First American International Corp. Announces First Quarter Results for 2016

NEW YORK, NY--(Marketwired - May 5, 2016) - First American International Corp. (OTCQB: FAIT) (www.faib.com) (the "Company"), the holding company for First American International Bank (the "Bank"), today reported net income available to shareholders for the quarter ended March 31, 2016 of $507,000. Earnings per share available to common shareholders were $0.23 per share, both basic and diluted.

Net Income and Results of Operations

The Company today reported net income for the quarter ended March 31, 2016 of $507,000, or $0.23 per share, basic and diluted, after deduction of $198,000 in Troubled Asset Relief Program ("TARP") costs, consisting of preferred stock dividends ($85,000) and discount accretion ($113,000). This compares to net income of $117,000, or $0.05 per share, basic and diluted, for the quarter ended March 31, 2015, also after deduction of TARP dividends and discount accretion. The Company also reported a return on average assets of 0.30% for the quarter ended March 31, 2016, compared to 0.08% for the same period in 2015 and a return on average equity of 3.89% for the quarter ended March 31, 2016, compared to 0.88% for the same period in 2015.

The increase in earnings is due principally to a year-over-year decrease in non-interest expense of $686,000, or 10.7%, and an increase in net interest income of $531,000, or 10.3%, which was offset partially by a year-over-year increase in provision for loan losses of $367,000 and a decrease in non-interest income of $318,000.

"I am very pleased that our efforts to grow earnings and reduce operating expenses are starting to show positive results. I am also optimistic that we can continue to grow earning assets while controlling expenses. Although, this optimism is tempered by the impact the prolonged low interest rate environment, competition and regulatory burdens are having on net interest margin and profitability," said Mark Ricca, President and Chief Executive Officer.

Net Interest Income
Net interest income for the three months ended March 31, 2016, before provision for loan losses, was $5.7 million, an increase of $532,000, or 10.3%, from the prior year.

The increase in net interest income is attributable principally to an increase in average interest earning assets of $110.0 million, or 20.2%, from $545.7 million in the first quarter of 2015 to $655.7 million in the same period in 2016, partially offset by an increase in interest expense from an increase in average interest bearing liabilities of $71.9 million, or 17.8%, from $403.0 million in the 2015 quarter to $474.9 million in 2016. Earnings were also negatively impacted by a 31 basis point decrease in net interest margin from 3.77% for the three months ended March 31, 2015 to 3.46% for the same period in 2016.

Interest income increased by $830,000, or 13.5%, to $7.0 million in the first quarter of 2016 from $6.1 million in the same quarter in 2015. The yield earned on loans declined 57 basis points to 4.83% for the first quarter of 2016 from 5.40% in 2015. The decrease was principally due to the continued low interest rate environment and competition, resulting in the Bank originating new loans at lower rates than the existing portfolio. Average commercial real estate loans outstanding increased $85.5 million, including a $49.0 million loan participation purchase at a net yield of 3.32%, and average residential loans outstanding increased $37.1 million for the first quarter compared to the prior year quarter.

The average volume of securities decreased from $102.9 million in the first quarter of 2015 to $78.8 million in the first quarter of 2016, as repayments were redeployed into loans. The average yield on securities increased by 34 basis points due to the Bank investing in more intermediate term investments, while also allowing lower yielding municipal bonds to roll off. The net effect of the decrease in volume and the increase in yield was a $52,000 decrease in interest earned on securities during the first quarter of 2016 compared to the first quarter of 2015.

Interest expense increased during the first quarter of 2016 compared to the first quarter of 2015 by $299,000, or 30.1%. The average cost of deposits increased 7 basis points to 0.81% in the first quarter of 2016 compared to the same quarter of 2015. This was mostly due to a change in the deposit mix. The average balance of certificates of deposit, our highest cost deposit category, increased by $37.2 million, from $193.6 million in 2015 to $230.8 million in 2016. The average rate paid on certificates of deposit increased by 2 basis points from 1.07% in 2015 to 1.09% in 2016. The average balance of money market deposit accounts and savings decreased by $17.4 million, from $138.1 million in 2015 to $120.6 million in 2016 with the average rate paid remaining the same at 0.29%.

Provision for Loan Losses
In the quarter ended March 31, 2016, the Company made a $367,000 provision for loan losses, which was attributable to the increased loan portfolio. The Company made no provision for loan losses in the first quarter of 2015. Management believes the existing $9.2 million allowance, aggregating 1.69% of total loans, is appropriate.

Non-interest Income
Non-interest income was $1.5 million for the quarter ended March 31, 2016, a decrease of $318,000, or 17.9%, compared to the quarter ended March 31, 2015. The decrease is mainly due to a decrease of $236,000 in non-deposit investment income, which is principally caused by a regulatory change reducing the earnings the Bank can receive on the sale of certain investments.

Non-interest Expenses
Non-interest expenses were $5.7 million for the quarter ended March 31, 2016 compared to $6.4 million in 2015, a decrease of $686,000, or 10.7%. The decrease is mainly due to a decrease in occupancy expenses of $191,000, loan related expenses of $186,000 and other professional fees of $161,000.

Balance Sheet Highlights

Assets
Total assets at March 31, 2016 were $695.1 million, an increase of $118.0 million, or 20.4%, versus March 31, 2015. Total loans receivable were $545.1 million at March 31, 2016, an increase of $128.5 million, or 30.8%, compared to one year earlier. The increase is due principally to a $92.3 million increase in commercial mortgage loans, which includes $49.0 million of loan participations at a net yield of 3.32% purchased in December 2015, and an increase of $38.9 million of adjustable rate 1-4 family mortgage loans.

Overnight investments increased by $25.0 million, or 126.2%, to $44.8 million, while investment securities decreased by $23.7 million, or 23.9%, to $75.6 million. The increase in overnight investments is principally the result of a successful Chinese New Year certificate of deposit campaign. The Bank expects to gradually deploy these funds into loans.

Fixed assets held for sale at March 31, 2015 were $12.9 million. This represented the value of the building at 135 Bowery, New York, NY which was sold during the third quarter of 2015. The Company expects to recognize a $750,000 additional gain in connection with the sale of the property. That amount is being held in escrow pending satisfaction of conditions that the Company believes will be satisfied during the second quarter of 2016. 

Asset Quality
Asset quality continued to improve as non-performing loans declined by 44.8% at March 31, 2016 to $3.2 million, compared to $5.7 million one year earlier. Total delinquent loans declined by 62.7% to $1.6 million at March 31, 2016, compared to $4.4 million at March 31, 2015. The Company monitors delinquent loans closely and continues to work on improving asset quality on an overall basis. The allowance for loan losses was $9.2 million, or 1.69% of total loans at March 31, 2016, compared to $8.3 million, or 1.99%, at March 31, 2015.

Deposits
Deposits increased by $69.7 million, or 16.1%, from $432.0 million at March 31, 2015 to $501.6 million and were utilized to fund loan portfolio growth. Certificates of deposit were $253.6 million, an increase of $66.1 million, or 35.3%. Demand deposits increased $22.0 million, or 21.0%, compared to March 31, 2015. Savings and money market accounts decreased $18.3 million, or 13.4%. NOW accounts decreased $212,000, or 6.8%.

Borrowings
Federal Home Loan Bank of New York ("FHLBNY") borrowings increased by $50.0 million, or 80.6% to $112.0 million, $45.0 million of which occurred during the fourth quarter of 2015 and $5 million of which occurred during the first quarter of 2016. The $45.0 million borrowing is for a three-year term at 1.59% and was incurred in connection the Bank's purchase of $49.0 million in loan participations. Total FHLBNY borrowings at March 31, 2016 mainly consist of three year, five year and seven year term borrowings at a higher rate than deposits to help provide a cost-effective source of funding and to help the Bank manage interest rate risk. The remaining borrowings of $7.2 million consist of the Company's trust preferred securities transaction originated in 2004.

Stockholders' Equity
Stockholders' equity was $68.9 million, or 9.91% of total assets, at March 31, 2016, a $1.2 million, or 1.8%, increase from March 31, 2015. The increase was due mainly to retained net income.

Subsequent Events

In connection with ongoing productivity improvements and reducing branch open days from seven-days a week to six-days a week at five branches, the Company will eliminate a number of full-time and part-time positions in the second quarter of 2016. The Company will incur a severance benefit charge of approximately $225,000 during the second quarter and expects to realize on an annualized basis approximately $1 million in compensating and benefit savings. Because the Bank has at least two branches in Chinatown, Manhattan; Sunset Park, Brooklyn and Flushing Queens, customers will still be able to conveniently bank seven days a week in these core neighborhoods.

About First American International Corp.

First American International Corp. is the holding company for First American International Bank, a community development financial institution ("CDFI") and a minority depository institution ("MDI") with eight full service branches, including offering consumer and business banking and loan products and services, and non-deposit insured investment products and services, serving principally the Chinese-American communities in Manhattan, Queens and Brooklyn in New York City.

See accompanying unaudited financial data tables for additional information.

The information contained herein is intended to provide the reader with historical information about the financial results of First American International Corp. It is not intended to provide forward looking statements or projections of future results. A variety of factors could cause actual results and experiences to differ materially from historical results and anticipated results based on historical results.

First American International Corp.
Financial Highlights (unaudited)
						(in thousands)
Balance Sheet Items						3/31/2016				3/31/2015
Cash and cash equivalents
	Cash and due from banks - noninterest bearing					$	5,324			$	5,623
	Due from banks - interest bearing						44,828				19,815
	Federal funds sold						948				623
			Total cash and cash equivalents				51,100				26,061
Time deposits with banks							3,947				3,456
Securities
	Securities available for sale						47,874				80,289
	Securities held to maturity						27,776				19,110
			Total securities				75,650				99,399
Loans
	Loans held for sale						982				1,176
	Real estate - commercial						221,375				129,029
	Real estate - residential						323,995				285,129
	Commercial and industrial						227				2,701
	Consumer and installment						383				661
	Unearned loan fees						(850	)			(844	)
		Loans receivable, gross					545,130				416,676
		Allowance for loan losses					(9,223	)			(8,290	)
			Loans, net				535,907				408,386
Bank premises and equipment							7,070				7,747
Fixed assets held for sale							-				12,928
Federal Home Loan Bank stock							5,674				3,426
Accrued interest receivable							2,387				2,231
Mortgage servicing rights							7,351				7,256
Other assets							5,072				5,064
				Total Assets		$	695,140			$	577,131
Demand deposits						$	127,143			$	105,112
NOW accounts							2,903				3,115
Money market and savings							117,980				136,288
Certificate of deposit							253,591				187,451
	Total deposits						501,617				431,965
Borrowings							112,000				62,000
Junior subordinated debentures							7,217				7,217
Accrued interest payable							1,160				1,037
Accounts payable and other liabilities							4,246				7,234
		Total Liabilities					626,240				509,454
Stockholders' equity							68,901				67,678
				Total liabilities and stockholders' equity		$	695,140			$	577,131

First American International Corp.
Financial Highlights (unaudited)
				($in thousands except per share data)
Summary Income Statement				For the quarter ended
				3/31/2016				3/31/2015
Interest income				$	6,963			$	6,133
Interest expense					1,290				991
	Net interest income				5,673				5,141
Provision for loan losses					367				-
	Net interest income after provision for loan losses				5,306				5,141
Non-interest income					1,454				1,771
Non-interest expenses					5,714				6,400
		Income before income taxes			1,046				513
Income taxes					341				204
		Net income		$	705			$	309
Less: Preferred Stock Dividends and Discount Accretion					198				192
		Net Income Available to Shareholders		$	507			$	117
				Quarter ended
Performance ratios (unaudited)				3/31/2016				3/31/2015
Return (net income on average assets)					0.42	%			0.21	%
Return available to common on average assets					0.30	%			0.08	%
Return on average net worth					3.88	%			0.56	%
Average interest earning assets/bearing liabilities					107.66	%			106.94	%
Net interest rate spread					3.16	%			3.51	%
Net interest margin					3.46	%			3.77	%
Yield on Loans					4.83	%			5.40	%
Average Cost of Deposits					0.81	%			0.74	%
Net interest income after provision/total expense					92.86	%			80.33	%
Non-interest income to total revenue					17.27	%			22.41	%
Non-interest expense to total revenue					67.89	%			80.97	%
Non- interest expense to average assets					0.85	%			1.10	%
Net Worth and Asset Quality Ratios
Average net worth to average total assets					7.75	%			9.07	%
Total net worth to assets end of period					9.91	%			11.73	%
Non-performing assets to total assets					0.46	%			0.99	%
Non-performing loans to total loans					0.58	%			1.38	%
Allowance for loan losses to total loans					1.69	%			1.99	%
Allowance for loan losses to NPLs					291.32	%			144.51	%
Capital, Book Value and Earnings Per Share
Risk based total capital ratio (Bank)					18.03	%			21.16	%
Tier 1 risk based capital (Bank)					16.77	%			19.90	%
Leverage ratio (Bank)					12.07	%			12.51	%
Book value per share basic				$	24.11			$	23.75
Diluted EPS available to Common Shareholders				$	0.23			$	0.05