Cathay General Bancorp (CATY) 2001 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the GBC Bancorp (Company: GBC Bancorp; Ticker: GBCB; URL: http://www.generalbank.com/) fourth quarter earnings conference call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time.

If anyone should require assistance during the conference, please press star, then zero on your touch-tone telephone.

If anyone should disconnect and need to rejoin, please dial 1-888-413-4411. And as a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Miss Rose Anunciacion of FRB/Weber Shandwick.

Miss Anunciacion, you may begin your conference.

Thank you, Operator.

Good morning, everyone, and thank you for joining us to discuss GBC Bancorp's fourth quarter and yearend financial results.

I would like to caution you at this time that during the course of the conference call management may make projections or other forward-looking statements regarding the events or future financial performance of the company within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

We wish to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties. For a more detailed description of the factors that affect the company's operating results, we refer you to our filings with the Securities and Exchange Commission.

Now, I would like to turn the call over to Peter Wu, President and Chief Executive Officer of GBC Bancorp.

Peter Wu:

Good morning and thank you for joining us.

With me today are our Chairman, Mr. Li-Pei Wu, and also Peter Lowe, our Executive Vice President and Chief Financial Officer.

We will be discussing our fourth quarter and yearend financial results for fiscal 2001, which were issued yesterday after the close of the market, and providing our outlook for the coming fiscal year 2002.

Following our prepared remarks, we will open up the call to your questions. Our business faced many challenges in 2001, the economy weakened and the prime rate was reduced 11 times. We sought to mitigate the pressure of these developments on our net interest margins through tightening expense control throughout the organization.

Although we were able to manage our expense, our provision for loan loss was higher than we anticipated, in part due to deteriorating conditions with several large credits.

This significantly impacted our performance for the fourth quarter and the full year. As we indicated in our press release, managing our programs for loan loss is our management team's top priority in the coming fiscal year 2002.

For the fourth quarter ended at December 31st, 2001, GBC achieved a net income of $6.7 million, or 58 cents diluted earning per share, excluding the gains on the sale of securities, the reduction of fair value derivatives, the loss from venture capital investments, trading revenues, OREO gains and the associated bonuses and taxes.

GBC's core net income for the quarter was $5.3 million, or 46 cents diluted earnings per share.

, interest rate

reductions in 2001, resulted in the total decline of 475 basis points in the prime rate for a year. Decline in interest rates negatively impacted our net interest margin, which decreased to 3.95 percent from 4.28 percent in the previous fiscal quarter.

Our annualized return on average equity for our fourth quarter declined to 12.4 percent from 19.1 percent for the third quarter.

For the fourth quarter, our loan and lease increased by $9 million over the prior quarter to $1.1 billion, and our gross was in commercial real estate loans, partially offset by a decline in commercial loans due to payoff and the paydowns.

Our total assets rose to a record $2.4 billion, an increase of approximately $162 million from the prior quarter, and $400 million from December 31st, 2000.

Our average earning assets for the fourth quarter increased by $160 million from the third quarter, with average loans and leases increase -- increasing by $42 million, and the average securities increasing by $89 million.

As I previously mentioned, our results for the quarter were negatively impacted by a larger than expected increase in our provision for loan loss. At the end of the fourth quarter, we recorded $8.2 million of net charge-offs relating to existing problem loans.

As a result, GBC recorded a $6.3 million provision for credit loss during the quarter. Non-accrual loans at the end of our fourth quarter was $24.9 million compared to $27.4 million at the end of our third quarter.

One of our top priorities in the coming fiscal year is to focus on improving our asset quality, which is a key factor in returning to our 21-year record of consistent earnings.

Our net interest income remained virtually unchanged at $22.8 million for the fourth quarter from $22.7 million the third quarter, despite a decline in the net interest margin.

we increased our leverage by

securities with fund from depositor growth, and the increased borrowing from the Federal Home Loan Bank to mitigate the impact of that declining margin.

Our ability to maintain

expense levels was once again a key to maximizing our profitability. Our efficiency ratio came in at 38.2 percent for the fourth quarter, which compares favorably with the performance of our peers in this area.

Our ability to maintain our industry-leading efficiency ratio will continue to be one of the key factors supporting our future earnings growth.

As of December 31st, 2001, total deposits were $1.83 billion, up $75 million from the third quarter, and up $153 million from December 31st of 2000.

As previously announced, our board authorized

share repurchase program of up to 500,000 shares of common stock. Of that, 403,000 shares have been purchased

under this program at an average cost of $26.82 per share as of December 31st, 2001, including 103,000 shares that were acquired during the fourth quarter.

In addition, there is another 300,000 shares purchase program authorized by our board.

In summary, Bancorp interest declined, which brought us down to the lowest levels our nation has not experienced since 1961, and it enabled our loan loss provisions during the quarter negative impact our fourth quarter performance.

these two events, we believe that GBC is continuing to outperform its peers and is solidifying its leadership position in the marketplace, particularly among banks that cater to Asian Americans, our number one demographic target market.

Looking ahead, we believe

operation will play out favorable for us in the new year. Our fundamental strength remains sound, and the implementation of our growth strategies for 2002 are already underway and are making progress.

This includes our merger of Liberty Bank in Boston, which is expected to be closed in the first quarter of 2002.

Accordingly, for fiscal year 2002 ending December 31st 2002, we project that the core earnings per share will be $3.23. This projection is based on current interest rate levels, comparable net interest margins to those achieved in 2001, and our ability to improve our provision for loan loss.

Once again, we believe that GBC will continue to be among the best performing community banks and the leading Asian American banks in the nation.

We thank you for your continued support.

With that, I will now open the call to questions.

Thank you, sir. Ladies and gentlemen, if you have a question at this time, please press the one key on you touch-tone telephone.

If your question has been answered, or you wish to remove yourself from the queue, please press the pound key.

Our first question comes from Lana Chan of CIBC World Markets. Your question.

Hi, good morning. Just had a question on your outlook for the margin in 2002.

You're saying that it'll be comparable to the 432 margin in 2001. And that's obviously based on a flat rate scenario.

Wanted to flesh that out a little bit more to see what the assumptions are or what the -- yeah, what the assumptions are for the repricing of the time deposits over the next few quarters, how much you have repricing, and from what rate to what rate?

I actually don't have those specific details quarter by quarter, Lana. But obviously from your question, the CDs will reprice, you know, sequentially over time, so you'll see, you know,

an impact in the first quarter and then, in effect, a completion of the repricing, you know, pretty much in the second quarter. I don't have the actual numbers with me.

But the margin -- if the rates remain the same, the margin will continue to increase quarter by quarter.

OK, thanks.

Thank you. Once again, ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone telephone.

Our next question comes from Charlotte Chamberlain of Jeffries and Company. Your question, please.

Hi. I was having a little trouble understanding. Let's see, your answer with respect to Lana's question on repricing the CDs.

The Keogh from the September quarter shows that you have one of the largest negative

of any commercial bank. I think it's something in the order of a negative 23 percent, which is not -- it's not cheerful news when interest rates are going up.

Assuming that the Fed's near the need of its decline -- of its cutting of rates, and rates go back up, is that margin -- what's going to happen to your margin, assuming that, say, short term rates at the end of the year are, say, 100 basis points higher than they are now.

And the other question, can you give us your non-performing ratio including OREO, as well as non-accruals for this quarter versus last quarter? Thank you.

Well, let me first answer the margin question, Charlotte.

With respect to the

presentation in the Q, the so-called

presentation is required by the SEC. But because of the mechanical nature of the rules in compiling that, we don't believe it's representative of what the true net interest situation for the company is.

We believe that the following table, which is under the category market risk, that's the result of our simulation, and that's what we believe represents the best forecast of what our margin is for, you know, for one quarter then one year -- one to five years, et cetera.

Yeah, my question wasn't so much ordinal -- rather cardinal, as it was ordinal. I mean, every bank has to do it, and your number is just way off the scale in terms of other commercial banks.

And the point I was making is that it indicates that relative to other commercial banks, other community banks, other Asian banks, that your interest rate sensitivity is far higher.

And so, following on to Lana's question, assuming rates, I mean, the likelihood of rates staying constant is zero. I mean, they're always going to change. And the likelihood at this point is that they go up.

And so the question is, given your interest rate sensitivity, and assuming rates go up, what happens to the margins?

OK. I -- first, again, I'll comment on the required format of the

.

The GAAP requires that interest-bearing demand be in the zero to 90 days from a -- because contractually, it indeed could reprice in the short run.

But in reality, the deposits in that category do not reprice in that kind of a timeframe. The nature of the interest rate for interest-bearing demand is far more stable, and our simulation takes that into account.

Our simulation and our disclosure says that we still believe we're somewhat asset sensitive. We believe that our net interest margin would actually increase somewhat if interest rates go up.

I think that the results of 2001 very clearly indicate that our simulation has been relatively correct. Our margin indeed has been compressed, in light of 475 basis point decline of interest rates.

And we believe that the converse would happen to the degree disclosed if interest rates go up. And that's consistent with the market risk presentation in the 10-Q, as well as what we've put in the press release.

So we should assume -- if we're assuming marginal rates go up, or market rates go up, that in fact that margin should improve, and so the 323 number that Peter talked about, if interest rates go up, that should -- that number is understated? Is that what you're saying?

That's right. Our disclosure has if -- if there was a 50 basis point increase, our simulation says that there would be a 1.5 million increase in net interest income in the following 12 months.

OK. And can you go over the

situation?

Could you repeat your question? I ...

Yeah, ...

...

thinking ...

... I ...

... it through.

... I wanted -- I was wondering if you could give us total non -- the press release was somewhat, was somewhat noisy in terms of what was there and what wasn't there, and what was in reserves and what was not in reserves.

And I was wondering if you could give us, at the end of December, what the non-performers were, including non-accrual loans, OREO, non-accrual and OREO. And then also what the reserves

--

-- sorry -- reserve levels were.

And if you could do that for the third quarter, as well, so we can see quarter-over-quarter what's happened with those numbers.

Non-performing loans as of 12 -- December 31st, was $24.9 million. OREO was $0.4 million.

For September 30th, non-accrual --

-- loans were 27.4, and

OREO was the same, $0.4.

OK, and the reserves?

The allowance for losses on September 30th was 25.5. For December 31st, that's 23.7.

OK. And was -- were there any restructured loans in either of those periods?

The restructured loan at 12-31 are $1.7 million.

And at September the 30th it was 2.5. We had one payoff.

OK, great. Thanks very much.

Thank you. Our next question comes from Brett

of Midwest Research. Your question, please.

Two questions. First, does the 323 in '02, does that include any gains from securities sales? You've obviously got about $18 million of

gains in the securities portfolio.

And secondly, if you could give 90 past due in the follow-up to Charlotte's question.

And also, given your guidance for '02 and a lower provisioning, can you give any guidance in relation to reserve coverage or reserve levels at the end of the year for '02? Thanks.

I'm sorry, I've lost -- what was your first question?

I'm sorry. First question was relating to the guidance of 323, and if there were any

...

, that's right. Now that's intended to be a core guidance. And we do not have securities gains or losses included within our core definition.

So, by definition it excludes any gains on sale of security.

OK. And then regarding the reserve coverage?

We've -- the reserve -- our methodology on allowance for losses is a building block approach, where we take a look at our problem credits and allocate an amount that we believe is required to, you know, for the specific kind of loan it is.

So that will depend on the collateral and, you know, the qualitative facts associated with the problem credit.

We've used the same methodology for a number of years. It's reviewed by our outside constituents. But the result is that the allowance coverage of non-performing loans is really not indicative of anything, because you have to look at what, you know,

what kind of non-performing loans are actually in the composition, you know, what -- if they were real estate collateralized, for example, you would have a lower coverage than if they were commercial loans.

But we don't ...

... try and predict what, you know, nor do we even -- we don't comment on a coverage ratio, per se, because the nature of our approach to the allowance means that that's a derivative rather than a targeted number.

OK. Let me, let me ask the question in a different way, then.

What I'm trying to get at is, in '02, in the fourth quarter you took out a reserve. Is '02 a reserve building or a reserve neutral year? What's your thought process on -- obviously, you have methodology, but my question is, is you took some out of the reserve in the fourth quarter. Will you be adding to it any time in '02?

We'd be certainly adding to cover the loan growth that we achieved. That's ...

OK, but ...

... by definition.

OK.

The rest would depend on what the actual composition of the non-performing loans, you know, turn out to be.

OK. Great. Thanks.

Thank you. Our next question comes from John Lyons of Keefe Managers. Your question, please.

, good morning. We're back again to the non-performing issue.

Tell me whether the regulatory classifications on loans and other real estate, would they in total differ dramatically from what you're reporting as non-performing?

Yeah, I mean, we never disclose our classified, you know, loans per se. But the non-performing loans certainly are indicative of, you know, problem credits, if that's the context of your question.

Well, I'm just trying to get a notion for how different the totals might be.

Presumably the regulatory totals would be higher.

It depends what you mean by regulatory ...

Sub-standard, doubtful and loss.

Sub-standard, doubtful and loss? Yeah, that -- it'd be in this -- yeah.

li-pei wu:

Our last -- this is Li-Pei Wu -- our last examination came at the beginning of 2001. So since then, we didn't have examination. But during the 2001 examination,

I can only say that our own classifications and our own provisions were in general accepted by regulatory agencies.

Yeah, what I'm -- I guess what I'm getting at is an attempt to quantify. Your release leads us to some question as to what might occur in the first quarter based upon certain aspects in the loan portfolio.

And I'm trying to get, since that's critical to whether or not you'll meet your earnings guidance, I'm just trying to see how likely some of these events might be in the first quarter.

LI-PEI WU:

Again, this is Li-Pei Wu. Let me answer that question.

When it comes to prediction of the future

loan losses, that is assumption we could not really give you any definitive answers.

We can tell you this much, though. At the end of the year, we

go through a lot of internal analysis on each credit and each problem credit. And as a result, we have provided six

million dollars of provision for loan losses.

We've considered that conservative, but as any ongoing business, you have a lot of potential new credit. It could become bad, or current credit could become bad, or some of our lending file of problem credits could become worse or get better.

So that's why we review and analyze on the quarterly basis.

We provided $10 million for year 2002. We consider that reasonable based on what we can see today. And certainly, based on the historical experience, that is higher than in the past.

But we think for year 2002, economy might still be somewhat weak so that we wanted to be sure we have enough. And 2002,

is not based on quarterly provision of even amount.

So even for the quarter of -- January quarter -- was first quarter, you see a lot or you see nothing, then still would not be an indication of what will be the future quarters.

Thank you.

Thank you, sir. Our next question comes from Matt Byrnes of Sunova Capital. Your question, please.

Mr. Byrnes, your question, please?

Yes. Just a couple of questions.

Peter, you had mentioned that you were outperforming community banks in California.

And what I'm wondering is if you've considered -- you had given guidance for this year and came in lower, and you have a provision of $10 million for next year, which is half what it was this year, although now we're in a recession for

and hopefully we're coming out, maybe we're not.

So, it seems like you're working from a position of defense rather than proactive.

I guess I'm wondering, as we look at all the insiders who have been selling stock over the last couple of years, we haven't seen any buyers. We've seen steady sellers selling at market.

Have you considered trying to maximize value for the company and possibly merging with another company, possibly with one such as yours, where you could increase the scale of the company, improve the capital base of the combined company, hopefully maybe cut cost and sort of attack the market on a proactive basis.

I know you say you're outperforming other community banks of your type. But when we look at the numbers, the asset qualities

the reserve coverage is lower, and you've missed your guidance.

So I'm not sure what you mean by that, but I'm just wondering if it might be a strategy or an alternative if you and the board had considered. And if you haven't, does it makes sense to consider it at this time?

PETER WU:

OK, this is Peter Wu. Let me talk, first talk about our projection for 2002, of $3.23.

This is based on a few assumptions. First, our provision for loan loss of $10 million. Second, our net interest margin of 4.3 percent. And third, our provision for taxes of 34 percent.

Also, it is based on our

and our depositor growth, of a greater than 2001. In 2001, we had loan growth of $164 million, and depositor growth of $153 million.

Let's first talk about depositor growth. At the end of 2001, we had eight -- $1.83 billion of deposits. So, we are shooting for about 10 percent depositor growth. And I think that's reasonable.

And also, if you think about we are going to acquire Boston Liberty Bank, that will increase $40 million in deposits. So in fact, our depositor growth is

then 2001. So we are projecting conservatively.

And in -- we also, in 2002, the economy is still soft. So we don't want to project what we think we cannot achieve. In fact in -- because our assets -- we are asset-sensitive. So in 2001, because of 475 basis points of deposited -- of interest rate growth, that squeezed our margin a lot.

And also is greater than anticipated loan loss provision. That affected our earnings.

But if you think about our earning power, we -- our efficiency ratio is one of the top in the nation. And that increased our -- that's why we have a lot of earning power.

And if we can achieve our goals, I think that $3.23 is reasonable, you know, based -- of course, earlier, our chairman talking about loan loss reserve, it's very hard to predict. Right now our assumption is $10 million.

And talking about, your question about insider trade -- insider sale in stocks. If you know, our insider

is about 30 percent of the stock of the bank. Compared with our peers, their insider only own about five percent -- less than 10 percent of shares.

Our insider have been holding the shares since 1980, you know. So for all these years, they are not selling, only

.

So even with the sale, you know, insider shares, we still -- our insider is still more than 30 percent. If you look at our directors' holding, each director own a lot of shares.

And talking about other stock

are

to

to our chairman. Li-Pei will talk about this.

LI-PEI WU:

We always have shareholders' best interest in mind. So your suggestion of merger and so forth, obviously, we always keep an open mind to that effect.

We certainly also consider how to best utilize our retained earnings, our capital, so that we are concurrently looking to opportunity for expansion, as we have indicated before. Thank you.

Thank you. We have a follow-up question from Charlotte Chamberlain. Miss Chamberlain, you may proceed.

Yes, the question goes back to Peter Lowe. Peter, I didn't quite get -- in fact, I think it -- the gentleman from Keefe asked you, loans 90 days or more past due and still accruing for December and also for September.

And I was wondering. You said that the restructured number for September, I think I heard you said $2.5 million. I thought it was more like $1 million.

The -- restructured the way it's disclosed was $2.5 million for September 30th.

OK. And -- OK, so the restructured is now 1.7. And what's 90 days past due and still accruing?

We haven't disclosed that yet for December 31st. That'll be in our annual report, but we don't have that -- we didn't put that in the press release.

Well, could I ask you a bigger-than-a-breadbox kind of question? It was roughly $11.7 million in September. Is it reasonable to assume that that stayed fairly constant? Or was there a big improvement or a detriment?

The reason we don't disclose it in the press release, I've always said that we don't believe that that number has any predictive value in the context of non-performing loans.

The reason that that -- whatever that number is, is usually caused by loans that have reached their maturity, and that the bank is still negotiating with the borrower, and that they're, you know, that the interest is being paid.

And that can fluctuate from quarter end to quarter end. And since I've been here, that's never been predictive of anything. And that's why we intentionally don't disclose it in the press release.

I understand your views on predictability. On the other hand, that wasn't my question. My question was, is it reasonable to assume it's still around $11.7 million?

I literally haven't seen the number.

Great. OK, thanks.

Thank you, Miss Chamberlain.

Once again, ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone telephone.

Our next question comes from Dan Boyle of Scherwin Boyle Capital. Your question, please.

Hi. Li-Pei, I wanted to ask you about the earnings power you've been discussing. If you talk about the guidance and assumptions that you've used for 2002, what do you think the earnings before -- the core earnings before provision would be, provision and taxes?

What ballpark level does that come out to be?

LI-PEI WU:

We have disclosed our tax rate. So if you used our tax rate

a computed value -- I have to look at the number -- it comes out to -- the after-tax number, if you use somewhere around 30 percent?

Thirty-four.

PETER WU: Thirty-four.

LI-PEI WU: Thirty-four percent?

is

tax

.

LI-PEI WU:

OK, 34 percent. So you use that 34 percent, and then just work back. Then you know what is the before -- before tax, before provision for loan loss earning power.

If you use our net income of $37 million, that's a 30 -- yeah, OK. I can tell you that quickly.

The net income was $37 million, which is after tax. And if you get it back to income before taxes, $56 million. And if you add about $10 million loan loss reserve, loan loss provision, so it's

million or so before tax, before provision for loan losses.

OK. So there's very, very substantial earnings power in comparison to the loans and so forth.

What is -- I noticed that the mix of loans has changed somewhat. You're concentration, it looks like, has come down from the third quarter in the apparel and in the computer area, probably some due to charge-offs and maybe others due to a concentrated, concerted effort to produce the concentration, which is more ...

LI-PEI WU:

Well, I think it's both. We did have some write-down in the apparel area since 2001. And also the bank has been trying very hard to diversify our portfolio.

So, you are right. It is both. Peter can answer ...

PETER WU:

Maybe I can put in a little bit. We have increased more in the real estate

loans, and the real estate

consortium loans.

And so

-- so a part in the real estate loan and the consortium loan, that part increased.

On commercial loans, we have some paydown and some payoff, especially some loans

, because of

factor, of

,

loans, some of them

decreased after

the most of our -- many of our customers are in wholesale distributor import, you know.

So normally, they pay it down

during the last quarter. That's why commercial loans decreased.

But we also, but we, to compensate that, we have a

increased in our

consortium loan. And

term loans.

In Southern California, that

consortium's still booming, and people are still buying house. That's why we are increased that category.

Do I answer your question?

Yes, you did. Thank you very much.

PETER WU: Thank you.

Thank you. We have a follow-up question from Brett

of Midwest Research. Your question, please.

Yes, you briefly were touching on it. Wanted to get a feel, if you could give me your thoughts on

versus payoffs in the quarter, and if you purchased any loans in the fourth quarter, and if you see that as part of your strategy next year -- or this year in '02.

PETER WU:

We don't have participation loan payoff during that quarter.

PETER WU:

Purchase, no.

LI-PEI WU: We didn't purchase any loans.

OK, no loans purchase this quarter. Will that be ...

LI-PEI WU:

All the loans to the -- increase come from loans made by us, or

loan utilization of line has nothing to do with purchase of loan from any entity.

Is that your question?

Right. I'm just trying to see if you had bought any loans this quarter from

...

LI-PEI WU: No, we didn't buy any loans.

OK. And it sounds like you did have a good

but also had a lot of paydowns. I'm trying to get the flavor for the under -- under the top of the -- you

actually had a ending period increase of less than $20 million of loans from the prior quarter in total volume of loans.

So I'm just trying to get a flavor for what loan growth might be in the next two quarters.

LI-PEI WU: What loan -- what, I'm sorry?

I'm just trying to get a flavor for what loan growth might be in at least the near term one and 2Q.

We didn't really provide quarterly guidance. We felt that, at this point, just providing the annual guidance was, you know, was better in the context of our management goal setting.

And as Peter previously said, you know, we feel that the loan growth, you know, will be of the same magnitude as was accomplished in 2001. But we haven't done a quarter-by-quarter projection.

OK. Great. Thanks.

Thank you, sir. We have another follow-up question from Miss Chamberlain. Miss Chamberlain, please proceed.

Yes, two questions to Li-Pei Wu. Can you talk a little bit about the aircraft leases? The press release said that you took the write-downs on the ATF, the investment contracts.

But I was wondering if you could give us a sense of when you'll get that audit in terms of the residual value of those 737s that you have, and when that would likely hit results.

And finally, if you're -- you said that your last regulatory exam was in the beginning of 2001. And I was wondering when you're expecting your next regulatory exam.

Thanks.

LI-PEI WU:

OK. About aircraft lease, I think we have disclosed quite clearly that the two leases we have, we have the appraiser, and there was no

ratio in the appraisal, so that we didn't provide anything.

However, on AFT, which we always base on the trustees' accounting, and they have indicated some deterioration in the value. So we have fully

the deterioration in value by providing $1.8 million, I believe, in the fourth quarter.

All we are

in the future, whether they

before the deterioration in value, not that is beyond me, honestly. And so if there is any further deterioration, we would do that.

However, the total balance in AFT now is only $6.1 million left. Does that answer your question?

Yeah, I'm confused because, in previous calls you'd said that you didn't expect that appraisal until March. I saw what you said in the report. And so what you're saying is, you got their -- the report, and were able to report it to -- report it out earlier than you originally expected.

Is that what I'm hearing?

Charlotte, this Pete Lowe. I think we're getting mixed up between our comments on our aircraft leases and the investment in AFT.

With regard to the leveraged leases, we were required by the accounting rules, and we did get an appraisal of the residual value at the end of the respective leases. And that shows no impairment of that residual value.

So that we received in December, and the accounting is consistent with that.

With respect to AFT, that's a public entity whose results we get on a quarter lag basis. And what we recorded in our fourth quarter was based on the result -- on the results they filed with the SEC in their third quarter -- for their third quarter.

Thank you. Our next question comes from Matt Byrnes of Sunova Capital. Your question, please.

Yes. Just two follow-ups. One of them is, Peter, in talking about your, the potential for a dramatic earnings recovery from credit, and if and when interest rates go up, you know, in '03, in fact, that could end up being $3.50 or better.

So what I wonder is, given that outlook and the strong capital base you have, would you tend to be a little bit more aggressive in the buyback in '02, since you'd be buying back at roughly eight times an '03 estimate, which I'm sure we would all agree is probably a pretty good investment to make.

And secondly, I just wanted to understand the answer to my previous question that, if shareholder -- if you have the shareholders' best interests in mind, specifically does that mean, or should I understand that to mean,

that the board would consider the option of a merger with another company or sale of the company to maximize value?

Should I understand that to mean that?

PETER WU:

This is Peter Wu. First, I think I didn't say that we are going to put -- since

picked up -- economy getting better, we are going to have credit

recovery.

I think I

said when economy getting better, and this year we are going to pick up in our interest margin. I think that's what I say, you know.

And also, again, you talk about maximizing shareholders' value. Like our Chairman Li-Pei was saying, we are always open, you know. If there is something we ought to do to maximize shareholder value, we always consider, you know ...

OK. So you will consider that option, then, or you have considered it. Good.

PETER WU: Yeah.

Thank you.

PETER WU: Thank you.

Thank you. We have a follow-up question from Lana Chan of CIBC World Markets. Miss Chan, please proceed.

Hi, just a quick follow-up question, financial related.

The impairment expense of $1.8 million on the AFT, where does that show up?

In the income statement, that shows up in, as the negative number where it says income paren, expense from other investments.

OK. OK, great. Thanks.

LI-PEI WU:

By the way, that was part of the core earnings. So core earnings has been reduced by that number.

Thank you. We have a follow-up question from Miss Charlotte Chamberlain. Miss Chamberlain, please proceed.

Yeah, I'm sorry. I didn't get, in that last question I'd asked the -- to Li-Pei Wu -- your last exam was early 2001. When do you expect the next one? Thanks.

LI-PEI WU:

Well, I'm sorry. We don't control when they come, but normally they come every year. So sometime this year I'm sure they will come.

And normally we would expect first quarter, they perhaps will come. We have not got any notice.

Well, the weather's much nicer in L.A. and ...

LI-PEI WU: Yeah,

...

... in your first quarter, I would expect them to, yeah.

LI-PEI WU: Yeah.

Yeah. OK. Thanks very much, Li-Pei.

LI-PEI WU: Bye.

Thank you. I'm showing no further questions at this time.

close ...

PETER WU:

OK. Thank you very much for joining us today. And if you have any further questions, please feel free to call Li-Pei Wu or Peter Lowe or myself, Peter Wu.

Thank you very much. Have a nice day.

Thank you, gentlemen.

Ladies and gentlemen, thank you for participating in today's conference. This conclude the program and you may now disconnect.

Good-day.