SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

Quarterly Report Under Section 13 or 15(d)

of The Securities Exchange Act of 1934

 

 

For Quarter Ended June 30, 2003 Commission file number0-16213

 

 

| GBC BANCORP 
(Exact name of registrant as specified in its charter)

 

California
95-3586596
(State or other jurisdiction of (I.R.S. EmployerIdentification No.)

incorporation or organization)

 

800 West 6th Street, Los Angeles,
California 90017
(Address of principal executive offices) (Zip code)

 

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

Former name address and former fiscal year, if changed      since last report. 
 

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

Yes X No _______
 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rate 12b - 2 of the Exchange Act.) Yes X No_______
 

Indicate the number of shares outstanding of each of theissuer's classes of common stock, as of the close of the period covered by thisreport.

 

Common stock, no par value, 11,601,962 shares issued andoutstanding as of June 30, 2003.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

PART I -
FINANCIAL INFORMATION      ............................................................
3
Item 1.
Financial Statements      ................................................................................
4
Item 2.
Management's Discussion and Analysis of Financial      Condition and Results of Operations      .........................................................................................
       
15
Item 3.
Qualitative and Quantative Disclosures about Market      Risk ......................
38
Item 4.
Controls and Procedures      .........................................................................
40
PART II -
OTHER INFORMATION      .....................................................................
43
Item 1.
Legal Proceedings      ..................................................................................
44
Item 2.
Changes In Securities      .............................................................................
44
Item 3.
Default Upon Senior Securities      ..............................................................
44
Item 4.
Submission Of Matters To A Vote Of Securities Holders      .........................
44
Item 5.
Other Information      ...................................................................................
45
Item 6.
Exhibits And Reports On Form 8-K      ........................................................
45
SIGNATURES      .......................................................................................
46
Certifications.      ..........................................................................................
47
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

<TABLE>

<CAPTION>

 

GBC Bancorp and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
June 30,
December 31,
(Dollars In Thousands)
2003
 
2002
<S>
<C>
<C>
ASSETS
Cash and Due From Banks
$ 37,837
$ 46,889
Federal Funds Sold and Securities Purchased Under Agreements to Resell
9,550
181,000
Cash and Cash Equivalents
47,387
227,889
Securities Available-for-Sale at Fair Value (Amortized Cost of      $1,113,944 at
June 30, 2003 and $1,050,600 at December 31, 2002, respectively)
1,134,619
1,075,697
Trading Securities
12
1
Loans and Leases
1,219,784
1,198,628
Less: Allowance for Credit Losses
(28,889)
(25,534)
Deferred Loan Fees
(6,273)
(6,595)
Loans and Leases, net
1,184,622
1,166,499
Bank Premises and Equipment, net
5,735
6,286
Due From Customers on Acceptances
9,341
6,525
Real Estate Held for Investment
1,442
1,484
Other Investments
6,093
7,509
Accrued Interest Receivable and Other Assets
17,434
18,854
Total Assets
$ 2,406,685
$ 2,510,744
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand
$ 259,093
$ 251,197
Interest Bearing Demand
489,666
543,969
Savings
95,688
87,540
Time Deposits of $100,000 or More
855,946
879,494
Other Time Deposits
151,645
141,943
Total Deposits
1,852,038
1,904,143
Borrowings from the Federal Home Loan Bank
267,400
322,400
Subordinated Debt
39,465
39,400
Acceptances Outstanding
9,341
6,525
Liability on Securities Awaiting Settlement
-
5,157
Accrued Expenses and Other Liabilities
26,075
29,018
Total Liabilities
2,194,319
2,306,643
Stockholders' Equity
Common Stock, No Par or Stated Value;
40,000,000 Shares Authorized; 11,601,962 and 11,540,762 shares      outstanding at
June 30, 2003 and December 31, 2002, respectively (net of 79,001 shares      held in trust)
$ 95,811
$ 72,932
Retained Earnings
101,023
112,774
Accumulated Other Comprehensive Income
13,429
16,292
Deferred Compensation
2,103
2,103
Total Stockholders' Equity
212,366
204,101
Total Liabilities and Stockholders' Equity
$ 2,406,685
$ 2,510,744
See Accompanying Notes to Unaudited Consolidated Financial Statements
</TABLE>

<TABLE>

<CAPTION>

GBC Bancorp and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
For the Six Months Ended
June 30,
June 30,
(In Thousands, Except Per Share and Share Data)
 
2003
 
2002
 
2003
 
2002
<S>
<C>
<C>
<C>
<C>
INTEREST INCOME
Loans and Leases, Including Fees
$ 19,862
$ 20,434
$ 39,591
$ 40,259
Securities Available-for-Sale
8,439
17,984
19,523
34,901
Federal Funds Sold and Securities
Purchased under Agreements to Resell
477
244
966
636
Other
2
5
5
8
Total Interest Income
28,780
38,667
60,085
75,804
INTEREST EXPENSE
Interest Bearing Demand
1,234
2,045
2,474
3,888
Savings
159
308
318
599
Time Deposits of $100,000 or More
5,300
6,006
10,976
12,503
Other Time Deposits
767
795
1,523
1,736
Federal Funds Purchased and Securities
Sold under Repurchase Agreements
1
4
3
7
Borrowings from the Federal Home Loan Bank
2,771
3,433
5,851
6,082
Subordinated Debt
870
870
1,741
1,741
Total Interest Expense
11,102
13,461
22,886
26,556
Net Interest Income
17,678
25,206
37,199
49,248
Provision for Credit Losses
3,568
39,150
8,186
57,664
Net Interest Income/(Loss) after Provision
 
 
 
 
for Credit Losses
14,110
(13,944)
29,013
(8,416)
NON-INTEREST INCOME
Service Charges and Commissions
1,825
1,837
3,555
3,611
Gain on Sale of Securities Available-for-Sale
-
10,127
-
10,127
Gain on Sale of Fixed Assets
25
-
25
-
Trading Account Revenue
127
(3)
127
16
Expense from Other Investments
(668)
(1,261)
(1,451)
(4,624)
Other
43
51
73
118
Total Non-Interest Income
1,352
10,751
2,329
9,248
NON-INTEREST EXPENSE
Salaries and Employee Benefits
26,913
5,304
32,157
10,336
Occupancy Expense
1,182
1,014
2,192
1,974
Furniture and Equipment Expense
603
782
1,242
1,682
Net Other Real Estate Owned (Income)/Expense
13
(4)
13
(29)
Other
2,126
2,979
4,626
4,624
Change of Fair Value of Derivatives
94
(467)
351
(371)
Total Non-Interest Expense
30,931
9,608
40,581
18,216
Loss before Income Taxes
(15,469)
(12,801)
(9,239)
(17,384)
Income Tax Benefit
(2,397)
(4,791)
(287)
(6,468)
Net Loss
(13,072)
(8,010)
(8,952)
(10,916)
Loss Per Share-Basic & Diluted
$ (1.12)
$ (0.69)
$ (0.77)
$ (0.94)
See Accompanying Notes to Unaudited Consolidated Financial Statements
 

</TABLE>

<TABLE>

<CAPTION>

GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'      EQUITY AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In Thousands, Except per Share Amounts)
Accumulated
Other
Total
Common Stock
Retained
Deferred
Comprehensive
Comprehensive
Stockholders'
 
Shares
 
Amount
 
Earnings
 
Compensation
 
Income
 
Income (Loss)
 
Equity
Balance at December 31, 2000
11,558
$ 62,054
$ 114,266
$ 1,571
$ 9,891
$ 187,782


<C>
<C>
<C>
<C>
<C>
<C>
<C>
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 Issued for Executive Compensation
-
-
-
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
Comprehensive Income
Net Loss for the year
(5,790)
$ (5,790)
(5,790)
Other Comprehensive Income, Net of Tax
Net Changes in Securities Valuation Allowance
5,782
5,782
5,782
Net Changes in Investment Valuation Allowance
2,188
2,188
2,188
Net Changes in Foreign Currency Translation Adjustments
(10)
(10)
(10)
Comprehensive Income
$ 2,170
Stock Issued for Executive Compensation
-
-
-
Stock Held by Executive Obligation Trust
18
371

(371)
-
Stock Issuance
48
1,105
1,105
Tax Benefit-Stock Options Exercised
140
140
Stock Repurchase
(2)
(57)
(57)
Cash Dividend - $0.48 per Share
(5,575)
(5,575)
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2002
11,541
$ 72,932
$ 112,774
$ 2,103
$ 16,292
$ 204,101
Comprehensive Loss
Net Loss for the period
(8,952)
$ (8,952)
(8,952)
Other Comprehensive Income/(Loss), Net of Tax:
Net Changes in Securities Valuation Allowance
(2,873)
(2,873)
(2,873)
Net Changes in Foreign Currency Translation Adjustments
10
10
10
Comprehensive loss
$ (11,815)
Stock option exercises
61
1,128
1,128
Tax Benefit-Stock Options Exercised
32
32
Stock Option Compensation Cost
21,719
21,719
Cash Dividend - $0.24 per Share
(2,799)
(2,799)
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2003
11,602
$ 95,811
$ 101,023
$ 2,103
$ 13,429
$ 212,366
For the Three Months
For the Year
Disclosure of Reclassification Amount:
 
 
 
 
 
 
 
 
Ended 06/30/2003
 
Ended 12/31/2002

Net Change of Unrealized (Losses) Gains Arising During Period, Net of      Tax
(Benefit)/Expense of ($2,084) and $8,971 in 2003 and 2002, respectively
$ (2,873)
$ 12,365
Less: Reclassification Adjustment for Gains Included in Net Income, Net      of Tax
Expense of $4,776 in 2002
-
(6,583)
Net Change of Unrealized (Losses) Gains on Securities, Net of Tax      (Benefit)
Expense of ($2,084) and $4,195 in 2003 and 2002, respectively
$ (2,873)
$ 5,782
See Accompanying Notes to Unaudited Consolidated Financial Statements
 

</TABLE>

<TABLE>

<CAPTION>

 

GBC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
For the Six Months Ended June 30,
(In Thousands)
2003
 
2002
<S>
<C>
<C>
OPERATING ACTIVITIES
Net Loss
$ (8,952)
$ (10,916)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating      Activities:
Depreciation
739
746
Net Amortization of Premiums on Securities
7,939
1,238
Accretion of Discount on Subordinated Notes
65
65
Write down on Real Estate Held for Investment
42
322
Provision for Credit Losses
8,186
57,664
Amortization of Deferred Loan Fees
(3,021)
(2,799)
Gain on Sale of Securities Available-for-Sale
-
(10,127)
Equity in Losses from Other Investments, Net
1,423
4,617
Gain on Sale of Other Real Estate Owned
-
(7)
Gain on Sale of Fixed Assets
(25)
-
Change of Fair Value of Derivative Instruments
351
(371)
Net (Decrease)/Increase in Trading Securities
(11)
30
Non-Cash Stock Compensation Expense
21,719
-
Net Decrease/(Increase) in Accrued Interest Receivable and Other Assets
1,069
(4,491)
Net Decrease in Accrued Expenses and Other Liabilities
(6,518)
(13,856)
Net Cash Provided by Operating Activities
23,006
22,115
INVESTING ACTIVITIES
Purchases of Securities Available-for-Sale
(449,746)
(462,170)
Proceeds from Maturities of Securities Available-for-Sale
378,463
220,337
Proceeds from Sales of Securities Available-for-Sale
-
216,350
Net Increase in Loans and Leases
(23,288)
(78,687)
Purchase of Equity Interest in Limited Partnerships
(272)
(1,257)
Net Decrease in Other Investments
265
75
Proceeds from Sales of Other Real Estate Owned
-
52
Purchases of Premises and Equipment
(188)
(1,106)
Proceeds from Disposal of Premises and Equipment
25
33
Purchase of Liberty Bank & Trust, Net of Cash Acquired
-
(1,962)
Net Cash Used by Investing Activities
(94,741)
(108,335)
FINANCING ACTIVITIES
Net (Decrease)/Increase in Demand, Interest Bearing Demand and Savings      Deposits
(38,259)
99,929
Net Decrease in Time Deposits
(13,846)
(23,516)
Borrowings from the Federal Home Loan Bank
-
95,000
Repayment of Federal Home Loan Bank Borrowings
(55,000)
(10,000)
Repurchase of Company Stock
-
(57)
Cash Dividends Paid
(2,790)
(2,781)
Proceeds from Exercise of Stock Options/Sale of Stock
1,128
942
Issuance of Stock Held by Executive Obligation Trust
-
100
`
Net Cash (Used)/Provided by Financing Activities
(108,767)
159,617
Net Change in Cash and Cash Equivalents
(180,502)
73,397
Cash and Cash Equivalents at Beginning of Period
227,889
123,034
Cash and Cash Equivalents at End of Period
$ 47,387
$ 196,431
Supplemental Disclosures of Cash Flow Information
Cash Paid During The Period for:
Interest
$ 23,788
$ 26,485
Income Taxes
5,448
1,010
Non-cash Investing Activities
Loans Transferred to Other Real Estate Owned at Fair Value
$ -
$ 45
See Accompanying Notes to Unaudited Consolidated Financial Statements
 

</TABLE>

<TABLE>

<CAPTION>

 

Supplemental Disclosure for Acquisition of Liberty Bank & Trust
For the Six Months Ended
June 30, 2002
<S>
<C>
Assets Acquired:
Securities Available-for-Sale
$ 6,476
Loans and Leases
21,667
Premises and Equipment
171
Accrued Interest Receivable and Other Assets
495
Goodwill
4,515
Core Deposit Premium Intangible
964
34,288
Liabilities Assumed:
Deposits
32,240
Accrued Interest and Other Liabilities
86
32,326
Cash Paid for Common Stock, net of Cash Acquired
$ 1,962
See Accompanying Notes to      Unaudited Consolidated Financial Statements
</TABLE>

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
Basis of Presentation

 
The accompanying unaudited consolidated financial  statements have been prepared in accordance with accounting principles  generally accepted in the United States of America for interim financial  information and the instructions to Form 10-Q and Article 10 of Regulation  S-X. Accordingly, they do not include all of the information and footnotes  required by accounting principles generally accepted in the United States of  America for complete financial statements. In the opinion of management, all  adjustments (consisting of normal recurring accruals) considered necessary for  a fair presentation of the Company's financial condition and results of  operations for the interim periods presented in this Form 10-Q have been  included. Operating results for the interim periods are not necessarily  indicative of financial results for the full year. Certain reclassifications  have been made to the prior period financial statements to conform to the  current period presentation. These unaudited consolidated financial statements  should be read in conjunction with the audited consolidated financial  statements and notes thereto included in the Company's Annual Report on Form  10-K for the year ended December 31, 2002.
 
The preparation of financial statements in conformity with  accounting principles generally accepted in the United States of America  requires management to make estimates and assumptions that affect the amounts  reported in the financial statements and accompanying notes. Actual results  could differ from those estimates. 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, the estimated residual value of leveraged leases and the tax  benefits from the real estate investment trust subsidiary.
 
The unaudited consolidated financial statements include the  accounts of GBC Bancorp ("Bancorp"), its wholly owned subsidiaries,  GBC Venture Capital, Inc. ("VC") and General Bank, (the  "Bank"), a California state chartered bank, and the Bank's wholly  owned subsidiaries, GBC Insurance Services, Inc., GBC Investment &  Consulting Company, Inc., GBC Real Estate Investments, Inc., GBC Trade  Services, Asia Limited and GB Capital Trust II. The Bank also holds 90% of the  voting stock of GBC Leasing Company, Inc., which amount is not material.
 
 
Commitments and Contingencies

 
In the normal course of business, there are various  outstanding commitments to extend credit which are not reflected in the  accompanying interim consolidated financial statements.
 
The following is a summary of the Company's commitments  and contingencies as of June 30, 2003 and December 31, 2002:

<TABLE>

<CAPTION>

 
 
June 30,
December 31,
(In Thousands)
2003
2002
<S>
<C>
<C>
Undisbursed Commitments
$524,287
$581,939
Standby Letters of Credit
32,771
32,707
Bill of Lading Guarantees
374
528
Commercial Letters of Credit
56,959
65,709
 

</TABLE>

 
Pending Litigation

 

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

 
Loss Per Share

 

Loss per share is determined by dividing net loss by the  weighted average number of shares of common stock outstanding. No common stock  equivalents are included in the computation of the diluted loss per share, as  their impact would be anti-dilutive. The following table sets forth diluted  loss per share calculations:

<TABLE>

<CAPTION>

Three Months Ended June 30,
Six Months Ended June 30,
2003
2002
2003
2002
<S>
<C>
<C>
<C>
<C>
(In Thousands, Except Share and per Share Data)
Net Loss
$ (13,072)
$ (8,010)
$ (8,952)
$ (10,916)
Weighted Average Shares Outstanding
11,656,182
11,611,238
11,642,070
11,600,594
Loss per Share-Basic and Diluted
($1.12)
($0.69)
$ (0.77)
$ (0.94)
The weighted average shares outstanding includes the shares held in        the GBC Bancorp Executive Obligation Trust.
 

</TABLE>

 
Quarterly Dividends

 

On May 21, 2003, the Company's Board of Directors  declared a quarterly common stock cash dividend of $0.12 per share of common  stock payable on or about July 15, 2003 to shareholders of record on June 30,  2003. On February 25, 2003, the Company's Board of Directors declared a  quarterly common stock cash dividend of $0.12 per share of common stock  payable on April 15, 2003 to shareholders of record on March 31, 2003. Please  see also Note 7, Regulatory Matters, below.

 

 
Recent Accounting Developments

In November, 2002, the FASB issued Interpretation No. 45, *Guarantor's  Accounting and Disclosure Requirements for Guarantees, Including Indirect  Guarantees of Indebtedness to Others*, *an interpretation of FASB  Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34*.  This Interpretation elaborates on the disclosures to be made by a guarantor in  its interim and annual financial statements about its obligations under  guarantees issued. The Interpretation also clarifies that a guarantor is  required to recognize, at inception of a guarantee, a liability for the fair  value of the obligation undertaken. The initial recognition and measurement  provisions of the Interpretation were applicable to guarantees issued or  modified after December 31, 2002. The disclosure requirements are effective  for financial statements of interim and annual periods ending after December  15, 2002. The adoption of the Interpretation did not have a material effect on  the Company's financial statements.

In December, 2002, the FASB issued SFAS No. 148, *Accounting  for Stock-Based Compensation - Transition and Disclosure, an amendment of  FASB Statement No. 123*. This Statement amends FASB Statement  No. 123, *Accounting for Stock-Based Compensation,* to provide  alternative methods of transition for a voluntary change to the fair value  method of accounting for stock-based employee compensation. In addition, this  Statement amends the disclosure requirements of Statement No. 123 to  require prominent disclosures in both annual and interim financial statements.  Certain of the disclosure modifications were required for periods ending after  December 15, 2002, and are included in the notes to these consolidated  financial statements.

In January, 2003, the FASB issued Interpretation No. 46, *Consolidation  of Variable Interest Entities, an Interpretation of ARB No. 51.* This  Interpretation addresses the consolidation by business enterprises of variable  interest entities as defined in the Interpretation. The Interpretation applies  immediately to variable interests in variable interest entities created after  January 31, 2003, and to variable interests in variable interest entities  obtained after January 31, 2003. For public enterprises, such as the Company,  with a variable interest in a variable interest entity created before February  1, 2003, the Interpretation applies to that enterprise no later than the  beginning of the first interim or annual reporting period beginning after June  15, 2003. The application of this Interpretation is not expected to have a  material effect on the Company's financial statements. The Interpretation  requires certain disclosures in financial statements issued after January 31,  2003, if it is reasonably possible that the Company will consolidate or  disclose information about variable interest entities when the Interpretation  becomes effective. As of June 30, 2003, the Company owned interests in two  limited partnerships, for which it is reasonably possible that the limited  partnerships may be construed to be variable interest entities subject to  consolidation under Interpretation No. 46. Both of these investments were  formed for the purpose of investing in low-income housing projects, which  qualify for federal low-income housing tax credits and/or California tax  credits. At June 30, 2003, the carrying amount of those investments in real  estate was $1.4 million. As of June 30, 2003, the Company had fully satisfied  all capital commitments required under the respective limited partnership  agreements. The Company is not liable for the debts, liabilities, contracts,  or any other obligation of these limited partnerships under the terms of the  respective limited partnership agreements. The Company has not completed its  analysis to determine the impact to the Company of adopting Interpretation No.  46, which for the Company will be in the third quarter of 2003. However, the  Company expects that the adoption will not have a material impact on the  Company's results of operations or financial position.

In April, 2003, the FASB issued SFAS No. 149, *Amendment  of Statement 133 on Derivative Instruments and Hedging Activities*. SFAS  No. 149 amends and clarifies accounting for derivative instruments, including  certain derivative instruments embedded in other contracts, and for hedging  activities under SFAS No. 133. In particular, this Statement clarifies under  what circumstances a contract with an initial net investment meets the  characteristic of a derivative and when a derivative contains a financing  component that warrants special reporting in the statement of cash flows. This  Statement is generally effective for contracts entered into or modified after  June 30, 2003 and is not expected to have a material impact on the Company's  financial statements.

 

In May, 2003, the FASB issued SFAS No. 150, *Accounting  for Certain Financial Instruments with Characteristics of Both Liabilities and  Equity.*This Statement establishes standards for how an issuer classifies  and measures certain financial instruments with characteristics of both  liabilities and equity. It requires that an issuer classify a financial  instrument that is within its scope as a liability (or an asset in some  circumstances). Many of those instruments were previously classified as  equity. This Statement is effective for financial instruments entered into or  modified after May 31, 2003, and otherwise is effective at the beginning of  the first interim period beginning after June 15, 2003. This Statement is not  expected to have a material impact on the Company's financial statements.

 
Regulatory Matters

 

As a result of the findings of the regulatory examination  of General Bank dated June 10, 2002, General Bank has entered into a  Memorandum of Understanding ("MOU") with the Federal Deposit  Insurance Corporation ("FDIC") and the California Department of  Financial Institutions ("DFI"). The MOU provides that the Bank shall  retain management acceptable to the regulatory authorities and shall maintain  a Tier 1 leverage capital ratio of at least 7.5%. As of June 30, 2003, the  Bank's Tier 1 leverage capital ratio was 8.37%. The MOU further provides  that the Bank shall not, without prior written consent of the regulatory  authorities, pay cash dividends in the event that payment of such dividends  would result in noncompliance with this capital ratio. The Bank has  historically paid such dividends to GBC Bancorp ("GBC") at the time  of payment of GBC's dividend. As of June 30, 2003, GBC had $13.5 million of  cash and a short-term promissory note from General Bank, which is sufficient  to pay dividends at the current annual level of $5.6 million per year and $3.4  million of interest on its subordinated debt per year for over a year without  receiving a dividend from the Bank. Management does not believe that the MOU  will affect the payment of dividends and interest by GBC Bancorp.

 

The MOU further provides for reductions in the level of  classified assets to a specified percentage of Tier 1 Capital plus the  Allowance for Credit Losses by June 30, 2003. As of June 30, 2003, the Bank  had reduced such classified assets to well below the level required to be  achieved. The MOU further calls for the timely identification and  classification of problem loans, improvement of credit-related analysis and  reports, a second review of real estate appraisals, and improvements in the  loan underwriting and monitoring processes. Although the examination report  found the Bank's allowance for credit losses to be adequate, management was  required to modify the methodology for the size and complexity of the loan  portfolio. Bank Secrecy Act policies and procedures were to be improved to  eliminate identified deficiencies and a program to reasonably ensure  compliance with the requirements for establishing accounts with a W-8  tax-exempt status was to be developed and implemented. Improvements in the  documentation and testing of the interest rate risk model were also called  for. The Bank has revised its policies, methodologies and procedures as they  relate to both the credit and Bank Secrecy Act issues identified in the MOU.  Among other things, the Bank has initiated employee training and a program to  test for the effectiveness of the new policies, methodologies and procedures.  During the first quarter of 2003, the FDIC conducted a targeted visitation to  assess the Board and Management's progress in complying with the MOU.

 

During the second quarter of 2003, the FDIC issued a report  on a visitation begun late in the first quarter.  The visitation was for  the limited purpose of assessing, as of December 31, 2002, the Bank's  compliance with the MOU.  In the report, the FDIC identified specific  areas that required further attention.  The Bank continues to address  these areas and has made further improvements to its policies and  procedures.  In addition, the Bank continues to provide training and to  test for compliance with its policies and procedures.  While there can be  no assurance that the Bank is in full compliance with the MOU, management  believes that the measures it has implemented have resulted in compliance with  the MOU in all material respects.

 

As a result of the ratings received by General Bank, GBC  Bancorp was no longer eligible to retain its status as a Financial Holding  Company ("FHC"). The Company informed the Federal Reserve Bank of  San Francisco of its decision to decertify itself as an FHC, effective  immediately. GBC Bancorp had not utilized the expanded authorities available  as an FHC, and therefore the decertification has no impact on its existing  business or on its business strategies.

 
Merger Agreement

 

On May 7, 2003, the Company announced  the signing of a merger agreement with Cathay Bancorp, Inc. ("Cathay").  Under the merger agreement, GBC Bancorp will merge into Cathay, the name of  which will be changed to Cathay General Bancorp, and General Bank will merge  into Cathay's wholly-owned subsidiary, Cathay Bank. Both the Company and  Cathay have scheduled special shareholders meetings for September 17, 2003,  and have mailed a joint proxy statement/prospectus to their respective  shareholders. The Company expects that the merger will be completed by the end  of 2003. However, completion of the merger is subject to shareholder and  regulatory approvals and customary closing conditions. Accordingly, there can  be no assurance that the merger will be completed or that it will be completed  in the expected time period.

In connection with the signing of the merger agreement with  Cathay, the terms of the Company's contingency stock option plan and its 1988  and 1999 stock option plans were modified under certain conditions to  accelerate vesting, allow for cashless exercise, and effect other changes,  some of which lapse at the merger date.  As a result of these  modifications, the Company recorded a non-cash stock compensation expense in  the amount of $21,719,000 in the quarter, with the offsetting tax benefit in  the amount of $5,012,000 resulting in an increase to stockholders'  equity.  See Note 9, "Accounting for Stock-Based Compensation",  following.

 
Accounting for Stock-Based Compensation

 

The Company applies the intrinsic value method of accountingprescribed by APB Opinion No. 25, *Accounting for Stock Issued to Employees*,to account for its stock option plans. Under this method, compensation expensefor fixed plans is measured on the date of grant only if the then current marketprice of the underlying stock exceeded the exercise price, and is recorded on astraight-line basis over the applicable vesting period. Compensation expense forvariable plans is generally recorded at the end of each reporting period untilthe date the number of shares that an individual employee is entitled to receiveand the exercise price are known; compensation expense is measured based on theexcess of the then current market price of the underlying stock over theexercise price and is recorded using the amortization method prescribed by FIN28, *Accounting for Stock Appreciation Rights and Other Variable Stock Optionor Award Plans*. SFAS No. 123, *Accounting for Stock-Based Compensation*,established accounting and disclosure requirements using a fair value method ofaccounting for stock-based employee compensation plans. As allowed by SFAS No.123, the Company has elected to continue to apply the intrinsic value method ofaccounting described above, and has adopted the disclosure requirements of SFASNo. 123, as amended by SFAS No. 148.

 

Prior to the second quarter of 2003, options granted underthe Company's 1988 Stock Option Plan and 1999 Employee Stock Incentive Plan(1999 Plan) were accounted for as fixed plans; accordingly, no compensationexpense was recorded. Additionally, no compensation expense was recorded underthe Company's Contingent Stock Option Plan because they would becomeexercisable only in the event of certain triggering events, none of which hadoccurred. Upon the signing of the merger agreement with Cathay, all contingentstock options became exercisable. Also, in connection with the merger agreement,the terms of the 1999 Plan were modified to allow accelerated vesting undercertain circumstances, and the terms of all option plans were modified to allowfor cashless exercise and effect other changes, some of which lapse upon theclose of the merger. These events resulted in variable plan accounting for allof the Company's stock option plans until the earlier of exercise orexpiration of the options. During the three and six-month periods ended June30, 2003, the Company recorded $21,719,000 of stock-based compensation expenseand the related tax benefit of $5,012,000.

 

The following table compares net loss per share as reportedby the Company to the pro forma amounts that would have been reported hadcompensation expense been recognized for the Company's stock-basedcompensation plans in accordance with SFAS No. 123:

<TABLE>

<CAPTION>

 

 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
(In Thousands, Except Per Share Data)
2003
2002
2003
2002
<S>
<C>
<C>
<C>
<C>
Net Loss as Reported
$ (13,072)
$ (8,010)
$ (8,952)
$ (10,916)
Add: Non-Cash Stock Compensation Expense
Included in Reported Net Loss, Net of Related
Tax Effects
16,707
-
16,707
-
Deduct: Non-Cash Stock Compensation
Expense Determined Under Fair Value Method,
Net of Related Tax Effects
(5,251)
 
(243)(5,494)
(486)
Pro Forma Net (Loss)/Income
$ (1,616)
$ (8,253)
$ (2,261)
$ (11,402)

      Loss per share as Reported -  Basic 
$ (1.12)
$ (0.69)
$ (0.77)
$ (0.94)Pro Forma      Earnings (Loss) per share - Basic$ (0.14)      $ (0.71)$ 0.19$ (0.98)
Pro Forma Earnings (Loss) per share -  Diluted
$ (0.14)
$ (0.71)
$ 0.19
$ (0.98)
</TABLE>

 

The vesting of the contingent stock options resulted in the  recognition of compensation expense under SFAS No. 123. SFAS No. 123 requiresthat a modification to the terms of an award that increases the award's fairvalue at the modification date be treated, in substance, as the repurchase ofthe original award in exchange for a new award of greater value, with additionalcompensation cost arising from the modification recognized over the relatedservice period. Therefore, the modification to the 1999 Plan to provide foraccelerated vesting resulted in the measurement of additional compensation costat the date of modification for unvested options. Fair value under SFAS No. 123was determined using the Black-Scholes option-pricing model with the followingassumptions in the second quarter of 2003:

<TABLE>

<CAPTION>

 

  
Contingent Stock

Option Plan 
1999

Plan
<S> 
<C> 
<C>
Expected life (years) 
0.5 
1 - 3.3 yr
Risk-free interest rate 
1.03% 
1.09% - 2.25%
Volatility 
23% 
34% - 41%
Dividend yield 
1.60% 
1.60%
Exercise price 
$2.17 - $14.25 
$19.95 - $37.56
Fair value 
$15.67 - $27.69 
$2.10 - $11.07
</TABLE>

 
****
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 

CRITICAL ACCOUNTING POLICIES

 

The discussion and analysis of our financial condition andresults of operations are based upon our unaudited consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America (GAAP). The preparation ofthese financial statements requires management to make estimates and judgmentsthat affect the reported amounts of assets and liabilities, revenues andexpenses, and related disclosures of contingent assets and liabilities at thedate of our financial statements. Actual results may differ from these estimatesunder different assumptions or conditions.

 

Accounting for the allowance for credit losses involvessignificant judgments and assumptions by management which have a material impacton the carrying value of net loans; management considers this accounting policyto be a critical accounting policy. The judgments and assumptions used bymanagement are based upon the evaluation of the loan portfolio, the economicenvironment, historical loan loss experience, collateral values and assessmentsof borrower's ability to repay, as described below in "Allowance forCredit Losses".

 

The Company accounts for derivatives in compliance with SFASNo. 133, *Accounting for Derivative Instruments and Hedging Activities ("SFASNo. 133").* Management considers this accounting policy to be a criticalaccounting policy. The judgments and assumptions used by management to valuederivatives are based on the most recent information available and other factorswhich are believed to be reasonable under the circumstances.

OVERVIEW

 

The net loss for the second quarter of 2003 was $13,072,000,or $1.12 per diluted share compared to $8,010,000, or $0.69 per diluted sharefor the corresponding period of 2002. The $5,062,000, or 63.2%, increase in lossis primarily the result of a $21,719,000 non-cash stock compensation expenseincluded in salaries and employee benefits, the absence of a $10,127,000 gain onsale of securities available-for-sale and a $7,528,000 decline of net interestincome. The above were partially offset by a $35,582,000 reduction of theprovision for credit losses.

 

Excluding the $21,719,000 non-cash stock compensation expenseand the associated tax benefit of $5,012,000, operating earnings for the secondquarter of 2003 would have been $3,635,000 and would have represented anincrease of $11,645,000 from the corresponding quarter of a year ago. There wasno non-cash stock compensation expense incurred in 2002. Management believesthat the operating results of the Company can best be assessed by excluding theunusual non-cash stock compensation expense which was incurred in connectionwith the merger agreement with Cathay Bancorp.

 

For the six months ended June 30, 2003, the net loss totaled$8,952,000, a decrease of $1,964,000 from the net loss of $10,916,000 during thecorresponding period of 2002. Loss per diluted share for the six months endedJune 30, 2003 was $0.77, compared to the loss per diluted share of $0.94 for thesame period of 2002. The reduction of net loss was primarily the result of adecrease in the provision for credit losses. For the six months ended June 30,2003 and 2002, the provision was $8,186,000 and $57,664,000, respectively, adecline of $49,478,000. In addition, there was a $3,173,000 reduction of expensefrom other investments. Partially offsetting the above were the absence in 2003of gains on securities available-for-sale, the $21,719,000 non-cash stockcompensation expense included in salaries and employee benefits and a$12,049,000 reduction of net interest income.

 

Excluding the $21,719,000 non-cash stock compensation expenseand the associated tax benefit of $5,012,000, operating earnings for the sixmonths ended June 30, 2003 would have been $7,755,000 and would have representedan increase of $18,671,000 from the corresponding six months of a year ago.There was no non-cash stock compensation expense incurred in 2002. Managementbelieves that the operating results of the Company can best be assessed byexcluding the unusual non-cash stock compensation expense which was incurred inconnection with the merger agreement with Cathay Bancorp.

 

The table below provides a reconciliation of the reportedloss to operating earnings (loss) which excludes the non-cash stock compensationexpense and related tax benefit as discussed above:

<TABLE>

<CAPTION>

Reconciliation to Non-GAAP Measurement
Three Months Ended June 30,
Six Months Ended June 30,
(In Thousands)
2003
2002
2003
2002
<S>
<C>
<C>
<C>
<C>
Net Loss Determined in Accordance with GAAP
$ (13,072)
$ (8,010)
$ (8,952)
$ (10,916)
Add: Non-Cash Employee Compensation Expense
21,719
-
21,719
-
Deduct: Tax Benefit for
Non-Cash Employee Compensation Expense
(5,012)
-
(5,012)
-
Operating Earnings (Loss)
$ 3,635
$ (8,010)
$ 7,755
$ (10,916)
 

</TABLE>

 

For the quarter ended June 30, 2003 and 2002, the annualizedreturn on average assets ("ROA") was (2.13)% and (1.25)%,respectively, and the annualized return on average stockholders' equity("ROE") was (24.97)% and (15.93)%, respectively.

 

For the six months ended June 30, 2003 and 2002, the ROA was(0.73)% and (0.88)%, respectively. For the six months ended June 30, 2003 and2002, the ROE was (8.63)% and (10.67)%, respectively.

 

 

RESULTS OF OPERATIONS

 

 

Net Interest Income-Quarterly Results

 

For the quarters ended June 30, 2003 and 2002, net interestincome before the provision for credit losses decreased $7,528,000 or 29.9%,from $25,206,000 to $17,678,000. The decline was due primarily to the decline ofthe net interest margin to 2.92% from 4.01%.

 

Total interest income for the quarter ended June 30, 2003 was$28,780,000, representing a $9,887,000, or 25.6%, decrease from thecorresponding quarter of a year ago. The decline was related to the yield onearning assets which decreased to 4.76% for the three months ended June 30, 2003from 6.16% for the three months ended June 30, 2002. The 140 basis point declineis primarily due to the reduction of the yield on the securities portfolio. Forthe quarters ended June 30, 2003 and 2002, the average yield on securitiesavailable-for-sale was 3.23% and 5.75%, respectively, or a reduction of 252basis points. Prepayments on mortgage-backed securities combined with lowerreinvestment rates negatively impacted the yield on the securities portfolio. Asof June 30, 2003, the expected weighted average life of the securities portfoliowas 2.1 years. Also, during the second quarter of 2002, there were sales ofsecurities from the available-for-sale portfolio with a book value of $206.2million and related gains on sale amounting to $10,127,000. The weighted averageyield on the securities sold was 6.43%. The yields on the other interest earningassets also declined. The yield on loans and leases declined to 6.47% from6.76%, for the quarters ended June 30, 2003 and 2002, respectively, representinga 29 basis point decline. The yield on federal funds sold and securitiespurchased under agreements to resell declined to 1.31% from 1.85% for thequarters ended June 30, 2003 and 2002, respectively, representing a 54 basispoint decrease. The decline of the yield on loans and leases and the yield onfederal funds sold and securities purchased under agreements to resell mirroredthe decline of the average prime rate, which decreased 50 basis points to 4.25%from 4.75% for the quarters ended June 30, 2003 and 2002, respectively.

 

Also contributing to the reduced interest income for thethree months ended June 30, 2003 compared to the three months ended June 30,2002 was a reduction of average interest earning assets. For the three monthsended June 30, 2003 and 2002, average interest earning assets were $2,426.5million and $2,518.9 million, respectively, representing a decline of $92.4million, or 3.7%. The decline was primarily in the securities available-for-saleportfolio, which decreased $204.2 million due to the increase of federal fundssold and securities purchased under agreement to resell. Average loans andleases increased $18.5 million, partially offsetting the decline of otheraverage interest-earning assets.

 

Total interest expense for the quarter ended June 30, 2003was $11,102,000, representing a $2,359,000, or 17.5%, decrease from thecorresponding quarter of a year ago. The decrease was primarily due to a lowercost of funds. For the quarters ended June 30, 2003 and 2002, the cost of fundswas 2.26% and 2.57%, respectively, representing a 31 basis point decline. Thedecrease in the cost of funds was primarily the result of the decrease ininterest rates as explained above. In addition, there was a decline of averageinterest bearing liabilities of $131.9 million, or 6.3%.

 

For the quarter ended June 30, 2003, average interest-bearingdeposits were $1,648.8 million compared to $1,728.8 million for thecorresponding period of a year ago, representing a $80.0 million, or 4.6%,decrease. The decrease was attributable to decreases in all deposit categoriesexcept other time deposits which increased $9.7 million, or 6.8%. The rates paidon all categories of interest-bearing deposits decreased. For the three monthsended June 30, 2003 and 2002, rates paid on interest-bearing deposits were 1.81%and 2.12%, respectively. The following table displays the average balances andrates paid for the deposit products comprising the interest-bearing deposits ofthe Bank for the quarters ended as indicated:

 

<TABLE>

<CAPTION>

                                                                                   For the Three Months Ended June 30,

(Dollars In Thousands)                                                                                    2003                                        2002
<S>
<C>
<C>
Interest-bearing demand - Average balance
$536,637
$545,904
Rate
0.92%
1.50%
Savings - Average balance
95,304
102,368
Rate
0.66%
1.21%
Time deposits of $100,000 or more - Average balance
865,117
938,456
Rate
2.46%
2.57%
Other time deposits - Average balance
151,716
142,045
Rate
2.03%
2.24%
</TABLE>

 

For the three months ended June 30, 2003 and 2002, the totalof federal funds purchased, borrowings from the Federal Home Loan Bank andsubordinated debt averaged $321.4 million and $373.3 million, respectively. The$51.9 million reduction was primarily due to maturities of the Federal Home LoanBank borrowings. For the three months ended June 30, 2003 and 2002, the averagebalance of borrowings from the Federal Home Loan Bank was $281.5 million and$333.2 million, respectively, a decrease of $51.7 million. The rates paid onnon-deposit funds were 4.55% and 4.63% for the three months ended June 30, 2003and 2002, respectively.

 

The net interest spread, defined as the yield on earningassets less the rates paid on interest-bearing liabilities, decreased 109 basispoints to 2.50% for the quarter ended June 30, 2003, from 3.59% for thecorresponding period of a year ago. The decline is due to the differential ofthe reduction of the cost of funds compared to the reduction of the yield onearning assets.

 

The net interest margin, defined as annualized net interestincome divided by average interest-earning assets, decreased 109 basis points to2.92% for the quarter ended June 30, 2003, from 4.01% for the correspondingperiod of a year ago. The decline of the net interest margin was primarily theresult of the decline of the net interest spread due to the reasons as discussedin the above paragraphs.****
 

 

Net Interest Income-Six-Month Results

 

For the six months ended June 30, 2003, net interest incomebefore the provision for credit losses was $37,199,000, representing a$12,049,000, or 24.5%, decline from the corresponding period of a year ago forthe reasons discussed in the above paragraphs.

 

Total interest income for the six months ended June 30, 2003was $60,085,000 compared to $75,804,000, a $15,719,000, or 20.7%, decline fromthe corresponding period of a year ago. The decrease is primarily the result ofthe decline of the yield on average interest-earning assets. For the six monthsended June 30, 2003 and 2002, the yield was 4.97% and 6.22%, respectively. Aswas the case for the three months ended June 30, 2003 and 2002, the 125 basispoint decline is primarily due to the reduction of the yield on securitiesavailable-for-sale. For the six months ended June 30, 2003 and 2002, this yieldwas 3.71% and 5.85%, respectively, or a reduction of 214 basis points. Thedecline of the yield on securities available-for-sale was due to the reasonsexplained above. For the six months ended June 30, 2003 and 2002, the dailyaverage prime rate was 4.25% and 4.75%, respectively, a 50 basis point decline.The 36 basis-point decline of the yield on loans and leases from 6.86% to 6.50%,and the 54 basis-point decline of federal funds sold and securities purchasedunder agreements to resell to 1.32% from 1.86% for the six months ended June 30,2003 and 2002, respectively, reflecting the 50 basis point decline of theabove-referenced average prime rate of interest.

 

Average earning assets declined $19.3 million to $2,436.7million for the six months ended June 30, 2003, from $2,456.0 million for thesix months ended June 30, 2002. This decline was mainly due to a $140.5 milliondecrease in securities investment partially offset by a $78.0 million increasein federal funds sold and securities purchased under agreements and by a $43.1million increase in loans and leases. The decline of average earning assets alsocontributed to the reduction of interest income.

 

Total interest expense for the six months ended June 30, 2003and 2002, was $22,886,000 and $26,556,000, respectively, representing a$3,670,000, or 13.8%, decrease. This decrease is due to both the decrease of thecost of funds and the decline of interest-bearing liabilities. The cost of fundsdecreased 30 basis points from 2.63% to 2.33% for the six months ended June 30,2002 and 2003. The decrease of the cost of funds was primarily the result of thedecline of deposit rates caused by the movement of the prime rate of interest asdiscussed above. The rate paid on average interest-bearing deposits was 1.87%and 2.21% for the six months ended June 30, 2003 and 2002, respectively, or adecline of 34 basis points.

 

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

 

 

 

 

<TABLE>

<CAPTION>

                                                                                           For the Six Months Ended June 30,
(Dollars In Thousands)                                                                    2003                    2002

<S>
<C>
<C>
Interest-bearing demand - Average balance
$ 532,525
$ 527,314
Rate
0.94%
1.49%   
Savings - Average balance
$93,011
$101,491
Rate
0.69%
1.19%   
Time deposits of $100,000 or more - Average balance
$ 876,247
$ 930,211
Rate
2.53%
2.71%   
Other time deposits - Average balance
$ 148,436
$ 146,559
Rate
2.07%
2.39%
</TABLE>

 

For the six months ended June 30, 2003 and 2002, the total offederal funds purchased, borrowings from the Federal Home Loan Bank andsubordinated debt averaged $335.1 million and $334.2 million, respectively. Therates paid on non-deposit funds were 4.57% and 4.72% for the six months endedJune 30, 2003 and 2002, respectively.

 

For the six months ended June 30, 2003, the net interestspread decreased to 2.64% from 3.59% for the six months ended June 30, 2002, a95 basis point decline.

 

For the six months ended June 30, 2003 and 2002, the netinterest margin was 3.08% and 4.04%, respectively, a 96 basis point decline. Thedecline of the margin was primarily the result of the reduced spread.

 

Provision for Credit Losses

 

For the quarter ended June 30, 2003, the provision for creditlosses totaled $3,568,000, compared to a $39,150,000 provision for credit lossesfor the corresponding period of a year ago. The decrease is mainly due to thereduced problem commercial credits. For the quarter ended June 30, 2003, thereview of problem loans and leases resulted in $2.3 million of net charge-offswhich compares with $47.2 million of net charge-offs for the correspondingquarter of a year ago.

 

For the six months ended June 30, 2003 and 2002, theprovision for credit losses was $8,186,000 and $57,664,000, respectively. Thenet charge-offs decreased $48.6 million to $4.8 million for the six months endedJune 30, 2003 from $53.4 million for the six months ended June 30, 2002.

 

Among the charge-offs for the six months ended June 2002,$45.3 million were associated with loans originated by the New York loanproduction office. This office was closed on August 9, 2002.

 

Non-accrual loans as of June 30, 2003 and 2002 were $21.9million and $23.7 million, respectively, representing a decline of $1.8 million.

 

The amount of the provision for credit losses is determinedby management and is based upon the quality of the loan portfolio, management'sassessment of the economic environment, evaluations made by regulatoryauthorities, historical loan loss experience, collateral values, assessment ofborrowers' ability to repay, and estimates of potential losses. Please referto the discussion "Allowance for Credit Losses", following.

 

 

Non-Interest Income

 

Non-interest income for the three months ended June 30, 2003totaled $1,352,000, representing a $9,399,000, or 87.4%, decrease from the$10,751,000 for the three months ended June 30, 2002. This decrease wasprimarily due to the absence of gain from the sale of available-for-salesecurities. During the three months ended June 30, 2002, the Company recognized$10,127,000 of gains from the sale of $206.2 million of securitiesavailable-for-sale. Partially offsetting the decrease was a reduction of$593,000 in expense from other investments. Expense from other investments was$668,000 and $1,261,000 for the three months ended June 30, 2003 and 2002,respectively, of which $650,000 and $1,117,000, respectively, were expensesassociated with venture capital investments owned by GBC Venture Capital.Expense from other investments is recorded using the equity method ofaccounting.

 

For the six months ended June 30, 2003, non-interest incometotaled $2,329,000, representing a $6,919,000, or 74.8%, decrease compared to$9,248,000 for the six months ended June 30, 2002. As was the case for thequarterly comparison, the decreases of non-interest income was primarily due tothe absence of gain from the sale of securities available-for-sale. There wereno sales of securities during the six months ended June 30, 2003. Offsetting theabove decrease was the decline in expense from other investments. For the sixmonths ended June 30, 2003 and 2002, expense from other investments was$1,451,000 and $4,624,000, respectively. The $3,173,000 reduction of expensefrom other investments was primarily the result of an impairment loss of$3,155,000 recorded in the six months ended June 30, 2002 relating to theCompany's 10% beneficial ownership in Aircraft Finance Trust("AFT"). The investment in AFT was entirely written off in the fourthquarter of 2002.

 

 

Non-Interest Expense
 

For the three months ended June 30, 2003, non-interestexpense was $30,931,000, representing a $21,323,000, or 221.9%, increase over$9,608,000 for the corresponding period of a year ago. This increase wasprimarily due to the $21,719,000 non-cash stock compensation expense classifiedas salaries and employee benefits. This expense is associated with the vestingand modification of the terms of the Company's contingency stock option plan,which options became vested upon signing the merger agreement with CathayBancorp, and modifications of its 1988 and 1999 stock option plans in connectionwith the merger agreement with Cathay Bancorp. The non-cash stock compensationexpense does not reduce the Company's stockholders' equity. Rather, a$5,012,000 tax benefit relating to the non-cash stock compensation expense wasrecorded, which increased stockholders' equity by such amount. This taxbenefit is based on the compensation expense, net of an amount estimated as thenon-deductible portion of the expense.

 

Non-interest expense also includes the change in fair valueof the Company's derivatives which are accounted for under SFAS No. 133. Forthe three months ended June 30, 2003 and 2002, the fair value of the Company'swarrant portfolio declined (increased) $94,000 and $(467,000), respectively. Forthe three months ended June 30, 2003, non-interest expense classified as"other" was $2,126,000, compared to $2,979,000 for the three monthsended June 30, 2002. The decline was primarily due to a $1,179,000 litigationsettlement recovery received in the second quarter of 2003, which was recordedas an offset against "other" expense. Also recorded in"other" expense was $0.7 million of merger-related expenses.

 

For the six months ended June 30, 2003, non-interest expensewas $40,581,000, representing a $22,365,000, or 122.7%, increase from$18,216,000 reported for the corresponding period of a year ago. This increasewas primarily due to the $21,719,000 non-cash stock compensation expenseclassified in salaries and employee benefits, as described above. For the sixmonths ended June 30, 2003 the fair value of the Company's warrant portfoliodeclined $351,000 compared to a $371,000 increase during the correspondingperiod of the year ago period.

 

Non-interest expense classified as "other" wasconsistent with the six month period ended June 30, 2002 to the comparableperiod ended June 30, 2003. Professional services expenses of $1.4 millionrelated to the announced merger were offset by the receipt of a litigationsettlement recovery in the amount of $1,179,000.

 

Provision for Income Taxes

 

For the quarters ended June 30, 2003 and 2002, the benefitfor income taxes was $2,397,000 and $4,791,000, respectively. The benefit forthe quarters ended June 30, 2003 and 2002 represented effective tax rates of15.5% and 37.4% of pre-tax loss, respectively. The reduced tax benefit in 2003is the result of the effect of the non-cash stock compensation expense and themerger-related expenses expected to be non-deductible for tax purposes.

 

For the six months ended June 30, 2003 and 2002, the benefitfor income taxes was $287,000 and $6,468,000, respectively. The benefit for thesix months ended June 30, 2003 and 2002 represented effective tax rates of 3.1%and 37.2% of pre-tax loss, respectively. The difference in the effective taxbenefits is as explained above.

 

 

FINANCIAL CONDITION

 

As of June 30, 2003, total assets decreased $104.1 million,or 4.1%, to $2,406.7 million from $2,510.7 million as of December 31, 2003.Total deposits declined $52.1 million to $1,852.0 million as of June 30, 2003,from $1,904.1 million as of December 31, 2002. Approximately $35 million of thisdecline occurred due to the acquisition of a corporate depositor of the Bank,whose cash was subsequently withdrawn by the acquirer. The majority of theremaining decline was associated with deposits of high tech companies.

 

In addition to the decline of deposits, borrowings from theFederal Home Loan Bank declined $55.0 million to $267.4 million as of June 30,2003 from $322.4 million as of December 31, 2002 due to non-renewal of maturingadvances that were repaid.

 

Stockholders' equity increased to $212.4 million as of June30, 2003 from $204.1 million, as of December 31, 2002, an increase of $8.3million, or 4.05%. The $21,719,000 non-cash stock compensation expense, asdiscussed in previous sections, did not reduce the Company's stockholders'equity. Rather the $5,012,000 tax benefit relating to the non-cash stockcompensation expense was recorded and increased stockholders' equity by$5,012,000. (See also sections entitled "Non-Interest Expense" above,and "Capital Resources" below.)

 

Loans and Leases

 

Gross loans and leases were $1,219.8 million at June 30,2003, compared to $1,198.6 million at December 31, 2002. As shown in the tablebelow, the increase from year-end was entirely attributable to the conventionalreal estate portfolio. In the second quarter of 2003, the Bank experiencedapproximately $100 million of pay-offs in its construction real estate loanportfolio due to increased sales of the underlying collateral, reflecting thereal estate market and the low level of interest rates. These payoffs resultedin a decline of real estate construction loans from $317 million at March 31,2003 to $291.9 million at June 30, 2003. New loan originations and disbursementsfrom existing loan commitments reduced the impact of the loan pay-offs.Undisbursed real estate construction loans were $226 million at June 30, 2003,up $7 million from the level of March 31, 2003.

 

The following table sets forth the amount of loans and leasesoutstanding by category and the percentage of each category to the total loansand leases outstanding:

<TABLE>

<CAPTION>

June 30, 2003
December 31, 2002
(In Thousands)
Amount
Percentage
Amount
Percentage
<S>
<C>
<C>
<C>
<C>
Commercial
$ 371,172
30.43%
$ 386,083
32.21%
Real Estate - Construction
291,854
23.92%
301,376
25.14%
Real Estate - Conventional
527,777
43.27%
471,454
39.33%
Installment
86
0.01%
174
0.01%
Other Loans
19,735
1.62%
30,399
2.54%
Leveraged Leases
9,160
0.75%
9,142
0.76%
Total
$ 1,219,784
100.00%
$ 1,198,628
100.00%
 

</TABLE>

 

The two largest concentrations in commercial loans continueto be the apparel/textile industry and the computer/electronic goods industry(excluding early-stage technology companies). The approximate amounts ofcommercial loans for these two industry segments as of June 30, 2003 are $61.1million and $39.4 million, respectively. There are also $19.1 million of loansto early stage high technology companies.

 

Also included in commercial loans are five credits that areparticipations in facilities to Indian casinos that are construction loans to berepaid under mini-perm facilities from the cash flow of the casinos. The totalcommitments were $40.3 million as of June 30, 2003 and the total loansoutstanding were $28.1 million. All were performing in accordance with theborrowing agreements. The Bank does not intend to participate in additionalIndian casino loans.
** **
The following table sets forth the break-down by type ofcollateral for construction and conventional real-estate loans as of June 30,2003 and December 31, 2002:

<TABLE>

<CAPTION>

 
June 30, 2003
December 31, 2002
(Dollars In Thousands)
Conventional
Conventional
Construction
Real Estate
Construction
Real Estate
Project Type
Loans
Percentage
Loans

Percentage
Loans
Percentage
Loans

Percentage
<S>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
Residential:
Single-Family
$ 94,566
32%
$ 8,253
2%
$ 108,761
36%
$ 12,288
3%
Townhouse
5,478
2
533
-
765
1
449
-
Condominiums
124,424
43
1,373
-
117,369
38
2,805
1
Multi-Family
15,844
5
69,298
13
12,811
4
58,711
12
Land Development
29,154
10
-
-
37,830
13
735
-
Land
-
-
35,383
7
-
-
37,222
8
 
 
 
 
 
 
 
 

Total Residential
$ 269,466
92%
$ 114,840
22%
$ 277,536
92%
$ 112,210
24%

Non-Residential:

Warehouse
$ 3,673
1%
$ 95,714
18%
$ -
-%
$ 60,308
13%
Retail Facilities
1,069
-
87,959
17
3,754
1
84,315
18
Industrial Use
5,296
2
56,172
11
5,044
2
58,088
12
Office
7,627
3
75,555
14
8,443
3
64,808
14
Hotel and Motel
676
-
59,502
11
4,956
2
60,600
13
Land
-
-
7,623
1
-
-
7,543
1
Other
4,047
2
30,412
6
1,643
-
23,582
5

Total Non-Residential
$ 22,388
8%
$ 412,937
78%
$ 23,840
8%
$ 359,244
76%

Total
$ 291,854
100%
$ 527,777
100%
$ 301,376
100%
$ 471,454
100%
 

</TABLE>

 

As of June 30, 2003, the Company had an ownership interest inone leveraged lease of a Boeing 737 aircraft leased by Continental Airlines. Asof June 30, 2003, this total investment included as part of loans and leases was$9.2 million. Such amount includes an estimated residual value of $7.6 million.The debt that is senior to the Company's investment is $12.0 million. Althoughthe current market value of such aircraft is difficult to ascertain at thistime, should the lessee default, the lease would be substantially at risk due tothe debt outstanding and the depressed market value of such aircraft.

 

Non-Performing Assets

 

A certain degree of risk is inherent in the extension ofcredit. Management has credit policies in place to minimize the level of loanlosses and non-performing loans. The Company performs a quarterly assessment ofthe credit portfolio to determine the appropriate level of the allowance.Included in the assessment is the identification of loan impairment. A loan isidentified as impaired when it is probable that interest and principal will notbe collected according to the contractual terms of the loan agreement. Loanimpairment is measured by estimating the expected future cash flows anddiscounting them at the respective effective interest rate or by valuing theunderlying collateral.

 

The Company has a policy of classifying loans (including animpaired loan) which are 90 days past due as to principal and/or interest asnon-accrual loans unless management determines that the fair value of underlyingcollateral is substantially in excess of the loan amount or other circumstancesjustify treating the loan as fully collectible. When a loan is placed onnon-accrual status, any interest previously accrued, but not yet collected, isreversed against current income. A loan is returned to accrual status only whenthe borrower has demonstrated the ability to make future payments of principaland interest as scheduled, and the borrower has demonstrated a sustained periodof repayment performance in accordance with the contractual terms. Interestreceived on non-accrual loans generally is either applied as principal reductionor reported as recoveries on amounts previously charged off, according tomanagement's judgment as to the collectability of principal.

 

The following table provides information with respect to theCompany's past due loans, non-accrual loans and restructured loans, as of thedates indicated:

<TABLE>

<CAPTION>

 

(IN THOUSANDS)**June 30, 2003**December 31, 2002
<S>
<C>
<C>
Loans 90 Days or More Past Due and Still Accruing
$ -
$ 900
Non-accrual Loans
21,896
24,770
Total Past Due Loans
21,896
25,670
Restructured Loans (on Accrual Status)
587
666**Total Non-performing Assets**$ 22,483**$ 26,336
 

</TABLE>

 

Total non-performing assets decreased to $22.5 million, as ofJune 30, 2003, from $26.3 million, as of December 31, 2002, representing a $3.8million, or 14.6%, decrease.

 

Loans 90 Days or More Past Due

 

As of June 30, 2003, there were no loans 90 days or more pastdue and still accruing. As of December 31, 2002, one borrower with twooutstanding notes constituted the $900,000 amount. The notes were paid off inJanuary, 2003.

 

 

Non-Accrual Loans

 

Non-accrual loans declined $2.9 million, or 11.6%, to $21.9million as of June 30, 2003 from $24.8 million as of December 31, 2002. Thereduction was primarily due to charge-offs and repayments.

 

The following table identifies the components of the decreasein non-accrual loans during the six months ended June 30, 2003:

<TABLE>

<CAPTION>

 

 
**Non-Accrual Loans (In Thousands)**
 
<S>
<C>
Balance, December 31, 2002
$24,770
Add: Loans placed on non-accrual
14,757
Less: Charge-offs
(6,022)
Returned to accrual status
(1,563)
Repayments
(10,046)
Balance, June 30, 2003**$21,896
 

</TABLE>

 

The following table breaks out the Company's non-accrualloans by category as of June 30, 2003 and December 31, 2002:

 

<TABLE>

<CAPTION>

 

(IN THOUSANDS)**June 30, 2003**December 31, 2002
<S>
<C>
<C>
Commercial
$ 18,183
$ 22,916
Real Estate-Construction
2,950
1,584
Real Estate-Conventional
759
260
Other
4
10**Total**$21,896**$24,770
</TABLE>

 

Of the $18.2 million of non-accrual commercial loans as ofJune 30, 2003, $0.5 million, $1.1 million and $0 were from the apparel textile,computer/electronic goods industries and early-stage high technology companies,respectively.

 

Restructured Loans

 

As of June 30, 2003, the balance of restructured loans was$0.6 million compared to $0.7 million as of December 31, 2002. A loan iscategorized as restructured if the original interest rate on such loan, therepayment terms, or both, are modified due to a deterioration in the financialcondition of the borrower. Restructured loans may also be put on a non-accrualstatus in keeping with the Bank's policy of classifying loans which are 90days past due as to principal and/or interest. Restructured loans which arenon-accrual loans are not included in the balance of restructured loans. As ofJune 30, 2003, there was one restructured loan with a balance of $42,000 onnon-accrual status. The weighted average yield of the restructured loans as ofJune 30, 2003 was 11.25%.

 

There are no commitments to lend additional funds on any ofthe restructured loans.

 

Impaired Loans

A loan is identified as impaired when it is probable thatinterest and principal will not be collected according to the contractual termsof the loan agreement. Loan impairment is measured by estimating the expectedfuture cash flows and discounting them at the respective effective interest rateor by valuing the underlying collateral. The following table discloses pertinentinformation as it relates to the Company's impaired loans as of the datesindicated:

<TABLE>

<CAPTION>

(IN THOUSANDS)
June 30, 2003
Dec. 31, 2002
<S>
<C>
<C>
Recorded Investment with Related Allowance
$10,744
$16,922
Recorded Investment with no Related Allowance
9,047
-
Total Recorded Investment
19,791
16,922
Allowance for Impaired Loans
(2,790)
(3,702)
Net Recorded Investment in Impaired Loans
$17,001
$13,220
</TABLE>

 

The average balance of impaired loans before the allowancewas $17.8 million for the six months ended June 30, 2003 and $24.6 million forthe year ended December 31, 2002.

 

For the six months ended June 30, 2003 and 2002, interestincome recognized on impaired loans was $88,000 and $0, respectively. Of theamount of interest income recognized during the six months ended June 30, 2003and 2002, no interest was recognized under the cash basis method.

 

 

Management cannot predict the extent to which the currenteconomic environment, including the real estate market, may continue to improveor worsen, or the full impact such environment may have on the Bank's loanportfolio. Furthermore, as the Bank's primary regulators review the loanportfolio as part of their routine, periodic examinations of the Bank, theirassessment of specific credits may affect the level of the Bank'snon-performing loans. Accordingly, there can be no assurance that other loanswill not be placed on non-accrual, become 90 days or more past due, have termsmodified in the future, or become other real estate owned.

 

 

Allowance for Credit Losses

 

As of June 30, 2003, the balance of the allowance for creditlosses was $28.9 million, representing 2.37% of outstanding loans and leases.This compares to an allowance for credit losses of $25.5 million as of December31, 2002, representing 2.13% of outstanding loans and leases.

 

The table below summarizes the activity in the allowance forcredit losses (which amount includes the allowance on impaired loans) for thesix months ended as indicated:

 

<TABLE>

<CAPTION>

 

(In Thousands)**June 30, 2003**June 30, 2002
<S>
<C>
<C>
Balance, Beginning of Period
$25,534
$23,656
Provision for Credit Losses
8,186
57,664
Charge-offs
(5,185)
(53,637)
Recoveries
354
247
Balance, End of Period
$28,889
$27,930
 

</TABLE>

 

As of June 30, 2003, the allowance represents 128.5% ofnon-performing loans. Non-performing loans includes loans 90 days or more pastdue and still accruing, non-accrual loans and restructured loans. As of June 30,2003, the allowance represents 131.9% of non-accrual loans. As of December 31,2002, the allowance represented 97.0% and 103.1% of non-performing loans and ofnon-accrual loans, respectively.

 

The provision for credit losses is an amount required tomaintain an allowance for credit losses that management believes is adequate tocover probable credit losses related to specifically identified loans as well asprobable credit losses inherent in the remainder of the loan and leaseportfolio. Allocation of the allowance is made for analytical purposes only, andthe entire allowance is available to absorb probable and estimable credit lossinherent in the portfolio, including unfunded commitments. Additions to theallowance result from recording provision for loan losses or loan recoveries,while charge-offs are deducted from the allowance. Management evaluates the loanportfolio, the economic environment, historical loan loss experience, collateralvalues and assessments of borrowers' ability to repay in determining theamount of the allowance for credit losses. The balance of the allowance forcredit losses is an accounting estimate of probable but unconfirmed losses inthe Bank's loan portfolio as of June 30, 2003 and December 31, 2002. Theamount is based on ongoing, quarterly assessments of the probable estimatedlosses inherent in the loan and lease portfolio, and to a lesser extent, unusedcommitments to provide financing. The Company's methodology for assessing theappropriateness of the allowance consists primarily of the use of a formulaallowance.

 

The formula allowance is calculated by applying loss factorsto outstanding loans and leases and certain unused commitments, in each casebased on the internal risk ratings of such loans, pools of loans, leases orcommitments. Changes in risk ratings of both performing and non-performing loansaffect the amount of the formula allowance. Loss factors are based on theCompany's historical loss experience, adjusted for significant factors that,in management's judgment, affect the collectibility as of the evaluation date.Loss factors are described as follows:

 
Problem graded loan loss factors represent percentages generated by a      migration analysis which tracks loss experience over the previous twelve      quarters, except for those loans identified as impaired. For loans that      are identified as impaired that are collateral-dependent, impairment is      measured based on the estimated fair value of the collateral. For impaired      loans that are not collateral-dependent, impairment is measured by      estimating the expected future cash flows and discounting them at the loan's      estimated future cash flows and discounting them at the loan's effective      interest rate. If the measurement of the impaired loan is less than the      recorded amount of the loan, impairment is recognized by creating or      adjusting an existing valuation allowance with a corresponding charge to      the provision for loan losses.

 
Pass graded loan loss factors are based on a migration analysis, similar      to that used for problem graded loan loss factors.

 
The Bank has identified six portfolio segments where a specific loss      factor has been developed and applied. The segments are: real estate term      loans, real estate construction loans, land loans, high technology      credits, loans to borrowers in the apparel and textile industries, and      loans to borrowers in the computer and electronics industries. Each      portfolio segment shares risk characteristics that are common to the group      of loans. Each segment is subject to a migration analysis in order to      establish a loss factor for that particular segment.

 

Adjustments to the final allowance reflect management'sanalysis of current conditions which are expected to affect loss experience.Additionally, at the end of each quarter, management may establish furtherdiscretionary allowances for the period which reflect temporary influences onexpected loan loss experience. These factors include:

 
- Changes in economic and business conditions;
- Changes in the nature of and concentrations in the portfolio;
- Changes in the trend of amounts and/or severity of past due and classified    loans, trends in the level of non-accrual loans, troubled debt    restructurings, or other indicators; and
- Changes in external factors such as competition or legal and regulatory    requirements.

 

 

 

Securities

 

The Company classifies its securities as held-to-maturity,trading or available-for-sale. Securities classified as held-to-maturity arethose debt securities that the Company has the positive intent and ability tohold until maturity. These securities are carried at amortized cost. As of June30, 2003 and December 31, 2002, there were no securities held-to-maturity.

 

Securities that are obtained and held principally for thepurpose of selling them in the near term are classified as trading and arereported at fair value, with unrealized gains and losses included in earnings.Equity securities received upon the exercise of warrants and securitydistributions from venture capital funds are classified as trading.

 

Securities that could be sold in response to changes ininterest rates, increased loan demand, liquidity needs, capital requirements orother similar factors, are classified as securities available-for-sale. Thesesecurities are carried at fair value, with unrealized gains and lossesreflected, net of tax, in other comprehensive income.

 

As of June 30, 2003, the Company recorded net unrealizedgains of $20,675,000 on its available-for-sale portfolio. Accumulated othercomprehensive income includes $13,439,000, representing the net unrealizedgains, net of tax.

 

The amortized cost, gross unrealized gains, gross unrealizedlosses and fair value of securities at June 30, 2003 and December 31, 2002 wereas follows:

<TABLE>

<CAPTION>

Gross
Gross
(In Thousands)
Amortized
Unrealized
Unrealized
Fair
June 30, 2003
Cost
Gains
Losses
Value
<S>
<C>
<C>
<C>
<C>**Securities Available-for-Sale
State and Municipal Securities
$ 2,216
$ 112
$ -
$ 2,328
U. S. Treasuries
1,053
55
-
1,108
U.S. Government Agencies
91,850
4,489
-
96,339
Mortgage Backed Securities
527,747
9,258
287
536,718
Commercial Mortgage Backed Securities
91,188
5,194
-
96,382
Corporate Notes
19,348
595
-
19,943
Collateralized Mortgage Obligations
354,584
1,475
487
355,572
Asset Backed Securities
8,644
271
-
8,915
FHLB Stock
17,314
-
-
17,314
Total
$1,113,944
$21,449
$ 774
$1,134,619
Gross
Gross
(In Thousands)
Amortized
Unrealized
Unrealized
Fair
December 31, 2002
Cost
Gains
Losses
Value**Securities Available-for-Sale
State and Municipal Securities
$ 2,221
$ 52
$ -
$ 2,273
U. S. Treasuries
1,066
52
-
1,118
U.S. Government Agencies
61,964
3,606
-
65,570
Mortgage Backed Securities
493,815
11,826
57
505,584
Commercial Mortgage Backed Securities
103,837
4,928
-
108,765
Corporate Notes
40,468
653
-
41,121
Collateralized Mortgage Obligations
309,835
3,525
64
313,296
Asset Backed Securities
19,374
576
-
19,950
FHLB Stock
18,020
-
-
18,020
Total
$ 1,050,600
$ 25,218
$ 121
$ 1,075,697
 

</TABLE>

 

As of June 30, 2003, the fair value of total securitiesavailable-for-sale was $1,134.6 million, of which $19.9 million is unsecuredcorporate debt, as shown below (Dollars in millions):

<TABLE>

<CAPTION>

<S>
<C>
Countrywide Credit
$ 2.1
Gannett
5.3
General Motors
1.1
Gillette
5.1
Lehman Brothers
1.1
National Rural Utilities
5.2
Total
$ 19.9
</TABLE>

 

As of June 30, 2003, trading securities totaled $12,000 andwere comprised of two equity issues. The instruments are non-interest bearing.

 

There were no sales of securities available-for-sale for thesix months ended June 30, 2003.

 

During the three and six-month periods ended June 30, 2002there were sales of securities from the available-for-sale portfolio with a bookvalue of $206.2 million for which proceeds of $216.4 million were received. Therelated gains on sale were $10,127,000. The weighted average yield on thesecurities sold was 6.43%.

 

Other Investments

 

As of June 30, 2003, other investments totaled $6.1 million.The balance includes $5.6 million of investments in various venture capitalfunds that invest in technology companies. As of June 30, 2003, undisbursedcommitments to invest in these various funds totaled $4.6 million.

 

Also included in other investments are investments made bythe Bank in corporations responsible for lending activities qualifying under,among other things, the Community Reinvestment Act. These investments areaccounted for by the cost method or equity method, as appropriate. As of June30, 2003, the balance of these investments was $0.5 million.

 

 

Deposits

 

The Company's deposits totaled $1,852.0 million as of June30, 2003, representing a $52.1 million, or 2.7%, decrease from total deposits of$1,904.1 million as of December 31, 2002. The decline was primarily due to a$54.3 million decrease in interest-bearing demand deposits and a $23.5 milliondecrease in time deposits of $100,000 and more. This decrease was partiallyoffset by increases in the following:

 
$9.7 million increase in other time deposits,
$8.1 million increase in saving deposits, and
$7.9 million increase in non-interest-bearing demand deposits.

 

As indicated previously, the net decline of deposits wasprimarily attributable to the loss of a large corporate depositor due to itsacquisition and the outflow of high tech company deposits. There were brokereddeposits outstanding of $3.0 million and $3.9 million as of June 30, 2003 andDecember 31, 2002, respectively. It is not the intent of the Bank to acceptadditional brokered deposits. The outstanding deposits are not being renewedupon their maturity.

 

The maturity schedule of time deposits of $100,000 or more,as of June 30, 2003, is as follows:

<TABLE>

<CAPTION>

 

(In Thousands)
Amount
<S>
<C>
3 Months or Less
$351,726
Over 3 Months Through 6 Months
200,818
Over 6 Months Through 12 Months
177,027
Over 12 Months
126,375**Total**855,946
 

</TABLE>

 

Other Borrowings

 

The Bank has obtained advances from the Federal Home LoanBank of San Francisco (the "FHLB") totaling $267.4 million as of June30, 2003. The advances are under an existing line of credit. The FHLB informedthe Bank in April 2003 that this line has been reduced to 20% of its assets fromthe prior level of 25%. As of June 30, 2003, total advances represented 11.1% ofthe Bank's total assets. The Bank has been repaying the advances as theymatures and expects to continue this strategy in the future. Therefore, thedecline in the line of credit from the FHLB is not expected to have an impact onthe Bank's liquidity.

 

The maturity schedule of outstanding advances as of June 30,2003 is as follows:

<TABLE>

<CAPTION>

(In Thousands)
Amount
Fixed Rate of Interest
<S>
<C>
<C>
3 Months or Less
$ 40,000
3.18% - 4.67%
Over 3 Months Through 12 Months
208,400
2.89% - 5.25%
Over 1 Year Through 3 Years
19,000
4.84% - 5.06%
Total
$ 267,400
2.89% - 5.25%
</TABLE>

 

The total outstanding advances of $267.4 million as of June30, 2003 have a weighted average fixed rate of interest of 3.84%.

Subordinated debt is comprised of a $40 million publicoffering 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 bythe Company at date of issuance. The discount is amortized as a yield adjustmentover the 10-year life of the notes.

 

Capital Resources

 

Stockholders' equity totaled $212.4 million as of June 30,2003, an increase of $8.3 million, or 4.1%, from $204.1 million, as of December31, 2002. The growth is the net result of the following:

<TABLE>

<CAPTION>

 
 
(In millions)
<S>
<C>
Balance at December 31, 2002
$204.1
Less: Net loss
(9.0)
Add: Non-cash stock compensation expense
21.7
Less: Reduction of accumulated other comprehensive      income
(2.8)
Less: Cash dividends
(2.8)
Add: Stock options exercises and related tax benefits
1.2
Balance at June 30, 2003
$212.4
</TABLE>

 

In February, 2001, the Board of Directors authorized a stockrepurchase program approving the buy-back of up to 500,000 shares of the Company'sstock. As of June 30, 2003, 405,000 shares had been repurchased at an averagecost of $26.83 per share for a total of $10.9 million. There is an additional300,000 share program authorized by the Board after the above program iscompleted. Under the terms of the merger agreement, no shares can be repurchasedwithout the prior consent of Cathay Bancorp. No shares were repurchased duringthe six months ended June 30, 2003.

 

Capital ratios for the Company and for the Bank were asfollows as of the dates indicated:

<TABLE>

<CAPTION>

 

 
 
Well-Capitalized
June 30,
December 31, 
Requirements
2003
2002**<S>
<C>
<C>
<C>**GBC Bancorp   
Tier 1 Leverage Ratio
5%
7.87%
7.33%
Tier 1 Risk-Based Capital Ratio
6%
12.12%
10.51%
Total Risk-Based Capital Ratio
10%
14.89%
13.62%**General Bank   
Tier 1 Leverage Ratio
5%
8.37%
7.91%
Tier 1 Risk-Based Capital Ratio
6%
12.92%
11.37%
Total Risk-Based Capital Ratio
10%
14.17%
12.62%
</TABLE>

 

Please see also note 7, Regulatory Matters, of Notesto Unaudited Consolidated Financial Statements.

 

For the quarter ended June 30, 2003, the ratio of the Company'saverage stockholders' equity to average assets was 8.52%. For the year endedDecember 31, 2002, this ratio was 8.23%.

 

 

GBC Bancorp Executive Obligation Trust (The"Trust")

 

In the first quarter of 2000, the Company entered into atrust agreement providing for the Trust with Union Bank of California astrustee. There were no transactions involving the Trust for the six months endedJune 30, 2003, other than the receipt of cash dividends on the shares held.

 

In the consolidated financial statements, the shares held inthe Trust are reduced from common stock and included as a separate component ofstockholders' equity captioned "deferred compensation". As of June30, 2003, this amount was $2,103,000, representing the cost of the 79,001 sharesheld in the Trust.

 

Liquidity

 

Liquidity measures the ability of the Company to meetfluctuations in deposit levels, to fund its operations and to provide forcustomers' credit needs. Liquidity is monitored by management on an on-goingbasis. Asset liquidity is provided by cash and short-term financial instrumentswhich include federal funds sold and securities purchased under agreements toresell, unpledged securities held to maturity maturing within one year andunpledged securities available-for-sale. These sources of liquidity amounted to$877.2 million, or 36.5% of total assets, as of June 30, 2003, compared to$957.7 million, or 38.1%,of total assets, as of December31, 2002.

 

To further supplement its liquidity, the Company hasestablished federal funds lines with correspondent banks and three masterrepurchase agreements with major brokerage companies. The FHLB has granted theBank a line of credit equal to 20 percent of assets with terms up to 360 months.(See "Other Borrowings" above.) As of June 30, 2003, the Company had$267.4 million outstanding under this financing facility. Management believesits liquidity sources to be stable and adequate.

 

As of June 30, 2003, total loans and leases represented 65.9%of total deposits. This compares to 63.0% as of December 31, 2002.

 

The liquidity of the parent company, GBC Bancorp, isprimarily dependent on the payment of cash dividends by its subsidiary, GeneralBank, subject to the limitations imposed by the Financial Code of the State ofCalifornia and the MOU. See note 7 in notes to unaudited consolidated financialstatements, above. For the six months ended June 30, 2003, the Bank declaredcash dividends of $2.8 million to GBC Bancorp.

 

"GAP" measurement

 

While no single measure can completely identify the impact ofchanges in interest rates on net interest income, one gauge of interest ratesensitivity is to measure, over a variety of time periods, contractualdifferences in the amounts of the Company's rate sensitive assets and ratesensitive liabilities. These differences, or "gaps", provide anindication of the extent that net interest income may be affected by futurechanges in interest rates. However, these contractual "gaps" do nottake into account timing differences between the repricing of assets and therepricing of liabilities.

 

A positive gap exists when rate-sensitive assets exceedrate-sensitive liabilities and indicates that a greater volume of assets thanliabilities will reprice during a given period. This mismatch may enhanceearnings in a rising rate environment and may inhibit earnings when ratesdecline. Conversely, when rate-sensitive liabilities exceed rate-sensitiveassets, referred to as a negative gap, it indicates that a greater volume ofliabilities than assets will reprice during the period. In this case, a risinginterest rate environment may inhibit earnings and declining rates may enhanceearnings.

 

Gap reports originated as a means to provide management witha tool to monitor repricing differences, or gaps, between assets and liabilitiesrepricing 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 uniquespecified timeframe. Contractual gap reports cannot be used to quantify exposureto interest rate changes because they do not take into account timingdifferences between repricing assets and liabilities, and changes in the amountof prepayments.

 

As of June 30, 2003, there was a cumulative one-year negativegap of $637.0 million compared to the one-year negative gap of $546.8 million asof December 31, 2002.

 

The following table indicates the Company's interest ratesensitivity position as of June 30, 2003, and is based on contractualmaturities. It may not be reflective of positions in subsequent periods:

<TABLE>

<CAPTION>

June 30, 2003
Interest Sensitivity Period
0 to 90
 
91 to 365
 
Over 1 Year
 
Over
 
Non-Interest
 
 
(In Thousands)
 
Days
 
Days
 
to 5 Years
 
5 Years
 
Earning/Bearing
 
Total
<S>
<C>
<C>
<C>
<C>
<C>
<C>
Earning Assets
Securities Available-for-Sale
$ 132,133
$ 3,124
$ 117,169
$ 882,193
$ -
$ 1,134,619
Trading Account Securities
-
-
-

12
12
Federal Funds Sold & Securities
Purchased Under Agreement to Resell
9,550
-
-
-
-
9,550
Loans and Leases (1) (2)
904,801
13,420
115,144
164,523
-
1,197,888
Non-Earning Assets (2)
-
-
-
-
64,616
64,616
Total Earning Assets
$ 1,046,484
$ 16,544
$ 232,313
$ 1,046,716
$ 64,628
$ 2,406,685
Deposits
Non-interest Bearing Demand
$ -
$ -
$ -
$ -
$ 259,092
$ 259,093
Interest Bearing Demand
489,666
-
-
-
-
489,666
Savings
95,688
-
-
-
-
95,688
Time Deposits Under $100,000
58,497
78,223
14,926
-
-
151,645
Time Deposits $100,000 and Over
351,626
377,945
126,375
-
-
855,946
Total Deposits
$ 995,477
$ 456,168
$ 141,301
$ -
$ 259,092
$ 1,852,038
-
-
-
-
-
-
Borrowings from the Federal Home Loan Bank
$ 40,000
$ 208,400
$ 19,000
$ -
$ 267,400
Subordinated Debt
-
-
39,465
-
-
39,465
Other Liabilities
-
-
-
-
35,416
35,416
Stockholders' Equity
-
-
-
-
212,366
212,366
Total Liabilities and
 
 
 
 
 
 
Stockholders' Equity
$ 1,035,477
$ 664,568
$ 199,766
$ -
$ 506,874
$ 2,406,685
Interest Sensitivity Gap
$ 11,007
$ (648,024)
$ 32,547
$ 1,046,716
$ (442,246)
Cumulative Interest Sensitivity
Gap
$11,007
($637,017)
($604,470)
$442,246
-
Gap Ratio (% of Total Assets)
0.4%
-26.9%
1.4%
43.5%
-18.4%
Cumulative Gap Ratio
0.4%
-26.5%
-25.1%
18.4%
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.
 

</TABLE>

 

Effective asset/liability management includes maintainingadequate liquidity and minimizing the impact of future interest rate changes onnet interest income. The Company attempts to manage its interest ratesensitivity on an on going basis through the analysis of the repricingcharacteristics of its loans, securities, and deposits, and managing theestimated net interest income volatility by adjusting the terms of itsinterest-earning assets and liabilities, and through the use of derivatives asneeded.

 

 

Item 3. Qualitative and Quantitative Disclosures aboutMarket Risk
 

Market risk

 

Market risk is the risk of financial loss arising fromadverse changes in market prices and interest rates. The Company's market riskis inherent in its lending and deposit taking activities to the extent ofdifferences in the amounts maturing or degree of repricing sensitivity. Adversechanges in market prices and interest rates may therefore result in diminishedearnings and ultimately an erosion of capital.

 

Since the Company's profitability is affected by changes ininterest rates, management actively monitors how changes in interest rates mayaffect earnings and ultimately the underlying market value of equity. Managementmonitors interest rate exposure through the use of three basic measurement toolsin conjunction with established risk limits. These tools are the expectedmaturity gap report, net interest income volatility and market value of equityvolatility reports. The gap report details the expected maturity mismatch or gapbetween interest earning assets and interest bearing liabilities over aspecified timeframe. The expected gap differs from the contractual gap reportshown earlier in this section by adjusting contractual maturities for expectedprepayments of principal on loans and amortizing securities as well as theprojected timing of repricing non-maturity deposits. The following table showsthe Company's financial instruments that are sensitive to changes in interestrates categorized by their expected maturity, as of June 30, 2003:

<TABLE>

<CAPTION>

      Expected Maturity Date
 June 30, 2003
(Dollars in Thousands)
0 to 90
 
91 to 365
 
Over 1 Year
 
Over
 
 
(In Thousands)
 
Days
 
Days
 
to 5 Years
 
5 Years
 
Total
<S>
<C>
<C>
<C>
<C>
<C>
Interest-sensitive Assets:
Securities Available-for-Sale
$ 142,916
$ 275,934
$ 622,183
$ 93,586
$ 1,134,619
Federal Funds Sold & Securities
Purchased Under Agreements to Resell
9,550
-
-
-
9,550
Loans and Leases (1)
904,541
13,420
115,144
164,783
1,197,888
Total Interest-earning Assets
$ 1,057,007
$ 289,354
$ 737,327
$ 258,369
$ 2,342,057
Interest-sensitive Liabilities:
Deposits:
Interest-Bearing Demand
$ 30,583
$ 91,753
$ 197,244
$ 170,086
$ 489,666
Savings
5,933
17,798
39,423
32,534
95,688
Time Deposits
408,077
458,057
141,458
-
1,007,591
Total Deposits
$ 444,593
$ 567,608
$ 378,125
$ 202,620
$ 1,592,945
Borrowings from FHLB
$ 40,000
$ 208,400
$ 19,000
$ -
$ 267,400
Subordinated Debt
-
-
39,465
-
39,465
Total Interest-sensitive Liabilities
$ 484,593
$ 776,008
$ 436,590
$ 202,620
$ 1,899,810
(1) Loans and leases are net of non-accrual loans and before      unamortized deferred loan fees and allowance for credit losses.
 

</TABLE>

 

Expected maturities of assets are contractual maturitiesadjusted for projected payment based on contractual amortization and unscheduledprepayments of principal as well as repricing frequency. Expected maturities fordeposits are based on contractual maturities adjusted for projected rolloverrates and changes in pricing for non-maturity deposits. The Company utilizesassumptions supported by documented analysis for the expected maturities of itsloans and repricing of its deposits and relies on third party data providers forprepayment projections for amortizing securities. The actual maturities of theseinstruments could vary significantly if future prepayments and repricing differfrom the Company's expectations based on historical experience.

 

The Company uses a computer simulation analysis to attempt topredict changes in the yields earned on assets and the rates paid on liabilitiesin relation to changes in market interest rates. The net interest incomevolatility and market value of equity volatility reports measure the exposure ofearnings and capital, respectively, to immediate incremental changes in marketinterest rates as represented by the prime rate change of 100 to 200 basispoints. Market value of portfolio equity is defined as the present value ofassets minus the present value of liabilities and off balance sheet contracts.The table below shows the estimated impact of changes in interest rates on netinterest income and market value of equity as of June 30, 2003:

<TABLE>

<CAPTION>

 

Net Interest
Market Value of
Change in Interest
Income Volatility
Equity Volatility
Rates (Basis Points)
June 30, 2003 (1)
June 30, 2003 (2)
<S>
<C>
<C>
+200
11.3%
(3.7)%
+100
6.6%
0.3%
-100
(3.2)%
(2.9)%
-200
(7.7)%
(7.2)%- 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.      - 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.      
</TABLE>

 

The Company's primary objective in managing interest raterisk is to minimize the adverse effects of changes in interest rates on earningsand capital. In this regard the Company has established internal risk limits fornet interest income volatility given a 100 and 200 basis point decline in ratesof 10% and 15%, respectively, over a twelve-month horizon. Similarly, risklimits have been established for market value of portfolio equity volatility inresponse to a 100 and 200 basis point increase in rates of 10% and 15%,respectively.

 

 

Item 4. Controls and Procedures
 
- Disclosure Controls and Procedures.
 
As of the end of the quarter covered by this report, an  evaluation of the effectiveness of the design and operation of the Company's  disclosure controls and procedures was carried out by the Company under the  supervision and with the participation of the Company's management,  including the chief executive officer and the chief financial officer. Based  on that evaluation, the chief executive officer and chief financial officer  concluded that, as of the date of their evaluation, the Company's disclosure  controls and procedures have been designed and, subject to the qualifications  identified below, are functioning effectively to provide reasonable assurance  that the information required to be disclosed by the Company in reports filed  under the Securities Exchange act of 1934 is recorded, processed, summarized  and reported within the time periods specified in the SEC's rules and forms.  As noted in note 7, "Regulatory Matters" of Notes to Unaudited  Consolidated Financial Statements, the Company's subsidiary, General Bank,  has entered into a Memorandum of Understanding with its bank regulators,  resulting in the adoption or modification of important policies, methodologies  and procedures relating to certain aspects of its business. The policies,  methodologies and procedures have been and are being implemented, along with  programs to test their effectiveness. In addition, the Company believes that a  disclosure controls system, no matter how well designed and operated, cannot  provide absolute assurance that the objectives of the controls system are met,  and no evaluation of controls can provide absolute assurance that all control  issues, including errors and instances of fraud, if any, within a company have  been detected.
 
- Changes in Internal Controls over Financial Reporting

 

Except as described in (a) above, there were no changes inthe Company's internal controls over financial reporting that occurred duringthe quarter to which this report relates that have materially affected, or arereasonably likely to materially affect, the Company's internal control overfinancial reporting.

 

 

FORWARD-LOOKING STATEMENTS

 

Certain statements contained herein, including, withoutlimitation, statements containing the words "indicates,""anticipates," "believes," "intends,""expects" and words of similar import, constitute"forward-looking statements" within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Such forward-looking statementsinvolve known and unknown risks, uncertainties and other factors that may causethe actual results, performance or achievements of the Company to be materiallydifferent from any future results, performance or achievements expressed orimplied by such forward-looking statements. Such factors include, among others,the following: credit quality, general economics and business conditions inthose areas in which the Company operates; competition; fluctuations in interestrates; changes in business strategy or development plans; changes ingovernmental regulation; and other factors referenced herein, including, withoutlimitation, under the captions Provision for Credit Losses, Market Risk,Liquidity and Interest Rate Sensitivity, and Recent Accounting Developments.Given these uncertainties, the reader is cautioned not to place undue relianceon such forward-looking statements. The Company disclaims any obligation toupdate any such factors or to publicly announce the results of any revisions toany of the forward-looking statements contained herein to reflect future eventsor developments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1. LEGAL PROCEEDINGS

 

In the normal course of business, the Company is subject topending and threatened legal actions. After reviewing pending actions withcounsel, management believes that the outcome of such actions will not have amaterial adverse effect on the financial condition or the results of operationsof the Company.

 

 

Item 2. CHANGES IN SECURITIES

 

There have been no changes in the securities of theRegistrant during the quarter ended June 30, 2003.

 

 

Item 3. DEFAULT UPON SENIOR SECURITIES

 

This item is not applicable.

 

 

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

At the Annual Meeting of Shareholders held on May 15,    2003, a proposal to elect thirteen directors to the Board of Directors of    the Registrant to hold office until the next meeting and until their    successors are elected and qualified was approved by shareholders. This    proposal received the following votes:

<TABLE>

<CAPTION>

 

 

 
For
Withheld
<S>
<C>
<C>
Benard Chen
9,445,563
964,431
Thomas C.T. Chiu
9,445,563
964,431
Chuang-I Lin
9,445,563
964,431
Ko-Yen Lin
9,445,563
964,431
Ting-Yung Liu
9,445,563
964,431
John Wang
9,445,563
964,431
Kenneth Wang
9,445,563
964,431
Chien-Te Wu
9,445,263
964,731
Julian Wu
9,325,643
1,084,351
Li-Pei Wu
9,439,868
970,126
Peter Wu
9,439,868
970,126
Ping C. Wu
9,445,463
964,531
Chin-Liang Yen
10,056,619
353,375
</TABLE>

 

In addition, a proposal to approve the amendment to the GBCBancorp 1999 Employee Stock Incentive Plan to increase the number of shareavailable thereunder by 300,000 shares, was approved by shareholders. Thisproposal received the following votes:

<TABLE>

<CAPTION>

                                   <S>                            <C>                            <C>

For: 9,699,138
Against: 698,210
Abstain: 12,646
 

</TABLE>

 

Item 5. OTHER INFORMATION

 

There are no events to be reported under this item.

 

 

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

 
- Exhibits:

<TABLE>

<CAPTION>

 

Number
Description
<C
<S>
31.1
Certifications by the Chief Executive Officer        pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2
Certifications by the Chief Financial Officer        pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1
Certifications by the Chief Executive Officer pursuant        to Section 906 of the Sarbanes-Oxley Act.
32.2
Certifications by the Chief Financial Officer        pursuant to Section 906 of the Sarbanes-Oxley Act.
</TABLE>

 
Reports on Form 8-K: A Form 8-K, reporting under item 12, was filed on    April 22, 2003, announcing the Company's first quarter 2003 financial    results. A Form 8-K, reporting under item 5, was filed on May 7, 2003,    announcing the definitive agreement providing for the merger of the Company    into Cathay Bancorp, Inc. In addition, a Form 8-K reporting under item 9,    was filed on May 15, 2003 for the certifications for the report on Form 10-Q    for the quarter ended March 31, 2003, in compliance with Section 906 of the    Sarbanes-Oxley Act.

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Actof 1934, the Registrant has duly caused this report to be signed on its behalfby the undersigned thereunto duly authorized.

 

 

 

GBC Bancorp

(Registrant)

 

 

Dated: __Aug. 13, 2003_                                                        By: /s/ Peter Wu
                                                                                                   Peter Wu, Chairman, President and

                                                                                                   Chief Executive Officer

 

 

 

Dated: __Aug. 13, 2003 __                                                    By: /s/ Peter Lowe
                                                                                                   Peter Lowe, Executive

                                                                                                   Vice President and

Chief Financial Officer

 

Exhibit 31.1

 
**CERTIFICATIONS**
 

I, Peter Wu, certify that:

 
I have reviewed this quarterly report on Form 10-Q of GBC Bancorp;
Based on my knowledge, this report does not contain any untrue statement      of a material fact or omit to state a material fact necessary to make the      statements made, in light of the circumstances under which such statements      were made, not misleading with respect to the period covered by this      report;
Based on my knowledge, the financial statements, and other financial      information included in this report, fairly present in all material      respects the financial condition, results of operations and cash flows of      the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for      establishing and maintaining disclosure controls and procedures (as      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant      and have:

Designed such disclosure controls and procedures, or caused such      disclosure controls and procedures to be designed under our supervision,      to ensure that material information relating to the registrant, including      its consolidated subsidiaries, is made known to us by others within those      entities, particularly during the period in which this report is being      prepared;
[Omitted pursuant to SEC Release No. 33-8238];
Evaluated the effectiveness of the registrant's disclosure controls      and procedures and presented in this report our conclusions about the      effectiveness of the disclosure controls and procedures, as of the end of      the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal      control over financial reporting that occurred during the registrant's      most recent fiscal quarter (the registrant's fourth fiscal quarter in      the case of an annual report) that has materially affected, or is      reasonably likely to materially affect, the registrant's internal      control over financial reporting; and

 
- The registrant's other certifying officer and I have disclosed, based      on our most recent evaluation of internal control over financial      reporting, to the registrant's auditors and the audit committee of the      registrant's board of directors (or persons performing the equivalent      functions):
- All significant deficiencies and material weaknesses in the design          or operation of internal control over financial reporting which are          reasonably likely to adversely affect the registrant's ability to          record, process, summarize and report financial information; and
- Any fraud, whether or not material, that involves management or          other employees who have a significant role in the registrant's          internal control over financial reporting.
 
Date: ___Aug. 13, 2003_______________
 
 
By: /s/ Peter Wu
Peter Wu, Chairman, President & Chief Executive        Officer

 

Exhibit 31.2

 
**CERTIFICATIONS**
 

I, Peter Lowe, certify that:

 
- I have reviewed this quarterly report on Form 10-Q of GBC                Bancorp;
- Based on my knowledge, this report does not contain any untrue                statement of a material fact or omit to state a material fact                necessary to make the statements made, in light of the                circumstances under which such statements were made, not                misleading with respect to the period covered by this report;
- Based on my knowledge, the financial statements, and other                financial information included in this report, fairly present in                all material respects the financial condition, results of                operations and cash flows of the registrant as of, and for, the                periods presented in this report;
- The registrant's other certifying officer and I are                responsible for establishing and maintaining disclosure controls                and procedures (as defined in Exchange Act Rules 13a-15(e) and                15d-15(e)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such      disclosure controls and procedures to be designed under our supervision,      to ensure that material information relating to the registrant, including      its consolidated subsidiaries, is made known to us by others within those      entities, particularly during the period in which this report is being      prepared;
[Omitted pursuant to SEC Release No. 33-8238];
Evaluated the effectiveness of the registrant's disclosure controls      and procedures and presented in this report our conclusions about the      effectiveness of the disclosure controls and procedures, as of the end of      the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal      control over financial reporting that occurred during the registrant's      most recent fiscal quarter (the registrant's fourth fiscal quarter in      the case of an annual report) that has materially affected, or is      reasonably likely to materially affect, the registrant's internal      control over financial reporting; and

- The registrant's other certifying officer and I have disclosed,          based on our most recent evaluation of internal control over financial          reporting, to the registrant's auditors and the audit committee of          the registrant's board of directors (or persons performing the          equivalent functions):
All significant deficiencies and material weaknesses in the design or      operation of internal control over financial reporting which are      reasonably likely to adversely affect the registrant's ability to      record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other      employees who have a significant role in the registrant's internal      control over financial reporting.

 

 

Date: _Aug. 13, 2003________

 

 

By: /s/ Peter Lowe
Peter Lowe, Executive Vice President and Chief FinancialOfficer

 

 

Exhibit 32.1
**Certification**
 

 

 

 

Pursuant to 18 U.S.C. Section 1350, the undersigned officerof GBC Bancorp (the "Company"), hereby certifies to his knowledge thatthe Company's Quarterly Report on Form 10Q for the three and six months endedJune 30, 2003 (the "Report") fully complies with the requirements ofSection 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934and that the information contained in the Report fairly presents, in allmaterial respects, the financial condition and results of operations of theCompany.

 

 

August 13, 2003                                                                By: /s/ Peter Wu__________
                                                                                               Name: Peter Wu

                                                                                               Title: Chairman, President & Chief Executive

                                                                                                       Officer

 

 

The foregoing certification is being furnished solelypursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Reportor as a separate disclosure document.

 

 

 

 

Exhibit 32.2

 

 
**Certification**
 

 

 

 

Pursuant to 18 U.S.C. Section 1350, the undersigned officerof GBC Bancorp (the "Company"), hereby certifies to his knowledge thatthe Company's Quarterly Report on Form 10Q for the three and six months endedJune 30, 2003 (the "Report") fully complies with the requirements ofSection 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934and that the information contained in the Report fairly presents, in allmaterial respects, the financial condition and results of operations of theCompany.

 

 

August 13, 2003                                                                        By: /s/ Peter E. Lowe_________
                                                                                                           Name: Peter E. Lowe

                                                                                                           Title: Executive Vice President &

                                                                                                           Chief Financial Officer

 

The foregoing certification is being furnished solelypursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Reportor as a separate disclosure document.

 

 

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