SOURCE: First American International Corp.

April 27, 2017 20:07 ET

First American International Corp. Announces Results for Fourth Quarter and Year Ended December 31, 2016

NEW YORK, NY--(Marketwired - Apr 27, 2017) - 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 common shareholders for the quarter ended December 31, 2016 of $2.0 million and $4.6 million for the twelve months ended December 31, 2016. Earnings per share available to common shareholders were $0.90 per share for the fourth quarter and $2.08 for the full year of 2016, both basic and diluted.

Net Income and Results of Operations

The Company today reported net income for the quarter ended December 31, 2016 of $2.0 million, or $0.90 per share, basic and diluted, and $4.6 million, or $2.08 per share, for the twelve months of 2016, basic and diluted. The income available to common shareholders is after the deduction of $202,000 in Troubled Asset Relief Program ("TARP") costs, consisting of preferred stock dividends ($85,000) and discount accretion ($117,000) for the quarter and $799,000 in TARP costs, consisting of preferred stock dividends ($340,000) and discount accretion ($459,000), and minority preferred stock dividends to real estate trust subsidiary shareholders, $7,000, for the twelve months of 2016. This compares to a net loss of $678,000, or $0.31 per share, both basic and diluted, for the quarter ended December 31, 2015, and net income of $166,000, or $0.08 per share basic and diluted for the twelve months ended December 31, 2015, also after deduction of TARP dividends, discount accretion and minority preferred stock dividend. The Company also reported a return on average assets of 0.99% for the quarter ended December 31, 2016, and 0.63% for full year 2016, as compared to (0.11)% and 0.03%, respectively, for the same periods in 2015 and a return on average common equity of 14.56% for the quarter ended December 31, 2016, and 8.47% for full year 2016, versus (1.33)% and 0.32%, respectively, for the same periods in 2015.

The increase in 2016 fourth quarter earnings over the same period in 2015 is due principally to a year-over-year increase in interest income of $1.8 million, or 28.1%, and an increase in non-interest income of $2.3 million, or 204.1%, partially offset by a year-over-year increase in interest expense of $0.6 million, or 59.6%. The increase in full year 2016 earnings versus the prior year is primarily due to an increase of $5.3 million, or 21.1%, in interest income combined with a $2.3 million, or 8.9% decrease in noninterest expenses, partially offset by a $1.9 million, or 46.2% increase in interest expense.

Throughout the quarter and the full year, the Company continued to execute successfully its strategy of generating organic growth in the loan portfolio that was funded principally by an increase in retail deposits.

In addition to the Bank's long-standing program of originating and selling residential loans to Fannie Mae on a flow basis, servicing retained, in 2016 the Bank began selling, servicing retained, some of its portfolio residential loans to third parties. During 2016, the Bank sold $106.4 million of loans to Fannie Mae for a pre-tax gain on sale of $2.0 million, compared to $84.1 million of loans sold for a pre-tax gain of $1.7 million in 2015. In 2016 the Bank also sold $36.9 million of portfolio residential loans to third parties for a pre-tax gain of $1.1 million.

"I am very pleased with the significant improvement in our 2016 financial performance. This is the result of many factors, including building the breadth and depth of our employee base, continued increases in quality earning assets, being a significant niche player in New York's Chinese-American community and controlling expenses. In 2016, the Bank also successfully initiated a program to sell residential loans that it used to hold in portfolio. While I am hopeful we can continue to improve our financial performance, my enthusiasm is tempered by the overall continued challenging operating environment," said Mark Ricca, President and Chief Executive Officer.

Net Interest Income
Net interest income for the three months ended December 31, 2016, before provision for loan losses, was $6.5 million, an increase of $1.2 million, or 21.9%, from the prior year.

The increase in net interest income is attributable principally to an increase in average interest earning assets, driven by growth in the loan portfolio, of $194.4 million, or 33.0%, from $589.6 million in the fourth quarter of 2015 to $784.0 million in the same period in 2016, partially offset by an increase in interest expense from an increase in average interest bearing liabilities of $171.5 million, or 41.9%, from $409.3 million in the 2015 quarter to $580.9 million in 2016. Net interest income was also negatively impacted by tighter pricing on loans due to greater competition, combined with a rising deposit rate environment during the quarter which resulted in a 14 basis point decrease in net interest margin, from 3.46% for the three months ended December 31, 2015 to 3.32% for the same period in 2016.

Interest income increased by $1.8 million, or 28.1%, to $8.2 million in the fourth quarter of 2016 from $6.4 million in the same quarter in 2015. The yield earned on loans declined 32 basis points to 4.60% for the fourth quarter of 2016 from 4.92% in 2015. The decrease was principally due to the continued low interest rate environment and greater competition, resulting in the Bank originating new loans at lower rates than the existing portfolio. Average commercial real estate loans outstanding increased $123.5 million, or 82.0%, and average residential loans outstanding increased $91.1 million, or 31.7%, when compared to the prior year quarter.

The average volume of securities decreased from $87.9 million in the fourth quarter of 2015 to $67.4 million in the fourth quarter of 2016. In the third quarter of 2016, the Bank sold securities with a book value of $11.3 million, resulting in a $292,000 pre-tax gain. Proceeds from this sale, as well as security repayments, were redeployed into loans. The average yield on securities increased by 24 basis points to 2.48%, largely due to the remaining securities in the Bank's investment portfolio being more intermediate term securities, while management allowed lower yielding municipal bonds to roll off. The net effect of the decrease in volume and the increase in yield was a $74,000 decrease in interest and dividends earned on securities to $418,000 during the fourth quarter of 2016 compared to the fourth quarter of 2015.

Interest expense increased during the fourth quarter of 2016 compared to 2015 by $0.6 million, or 59.6%, to $1.7 million. The average cost of interest bearing deposits increased 14 basis points to 0.90% in the fourth quarter of 2016 compared to the same quarter of 2015. This was primarily due to an increase in both the volume and cost of certificates of deposit, resulting from the combination of strong retail demand and more competitive market conditions. The average balance of certificates of deposit, our highest cost deposit category, increased by $67.4 million, from $195.5 million in the fourth quarter of 2015 to $263.0 million in the same quarter in 2016. The average rate paid on certificates of deposit increased by 11 basis points from 1.07% in the fourth quarter of 2015 to 1.18% in the same quarter in 2016. The average balance of money market deposit accounts and savings increased by $24.8 million, from $125.5 million in the fourth quarter of 2015 to $150.3 million in the same quarter in 2016, and the average rate paid increased from 0.29% to 0.43%.

Net interest income for the twelve months ended December 31, 2016, before provision for loan losses, was $24.4 million, an increase of $3.4 million, or 16.2%, from the prior year. The year-over-year increase in net interest income is primarily due to an increase in average interest earning assets of $160.6 million, or 28.7%, largely driven by loan growth, from $560.3 million in 2015 to $720.9 million in 2016. This was partially offset by an increase in interest expense resulting from an increase in average interest bearing liabilities to support the growth in the loan portfolio of $124.0 million, or 30.8%, from $402.1 million in 2015 to $526.1 million in 2016. Net interest income was also negatively impacted by increased competitive pressure on loan pricing, combined with a rising deposit rate environment year-over-year which resulted in a 36 basis point decrease in net interest margin from 3.74% for the twelve months ended December 31, 2015 to 3.38% for the twelve months ended December 31, 2016.

Provision for Loan Losses
The Company made no provision for loan losses in the fourth quarter of 2016 compared to a provision of $628,000 in the fourth quarter of 2015. The prior quarter provision was largely due to the purchase of $49.0 million of participating interests in multi-family mortgage loans in December 2015; these loans generated approximately $936,000 of net interest income in 2016. Management believes the existing $9.2 million allowance at December 31, 2016 is appropriate. The allowance as a percentage of loans was 1.36% at December 31, 2016 compared to 1.69% at December 31, 2015. The 33 basis point decrease in the allowance was primarily due to continued improvement in asset quality, as non-performing loans decreased by $1.7 million, or 35%, year-over-year.

Non-interest Income
Non-interest income was $3.4 million for the quarter ended December 31, 2016, an increase of $2.3 million, or 204.1%, compared to the quarter ended December 31, 2015. The quarter-over-quarter increase was largely due to a volume-driven $1.3 million increase in gains on sales of loans to third parties; an increase in the value of the Bank's mortgage servicing rights of $830,000; and increased volume-driven deposit account fees of $98,000, partially offset by a $162,000 reduction in the Bank Enterprise Award ("BEA"). The BEA program is a U.S. Government-sponsored program to support lending activities for Community Development Financial Institutions, which includes the Bank; in 2016, the federal government suspended the payment of awards for administrative reasons, which we believe will be made in 2017. 

For full year 2016, non-interest income was $8.3 million, an increase of $0.2 million, or 2.2% compared to the prior year. This increase was primarily due to increased gains on sales of loans of $1.4 million, excluding changes in the valuation of mortgage servicing rights; an increase in gains on sales of securities of $510,000 and higher volume-driven loan servicing fee income of $201,000. These increases were partially offset by the year-over-year decrease of $509,000 in income we recognized pertaining to the sale in 2015 of real property at 135 Bowery, New York, NY (the Bank recognized $1.3 million in 2015 compared to $740,000 in 2016), a $505,000 decrease in investment and insurance product sales fees, a $371,000 decrease in the value of the Bank's mortgage servicing rights and a $162,000 reduction in the Bank Enterprise Award as discussed above. The change in the value of mortgage servicing rights is the net of a decrease in mortgage servicing value due to the year-over-year reduction in long-term interest rates, ($887,000) (as lower long-term interest rates tend to drive a higher volume of mortgage prepayments which has a negative impact on the value of mortgage servicing rights), which was partially offset by a $516,000 increase in mortgage servicing rights due primarily to the retention of servicing rights when the Bank sold $36.9 million of portfolio residential loans to third parties.

Non-interest Expenses
Non-interest expenses were $6.5 million for the quarter ended December 31, 2016, essentially flat compared to the same period in 2015. Total compensation and benefits costs decreased by $150,000, largely due to the impact of select staffing reductions earlier in 2016, and occupancy costs declined by $125,000 due to the Forest Hills branch closing in 2015; these reductions were offset by higher loan-related expenses of $181,000. The increase in loan-related expenses was largely due to the re-capture of $234,000 in the fourth quarter of 2015 from the Bank's reserve for unused lines of credit and contingent liabilities on loans sold without recourse.

For full year 2016, non-interest expenses were $24.0 million, a decrease of $2.3 million, or 8.9% compared to the prior year. This decrease was primarily due to lower compensation and benefits costs of $394,000 associated with select staff reductions in early 2016, lower occupancy costs of $641,000 due primarily to the Forest Hill branch closing in 2015, lower data processing and communications costs of $190,000 due to greater operating efficiencies, lower professional fees of $538,000, lower office expenses of $158,000, and other cost-cutting measures implemented by management, $257,000.

Balance Sheet Highlights

Assets
Total assets at December 31, 2016 were $816.3 million, an increase of $173.6 million, or 27.0%, versus December 31, 2015. Total loans receivable were $676.4 million at December 31, 2016, an increase of $161.1 million, or 31.3%, compared to the prior year. The increase is comprised principally of a $94.1 million, or 30.6%, increase in adjustable rate 1-4 family mortgage loans, at an average yield of 4.67%, and an increase of $68.3 million, or 33.0%, of commercial mortgage loans at an average yield of 4.58%.

Overnight investments increased by $29.2 million, or 107.9%, to $56.2 million, while investment securities decreased by $16.2 million, or 22.2%, to $56.6 million. In the third quarter of 2016, the Bank sold securities with a book value of $11.3 million and used the proceeds to fund loan growth.

Asset Quality
At December 31, 2016, nonperforming loans totaled $3.2 million, or 0.48% of total loans, compared to $4.9 million, or 0.95% of total loans one year earlier. Total delinquent loans increased to $11.8 million or 1.74% of total loans at December 31, 2016, compared to $1.9 million or 0.37% of total loans at December 31, 2015. The year-over-year increase is entirely due to one loan in the amount of $10.1 million that was past due less than 90 days at December 31, 2016, due to the borrower's administrative oversight. The borrower cured the delinquency on January 5, 2017 and the loan has remained current. Excluding this loan, delinquent loans at December 31, 2016 would have decreased by $0.3 million to $1.6 million, or 0.24% of total loans, an improvement versus the prior year. The allowance for loan losses was $9.2 million, or 1.36% of total loans at December 31, 2016, compared to $8.7 million, or 1.69%, at December 31, 2015.

Deposits
Total deposits at December 31, 2016 were $572.7 million, an increase of $127.2 million, or 28.6%, versus December 31, 2015. The increase in deposits was utilized principally to fund loan portfolio growth. Certificates of deposit were $267.7 million, an increase of $75.2 million, or 39.1%, as a result of targeted promotions. Demand deposits increased $14.7 million, or 12.1%, compared to December 31, 2015. NOW accounts increased $1.9 million, or 56.9%, while savings and money market accounts increased $35.5 million, or 27.7%.

Borrowings
Federal Home Loan Bank of New York ("FHLBNY") borrowings increased by $39.0 million, or 33.3%, to $156.0 million at December 31, 2016 at a cost of 1.76% per annum. Total FHLBNY borrowings at December 31, 2016 primarily consist of borrowings with remaining average terms of two to four years. Recent borrowings have been at slightly higher rates than deposits to provide a cost-effective, relatively longer-term source of funding and to help the Bank manage interest rate risk.

Junior subordinated debentures
The subordinated debentures of $7.2 million consist of the Company's trust preferred securities transaction originated in 2004.

Stockholders' Equity
Stockholders' equity was $72.7 million, or 8.9% of total assets, at December 31, 2016, a $5.1 million, or 7.6%, increase from December 31, 2015. The increase was due mainly to the retention of net income.

Subsequent Material Events

On January 17, 2017, the Bank entered into an informal agreement with the Bank's primary federal regulator, the Federal Deposit Insurance Corporation. In accordance with the informal agreement, the Bank is taking steps to (a) enhance its Bank Secrecy Act/Anti-Money Laundering internal control environment, (b) enhance core earnings, (c) enhance interest rate risk management, and (d) enhance the internal audit program. The Board and management are committed to fully complying with the terms of the informal agreement, and have taken significant steps toward implementing the items required by the informal agreement. Despite the Bank's efforts, a finding by the Bank's primary federal regulator that the Bank failed to comply with the informal agreement could result in additional regulatory scrutiny, constraints on our business, or formal enforcement action. Any of those events could have a material adverse effect on our future operations, financial condition, growth or other aspects of our business.

In view of the disclosure of the informal agreement, the Company expects a trading window to open for insiders of the Company in connection with the release of first quarter earnings, and, in a sign of confidence in the long term prospects of the Company, several directors have indicated an ongoing interest in purchasing additional shares of Company common stock on the open market. 

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, 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   12/31/2016     12/31/2015     9/30/2016  
Cash and cash equivalents                        
  Cash and due from banks - noninterest bearing   $ 5,038     $ 5,316     $ 4,819  
  Due from banks - interest bearing     50,969       20,927       50,362  
  Federal funds sold     220       809       174  
    Total cash and cash equivalents     56,227       27,052       55,355  
Time deposits with banks     3,797       3,947       3,697  
Securities                        
  Securities available for sale     28,068       50,546       31,622  
  Securities held to maturity     28,578       22,278       28,852  
    Total securities     56,646       72,824       60,474  
Loans                        
  Loans held for sale     2,528       4,723       1,202  
  Real estate - residential     401,833       307,733       382,141  
  Real estate - commercial     275,431       207,095       272,486  
  Commercial and industrial     1,194       577       368  
  Consumer and installment     382       485       359  
  Unearned loan fees     (2,487 )     (599 )     (1,990 )
    Loans receivable, gross     676,353       515,291       653,364  
    Allowance for loan losses     (9,244 )     (8,730 )     (9,239 )
      Loans, net     667,109       506,561       644,125  
Bank premises and equipment     6,921       7,319       6,615  
Federal Home Loan Bank stock     7,821       5,899       7,821  
Accrued interest receivable     2,661       2,181       2,584  
Mortgage servicing rights     7,008       7,379       6,173  
Other assets     5,569       4,784       5,067  
        Total Assets   $ 816,287     $ 642,669     $ 793,113  
                         
Demand deposits   $ 136,163     $ 121,502     $ 141,940  
NOW accounts     5,149       3,281       5,754  
Money market and savings     163,638       128,150       135,596  
Certificates of deposit     267,742       192,538       269,664  
  Total deposits     572,692       445,471       552,954  
Borrowings     156,000       117,000       156,000  
Junior subordinated debentures     7,217       7,217       7,217  
Accrued interest payable     1,773       1,063       1,571  
Accounts payable and other liabilities     5,869       4,323       4,527  
    Total Liabilities     743,551       575,074       722,269  
Stockholders' equity     72,736       67,595       70,844  
        Total liabilities and stockholders' equity   $ 816,287     $ 642,669     $ 793,113  
                         
                         
                         
First American International Corp.  
Financial Highlights (unaudited)  
                         
    ($ in thousands except per share data)  
Summary Income Statement   For the Year Ended     For the Quarter Ended  
    12/31/2016     12/31/2015     12/31/2016     12/31/2015  
Interest income                                
  Real estate - residential   $ 16,358     $ 13,432     $ 4,552     $ 3,640  
  Real estate - commercial     11,795       8,908       3,141       2,135  
  Other     2,081       2,635       483       606  
  Total Interest income     30,234       24,975       8,176       6,381  
Interest expense                                
  Interest-bearing core deposits     456       399       164       91  
  Interest-bearing certificates of deposit     2,873       2,035       776       523  
  Interest on borrowings     2,555       1,590       747       443  
  Total Interest expense     5,884       4,024       1,687       1,057  
Net interest income     24,350       20,951       6,489       5,324  
Provision for loan losses     367       628       -       628  
  Net interest income after provision for loan losses     23,983       20,323       6,489       4,696  
Non-interest income     8,284       8,104       3,385       1,113  
Non-interest expenses     24,039       26,383       6,548       6,553  
  Income (loss) before income taxes     8,228       2,044       3,326       (744 )
Provision (benefit) for income taxes     2,836       1,095       1,139       (254 )
  Net income (loss)   $ 5,392     $ 949     $ 2,187     $ (490 )
Less: Preferred Stock dividends and discount accretion     (806 )     (784 )     (202 )     (188 )
  Net income (loss) available to shareholders   $ 4,586     $ 166     $ 1,985     $ (678 )
                                 
    Year to Date     Quarter ended  
    12/31/2016     12/31/2015     12/31/2016     12/31/2015  
Performance Ratios                                
                                 
Return on average assets     0.63 %     0.03 %     0.99 %     -0.11 %
Return on average common equity     8.47 %     0.32 %     14.56 %     -1.33 %
Average interest earning assets/bearing liabilities     137.0 %     108.0 %     135.0 %     109.0 %
Net interest rate spread     3.08 %     3.46 %     3.01 %     3.15 %
Net interest margin     3.38 %     3.74 %     3.31 %     3.46 %
Yield on loans     4.68 %     5.26 %     4.60 %     4.92 %
Average cost of deposits     0.86 %     0.74 %     0.90 %     0.72 %
Net interest income after provision/total expense     99.77 %     77.03 %     99.10 %     71.67 %
Non-interest income to total revenue     21.51 %     24.50 %     29.28 %     14.85 %
Non-interest expense to total revenue     62.41 %     79.76 %     56.64 %     87.44 %
Non-interest expense to average assets     3.30 %     4.48 %     3.27 %     4.35 %
                                 
Net Worth and Asset Quality Ratios                                
                                 
Average total equity to average total assets     9.62 %     8.66 %     8.82 %     8.40 %
Total equity to assets end of period     8.91 %     10.52 %     8.91 %     10.52 %
Non-performing assets to total assets     0.40 %     0.81 %     0.40 %     0.81 %
Non-performing loans to total loans     0.48 %     0.95 %     0.48 %     0.95 %
Allowance for loan losses to total loans     1.36 %     1.69 %     1.36 %     1.69 %
Allowance for loan losses to NPLs     285.84 %     177.58 %     285.84 %     177.58 %
                                 
Capital, Book Value and Earnings Per Share                                
Total risk based capital ratio (Bank)     16.00 %     18.03 %     16.00 %     18.03 %
Tier 1 risk based capital (Bank)     14.74 %     16.77 %     14.74 %     16.77 %
Leverage ratio (Bank)     9.88 %     12.07 %     9.88 %     12.07 %
                                 
Book value per share basic   $ 25.61     $ 23.55     $ 25.61     $ 23.55  
Diluted EPS available to common shareholders   $ 2.08     $ 0.08     $ 0.90     $ (0.31 )
                                 
                                 

Contact Information

  • For further information, please contact:
    Michael Lowengrub
    Chief Financial Officer
    (718) 567-8788, extension 1388