Local Chinese bank becoming financial powerhouse.

General Bank's rapid growth to be bolstered by merger

GBC Bancorp, a profitable Chinese banking firm which has doubled in size over the last five years, will increase its size by another 25 percent this year if a merger with First Public Savings Bank, another profitable Chinese institution, is approved by regulators.

Downtown Los Angeles-based GBC, parent of General Bank, announced on Feb. 17 that it would acquire Chinatown-based First Public for $38.3 million. The acquisition of First Public, with $250 million in assets, will make GBC, whose General Bank subsidiary has $1 billion in assets, a $1.25 billion institution, GBC Chairman Li-Pei Wu told the Business Journal.

Under the terms of a definitive agreement, Wu said, GBC will pay cash for the savings bank, or about 1.4 times First Public's tangible book value of $27 million. The merger is expected to be completed in the next six months, Wu said. However, there is a possible crimp in the merger plans. First Public's current rating under the federal Community Reinvestment Act is "needs to improve," Wu noted.

General Bank currently has a "satisfactory" CRA rating, but did have a "needs to improve" two years ago, Wu said.

In recent months, federal banking regulators have denied applications of banks and thrifts with poor records of complying with federal fair lending legislation. The Community Reinvestment Act was passed by Congress in 1977 to prevent banks and thrifts from discriminating against making loans in minority and low-income areas. Under the act, banks and thrifts are rated on a regular basis on such factors as ascertaining the credit needs of the community, lending within the community's geographical area, marketing products to all areas of the community and complying with consumer protection laws.

Notably, in November 1993, the Federal Reserve Board denied Boston-based Shawmut National Corp.'s application to acquire New Dartmouth Bank of Manchester, N.H. because of Shawmut's alleged lack of compliance with federal fair lending laws, according to a banking trade newspaper.

In addition to that Fed action, on Feb. 18, the Office of Thrift Supervision, chief regulator of the thrift industry, announced that it had denied applications of four savings and loan associations to convert to state-chartered savings banks because they "failed to satisfactorily carry out their responsibilities under the CRA."

Both the OTS and the Fed must approve the Chinatown merger.

Asked if the CRA rating issue could stop the merger, Wu said, "I certainly hope not. From our perspective, our institution is rated 'satisfactory,' so to have First Public merge into our institution can only improve the situation." Wu added that GBC has hired an outside consultant to work on the CRA concerns that regulators may have and that both banks are willing to work with regulators to alleviate any of their concerns.

Banks and thrifts are given one of four grades to signify their compliance with the CRA: "outstanding," "satisfactory," "needs to improve" or "substantial noncompliance." Outstanding and satisfactory ratings are considered passing grades. Needs to improve and substantial noncompliance ratings are considered failing grades.

At a joint meeting of banking regulators in Los Angeles last fall, a General Bank official was one of a group of Chinese bankers who complained that they did not get enough CRA credit for serving an already underserved market -- Chinese immigrants and Chinese-Americans.

Wu told the Business Journal that the bank was criticized, although it tried to penetrate the African-American and Hispanic communities by advertising its services to them.

"It is not the most natural thing for an ethnic bank to get into another ethnic market," Wu explained. He stressed, however, that he and First Public officials will do whatever they can to meet the requirements of CRA.

He said he hopes the less-than-satisfactory grades "will not be a problem" in carrying out the merger.

If approved, GBC would be the holding company for two of the most profitable and well-capitalized Chinese institutions in the country, according to banking experts.

General Bank was founded in 1980 by Taiwanese immigrants and grew through serving a Taiwanese clientele, although the bank's customer base continues to become more and more "mainstream," Wu said. The bank has 12 branches, with a concentration in the San Gabriel Valley and Orange County, Wu said.

First Public was founded by Chinese immigrants in 1979 and grew by serving a base of customers from Mainland China, Wu said. First Public operates five branches in Southern California, including one of the largest and most profitable financial institution branches in Chinatown, Wu said.

Wu said he intends to initially operate First Public, which is a savings and loan, as a subsidiary of GBC Bancorp, but may later decide to merge First Public into General Bank, a commercial bank.

General Bank has been a public company since 1988, and its shares are traded on NASDAQ. First Public is privately held by about 400 individuals, Wu said. General Bank posted net income of $11.9 million, or $1.76 a share, for 1993. That compares with year-earlier net income of $13 million, or $1.92 a share. First Public posted net earnings of $4.1 million for 1993, compared with net earnings of $3.9 million for 1992.

On a scale of A-plus to D, General Bank was rated B-plus and First Public was rated A-plus for financial stability and profitability by SNL Securities, a Charlottesville, Va.-based bank rating firm. The Bauer Reports, a Coral Gables, Fla.-based bank rating service which ranks financial institutions on a scale of zero to five stars, gives General Bank four stars and First Public five stars for financial stability and profitability.