate and a low income housing tax credit. There is no state tax benefit assumed. This compares to a tax provision of $5,658,000 for the corresponding quarter of a year ago representing an effective tax rate of 39.1%.

For the six months ended June 30, 2002, the tax benefit was $6,468,000 and assumes a 35% federal income tax rate and a low income housing tax credit. This compares to a tax provision of $6,741,000 for the corresponding six months of a year ago representing an effective tax rate of 37.6%.

On January 1, 2001, the Company adopted SFAS No. 133. On that date a transition adjustment of $8,561,000 was recorded. The transition adjustment is presented net of tax in the amount of $4,962,000 as a cumulative effect of a change of accounting principle in the Company's statement of income for the six months ended June 30, 2001.

As of June 30, 2002, total assets increased $172.3 million, or 7.3%, to $2,539.5 million from $2,367.2 million as of December 31, 2001. The growth of total assets from December 31, 2001 to June 30, 2002 was primarily funded by $108.7 million growth of total deposits and by an $85.0 million increase of other borrowings from the Federal Home Loan Bank.

Stockholders' equity decreased to $195.3 million as of June 30, 2002 from $206.3 million, as of December 31, 2001, a reduction of $11.0 million, or 5.33%. The decline is primarily the result of the decline of retained earnings due to the net loss for the six months ended June 30, 2002.

As of June 30, 2002, total loans and leases were $1,183.0 million compared to $1,132.9 million as of December 31, 2001, representing a $50.1 million, or 4.4% increase. The increase was primarily due to growth of $88.4 million in the conventional real estate portfolio. Real estate construction loans also increased $23.4 million. Partially offsetting the above growth was the decline in commercial loans of $60.8 million. The decline is represented by a reduction in the borrowing of the Company's existing customers and from charge-offs. For the six months ended June 30, 2002, $53.3 million of charge-offs have been from the commercial loan portfolio, representing virtually all of the total charge-offs of $53.6 million, as discussed in a previous section.

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:

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The two largest concentrations in commercial loans continue to be the apparel/textile industry and the computer/electronic goods industry (excluding early-stage technology companies). The approximate amounts of commercial loans for these two industry segments as of June 30, 2002 are $60 million and $63 million, respectively. There are $47 million of loans to early stage high technology companies. Of the $27.7 million of non-accrual commercial loans as of June 30, 2002, $2.8 million, $0.7 million and $3.9 million were from the apparel/textile, computer/electronic goods industries and early stage high technology companies, respectively.

Also included in commercial loans are five credits that are participations in facilities to Indian casinos that are construction loans to be repaid under a mini-perm facility from the cash flow of the casinos. The total commitments were $43.4 million as of June 30, 2002 and the total loans outstanding were $35.5 million. In July of 2002, one of the facilities prepaid their borrowings. The outstanding balance as of June 30, 2002 was $4,942,000.  Also in July of 2002, a participation with a 5 million total commitment was approved.  The Bank does not intend to participate in additional Indian casino loans.

Conventional real estate loans and real estate-construction loans reflected an increase of $88.4 million and $23.4 million, respectively. The following table sets forth the break down by type of collateral for construction and conventional real-estate loans as of June 30, 2002 and December 31, 2001:

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