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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, 1998
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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 ______________________________
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)
(213) 972 - 4172
Registrant's telephone number, including area code ------------------------------------------
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 ((S) 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).
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.
13,665,098 shares outstanding as of February 28, 1999.
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
- ----------------------------------- ---------------------------------------
1998 Annual Report to Shareholders Part II Items 6,7 and 8 and Part IV
Definitive Proxy Statement for the
Annual Meeting of Shareholders
Filed within 120 days of the fiscal
Year ended December 31, 1998 Part III
Exhibit Index on Pages 32-34
1
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............................... 4
Competition...................................... 5
Subsidiaries..................................... 5
Supervision and Regulation....................... 6
Employees........................................ 22
Item 2. Properties......................................... 22
Item 3. Legal Proceedings.................................. 23
Item 4. Submission of Matters to a Vote of
Security Holders................................. 23
Executive Officers of the Registrant .......................... 23
PART II
Item 5. Market for Registrant's Common Equity
and Related Security Holder Matters................ 25
Item 6. Selected Financial Data............................ 26 1998 Annual Report
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................... 27 1998 Annual Report
Item 8. Financial Statements and Supplementary
Data............................................... 27 1998 Annual Report
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure......................................... 27
PART III
Item 10. Directors and Executive Officers of the
Registrant......................................... 28 1999 Proxy Statement
Item 11. Executive Compensation............................. 28 1999 Proxy Statement
Item 12. Security Ownership of Certain Beneficial
Owners and Management.............................. 28 1999 Proxy Statement
2
Item 13. Certain Relationships and Related
Transactions....................................... 28 1999 Proxy Statement
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K............................ 29 1998 Annual Report
SIGNATURES..................................................... 30
EXHIBIT INDEX.................................................. 32
3
PART I
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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 sixteen branch offices located in the greater
Los Angeles, San Diego and Silicon Valley areas and two loan production offices,
one located in Bellevue, Washington and one in New York, New York. 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, Cupertino, San Mateo,
Fremont and San Jose. The San Jose branch was opened for business in February,
1998.
The loan production offices have been 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 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. Escrow
services offered through its subsidiary, Southern Counties Escrow, were
discontinued in the first quarter of 1999 commensurate with the decision to
cease doing business as an escrow agent.
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, SBA 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
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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 SBA lending division to provide loans for small to
medium-sized businesses under the Small Business Administration 7-A guarantee
program. Loans range from $50,000 to $1,000,000 with maturities from 7 to 25
years. As of December 31, 1998, the Bank's SBA servicing portfolio was
approximately $45 million.
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
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, 1998, GBC Investment & Consulting Company, Inc.
reported total assets of $20,000, and a net loss of $44,000.
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
5
Revenue Code of 1986, as amended. As of and for the year ended December 31,
1998, GBC Leasing Company, Inc. reported total assets of $746,000, and a net
loss of $66,000.
As of December 31, 1998, Southern Counties Escrow, a wholly owned
subsidiary of the Bank, reported total assets of $321,000 and net income of
$66,000. During the first quarter of 1999, the Board of Directors of Southern
Counties Escrow determined it was in its best interests to cease doing business
as an escrow agent, and it entered into a contract to transfer existing escrow
files to a third party. Accordingly, it was resolved to take action to
surrender the escrow agent license to the applicable regulatory agency.
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
and will be formally dissolved in the future.
Holding Company Subsidiaries
- ----------------------------
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, 1998, GBC Venture Capital, Inc., reported total assets
of $1,419,000 and net income of $48,000.
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.
6
GBC Bancorp
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Upon the reorganization of the Bank as a wholly-owned subsidiary, the
Company became a bank holding company within the meaning of the Bank Holding
Company ("BHC") Act and is subject to the supervision and regulation of the
Federal Reserve Bank of San Francisco. The Company functions primarily as the
sole stockholder of the Bank and establishes general policies and activities of
the operating subsidiaries.
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.
The Company, as a bank holding company, is subject to regulation under the
BHC Act, and is registered with and subject to the supervision and regulation of
the Board of Governors of the Federal Reserve System (the "Board"). The Company
is required to obtain the prior approval of the Board before it may acquire all
or substantially all of the assets of any bank, or ownership or control of
voting shares of any bank if, after giving effect to such acquisition, the
Company would own or control, directly or indirectly, more than 5% of such bank.
The BHC Act prohibits the Company from acquiring any voting shares of, interest
in, or all or substantially all of the assets of a bank located outside the
state of California unless the laws of such state specifically authorize such
acquisition.
Under the BHC Act, the Company may not engage in any business other than
managing or controlling banks or furnishing services to its subsidiaries. The
Company is also prohibited, with certain exceptions, from acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any
company unless the company is engaged in such activities. The Board's approval
must be obtained before the shares of any such company can be acquired and, in
certain cases, before any approved company can open new offices. In making such
determinations, the Board considers whether the performance of such activities
by the Company would offer advantages to the public, such as greater
convenience, increased competition, or gains in efficiency, which outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest, or unsound banking practices.
Further, the Board is empowered to differentiate between activities commenced de
novo and activities commenced by acquisition, in whole or in part, of a going
concern.
Although the entire scope of permitted activities is uncertain and cannot
be predicted, the major non-banking activities that have been permitted to bank
holding companies with certain limitations are: making, acquiring or servicing
loans that would be made by a mortgage, finance, credit card or factoring
company; operating an industrial loan company; leasing real and personal
property; acting as an insurance agent, broker, or principal with respect to
insurance that is directly related to the extension of credit by the bank
holding company or any of its subsidiaries and limited to repayment of the
credit in the event of death, disability or involuntary unemployment; issuing
and selling money orders, savings bonds and traveler's checks; performing
certain trust company services;
7
performing appraisals of real estate and personal property; providing investment
and financial advice; providing data processing services; providing courier
services; providing management consulting advice to non-affiliated depository
institutions; arranging commercial real estate equity financing; providing
certain securities brokerage services; underwriting and dealing in government
obligations and money market instruments; providing foreign exchange advisory
and transactional services; acting as a futures commission merchant; providing
investment advice on financial futures and options on futures; providing
consumer financial counseling; providing tax planning and preparation services;
providing check guaranty services; engaging in collection agency activities; and
operating a credit bureau.
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 Company and the Bank are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services. For example, with certain exceptions, the
Bank may not condition an extension of credit on a customer's obtaining other
services provided by it, the Company or any other subsidiary or on a promise by
the customer not to obtain other services from a competitor.
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.
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% of such
subsidiary's capital stock and surplus on a per affiliate basis or 20% of such
subsidiary's capital 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 BHC Act also prohibits a bank holding company or any of its
subsidiaries from acquiring voting shares or substantially all the assets of any
bank located in a state
8
other than the state in which the operations of the bank holding company's
banking subsidiaries are principally conducted unless such acquisition is
expressly authorized by statutes of the state in which the bank to be acquired
is located. Legislation adopted in California permits out-of-state bank holding
companies to acquire California banks. See "Effect of Governmental Policies and
Recent Legislation" later in this section.
The BHC Act 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.
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.
The Board has cease and desist powers to cover parent bank holding
companies and non-banking subsidiaries where action of a parent bank holding
company or its non-financial institutions represent an unsafe or unsound
practice or violation of law. The Board has the authority to regulate debt
obligations (other than commercial paper) issued by bank holding companies by
imposing interest ceilings and reserve requirements on such debt obligations.
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 equal 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.
General Bank (the "Bank")
- -------------------------
Banks are extensively regulated under both federal and state law. The
Bank, a California state-chartered bank, is subject to primary supervision,
periodic examination and regulation by the California Department of Financial
Institutions ("DFI") and the Federal Deposit Insurance Corporation (the "FDIC").
9
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").
10
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
- ------------------------------------------------------
Banking is a business that depends on rate differentials. In general, the
difference between the interest rate 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
11
which have been enacted and proposals which have been made recently are
discussed below.
Federal Deposit Insurance Corporation Improvement Act of 1991
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Set forth below is a brief discussion of certain portions of FDICIA and
implementing regulations that have been adopted or proposed by the Board, the
Comptroller of the Currency ("Comptroller"), the Office of Thrift Supervision
("OTS") and the FDIC (collectively, the "federal banking agencies").
Prompt Corrective Regulatory Action
- -----------------------------------
FDICIA requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions that fall
below one or more prescribed minimum capital ratios. The purpose of this law is
to resolve the problems of insured depository institutions at the least possible
long-term cost to the appropriate deposit insurance fund.
The law requires each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized (significantly exceeding the required minimum capital requirements),
adequately capitalized (meeting the required capital requirements),
undercapitalized (failing to meet any one of the capital requirements),
significantly undercapitalized (significantly below any one capital requirement)
and critically undercapitalized (failing to meet all capital requirements).
The federal banking agencies have issued uniform final regulations
implementing the prompt corrective action provisions of FDICIA. Under the
regulations, an insured depository institution will be deemed to be:
. "well capitalized" if it (i) has total risk-based capital of 10 percent
or greater, Tier 1 risk-based capital of 6 percent or greater and a
leverage capital ratio of 5 percent or greater and (ii) is not subject
to an order, written agreement, capital directive or prompt corrective
action directive to meet and maintain a specific capital level for any
capital measure.
. "adequately capitalized" if it has total risk-based capital of 8 percent
or greater, Tier 1 risk-based capital of 4 percent or greater and a
leverage capital ratio of 4 percent or greater (or a leverage capital
ratio of 3 percent or greater if the institution is rated composite 1
under the applicable regulatory rating system in its most recent report
examination);
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. "undercapitalized" if it has total risk-based capital that is less than
8 percent, Tier 1 risk-based capital that is less than 4 percent or a
leverage capital ratio that is less than 4 percent (or a leverage
capital ratio that is less than 3 percent if the institution is rated
composite 1 under the applicable regulatory rating system in its most
recent report of examination);
. "significantly undercapitalized" if it has total risk-based capital that
is less than 6 percent, Tier 1 risk-based capital that is less than 3
percent or a leverage capital ratio that is less than 3 percent; and
. "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2 percent.
An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized or undercapitalized, may be reclassified to
the next lower capital category if the appropriate federal banking agency, after
notice and opportunity for hearing, (i) determines that the institution is in an
unsafe or unsound condition or (ii) deems the institution to be engaging in an
unsafe or unsound practice and not to have corrected the deficiency. At each
successive lower capital category, an insured depository institution is subject
to more restrictions and federal banking agencies are given less flexibility in
deciding how to address the problems associated with such category.
The law prohibits insured depository institutions from paying management
fees to any controlling persons or, with certain limited exceptions, making
capital distributions if after such transaction the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions, and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (i)
specifies the steps the institution will take to become adequately capitalized,
(ii) is based on realistic assumptions and (iii) is likely to succeed in
restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been adequately capitalized on an average basis during each of four
consecutive calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the lesser
of (a) an amount equal to 5% of the depository institution's total assets at the
time the institution became undercapitalized or (b) the amount which is
necessary to bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution fails to comply
with its capital restoration plan. Finally, the appropriate federal banking
agency may impose any of the additional restrictions or sanctions that it may
impose on significantly undercapitalized institutions
13
if it determines that such action will further the purpose of the prompt
corrective action provisions.
An insured depository institution that is significantly undercapitalized,
or is undercapitalized and fails to submit, or in a material respect to
implement, an acceptable capital restoration plan, is subject to additional
restrictions and sanctions. These include, among other things: (i) a forced sale
of voting shares to raise capital or, if grounds exist for appointment of a
receiver or conservator, a forced merger; (ii) restrictions on transactions with
affiliates; (iii) further limitations on interest rates paid on deposits; (iv)
further restrictions on growth or required shrinkage; (v) modification or
termination of specified activities; (vi) replacement of directors or senior
executive officers, subject to certain grandfather provisions for those elected
prior to enactment of FDICIA; (vii) prohibitions on the receipt of deposits from
correspondent institutions; (viii) restrictions on capital distributions by
holding companies of such institutions; (ix) required divestiture of
subsidiaries by such institution; or (x) other restrictions as determined by the
appropriate federal banking agency. Although the appropriate federal banking
agency has discretion to determine which of the foregoing restrictions or
sanctions it will seek to impose, it is required to force a sale of voting
shares or merger, impose restrictions on affiliate transactions and impose
restrictions on rates paid on deposits unless it determines that such actions
would not further the purpose of the prompt corrective action provisions. In
addition, without the prior written approval of the appropriate federal banking
agency, a significantly undercapitalized institution may not pay any bonus to
its senior executive officers or provide compensation to any of them at a rate
that exceeds such officer's average rate of base compensation during the 12
calendar months preceding the month in which the institution became
undercapitalized.
Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized institution generally would be prohibited from
engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated debt
beginning 60 days after becoming critically undercapitalized. Most importantly,
however, except under limited circumstances, the appropriate federal banking
agency, not later than 90 days after an insured depository institution becomes
critically undercapitalized, is required to appoint a conservator or receiver
for the institution. The board of directors of an insured depository institution
would not be liable to the institution's shareholders or creditors for
consenting in good faith to the appointment of a receiver or conservator or to
an acquisition or merger as required by the regulator.
The FDIC has adopted risk-based minimum capital guidelines intended to
provide a measure of capital that reflects the degree of risk associated with a
banking organization's operations for both transactions reported on the balance
sheet as assets and transactions, such as letters of credit and recourse
arrangements, which are recorded as off-balance sheet items. Under these
guidelines, nominal dollar amounts of assets and
14
credit equivalent amounts of off-balance sheet items are multiplied by one of
several risk adjustment percentages, which range from 0 percent for assets with
low credit risk, such as certain U.S. Treasury securities, to 100 percent for
assets with relatively high credit risk, such as business loans.
In addition to the risk-based guidelines, the FDIC requires banks to
maintain a minimum amount of Tier 1 capital to total assets, referred to as the
leverage ratio. For a bank rated in the highest of the five categories used by
the FDIC to rate banks, the minimum leverage ratio of Tier 1 capital to total
assets is 3 percent. For all banks not rated in the highest category, the
minimum leverage ratio must be at least 100 to 200 basis points above the 3
percent minimum, or 4 percent to 5 percent. In addition to these uniform risk-
based capital guidelines and leverage ratios that apply across the industry, the
FDIC has the discretion to set individual minimum capital requirements for
specific institutions at rates significantly above the minimum guidelines and
ratios.
With respect to the leverage ratio requirements for bank holding companies,
in June 1998 the Board amended its Regulation Y to provide that the minimum Tier
1 leverage ratio for the most highly-rated bank holding companies, as well as
those that have adopted the Board's market risk capital rule, is 3 percent, with
the minimum leverage ratio for all other bank holding companies being 4 percent.
The Board's adoption of this rule stemmed in large part from an interagency
effort among the various regulatory agencies responsible for regulating
financial institutions to streamline capital standards pursuant to section 303
of the Riegle Community Development and Regulatory Improvement Act of 1994.
Work is currently in progress to complete a final rule for banks.
The federal banking agencies have adopted regulations specifying that the
agencies will include, in their evaluations of a bank's capital adequacy, an
assessment of the exposure to declines in the economic value of the bank's
capital due to changes in interest rates. The final regulations, however, do
not include a measurement framework for assessing the level of a bank's exposure
to interest rate risk, which is the subject of a proposed policy statement
issued by the federal banking agencies concurrently with the final regulations.
The proposal would measure interest rate risk in relation to the effect of a 200
basis point change in market interest rates on the economic value of a bank.
Banks with high levels of measured exposure or weak management systems generally
will be required to hold additional capital for interest rate risk. The
specific amount of capital that may be needed would be determined on a case-by-
case basis by the examiner and the appropriate federal banking agency.
The federal banking agencies issued a rule relating to capital standards
and the risks arising from the concentration of credit and nontraditional
activities. Institutions which have significant amounts of their assets
concentrated in high risk loans or nontraditional banking activities and who
fail to adequately manage these risks, will be required to set aside capital in
excess of the regulatory minimums. The federal banking agencies have not
imposed any quantitative assessment for determining when these risks
15
are significant, but have identified these issues as important factors they will
review in assessing an individual bank's capital adequacy.
The federal banking agencies have issued an interagency policy statement on
the allowance for loan and lease losses which, among other things, establishes
certain benchmark ratios of loan loss allowances to classified assets. The
benchmark set forth by such policy statement is the sum of (a) assets classified
loss; (b) 50 percent of assets classified doubtful; (c) 15 percent of assets
classified substandard; and (d) estimated credit losses on other assets over the
upcoming 12 months.
Capital Adequacy Guidelines
- ---------------------------
The FDIC has issued guidelines to implement the risk-based capital
requirements. The guidelines are intended to establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations, takes off-balance
sheet items into account in assessing capital adequacy and minimizes
disincentives to holding liquid, low-risk assets. Under these guidelines,
assets and credit equivalent amounts of off-balance sheet items, such as letters
of credit and outstanding loan commitments, are assigned to one of several risk
categories, which range from 0 percent for risk-free assets, such as cash and
certain U.S. Government securities, to 100 percent for relatively high-risk
assets, such as loans and investments in fixed assets, premises and other real
estate owned. The aggregated dollar amount of each category is then multiplied
by the risk-weight associated with that category. The resulting weighted values
from each of the risk categories are then added together to determine the total
risk-weighted assets.
A banking organization's qualifying total capital consists of two
components: Tier 1 capital (core capital) and Tier 2 capital (supplementary
capital). Tier 1 capital consists primarily of common stock, related surplus
and retained earnings, qualifying non-cumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries.
Intangibles, such as goodwill, are generally deducted from Tier 1 capital;
however, purchased mortgage servicing rights and purchased credit card
relationships may be included, subjected to certain limitations. At least 50
percent of the banking organization's total regulatory capital must consist of
Tier 1 capital.
Tier 2 capital may consist of: (i) the allowance for possible loan and
lease losses in an amount up to 1.25 percent of risk-weighted assets; (ii)
perpetual preferred stock, cumulative perpetual preferred stock and long-term
stock and related surplus; (iii) hybrid capital (instruments with
characteristics of both debt and equity), perpetual debt and mandatory
convertible debt securities; and (iv) eligible term subordinated debt and
intermediate-term preferred stock with an original maturity of five years or
more, including related surplus, in an amount up to 50 percent of Tier 1
capital. The inclusion of the foregoing elements of Tier 2 capital are subject
to certain requirements and limitations of the federal banking agencies.
16
The FDIC has also adopted a minimum leverage capital ratio of Tier 1
capital to average total assets of 3 percent for the highest rated banks. This
leverage capital ratio is only a minimum. Institutions experiencing or
anticipating significant growth or those with other than minimum risk profiles
are expected to maintain capital well above the minimum level. Furthermore,
higher leverage capital ratios are required to be considered well capitalized or
adequately capitalized under the prompt corrective action provisions of FDICIA.
The regulatory Capital Guidelines as well as the actual regulatory
capitalization for the Company and the Bank as of December 31, 1998 follow:
Minimum Well
GBC General Regulatory Capitalized
Bancorp Bank Requirements Requirements
- -----------------------------------------------------------------------------------------------------------
Tier 1 11.06% 10.77% 4% 6%
Total 14.98% 12.02% 8% 10%
Leverage Ratio 9.75% 9.49% 4% 5%
As of December 31, 1998, both the Company and the Bank are considered well
capitalized.
Safety and Soundness Standards
- ------------------------------
The federal banking agencies have adopted guidelines establishing standards
for safety and soundness, as required by 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.
Guidelines for asset quality and earnings standards will be adopted in the
future. 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
17
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.
Standards must also be prescribed for classified loans, earnings and the
ratio of market value to book value for publicly traded shares. Further, FDICIA
requires the federal banking agencies to establish standards prohibiting
compensation, fees and benefit arrangements that are excessive or could lead to
financial loss.
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 of $0.23 to $0.31 per $100 of insured deposits to rates of $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 drop
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 zero payment as
FDIC insurance premium for the year ended December 31, 1998,
18
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 1980's and early 1990's. 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. For 1998, the cost
to the Bank was 1.2 cents per $100 of deposits. In 2000, the banking industry
will assume the bulk of the payments. The new law also aims to merge BIF and
SAIF by 1999 but not until the bank and savings and loan charters are combined.
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 can not
currently be accurately predicted.
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 and proposed 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.
19
Proposed Legislation
- --------------------
In May 1998 the House of Representatives passed H.R. 10, comprehensive bank
reform legislation meant to break down barriers between banking, securities and
insurance established pursuant to Glass-Steagall Act restrictions first enacted
in the 1930s. H.R. 10 was reintroduced in January 1999 as the Financial
Services Act of 1999, but the future of the reform effort represented by such
proposed legislation is uncertain. Any such future legislation, however, may
have a material effect on the business of the Company and its subsidiaries.
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. A bank holding company would not be permitted to
make such an acquisition if, upon consummation, it would control (a) more than
10% of the total amount of deposits of insured depository institutions in the
United States or (b) 30% 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.
20
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
- --------------------------------------------------------
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.
The federal banking agencies have issued final regulations which change the
manner in which they measure a bank's compliance with its CRA obligations. The
final regulations adopt a performance-based evaluation system which bases CRA
ratings on an institution's actual lending service and investment performance
rather than the extent to which the institution conducts needs assessments,
documents community outreach or complies with other procedural requirements. In
March 1994, the Federal Interagency Tax Force on Fair Lending issued a policy
statement on discrimination in lending. The policy statement describes the
three methods that federal agencies will use to prove discrimination: overt
evidence of discrimination, evidence of disparate treatment and evidence of
disparate impact.
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.
21
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 Superintendent approves the
number and locations of the branch offices of a bank. California law exempts
banks from the usury laws.
Employees
- ---------
As of December 31, 1998, the Bank had approximately 330 full-time
equivalent employees. None of the employees are represented by labor unions.
Benefit programs are available to eligible employees and include, among others,
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,
1998, the monthly base rent for the facility is $33,319 and is payable to the
lessor, Capital & Counties, USA, Inc. The monthly base rent is subject to
change on specified dates during the 15-year initial lease term pursuant to the
lease agreement.
As of December 31, 1998, the Bank operated full-service branches at fifteen
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 and subsidiaries 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, 1998, was $2,296,000.
Expiration dates of the Bank's leases range from September, 1999 to February,
2009. All the Bank's full-service branches are located in California and all
but four are in the Southern California area.
22
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 considers that the outcome of such actions will not have a material
adverse effect on the financial condition or the operations of the Company.
Item 4 Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1998, no matters were submitted to a vote of
the Company's security holders.
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 as of December 31, 1998, and their business experience during
the prior five years:
Age at
December
Name 31, 1998 Position/Background
- ------------------- -------- ------------------------------------------------
Li-Pei Wu.......... 64 From May 1982 to present, 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........... 50 From 1979 to March 1998, Executive Vice
President and since January 1995, also Chief
Operating Officer, of General Bank; from 1981
to March 1998, Executive Vice President of
Bancorp. Elected President and Chief Operating
Officer of Bancorp and General Bank in March
1998. Presently also Secretary of Bancorp and
General Bank.
Peter Lowe......... 57 Executive Vice President and Chief Financial
Officer of the Company and the Bank since 1994;
prior thereto, Executive Vice President and
Chief Financial Officer of Manufacturers Bank
from 1990 to 1993.
23
Domenic Massei..... 54 Executive Vice President of the Bank since
February 1999, Senior Vice President of
Operations Administration of the Bank from 1989
to February 1999.
William Adams... 53 Senior Vice President, Strategic Development
since January 1998. Consultant for Glendale
Federal Bank and Coast Federal Bank from
January 1996 to January 1998. Senior Vice
President, Strategic Planning and Marketing for
First Executive Corp. from July 1990 to
December 1995.
Eddie Chang........ 43 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 Estate
Department.
Gloria Chen........ 56 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.... 38 Senior Vice President and Manager of
International Banking Department since July
1998. 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............ 46 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.
Johnny Lee......... 36 Senior Vice President and Regional Manager of
the Northern California Region since April
1997. In various positions with the Bank since
1990.
24
Gerard Lob......... 51 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...... 58 Senior Vice President and Credit Administrator
of the Bank since 1994, Vice President and
Manager of Corporate Credit Examination from
1992 to 1994.
Carl Maier......... 58 Vice President and Controller of the Bank since
July 1993.
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: Herzog, Heine, Geduld, Inc., Hoefer
& Arnett; Keefe, Bruyette & Woods, Inc.; Oppenheimer & Co.; Pacific Crest; and
Wedbush Morgan Securities.
The high and low last sale or bid prices for each quarter of the years 1998
and 1997, as reported by the NASDAQ, are as follows:
First Second Third Fourth
1998: Quarter Quarter Quarter Quarter
- ----- ------- ------- ------- -------
High $33.50 $33.06 $26.38 $29.06
Low $26.50 $24.75 $19.00 $20.25
First Second Third Fourth
1997: Quarter Quarter Quarter Quarter
- ----- ------- ------- ------- -------
High $18.07 $20.50 $24.50 $31.88
Low $13.63 $15.38 $20.50 $24.94
25
Where applicable the high and low last sale or bid prices have been
adjusted to reflect the two for one split of stock to shareholders of record on
April 30, 1998 and issued and distributed on May 15, 1998.
Holders
- -------
As of February 28, 1999, there were 274 holders of record of the Company's
common stock according to the records of the Company's transfer agent.
Dividend
- --------
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
------- ------- ------- ------- ------
1998 $0.075 $0.075 $0.075 $0.075 $0.30
1997 $ 0.06 $ 0.06 $ 0.06 $ 0.06 $0.24
Where applicable the cash dividends per share have been adjusted to reflect
the two for one split of stock to shareholders of record on April 30, 1998, and
issued and distributed on May 15, 1998.
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, 1998, approximately $49.8
million of undivided profits of the Bank are available for dividends to the
Company, subject to the subordinated debt covenant restrictions.
Item 6 Selected Financial Data
The selected financial data on page 36 of the Company's 1998 Annual Report
to Shareholders is hereby incorporated by reference.
26
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's discussion and analysis of financial condition and results of
operations on pages 13 through 35 of the Company's 1998 Annual Report to
Shareholders is hereby incorporated by reference.
Item 8 Financial Statements and Supplementary Data
The consolidated financial statements of GBC Bancorp and its subsidiaries,
together with the report thereon of Deloitte & Touche LLP, on pages 37 through
65 of the Company's 1998 Annual Report to Shareholders, are hereby incorporated
by reference.
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
On October 22, 1998, GBC Bancorp filed a Form 8-K, reporting under item 4,
Changes in Registrant's Certifying Accountant. KPMG Peat Marwick, LLP ("KPMG")
was previously the principal accountants for GBC Bancorp. On October 22, 1998,
KPMG's appointment as principal accountants was terminated. The Company decided
to appoint, and the Board of Directors approved the appointment of Deloitte &
Touche LLP to act as the Company's independent auditors for the fiscal year
ending December 31, 1998.
The reports of KPMG on the Company's consolidated financial statements for
the years ended December 31, 1996 and 1997 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.
For each of the years in the two year period ended December 31, 1997, and
during the subsequent period from January 1, 1998 through October 22, 1998,
there were no "Disagreements" (as such term is defined under the Federal
Securities laws) with KPMG on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
Disagreements, if not resolved to the satisfaction of KPMG, would have caused
that firm to make reference to the subject matter of the Disagreement in
connection with their reports.
27
PART III
--------
Item 10 Directors and Executive Officers of the Registrant
Directors of the Registrant
- ---------------------------
The information relating to directors of the Company under the caption
"Election of Directors" appearing on page 4 of the Company's Definitive Proxy
Statement, dated March 22, 1999, relating to the annual meeting of shareholders
to be held on April 22, 1999, is hereby incorporated by reference.
Item 11 Executive Compensation
The information regarding executive compensation under the caption
"Executive Compensation" appearing on pages 10 through 16 of the Company's
Definitive Proxy Statement dated March 22, 1999, for the annual meeting of
shareholders to be held on April 22, 1999, is hereby incorporated by reference.
Item 12 Security Ownership of Certain Beneficial Owners and Management
The information regarding the security ownership of certain beneficial
owners and management under the caption "Shareholdings of Certain Beneficial
Owners and Management" appearing on pages 2 through 3 of the Company's
Definitive Proxy Statement, dated March 22, 1999, for the annual meeting of
shareholders to be held on April 22, 1999, is hereby incorporated by reference.
Item 13 Certain Relationships and Related Transactions
The information regarding certain relationships and related transactions
under the caption "Certain Transactions" appearing on page 18 of the Company's
Definitive Proxy Statement dated March 22, 1999, for the annual meeting of
shareholders to be held on April 22, 1999, is hereby incorporated by reference.
28
PART IV
-------
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1)(2) Financial Statements and Schedules
Page in Annual Report
to Shareholders
-----------------------
GBC Bancorp and subsidiaries:
Independent Auditors' Report.............................. Page 65
Consolidated Balance Sheets as of December 31, 1998 and
1997..................................................... Page 37
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996......................... Page 38
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1998, 1997 and
1996..................................................... Page 39
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996......................... Page 40
Notes to Consolidated Financial Statements................ Pages 41-64
All other 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.
(a)(3) Exhibit Index
(b) Reports on Form 8-K:
1. Item 4. Changes in Registrant's Certifying Accountant, dated
October 22, 1998
2. Item 5. Other Events, dated February 19, 1998
3. Item 5. Other Events, (Amendment) dated March 19, 1998 for
February 19, 1998
29
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/ Li-Pei Wu s/ Peter Lowe
----------------------- ------------------------
by: Li-Pei Wu, by: Peter Lowe,
Chairman and Chief Executive Officer Executive Vice President and Chief
Financial Officer
Date: 03-18-99 Date: 03-24-99
------------------ ----------------
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/ Helen Chen Date: 03-18-99
----------------- ----------------
Helen Chen, Director
s/ Thomas C. T. Chiu Date: 03-18-99
----------------- ----------------
Thomas C. T. Chiu, Director
s/ Chuang-I Lin Date: 03-18-99
----------------- ----------------
Chuang-I Lin, Director
s/ Ko-Yen Lin Date: 03-18-99
----------------- ----------------
Ko-Yen Lin, Director
s/ Ting Y. Liu Date: 03-18-99
----------------- ----------------
Ting Y. Liu, Director
s/ John Wang Date: 03-18-99
----------------- ----------------
John Wang, Director
s/ Date:
----------------- ----------------
Kenneth C. Wang, Director
s/ Chien-Te Wu Date: 03-18-99
----------------- ----------------
Chien-Te Wu, Director
30
s/ Julian Wu Date: 03-18-99
----------------- ----------------
Julian Wu, Director
s/ Li-Pei Wu Date: 03-18-99
----------------- ----------------
Li-Pei Wu , Director
s/ Peter Wu Date: 03-18-99
----------------- ----------------
Peter Wu, Director
s/ Ping C. Wu Date: 03-18-99
----------------- ----------------
Ping C. Wu, Director
s/ Date:
----------------- ----------------
Walter Wu, Director
s/ Chin-Liang Yen Date: 03-18-99
----------------- ----------------
Chin-Liang Yen, Director
31
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 8 to the Company's
Annual Report on Form 10-K for year ended December 31, 1987; and to
Exhibit 3.1 on the Company's Quarterly Report on form 10-Q for the
quarter ended June 30, 1988) --
3.2 Bylaws (incorporated herein by this reference to Exhibit 3.2 on the
Company's Form 8 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1987) --
3.3 Amendment to bylaws of GBC Bancorp (incorporated herein by this
reference to Exhibit 3.3 on the Company's Form 10-K for the year
ended December 31, 1991) --
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) --
32
10.9 Employment Agreement among the Company, the Bank and Li-Pei Wu,
dated as of December 19, 1991 (incorporated herein by this
reference to Exhibit 10.12 on the Company's Form 10-K for the year
ended December 31, 1991) --
10.10 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 Company's Form
10-K for the year ended December 31, 1991) --
10.11 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) --
10.12 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 (incorporated herein by this reference to Exhibit 10.15 on
the Company's Form 10-K for the year ended December 31, 1992) --
10.13 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)
10.14 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) --
10.15 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) --
10.16 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) --
10.17 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) --
10.18 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) --
33
10.19 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) --
10.20 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) --
10.21 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) --
10.22 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) --
10.23 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) --
10.24 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.)
10.25 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.)
11 Computation of Per Share Earnings pp.
12 Computation of Ratios pp.
13 Annual Report to Shareholders pp.
21 Subsidiaries of GBC Bancorp pp.
27 Financial Data Schedule pp.
34