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FORM 10-K. - ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2001
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or
[_] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission file Number 0-16213
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GBC Bancorp
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(Exact name of registrant as specified in its charter)
California 95-3586596
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 West Sixth Street, Los Angeles, CA 90017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (213) 972 - 4172
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Securities registered pursuant to Section 12(b)of the Act:
Title of each class Name of each exchange on which
registered
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Securities pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
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(Title of class)
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(Title of class)
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. [X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [_]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
(See definition of affiliate in Rule 405, 17 CFR 230.405). $273,761,207
NOTE: If a determination as to whether a particular person or entity is an
affiliate cannot be made without involving unreasonable effort and expense, the
aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this Form.
APPLICABLE ONLY TO REGISTRANT INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [_] Yes [_] No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
11,523,662 shares outstanding as of February 28, 2002.
DOCUMENTS INCORPORATED BY REFERENCE.
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
Documents Incorporated by Reference Part of Form 10-K Into Which Incorporated
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Definitive Proxy Statement for the
Annual Meeting of Shareholders
Filed within 120 days of the fiscal
Year ended December 31, 2001 Part III
Exhibit Index on Pages 85 - 87
FORM 10-K
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TABLE OF CONTENTS AND CROSS REFERENCE SHEET
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Page in Incorporation
PART I 10-K by Reference
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Item 1. Business ............................................. 4
General ......................................... 4
Lending Activities .............................. 5
Competition ..................................... 5
Subsidiaries .................................... 6
Supervision and Regulation ...................... 7
Employees ....................................... 21
Item 2. Properties ........................................... 21
Item 3. Legal Proceedings .................................... 22
Item 4. Submission of Matters to a Vote of Security Holders .. 22
Executive Officers of the Registrant ............................. 22
PART II
Item 5. Market for Registrant's Common Equity and Related
Security Holder Matters .............................. 26
Item 6. Selected Financial Data .............................. 27
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 29
Item 8. Financial Statements and Supplementary Data .......... 52
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................. 80
PART III
Item 10. Directors and Executive Officers of the Registrant ... 81 2002 Proxy Statement
Item 11. Executive Compensation ............................... 81 2002 Proxy Statement
Item 12. Security Ownership of Certain Beneficial Owners and
Management ........................................... 81 2002 Proxy Statement
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Item 13. Certain Relationships and Related Transactions ...... 81 2002 Proxy Statement
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ................................. 82
SIGNATURES ...................................................... 83
EXHIBIT INDEX ................................................... 85
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PART I
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Forward-Looking Statements
Certain statements contained herein, including, without limitation,
statements containing the words "believes," "intends," "should," "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. Given these uncertainties, the reader is cautioned
not to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
results of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
Item 1 Business
General
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GBC Bancorp (the "Company"), a California corporation incorporated in 1980,
is a registered bank holding company under the Bank Holding Company Act of 1956,
as amended, and is headquartered at 800 West 6th Street in Los Angeles,
California 90017. The Company owns all of the outstanding stock of its
wholly-owned subsidiary General Bank (the "Bank"), a California state-chartered
bank which commenced operations in March, 1980. GBC Bancorp functions primarily
as a holding company for the Bank.
The Bank has conducted the business of a commercial bank since it commenced
operations. The Bank is a community bank that serves individuals and small to
medium-sized businesses through eighteen branch offices located in the greater
Los Angeles, San Diego and Silicon Valley areas of California, a branch office
in the state of Washington and a loan production office located in the state of
New York. Loan production offices are established primarily to develop loans on
behalf of the Bank and to act as the liaison between customers and the Bank in
coordinating other banking services. The Bank has an operations center in
Rosemead and has branches located in downtown Los Angeles, Monterey Park,
Torrance, Artesia, Alhambra, City of Industry, Irvine, San Diego, Arcadia,
Diamond Bar, Northridge, Orange, Huntington Beach, Cupertino, Millbrae, Aliso
Viejo, Fremont and San Jose.
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On October 11, 2001, General Bank and Liberty Bank and Trust Co. of Boston
("Liberty") announced the approval by their respective boards of Directors of an
agreement for General Bank to acquire all the outstanding shares of Liberty.
Liberty is a state chartered commercial bank operating two branches in Boston
with combined total asset of $37.2 million as of December 31, 2001. The purpose
of the acquisition is to expand the Bank's banking activities to the major
Asian-American markets in the country. The acquisition has been approved by the
appropriate regulatory agencies and the transaction consummated on February 28,
2002, at a cost of $11.9 million.
The Bank offers a variety of banking services to its customers, including
accepting checking, savings and time deposits; making secured and unsecured
loans; offering traveler's checks, safe deposit boxes, credit cards and other
fee-based services; and providing international trade-related services.
Lending Activities
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The Bank's primary emphasis is on commercial and real estate lending, real
estate construction lending, and, to a lesser extent, Small Business Lending.
The Bank maintains an International Banking Division which facilitates
international trade by providing financing, letter of credit services and
collections, as well as other international trade-related banking services. The
Bank does not make loans to foreign banks, foreign governments 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 Bank maintains a Small Business Lending department to provide loans for
small to medium-sized businesses. Loan products offered include US SBA Guarantee
programs and conventional in-house programs. The 7(a) loan is the primary US SBA
guaranteed program with loan amounts up to $2 million and maturity up to 25
years. As of December 31, 2001, the Bank's 7(a) servicing portfolio was
approximately $51 million, including $15 million sold to the secondary market.
Competition
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The Bank actively competes for deposits and loans with other banks and
financial institutions located in its service area. Interest rates, customer
service and legal lending limits are the principal competitive factors and
increasing deregulation of financial institutions has expanded competition. In
order to compete with other financial institutions in its service area, the Bank
relies principally upon providing quality service to its customers, personal
contact by its officers, directors and employees, and local promotional
activity. Competitors presently include banks serving the Asian population in
Southern and Northern California, as well as major banks with extensive branch
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systems operating over a wide geographic area. Many of the banks have greater
financial resources and facilities than the Bank and many offer certain
services, such as trust services, not currently offered by the Bank.
Subsidiaries
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Bank Subsidiaries
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GBC Investment & Consulting Company, Inc., a wholly-owned subsidiary of the
Bank, was incorporated to provide specific, in-depth expertise in the areas of
investment and consultation on an international and domestic basis. An office
was established in Taipei, Taiwan to coordinate and develop business between the
Bank and prospective customers in Taiwan and other Asian countries. As of and
for the year ended December 31, 2001, GBC Investment & Consulting Company, Inc.
reported total assets of $15,400 and a net loss of $62,500.
GBC Leasing Company, Inc. is the Bank's leasing subsidiary. The Bank owns
90% of the voting stock of this company which was formed to acquire various
assets, such as equipment on lease, promissory notes and leases and/or
partnership interests in partnerships owning such types of assets, in exchange
for its common stock in transfers qualifying as a tax free exchange of property,
described in Section 351 of the Internal Revenue Code of 1986, as amended. GBC
Leasing Company engages in no off-balance sheet/synthetic lease activities. As
of and for the year ended December 31, 2001, GBC Leasing Company, Inc. reported
total assets of $318,000, and a net loss of $37,000.
GBC Insurance Services, Inc. is a wholly-owned subsidiary of the Bank and
operates exclusively as a full service insurance agent/broker to provide
additional financial service to the Bank's customers. In August, 1997, the
business of GBC Insurance Services, Inc. was transferred to a division of
General Bank. Accordingly, the insurance subsidiary is in an inactive status.
GBC Real Estate Investments, Inc. is a wholly owned subsidiary of the Bank
established in July, 2000. The purpose of this subsidiary is to engage in real
estate investment activities, which will include equity interests in limited
partnerships and limited liability companies that own or invest in commercial
real estate development properties. To date, there have been no transactions
involving this subsidiary.
On August 21, 2001, GBC Trade Services, Asia Limited, ("Trade Services")
was incorporated as a wholly-owned subsidiary of the Bank. Trade Services is a
Hong Kong based non-financial institution that will serve as a vehicle to
reissue, in Hong Kong, letters of credit for the account of its U.S. based
import customers in favor of
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beneficiaries. As of December 31, 2001, other than capitalizing the subsidiary,
there were no transactions on the books of Trade Services.
On September 1, 2001, GB Capital Trust, a real estate investment trust
("REIT") was established. The REIT is operated so as to be entitled to the tax
treatment provided in section 856 of the Internal Revenue Code entitled
"Definition of Real Estate Investment Trust". The Bank owns 100% of the voting
common trust units issued by the REIT. As of and for the year ended December 31,
2001, the REIT reported total assets of $1,084,274,000 and net income of
$25,388,000. The REIT declared a consent dividend of $24,487,000 for the year
2001.
Holding Company Subsidiaries
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In addition to its wholly-owned bank subsidiary, the Company owns all of
the outstanding stock of GBC Venture Capital, Inc. The business purpose of GBC
Venture Capital, Inc. is to hold stock warrants received as part of business
relationships and to make equity investments in companies and limited
partnerships subject to applicable regulatory restrictions. As of, and for the
year ended, December 31, 2001, GBC Venture Capital, Inc. reported total assets
of $13,871,000 and net income of $3,281,000. The net income was primarily the
result of trading revenue resulting from the receipt of securities from venture
capital funds in which the subsidiary invests and from the exercise of warrants.
The Company has received rights to acquire stock in the form of warrants as an
adjunct to its high technology banking relationships. The receipt of the
warrants does not change the terms of the loans provided high technology
customers.
Supervision and Regulation
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General
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The following generally refers to certain statutes and regulations
affecting the banking industry. These references provide brief summaries only
and are not intended to be complete. These references are qualified in their
entirety by the referenced statutes and regulations. In addition, some statutes
and regulations which apply to and regulate the operation of the banking
industry might exist which are not referenced below. Changes in applicable
statutes and regulations may have a material effect on the business of the
Company and its subsidiaries.
GBC Bancorp
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The Company is a bank holding company within the meaning of the Bank
Holding Company act of 1956 ("BHCA") and is subject to the supervision and
regulation
7
of the Federal Reserve Bank of San Francisco. As a bank holding company, the
Company is required to file reports with the Board and to provide such
additional information as the Board may require. The Board also has the
authority to examine the Company and each of its subsidiaries with the cost
thereof to be borne by the Company.
The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, which include, but are not limited
to, the filing of annual, quarterly and other reports with the Securities and
Exchange Commission.
In November of 1999, the Gramm-Leach-Bliley Financial Modernization Act
(the "Act") was signed into law and became effective on March 11, 2000.
Effective April 10, 2000, the Company is a Financial Holding Company under the
provisions of this law. The Act repeals the prohibitions among banks, securities
firms and insurance companies by rescinding provisions of the Glass-Steagall Act
and the Bank Holding Company Act. Activities permitted by the Act are those that
are financial in nature or incidental to financial activities. The Act
identifies the following activities as financial in nature: lending; insurance
activities, including underwriting, agency and brokerage; providing financial
investment advisory services; underwriting in, and acting as a broker or dealer
in securities; merchant banking; and insurance company portfolio investment. It
is not yet known which, if any, of these financial activities the Company will
engage in.
The Federal Reserve may require that the Company terminate an activity or
terminate control of or liquidate or divest certain subsidiaries or affiliates
when the Federal Reserve believes the activity or the control of the subsidiary
or affiliate constitutes a significant risk to the financial safety, soundness,
or stability of any of its banking subsidiaries. The Federal Reserve also has
the authority to regulate provisions of certain bank holding company debt,
including authority to impose interest ceilings and reserve requirements on such
debt. Under certain circumstances, the Company must file written notice and
obtain approval from the Federal Reserve prior to purchasing or redeeming its
equity securities.
Under the BHCA and regulations adopted by the Federal Reserve, a bank
holding company and its nonbanking subsidiaries are prohibited from requiring
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property, or furnishing of services. Further, the Company is required by
the Federal Reserve to maintain certain levels of capital. See "--Capital
Standards."
The Company is required to obtain the prior approval of the Federal Reserve
for the acquisition of more than 5% of the outstanding shares of any class of
voting securities or substantially all of the assets of any bank or bank holding
company. Prior approval of the Federal Reserve is also required for the merger
or consolidation of the Company and another bank holding company.
The Company is prohibited by the BHCA, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the
8
outstanding voting shares of any corporation that is not a bank or bank holding
company and from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or furnishing services to its
subsidiaries. However, the Company, subject to the prior approval of the Federal
Reserve, may engage in, or acquire shares of companies engaged in, any
activities that are deemed by the Federal Reserve to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. See
"Modernization Act of 1999".
Under Federal Reserve regulations, a bank holding company is required to
serve as a source of financial and managerial strength to its subsidiary banks
and may not conduct its operations in an unsafe or unsound manner. In addition,
it is the Federal Reserve's policy that in serving as a source of strength to
its subsidiary banks, a bank holding company should stand ready to use available
resources to provide adequate capital funds to its subsidiary banks during
periods of financial stress or adversity and should maintain the financial
flexibility and capital-raising capacity to obtain additional resources for
assisting its subsidiary banks. A bank holding company's failure to meet its
obligations to serve as a source of strength to its subsidiary banks will
generally be considered by the Federal Reserve to be an unsafe and unsound
banking practice or a violation of the Federal Reserve's regulations or both.
The Company's primary source of income is the receipt of dividends from the
Bank. The Bank's ability to make such payments to the Company is subject to
certain statutory and regulatory restrictions. The ability of the Company to pay
dividends to its shareholders is subject to the restrictions set forth in the
California General Corporation Law (the "Corporation Law"). The Corporation Law
provides that a corporation may make a distribution to its shareholders if the
corporation's retained earnings equals at least the amount of the proposed
distribution. The Corporation Law further provides that, in the event that
sufficient retained earnings are not available for the proposed distribution, a
corporation may nevertheless make a distribution to its shareholders if it meets
two conditions, which generally are as follows: (i) the corporation's assets
equal at least 1 1/4 times its liabilities; and (ii) the corporation's current
assets equal at least its current liabilities or, if the average of the
corporation's earnings before taxes on income and before interest expense for
the two preceding fiscal years was less than the average of the corporation's
interest expense for such fiscal years, then the corporation's current assets
equal at least 1 1/4 times its current liabilities.
In addition, bank subsidiaries of bank holding companies are subject to
certain restrictions imposed by federal law in dealing with their holding
companies and other affiliates. Subject to certain exceptions set forth in the
Federal Reserve Act, a bank can make a loan or extend credit to an affiliate,
purchase or invest in the securities of an affiliate, purchase assets from an
affiliate, accept securities of an affiliate as collateral security for a loan
or extension of credit to any person or company or issue a guarantee, acceptance
or letter of credit on behalf of an affiliate only if the aggregate amount of
the above transactions of such subsidiary does not exceed 10 percent of such
subsidiary's capital stock and surplus on a per affiliate basis, or 20 percent
of such subsidiary's capital
9
stock and surplus on an aggregate affiliate basis. Such transactions must be on
terms and conditions that are consistent with safe and sound banking practices.
A bank and its subsidiaries generally may not purchase a low-quality asset, as
that term is defined in the Federal Reserve Act, from an affiliate. Such
restrictions also prevent a holding company and its other affiliates from
borrowing from a banking subsidiary of the holding company unless the loans are
secured by collateral.
The BHCA and regulations of the Board also impose certain constraints on
the redemption or purchase by a bank holding company of its own shares of stock.
The Company's stock repurchase programs are discussed in the ensuing three
paragraphs.
On September 17, 1998, the Board of Directors authorized a stock repurchase
program of up to 1.4 million shares of its common stock at prevailing market
prices from time to time, provided: (i) such repurchases are made pursuant to
Rule 10b-18 issued by the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and (ii) at the time of any such repurchase, the
Company qualifies for the exception for well-capitalized bank holding companies
in Regulation Y of the Federal Reserve Board and meets the test for distribution
under the California General Corporation Law. During the second quarter of 1999,
the program was completed at a total cost of $27.6 million for the 1.4 million
shares.
On December 20, 1999, the Board of Directors authorized a stock repurchase
program approving the buy-back of up to $10 million of the Company's stock. This
program was completed on April 25, 2001. 384,154 shares were repurchased for a
total of $10 million at an average cost per share of $26.03.
In February 2001, the Board of Directors authorized a stock repurchase
program approving the buy-back of up to 500,000 shares of Company's stock. As of
December 31, 2001, 403,000 shares had been repurchased at an average cost of
$26.82 per share for a total of $10.8 million under this program.
In 2001, the total of the repurchased shares was 618,183 at a cost of $17.1
million, or an average cost per share of $27.63.
On October 11, 2001, the Board of Directors authorized a stock repurchase
program approving the buy-back of up to 300,000 shares of Company's stock under
conditions which allow such repurchases to be accretive to earnings.
General Bank (the "Bank")
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Banks are extensively regulated under both federal and state law. The Bank,
a California state-chartered bank, is subject to primary supervision, periodic
examination
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and regulation by the California Department of Financial Institutions ("DFI")
and the Federal Deposit Insurance Corporation (the "FDIC").
The Bank is insured by the FDIC up to a maximum of $100,000 per depositor.
For this protection, the Bank, as is the case with all insured banks, is subject
to the rules and regulations of the FDIC. The Bank, while not a member of the
Federal Reserve System, is subject to certain regulations of the Board.
Various requirements and restrictions under the laws of the state of
California and the United States affect the operations of the Bank. State and
federal statutes and regulations relate to many aspects of the Bank's
operations, including reserves against deposits, interest rates payable on
deposits, loans, investments, mergers and acquisitions, borrowings, dividends
and locations of branch offices. Further, the Bank is required to maintain
certain levels of capital.
There are statutory and regulatory limitations on the amount of dividends
which may be paid to the Company by the Bank. California law restricts the
amount available for cash dividends by state-chartered banks to the lesser of
retained earnings or the bank's net income for its last three fiscal years (less
any distributions to shareholders made during such period). In the event a bank
has no retained earnings or net income for its last three fiscal years, cash
dividends may be paid in an amount not exceeding the net income for such bank's
last preceding fiscal year only after obtaining the prior approval of the
Commissioner of the DFI.
The FDIC also has authority to prohibit the Bank from engaging in what, in
the FDIC's opinion, constitutes an unsafe or unsound practice in conducting its
business. It is possible, depending upon the financial condition of the bank in
question and other factors, that the FDIC could assert that the payment of
dividends or other payments might, under some circumstances, be such an unsafe
or unsound practice.
Banks are subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, its affiliates, the purchase of or investments in stock or other
securities thereof, the taking of such securities as collateral for loans and
the purchase of assets of such affiliates. Such restrictions prevent affiliates
from borrowing from the Bank unless the loans are secured by marketable
obligations of designated amounts. Further, such secured loans and investments
by the Bank in any other affiliate is limited to 10 percent of the Bank's
capital and surplus (as defined by federal regulations) and such secured loans
and investments are limited, in the aggregate, to 20 percent of the Bank's
capital and surplus (as defined by federal regulations). California law also
imposes certain restrictions with respect to transactions involving other
controlling persons of the Bank. Additional restrictions on transactions with
affiliates may be imposed on the Bank under the prompt corrective action
provisions of the FDIC Improvement Act ("FDICIA").
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Potential Actions
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Commercial banking organizations, such as the Bank, may be subject to potential
enforcement actions by the Board, the FDIC and the Commissioner of the DFI for
unsafe or unsound practices in conducting their business or for violations of
any law, rule, regulation or any condition imposed in writing by the agency or
any written agreement with the agency. Enforcement actions may include the
imposition of a conservator or receiver, the issuance of a cease-and-desist
order that can be judicially enforced, the termination of insurance of deposits,
the imposition of civil money penalties, the issuance of directives to increase
capital, the issuance of formal and informal agreements, the issuance of removal
and prohibition orders against institution-affiliated parties and the imposition
of restrictions and sanctions under the prompt corrective action provisions of
FDICIA.
Effect of Governmental Policies and Recent Legislation
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Banking is a business that depends on rate differentials. In general, the
difference between the interest rates paid by a bank on its deposits and its
borrowings and the interest rates received by a bank on loans extended to its
customers and securities held in a bank's portfolio comprise the major portion
of a bank's earnings. These rates are highly sensitive to many factors that are
beyond the control of a bank. Accordingly, the earnings and growth of a bank are
subject to the influence of local, domestic and foreign economic conditions,
including recession, unemployment and inflation.
The commercial banking business is not only affected by general economic
conditions but is also influenced by monetary and fiscal policies of the federal
government and the policies of regulatory agencies, particularly the Board. The
Board implements national monetary policies (with objectives such as curbing
inflation and combating recession) by its open-market operations in United
States Government securities, by adjusting the required level of reserves for
financial intermediaries subject to its reserve requirements and by varying the
discount rates applicable to borrowings by depository institutions. The actions
of the Board in these areas influence the growth of bank loans, investments and
deposits and also affect interest rates charged on loans and paid on deposits.
The nature and impact of any future changes in monetary policies cannot be
predicted.
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial intermediaries. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other financial
intermediaries are frequently made in Congress, in the California legislature
and before various bank regulatory and other professional agencies. The
likelihood of any major changes and the impact such changes might have on the
Company are impossible to predict. Certain of the potentially significant
changes
12
which have been enacted and proposals which have been made recently are
discussed below.
Gramm-Leach-Bliley Financial Modernization Act of 1999
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The Gramm-Leach-Bliley Financial Modernization Act was signed into law
in 1999. This Act, among other things:
. Allows bank holding companies meeting management, capital and CRA
standards to engage in a substantially broader range of non-banking
activities than was permissible prior to enactment, including insurance
underwriting and making merchant banking investments in commercial and
financial companies;
. Allows insurers and other financial services companies to acquire
banks;
. Removes various restrictions that applied to bank holding company
ownership of securities firms and mutual fund advisory companies; and
. Establishes the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations.
This Act should be considered a major piece of legislation likely to have an
impact on the Company and the competitive environment in which the Company
operates, but at this time it is impossible to predict what such impact might
be.
Capital Standards
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Each federal banking agency has promulgated regulations defining the
following five categories in which a banking organization will be placed, based
on its capital ratios: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized.
To be "adequately capitalized," the Corporation and the Bank must maintain
minimum ratios of total capital to risk-weighted assets of eight percent (8%)
and of Tier 1 capital to risk-weighted assets of four percent (4%). For the
Corporation and the Bank, Tier 1 capital includes common shareholders' equity,
less goodwill and certain other deductions, including the unrealized net gains
and losses, after applicable taxes, on available-for-sale securities carried at
fair value. For the Corporation and the Bank, total capital also includes the
allowance for credit losses, subordinated debt, and net unrealized gains on
marketable securities, subject to limitations established by the guidelines. At
least half of total capital must be in the form of Tier 1 capital.
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Capital is compared to the risk associated with a banking organization's
operations for both transactions reported on the balance sheet as assets as well
as transactions which are off-balance sheet items, such as letters of credit and
recourse arrangements. Under the capital regulations, the nominal dollar amounts
of assets and the balance sheet equivalent amounts of off-balance sheet items
are multiplied by one of several risk adjustment percentages, which range from
0% for assets with low credit risk, such as certain U.S. Treasury securities, to
100% for assets with relatively high credit risk, such as commercial loans. At
December 31, 2001, the Company and the Bank exceeded the required ratios for
classification as "well capitalized."
In addition to the risk-based capital guidelines, federal banking agencies
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by the federal banking agencies
to rate banking organizations, the minimum leverage ratio of Tier 1 capital to
total assets is 3%. For all other banking organizations, the minimum ratio of
Tier 1 capital to total assets is 4%. Banking organizations with supervisory,
financial, operational, or managerial weaknesses, as well as organizations that
are anticipating or experiencing significant growth, are expected to maintain
capital ratios above the minimum levels. In addition to these uniform risk-based
capital guidelines and leverage ratios that apply across the industry, the
federal banking agencies have the discretion to set individual minimum capital
requirements for specific institutions at rates significantly above the minimum
guidelines and ratios.
Federal banking agencies also have issued a new rule that goes into effect
April 1, 2002, requiring that equity investments in nonfinancial companies be
subject to different capital requirements than those currently applied to
traditional banking investments, whether such equity investments are made by
Financial Holding Companies under the merchant banking authority of the
Financial Services Modernization Act, by bank holding companies through small
business investment companies ("SBIC"), under Regulation K or in less than 5% of
the shares of a nonfinancial company under authority of the BHCA, or by state
banks as authorized by the Federal Deposit Insurance Act. Under the proposal, if
the aggregate adjusted carrying value of the investments is less than 15% of the
Tier 1 capital of the bank holding company, 8% of the adjusted carrying value
would be deducted from Tier 1 capital. For investment between 15% and 25% of
Tier 1 capital, 12% of the investment would be deducted and for investments of
25% or more, 25% of the investment would be deducted. No additional capital
charge would apply to SBIC investments if the carry value of the investments
does not exceed 15% of the Tier 1 capital of the depository institutions. At
December 31, 2001, the Company's equity investments in nonfinancial companies
was 5.31% of Tier 1 capital. Therefore, management believes that the proposal,
if adopted in its current form, would not have a material adverse effect on the
Company's financial condition or results of operation.
Prompt Corrective Action and Other Enforcement Mechanisms
- ---------------------------------------------------------
14
Federal banking agencies possess broad powers to take corrective and other
supervisory action to resolve the problems of insured depository institutions,
including but not limited to those institutions that fall below one or more
prescribed minimum capital ratios.
An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized, or undercapitalized may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat a significantly undercapitalized institution as
critically undercapitalized unless its capital ratio actually warrants such
treatment.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation, or
any condition imposed in writing by the agency or any written agreement with the
agency.
BIS Guidelines
- --------------
The U.S. federal bank regulatory agencies' risk-capital guidelines are
based upon the 1988 capital accord of the Basle Committee on Banking Supervision
(the "BIS"). The BIS is a committee of central banks and bank
supervisors/regulators from the major industrialized countries that develops
broad policy guidelines that each country `s supervisors can use to determine
the supervisory policies they apply. In January 2001 the BIS released a proposal
to replace the 1988 capital accord with a new capital accord that would set
capital requirements for operational risk and refine the existing capital
requirements for credit risk and market risk exposures. Operational risk is
defined to mean the risk of direct or indirect loss resulting from inadequate or
failed internal processes, people and systems or from external events. The 1988
capital accord does not include separate capital requirements for operational
risk. The events of September 11, 2001 demonstrate the importance for financial
institutions of managing operational risks. The BIS proposal outlines several
alternatives for capital assessment of operational risks, including two
standardized approaches and an "internal measurement approach" tailored to
individual institutions' circumstances. The BIS has stated that its objective is
to finalize a new capital accord in 2002 and for member countries to implement
the new accord in 2005. The ultimate timing for new accord, and the specifics of
capital assessments for addressing operational risk, is uncertain. The Company
expects that a new capital accord addressing operational risk will eventually be
adopted by the BIS and implemented by the U.S. federal bank regulatory agencies.
The Company cannot determine whether new capital requirements that may arise out
of a new BIS capital accord will increase or decrease minimum capital
requirements applicable to the Company and its bank subsidiary.
15
Safety and Soundness Standards
- ------------------------------
The federal banking agencies have adopted guidelines establishing standards
for safety and soundness, as required by the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). The guidelines set forth
operational and managerial standards relating to internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth and compensation, fees and benefits. The
guidelines establish the safety and soundness standards that the agencies will
use to identify and address problems at insured depository institutions before
capital becomes impaired. If an institution fails to comply with a safety and
soundness standard, the appropriate federal banking agency may require the
institution to submit a compliance plan. Failure to submit a compliance plan or
to implement an accepted plan may result in enforcement action.
The federal banking agencies have issued regulations prescribing uniform
guidelines for real estate lending. The regulations require insured depository
institutions to adopt written policies establishing standards, consistent with
such guidelines, for extensions of credit secured by real estate. The policies
must address loan portfolio management, underwriting standards and loan to value
limits that do not exceed the supervisory limits prescribed by the regulations.
Appraisals for "real estate - related financial transactions" must be
conducted by either state-certified or state-licensed appraisers for
transactions in excess of certain amounts. State-certified appraisers are
required for all transactions with a transaction value of $1,000,000 or more;
for all nonresidential transactions valued at $250,000 or more; and for
"complex" 1-4 family residential properties of $250,000 or more. A
state-licensed appraiser is required for all other appraisals. However,
appraisals performed in connection with "federally related transactions" must
now comply with the federal banking agencies' appraisal standards. Federally
related transactions include the sale, lease, purchase, investment in, or
exchange of, real property or interests in real property, the financing of real
property, and the use of real property or interests in real property for a loan
or investment, including mortgage backed securities.
Federal regulations require banks to maintain adequate valuation allowances for
potential credit losses. The Company has an internal risk analysis and review
staff that continually reviews loan quality and ultimately reports to the Audit
Committee. This analysis includes a detailed review of the classification and
categorization of problem loans, assessment of the overall quality and
collectibility of the loan portfolio, consideration of loan loss experience,
trends in problem loans, concentration of credit risk, and current economic
conditions, particularly in California. Based on this analysis, management and
the Audit Committee determine the adequate level of allowance required. The
allowance for credit losses is allocated to different segments of the loan
portfolio, but the entire allowance is available for the loan portfolio in its
entirety.
16
Premiums for Deposit Insurance
- ------------------------------
Federal law has established several mechanisms to increase funds to protect
deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC.
The FDIC is authorized to borrow up to $30 billion from the United States
Treasury; up to 90 percent of the fair market value of assets of institutions
acquired by the FDIC as receiver from the Federal Financing Bank; and from
depository institutions that are members of BIF. Any borrowings not repaid by
asset sales are to be repaid through insurance premiums assessed to member
institutions. Such premiums must be sufficient to repay any borrowed funds
within 15 years and provide insurance fund reserves of $1.25 for each $100 of
insured deposits. The FDIC also has authority to impose special assessments
against insured deposits.
The FDIC has implemented a final risk-based assessment system, as required
by FDICIA, under which an institution's premium assessment is based on the
probability that the deposit insurance fund will incur a loss with respect to
the institution, the likely amount of any such loss, and the revenue needs of
the deposit insurance fund. As long as BIF's reserve ratio is less than a
specified "designated reserve ratio," or 1.25 percent, the total amount raised
from BIF's members by the risk-based assessment system may not be less than the
amount that would be raised if the assessment rate for all BIF members were
0.023 percent of deposits. In September 1995, the FDIC lowered assessments from
their rates ranging from $0.23 to $0.31 per $100 of insured deposits to rates
ranging from $0.04 to $0.31, depending on the condition of the bank, as a result
of the recapitalization of BIF. In November of the same year, the FDIC voted to
reduce its premiums for well capitalized banks to zero, effective January 1,
1996. Other banks will be charged risk-based premiums up to $0.27 per $100 of
deposits. The Bank, being considered well capitalized, made no payments as FDIC
insurance premium for the year ended December 31, 2001.
The Deposit Insurance Fund Act of 1996 included provisions to strengthen
the Savings Association Insurance Fund (the "SAIF") and to repay outstanding
bonds that were issued to recapitalize the SAIF's predecessor as a result of
payments made due to the insolvency of savings and loan associations and other
federally insured savings institutions in the late 1980s and early 1990s. The
new law required savings and loan associations to bear the cost of
recapitalizing the SAIF and, after January 1, 1997, banks must contribute
towards paying off the financing bonds, including interest. In 2001, the cost to
the Bank was 1.9 cents per $100 of deposits. The new law requires the Treasury
Department to deliver to Congress comments and recommendations on combining the
charters. Additionally, the new law provides "regulatory relief" for the banking
industry by eliminating approximately 30 laws and regulations. The costs and
benefits of the new law to the Bank cannot currently be accurately predicted.
17
Because of favorable loss experience and a healthy reserve ratio in the
Bank insurance Fund of the FDIC, well capitalized and well managed banks,
including the Bank, have in recent years paid no premiums for FDIC insurance. A
number of factors suggest that as early as the second half of 2002, even well
capitalized and well managed banks will be required to pay premiums on deposit
insurance. The amount of any such premiums will depend on the outcome of
legislative and regulatory initiatives as well as the BIF loss experience and
other factors, none of which the Company is in a position to predict at this
time.
Other Items
- -----------
FDICIA also, among other things, (i) limits the percentage of interest paid
on brokered deposits and limits the unrestricted use of such deposits to only
those institutions that are well capitalized; (ii) requires the FDIC to charge
insurance premiums based on the risk profile of each institution; (iii)
eliminates "pass through" deposit insurance for certain employee benefit
accounts unless the depository institution is well capitalized or, under certain
circumstances, adequately capitalized; (iv) prohibits insured state chartered
banks from engaging as principal in any type of activity that is not permissible
for a national bank unless the FDIC permits such activity and the bank meets all
of its regulatory capital requirements; (v) directs the appropriate federal
banking agency to determine the amount of readily marketable purchased mortgage
servicing rights that may be included in calculating such institution's
tangible, core and risk-based capital; and (vi) provides that, subject to
certain limitations, any federal savings association may acquire or be acquired
by any insured depository institution.
In addition, the FDIC has issued final regulations implementing provisions
of FDICIA relating to powers of insured state banks. Final regulations issued
prohibit insured state banks from making equity investments of a type, or in an
amount, that are not permissible for national banks. In general, equity
investments include equity securities, partnership interests and equity
interests in real estate.
Certain regulations prohibit insured state banks from engaging as principal
in any activity not permissible for a national bank, without FDIC approval. The
proposal also provides that subsidiaries of insured state banks may not engage
as principal in any activity that is not permissible for a subsidiary of a
national bank, without FDIC approval.
Interstate Banking and Branching
- --------------------------------
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act") mandates that, beginning one year after the date of
enactment, a bank holding company that is adequately capitalized and managed may
obtain regulatory approval to acquire an existing bank located in another state
without regard to state law.
18
A bank holding company would not be permitted to make such an acquisition if,
upon consummation, it would control (a) more than 10 percent of the total amount
of deposits of insured depository institutions in the United States or (b) 30
percent or more of the deposits in the state in which the bank is located. A
state may limit the percentage of total deposits that may be held in that state
by any one bank or bank holding company if application of such limitation does
not discriminate against out-of-state banks. An out-of-state bank holding
company may not acquire a state bank in existence for less than a minimum length
of time that may be prescribed by state law except that a state may not impose
more than a five year existence requirement.
The Interstate Act also permits, beginning June 1, 1997, mergers of insured
banks located in different states and conversion of the branches of the acquired
bank into branches of the resulting bank. Each state was permitted to approve
such combinations earlier than June 1, 1997, and could have adopted legislation
to prohibit interstate mergers after the date in that state or in other states
by that state's banks. The same concentration limits discussed in the preceding
paragraph apply. The Interstate Act also permits a national or state bank to
establish branches in a state other than its home state if permitted by the laws
of that state, subject to the same requirement and conditions as for a merger
transaction. California has adopted legislation which "opts California into" the
Interstate Act. However, the California Legislation restricts out-of-state banks
from purchasing branches or starting a de novo branch to enter the California
banking market. Such banks may proceed only by way of purchases of whole banks.
The Interstate Act is likely to increase competition in the Bank's market
areas especially from larger financial institutions and their holding companies.
It is difficult to assess the impact such increased competition will likely have
on the Bank's operations.
The Caldera, Weggeland, and Killea California Interstate Banking and
Branching Act of 1995 (the "1995 Act") opts in early for interstate branching,
allowing out-of-state banks to enter California by merging or purchasing a
California bank or industrial loan company which is at least five years old.
Also, the 1995 Act repeals the California Interstate (National) Banking Act of
1986, which regulated the acquisition of California banks by out-of-state bank
holding companies. In addition, the 1995 Act permits California State banks,
with the approval of the Department of Financial Institutions ("DFI"), to
establish agency relationships with FDIC-insured banks and savings associations.
Finally, the 1995 Act provides for regulatory relief, including (i)
authorization for the DFI to exempt banks from the requirement of obtaining
approval before establishing or relocating a branch office or place of business,
(ii) repeal of the requirement of directors' oaths (California Financial Code
Section 682), and (iii) repeal of the aggregate limit on real estate loans
(California Financial Code Section 1230).
Community Reinvestment Act and Fair Lending Developments
- --------------------------------------------------------
19
The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act (the "CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of financial institutions in meeting the
credit needs of their local community, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and the CRA into account
when regulating and supervising other activities.
In January 2001, the federal banking agencies adopted new regulations
implementing the CRA "sunshine" provision of the Financial Services
Modernization Act. Those provisions require insured depository institutions (or
their affiliates) and nongovernmental entities or persons that are parties to
certain written agreements made pursuant to, or in connection with, the
fulfillment of the CRA to make such agreements available to the public and the
relevant federal banking agency. Insured depository institutions (or their
affiliates) and nongovernmental entities or persons that are parties to such
agreements are also required to file annual reports concerning the agreements
with the relevant agency. The Bank is not currently and has never been a party
to a written CRA-related agreement with a nongovernmental entity.
A bank's compliance with its CRA obligations is based on a
performance-based evaluation system which bases CRA ratings on an institution's
lending service and investment performance. When a bank holding company applies
for approval to acquire a bank or other bank holding company, the Federal
Reserve will review the assessment of each subsidiary bank of the applicant bank
holding company, and such records may be the basis for denying the application.
In connection with its assessment of CRA performance, the appropriate bank
regulatory agency assigns a rating of "outstanding," "satisfactory," "needs to
improve," or "substantial noncompliance." A bank's CRA rating will also affect
the ability of the bank and its bank holding company to take advantage of the
new powers granted by the Financial Services Modernization Act. Based on the
most current examination report dated December 10, 2001, the Bank was rated
"satisfactory".
Hazardous Waste Clean-Up Costs
- ------------------------------
Management is aware of recent legislation and cases relating to hazardous
waste clean-up costs and potential liability. Based on a general survey of the
loan portfolios of the Bank, management is not aware of any potential liability
for hazardous waste contamination.
USA Patriot Act
- ---------------
20
On October 26, 2001, the President signed into law comprehensive
anti-terrorism legislation known as the USA Patriot Act. Title III of the USA
Patriot Act requires financial institutions to help prevent, detect and
prosecute international money laundering and the financing of terrorism. The
Secretary of the Treasury has proposed additional regulations to further
implement Title III. Although it cannot be predicted when and in what form these
regulations will be adopted, the Company believes that the cost of compliance
with Title III of the USA Patriot Act will not have a material impact on the
Company.
Other Regulations and Policies
- ------------------------------
Various requirements and restrictions under the laws of the United States
and the State of California affect the operations of the Bank. Federal
regulations include requirements to maintain non-interest bearing reserves
against deposits, limitations of the nature and amount of loans which may be
made, and restrictions on payment of dividends. The Commissioner approves the
number and locations of the branch offices of a bank. California law exempts
banks from the usury laws.
Additional legislative and administrative actions affecting the banking
industry may be considered by the United States Congress, the California
legislature, and various regulatory agencies, including those referred to above.
It cannot be predicted with certainty whether such legislative or administrative
action will be enacted or the extent to which the banking industry in general or
the Company and the Bank in particular would be affected.
Employees
- ---------
As of December 31, 2001, the Bank had approximately 365 full-time
equivalent employees. None of the employees are represented by labor unions.
Benefit programs are available to eligible employees and include, group
medical-dental plans, paid sick leave, paid vacation, and a 401(k) plan.
Item 2 Properties
- ------------------
GBC Bancorp shares common quarters with General Bank at 800 West 6th
Street, Los Angeles, California 90017. The Bank leases approximately 41,501
square feet of rentable area which includes the ground floor and the second,
fourteenth and fifteenth floors of the building. The initial lease term will
expire in the year 2009, and the Bank has two five-year options to renew the
lease following the expiration date of the initial term. As of December 31,
2001, the monthly base rent for the facility is $83,100 and is payable to the
lessor, Capital & Counties, USA, Inc. The monthly base rent is subject to
21
change on specified dates during the 15-year initial lease term pursuant to the
lease agreement.
As of December 31, 2001, the Bank operated full-service branches at
eighteen leased locations (including the 800 West 6th street, Los Angeles
location which houses the downtown branch of the Bank) and one location where it
owns the building and land. In addition, the Bank has certain operating and
administrative departments located at 4128 Temple City Boulevard, Rosemead,
California, where it owns the building and land with approximately 27,600 square
feet of space. The net book value of the two owned facilities (building and
land) as of December 31, 2001, was $ 2,107,000. Expiration dates of the Bank's
leases range from February 2002 to June, 2010. As of December 31, 2001, the Bank
has eighteen full-service branches located in California (fourteen of which are
in the Southern California area) and one full-service branch located in the
state of Washington.
On October 11, 2001, General Bank and Liberty Bank and Trust Co. of Boston
("Liberty") announced the approval by their respective boards of Directors of an
agreement for General Bank to acquire all the outstanding shares of Liberty.
Liberty is a state chartered commercial bank operating two branches in Boston
with combined total assets of $37.2 million as of December 31, 2001. The purpose
of the acquisition is to expand the Bank's banking activities to the major
Asian-American markets in the country. The acquisition has been approved by the
appropriate regulatory agencies and the transaction consummated on February 28,
2002, at a cost of $11.9 million.
Item 3 Legal Proceedings
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.
Item 4 Submission of Matters to a Vote of Security Holders
During the fourth quarter of 2001, no matters were submitted to a vote of
the Company's security holders.
A. Executive Officers of the Registrant
- ---------------------------------------
There are no family relationships between any of the executive officers of
the Company. The following information indicates the position and age of the
executive officers of the Company and the Bank, and their business experience
during the prior five years:
22
Age at
December
Name 31, 2001 Position/Background
---- -------- -------------------
Li-Pei Wu ....... 67 From May 1982 to December 2000, Chief Executive Officer and from
June 1984 to present, also Chairman of the Board of Bancorp and
General Bank. President of Bancorp and General Bank from May 1982
to March 1998.
Peter Wu ........ 53 From 1979 to March 1998, Executive Vice President and from
January 1995 to December 2000, also Chief Operating Officer, of
General Bank; from 1981 to March 1998, Executive Vice President
of Bancorp; Secretary of Bancorp and General Bank from 1979 to
January, 2001; President and Chief Operating Officer of Bancorp
and General Bank from March 1998 to December 2000; President and
Chief Executive Officer of Bancorp and General Bank since
January, 2001.
John Getzelman .. 59 Executive Vice President of the Company and General Bank since
January, 2001. Prior thereto President and Chief Executive
Officer of Southern Pacific Bank from 1998 to 2000; prior
thereto, President and Chief Executive Officer of Community Bank
from 1992 to 1998.
Peter Lowe ...... 60 Executive Vice President and Chief Financial Officer of the
Company and General Bank since 1994.
Domenic Massei .. 57 Executive Vice President of the Bank since February 1999, Senior
Vice President of Operations Administration of the Bank from 1989
to February 1999.
Eddie Chang ..... 46 Senior Vice President and Manager of the Real Estate Department
since January 1996. From July 1995 to January 1996 Manager of the
Real Estate Department. From July 1994 to July 1995
self-employed. From 1992 to July 1994, Senior Vice President and
Manager of the Real
23
Estate Department.
Gloria Chen ..... 59 Senior Vice President and Relationship Manager in the Corporate
Lending Department since May 1997; prior thereto, Senior Vice
President and Manager of the International Department at
Preferred Bank from 1992 to 1997.
Ming Lin Chen ... 41 Senior Vice President since July 1998. Since January 2001,
Secretary of Bancorp and General Bank. From February 1997 to June
1998, Manager of SBA Loan Department and Residential Mortgage
Department. Prior thereto, Marketing Director of the Bank since
1991.
Sue Lai ......... 49 Senior Vice President of the Corporate Lending Department since
April 1997. Manager of the Corporate Lending Department since
1994. In various capacities with the Bank since 1991.
Alex Lee ........ 44 Senior Vice President / Director of Branch Administration of
Southern California since 2001. In various positions with the
Bank since 1996.
Phanglin Lin .... 39 Senior Vice President and Manager of Corporate Lending since
January 2001 and of Corporate Lending and International
departments since August 2001. In various positions with the Bank
Since 1992.
Johnny Lee ...... 39 Senior Vice President and Regional Manager of the Northern
California Region since April 1997. In various positions with the
Bank since 1990.
Gerard Lob ...... 54 Senior Vice President and Manager of the New York loan production
office since December 1997. Manager of Trade Finance at Standard
Chartered Bank from 1991 to 1997.
Richard Voake ... 61 Senior Vice President and Credit Administrator of the Bank since
1994.
24
Cathy Wang .... 50 Senior Vice President / Internal Auditor since January 2001. Vice
President / Internal Auditor since 1992.
Carl Maier .... 61 Vice President and Controller of the Bank since 1993.
25
PART II
-------
Item 5 Market for the Registrant's Common Equity and Related Security Holder
Matters
Market Information
- ------------------
The common stock of the Company has been traded in the NASDAQ National
Market under the symbol GBCB since November 24, 1987.
The market makers for GBC Bancorp are: Hoefer & Arnett; Keefe, Bruyette &
Woods, Inc.; Wedbush Morgan Securities, First Tennesse Securities Corp., Herzog,
Heine, Geduld, Inc., Jeffries & Company, Inc., Knight Securities, L.P., Merrill
Lynch, Pierce, Fenner, Morgan Stanley & Co., Inc., Sherwood Securities Corp.,
Spear, Leeds & Kellogg and Sutro & Co., Inc.
The high and low last sale or bid prices for each quarter of the years 2001
and 2000, as reported by the NASDAQ, are as follows:
First Second Third Fourth
2001: Quarter Quarter Quarter Quarter
- ----- ------- ------- ------- -------
High $38.38 $29.53 $35.06 $30.37
Low $24.88 $23.55 $25.52 $26.35
First Second Third Fourth
2000: Quarter Quarter Quarter Quarter
- ----- ------- ------- ------- -------
High $28.25 $29.50 $38.94 $38.50
Low $18.25 $21.38 $28.63 $29.00
Holders
- -------
As of February 28, 2002, there were 208 holders of record of the Company's
common stock according to the records of the Company's transfer agent.
Dividend
- --------
26
Cash dividends per share were declared during the most recent two years as
per the following table:
First Second Third Fourth Annual
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
2001 $0.12 $0.12 $0.12 $0.12 $0.48
2000 $0.09 $0.10 $0.10 $0.10 $0.39
The Company's subsidiary, General Bank, is limited in the payment of
dividends by the Financial Code of the State of California which provides that
dividends in any one year may not exceed the lesser of the Bank's undivided
profits or the net income for the prior three years, less cash distributions to
stockholders during such period. As of December 31, 2001, approximately $45.5
million of undivided profits of the Bank is available for dividends to the
Company, subject to the subordinated debt covenant restrictions.
Item 6 Selected Financial Data
27
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data) 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Results of Operations
Interest Income $ 155,478 $ 163,121 $ 130,261 $ 125,991 $ 110,896
Interest Expense 66,552 74,679 56,283 57,018 49,423
---------- ---------- ---------- ---------- ----------
Net Interest Income before Provision for Credit Losses 88,926 88,442 73,978 68,973 61,473
Provision for Credit Losses 20,100 1,200 3,500 1,500 1,000
---------- ---------- ---------- ---------- ----------
Net Interest Income after Provision for Credit Losses 68,826 87,242 70,478 67,473 60,473
Non-Interest Income 15,646 21,755 10,544 7,863 6,639
Non-Interest Expense 42,282 46,861 32,702 30,430 26,373
---------- ---------- ---------- ---------- ----------
Income Before Income Taxes 42,190 62,136 48,320 44,906 40,739
Provision for Income Taxes 14,550 23,660 18,332 16,764 14,305
---------- ---------- ---------- ---------- ----------
Income before Cumulative Effect of a Change in Accounting
Principle and Extraordinary Item 27,640 38,476 29,988 28,142 26,434
Cumulative Effect of a Change in Accounting
Principle and Extraordinary Item (1) 4,962 - - - (488)
---------- ---------- ---------- ---------- ----------
Net Income $ 32,602 $ 38,476 $ 29,988 $ 28,142 $ 25,946
========== ========== ========== ========== ==========
Balance Sheet Data as of December 31
Assets $2,367,243 $1,969,109 $1,744,200 $1,680,824 $1,509,437
Loans and Leases, Net 1,101,633 945,512 902,000 763,650 617,605
Securities Available-for-Sale 1,098,989 855,383 683,017 724,172 643,660
Securities Held-to-Maturity - 1,025 1,300 24,616 58,045
Deposits 1,827,927 1,674,569 1,490,811 1,380,903 1,291,832
Stockholders' Equity 206,318 187,782 133,038 163,030 146,323
Per Share Data (2)
Earnings Per Share
Income Before Cumulative Effect of a Change in Accounting
Principle/Extraordinary Item
Basic $ 2.37 $ 3.33 $ 2.41 $ 2.00 $ 1.93
Diluted 2.36 3.26 2.37 1.96 1.87
Cumulative Effect of a Change in Accounting
Principle/Extraordinary item
Basic 0.42 - - - (0.03)
Diluted 0.42 - - - (0.03)
Net Income
Basic $ 2.79 $ 3.33 $ 2.41 $ 2.00 $ 1.90
Diluted 2.78 3.26 2.37 1.96 1.84
Cash Dividends Declared 0.48 0.39 0.33 0.30 0.24
Year End Book Value 17.98 16.25 11.55 11.89 10.46
Average Shares Outstanding
Basic (In 000's) 11,673 11,554 12,430 14,049 13,733
Diluted (In 000's) 11,748 11,813 12,672 14,345 14,134
Financial Ratios
Return on Average Assets 1.54% 2.01% 1.75% 1.76% 1.82%
Return on Average Stockholders' Equity 16.05 24.80 20.48 17.59 20.03
Average Stockholders' Equity to Average Assets 9.60 8.12 8.57 10.01 9.11
Net Interest Margin (3)(4) 4.32 4.81 4.46 4.46 4.54
Net Charge-Offs (Net Recoveries) to
Average Loans and Leases 1.49 0.17 0.36 (0.15) 0.07
Nonperforming Assets to Year End Loans and
Leases, Net, Plus Other Real Estate Owned, Net (5) 2.61 2.44 6.59 5.05 6.52
Allowance for Credit Losses to
Year End Loans and Leases 2.09 2.00 2.14 2.46 2.63
Cash Dividend Payout (6) 17.16 11.73 13.45 14.97 12.75
(1) The results of the year 2001 included $4,962,000 representing the
cumulative effect of a change in accounting principle, net of taxes. The
results of the year 1997 included $488,000 extraordinary loss, net of
taxes, representing a prepayment premium for the early extinguishment of
debt.
(2) Per share data has been restated where applicable for the two for one stock
split to shareholders of record on April 30, 1998, and issued and
distributed on May 15, 1998.
(3) Tax-exempt interest income is not adjusted to a fully taxable equivalent
basis.
(4) Computed as net interest income before provision for credit losses divided
by average earning assets.
(5) Non-performing assets include loans 90 days past due still accruing,
non-accrual loans, restructured loans and other real estate owned, net.
(6) Cash dividend payoff is computed based on the dividends declared divided by
net income for the applicable year.
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Critical Accounting Policies
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 loan 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 on historical data and management's view of the current economic
environment as described in "Allowance for Loan Losses".
Accounting for derivatives is in compliance with SFAS No.133, "Accounting
for Derivative Instruments and Hedging Activities. 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".
Results of Operations
Consolidated net income for GBC Bancorp and subsidiaries (the "Company") for
the year ended December 31, 2001 totaled $32,602,000. This compares to net
earnings of $38,476,000 in 2000 and $29,988,000 in 1999. Diluted earnings per
share were $2.78 for 2001 compared to $3.26 for 2000, and $2.37 for 1999. The
$5,874,000 decline in net income from 2000 to 2001 was primarily the result of
an increase of $18,900,000 in the provision for credit losses and a $6,109,000
reduction of non-interest income partially offset by a $4,579,000 reduction of
non-interest expense.
Consolidated net income for the year ended December 31, 2000 totaled
$38,476,000 compared to net income of $29,988,000 in 1999. The $8,488,000, or
28.3%, increase in net income from 1999 to 2000 was primarily due to the
increase of net interest income and non-interest income and the decrease in the
provision for credit losses, partially offset by higher non-interest expense.
Net Interest Income
Net interest income in 2001 totaled $88,926,000 compared to net interest
income of $88,442,000 in 2000. The $484,000, or 0.6%, increase is the result of
an increase of average earning assets offset by a decline of the net interest
margin primarily due to declining short term interest rates. For the years
ended December 31, 2001 and 2000 the balance of average interest earning assets
was $2,058.1 million and $1,840.5 million, respectively. For the years ended
December 31, 2001 and 2000, the net interest margin was 4.32% and 4.81%
respectively. Excluding the net interest recoveries discussed below, the net
interest margin for the years ended December 31, 2001 and 2000 would have been
4.29% and 4.54%, respectively.
Total interest income for the year ended December 31, 2001 was $155,478,000,
compared to $163,121,000 for the year ago period. The $7,643,000, or 4.7%,
decrease was due primarily to a 131 basis point decline of the yield on earning
assets, partially offset by a $217.5 million increase of the balance of average
interest earning assets. The reduced yield was in large measure a reflection of
the reductions of the Company's prime rate of interest during the course of the
year ended December 31, 2001. As of December 31, 2001 the Company's prime rate
of interest was 4.75% compared to 9.50% as of December 31, 2000. The 475 basis
point decline was the result of eleven prime rate decreases during 2001. For
the years ended December 31, 2001 and 2000 the daily average prime rate for the
Bank was 6.91% and 9.24%, respectively, a decline of 233 basis points. Another
factor contributing to the yield decline was the reduction in net interest
recoveries. For the years ended December 31, 2001 and 2000 net interest
recoveries were $548,000 and $4,919,000, respectively. Excluding these net
interest recoveries, the yield on earning assets would have been 7.53% and
8.60% for the years ended December 31, 2001 and 2000, representing a decline of
107 basis points. As would be expected, all categories of interest earning
assets reflected yield declines as shown in the following table:
Yield Decline
in the year
Category of Interest Earning Assets 2001
-------------------------------------------------------
Loans and Leases 2.33%
Securities 0.13%
Federal Funds Sold & Securities Purchased
under Agreements to Resell 2.60%
Excluding the effect of the net interest recoveries as discussed above, the
decline of the yield on loans and leases would have been 185 basis points
compared to the 233 basis points as per the above table. As of December 31,
2001, approximately 75% of the loan portfolio has yields based upon the prime
rate. Partially offsetting the impact on interest
29
income of the reduced yield on earning assets was the growth of the average
balance of interest earning assets. For the years ended December 31, 2001 and
2000, average earning assets were $2,058.1 million and $1,840.5 million,
respectively, representing an increase of $217.5 million, or 11.8%. The growth
was primarily in average loans and leases which increased $129.8 million, or
13.9%. Loans and leases represent the Company's highest yielding asset. The
Company's lowest yielding asset, federal funds sold and securities purchased
under agreements to resell, reflected a decline of $52.8 million, to $75.4
million from $128.2 million in average balance.
Total interest expense for the year ended December 31, 2001, was $66,552,000
compared to $74,679,000 for the year ago period. The $8,127,000, or 10.9%,
decline is the result of an 89 basis point decrease in the cost of funds. The
rate decrease is primarily due to money market conditions as described above.
For the years ended December 31, 2001 and 2000, the cost of funds was 3.99% and
4.88%, respectively. The rates paid on time deposits declined to 4.58% for the
year 2001 from 5.45% for the year 2000. All other categories of deposits
reflected reductions of the rates paid thereon and is a direct reflection of
the decline in interest rates as discussed above. Rates paid on borrowings from
the Federal Home Loan Bank also reflected a decline from 4.96% to 4.79%.
The impact on interest expense of the reduced cost of funds was partially
offset by the increase of the average balance of interest bearing deposits. For
the years ended December 31, 2001 and 2000, the average balance of interest
bearing liabilities was $1,668.6 million and $1,529.9 million, representing an
increase of $138.7 million, or 9.1%. Included in this increase was a $68.0
million increase of borrowings from the Federal Home Loan Bank.
The net interest spread, defined as the difference between the yield on
earning assets and the cost of funds, declined to 3.56% in 2001, from 3.98% in
2000.
Net interest income in 2000 increased to $88,442,000 from $73,978,000 in
1999, representing a $14,464,000, or 19.6%, increase. The growth of net
interest was due to both an increase in the balance of average interest earning
assets and an increase of the net interest spread. For the years ended December
31, 2000 and 1999, average interest earning assets were $1,840.5 million and
$1,659.4 million, respectively, representing an increase of $181.1 million, or
10.9%. For the years ended December 31, 2000 and 1999, the net interest margin
was 4.81% and 4.46%, respectively, representing an increase of 35 basis points.
30
The following table represents the net interest spread, net interest margin,
average balances, interest income and expense, and the average yield/rates by
asset and liability category:
December 31, 2001 December 31, 2000
--------------------------- ---------------------------
Average Average
Average Yield/ Average Yield/
Balance (4) Interest Rate% Balance (4) Interest Rate%
- ------------------------------------------------------------------------------------------------------
(In Thousands)
Interest Earning Assets:
Loans and Leases (1)(2) $1,064,774 $ 90,719 8.52% $ 934,973 $101,434 10.85%
Taxable Securities (excludes warrants) 917,921 61,790 6.73 777,336 53,303 6.86
Federal Funds Sold and Securities
Purchased Under Agreement to Resell 75,366 2,969 3.94 128,221 8,384 6.54
---------------------------------------------------------
Total Interest-Earning Assets 2,058,061 155,478 7.55 1,840,530 163,121 8.86
---------------------------------------------------------
Non-Interest Earning Assets:
Cash and Due from Banks 34,841 39,033
Warrants 1,422 4,270
Trading Account Securities 638 777
Premises and Equipment, Net 5,800 5,533
Other Assets (3) 42,878 45,478
---------- ----------
Total Non-Interest Earning Assets 85,579 95,091
---------- ----------
Less: Allowance for Credit Losses (22,527) (20,677)
Deferred Loan Fees (5,210) (3,981)
---------- ----------
Total Assets $2,115,903 $1,910,963
---------- ----------
Interest Bearing Liabilities:
Deposits:
Interest Bearing Demand $ 57,850 $ 288 0.50 $ 58,928 $ 630 1.07
Money Market 309,561 7,066 2.28 336,434 13,331 3.96
Savings 70,898 932 1.31 74,324 1,827 2.46
Time Deposits 1,076,578 49,306 4.58 974,346 53,075 5.45
Federal Funds Purchased and Securities
Sold Under Repurchase Agreement 648 27 4.17 932 62 6.63
Other Borrowed Funds 113,822 5,452 4.79 45,833 2,273 4.96
Subordinated Debt 39,199 3,481 8.88 39,068 3,481 8.91
---------------------------------------------------------
Total Interest Bearing Liabilities 1,668,556 66,552 3.99 1,529,865 74,679 4.88
---------------------------------------------------------
Non-Interest Bearing Liabilities:
Demand Deposits 195,929 190,863
Forward Sales--Equity Securities -- 195
Other Liabilities 48,297 34,887
---------- ----------
Total Non-Interest Bearing Liabilities 244,226 225,945
---------- ----------
Total Liabilities 1,912,782 1,755,810
Stockholders' Equity 203,121 155,153
---------- ----------
Total Liabilities and Stockholders'
Equity $2,115,903 $1,910,963
---------- ----------
Net Interest Income/Spread $ 88,926 3.56% $ 88,442 3.98%
-------- --------
Net Interest Margin 4.32% 4.81%
December 31, 1999
---------------------------
Average
Average Yield/
Balance (4) Interest Rate%
- ------------------------------------------------------------------------
(In Thousands)
Interest Earning Assets:
Loans and Leases (1)(2) $ 863,856 $ 81,331 9.41%
Taxable Securities (excludes warrants) 733,179 45,675 6.23
Federal Funds Sold and Securities
Purchased Under Agreement to Resell 62,409 3,255 5.22
Total Interest-Earning Assets 1,659,444 130,261 7.85
Non-Interest Earning Assets:
Cash and Due from Banks 33,197
Warrants --
Trading Account Securities 35
Premises and Equipment, Net 5,528
Other Assets (3) 35,815
----------
Total Non-Interest Earning Assets 74,575
----------
Less: Allowance for Credit Losses (19,903)
Deferred Loan Fees (5,068)
----------
Total Assets $1,709,048
----------
Interest Bearing Liabilities:
Deposits:
Interest Bearing Demand $ 57,885 $ 533 0.92
Money Market 241,703 7,125 2.95
Savings 82,356 1,809 2.20
Time Deposits 895,875 40,910 4.57
Federal Funds Purchased and Securities
Sold Under Repurchase Agreement 1,316 70 5.31
Other Borrowed Funds 48,123 2,355 4.89
Subordinated Debt 38,937 3,481 8.94
Total Interest Bearing Liabilities 1,366,195 56,283 4.12
Non-Interest Bearing Liabilities:
Demand Deposits 164,620
Forward Sales--Equity Securities 2
Other Liabilities 31,803
----------
Total Non-Interest Bearing Liabilities 196,425
----------
Total Liabilities 1,562,620
Stockholders' Equity 146,428
----------
Total Liabilities and Stockholders'
Equity $1,709,048
----------
Net Interest Income/Spread $ 73,978 3.73%
--------
Net Interest Margin 4.46%
(1) For the purposes of these computations, non-accrual loans are included in
the daily average loan amounts outstanding.
31
(2) Loan interest includes loan fees for the years ended December 31, 2001,
2000 and 1999 of $7,057,000, $6,213,000, $6,964,000, respectively.
(3) Other assets includes average other real estate owned, net, for the years
ended December 31, 2001, 2000 and 1999 of $698,000, $4,417,000 and
$7,909,000, respectively.
(4) Average balances are computed based on the average of the daily ending
balances.
Year Ended December 31,
----------------------------------------------------------
2001 Compared 2000 Compared
with 2000 Increase (Decrease) with 1999 Increase (Decrease)
Due to Changes in: Due to Changes in:
---------------------------- ----------------------------
Volume Rate Net Volume Rate Net
- --------------------------------------------------------------------------------------------------------
(In Thousands)
Interest Earned on (1):
Loans and Leases $12,895 (23,610) $(10,715) $ 7,053 $13,050 $20,103
Taxable Securities 9,480 (993) 8,487 2,855 4,774 7,629
Federal Funds Sold and Securities
Purchased Under Agreement to Resell (2,757) (2,658) (5,415) 4,134 994 5,128
----------------------------------------------------------
Total Interest-Earning Assets 19,618 (27,261) (7,643) 14,042 18,818 32,860
Interest Paid On (1):
Deposits:
Interest-Bearing Demand (11) (330) (342) 10 87 97
Money Market (993) (5,272) (6,265) 3,305 2,901 6,206
Savings (81) (814) (895) (186) 204 18
Time 5,217 (8,988) (3,769) 3,799 8,366 12,165
Federal Funds Purchased and Securities
Sold Under Repurchase Agreement (16) (19) (35) (23) 15 (8)
Other Borrowed Funds 3,260 (80) 3,179 (112) 30 (82)
----------------------------------------------------------
Subordinated Debt -- -- -- -- -- --
----------------------------------------------------------
Total Interest-Bearing Liabilities 7,376 (15,503) (8,127) 6,793 11,603 18,396
----------------------------------------------------------
Change in Net Interest Income $12,242 $(11,758) $ 484 $ 7,249 $ 7,215 $14,464
----------------------------------------------------------
(1) Changes in interest income and interest expense attributable to changes in
rate/volume have been allocated proportionately to the changes due to
volume and the changes due to rate.
Provision for Credit Losses
The amount of the provision for credit losses is an amount 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. As the loan portfolio is composed of business loans, the volatility
of the provision for credit losses can significantly affect net income,
particularly in times of economic weakness.
For the year 2001, the provision for credit losses was $20,100,000 compared
to $1,200,000 for 2000, representing an increase of $18,900,000. Most of the
charge-offs in 2001 were commercial loans. (See Allowance for Credit Losses,
following.) Net charge-offs for the year 2001 were $15.9 million as compared to
$1.6 million for the year 2000. Non-accrual loans as of December 31, 2001 and
2000 were $24.9 million and $14.8 million, respectively, an increase of $10.1
million, or 68.2%. A $5.1 million standby letter of credit associated with a
participated commercial loan was drawn on in the first quarter, 2002, resulting
in an increase in non-accrual loans. The provision for credit losses recorded
in the 4th quarter, 2001, took into account the then anticipated risk
associated with this letter of credit.
The allowance for credit losses was $23.7 million at December 31, 2001, as
compared to $19.4 million at December 31, 2000. The allowance was 2.09% of
loans and leases as of December 31, 2001 and 2.00% as of December 31, 2000. The
increased allowance and its percentage of loans and leases is deemed
appropriate given the loan portfolio as evaluated by management as of December
31, 2001. (See also Allowance for Credit Losses, following.)
For 2000 the provision for credit losses was $1,200,000 compared to
$3,500,000 for 1999, representing a reduction of
32
$2,300,000. The decline of the provision for credit losses was reflective of
the decrease of non-accrual loans and net charge-offs comparing 2000 to 1999.
As of December 31, 2000, non-accrual loans totaled $14.8 million compared to
$44.5 million at December 31, 1999. For the years ended December 31, 2000 and
1999, net charge-offs were $1.6 million and $3.1 million, respectively.
Non-Interest Income
Non-interest income consists primarily of service charges on deposit
accounts, fees and commissions resulting from General Bank's (the "Bank")
international activities, fees from servicing Small Business Administration
("SBA") loans, trading account revenue, income / (expense) from other
investments and gains on sales of securities available-for-sale.
Non-interest income in 2001 totaled $15,646,000, representing a decline of
$6,109,000, or 28.1%, compared to $21,755,000 of non-interest income in 2000.
The decline was primarily attributable to reduced trading revenues and the net
losses recorded from other investments during 2001, partially offset by the
gains on sale of securities available-for-sale.
Service charges and commissions declined $362,000, or 4.4% from 2000 to
2001. The decline is primarily due to a reduction of international fees and
commissions.
Trading account revenue is income earned on securities classified as trading
account 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 trading securities results in trading account revenue. Trading account
revenue declined to $1,958,000 in 2001 from $13,013,000 in 2000.
For the year ended December 31, 2001, income / (loss) from other investments
included the recognition of a $1,800,000 impairment expense associated with the
write-down of aircraft owned by Aircraft Finance Trust ("AFT"), causing a loss
of $1,400,000 from the AFT investment compared to $363,000 of income in 2000.
The Company has a 10% equity interest in AFT, purchased on September 30, 1999.
Income / (loss) from other investments in 2001 also included the recording
of $1,396,000 loss associated with venture capital fund partnerships in which
VC invests as compared to a $218,000 loss in 2000. The investment in AFT and
the partnership interests in venture capital funds are accounted for by the
equity method.
Offsetting the impact of the partnership losses and the reduction of trading
revenue was the gain on sale of securities available-for-sale, net, totaling
$6,713,000 in 2001, from the sale of securities with a net carrying value of
$109.5 million. In 2000, there were losses on sale of securities
available-for-sale, net, which amount is reported as part of non-interest
expense in the following section.
The Company has received rights to acquire stock in the form of warrants as
an adjunct to its high technology banking relationships. Most of these warrants
contain cashless exercise provisions thereby qualifying them as derivatives
under Statement of Financial Accounting Standards No.133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"), which was
implemented on January, 2001. (See also discussion in Non-Interest Expense,
following.) As of December 31, 2001 the Company held warrants from 49 separate
companies. The warrants from 44 companies were derivatives under SFAS No.133
with a fair value of $1.8 million as of December 31, 2001. The warrants from 5
companies are carried at a cost of nominal amounts. The warrants are included
as part of other assets on the Company's consolidated balance sheets.
Non-interest income in 2000 totaled $21,755,000, representing an increase of
$11,211,000, or 106%, over $10,544,000 of non-interest income in 1999. The
increase was primarily attributable to trading account revenue. For the years
ended December 31, 2000 and 1999, trading account revenue was $13,013,000 and
$1,525,000, respectively.
Non-Interest Expense
Non-interest expense decreased $4,579,000, or 9.77%, to $42,282,000 in 2001,
from $46,861,000 in 2000. The reduction was primarily due to the loss on sale
of securities available-for-sale, net, of $10,341,000 recorded in 2000. As
noted above, during 2001 there was a net gain on sale of securities
available-for-sale, net, which amount is classified as non-interest income, as
discussed above.
Partially offsetting the absence of a loss on sale of securities
available-for-sale, net, in 2001 was the reduction of fair value of derivatives
in the amount of $6,762,000 during 2001. This amount represents the decline of
the fair value of derivatives as measured at December 31, 2001 compared to
January 1, 2001. SFAS No. 133 was implemented on January 1, 2001, resulting in
the pre-tax recognition of $8,561,000 reflecting the fair value of warrants
containing a cashless exercise provision. (See also "Cumulative Effect of a
Change in Accounting Principle," following.)
Excluding the loss on sale of securities in 2000 of $10,341,000 and the
reduction of fair value of derivatives in 2001 of $6,762,000, non-interest
expense was $35,520,000 and $36,520,000 for the year ended December 31, 2001
and 2000, respectively. The decline was due primarily to lower salaries and
employee benefits which declined $1,896,000, mainly the result of a lower
incentive compensation expense. Incentive compensation is a function of pre-tax
earnings.
For the years ended December 31, 2001 and 2000, the Company's efficiency
ratio was 36.0% and 37.6%. The ratio is computed as non-interest expense
divided by the sum of net interest income plus non-interest income. The gains /
losses on sales of securities available-for-sale, net, trading revenue and
income / (loss) from other investments and the reduction of fair value of
derivatives are all excluded from the computation.
33
Non-interest expense increased $14,159,000, or 43.3%, from $32,702,000 in
1999 to $46,861,000 in 2000 due principally to a $9,590,000 increase of losses
on the sale of securities available-for-sale, net. Excluding the losses on sale
of securities, non-interest expense was up $4,569,000, or 14.3%, from 1999.
This increase was primarily due to an increase of $2,729,000 of salaries and
employee benefits and an increase of other non-interest expense primarily due
to the accrual of a $2,400,000 litigation expense which was paid in 2001.
Provision for Income Taxes
For 2001, the Company's provision for income taxes was $14,550,000, a
reduction of $9,110,000, or 38.5%, from $23,660,000 recorded in 2000. The
effective tax rate in 2001 was 34.5% as compared to 38.1% in 2000. The decrease
of the effective tax rate in 2001 is largely the result of the reduction of
income taxes from GB Capital Trust, a real estate investment trust ("REIT")
which began operations in September of 2001. The REIT is a wholly-owned
subsidiary of General Bank. The low income housing ("LIH") tax credit was
$1,176,000 and $1,852,000 in 2001 and 2000, thereby partially offsetting the
2001 tax benefits from the REIT.
For 2000, the Company's provision for income taxes was $23,660,000, an
increase of $5,328,000, or 29.1%, from $18,332,000 recorded in 1999. The
effective tax rate in 2000 was 38.1% as compared to 37.9% in 1999. The
increased effective tax rate was due primarily to the reduced level of low
income housing tax credits as a percentage of pre-tax income. The LIH tax
credit was $1,852,000 in 2000 compared to $1,980,000 in 1999.
Cumulative Effect of a Change of Accounting Principle
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 consolidated statements of
income.
Financial Condition
The Company's assets totaled $2,367.2 million as of December 31, 2001,
representing an increase of $398.1 million, or 20.2%, over the $1,969.1 million
total assets as of December 31, 2000. The asset growth was $163.9 million of
loans and leases and $243.6 million of securities available-for-sale. The
growth of assets was primarily funded by an increase of total deposits of
$153.4 million and an increase of borrowings from the Federal Home Loan Bank
totaling $227.4 million. Total stockholders' equity increased $18.5 million.
The growth of stockholders' equity was impacted by the repurchase of company
stock totaling $17.1 million. (See also Capital Resources in section following.)
Loans and Leases
The growth of loans and leases to $1,132.9 million as of December 31, 2001,
from $969.0 million as of December 31, 2000, represents a 16.9% increase. The
largest growth component of the loan portfolio was real estate construction
which increased $68.2 million, or 40.9%. Real estate conventional loans
increased $54.7 million, or 17.7%. Commercial loans increased $46.2 million, or
10.3%. As of December 31, 2001, commercial loans include $75 million and $65
million of credits to the apparel / textile industry and the electronic goods
industry, respectively. Commercial loans also include $38 million of credits to
early stage high technology companies.
The following table sets forth the gross amount of loans and leases
outstanding in each category as of the dates indicated:
December 31,
----------------------------------------------
2001 2000 1999 1998 1997
------------------------------------------------------------------------
(In Thousands)
Commercial $ 495,681 $449,484 $398,379 $309,198 $233,309
Real Estate--Construction 234,860 166,656 195,133 177,737 90,560
Real Estate--Conventional 364,567 309,834 295,614 263,869 276,350
Installment 101 2 11 37 54
Other Loans 20,345 25,969 20,238 22,302 23,993
Leveraged Leases 17,335 17,078 16,582 15,802 14,563
----------------------------------------------
Total $1,132,889 $969,023 $925,957 $788,945 $638,829
----------------------------------------------
Trade financing loans, which are included in commercial loans, are made by
the Bank's Corporate Lending and 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. Trade financing loans decreased $23.5 million or
6.6%, from $353.4 million as of December 31, 2000 to $329.9 million, as of
December 31, 2001. The Bank does not make loans to foreign banks, foreign
governments or their central banks, or commercial and industrial loans to
entities domiciled outside of the United States, except for the extension of
overdraft privileges
34
to its foreign correspondent banks on a limited, case by case, basis. All loan
transactions are U.S. dollar denominated.
Commercial loans also include $35.8 million of Small Business Administration
loans of which $24.4 million are government sponsor-guaranteed. As of December
31, 2001, commercial loans represented 43.8% of the total loan portfolio
compared to 46.4%, as of December 31, 2000.
Real estate construction loans are real estate loans secured by first trust
deeds. As of December 31, 2001, construction loans totaled $234.9 million, or
20.7% of the total loan portfolio as compared to $166.7 million, or 17.2%, as
of December 31, 2000.
Conventional real estate loans are loans, other than construction loans,
secured by first trust deeds or junior real estate liens. As of December 31,
2001, conventional real estate loans totaled $364.6 million, or 32.2%, of the
total loan portfolio.
The Company's lending policy limits the loan to value ratio on conventional
real estate and construction loans to a maximum of 75% of the appraised value.
Loans in excess of such amount are granted only on an exception basis.
The following table sets forth the breakdown by type of collateral for
construction and conventional real estate loans as of December 31, 2001 and
2000:
2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Conventional Conventional
Construction Real Estate Construction Real Estate
Project Type Loans Percentage Loans Percentage Loans Percentage Loans Percentage
- ------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Residential:
Single-Family $104,427 45% $ 13,422 4% $ 79,280 48% $ 18,584 6%
Townhouse 6,589 3 506 -- 6,161 4 519 --
Condominums 91,998 39 3,483 1 59,838 36 4,371 1
Multi-Family 17,026 7 25,162 7 12,107 7 30,754 10
Land Development 4,952 2 272 -- -- -- -- --
----------------------------------------------------------------------------------------------
Total Residential $224,992 96% $ 42,845 12% $157,386 95% $ 54,228 18%
----------------------------------------------------------------------------------------------
Non-Residential:
Warehouse $ -- -- $ 46,824 13% $ -- --% $ 50,584 16%
Retail Facilities 481 -- 84,532 23 -- -- 57,806 19
Industrial Use -- -- 30,389 8 3,864 2 32,240 10
Office 2,452 1 43,555 12 1,510 1 24,634 8
Hotel and Motel 5,486 2 56,239 15 -- -- 56,098 18
Other 1,449 1 60,183 17 3,896 2 34,244 11
----------------------------------------------------------------------------------------------
Total Non-
Residential $ 9,868 4% $321,722 88% $ 9,270 5% $255,606 82%
----------------------------------------------------------------------------------------------
Total $234,860 100% $364,567 100% $166,656 100% $309,834 100%
----------------------------------------------------------------------------------------------
Substantially all of the collateral securing construction and conventional
real estate loans is located in California. However, the Bank does financing
out-of-state as well. As of December 31, 2001, the Bank has a full service
branch in the state of Washington and continues to maintain a loan production
office in the city of New York.
Other loans are primarily comprised of loans secured by the Bank's time
deposits. Other loans totaled $20.3 million and $26.0 million, as of December
31, 2001 and 2000, respectively.
Leveraged leases are comprised primarily of two aircraft leveraged leases.
In December 1997, the Company purchased a leveraged lease on a Boeing 737 with
a fair value of $24.0 million and a remaining estimated economic life of
28 years. The lease term ends in March, 2016, however, the lessee has an early
buy out option in the year 2011. The Company's original equity investment was
$6.3 million. As of December 31, 2001 the book value was $8.8 million. As of
December 31, 2001, the aircraft is subject to $15.5 million of third-party
financing in the form of long-term debt that provides for no recourse against
the Company and is secured by a first lien on the aircraft. The residual value
at the end of the full-term lease is estimated to be $5.5 million, as of
December 31, 2001, unchanged from prior years. The residual value is supported
by an independent appraisal done in December, 2001.
In December 1996, the Company purchased a leveraged lease on a Boeing 737
with a fair value of $24.2 million and a remaining estimated economic life of
30 years. The lease term is through the year 2012. The Company's original
equity investment was 5.2 million. As of December 31, 2001, the book value was
$8.1 million. As of December 31, 2001, the aircraft is subject to $12.9 million
of third-party financing in the form of long-term debt that provides for no
recourse against the Company and is secured by a first lien on the
35
aircraft. The residual value at the end of the lease term is estimated to be
$7.6 million, as of December 31, 2001, unchanged from prior years. The residual
value is supported by an independent appraisal done in December, 2001.
The value of the leveraged leases may be affected in the future by the
profitability of the airline industry and of the two airlines, in particular.
Were either of the two airlines to default on the above-described leveraged
leases, the Company's investments would be substantially at risk due to the
debt outstanding and the current depressed market values of such aircraft.
For federal income tax purposes, the Company has the benefit of tax
deductions for depreciation on the entire leased asset and for interest paid on
the long-term debt. Deferred taxes are provided to reflect the temporary
differences associated with the leveraged leases.
In addition to the two aircraft leveraged leases, the Company has two other
equipment leveraged leases included in loans and leases totaling $0.3 million,
as of December 31, 2001.
In the ordinary course of business, the Bank has granted loans to certain
directors and companies with which they are associated. In the opinion of
management, these loans were made on substantially the same terms, including
interest rates and collateral requirements, as those prevailing at the same
time for comparable transactions with other customers. Please refer to note 5
of notes to consolidated financial statements.
The following table shows the maturity schedule of the Company's loans and
leases outstanding as of December 31, 2001, which is based on the remaining
scheduled repayments of principal. Non-accrual loans of $24.9 million are
included in the "within one year" category:
After
One but More
Within Within than
One Five Five
Year Years Years Total
------------------------------------------------------
(In Thousands)
Commercial $362,697 $ 85,858 $ 47,126 $ 495,681
Real Estate--
Construction 160,838 74,022 -- 234,860
Real Estate--
Conventional 44,103 181,240 139,224 364,567
Installment -- 101 -- 101
Other Loans 20,056 289 -- 20,345
Leveraged Leases 287 -- 17,048 17,335
-------------------------------------
Total $587,981 $341,510 $203,398 $1,132,889
-------------------------------------
As of December 31, 2001, excluding non-accrual loans, loans and leases
scheduled to be repriced within one year, after one but within five years, and
in more than five years, are as follows:
After One More
Within but than
One Within Five
Year Five Years Years Total
--------------------------------------------------------
(In Thousands)
Total Fixed Rate $ 41,305 $131,641 $135,604 $ 308,550
Total Variable
Rate 799,399 -- -- 799,399
---------------------------------------
Total $840,704 $131,641 $135,604 $1,107,949
---------------------------------------
As of December 31, 2001, there were no loans held for sale and no loans held
for sale were originated during 2001. As of December 31, 2001, the Bank
continues to service mortgages under an FNMA contract amounting to $1.3 million.
Non-performing Assets
A certain degree of risk is inherent in the extension of credit. Management
believes that it has credit policies in place to assure minimizing the level of
loan losses and non-performing loans. The Company performs a quarterly
assessment of the credit portfolio to determine the appropriate level of the
allowance. Included in the assessment is the identification of loan impairment.
A loan is identified as impaired when it is probable that interest and
principal will not be collected according to the contractual terms of the loan
agreement. Loan impairment is measured by estimating the expected future cash
flows and discounting them at the respective effective interest rate or by
valuing the underlying collateral.
The Company has a policy of classifying loans (including impaired loans)
which are 90 days past due as to principal and/or interest as non-accrual loans
unless management determines that the fair value of the underlying collateral
is substantially in excess of the loan amount or circumstances justify treating
the loan as fully collectible. After a loan is placed on non-accrual status,
any interest previously accrued, but not yet collected, is reversed against
current income. The amortization of any deferred loan fees is stopped. A loan
is returned to accrual status only when the borrower has demonstrated the
ability to make future payments of principal and interest as scheduled, and the
borrower has demonstrated a sustained period of repayment performance in
accordance with the contractual terms. Interest received on non-accrual loans
generally is either applied against principal or reported as recoveries on
amounts previously charged-off, according to management's judgment as to the
collectibility of principal.
36
The following table provides information with respect to the Company's past
due loans, non-accrual loans, other real estate owned and restructured loans,
as of the dates indicated:
December 31,
2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
(In Thousands)
Loans 90 Days or More Past Due and Still Accruing $ 1,730 $ 2,217 $ -- $ 780 $ 2,778
Non-accrual Loans 24,940 14,823 44,521 20,790 9,834
------- ------- ------- ------- -------
Total Past Due Loans 26,670 17,040 44,521 21,570 12,612
Restructured Loans 1,706 4,978 7,249 10,440 20,323
------- ------- ------- ------- -------
Total Non-performing Loans 28,376 22,018 51,770 32,010 32,935
Other Real Estate Owned, net 383 1,035 8,170 6,885 7,871
------- ------- ------- ------- -------
Total Non-performing Assets $28,759 $23,053 $59,940 $38,895 $40,806
------- ------- ------- ------- -------
Non-performing Assets to Period End Loans and Leases, net, Plus Other Real
Estate Owned, net 2.61% 2.44% 6.59% 5.05% 6.52%
------- ------- ------- ------- -------
Non-performing Assets to Period End Total Assets 1.21% 1.17% 3.44% 2.31% 2.70%
------- ------- ------- ------- -------
Total non-performing assets increased to $28.8 million, as of December 31,
2001, from $23.1 million as of December 31, 2000, representing a $5.7 million,
or 24.8%, increase. The increase is due to the increase of non-accrual loans,
up $10.1 million from December 31, 2000. All other categories of non-performing
assets decreased.
Past-due loans of 90 days or more and still accruing
The total of past due loans of 90 days or more and still accruing totaling
$1.7 million as of December 31, 2001, is comprised of 3 borrowers. The Bank
does not anticipate any loss on these credits.
Non-accrual loans
The following table details the $10.1 million increase of non-accrual loans
during the year:
-------------------------------------------------
(In Thousands)
Balance at December 31, 2000 $ 14,823
Add: Loans Placed on Non-accrual Status 44,854
Less: Charge-offs (14,477)
Returned to Accrual Status (7,248)
Repayments (12,989)
Transferred to OREO (23)
--------
Balance at December 31, 2001 $ 24,940
--------
The following table breaks out the Company's non-accrual loans by loan
category as of December 31, 2001 and 2000:
2001 2000
----------------------------------------
(In Thousands)
Commercial $15,093 $14,823
Real Estate-Construction 9,738 --
Real Estate-Conventional 109 --
------- -------
Total $24,940 $14,823
------- -------
The commercial loan non-accruals of $15.1 million includes $6.5 million and
$1.9 million from the apparel / textile industry and the computer / electronic
goods industry, respectively. Also, included in the $15.1 million is $0.3
million from early stage high technology companies.
The effect of non-accrual loans outstanding as of year-end on interest
income for the years 2001, 2000 and 1999 is presented below:
2001 2000 1999
--------------------------------------------------
(In Thousands)
Contractual Interest Due $ 3,329 $ 2,043 $4,546
Interest Recognized (2,085) (1,606) (972)
------- ------- ------
Net Interest Foregone $ 1,244 $ 437 $3,574
------- ------- ------
Contractual interest due is based on original loan amounts. Any partial
charge-offs are not considered in the determination of contractual interest due.
37
Restructured loans
The balance of restructured loans as of December 31, 2001, was $1.7 million
compared to $5.0 million as of December 31, 2000, representing a $3.3 million,
or 65.7%, decrease. The decline was primarily the result of the pay-off of $2.3
million comprising four restructured loans during the year, and the continuing
monthly payments pursuant to the restructured terms of the remaining loans.
There were no loan restructurings during the year ended December 31, 2001. A
loan is categorized as restructured if the original interest rate on such loan,
the repayment terms, or both, is modified due to deterioration in the financial
condition of the borrower. Restructured loans may also be put on a non-accrual
status in keeping with the Bank's policy of classifying loans which are 90 days
past due as to principal and/or interest. Restructured loans which are
non-accrual loans are not included in the balance of restructured loans. As of
December 31, 2001, restructured loans consisted of two credits, down from six,
as of December 31, 2000. The weighted average yield of the restructured loans
as of December 31, 2001, was 10.01%.
As of December 31, 2001, there are no commitments to lend additional funds
to borrowers associated with restructured loans.
The effect of restructured loans outstanding as of year-end on interest
income for the years ended December 31, 2001, 2000 and 1999 is presented below:
2001 2000 1999
---------------------------------------------
(In Thousands)
Contractual Interest Due $ 218 $ 968 $ 993
Interest Recognized (199) (684) (764)
----- ----- -----
Net Interest Foregone $ 19 $ 284 $ 229
----- ----- -----
Other real estate owned
As of December 31, 2001, other real estate owned, net of valuation allowance
of $0.4 million, totaled $0.4 million, representing a decrease of $0.6 million,
from the balance of $1.0 million, net of valuation allowance of $0.9 million,
as of December 31, 2000. As of December 31, 2001, OREO consisted of one
property in Los Angeles.
The following is an analysis of the change in OREO (before valuation
allowance) for the years as indicated:
Year ended
December 31,
----------------
2001 2000
------------------------------------------------------
(In Thousands)
Beginning Balance $ 1,926 $11,185
Additions 18 673
Dispositions (1,141) (9,932)
----------------
Ending Balance, December 31, 2001 $ 803 $ 1,926
----------------
The net gain realized on sales of OREO for 2001 was $475,000 compared to
$1,841,000 for 2000.
The following table sets forth OREO by type of property as of the dates
indicated:
December 31,
-------------
2001 2000
-----------------------------------------------
(In Thousands)
Property Type
Land $ -- $ 471
Retail Facilities 803 803
Industrial Facilities / Building -- 652
Less: Valuation Allowance (420) (891)
-------------
Total OREO, Net $ 383 $1,035
-------------
Impaired loans
A loan is identified as impaired when it is probable that interest and
principal will not be collected according to the contractual terms of the loan
agreement. Loan impairment is measured by estimating the expected future cash
flows and discounting them at the respective effective interest rate or by
valuing the underlying collateral.
The following table discloses pertinent information as it relates to the
Company's impaired loans as of and for the dates indicated:
As of and for the Year Ended
December 31,
---------------------------
2001 2000 1999
---------------------------------------------------------
(In Thousands)
Recorded Investment with
Related Allowance $28,734 $ 9,598 $42,881
Recorded Investment with no
Related Allowance 273 3,778 4,003
---------------------------
Total Recorded Investment $29,007 $13,376 $46,884
Allowance on Impaired Loans (5,224) (2,626) (5,806)
---------------------------
Net Recorded Investment in
Impaired Loans $23,783 $10,750 $41,078
---------------------------
Average Total Recorded
Investment in Impaired
Loans $23,516 $20,431 $46,479
Interest Income Recognized $ 239 $ 1,221 $ 538
Of the amount of interest income recognized in 2001, 2000 and 1999, no
interest was recognized under the cash basis method.
Management cannot predict the extent to which the current economic
environment, including the real estate market, may improve or worsen, or the
full impact such environment may have on the Bank's loan portfolio.
Furthermore, as the Bank's primary regulators review the loan portfolio as part
of their routine, periodic examinations of the
38
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 December 31, 2001, the balance of the allowance for credit losses was
$23.7 million, representing 2.09% of outstanding loans and leases. This
compares to an allowance for credit losses of $19.4 million as of December 31,
2000, representing 2.00% of outstanding loans and leases.
The provision for credit losses is an amount 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 balance of the allowance for
credit losses is an accounting estimate of probable but unconfirmed losses in
the Bank's loan portfolio as of December 31, 2001 and 2000. Such an amount 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.
The 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.
The ratio of the allowance for credit losses to non-performing and to
restructured loans declined to 83.4% as of December 31, 2001 from 88.2% as of
December 31, 2000. As a percentage of non-accrual loans, the allowance declined
to 94.9% as of December 31, 2001 compared to 131.1% as of December 31, 2000.
39
A detailed analysis of the Company's allowance for credit losses, the
recoveries on loans previously charged off, and the amount of loans and leases
charged off is summarized in the following table:
2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
(In Thousands)
Balance at Beginning of Year $19,426 $19,808 $19,381 $16,776 $16,209
Charge-offs:
Commercial 14,943 4,192 6,330 1,949 3,848
Real Estate 2,384 198 7 338 803
Installment & other -- -- -- -- 47
-------------------------------------------
Total Charge-offs 17,327 4,390 6,337 2,287 4,698
-------------------------------------------
Recoveries:
Commercial 601 1,680 417 901 491
Real Estate 852 1,128 2,847 2,491 3,723
Installment & Other 4 -- -- -- 51
-------------------------------------------
Total Recoveries 1,457 2,808 3,264 3,392 4,265
-------------------------------------------
Net Charge-offs (Recoveries) 15,870 1,582 3,073 (1,105) 433
Provision Charged to Operating Expenses 20,100 1,200 3,500 1,500 1,000
-------------------------------------------
Balance at End of Year $23,656 $19,426 $19,808 $19,381 $16,776
-------------------------------------------
Ratio of Net Charge-offs to Average Loans and Leases Outstanding 1.49% 0.17% 0.36% N/A 0.07%
-------------------------------------------
Allowance for Credit Losses to Year-End Loans and Leases 2.09% 2.00% 2.14% 2.46% 2.63%
-------------------------------------------
Allowance for Credit Losses to Non-accrual Loans 94.85% 131.05% 44.49% 93.22% 170.59%
-------------------------------------------
Allowance for Credit Losses to Non-performing and Restructured Loans 83.37% 88.23% 38.26% 60.55% 50.94%
-------------------------------------------
Provision for Credit Losses Divided by Net Charge-offs 126.65% 75.85% 113.90% N/A 230.95%
-------------------------------------------
Allowance for Credit Losses to Past Due Loans 88.70% 114.00% 44.49% 89.85% 133.02%
-------------------------------------------
For the year 2001, there were net charge-offs of $15.9 million compared to
net charge-offs of $1.6 million in 2000.
Although the Company does not normally allocate the allowance for credit
losses to specific loan categories, an allocation to the major categories has
been made for purposes of this report and is set forth in the table below.
These allocations are estimates based on historical loss experience and
management's judgment. The allocation of the allowance for credit losses is not
necessarily an indication that the charge-offs will occur, or if they do occur,
that they will be in the proportion indicated in the table.
December 31,
-------------------------------------------------------------------------
2001 2000 1999 1998 1997
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- ----------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Commercial $14,999 43.8% $11,500 46.4% $ 8,626 43.0% $ 9,834 39.2% $ 6,538 36.5%
Real Estate--Construction 3,799 20.7 3,265 17.2 6,636 21.1 4,307 22.5 1,852 14.2
Real Estate--Conventional 4,418 32.2 4,147 31.9 4,078 31.9 4,669 33.5 7,478 43.2
Installment 1 -- -- -- -- -- 1 -- 1 --
Other Loans 237 1.8 310 2.7 257 2.2 337 2.8 372 3.8
Leveraged Leases 202 1.5 204 1.8 211 1.8 233 2.0 535 2.3
-------------------------------------------------------------------------
Total $23,656 100.0% $19,426 100.0% $19,808 100.0% $19,381 100.0% $16,776 100.0%
-------------------------------------------------------------------------
(1) Amount represents the allocated portion of the allowance for credit losses
to the credit categories for each respective year.
(2) Percentage indicated represents the proportion of each loan category to
total loans for each respective year.
40
Borrowers in the commercial loan category include companies in the high
technology and garment industries. In the past year, high technology companies
have been subject to volatile capital markets and their ability to raise money
to fund operations has been affected which in turn affects their ability to
repay loans from the Company. The garment industry has been affected by
increasing competition and more recently, a decline in retail sales, which
could also affect the ability of borrowers from the industry to repay. All
borrowers are affected by the strength of the economy. The weakness of the
economy in 2001, plus specific industry factors such as the above, have
resulted in an increase of problem credits and an increase in the provision for
credit losses.
Securities
The Company classifies its securities as held-to-maturity, trading 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 are obtained and held principally for the purpose of selling
them in the near term are classified as trading and are reported at fair value,
with unrealized gains and losses included in earnings. Equity securities
received upon the exercise of warrants and security distributions from venture
capital funds are classified as trading. As of December 31, 2000, warrants with
a fair value of $5,899,000 were included in securities available-for-sale. The
difference between fair value and cost was included in other comprehensive
income in the amount of $5,899,000. The cost of the warrants was nominal. This
accounting was changed with the implementation of SFAS 133 on January 1, 2001.
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 net unrealized gains or losses reflected net of tax
in other comprehensive income.
As of December 31, 2001, the Company recorded net unrealized holding gains
of $18,170,000 on its available-for-sale portfolio. Included as a component of
other comprehensive income is $10,530,000, representing the net unrealized
holding gains, net of tax on the unrealized holding gains of the
available-for-sale portfolio. As of December 31, 2000, the Company had recorded
net unrealized holding gains of $17,081,000 on its available-for-sale portfolio
including $5,899,000 associated with warrants from one company and included
$9,900,000 in other comprehensive income representing the net unrealized
holding gains, net of tax.
The following table discloses proceeds received and gross gains / losses
recognized from the sale of securities available-for-sale for the years as
indicated:
2001 2000
--------------------- ----------------------
Security Classification Proceeds Gain (Loss) Proceeds Gain (Loss)
----------------------------------------------------------------------
(In Thousands)
Available-for-Sale $116,229 $6,844 $(131) $201,021 $55 $(10,396)
Included in the sale of securities in 2000 was the sale of $15 million of
debt issued by Finova Capital Corp. at a loss of $6,388,000, of which $9
million of the proceeds were reinvested in other Finova securities. In the
third quarter of 2001, $11.4 million of payments from the restructuring of
Finova were received, resulting in the elimination of the book value of the
Finova securities previously held. In addition, $4.5 million par value of new
Finova senior secured notes having a term of 8 years and a coupon rate of 7.5%
were received. In October, 2001, the $4.5 million Finova securities were sold
and a $1,788,000 gain was recognized. The Finova securities were included in
the balance of the available-for-sale portfolio.
41
The following table summarizes the carrying value of the Company's
securities held-to-maturity, securities available-for-sale and trading
securities for each of the past three years:
December 31,
----------------------------
2001 2000 1999
----------------------------------------------------------
(In Thousands)
Securities Held-to-Maturity
U.S. Government Agencies $ -- $ 1,025 $ 1,294
Collateralized Mortgage
Obligations -- -- 6
----------------------------
Total $ -- $ 1,025 $ 1,300
----------------------------
Securities Available-for-Sale
U.S. Government Agencies $ 102,254 $ 21,380 $ 21,374
Mortgage Backed Securities 303,076 94,262 170,771
Commercial Mortgage
Backed Securities 170,363 72,402 30,278
Corporate Notes 91,976 85,875 58,571
Collateralized Mortgage
Obligations 313,778 266,701 158,911
Asset Backed Securities 104,922 305,551 237,002
FHLB Stock 12,620 3,124 6,110
Other Securities -- 6,088 --
----------------------------
Total $1,098,989 $855,383 $683,017
----------------------------
Trading Account Securities
Equity Issues $ 31 $ 4,637 $ 1,114
----------------------------
Total $ 31 $ 4,637 $ 1,114
----------------------------
As of December 31, 2001, the fair value of the unsecured corporate notes are
as follows:
-------------------------------
(In Millions)
Lehman Brothers $15.80
Aristar (WAMU) 10.70
Household Financial 10.55
CIT Group 10.48
Bear Stearns 10.33
Ford Motor Credit 10.28
Daimlerchrysler N.A. 6.25
Heller Financial 10.32
American General Finance 5.16
Countrywide Credit Corp 2.11
------
Total $91.98
------
The following table shows the contractual maturities of securities as of
December 31, 2001, and the weighted average yields. The actual maturities of
certain securities are expected to be shorter than the contractual maturities.
Trading account securities are excluded as the issues in portfolio are shares
of common stock and they are non-interest bearing with no stated maturity.
After One After Five
Within but but
One within within After
Year Five Years Ten Years Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ---------------------------------------------------------------------------------------------------------
(Dollars in Millions)
Securities Available-for-
Sale
U.S. Government
Agencies $ -- -- $101.52 5.00% $ -- --% $ 0.73 3.47% $ 102.25 4.97%
Mortgage Backed
Securities -- -- -- -- 12.85 6.04 290.23 6.21 303.08 6.20
Commercial Mortgage
Backed Securities -- -- -- -- 45.88 6.71 124.48 5.83 170.36 6.07
Corporate Notes 10.25 7.14 81.73 6.84 -- -- -- -- 91.98 6.88
Collateralized
Mortgage
Obligations -- -- -- -- 7.82 7.02 305.96 6.27 313.78 6.29
Asset Backed Securities -- -- -- -- 0.60 7.33 104.32 6.80 104.92 6.81
Other Securities 12.62 4.33 -- -- -- -- -- -- 12.62 4.33
-----------------------------------------------------------------------------
Total $22.87 5.59% $183.25 5.81% $67.15 6.62% $825.72 6.25% $1,098.99 6.18%
-----------------------------------------------------------------------------
42
The following table summarizes the aggregate carrying value and fair value
of securities of any one issuer which exceeds ten percent of stockholders'
equity as of December 31, 2001. The table excludes securities issued by the
U.S. Government.
Carrying Fair
Issuer Value Value
---------------------------------------------------
(In Thousands)
Bear, Stearns Commercial Mortgage $ 24,687 $ 25,263
Citicorp Mortgage Securities 20,223 20,651
Credit Suisse First Boston 20,896 20,819
GMAC Commercial Mortgage 20,892 20,390
Lehman Brothers Inc. 23,718 25,067
Norwest Capital 20,750 21,455
-----------------
Total $131,166 $133,645
-----------------
The above includes corporate notes, asset backed securities, mortgage backed
securities and collateralized mortgage obligations. The rating of the corporate
notes included above is single-A. All other securities are rated triple-A.
Other Investments
As of December 31, 2001, other investments totaled $11.5 million. Included
in the balance is $8.7 million of investments in various venture capital funds
that invest in technology companies. As of December 31, 2001 undisbursed
commitments to invest in these various funds totaled $6.7 million. In addition
to seeking an appropriate return from such investments, the Company seeks to
use the investments to increase its high technology banking business. Also
included in other investments is a 10% equity ownership in the beneficial
interests of an aircraft finance trust ("AFT") totaling $6.1 million as of
December 31, 2001, which amount excludes an other comprehensive loss amount of
$3.8 million. This amount reduces the carrying value of AFT. AFT owns a number
of aircraft on lease to different lessees in various countries. All of these
partnership interests are accounted for by the equity method. As previously
indicated, AFT recorded a $1.8 million impairment expense associated with the
write-down of the value of two of its aircraft. If there are further impairment
write-downs during the annual audit of AFT for 2001, such amounts would be
recorded by the Company in the first quarter of 2002.
Also included in other investments are investments made by the Bank in
corporations responsible for lending activities qualifying under, among other
things, the Community Reinvestment Act. These investments totaled $0.5 million
at December 31, 2001. There are $0.9 million of undisbursed commitments
relating to one of these investments as of December 31, 2001. These investments
are accounted for by the cost method.
Funding Sources
Deposits
The Company's deposits totaled $1,827.9 million as of December 31, 2001,
representing a $153.4 million, or 9.2%, increase over the $1,674.6 million
total deposits as of December 31, 2000. Interest bearing demand/saving deposits
and time deposits reflected growth of $71.3 and $71.9 million, respectively, as
of December 31, 2001 compared to December 31, 2000. Included in time deposits
are time certificates of deposit of $100,000 or more which increased $94.5
million. This deposit category includes $140 million from the state of
California as of December 31, 2001, representing a $40 million increase from
December 31, 2000. These deposits are collateralized by collateralized mortgage
obligations and mortgage backed securities at 110%, as is required for all
public time deposits. Total deposits in the northern California branches
declined $25 million to $255 million as of December 31, 2001 from $280 million
as of December 31, 2000.
The following table discloses the deposit mix of the Bank as of December 31,
2001, 2000 and 1999:
2001 2000 1999
-------------------- -------------------- --------------------
% of Total % of Total % of Total
Deposit Balance Deposits Balance Deposits Balance Deposits
- ------------------------------------------------------------------------------------------------------------------
(In Thousands)
Demand $ 217,413 11.89% $ 207,281 12.38% $ 174,753 11.72%
Interest Bearing Demand 438,660 24.01% 389,347 23.25% 323,451 21.70%
Savings 91,418 5.00% 69,386 4.14% 78,050 5.24%
Time Certificates of Deposit of $100,000 or More 920,615 50.36% 826,157 49.34% 712,398 47.78%
Other Time Deposits 159,821 8.74% 182,398 10.89% 202,159 13.56%
----------------------------------------------------------------
Total Deposits $1,827,927 100% $1,674,569 100% $1,490,811 100%
----------------------------------------------------------------
During 2001, average deposits increased to $1,710.8 million from $1,634.9
million during 2000, representing an increase of $75.9 million, or 4.6%.
43
The following two tables set forth the average amount, the percentage to
total average deposits and the average rate paid on each of the following
deposit categories for the years ended December 31, 2001, 2000, 1999, 1998 and
1997:
2001 2000 1999
-------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average Average Average Average
Amount Ratio Rate Amount Ratio Rate Amount Ratio Rate
- -----------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Deposits
Noninterest-bearing Demand
Deposits $ 195,929 11% --% $ 190,863 12% --% $ 164,620 11.41% --%
Interest-bearing Demand
Deposits 367,411 21% 2.00 395,362 24% 3.53 299,588 20.77% 2.56
Saving Deposits 70,898 4% 1.31 74,324 5% 2.46 82,356 5.71% 2.20
Time Deposits 1,076,578 63% 4.58 974,346 60% 5.45 895,875 62.11% 4.57
----------------------------------------------------------------------------------
Total $1,710,816 100.00% 3.80% $1,634,895 100.00% 4.77% $1,442,439 100.00% 3.94%
----------------------------------------------------------------------------------
1998 1997
Weighted Weighted
Average Average Average Average
Amount Ratio Rate Amount Ratio Rate
- ----------------------------------------------------------------------------------------------
(Dollars in Thousands)
Deposits
Noninterest-bearing Demand Deposits $ 148,436 10.89% --% $ 140,761 11.34% --%
Interest-bearing Demand Deposits 262,281 19.23 2.63 228,819 18.43 2.29
Saving Deposits 86,776 6.36 2.58 110,628 8.91 2.74
Time Deposits 866,229 63.52 5.10 761,277 61.32 5.07
------------------------------------------------------
Total $1,363,722 100.00% 4.38% $1,241,485 100.00% 4.26%
------------------------------------------------------
The growth of deposits from the Company's customers reflects the continuing
tradition of personalized services. There are no brokered deposits outstanding.
The Company believes that the majority of its deposit customers have strong
ties to the Bank. Although the Company has a significant amount of time
certificates of deposit of $100,000 or more having maturities of one year or
less, the depositors have generally renewed their deposits in the past at their
maturity. Accordingly, the Company believes its deposit source to be stable.
The following table is indicative of the length of the relationship of
depositors of time certificates of deposit of $100,000 or more with the Bank as
of December 31, 2001 and 2000:
2001 2000
----------------- -----------------
No. of No. of
Amount Accounts Amount Accounts
----------------------------------------------------------
(Dollars in Thousands)
3 Years or more $721,597 3,003 $626,200 2,787
2-3 Years 51,357 318 55,750 282
1-2 Years 72,313 347 70,092 378
Less than 1 Year 75,348 355 74,115 392
-----------------------------------
Total Deposits $920,615 4,023 $826,157 3,839
-----------------------------------
44
The maturity schedule of time certificates of deposit of $100,000 or more as
of December 31, 2001 is as follows:
Amount
----------------------------------------
(In Thousands)
3 Months or Less $467,350
Over 3 Months Through 6 Months 187,097
Over 6 Months Through 12 Months 254,018
Over 12 Months 12,150
--------
Total $920,615
--------
Other Borrowings
As of December 31, 2001, the Bank had obtained advances from the Federal
Home Loan Bank of San Francisco (the "FHLB") totaling $252.4 million, up $227.4
million from December 31, 2000. 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 outstanding advances as of
December 31, 2001:
Weighted
Average
Maturity Amount Interest Rate
-----------------------------------------
(In Thousands)
Within 90 days -- --
Within 90-365 days $ 25,000 4.93%
1-2 year 195,400 3.92%
2-3 years 32,000 5.07%
---------------------
$252,400 4.16%
---------------------
The FHLB advances are secured by real estate mortgage loans and securities.
As of December 31, 2001 and 2000, the carrying value of the real estate
mortgage loans was approximately $73.2 million and $89.9 million, respectively.
In addition to the FHLB advances, the loans are also collateratizing
outstanding letters of credits.
Other borrowings also includes subordinated debt which 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 in July, 1997. The discount is
amortized as a yield adjustment over the 10-year life of the notes.
Capital Resources
Stockholders' equity totaled $206.3 million as of December 31, 2001, an
increase of $18.5 million, or 9.9%, from $187.8 million as of December 31, 2000.
As more fully described in the preceding section entitled Other Investments,
the Bank has an investment in an aircraft finance trust ("AFT"). As of
September 30, 2001, AFT reflected $37.7 million of other comprehensive loss of
which 10% is part of the Bank's investment as of December 31, 2001.
Accordingly, there is included in other comprehensive income a $2.2 million
charge, which is net of taxes of $1.6 million.
On December 20, 1999, the Board of Directors authorized a stock repurchase
program approving the buy-back of up to $10 million of the Company's stock.
This program was completed on April 25, 2001. 384,154 shares were repurchased
for a total of $10 million at an average cost per share of $26.03.
In February 2001, the Board of Directors authorized a stock repurchase
program approving the buy-back of up to 500,000 shares of the Company's stock.
As of December 31, 2001, 403,000 shares had been repurchased at an average cost
of $26.82 per share for a total of $10.8 million under this program.
In 2001, the total of the repurchased shares was 618,183 at a cost of $17.1
million or an average cost per share of $27.63.
On October 11, 2001, the Board of Directors authorized another stock
repurchase program approving the buy-back of up to 300,000 shares of the
Company's stock under conditions which allow such repurchases to be accretive
to earnings.
For the year ended December 31, 2001 and 2000, the ratio of the Company's
average stockholders' equity to average assets was 9.60% and 8.12%,
respectively.
Management is committed to maintaining capital at a sufficient level to
assure shareholders, customers and regulators that the Company is financially
sound. Risk-based capital guidelines issued by regulatory authorities in 1989
assign risk weightings to assets and off-balance sheet items. The guidelines
require a minimum Tier 1 capital ratio of 4% and a minimum total capital ratio
of 8%. Tier 1 capital consists of common stockholders' equity and
non-cumulative perpetual preferred stock, less goodwill and nonqualifying
intangible assets, while total capital includes other elements, primarily
cumulative perpetual, long-term and convertible preferred stock, subordinated
and mandatory convertible debt, plus the allowance for loan losses, within
limitations. The unrealized gain/loss on debt securities available-for-sale,
net of tax, is not included in either Tier 1 or the total capital computation;
however, the unrealized gain / loss on equity securities is included in Tier 1
or Tier 2 as appropriate, subject to limitations.
In addition, a minimum Tier 1 leverage ratio of 3% is required for the
highest rated banks. All other state nonmember banks, must meet a minimum
leverage ratio of not less than 4%. This ratio is defined as Tier 1 capital to
average total assets, net of nonqualifying intangible assets, for the most
recent quarter.
During 1992, pursuant to the Federal Deposit Insurance Corporation
Improvement Act ("FDICIA"), the federal banking regulators set forth the
definitions for "adequately capitalized" and "well capitalized" institutions.
An "adequately capitalized" institution is one that meets the minimum
regulatory capital requirements. A "well capitalized" institution is one with
capital ratios as shown in the following table. As of
45
December 31, 2001, the Company's and the Bank's Tier 1 risk based capital,
total risk based capital and leverage ratios exceeded the "well capitalized"
ratio requirements as follows:
GBC Bancorp General Bank Minimum Well
-------------- -------------- Regulatory Capitalized
Amount Ratio Amount Ratio Requirements Requirements
------------------------------------------------------------------------
(In Thousands)
Tier 1 $196,227 10.70% $207,010 11.38% 4% 6%
Total $258,428 14.09% $229,766 12.63% 8% 10%
Leverage Ratio $196,227 8.73% $207,010 9.25% 4% 5%
GBC Bancorp Executive Obligation Trust (the "Trust")
In the first quarter, 2000, the Company entered into a trust agreement
providing for the Trust with Union Bank of California as trustee. In March of
2000, shares of Company stock totaling 71,007 at a cost of $1,571,000 were
issued and transferred to the Trust representing the earned deferred
compensation payable in connection with the stock retention program set forth
in the employment agreement among the Company, the Bank and Li-Pei Wu effective
as of January 1, 1998 (see Part III, Item 11 Executive Compensation). In
January of 2001, 25,928 shares of Company stock at a cost of $903,000 were
issued and transferred to the Trust representing the earned deferred
compensation for the year 2000. In February of 2002, 3,345 shares were issued
and transferred to the Trust representing the earned deferred compensation for
the year 2001. Also in February of 2002, a distribution of 21,674 shares out of
the Trust was made in accordance with the employment agreement between Mr. Wu,
GBC Bancorp and the Bank.
In the consolidated financial statements, the shares held in the Trust are
reduced from common stock and included as a separate component of stockholders'
equity. As of December 31, 2001, this amount was $2,474,000 representing the
cost of the 96,935 shares held in the Trust.
Asset Liability and Market Risk Management
Liquidity
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 and maturing within one year and
unpledged securities available-for-sale. These sources of liquidity amounted to
$823.9 million, or 34.8%, of total assets as of December 31, 2001 compared with
$785.0 million, or 39.9%, of total assets as of December 31, 2000.
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 FHLB granted the Bank a
line of credit equal to 25 percent of assets with terms up to 360 months. As of
December 31, 2001, the Company has $252.4 million outstanding under this
financing facility representing 10.7% of total assets. Management believes its
liquidity sources to be stable and adequate.
As of December 31, 2001, total loans and leases represented 62.0% of total
deposits. This compares to 57.9% as of December 31, 2000.
The liquidity of the parent company, GBC Bancorp, and also indirectly its
non-bank subsidiary, is primarily dependent on the payment of cash dividends by
its subsidiary, the Bank, subject to the limitations imposed by the Financial
Code of the State of California. For 2001, the Bank declared $12.8 million of
cash dividends to GBC Bancorp. As of December 31, 2001, approximately $45.5
million of undivided profits of the Bank are available for dividends to the
Company, subject to the subordinated debt covenant restrictions.
"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.
46
"Gap" reports are 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 December 31, 2001, there is a cumulative one year negative "gap" of
$663.6 million, down from $667.8 million as of December 31, 2000.
The following table indicates the Company's interest rate sensitivity
position as of December 31, 2001, and is based on contractual maturities and
repricing dates. It may not be reflective of positions in subsequent periods.
December 31, 2001
------------------------------------------------------------------------
INTEREST SENSITIVITY PERIOD
------------------------------------------------------------------------
Over
0 to 91 to 1 Year to Over Non-Interest
90 Days 365 Days 5 Years 5 Years Earning/Bearing Total
- -------------------------------------------------------------------------------------------------------------------
(In Thousands)
Earning Assets
Securities Available-for-Sale $ 17,225 $ 10,244 $ 183,251 $ 888,269 $ -- $1,098,989
Trading Account Securities -- -- -- -- 31 31
Federal Funds Sold & Securities Purchased
Under Agreement to Resell 90,000 -- -- -- -- 90,000
Loans and Leases (1) (2) 815,035 25,669 131,641 135,604 -- 1,107,949
Non-Earning Assets (2) -- -- -- -- 70,274 70,274
------------------------------------------------------------------------
Total Assets $ 922,260 $ 35,913 $ 314,892 $1,023,873 $ 70,305 $2,367,243
------------------------------------------------------------------------
Source of Funds for Assets
Deposits:
Demand--Non-interest Bearing $ -- $ -- $ -- $ -- $ 217,413 $ 217,413
Interest Bearing Demand 438,660 -- -- -- -- 438,660
Savings 91,418 -- -- -- -- 91,418
TCD'S Under $100,000 84,096 74,162 1,563 -- -- 159,821
TCD'S $100,000 and Over 467,350 441,115 12,150 -- -- 920,615
------------------------------------------------------------------------
Total Deposits $1,081,524 $ 515,277 $ 13,713 $ -- $ 217,413 $1,827,927
------------------------------------------------------------------------
Borrowings from the Federal Home Loan
Bank $ -- $ 25,000 $ 227,400 $ -- $ -- $ 252,400
Subordinated Debt -- -- -- 39,269 -- 39,269
Other Liabilities -- -- -- -- 41,329 41,329
Stockholders' Equity -- -- -- -- 206,318 206,318
------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity $1,081,524 $ 540,277 $ 241,113 $ 39,269 $ 465,060 $2,367,243
------------------------------------------------------------------------
Interest Sensitivity Gap $ (159,264) $(504,364) $ 73,779 $ 984,604 $(394,755)
Cumulative Interest Sensitivity Gap $ (159,264) $(663,628) $(589,849) $ 394,755 --
Gap Ratio (% of Total Assets) -6.7% -21.3% 3.1% 41.6% -16.7%
Cumulative Gap Ratio -6.7% -28.0% -24.9% 16.7% 0.0%
(1) Loans and leases are before unamortized deferred loan fees and allowance
for credit losses.
(2) Non-accrual loans are included in non-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.
47
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 deposits with no stated maturity. The following
table shows the Company's financial instruments that are sensitive to changes
in interest rates, categorized by their expected maturity, and the fair value
of these instruments as of December 31, 2001:
December 31, 2001
----------------------------------------------
Over
1 Year
0 to 91 to to Over Average
90 Days 365 Days 5 Years 5 Years Total Int Rate (2) Fair Value
- --------------------------------------------------------------------------------------------------------------------
(In Thousands)
Interest-sensitive Assets:
Securities Available-for-Sale $ 75,010 $207,053 $592,401 $224,525 $1,098,989 6.18% $1,098,989
Federal Funds Sold & Securities
Purchased Under Agreements to
Resell 90,000 -- -- -- 90,000 1.72 90,000
Loans and Leases (1) 815,035 25,669 131,641 135,604 1,107,949 6.26 1,111,436
---------------------------------------------- ----------
Total Interest-earning Assets $980,045 $232,722 $724,042 $360,129 $2,296,938 $2,300,425
---------------------------------------------- ----------
Interest-sensitive Liabilities:
Deposits:
Interest Bearing Demand $ 22,160 $ 66,482 $219,103 $130,915 $ 438,660 1.45% $ 438,660
Savings 2,285 6,856 27,426 54,851 91,418 1.10 91,418
Time Certificates of Deposit 551,446 515,276 13,714 -- 1,080,436 3.08 1,084,550
---------------------------------------------- ----------
Total Deposits $575,891 $588,614 $260,243 $185,766 $1,610,514 $1,614,628
---------------------------------------------- ----------
Borrowing from FHLB $ -- $ 25,000 $227,400 $ -- $ 252,400 4.72% 256,306
Subordinated Debt -- -- -- 39,269 39,269 8.38 38,469
---------------------------------------------- ----------
Total Interest-sensitive Liabilities $575,891 $613,614 $487,643 $225,035 $1,902,183 $1,909,403
---------------------------------------------- ----------
(1) Loans and leases are net of non-accrual loans and before unamortized
deferred loan fees and allowance for credit losses.
(2) The average interest rate relates to the year for the category of
asset/liability indicated as of December 31, 2001. The rate for the
subordinated debt is the stated rate of the debt outstanding as of December
31, 2001.
48
The following table shows the Company's financial instruments that are
sensitive to changes in interest rates, categorized by their expected maturity,
and the fair value of these instruments as of December 31, 2000:
December 31, 2000
----------------------------------------------
Over
1 Year
0 to 91 to to Over Average
90 Days 365 Days 5 Years 5 Years Total Int Rate (2) Fair Value
- --------------------------------------------------------------------------------------------------------------------
(In Thousands)
Interest-sensitive Assets:
Securities Available for Sale $ 56,608 $145,382 $505,131 $148,262 $ 855,383 7.34% $ 855,383
Securities Held to Maturity 1,025 -- -- -- 1,025 6.55 968
Federal Funds Sold & Securities
Purchased Under Agreements to
Resell 75,000 -- -- -- 75,000 6.38 75,000
Loans and Leases (1) 694,476 27,498 121,583 110,643 954,200 10.00 928,296
---------------------------------------------- ----------
Total Interest-earning Assets $827,109 $172,880 $626,714 $258,905 $1,885,608 $1,859,647
---------------------------------------------- ----------
Interest-sensitive Liabilities:
Deposits:
Interest Bearing Demand $ 13,474 $ 40,423 $258,431 $ 77,019 $ 389,347 3.64% $ 389,347
Savings 2,313 6,939 46,257 13,877 69,386 2.48 69,386
Time Deposit of Certificates 552,454 448,516 7,585 -- 1,008,555 5.77 1,009,023
---------------------------------------------- ----- ----------
Total Deposits $568,241 $495,878 $312,273 $ 90,896 $1,467,288 $1,467,756
---------------------------------------------- ----------
Federal Funds Purchased & Securities
Sold Under Repurchased Agreements $ -- $ -- $ -- $ -- $ -- $ --
Borrowing from FHLB $ 10,000 $ 10,000 $ 5,000 $ -- $ 25,000 4.88% $ 24,994
Subordinated Debt -- -- -- 39,138 39,138 8.38% 31,938
---------------------------------------------- ----------
Total Interest-sensitive Liabilities $578,241 $505,878 $317,273 $130,034 $1,531,426 $1,524,688
---------------------------------------------- ----------
(1) Loans and leases are net of non-accrual loans and before unamortized
deferred loan fees and allowance for credit losses.
(2) The average interest rate relates to the year for the category of
asset/liability indicated as of December 31, 2000. The rate for the
subordinated debt is the stated rate of the debt outstanding as of December
31, 2000.
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 in an attempt to predict
changes in the yields earned on assets and the rates paid on liabilities in
relation to changes in market interest rates. The net interest income
volatility and market value of equity volatility reports measure the exposure
of earnings and capital, respectively, to immediate incremental changes in
market interest rates as represented by the prime rate change of 100 to 200
basis points. Market value of equity is defined as the present value of assets
minus the present value of liabilities and off- balance sheet contracts. The
table below shows the estimated impact of changes in interest rates on net
interest income and market value of equity, as of December 31, 2001:
Net Interest Market Value
Change Income Of Equity
In Interest Volatility Volatility
Rates December 31, December 31,
(Basis Points) 2001 (1) 2001 (2)
----------------------------------------
+200 4.8% -14.3%
+100 2.8% -7.5%
-100 -5.5% 3.6%
-200 -14.3% 0.8%
(1) The percentage change in this column represents net interest income of the
Company for 12 months in a stable interest rate environment versus the net
interest income in the various rate scenarios
49
(2) The percentage change in this column represents net portfolio value of the
Company in a stable interest rate environment versus the net portfolio
value in the various rate scenarios
The Company's primary objective in managing interest rate risk is to
minimize the adverse effects of changes in interest rates on earnings and
capital. In this regard, the Company has established internal risk limits for
net interest income volatility given a 100 and 200 basis point decline in rates
of 10% and 15%, respectively, over a twelve-month horizon. Similarly, risk
limits have been established for market value of equity volatility in response
to a 100 and 200 basis point increase in rates of 10% and 15%, respectively.
Forward-Looking Statements
Certain statements contained herein, including, without limitation,
statements containing the words "believes," "intends," "should", "expects" and
words of similar import, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economics and business
conditions in those areas in which the Company operates; demographic changes;
competition; fluctuations in interest rates; changes in business strategy or
development plans; changes in governmental regulation; credit quality; and
other factors referenced herein, including, without limitation, under the
captions Provision for Credit Losses, Non-Performing Assets, Allowance for
Credit Losses, Market Risk, Liquidity, Interest Rate Sensitivity, Recent
Accounting Developments and Other Matters. Given these uncertainties, the
reader is cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to publicly announce the results of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.
Recent Accounting Developments
In July 2001, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method business combinations completed after June 30,
2001. SFAS No.141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill.
SFAS No.142 will require 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 will
also require 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". As permitted by SFAS
No.142, the Company plans to adopt the new standard in the first quarter of the
fiscal year 2002. Upon adoption of SFAS No.142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments and/or impairment adjustments. Any impairment loss will be measured
as of the date of adoption and recognized as the cumulative effect of a change
in accounting principle in the first interim period. Beginning on January 1,
2002, amortization of goodwill and intangibles with indefinite lives will
cease. It is not anticipated that the adoption of this statement will have a
material effect on the Company.
In June 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 is expected to have no impact on the Company.
In August 2001, the FASB issued SFAS No.144, " Accounting for the Impairment
or Disposal of Long-lived Assets." For long-lived assets to be held and used,
SFAS No.144 retains the requirements of SFAS No.121 to (a) recognize an
impairment loss only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted cash flows and (b) measure an impairment loss
as the difference between the carrying amount and fair value. Further, SFAS
No.144 eliminates the requirement to allocate goodwill to long-lived assets to
be tested for impairment, describes a probability-weighted cash flow estimation
approach to deal with situations in which alternative courses of action to
recover the carrying amount of long-lived asset are under consideration or a
range is estimated for the amount of possible future cash flows, and
establishes a "primary-assets" approach to determine the cash flow estimation
period. For long-lived assets to be disposed of other than by sale (e.g.,
assets abandoned, exchanged or distributed to owners in a spin off), SFAS
No.144 requires that such assets be considered held and used
50
until disposed of. Further, an impairment loss should be recognized at the date
an asset is exchanged for a similar productive asset or distributed to owners
in a spin off if the carrying amount exceeds its fair value. For long-lived
assets to be disposed of by sale, SFAS No.144 retains the requirement of SFAS
No.121 to measure a long-lived asset classified as held for sale at the lower
of its carrying amount or fair value less cost to sell and to cease
depreciation. Discontinued operations would no longer be measured on a net
realizable value basis, and future operating losses would no longer be
recognized before they occur. SFAS No.144 broadens the presentation of
discontinued operations to include a component of an entity, establishes
criteria to determine when a long-lived asset is held for sale, prohibits
retroactive reclassification of the asset as held for sale at the balance sheet
date if the criteria are met after the balance sheet date but before issue of
the financial statements, and provides accounting guidance for the
reclassification of an asset from "held for sale" to 'held and used". The
provisions of SFAS No.144 are effective for fiscal years beginning after
December 15 2001. Management has not yet determined the impact, if any, of
adoption of SFAS No.144.
Other Matters
On October 11, 2001, General Bank and Liberty Bank and Trust Co. of Boston
("Liberty") announced the approval by their respective boards of directors of
an agreement for General Bank to acquire all the outstanding shares of Liberty.
Liberty is a state chartered commercial bank operating two branches in Boston
with a combined total asset of $37.2 million as of December 31, 2001. The
purpose of the acquisition is to expand the Bank's banking activities to the
major Asian-American markets in the country. The acquisition has been approved
by the appropriate regulatory agencies and the transaction consummated on
February 28, 2002, at a cost of $11.9 million.
51
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------
2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
ASSETS
Cash and Due From Banks $ 33,034 $ 40,306
Federal Funds Sold and Securities Purchased Under Agreements to Resell 90,000 75,000
----------------------
Cash and Cash Equivalents 123,034 115,306
Securities Available-for-Sale at Fair Value (Amortized Cost of $1,080,819 and $838,302 at December 31,
2001 and 2000, respectively) 1,098,989 855,383
Securities Held to Maturity (Fair Value of $968 at December 31, 2000) -- 1,025
Trading Securities 31 4,637
Loans and Leases 1,132,889 969,023
Less: Allowance for Credit Losses (23,656) (19,426)
Deferred Loan Fees (7,600) (4,085)
----------------------
Loans and Leases, Net 1,101,633 945,512
Bank Premises and Equipment, Net 6,382 5,578
Other Real Estate Owned, Net 383 1,035
Due From Customers on Acceptances 6,471 6,304
Real Estate Held for Investment 2,129 3,826
Other Investments 11,509 15,444
Accrued Interest Receivable and Other Assets 16,682 15,059
----------------------
Total Assets $2,367,243 $1,969,109
----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 217,413 $ 207,281
Interest Bearing Demand 438,660 389,347
Savings 91,418 69,386
Time Certificates of Deposit of $100,000 or More 920,615 826,157
Other Time Deposits 159,821 182,398
----------------------
Total Deposits 1,827,927 1,674,569
Borrowings from the Federal Home Loan Bank 252,400 25,000
Subordinated Debt 39,269 39,138
Acceptances Outstanding 6,471 6,304
Accrued Expenses and Other Liabilities 34,858 36,316
----------------------
Total Liabilities 2,160,925 1,781,327
Stockholders' Equity
Common Stock, No Par or Stated Value; 40,000,000 Shares Authorized; 11,477,394 (net of
96,935 shares held in Trust) and 11,557,727 (net of 71,007 shares held in Trust) shares issued and
outstanding at December 31, 2001 and 2000, respectively $ 71,316 $ 62,054
Retained Earnings 124,196 114,266
Accumulated Other Comprehensive Income 8,332 9,891
Deferred Compensation 2,474 1,571
----------------------
Total Stockholders' Equity 206,318 187,782
----------------------
Total Liabilities and Stockholders' Equity $2,367,243 $1,969,109
----------------------
See Accompanying Notes to Consolidated Financial Statements.
52
CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended
December 31,
----------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
(In Thousands, Except per Share Amounts)
INTEREST INCOME
Loans and Leases, Including Fees $ 90,719 $101,434 $ 81,331
Securities Available-for-Sale 61,736 53,208 45,227
Securities Held-to-Maturity 33 73 444
Federal Funds Sold and Securities Purchased under Agreements to Resell 2,969 8,384 3,255
Other 21 22 4
----------------------------
Total Interest Income 155,478 163,121 130,261
----------------------------
INTEREST EXPENSE
Interest Bearing Demand Deposits 7,354 13,961 7,658
Savings Deposits 932 1,827 1,809
Time Deposits of $100,000 or More 41,612 43,232 30,816
Other Time Deposits 7,694 9,843 10,094
Federal Funds Purchased and Securities Sold under Repurchase Agreements 27 62 70
Borrowings from the Federal Home Loan Bank 5,452 2,273 2,355
Subordinated Debt 3,481 3,481 3,481
----------------------------
Total Interest Expense 66,552 74,679 56,283
Net Interest Income 88,926 88,442 73,978
Provision for Credit Losses 20,100 1,200 3,500
----------------------------
Net Interest Income after Provision for Credit Losses 68,826 87,242 70,478
----------------------------
NON-INTEREST INCOME
Service Charges and Commissions 7,875 8,237 7,762
Gain on Sale of Securities Available-for-Sale, Net 6,713 -- --
Gain on Sale of Fixed Assets 38 7 22
Trading Account (Losses) Gains 1,958 13,013 1,525
(Loss) Income from Other Investments (2,796) 145 670
Other 1,858 353 565
----------------------------
Total Non-Interest Income 15,646 21,755 10,544
----------------------------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 20,410 22,306 19,577
Occupancy Expense 3,565 3,324 3,204
Furniture and Equipment Expense 2,160 2,059 1,980
Loss on Sale of Securities Available-for-Sale, Net -- 10,341 751
Net Other Real Estate Owned (Income)Expense (397) (1,309) 18
Other 9,782 10,140 7,172
Reduction of Fair Value of Derivatives 6,762 -- --
----------------------------
Total Non-Interest Expense 42,282 46,861 32,702
----------------------------
Income before Income Taxes and Cumulative Effect of a Change in Accounting Principle 42,190 62,136 48,320
Provision for Income Taxes 14,550 23,660 18,332
----------------------------
Income before Cumulative Effect of a Change in Accounting Principle 27,640 38,476 29,988
Cumulative Effect of a Change in Accounting Principle 4,962 -- --
----------------------------
Net Income $ 32,602 $ 38,476 $ 29,988
----------------------------
Earnings Per Share:
Income before Cumulative Effect of a Change in Accounting Principle
Basic $ 2.37 $ 3.33 $ 2.41
Diluted 2.36 3.26 2.37
----------------------------
Cumulative Effect of a Change in Accounting Principle
Basic $ 0.42 $ -- $ --
Diluted 0.42 -- --
----------------------------
Net Income
Basic $ 2.79 $ 3.33 $ 2.41
Diluted 2.78 3.26 2.37
----------------------------
See Accompanying Notes to Consolidated Financial Statements.
53
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
Accumulated
Common Other Total
Stock Retained Deferred Comprehensive Comprehensive Stockholders'
Shares Amount Earnings Compensation Income (Loss) Income (Loss) Equity
- --------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except per Share Amounts)
Balance at December 31, 1998 13,712 $56,303 $104,898 $ 1,829 $163,030
Comprehensive Income:
Net Income for the year 29,988 $ 29,988 29,988
--------
Other Comprehensive Income, Net of
Tax
Net Changes in Securities Valuation
Allowance (10,115) (10,115) (10,115)
--------
Comprehensive Income $ 19,873
--------
Stock Options Exercised 73 664 664
Tax Benefit-Stock Options Exercised 322 322
Stock Repurchase (2,262) (46,817) (46,817)
Cash Dividend--$0.33 per Share (4,034) (4,034)
---------------------------------------------------- --------
Balance at December 31, 1999 11,523 $57,289 $ 84,035 $ -- $ (8,286) $133,038
---------------------------------------------------- --------
Comprehensive Income:
Net Income for the year 38,476 $ 38,476 38,476
--------
Other Comprehensive Income, Net of
Tax
Net Changes in Securities Valuation
Allowance 18,178 18,178 18,178
Foreign Currency Translation
Adjustment (1) (1) (1)
--------
Comprehensive Income $ 56,654
--------
Stock Issued for Executive Compensation 114 2,401 2,401
Stock Held by Executive Obligation
Trust (71) (1,571) 1,571 --
Stock Issuance 161 2,975 2,975
Tax Benefit-Stock Options Exercised 960 960
Stock Repurchase (169) (3,732) (3,732)
Cash Dividend--$0.39 per Share (4,513) (4,513)
---------------------------------------------------- --------
Balance at December 31, 2000 11,558 $62,054 $114,266 $1,571 $ 9,891 $187,782
---------------------------------------------------- --------
Comprehensive Income:
Net Income for the year 32,602 $ 32,602 32,602
--------
Other Comprehensive Income, Net of
Tax
Net Changes in Securities Valuation
Allowance 630 630 630
Net Changes in Investment
Valuation Allowance (2,188) (2,188) (2,188)
Net Changes in Foreign Currency
Translation Adjustments (1) (1) (1)
--------
Comprehensive Income $ 31,043
--------
Stock Held by Executive Obligation
Trust (26) (903) 903 --
Stock Issuance 563 5,264 5,264
Tax Benefit-Stock Options Exercised 4,901 4,901
Stock Repurchase (618) (17,077) (17,077)
Cash Dividend--$0.48 per Share (5,595) (5,595)
---------------------------------------------------- --------
Balance at December 31, 2001 11,477 $71,316 $124,196 $2,474 $ 8,332 $206,318
---------------------------------------------------- --------
Disclosure of Reclassification Amount: 2001
- ---------------------------------------------------------------------------------------------------------------------------
Net Change of Unrealized Gains (Losses) Arising During Period, Net of Tax Expense (Benefit) of $3,280, $8,839
and ($7,655) in 2001, 2000 and 1999, respectively $ 4,520
Less: Reclassification Adjustment for (Gains) Losses Included in Net Income, Net of Tax (Expense) Benefit of
($2,823), $4,348 and $316 in 2001, 2000 and 1999, respectively. (3,890)
--------
Net Change of Unrealized (Losses) Gains on Securities, Net of Tax (Benefit) Expense of $459, $13,189 and ($7,339)
in 2001, 2000 and 1999, respectively $ 630
--------
Disclosure of Reclassification Amount: 2000
- --------------------------------------------------------------------------------------------------------------------------
Net Change of Unrealized Gains (Losses) Arising During Period, Net of Tax Expense (Benefit) of $3,280, $8,839
and ($7,655) in 2001, 2000 and 1999, respectively $12,185
Less: Reclassification Adjustment for (Gains) Losses Included in Net Income, Net of Tax (Expense) Benefit of
($2,823), $4,348 and $316 in 2001, 2000 and 1999, respectively. 5,993
Net Change of Unrealized (Losses) Gains on Securities, Net of Tax (Benefit) Expense of $459, $13,189 and ($7,339)
in 2001, 2000 and 1999, respectively $18,178
Disclosure of Reclassification Amount: 1999
- ---------------------------------------------------------------------------------------------------------------------------
Net Change of Unrealized Gains (Losses) Arising During Period, Net of Tax Expense (Benefit) of $3,280, $8,839
and ($7,655) in 2001, 2000 and 1999, respectively $(10,550)
Less: Reclassification Adjustment for (Gains) Losses Included in Net Income, Net of Tax (Expense) Benefit of
($2,823), $4,348 and $316 in 2001, 2000 and 1999, respectively. 435
Net Change of Unrealized (Losses) Gains on Securities, Net of Tax (Benefit) Expense of $459, $13,189 and ($7,339)
in 2001, 2000 and 1999, respectively $(10,115)
See Accompanying Notes to Consolidated Financial Statements.
54
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31,
-------------------------------
2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
(In Thousands)
OPERATING ACTIVITIES
Net Income $ 32,602 $ 38,476 $ 29,988
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 1,242 1,291 1,388
Net Amortization/(Accretion) of Discounts on Securities (2,734) (990) 1,333
Accretion of Discount on Subordinated Notes 131 131 131
Amortization on Real Estate Held for Investment 1,697 1,696 1,512
Provision for Credit Losses 20,100 1,200 3,500
Provision for Losses on Other Real Estate Owned -- 389 1,900
Amortization of Deferred Loan Fees (4,776) (3,933) (4,936)
Deferred Income Taxes 1,011 4,559 (435)
(Gain)/Loss on Sale of Securities Available for Sale (6,713) 10,341 751
Write-off of Securities 190 -- 125
Gain on Sale of Other Real Estate Owned (475) (1,841) (2,604)
Gain on Sale of Fixed Assets (38) (7) (22)
Implementation of SFAS 133--Cumulative Effect of a Change in Accounting Principle (8,561) -- --
Reduction of Fair Value of Derivative Instruments 6,762 -- --
Net (Increase)/Decrease in Trading Securities 4,606 (3,523) (1,114)
Net Increase/(Decrease) in Forward Sales Securities -- (828) 828
Net (Increase)/Decrease in Accrued Interest Receivable and Other Assets 176 (2,796) 785
Net Increase/(Decrease) in Accrued Expenses and Other Liabilities 3,334 (84) (26,619)
Other, Net (50) -- --
-------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 48,504 44,081 6,511
-------------------------------
INVESTING ACTIVITIES
Purchases of Securities Available-for-Sale (640,206) (459,303) (376,076)
Proceeds from Matured/Called Securities Available-for-Sale 290,765 107,929 262,693
Proceeds from Maturities/Prepayments on Securities Held-to-Maturity 1,025 275 23,365
Proceeds from Sales of Securities Available-for-Sale 116,229 201,021 134,826
Net Increase in Loans and Leases (171,463) (41,451) (145,373)
Purchase of Equity Interest in Aircraft Finance Trust -- -- (6,838)
Purchases of Equity Interest in Venture Capital Investments (2,795) (5,406) (2,685)
Net (Increase)/Decrease in Other Investments 2,956 (237) (278)
Proceeds from Sales of Other Real Estate Owned 1,145 9,260 8,497
Capitalized Cost of Other Real Estate Owned -- -- (621)
Purchases of Premises and Equipment (2,254) (1,603) (1,172)
Proceeds from Sale/Disposition of Premises and Equipment 246 176 27
-------------------------------
NET CASH USED IN INVESTING ACTIVITIES (404,352) (189,339) (103,635)
-------------------------------
FINANCING ACTIVITIES
Net Increase in Demand, Interest Bearing Demand and Savings Deposits 81,477 89,760 65,512
Net Increase in Time Certificates of Deposit 71,881 93,998 44,396
Proceeds from Borrowings from the Federal Home Loan Bank 247,400 -- 15,000
Repayment of Borrowings from the Federal Home Loan Bank (20,000) (25,000) --
Stock Repurchase Program (17,077) (3,732) (46,817)
Cash Dividend Paid (5,369) (4,387) (4,025)
Proceeds from Exercise of Stock Options/Sale of Stock 4,361 2,975 664
Issuance of Stock Held by Executive Obligation Trust 903 830 --
-------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 363,576 154,444 74,730
-------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 7,728 9,186 (22,394)
Cash and Cash Equivalents at Beginning of Year 115,306 106,120 128,514
-------------------------------
Cash and Cash Equivalents at End of Year $ 123,034 $ 115,306 $ 106,120
-------------------------------
Supplemental Disclosures of Cash Flow Information Cash Paid During the Year For:
Interest $ 65,561 $ 73,906 $ 55,716
Income Taxes 13,953 25,086 15,810
-------------------------------
Noncash Investing Activities
Loans Transferred to Other Real Estate Owned $ 18 $ 673 $ 8,772
Loans to Facilitate the Sale of Other Real Estate Owned -- -- 313
-------------------------------
See Accompanying Notes to Consolidated Financial Statements.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1-- SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Consolidation: The consolidated financial statements of GBC Bancorp and
subsidiaries (the "Company") are prepared in conformity with accounting
principles generally accepted in the United States of America and general
practices within the banking industry ("generally accepted accounting
principles"). It is the Company's policy to consolidate all majority-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation. Certain reclassifications have been made to the
prior years' consolidated financial statements in order to conform to the
current year presentation. The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
as of the date of the financial statements and the reported operations of the
Company for the periods presented. Actual results may differ from those
estimates as calculated by the Company. Significant balance sheet items which
could be materially affected by such estimates include loans and leases, which
are presented net of the allowance for credit losses, the valuation for other
real estate owned ("OREO"), the estimated residual value of leveraged leases,
the investment in Aircraft Finance Trust ("AFT") and the tax benefits from the
real estate investment trust subsidiary.
The consolidated 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, a real estate investment trust.
The Bank also holds 90% of the voting stock of GBC Leasing Company, Inc., which
amount is not material.
The Bank, the Company's 100% owned bank subsidiary, conducts the business of
a commercial bank serving individuals and small to medium-sized businesses
through eighteen branch offices located in the greater Los Angeles, San Diego
and Silicon Valley areas of California, a branch office in the state of
Washington and a loan production office located in the state of New York. The
Bank's deposit gathering and loan production operations are primarily
concentrated in southern California.
Securities Purchased Under Agreements to Resell: The Company invests in
securities purchased under agreements to resell ("repurchase agreements") to
maximize the yield on liquid assets. The Company obtains collateral for these
agreements, which normally consists of single family residential mortgage loans
and commercial paper with an agreement to sell back the same collateral. The
collateral is normally held in custody of a trustee who is not a party to the
transaction. The purchase is overcollateralized to protect against unfavorable
market price movements. The duration of these agreements is one business day
with a roll-over under continuing contract. The counterparties to these
agreements are nationally recognized investment banking firms that meet credit
eligibility criteria and with whom a master repurchase agreement has been duly
executed.
Securities: The Company classifies its investment in debt and equity
securities as held-to-maturity securities, trading securities and
available-for-sale securities, as applicable. Securities held-to-maturity are
designated as such when the Company has the positive intent and ability to hold
the securities until maturity. Securities held-to-maturity are carried at cost,
adjusted for amortization of premiums and accretion of discounts into interest
income using a methodology which approximates a level yield. Securities
available-for-sale are carried at fair value. Premiums and discounts on
securities available-for-sale are amortized/accreted into interest income using
a methodology which approximates a level yield. The resulting unrealized gains
or losses are recorded net of tax as part of other comprehensive income. When a
decline in value has occurred and is deemed to be other than temporary, such
decline is charged to income. Equity securities received by GBC Venture Capital
Inc., from venture capital funds in which it invests and from the exercise of
warrants are classified as trading securities. They are held principally for
the purpose of selling them in the near term and are reported at fair value,
with unrealized gains/losses included in income. The specific identification
method is used to compute realized gains or losses on security transactions.
Investment in FHLB Stock: As a member of the FHLB system the Bank is
required to maintain an investment in the capital stock of the FHLB. This
investment is also affected by the outstanding advances under the line of
credit the Bank has with the FHLB. The Bank is in compliance with the required
investment. As of December 31, 2001 and 2000, the balance of the FHLB
investment was $12.6 million and $3.1 million, respectively.
Loans and Related Allowance for Credit Losses: Loans are recorded in the
consolidated balance sheets at principal amounts outstanding. Interest on loans
is accrued daily as earned. It is generally the Company's policy to place a
loan on non-accrual status in the event that the borrower is 90 days or more
delinquent or earlier if the timely collection of interest and/or principal
appears doubtful. When loans are placed on non-accrual status, the accrual of
income is discontinued and previously accrued but unpaid interest is generally
reversed against income. The amortization of any deferred loan fees is stopped.
Subsequent payments are generally applied to principal or reported as
recoveries on amounts previously charged-off. A loan is returned to accrual
status only when the borrower has demonstrated the ability to make future
payments of principal
56
and interest as scheduled, and the borrower has demonstrated a sustained period
of repayment performance in accordance with the contractual terms.
The Company provides for credit losses by a charge to operations based upon
the composition of the loan and lease portfolio, past loss experience, current
economic conditions, evaluations made by regulatory authorities, and such other
factors that, in management's judgment, deserve recognition in estimating
probable credit losses. The provision for credit losses is an amount 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 for credit losses is maintained at an amount management considers
adequate to cover estimated losses on loans receivable which are deemed
probable and estimable as of December 31, 2001. Such an amount 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. The allowance
for credit losses is based on estimates, and ultimate losses may vary from
current estimates. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in earnings in the period in
which they become known. Additionally, regulatory examiners may require the
Bank to recognize additions to the allowance for credit losses based upon their
judgments regarding information available to them at the time of their
examination. Charge-offs of loans are debited to the allowance for credit
losses. Recoveries on loans previously charged off are credited to the
allowance for credit losses.
A loan is considered impaired when it is probable that the Company will be
unable to collect all amounts due (i.e., both principal and interest) according
to the contractual terms of the loan agreement. The Company reviews all
non-homogenous loans individually for impairment. Homogenous pools that the
Company does not review individually for impairment include mortgage loans
secured by single-family real estate and SBA loans where the Bank's
unguaranteed exposure is $500,000 or less. The measurement of impairment may be
based on (i) the present value of the expected future cash flows of the
impaired loan discounted at the loan's original effective interest rate,
(ii) the observable market price of the impaired loan, or (iii) the fair value
of the collateral of a collateral-dependent loan. The amount by which the
recorded investment of the loan exceeds the measure of the impaired loan is
recognized by recording a valuation allowance with a corresponding charge to
the provision for credit losses. Income recognition on impaired loans is
similar to that for non-accrual loans but can include the accrual of interest.
The accrual of interest is normally followed for those impaired loans which
have been restructured with the borrower servicing the debt pursuant to the
contractual terms of the restructuring. While a loan is on non-accrual status,
some or all of the cash interest payments received may be treated as interest
income on a cash basis as long as the remaining book balance of the loan (i.e.,
after charge-off of identified losses, if any) is deemed to be fully
collectible. The Bank's determination as to the ultimate collectibility of the
loan's remaining book balance is supported by a current, well documented credit
evaluation of the borrower's financial condition and prospects for repayment,
including consideration of the borrower's historical repayment performance and
other relevant factors.
Loan Origination Fees: Loan origination fees and commitment fees, (offset by
certain direct loan origination costs,) are deferred and recognized in income
over the contractual life of the loan as an adjustment of yield.
Premises and Equipment: Premises and equipment are stated at historical cost
less accumulated depreciation or amortization. Depreciation is computed
utilizing the straight-line method over the estimated lives of the assets.
Amortization of leasehold improvements is computed utilizing the straight-line
method over the shorter of the estimated useful life of the assets or the terms
of the respective leases. The lease term is defined as the original lease term
plus option periods with a maximum of 15 years unless there is a reason to
believe that the premises will be vacated prior to the end of the lease term.
Other Real Estate Owned: Other real estate owned ("OREO") is comprised of
real estate acquired through foreclosure proceedings. These assets are
initially recorded at fair value minus selling costs of the related real
estate. The fair value of the real estate is based upon an appraisal adjusted
for estimated carrying and selling costs. The excess carrying value, if any,
over the fair value of the asset upon foreclosure is charged to the allowance
for credit losses at the time of acquisition. Any subsequent decline in the
fair value of OREO is recognized as a charge to operations and a corresponding
increase to the valuation allowance on OREO. Gains and losses from sales and
net operating expenses of OREO are included in net other real estate owned
expense (income) in the accompanying consolidated statements of income.
Real Estate Held for Investment: The Bank is a limited partner in three
different partnerships that invest in low income housing projects that qualify
for federal income tax credits. As further discussed in note 8 of the notes to
consolidated financial statements, the partnership interests are accounted for
based on the percentage ownership and control exerted by the Company over the
partnerships. The three partnership investments are accounted for as follows:
the cost method, a method which approximates the equity method, and a method
resulting in approximately the same treatment as if the investment had been
consolidated.
Other Investments: This asset category includes the partnership interests
owned by GBC Venture Capital and a
57
partnership interest in an aircraft finance trust owned by the Bank. The
partnership interests are carried under the equity method. Also included in
other investments are investments made by the Bank in corporations responsible
for lending activities qualifying under, among other things, the Community
Reinvestment Act. These investments are accounted for by the cost method.
Foreign Currency Translation: Assets and liabilities of the foreign office
in Taipei are translated to U. S. dollars at current exchange rates. Income and
expense amounts are translated based on the average current exchange rates in
effect during the month in which the transactions are recorded. These
translation adjustments are included in accumulated other comprehensive income
of the accompanying consolidated balance sheets.
Earnings Per Share: Basic earnings per share is determined by dividing net
income by the average number of shares of common stock outstanding. 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.
Income Taxes: The Company files a consolidated federal income tax return
with its subsidiaries, a combined California franchise tax return and New York
State and City tax returns.
For the tax year 2001, the Bank intends to file a separate return with the
California Franchise Board for its real estate investment trust subsidiary.
The Company records income taxes under the asset and liability method.
Income tax expense is derived by establishing deferred tax assets and
liabilities as of the reporting date for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company's evaluation of the realizability of deferred tax assets includes
consideration of the amount and timing of future reversals of existing
temporary differences, as well as available taxable income in carryback years
and projections of future income. Tax benefits associated with the exercise of
non-qualified stock options are credited to stockholders' equity.
Stock Option Plans: On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price. SFAS No. 123
also allows entities to continue to apply the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
Consolidated Statements of Cash Flows: Cash and cash equivalents consist of
cash and due from banks, federal funds sold and securities purchased under
agreements to resell with original maturities of three months or less.
Derivatives: On January 1, 2001, the Company adopted the provisions of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
standard obligates the Company to record all derivatives at fair value and
permits the Company to designate derivative instruments as being used to hedge
changes in fair value or changes in cash flows. Changes in the fair value of
derivatives that offset changes in cash flows of hedged item are recorded
initially in other comprehensive income. Amounts recorded in other
comprehensive income are subsequently reclassified into earnings during the
same period in which the hedged item affects earnings. If a derivative
qualifies as a fair value hedge, then changes in fair value of the hedging
derivative are recorded in earnings and are offset by changes in fair value
attributable to the hedged risk of the hedged item. Any portion of the changes
in the fair value of derivatives designated as hedge that is deemed ineffective
is recorded in earnings along with changes in the fair value of derivatives
with no hedge designation.
Upon the implementation of SFAS No. 133, 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 in accounting
principle in the Company's consolidated statements of income.
As of December 31, 2001, no hedge designation was specified for the
outstanding derivatives. The Company has received rights to acquire stock in
the form of warrants as an adjunct to its high technology banking
relationships. Most of these warrants contain cashless exercise provisions
thereby qualifying them as derivatives under SFAS No. 133. The warrants that
qualify as derivatives are carried at fair value and are included in other
assets on the consolidated balance sheets. The Black-Scholes model is utilized
for purposes of the computation of fair value.
Segment Information and Disclosures: Generally accepted accounting
principles establish standards to report information about operating segments
in annual financial statements and requires reporting of selected information
about operating segments in interim reports to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company has concluded it has one
segment.
Recent Accounting Developments: In July 2001, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 141, "Business Combinations", and
SFAS No.142, "Goodwill and Other Intangible Assets." SFAS No.141 requires that
the purchase method of accounting be used for all
58
business combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. SFAS No.141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
SFAS No.142 will require 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 will
also require 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". As permitted by SFAS
No.142, the Company plans to adopt the new standard in the first quarter of the
fiscal year 2002. Upon adoption of SFAS No.142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments and/or impairment adjustments. Any impairment loss will be measured
as of the date of adoption and recognized as a cumulative effect of a change in
accounting principle in the first interim period. Beginning on January 1, 2002,
amortization of goodwill and intangibles with indefinite lives will cease. It
is not anticipated that the adoption of this statement will have a material
effect on the Company.
In June 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.
In August 2001, the FASB issued SFAS No.144, "Accounting for the Impairment
or Disposal of Long-lived Assets." For long-lived assets to be held and used,
SFAS No.144 retains the requirements of SFAS No.121 to (a) recognize an
impairment loss only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted cash flows and (b) measure an impairment loss
as the difference between the carrying amount and fair value. Further, SFAS
No.144 eliminates the requirement to allocate goodwill to long-lived assets to
be tested for impairment, describes a probability-weighted cash flow estimation
approach to deal with situations in which alternative courses of action to
recover the carrying amount of long-lived asset are under consideration or a
range is estimated for the amount of possible future cash flows, and
establishes a "primary-assets" approach to determine the cash flow estimation
period. For long-lived assets to be disposed of other than by sale (e.g.,
assets abandoned, exchanged or distributed to owners in a spin off), SFAS
No.144 requires that such assets be considered held and used until disposed of.
Further, an impairment loss should be recognized at the date an asset is
exchanged for a similar productive asset or distributed to owners in a spin off
if the carrying amount exceeds its fair value. For long-lived assets to be
disposed of by sale, SFAS No.144 retains the requirement of SFAS No.121 to
measure a long-lived asset classified as held for sale at the lower of its
carrying amount or fair value less cost to sell and to cease depreciation.
Discontinued operations would no longer be measured on a net realizable value
basis, and future operating losses would no longer be recognized before they
occur. SFAS No.144 broadens the presentation of discontinued operations to
include a component of an entity, establishes criteria to determine when a
long-lived asset is held for sale, prohibits retroactive reclassification of
the asset as held for sale at the balance sheet date if the criteria are met
after the balance sheet date but before issue of the financial statements, and
provides accounting guidance for the reclassification of an asset from "held
for sale" to 'held and used". The provisions of SFAS No.144 are effective for
fiscal years beginning after December 15, 2001. Management has not yet
determined the impact, if any, of adoption of SFAS No.144.
NOTE 2--CASH AND DUE FROM BANKS
The Company is required to maintain cash on hand and on deposit to meet
reserve requirements established by the Federal Reserve Bank. Average reserve
requirements were $0.3 million during 2001, unchanged from 2000.
NOTE 3-- SECURITIES PURCHASED UNDER
AGREEMENTS TO RESELL
As of December 31, 2001 and 2000, securities purchased under agreements to
resell were collateralized by single family residential loans and commercial
paper all of which constituted overnight lending. The collateral is held in
custody of a trustee who is not a party to the transaction. The following table
indicates information relating to securities purchased under agreements to
resell all of which were overnight maturities:
2001 2000
-------------------------------------------------------
(Dollars in Thousands)
Amount Outstanding as of
December 31 $75,000 $ 60,000
Maximum Month End Amount
Outstanding $90,000 $150,000
Average Outstanding for the Year $53,967 $107,081
Weighted Average Rate of Interest 3.99% 6.48%
Weighted Average Rate of Interest as
of December 31 1.97% 6.78%
59
NOTE 4--SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and fair
value of securities as of December 31, 2001 and 2000 were as follows:
Gross Gross
Amortized Unrealized Unrealized
December 31, 2001 Cost Gains Losses Fair Value
- ------------------------------------------------------------------------------------
(In Thousands)
Securities Available-for-Sale
U.S. Government Agencies $ 100,877 $ 1,614 $ 237 $ 102,254
Mortgage Backed Securities 302,827 2,212 1,963 303,076
Commercial Mortgage Backed Securities 166,332 4,879 848 170,363
Corporate Notes 87,530 4,446 -- 91,976
Collateralized Mortgage Obligations 308,299 6,176 697 313,778
Asset Backed Securities 102,334 2,588 -- 104,922
FHLB Stock 12,620 -- -- 12,620
-------------------------------------------
Total $1,080,819 $21,915 $3,745 $1,098,989
-------------------------------------------
Trading Account Securities
Equity Issues $ -- $ -- $ -- $ 31
-------------------------------------------
Total $ -- $ -- $ -- $ 31
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
December 31, 2000 Cost Gains Losses Fair Value
- ------------------------------------------------------------------------------------
(In Thousands)
Securities Held-to-Maturity
U.S. Government Agencies $ 1,025 $ -- $ 57 $ 968
-------------------------------------------
Total $ 1,025 $ -- $ 57 $ 968
-------------------------------------------
Securities Available-for-Sale
U.S. Government Agencies $ 20,854 $ 526 $ -- $ 21,380
Mortgage Backed Securities 93,147 1,350 235 94,262
Commercial Mortgage Backed Securities 69,504 2,898 -- 72,402
Corporate Notes 84,975 955 55 85,875
Collateralized Mortgage Obligations 263,287 3,704 290 266,701
Asset Backed Securities 303,221 3,371 1,041 305,551
FHLB Stock 3,124 -- -- 3,124
Other Securities 190 5,898 -- 6,088
-------------------------------------------
Total $ 838,302 $18,702 $1,621 $ 855,383
-------------------------------------------
Trading Account Securities
Equity Issues $ -- $ -- $ -- $ 4,637
-------------------------------------------
Total $ -- $ -- $ -- $ 4,637
-------------------------------------------
As of December 31, 2001, the yield on the collateralized mortgage
obligations available-for-sale was 6.29%. As of December 31, 2000, the yield on
collateralized mortgage obligations available for sale was 7.21%. As of
December 31, 2001 and 2000, there were no collateralized mortgage obligations
held to maturity.
As of December 31, 2001 and 2000, the yield on the asset backed securities
available-for-sale was 6.81% and 6.95%, respectively. There were no asset
backed securities held-to-maturity as of December 31, 2001 and 2000.
Trading account (losses) gains is income earned or losses incurred on
securities classified as trading account securities. GBC Venture Capital, Inc.
("Venture Capital") receives equity
60
securities which it holds as trading securities 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 mark to market and disposition of these securities results in
trading account gains/(losses). For the year ended December 31, 2001, 2000 and
1999, the change in net unrealized holding gains/(losses) that is included in
trading account (losses) gains is $(4,605,000), $3,435,000 and $1,159,000,
respectively.
The following table discloses proceeds received and gross gains / (losses)
recognized from the sale of available-for-sale securities for the years as
indicated:
2001 2000 1999
--------------------- ---------------------- -------------------
Security Classification Proceeds Gain (Loss) Proceeds Gain (Loss) Proceeds Gain (Loss)
- -------------------------------------------------------------------------------------------
(In Thousands)
Available-for-Sale $116,229 $6,844 $(131) $201,021 $55 $(10,396) $134,826 $ -- $(751)
The amortized cost and fair value of securities as of December 31, 2001, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Securities
Available-for-Sale
---------------------
Amortized
Cost Fair Value
------------------------------------------------------
(In Thousands)
Due in One Year or Less $ 22,592 $ 22,864
Due After One Year Through Five
Years 177,711 183,251
Due After Five Years Through Ten
Years 64,531 67,141
Due After Ten Years 815,985 825,733
---------------------
Total $1,080,819 $1,098,989
---------------------
The following table summarizes the aggregate amortized cost and fair value
of securities of any one issuer which exceeds ten percent of stockholders'
equity as of December 31, 2001. Securities issued by the U.S. government are
not included:
Amortized Fair
Issuer Cost Value
----------------------------------------------------
(In Thousands)
Bear, Stearns Commercial Mortgage $ 24,687 $ 25,263
Citicorp Mortgage Securities 20,223 20,651
Credit Suisse First Boston 20,896 20,819
GMAC Commercial Mortgage 20,892 20,390
Lehman Brothers Inc. 23,718 25,067
Norwest Capital 20,750 21,455
------------------
Total $131,166 $133,645
------------------
The above includes corporate notes, asset backed securities, mortgage backed
securities and collateralized mortgage obligations. The rating for corporate
notes is single-A; all other issuers are triple A rated.
As of December 31, 2001 and 2000, securities from the available-for-sale
portfolio were pledged in an amount and for the purposes indicated as follows:
December 31,
-------------
2001 2000
--------------------------------------------------
(In Millions)
Borrowings from Federal Reserve Bank $ 16.0 $ 19.5
Public Time Deposits 154.3 121.7
FHLB Advances 241.7 57.8
Other Purposes 10.6 10.2
-------------
Total $422.6 $209.2
-------------
NOTE 5-- LOANS AND LEASES AND ALLOWANCE
FOR CREDIT LOSSES
The composition of the Company's loan portfolio and leveraged leases as of
December 31, 2001 and 2000, was as follows:
2001 2000
-------------------------------------------------------
(In Thousands)
Commercial $ 495,681 $449,484
Real Estate--Construction 234,860 166,656
Real Estate--Conventional 364,567 309,834
Installment 101 2
Other Loans 20,345 25,969
Leveraged Leases 17,335 17,078
--------------------
Total $1,132,889 $969,023
Less: Allowance for Credit Losses (23,656) (19,426)
Deferred Loan Fees (7,600) (4,085)
--------------------
Loan and Leases, Net $1,101,633 $945,512
--------------------
Construction loans are collateralized primarily by single family residences,
condominiums, townhouses and multi-family buildings. Real estate loans are
collateralized primarily by single family residences, condominiums,
multi-family residences, commercial and industrial buildings, motels and hotels
and land.
In the ordinary course of business, the Bank has granted loans to certain
executive officers and directors and the
61
companies with which they are associated. In the opinion of management, the
loans were made on substantially the same terms, including interest rates and
collateral requirements, as those prevailing at the time of origination for
comparable transactions with other customers and did not involve more than the
normal risk of collectibility or present other unfavorable features. The
following provides information regarding the aggregate indebtedness of related
parties:
December 31,
-------------------------
2001 2000 1999
-------------------------------------------------------
(In Thousands)
Balance at Beginning of Year $ 1,518 $ 3,207 $ 2,393
New Loans and Advances 1,274 1,082 3,562
Repayments (1,562) (2,771) (2,748)
-------------------------
Balance at End of Year $ 1,230 $ 1,518 $ 3,207
-------------------------
The related parties indebtedness for the above three year presentation has
been adjusted to take into account an employee becoming executive officer in
2001. The related indebtedness was originated in 1998.
Leveraged leases are comprised primarily of two aircraft leveraged leases.
In December 1997, the Company purchased a leveraged lease on a Boeing 737 with
a fair value of $24.0 million and a remaining estimated economic life of
28 years. The lease term ends in March, 2016, however, the lessee has an early
buy out option in the year 2011. The Company's original equity investment was
$6.3 million. As of December 31, 2001 the carrying value was $8.8 million. As
of December 31, 2001, the aircraft is subject to $15.5 million of third-party
financing in the form of long-term debt that provides for no recourse against
the Company and is secured by a first lien on the aircraft. The residual value
at the end of the full-term lease is estimated to be $5.5 million, as of
December 31, 2001, unchanged from prior years. The residual value is supported
by an independent appraisal done in December, 2001.
In December 1996, the Company purchased a leveraged lease on a Boeing 737
with a fair value of $24.2 million and a remaining estimated economic life of
30 years. The lease term is through the year 2012. The Company's original
equity investment was $5.2 million. As of December 31, 2001, the carrying value
was $8.1 million. As of December 31, 2001, the aircraft is subject to $12.9
million of third-party financing in the form of long-term debt that provides
for no recourse against the Company and is secured by a first lien on the
aircraft. The residual value at the end of the lease term is estimated to be
$7.6 million, as of December 31, 2001, unchanged from prior years. The residual
value is supported by an independent appraisal done in December, 2001.
For federal income tax purposes, the Company has the benefit of tax
deductions for depreciation on the entire leased asset and for interest paid on
the long-term debt. Deferred taxes are provided to reflect the temporary
differences associated with the leveraged leases.
The Company's net investment in leveraged leases is composed of the
following elements:
December 31,
------------------
2001 2000
---------------------------------------------------------
(In Thousands)
Rentals Receivable (Net of Principal
and Interest on the Nonrecourse
Debt) $ 10,937 $ 10,937
Direct Cost 940 1,015
Estimated Residual Value of Leased
Assets 13,700 13,869
Less: Unearned and Deferred Income (8,242) (8,743)
------------------
Investment in Leveraged Leases 17,335 17,078
Less: Deferred Taxes Arising from
Leveraged Leases (14,352) (16,601)
------------------
Net Investment in Leveraged Leases $ 2,983 $ 477
------------------
During 2001, pre-tax interest income recognized for leveraged leases was
$558,000, all of which related to the two aircraft leases discussed above.
Pre-tax income recognized for leveraged leases during 2000 and 1999 was
$672,000 and $930,000, respectively.
As of December 31, 2001, and 2000, $73.2 million and $89.9 million of real
estate loans were pledged to the Federal Home Loan Bank for the outstanding
advances under the line of credit from the FHLB and outstanding letters of
credit.
A summary of activity in the allowance for credit losses is as follows:
2001 2000 1999
--------------------------------------------------------
(In Thousands)
Balance at Beginning of Year $ 19,426 $19,808 $19,381
Provision for Credit Losses 20,100 1,200 3,500
Charge-offs (17,327) (4,390) (6,337)
Recoveries 1,457 2,808 3,264
--------------------------
Balance at End of Year $ 23,656 $19,426 $19,808
--------------------------
The following table provides information with respect to the Company's past
due loans, non-accrual loans and restructured loans, as of the dates indicated:
December, 31
-----------------------
2001 2000 1999
----------------------------------------------------
(In Thousands)
Loan 90 Days or More Past
Due and Still Accruing $ 1,730 $ 2,217 $ --
Non-accrual Loans 24,940 14,823 44,521
Restructured Loans 1,706 4,978 7,249
-----------------------
Total Past Due, Non-
accrual and Restructured
Loans $28,376 $22,018 $51,770
-----------------------
62
The effect of non-accrual loans outstanding as of year-end on interest
income for the years 2001, 2000 and 1999 is presented below:
2001 2000 1999
--------------------------------------------------
(In Thousands)
Contractual Interest Due $ 3,329 $ 2,043 $4,546
Interest Recognized (2,085) (1,606) (972)
------------------------
Net Interest Foregone $ 1,244 $ 437 $3,574
------------------------
Contractual interest due is based on original loan amounts. Any partial
charge-offs are not considered in the determination of contractual interest due.
The effect of restructured loans outstanding as of year-end on interest
income for the years ended December 31, 2001, 2000 and 1999 is presented below:
2001 2000 1999
---------------------------------------------
(In Thousands)
Contractual Interest Due $ 218 $ 968 $ 993
Interest Recognized (199) (684) (764)
-------------------
Net Interest Foregone $ 19 $ 284 $ 229
-------------------
There were no commitments to lend additional funds to borrowers associated
with restructured loans, as of December 31, 2001.
The following table discloses pertinent information as it relates to the
Company's impaired loans as of and for the years indicated:
As of and for the Year Ended
December 31,
---------------------------
2001 2000 1999
---------------------------------------------------------
(In Thousands)
Recorded Investment with
Related Allowance $28,734 $ 9,598 $42,881
Recorded Investment with no
Related Allowance 273 3,778 4,003
---------------------------
Total Recorded Investment 29,007 13,376 46,884
Allowance on Impaired Loans (5,224) (2,626) (5,806)
---------------------------
Net Recorded Investment
in Impaired Loans $23,783 $10,750 $41,078
---------------------------
Average Total Recorded
Investment in Impaired
Loans $23,516 $20,431 $46,479
Interest Income Recognized $ 239 $ 1,222 $ 538
Of the amount of interest income recognized in 2001, 2000 and 1999, no
interest was recognized under the cash basis method.
As of December 31, 2001 and 2000, the Bank was servicing approximately $1.3
million and $1.7 million of residential loan mortgages, respectively, on behalf
of third party investors.
NOTE 6--PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
December 31,
----------------
2001 2000
----------------------------------------------------
(In Thousands)
Land $ 1,246 $ 1,246
Bank Premises 1,504 1,504
Leasehold Improvements 2,555 2,555
Furniture, Fixtures and Equipment 10,936 10,160
----------------
16,241 15,465
Less: Accumulated Depreciation and
Amortization (9,859) (9,887)
----------------
Total $ 6,382 $ 5,578
----------------
The range of estimated depreciable lives is twenty-five years for bank
premises, five to fifteen years for leasehold improvements and three to five
years for furniture, fixtures and equipment. Depreciation expense for the years
ended December 31, 2001, 2000 and 1999 amounted to $1,242,000, $1,291,000, and
$1,388,000, respectively.
The Company conducts a portion of its operations in leased facilities under
non-cancelable operating leases expiring at various dates through 2010. The
following summarizes the Company's future minimum lease commitments as of
December 31, 2001:
Year
----------------------
(In Thousands)
2002 $ 2,618
2003 2,433
2004 2,625
2005 2,063
2006 1,833
Thereafter 3,770
-------
Total $15,342
-------
Net rental expense included in occupancy expense was approximately
$2,625,000, $2,416,000 and $2,409,000, for the years ended December 31, 2001,
2000 and 1999, respectively.
63
NOTE 7--OTHER REAL ESTATE OWNED
As of December 31, 2001, other real estate owned ("OREO") consisted of one
property with a net carrying value of $0.4 million. The property is located in
the Los Angeles area. As of December 31, 2000 OREO consisted of six properties
with a net carrying value of $1.0 million. The following table sets forth OREO
by type of property as of December 31, 2001 and 2000:
December 31,
-------------
2001 2000
-----------------------------------------------
(In Thousands)
Property Type
Land $ -- $ 471
Retail Facilities 803 803
Industrial Facilities / Building -- 652
Less: Valuation Allowance (420) (891)
-------------
Total OREO, Net $ 383 $1,035
-------------
A summary of activity in the valuation allowance is as follows for the years
indicated:
2001 2000 1999
-------------------------------------------------------
(In Thousands)
Balance at Beginning of Year $ 891 $ 3,015 $2,000
Provision Charged to Operations -- 389 1,900
Charge-offs (471) (2,513) (885)
----------------------
Balance at End of Year $ 420 $ 891 $3,015
----------------------
For the years ended December 31, 2001, 2000 and 1999, net other real estate
owned (income) expense was comprised of the following:
2001 2000 1999
-------------------------------------------------------
(In Thousands)
Net Gain on Sale of Other Real
Estate Owned $(475) $(1,841) $(2,604)
Provision for Losses on Other
Real Estate Owned -- 389 1,900
Net Operating Expenses 78 143 722
-----------------------
Net Other Real Estate Owned
(Income) Expense $(397) $(1,309) $ 18
-----------------------
NOTE 8--REAL ESTATE HELD FOR INVESTMENT
Real estate held for investment ("REI") at December 31, 2001 and 2000 was
comprised of investments in low income housing projects.
As of December 31, 2001 and 2000, the Company had three investments with a
net of $2.1 million and $3.8 million, respectively, in limited partnerships
formed for the purpose of investing in real estate projects. These projects
qualify for low income housing tax credits. The limited partnerships will
generate tax credits over a weighted average remaining period of approximately
0.6 years. Please refer to note 12 of the notes to consolidated financial
statements for income tax effects. The following table identifies the pertinent
details of the three projects as of December 31, 2001 and 2000:
December 31,
-------------
% Date 2001 2000
Project Name Ownership Acquired Amount Amount
---------------------------------------------
(Dollars In Thousands)
Liberty 7.1% Mar-90 $ -- $1,403
Greenview 97.4% Sep-92 1,961 2,171
Las Brisas 49.5% Dec-93 168 252
-------------
Total $2,129 $3,826
-------------
The method of accounting for the Greenview investment approximates the
results if the investment were consolidated. A $1.4 million first deed of trust
on the Greenview property is included in accrued expenses and other liabilities
on the Company's consolidated balance sheet. The cost method is used for the
investment in Liberty with the investment being amortized over the remaining
period that tax credits will be received. As of December 31, 2001, the Liberty
project is fully amortized with a net carrying value of zero. A method
approximating the equity method is used for the Las Brisas investment.
Expenses incurred for REI, consisting entirely of the amortization of the
investment balances, and included in other expense, were $1,697,000, $1,697,000
and $1,512,000, for the years ended 2001, 2000 and 1999, respectively.
NOTE 9--OTHER INVESTMENTS
As of December 31, 2001 and 2000, other investments totaled $11.5 million
and $15.4 million, respectively. Included in the balance as of December 31,
2001 and 2000 are investments in various venture capital funds which in turn
invest in technology companies, amounting to $8.7 million and $7.5 million,
respectively. In addition to seeking an appropriate return from such
investments, the Company seeks to use the investments to increase its high
technology banking business. The Company has investments in various venture
capital funds. There is no significant contribution or interest in any one
fund. Also included in other investments is a 10% equity interest in an
aircraft finance trust ("AFT") totaling $2.3 million net of valuation reserve
of $3.8 million, and $7.5 million, as of December 31, 2001 and 2000,
respectively. There was no valuation reserve in 2000. The valuation reserve
represents 10% of the other comprehensive loss for AFT, which was primarily the
result of the implementation of SFAS No.133. AFT holds derivative instruments
that are marked to fair value through other comprehensive income. AFT owns a
number of aircraft on lease to different lessees in various countries. The
decline of the net investment is due to the significant impairment expense
recorded on the books of AFT and the effect of the
64
implementation by AFT of SFAS No.133. The above partnership interests are all
accounted for by the equity method. In the case of AFT, the (loss) income
included in (loss) income from other investments is based on the SEC reported
results for the nine months ended September 30 as filed by AFT. The Company
records an estimated 4th quarter result based on the information and financial
data as reported for the nine months. The equity accounting for the venture
capital funds includes the operations of the fund including realized
gains/losses from sales of the portfolio, but does not include the unrealized
gain/losses. Finally, included in the category of other investments are
investments made by the Bank in corporations responsible for lending activities
qualifying under, among other things, the Community Reinvestment Act, totaling
$0.5 million and $0.4 million as of December 31, 2001, and 2000, respectively.
Such investments are accounted for by the cost method.
NOTE 10--DEPOSITS
The Bank obtains deposits primarily through a network of 18 full service
branches located in the state of California, primarily, southern California,
and one full service branch in the state of Washington. Deposits obtained by
the Bank are insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation up to a maximum of $100,000 for each depositor.
The following table sets forth the average amount, the ratio to total
average deposits and the average rate paid on each of the following deposit
categories for the year ended December 31, 2001, 2000 and 1999:
2001 2000 1999
-------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average Average Average Average
Amount Ratio Rate Amount Ratio Rate Amount Ratio Rate
- ----------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Deposits
Noninterest-Bearing
Demand Deposits $ 195,929 11.45% --% $ 190,863 11.67% --% $ 164,620 11.41% --%
Interest-Bearing
Demand Deposits 367,412 21.48 2.00 395,362 24.18 3.53 299,588 20.77 2.56
Saving Deposits 70,897 4.14 1.31 74,324 4.55 2.46 82,356 5.71 2.20
Time Deposits 1,076,578 62.93 4.58 974,346 59.60 5.45 895,875 62.11 4.57
----------------------------------------------------------------------------------
Total $1,710,816 100.00% 3.80% $1,634,895 100.00% 4.77% $1,442,439 100.00% 3.94%
----------------------------------------------------------------------------------
The aggregate dollar amount of time deposits in denominations of $100,000 or
more at December 31, 2001 and 2000 was $920.6 million and $826.2 million,
respectively.
As of December 31, 2001 and 2000, there were no brokered deposits
outstanding. During 2001 and 2000, the Bank accepted deposits from the State of
California. As of December 31, 2001, these deposits totaled $140.0 million, an
increase of $40.0 million from December 31, 2000. The Company has pledged
securities in excess of the required amount of 110 percent of this deposit
amounting to $154.3 million, as of December 31, 2001. The securities pledged
are collateralized mortgage obligations, mortgage backed securities and U.S.
Agencies. The Company believes that the majority of its deposit customers have
strong ties to the Bank. Although the Company has a significant amount of time
certificates of deposit of $100,000 or more having maturities of one year or
less, the depositors have generally renewed their deposits in the past at their
maturity. Accordingly, the Company believes its deposit source to be stable.
Deposits outstanding as of December 31, 2001, mature as follows:
Amount
-----------------------------------
(In Thousands)
Immediately Withdrawable $ 747,491
Year Ending December 31:
2002 1,066,723
2003 13,359
2004 129
2005 200
2006 25
----------
Total Deposits $1,827,927
----------
65
NOTE 11--OTHER BORROWINGS
As of December 31, 2001 and 2000, the Bank had obtained advances from the
Federal Home Loan Bank of San Francisco (the "FHLB") totaling $252.4 million
and $25.0 million, respectively. The following relates to these advances for
the years ended December 31 as indicated:
2001 2000
---------------- ---------------
Weighted Weighted
Average Average
Interest Interest
Maturity Amount Rate Amount Rate
-------------------------------------------------
(In Thousands)
Within
90 days -- -- $10,000 5.19%
Within 90-
365 days $ 25,000 4.93% 10,000 4.92%
1-2 years 195,400 3.92% 5,000 5.61%
2-3 years 32,000 5.07% -- --
---------------------------------
$252,400 4.16% $25,000 5.17%
---------------------------------
The advances from the FHLB as of December 31, 2001 and 2000 were
collateralized by securities available-for-sale and real estate mortgage loans
as well as the required investment in the stock of the FHLB. The approximate
carrying value of the securities and loans as of December 31, 2001 and 2000 was
$314.8 million and $147.7 million, respectively. The carrying value of the FHLB
stock was $12.6 million and $3.1 million, as of December 31, 2001 and 2000,
respectively. In addition to collateralizing the advances, the above mentioned
securities and loans also collateralized outstanding letters of credit.
The Bank has an available line of credit up to 25% of its assets subject to
appropriate collateral. As of December 31, 2001, based on current securities
and loans pledged, the Company had $10.3 million of unused line of credit
available with the FHLB.
On July 30, 1997, the Company issued, through a public offering, $40 million
of 8.375% subordinated notes due August 1, 2007. Proceeds of $38.7 million, net
of underwriting discount of $1.3 million, were received by the Company. The
discount is amortized over the 10 year life of the subordinated notes. The
notes are not redeemable prior to August 1, 2002. Thereafter, the notes are
redeemable, in whole or in part, at the option of the Company at decreasing
redemption prices plus accrued interest to the date of redemption. The notes
have no sinking fund. The indenture (the "Indenture") under which the notes are
issued does not limit the ability of the Company or its subsidiaries to incur
additional indebtedness. The Indenture provides that the Company cannot pay
cash dividends or make any other distribution on, or purchase, redeem or
acquire its capital stock, except that the Company may (1) declare and pay a
dividend in capital stock of the Company and (2) declare and pay dividends,
purchase, redeem or otherwise acquire for value its capital stock or make other
distributions in cash or property other than capital stock of the Company if
the amount of such dividend, purchase or distribution, together with the amount
of all previous such dividends, purchases, redemptions and distributions of
capital stock after December 31, 1996, would not exceed in the aggregate the
sum of (a) $38 million, plus (b) 100% of the Company's consolidated net income
(or minus 100% of the Company's consolidated net loss, as the case may be),
based upon audited consolidated financial statements, plus (c) 100% of the net
proceeds received by the Company on account of any capital stock issued by the
Company (other than to a subsidiary of the Company) after December 31, 1996. As
of December 31, 2001 and 2000, in the opinion of management, the Company was in
compliance with all the terms, conditions and provisions of the Indenture.
NOTE 12--INCOME TAXES
Income tax (benefit) expense in the accompanying consolidated statements of
income is comprised of the following:
Year Ended December 31,
------------------------
2001 2000 1999
--------------------------------------------------------
(In Thousands)
Current Taxes
Federal $ 7,542 $12,974 $13,681
State 1,096 5,167 4,764
------------------------
Total 8,638 18,141 18,445
Deferred Taxes
Federal 1,256 3,233 143
State (245) 1,326 (578)
------------------------
Total $ 1,011 $ 4,559 $ (435)
Taxes Credited to
Stockholders' Equity for
Exercise of Stock Options 4,901 960 322
------------------------
Total Provision for Income
Taxes per Consolidated
Statements of Income $14,550 $23,660 $18,332
------------------------
Deferred Taxes Charged/
(Credited) to Shareholders'
Equity Related to
Available-for-Sale Securities $ 1,129 $13,187 $(7,339)
------------------------
66
Tabulated below are the significant components of the net deferred tax asset
(liability) as of December 31, 2001 and 2000:
Year Ended
December 31,
------------------
2001 2000
-------------------------------------------------------------
(In Thousands)
Components of the Deferred Tax Asset
Deferred Compensation $ 1,538 $ 1,707
Provision for Credit Losses 9,485 9,676
California Franchise Taxes 810 2,777
Allowance for Other Real Estate
Owned 177 409
Other 1,725 819
------------------
Deferred Tax Asset 13,735 15,388
------------------
Components of the Deferred Tax
Liability
Discount Accretion (1,479) (991)
Leveraged Leases (14,352) (16,601)
Low Income Housing (6,463) (3,994)
Unrealized Net Gain on Securities (6,053) (7,182)
Other (756) (2,106)
------------------
Deferred Tax Liability (29,103) (30,874)
------------------
Net Deferred Tax (Liability) Asset $(15,368) $(15,486)
------------------
The Company believes that all deferred tax assets will ultimately be
realized. In evaluating the reliability of its deferred tax assets, management
has considered income from future operations, the turnaround of deferred tax
liabilities and current and prior years' taxes paid.
A reconciliation of the statutory federal corporate income tax rate to the
effective income tax rate on consolidated income before income tax expense
follows:
Percent of Pre-tax
Earnings Year Ended
December 31,
------------------
2001 2000 1999
--------------------------------------------------------
Statutory Federal Corporate Income
Tax Rate 35.0 % 35.0 % 35.0 %
State Tax, Net of Federal Income
Tax Effect 2.8 % 6.8 % 7.0 %
Increase (Decrease) Resulting from:
Low Income Housing Tax Credit (2.8)% (2.9)% (4.1)%
Other, net (0.5)% (0.8)% 0.0 %
------------------
34.5 % 38.1 % 37.9 %
------------------
The Company had a current income tax receivable of $3,272,000 and $1,557,000
as of December 31, 2001 and 2000, respectively.
The federal income tax return as filed for the year 1998 is currently being
examined by the Internal Revenue Service. The Company does not anticipate any
adjustment to the liability as filed.
67
NOTE 13--EARNINGS PER SHARE
The following is the reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for the years as
indicated:
For the Year Ended 2001 For the Year Ended 2000
---------------------------------- ----------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amount)
Income before Cumulative
Effect of a Change in
Accounting Principle $27,640 $38,476
------- -------
Basic EPS
Income Before
Cumulative Effect of a
Change in Accounting
Principle Available to
Common Stockholders $27,640 11,673,000 $ 2.37 $38,476 11,554,000 $ 3.33
-----------------------------------------------------------------------
Effect of Dilutive Securities
Options--Common
Stock Equivalents 75,000 (0.01) 259,000 (0.07)
---------- ------ ---------- ------
Diluted EPS
Income Before
Cumulative Effect of a
Change in Accounting
Principle Available to
Common Stockholders $27,640 11,748,000 $ 2.36 $38,476 11,813,000 $ 3.26
-----------------------------------------------------------------------
For the Year Ended 1999
----------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
- -----------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amount)
Income before Cumulative
Effect of a Change in
Accounting Principle $29,988
-------
Basic EPS
Income Before
Cumulative Effect of a
Change in Accounting
Principle Available to
Common Stockholders $29,988 12,430,000 $ 2.41
------- ---------- ------
Effect of Dilutive Securities
Options--Common
Stock Equivalents 242,000 (0.04)
---------- ------
Diluted EPS
Income Before
Cumulative Effect of a
Change in Accounting
Principle Available to
Common Stockholders $29,988 12,672,000 $ 2.37
------- ---------- ------
As of December 31, 2001, 2000 and 1999, the number of shares of
anti-dilutive options were 1,103,200, 0 and 604,700, respectively.
NOTE 14--PENDING LITIGATION
Legal Action
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.
NOTE 15--EMPLOYEE BENEFIT PLANS
The Company adopted the 1999 Employee Stock Incentive Plan (the "Plan") as
of April 22, 1999.
The purpose of this plan, is to enable the Company and its subsidiaries to
attract, retain and motivate their employees, non-employee directors and
consultants by providing for or increasing the proprietary interests of such
employees, non-employee directors and consultants in the Company, and, thereby,
further align their interests with those of the shareholders of the Company.
On January 26, 2000, the Company filed a Registration Statement on Form S-8
with the Securities and Exchange Commission (the "Commission") to register
2,484,120 shares (the "Shares") of the Registrant's Common Stock for issuance
pursuant to the Registrant's 1999 Employee Stock Incentive Plan (the "Plan"),
and such indeterminate number of shares as may become available under the Plan
as a result of the adjustment provisions thereof. The Shares include (i)
1,000,000 shares, including any shares issuable pursuant to that certain
Employment Agreement dated as of January 1, 1998, between the Registrant and
Li-Pei Wu ("Mr. Wu"), as amended, (ii) 343,020 shares currently available for
future awards under the Registrant's Amended and Restated 1988 Stock Option
Plan (the "Prior Plan") and (iii) up to 1,141,100 shares subject to awards
currently outstanding under the Prior Plan and which subsequently may be
forfeited, canceled, or expired without delivery of shares.
As of December 31, 2001, there were options outstanding that included three
different vestings as described below:
a) Options become vested over a four year period and include five vestings. If
an option expires without having been exercised, usually two years from date
of vesting, the unexercised shares are again available for future grants.
b) Options become vested on the one year anniversary date of the grant and are
exercisable over a ten year period from date of grant. Options with this
vesting schedule are granted to non-employee directors.
68
c) Options become vested over a four year period and include five vestings. All
options expire on the sixth anniversary from date of grant.
As of December 31, 2001, authorized stock option shares were 3,640,000. As
of December 31, 2001 options available for future grant were 196,927.
A summary of stock option activity and related option prices for 2001, 2000
and 1999 follows:
Weighted
Average Range of or
Number of Option Option Price
Shares Price Per Share
------------------------------------------------------------
Balance at January 1, 1999 1,138,400 $16.65 $6.59-$31.75
---------------------------------
Granted 164,500 $23.63 $23.00-$25.88
Exercised (73,300) 9.06 6.94-15.75
Forfeited (23,800) 24.66 8.69-29.25
Expired (7,200) 28.54 27.13-29.25
---------------------------------
Balance at December 31,
1999 1,198,600 $17.85 $6.59-$31.75
---------------------------------
Granted 161,500 $19.32 $18.88-$19.44
Exercised (161,250) 18.45 6.75-31.75
Forfeited (10,600) 21.29 14.25-27.13
Expired (45,000) 27.01 14.25-29.25
---------------------------------
Balance at December 31,
2000 1,143,250 $17.59 $6.59-$31.75
---------------------------------
Granted 898,000 $32.86 $28.80-$37.56
Exercised (537,850) 8.11 6.59-29.25
Forfeited (15,400) 28.91 19.44-37.56
Expired (25,300) 31.05 19.44-37.56
---------------------------------
Balance at December 31,
2001 1,462,700 $30.10 $8.69-$37.56
---------------------------------
The following table indicated relevant information for all stock options
outstanding, as of December 31, 2001:
Weighted Average
Remaining
Contractual Life
Exercise Price Shares (in Years)
-----------------------------------------
$8.69 2,400 0.1
14.25 10,900 0.5
15.75 4,000 0.8
27.13 83,800 1.4
31.75 213,000 6.4
25.88 30,000 7.0
23.00 94,100 3.1
18.88 30,000 8.0
19.44 104,300 4.1
36.00 33,000 9.0
37.56 381,200 5.0
28.80 476,000 6.0
--------------------------
Total 1,462,700 5.3 Years
--------------------------
For purposes of the above table, contractual life is defined as the time
from balance sheet date to the expiration date of the option contract and may
include a period of time during which the option is not vested.
The following table indicates relevant information for all exercisable stock
options, as of December 31, 2001:
Exercise Price Shares
----------------------
$8.69 2,400
14.25 10,900
15.75 4,000
27.13 45,400
31.75 213,000
25.88 30,000
23.00 49,300
18.88 30,000
19.44 35,900
37.56 76,200
28.80 476,000
-------
Total 973,100
-------
As of December 31, 2001, 2000 and 1999, exercisable options were 973,100,
847,150 and 891,400 shares, respectively. The weighted average exercise price
for all exercisable stock options as of December 31, 2001, 2000 and 1999 was
$28.75, $16.03 and $16.02, respectively.
Employment Agreement
On February 19, 1998 Mr. Li-Pei Wu, Bancorp and the Bank entered into an
employment agreement having an effective date of January 1, 1998, (the
"Agreement").
The Agreement provides for an employment term of five (5) years, commencing
January 1, 1998, and ending December 31, 2002. Pursuant to the Agreement, Mr.
Li-Pei Wu will serve as Chairman of the Board of Bancorp and the Bank
throughout the entire term of the Agreement, but he will serve as Chief
Executive Officer of Bancorp and the Bank only through December 31, 2000.
On February 27, 2001, Mr. Peter Wu, Bancorp and the Bank entered into an
employment agreement having an effective date of January 1, 2001. Mr. Peter
Wu's employment agreement provides for, among other things, an annual incentive
award. The annual incentive compensation award to be paid to Mr. Peter Wu
pursuant to his employment agreement with Bancorp and the Bank is to be
computed as follows: (i) one percent (1.0%) of any amount by which the Bank's
tax equivalent income before the Bank's incentive bonus compensation awards
exceeds ten percent (10%) of the net equity of the Bank at the beginning of
that fiscal year but does not exceed fifteen percent (15%) of such net equity;
and (ii) one and three tenths percent (1.3%) of any amount by which such income
exceeds fifteen percent (15%) of such net equity. In addition, Mr. Peter Wu
will be entitled to receive
69
from each Bancorp subsidiary (other than the Bank), an incentive compensation
award computed in accordance with a formula similar to the one described in the
preceding sentence. The total annual incentive compensation award for any year
is subject to a maximum dollar limitation of $350,000, except that there will
be no such limitation for any year in which the ratio of the Bank's core
earnings to its net equity at the beginning of the fiscal year is greater than
0.40. "Core earnings" for purposes of Mr. Peter Wu's employment agreement means
the tax equivalent income before the Bank's incentive bonus compensation awards
excluding gains and/or losses from securities, warrants and venture capital.
Also, unrealized securities gains and/or losses are to be included in the
calculation of the Bank's net equity.
Contingent Stock Option Plan
A contingent stock option plan issued at market is in effect which allows
certain key officers of the Bank to purchase up to an aggregate of 562,800
shares, as of December 31, 2001 of the Company's authorized but unissued common
stock at a price of $1.86-$14.25 per share. The stock options may be exercised
by the optionee only in the event of certain triggering events, such as a
merger, sale or disposition of all of the assets by the Company, or the Bank,
or any similar event in which neither the Company nor the Bank is a survivor.
Each of the contingent stock options is for a term of indefinite duration,
provided, however, said options shall terminate upon the death of the optionee
or in the event the optionee ceases to be employed by the Company. A summary of
contingent stock option activity and related option prices for 2001, 2000 and
1999 follows:
Weighted- Range of or
Number Average Option
of Option Price Per
Shares Price Share
-----------------------------------------------------
Balance at January 1,
1999 574,900 $4.40 $1.86-$14.25
-------------------------------
Cancelled (12,100) $8.47 8.47
Balance at
December 31, 1999 562,800 $4.31 $1.86-$14.25
-------------------------------
Balance at
December 31, 2000 562,800 $4.31 $1.86-$14.25
-------------------------------
Balance at
December 31, 2001 562,800 $4.31 $1.86-$14.25
-------------------------------
The following table indicates relevant information for all contingent stock
options outstanding, as of December 31, 2001:
Exercise Price Shares
----------------------
$ 1.86 242,000
2.17 96,800
6.51 31,460
6.59 48,400
6.61 16,940
6.75 10,000
6.94 50,000
8.13 12,000
8.30 11,000
10.02 24,200
14.25 20,000
-------
Total 562,800
-------
The weighted average exercise price of all the contingent stock options
outstanding was $4.31, as of December 31, 2001 and 2000.
There were no contingent stock options that were exercisable as of December
31, 2001.
Pro Forma Net Income and Earnings Per Share
The Company applies APB Opinion No. 25 in accounting for its stock option
plans and, accordingly, no compensation cost has been recognized for the fair
value of the options granted in the consolidated financial statements. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net income and earnings
per share ("EPS") would have been changed to the pro forma amounts indicated
below:
2001 2000 1999
-------------------------------------------------------------
(In Thousands, Except Per Share Data)
Net Income as Reported $32,602 $38,476 $29,988
Pro Forma Net Income $31,785 $38,003 $29,555
EPS as Reported--Basic $ 2.79 $ 3.33 $ 2.41
EPS as Reported--Diluted $ 2.78 $ 3.26 $ 2.37
Pro Forma EPS--Basic $ 2.72 $ 3.29 $ 2.38
Pro Forma EPS--Diluted $ 2.71 $ 3.22 $ 2.33
The Black-Scholes model was utilized for purposes of the option pricing. The
volatility of 36.7%, 34.3% and 30.6%, for the options granted in 2001, 2000 and
1999, respectively, was based on historical weekly closing prices and
historical annual dividend rates. The expected life of the options ranged from
1 month to 10 years. The dividend yield was 1.63%, 1.02% and 1.71% for 2001,
2000 and 1999, respectively. The risk-free interest rate which is based on the
treasury bill/note rate, was 2.8%, 5.2% and 6.2% for options granted during
2001, 2000
70
and 1999, respectively. The weighted average fair value at date of grant for
options granted during 2001, 2000 and 1999 was $4.89, $4.25 and $4.71,
respectively.
Pro forma net income does not reflect options granted under the contingent
stock option plan as the options will become exercisable only upon the
occurrence of certain triggering events, the dates of which cannot be
determined.
General Bank 401(k) Plan
In 1988, the Bank established a 401(k) Plan in which all employees of the
Bank may elect to enroll each January 1 or July 1 of every year provided that
they have been employed for at least one year prior to the semi-annual
enrollment date. Effective January 1, 2002, employees may contribute up to
50 percent of their annual base salary up to limits established by the Internal
Revenue Service with the Company matching 100 percent of the employee's
contribution up to 5 percent of that employee's base salary. In 2001, 2000 and
1999, the Bank's contribution amounted to $414,000, $401,000 and $342,000,
respectively.
Executive Incentive Savings Plan
In 1992, the Board of Directors of the Bank authorized an Incentive Savings
Plan which replaced the Executive Deferred Compensation Plan established in
1988. Under the plan, if any bonus or profit sharing award is received during
the year by any vice president or any officer of the Bank ranking above such
position (including officers who are also directors), he or she is allowed to
set aside up to 30% of such bonus or profit sharing award received in the
payment year, and the Bank will contribute additional funds for each
participant to pay the approximate federal income tax for the portion of the
bonus or award so set aside. This arrangement is tied to a paid-up life
insurance program having investment features and the participant has the right
to choose different investment vehicles for the investment of the portion of
the bonus or award set aside as described above. The Bank has contributed
approximately $334,000, $583,000 and $473,000 to this plan in 2001, 2000 and
1999, respectively.
NOTE 16-- FINANCIAL INSTRUMENTS WITH OFF-
BALANCE SHEET RISK
The consolidated balance sheets do not reflect various commitments relating
to financial instruments which are used in the normal course of business. These
instruments include commitments to extend credit and letters of credit.
Management does not anticipate that the settlement of these financial
instruments will have a material adverse effect on the financial condition or
the operations of the Company.
These financial instruments carry various degrees of credit and market risk.
Credit risk is defined as the possibility that a loss may occur from the
failure of another party to perform according to the terms of the contract.
Market risk is the possibility that future changes in the market price may
render less valuable a financial instrument.
The contractual amounts of commitments to extend credit and letters of
credit represent the amount of credit risk. Since many of the commitments and
letters of credit are expected to expire without being drawn upon, the
contractual amounts do not necessarily represent future cash requirements.
Commitments to extend credit are legally binding loan commitments with fixed
expiration dates. They are intended to be disbursed, subject to certain
conditions, upon request of the borrower. The Bank receives a fee for providing
a commitment. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, by
the Bank upon the extension of credit is based on management's evaluation.
Collateral held varies but may include accounts receivable, inventory,
property, equipment and real estate. As of December 31, 2001, the Company's
undisbursed loan commitments amounted to approximately $584.9 million, of which
$201.8 million related to construction loans. As of December 31, 2000, the
Company's undisbursed loan commitments amounted to approximately $526.7
million, of which $143.4 million related to construction loans. As of December
31, 2001 and 2000, $127.0 and $152.3 million of loan commitments were related
to a program in which the Bank and various other minority-owned banks
participate for the granting of credit to large U.S. corporations, all of which
are rated A or better by one or both of the major rating services at the time
of entering into the commitment agreement. All of the commitments are for one
year or less. The Company does not anticipate funding in the majority of
instances.
In addition to loan commitments, the Company is also committed to meet
capital calls to the various partnership interests of GBC Venture Capital, Inc.
As of December 31, 2001 and 2000, these undisbursed commitments totaled
$6.7 million and $8.5 million, respectively. These amounts are included as part
of total undisbursed commitments.
Standby letters of credit are provided to customers to guarantee their
performance, generally in the production of goods and services or under
contractual commitments in the financial markets. Commercial letters of credit
are issued to customers to facilitate foreign or domestic trade transactions.
They represent a substitution of the Bank's credit for the customer's credit.
71
The following is a summary of various financial instruments with off-balance
sheet risk as of December 31, 2001 and 2000:
December 31,
-----------------
2001 2000
----------------------------------------------
(In Thousands)
Undisbursed Commitments $592,469 $535,208
Standby Letters of Credit 80,091 108,925
Bill of Lading Guarantees 487 1,118
Commercial Letters of Credit 63,578 70,154
As of December 31, 2001, undisbursed loan commitments of $584.9 million
include commitments to fund fixed-rate loans and adjustable-rate loans of $36.5
million and $548.4 million, respectively. As of December 31, 2000, undisbursed
loan commitments of $526.7 million include commitments to fund fixed-rate loans
and adjustable-rate loans of $15.0 million and $511.7 million, respectively.
NOTE 17-- DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to make such
an estimate:
Cash and due from banks
The carrying amount of cash and due from banks is considered fair value.
Federal funds sold and securities purchased under agreements to resell
Outstanding amounts under these categories represented overnight
transactions as of December 31, 2001 and 2000 and are considered to be carried
at fair value.
Securities
For securities including securities held-to-maturity, for trading and
available-for-sale, fair values are based on quoted market prices or dealer
quotations. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. These portfolios were then segmented into fixed and adjustable
interest rate classifications.
Adjustable rate loans are considered to be carried at fair value.
The fair value of fixed rate loans was calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount rates
that reflect the credit and interest rate risk inherent in the loan.
The entire allowance for credit losses was applied to classified loans
including non-accruals. Accordingly, they are considered to be carried at fair
value as the allowance for credit losses represents the estimated discount for
credit risk for the applicable loans.
Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific
borrower information.
Warrants
The fair value of warrants meeting the criteria of a derivative instrument
as defined by SFAS No.133 were estimated at the individual warrant level by
utilizing the Black-Scholes model.
Deposit liabilities
The fair value of demand deposits, interest bearing demand, savings
accounts, and certain money market deposits is the amount payable on demand at
the reporting date. The fair value of fixed-maturity certificates of deposits
is estimated using the rates the Bank was offering as of December 31, 2001 and
2000 for deposits of similar remaining maturities.
Borrowings from the Federal Home Loan Bank
The fair value of borrowings from the Federal Home Loan Bank is estimated
using a discounted cash flow model.
Subordinated debt
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of subordinated debt.
Accrued interest receivable/payable
Accrued interest receivable and accrued interest payable are considered to
be carried at fair value.
Off-Balance Sheet Financial Instruments
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of
the agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
guarantees and letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.
72
The fair value disclosed hereinafter does not reflect any premium or
discount that could result from offering the instruments for sale. Potential
taxes and other expenses that would be incurred in an actual sale or settlement
are also not reflected in the amounts disclosed. The fair value estimates are
dependent upon subjective estimates of market conditions and perceived risks of
financial instruments at a point in time and involve significant uncertainties
resulting in variation in estimates with changes in assumptions.
The estimated fair values of the Company's financial instruments are as
follows:
2001 2000
--------------------- ---------------------
Carrying Fair Carrying
Amount Value Amount Fair Value
- ------------------------------------------------------------------------------------------------------------------
(In Thousands)
Financial Assets
Cash and Due from Banks $ 33,034 $ 33,034 $ 40,306 $ 40,306
Federal Funds Sold & Securities Purchased Under Agreement to Resell 90,000 90,000 75,000 75,000
Securities Available-for-Sale 1,098,989 1,098,989 855,383 855,383
Securities Held-to-Maturity -- -- 1,025 968
Trading Securities 31 31 4,637 4,637
Warrants 1,799 1,799 -- 1,857
Loans, net 1,101,633 1,111,436 945,512 928,296
Accrued Interest Receivable 12,436 12,436 13,181 13,181
Financial Liabilities
Deposits 1,827,927 1,832,041 1,674,569 1,675,037
Borrowing from the Federal Home Loan Bank 252,400 256,306 25,000 24,994
Subordinated Debt 39,269 38,469 39,138 31,938
Accrued Interest Payable 5,272 5,272 4,281 4,281
2001 2000
--------------------- ---------------------
Contract Fair Contract
Amount Value Amount Fair Value
- ------------------------------------------------------------------------------------------------------------------
(In Thousands)
Off-balance Sheet Financial Instruments
Commercial Letters of Credit $ 63,578 $ 159 $ 70,154 $ 175
Standby Letters of Credit 80,091 1,364 108,925 1,841
Bill of Lading Guarantees 487 5 1,118 4
Undisbursed Commitments 592,469 6,087 535,208 4,693
73
NOTE 18-- CONDENSED FINANCIAL
INFORMATION OF GBC BANCORP
(PARENT COMPANY)
Condensed balance sheets as of December 31, 2001 and 2000 follow:
December 31,
-----------------
2001 2000
--------------------------------------------------------
(Dollars in Thousands)
ASSETS
Due From Bank Subsidiary $ 253 $ 890
Investment in Subsidiaries 227,518 221,270
Advance to Bank Subsidiary 12,000 2,900
Other Assets 7,912 3,730
-----------------
Total Assets $247,683 $228,790
-----------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Dividends Payable $ 1,389 $ 1,163
Other Liabilities 707 707
Subordinated Debt 39,269 39,138
-----------------
Total Liabilities 41,365 41,008
STOCKHOLDERS' EQUITY
Common stock, No Par Value or
Stated Value; 40,000,000 Shares
Authorized; 11,574,329 and
11,628,734 Shares Outstanding at
December 31, 2001 and 2000,
respectively 73,789 63,625
Retained Earnings 124,186 114,257
Accumulated Other Comprehensive
Income 8,343 9,900
-----------------
Total Stockholders' Equity 206,318 187,782
-----------------
Total Liabilities and Stockholders'
Equity $247,683 $228,790
-----------------
Condensed statements of income for the year ended December 31, 2001, 2000
and 1999 follow:
For the Year Ended
December 31,
-------------------------
2001 2000 1999
-----------------------------------------------------
(Dollars In Thousands)
Interest Income from Bank
Subsidiary $ 231 $ 333 $ 1,058
Dividends Received from
Subsidiaries 26,795 17,012 20,034
Other Income 2 -- --
-------------------------
Total Income 27,028 17,345 21,092
Interest Expense 3,481 3,481 3,481
Non-Interest Expense 200 196 135
-------------------------
Total Expense 3,681 3,677 3,616
Income Before Income Taxes 23,347 13,668 17,476
Benefit for Income Taxes (1,450) (1,406) (1,075)
-------------------------
Income Before Equity in
Undistributed Earnings of
Subsidiaries 24,797 15,074 18,551
Equity in Undistributed
Earnings of Subsidiaries 7,805 23,402 11,437
-------------------------
Net Income $32,602 $38,476 $29,988
-------------------------
74
Condensed statements of cash flows for the year ended December 31, 2001,
2000 and 1999 follow:
For the Year Ended
December 31,
----------------------------
2001 2000 1999
----------------------------------------------------------
(In Thousands)
OPERATING
ACTIVITIES
Net Income $ 32,602 $ 38,476 $ 29,988
Adjustments to Reconcile
Net Income to Net Cash
Provided by Operating
Activities
Accretion of Discount on
Subordinated Debt 131 131 131
Net (Increase)/Decrease
in Other Assets (241) (91) 1,088
Equity in Undistributed
Earnings of Subsidiaries (7,805) (23,402) (11,437)
Net Increase/(Decrease)
in Other Liabilities -- -- (13)
----------------------------
Net Cash Provided by
Operating Activities 24,687 15,114 19,757
----------------------------
INVESTING ACTIVITIES
Net (Increase)/Decrease of
Investment in Subsidiaries (9,100) (12,329) 31,058
Net Cash (Used in)
Provided by
Investing Activities (9,100) (12,329) 31,058
FINANCING
ACTIVITIES
Cash Dividends Paid (5,369) (4,387) (4,025)
Proceeds from Exercise of
Stock Options and
Issuance of Stock 6,222 5,376 664
Payment to Repurchase
Common Stock (17,077) (3,732) (46,817)
----------------------------
Net Cash Used in
Financing Activities (16,224) (2,743) (50,178)
Net Change in Due from
Bank (637) 42 637
Due from Bank at
Beginning of Year 890 848 211
----------------------------
Due from Bank at End
of Year $ 253 $ 890 $ 848
----------------------------
Supplemental Disclosures of
Cash Flow Information:
Cash Paid (Received)
During the Year for:
Interest $ 3,350 $ 3,350 $ 3,350
Income Tax Refunds $ (1,406) $ (1,075) $ (436)
NOTE 19--REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements imposed by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Qualitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes that as of December 31, 2001 the Bank meets all capital
adequacy requirements to which it is subjected.
As of December 31, 2001 and 2000, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the table below. There
are no conditions or events since the most recent notification that management
believes would change the institution's category.
75
A "well capitalized" institution is one with capital ratios as shown in the
following table. As of December 31, 2001, Tier 1 risk based capital, total risk
based and leverage ratios for both the Company and the Bank exceeded the "well
capitalized" ratio requirements as follows:
GBC Bancorp General Bank Minimum Well
-------------- -------------- Regulatory Capitalized
Amount Ratio Amount Ratio Requirements Requirements
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Tier 1 $196,227 10.70% $207,010 11.38% 4% 6%
Total $258,428 14.09% $229,766 12.63% 8% 10%
Leverage Ratio $196,227 8.73% $207,010 9.25% 4% 5%
As of December 31, 2000, Tier 1 risk based capital, total risk based capital
and leverage ratios for both the Company and the Bank exceeded the "well
capitalized" ratio requirements as follows:
GBC Bancorp General Bank Minimum Well
-------------- -------------- Regulatory Capitalized
Amount Ratio Amount Ratio Requirements Requirements
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Tier 1 $177,876 10.23% $190,227 11.13% 4% 6%
Total $239,088 13.75% $209,652 12.26% 8% 10%
Leverage Ratio $177,876 8.96% $190,227 9.63% 4% 5%
The Financial Code of the State of California provides that dividends paid
by the Bank in any one year may not exceed the lesser of the Bank's undivided
profits or the net income for the prior three years, less cash distributions to
stockholders during such period. As of December 31, 2001, approximately $45.5
million of undivided profits of the Bank are available for dividends to the
Company, subject to the subordinated debt covenant restrictions.
NOTE 20--OTHER NON-INTEREST EXPENSE
Components of other non-interest expense in excess of 1% of the sum of total
interest income and non-interest income for each period were as follows:
2001 2000 1999
----------------------------------------------------
(In Thousands)
Office Supplies and
Communication Expense $1,773 $ 1,730 $1,644
Professional Services Expense 2,894 1,933 1,592
Real Estate Investment Expense 1,697 1,697 1,512
Litigation Settlement Expense 558 2,410 49
Other 2,860 2,370 2,375
---------------------
Total $9,782 $10,140 $7,172
---------------------
76
NOTE 21-- QUARTERLY RESULTS OF OPERATIONS (Unaudited)
Three Months Ended in 2001
----------------------------------
March 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------------------------------------
(In Thousands, except Per Share Data)
Interest Income $39,658 $39,652 $39,197 $36,971
Interest Expense 18,618 17,271 16,437 14,226
Net Interest Income 21,040 22,381 22,760 22,745
Provision for Credit Losses 6,000 1,800 6,000 6,300
Income Before Income Taxes and Cumulative Effect of a Change in Accounting
Principle 3,468 14,463 14,885 9,374
Net Income 7,347 8,805 9,764 6,686
Earnings Per Share--Basic 0.62 0.75 0.84 0.58
Earnings Per Share--Diluted 0.61 0.75 0.84 0.58
Three Months Ended in 2000
----------------------------------
March 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------------------------------------
(In Thousands, except Per Share Data)
Interest Income $35,758 $41,870 $42,065 $43,428
Interest Expense 16,092 18,347 19,858 20,382
Net Interest Income 19,666 23,523 22,207 23,046
Provision for Credit Losses -- (1,500) 1,000 1,700
Income Before Income Taxes 17,628 21,177 16,306 7,025
Net Income 10,848 12,877 10,072 4,679
Earnings Per Share--Basic 0.94 1.12 0.87 0.40
Earnings Per Share--Diluted 0.92 1.10 0.85 0.39
NOTE 22--OTHER MATTERS
On October 11, 2001, General Bank and Liberty Bank and Trust Co. of Boston
("Liberty") announced the approval by their respective boards of directors of
an agreement for General Bank to acquire all the outstanding shares of Liberty.
Liberty is a state chartered commercial bank operating two branches in Boston
with combined total assets of $37.1 million as of December 31, 2001. The
purpose of the acquisition is to expand the Bank's banking activities to the
major Asian-American markets in the country. The acquisition has been approved
by the appropriate regulatory agencies and the transaction consummated on
February 28, 2002, at a cost of $11.9 million.
77
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GBC Bancorp and Subsidiaries:
We have audited the accompanying consolidated balance sheet of GBC Bancorp
and subsidiaries (the Company) as of December 31, 2001, and the related
consolidated statements of income, changes in stockholders' equity and
comprehensive income, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the 2001 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 2001, and the results of their operations and their cash
flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for derivative instruments and hedging
activities in 2001.
/s/ KPMG LLP
Los Angeles, California
January 17, 2002,
except as to note 22
to the consolidated financial statements,
which is as of February 28, 2002.
78
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
GBC Bancorp and Subsidiaries
Los Angeles, California:
We have audited the accompanying consolidated balance sheet of GBC Bancorp
and subsidiaries (the "Company") as of December 31, 2000, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2000, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Los Angeles, California
January 19, 2001
79
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
On June 26, 2001, the Company's Audit Committee and Board of Directors
dismissed Deloitte & Touche as the Company's principal accountants. The reports
of D&T on the Company's consolidated financial statements for the years ended
December 31, 1998, 1999 and 2000 did not contain an adverse opinion or a
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
On July 17, 2001, the Company appointed KPMG LLP to be its principal
accountants for the calendar year 2001.
Both of the above events were reported on Form 8-K under Item 4.
80
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
The information required by this item, to the extent not included under
"Item 4A. Executive Officers of the Registrant" in Part I of this report, will
appear in the Corporation's definitive proxy statement for the 2002 Annual
Meeting of Stockholders (the "2002 Proxy Statement"), and such information
either shall be (i) deemed to be incorporated herein by reference from that
portion of the 2002 Proxy Statement, if filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of
the Corporation's most recently completed fiscal year, or (ii) included in an
amendment to this report filed with the Commission on Form 10-K/A not later than
the end of such 120 day period.
Item 11. Executive Compensation
The information required by this item will appear in the 2002 Proxy
Statement, and such information either shall be (i) deemed to be incorporated
herein by reference from the 2002 Proxy Statement, if filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the Corporation's most recently completed fiscal year, or (ii)
included in an amendment to this report filed with the Commission on Form 10-K/A
not later than the end of such 120 day period.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item will appear in the 2002 Proxy
Statement, and such information either shall be (i) deemed to the incorporated
herein by reference from the 2002 Proxy Statement, if filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the end of the Corporation's most recently completed fiscal year, or
(ii) included in an amendment to this report filed with the Commission on Form
10-K/A not later than the end of such 120 day period.
Item 13. Certain Relationships and Related Transactions
The information required by this item will appear in the 2002 Proxy
Statement, and such information either shall be (i) deemed to the incorporated
herein by reference from the 2002 Proxy Statement, if filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the end of the Corporation's most recently completed fiscal year, or
(ii) included in an amendment to this report filed with the Commission on Form
10-K/A not later than the end of such 120 day period.
81
PART IV
-------
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1)(2) Financial Statements and Schedules
Financial statement schedules are omitted because they are not applicable,
not material or because the information is included in the financial statements
or the notes thereto included in Part II, Items 6, 7 and 8.
(a)(3) Exhibit Index
(b) Reports on Form 8-K:
During the year 2001, two separate reports on Form 8-K were filed as
follows:
June 26, 2001: Item 4 - Dismissal of Principal Accountants
July 17, 2001: Item 4 - Appointments of Principal Accountants
82
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, GBC Bancorp has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
GBC BANCORP
/s/ Peter Wu /s/ Peter Lowe
- --------------------------- ---------------------------
by: Peter Wu, by: Peter Lowe,
President & CEO Executive Vice President and Chief
Financial Officer
Date: March 21, 2002 Date: March 21, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Bernard Chen Date: March 21, 2002
- ---------------------------
Bernard Chen, Director
/s/ Thomas C.T. Chiu Date: March 21, 2002
- ---------------------------
Thomas C. T. Chiu, Director
/s/ Chuang-I Lin Date: March 21, 2002
- ---------------------------
Chuang-I Lin, Director
/s/ Ko-Yen Lin Date: March 21, 2002
- ---------------------------
Ko-Yen Lin, Director
/s/ Ting Y. Liu Date: March 21, 2002
- ---------------------------
Ting Y. Liu, Director
Date: , 2002
- ---------------------------
John Wang, Director
Date: , 2002
- ---------------------------
Kenneth C. Wang, Director
83
/s/ Chien-Te Wu Date: March 21, 2002
- ---------------------------
Chien-Te Wu, Director
/s/ Julian Wu Date: March 21, 2002
- ---------------------------
Julian Wu, Director
/s/ Li-Pei Wu Date: March 21, 2002
- ---------------------------
Li-Pei Wu, Director
/s/ Peter Wu Date: March 21, 2002
- ---------------------------
Peter Wu, Director
/s/ Ping C. Wu Date: March 21, 2002
- ---------------------------
Ping C. Wu, Director
Date: , 2002
- ---------------------------
Chin-Liang Yen, Director
84
EXHIBIT INDEX
-------------
Exhibit Page
Number Description Number
------- ----------- ------
3.1 Articles of Incorporation, as amended (incorporated herein by
this reference to Exhibit 3.1 on the Company's Form S-8
Registration Statement, dated January 20, 2000 previously
filed with the Commission) --
3.2 Bylaws (incorporated herein by this reference to Exhibit 3.2
on the Company's Form S-8 Registration Statement dated
January 20, 2000 previously filed with the Commission) --
10.1 Lease for ground floor space at 23326 Hawthorne Boulevard,
Suite 100, Torrance, California (incorporated herein by this
reference to Exhibit 10.2 on the Company's Form 8 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1987) --
10.2 Lease for ground floor space at 1420 East Valley Boulevard,
Alhambra, California (incorporated herein by this reference to
Exhibit 10.6 on the Company's Form 8 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987) --
10.3 Lease for ground floor space at 17271 Gale Ave., City of
Industry, California (incorporated herein by this reference
to Exhibit 10.7 on the Company's Form 10-K for the year ended
December 31, 1988) --
10.4 1988 Stock Option Plan (incorporated herein by this reference
to Exhibit 10.1 on the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1988) --
10.5 Lease for ground floor space at 4010 Barranca Parkway, Irvine,
California (incorporated herein by this reference to Exhibit
10.11 on the Company's Form 10-K for the year ended December
31, 1989) --
10.6 Lease for ground floor space at 4688 Convoy Street, San Diego,
California (incorporated herein by this reference to Exhibit
10.12 on the Company's Form 10-K for the year ended December
31, 1989) --
10.7 Lease for ground floor space at 701 S. Atlantic Boulevard,
Monterey Park, California (incorporated herein by this reference
to Exhibit 10.13 on the Company's Form 10-K for the year ended
December 31, 1990) --
10.8 Lease for ground floor space at 2783 S. Diamond Bar Boulevard,
Suite 8-B, Diamond Bar, California (incorporated herein by this
reference to Exhibit 10.11 on the Company's Form 10-K for the
year ended December 31, 1991) --
10.9 Non-Qualified Stock Option Agreement between the Company and
Li-Pei Wu, dated as of December 19, 1991, relating to the grant
of stock options under the Company's 1988 stock option plan
(incorporated herein by this reference to Exhibit 10.13 on the
85
Company's Form 10-K for the year ended December 31, 1991) --
10.10 Board of Directors resolutions adopted on February 6, 1992, with respect
to the GBC Bancorp Amended and Restated 1988 Stock Option Plan, which,
among other things, authorize the grant of incentive stock options,
eliminate certain limitations on the vesting and exercisability, and
increase the maximum number of shares that may be issued thereunder
(incorporated herein by this reference to Exhibit 10.14 on the Company's
Form 10-K for the year ended December 31, 1991)
10.11 GBC Bancorp Amended and Restated 1988 Stock Option Plan, as Exhibit 28.1 --
to Form S-8 Registration Statement filed with the Securities and
Exchange Commission on April 22, 1992, Registration Number: 33-47452
10.12 Lease for ground floor space at 1139 West Huntington Drive, Arcadia, --
California (incorporated herein by this reference to Exhibit 10.16 on
the Company's Form 10-K for the year ended December 31, 1993)
10.13 Lease for ground floor space at 2263 N. Tustin Avenue, Orange, --
California (incorporated herein by this reference to Exhibit 10.17 on
the Company's Form 10-K for the year ended December 31, 1993)
10.14 Lease for office building space for ground and second floors and 14th --
and 15th floors located at 800 West 6th Street, Los Angeles, California
(incorporated herein by this reference to Exhibit 10.19 on the Company's
Form 10-K for the year ended December 31, 1993)
10.15 Sublease for ground floor office building space at 1420 East Valley --
Boulevard, Alhambra, California (incorporated herein by this reference
to Exhibit 10.21 on the Company's Form 10-K for the year ended December
31, 1994)
10.16 Addendum to standard office lease at 4010 Barranca Parkway, Irvine, --
California (incorporated herein by this reference to Exhibit 10.22 on
the Company's Form 10-K for the year ended December 31, 1994)
10.17 Lease for ground floor office building space at 9045 Corbin Avenue, --
Northridge, California (incorporated herein by this reference to Exhibit
10.23 on the Company's Form 10-K for the year ended December 31, 1994)
10.18 Lease for office building space on first and second floors located at --
10001 N. De Anza Boulevard, Cupertino, California (incorporated herein
by this reference to Exhibit 10.24 on the Company's Form 10-K for the
year ended December 31, 1994)
10.19 Lease agreement for office building space on ground floor located at 520 --
South El Camino Real, San Mateo, California (incorporated herein by this
reference to Exhibit 10.25 on the Company's Form 10-K for the year ended
December 31, 1994)
86
10.20 Lease agreement for office building space on ground floor located at --
47000 Warm Springs Boulevard, Fremont, California (incorporated herein
by this reference to Exhibit 10.26 on the Company's Form 10-K for the
year ended December 31, 1994)
10.21 Purchase, Assignment and Assumption Agreement 615 dated as of December --
1,1996 between Gaucho-1 Inc. and General Bank and the related Assignment
and Assumption Agreement 615 dated December 27, 1996 between the same
parties (incorporated herein by this reference to Exhibit 10.22 on the
Company's Form 10-K for the year ended December 31, 1996)
10.22 Purchase Assignment and Assumption Agreement dated as of December 1, --
1997 between RGL-2 Corporation and General Bank (incorporated herein by
this reference to Exhibit 10.23, on the Company's Form 10-K for the year
ended December 31, 1997)
10.23 Employment Agreement among the Company, the Bank and Li-Pei Wu, dated --
February 19, 1998, (incorporated herein by this reference to Exhibit 10
on the Company's Form 8-K dated February 19, 1998 previously filed with
the Commission.)
10.24 Amendment to Employment Agreement among the Company, the Bank and Li-Pei --
Wu, dated March 19, 1998, (incorporated herein by this reference to
Exhibit 10.1 on the Company's Form 8-K (Amendment) dated March 23, 1998
previously filed with the Commission.)
10.25 GBC Bancorp 1999 Employee Stock Incentive Plan (incorporated herein by --
this reference to Exhibit 99.1 to Form S-8 Registration Statement filed
with the Securities and Exchange Commission on January 26, 2000, file
number: 333-95381)
10.26 Employment Agreement among the Company, the Bank and Peter Wu, dated --
February 27, 2001 (Incorporated herein by this reference to Exhibit
10.26 on the Company's Form 10-K for the year for the year ended
December 31, 2000)
10.27 Agreement and Plan of Reorganization with Liberty Bank & Trust 88
11 Computation of Per Share Earnings 125
12 Computation of Ratio of Earnings to Fixed Charges 126
21 Subsidiaries of GBC Bancorp 127
23.1 Consent of KPMG LLP 128
23.2 Consent of Deloitte & Touche LLP 129
87