First American International Corp. Announces Third Quarter 2014 and Year to Date Results

NEW YORK, NY--(Marketwired - Nov 28, 2014) - 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 for the quarter ended September 30, 2014 of $354,000 and for the nine months ended September 30, 2014 of $1,208,000. Earnings per share available to common shareholders were $0.16 per share and $0.55 per share, both basic and diluted, for the three and nine month periods, respectively.

Net Income and Results of Operations

The Company today reported net income of $354,000, or $0.16 per share, diluted, after deduction of $190,000 in Troubled Asset Relief Program ("TARP") preferred stock dividends and discount accretion, for the quarter ended September 30, 2014. This compares to net income of $386,000, or $0.18 per share, diluted, for the quarter ended September 30, 2013, also after deduction of TARP dividends and discount accretion.

For the nine months ended September 30, 2014, the Company reported net income of $1,208,000 or $0.55 per share, diluted, after deduction of $565,000 in TARP preferred stock dividends and discount accretion. This is a decrease of $1,094,000 from net income of $2,302,000, or $1.05 per share for the nine month period ended September 30, 2013. The decrease is due principally to a reduction in net interest margin, a decrease in non-interest income and an increase in operating expenses, as discussed below.

Net interest margin decreased to 4.03% and 4.17% during the quarter and nine months ended September 30, 2014, respectively, compared to 4.39% and 4.52% for the same periods in 2013, which decrease resulted in an approximate reduction in net interest income of $484,000 and $1,610,000 for the three and nine month periods, respectively. This decrease was partially offset by an increase in net interest income of approximately $240,000 and $693,000 for the same periods, due to an increase in the average amount of earning assets outstanding.

The Company also experienced a decrease in non-interest income of $636,000 and $708,000 for the quarter and nine months ended September 30, 2014 and a decrease in non-interest expense of $185,000 and an increase in non-interest expense of $1,109,000 for the same periods.

This resulted in a decrease in the return on average assets to 0.25% and 0.29% for the three and nine months ended September 30, 2014, respectively, compared to 0.29% and 0.58% for the same periods in 2013. Return on average equity likewise decreased to 2.87 and 3.26% for the quarter and nine months ended September 30, 2014, respectively, compared to 3.17% and 6.49% for the same respective periods in 2013.

Mark Ricca, President and CEO of the Company, said, "The banking industry continues to experience a reduction in net interest margin, which, together with an increase in personnel expenses, are the principal drivers of the Company's reduction in net income. To help offset this, we remain focused on growing our commercial real estate loan production and increasing our ability to serve existing customers and attract new customers. We continue to maintain a strong capital base, which supports our ability to grow and enhance shareholder value. At September 30, 2014 our capital ratio stood at 11.77%, which is substantially above the amount needed to be considered a 'well capitalized' bank."

Net Interest Income
Net interest income for the third quarter of 2014, before provision for loan losses, was $5.3 million, a decrease of $244,000, or 4.43% from the prior year quarter. The decline is due principally to a decrease in the yield earned on loans coupled with an increase in borrowing costs, which increased the average cost of funds, partially offset by an increase in the volume of securities and related interest income. A decline in the volume of certificates of deposit also partially offset, but to a much lesser degree, the decline in net interest income.

The yield earned on loans declined 47 basis points to 6.08% in the third quarter 2014 from 6.55% in the third quarter of 2013. The decrease was principally because of a shift in the mix of loans towards residential 1-4 family loans and away from commercial mortgage loans, which tend to have higher yields. This shift to residential loans occurred as the Company temporarily suspended commercial mortgage loan originations and concentrated its efforts throughout 2013 on resolving weaknesses in the commercial mortgage loan portfolio. Commercial real estate loans decreased $45.3 million, while 1-4 family loans increased $66.6 million year over year. To a lesser extent, the Bank also experienced a reduction in the yield on existing and new commercial real estate loans due to competitive market conditions.

Borrowing costs increased as the Company obtained longer term borrowings to reduce interest rate risk as an asset/liability management tool to address interest rate risk in the 7/1 and 10/1 fixed/adjustable residential mortgage loans that were originated for the loan portfolio. The average cost of deposits increased 1 basis point to 0.72% in the third quarter of 2014 compared to the third quarter of 2013. The average balance of certificates of deposit declined by $4.1 million, from $189.0 million in the third quarter of 2013 to $184.9 million in the third quarter of 2014. The average rate paid on certificates of deposit increased by 1 basis points from 1.04% in the third quarter of 2013 to 1.05% in the second quarter of 2014.

The average volume of securities increased from $86.8 million in the third quarter of 2013 to $106.4 million in the second quarter of 2014; as excess cash was redeployed into securities investments to increase yields.

Overall, for the quarter ended September 30, 2014, the interest rate spread of 3.80% was down 36 basis points from 4.18% for the quarter ended September 30, 2013; the net interest margin of 4.03% was down 34 basis points from 4.39% from the quarter ended September 30, 2013. The loan portfolio of $380.3 million at September 30, 2014 was $19.0 million, or 5.25% higher than at September 30, 2013. The increase is the result of deliberate efforts to increase the loan portfolio because loans are the Company's highest yielding asset category. Non-loan interest earning assets increased by $7.8 million, or 5.46%, from $143.5 million at September 30, 2013 to $151.3 million at September 30, 2014. This increase in non-loan interest-earning assets was due primarily to an increase in investment grade securities. Total deposits increased $13.2 million and borrowings increased $15.0 million from September 30, 2013 to September 30, 2014.

Provision for Loan Losses
The Company did not make any provision for loan losses during the third quarter of 2014 and made a provision of $488,000 in the third quarter of 2013. Management deemed the existing allowance appropriate and thus did not record a provision in the third quarter of 2014.

Non-interest Income
Non-interest income was $1.6 million for the quarter ended September 30, 2014, a decrease of $636,000 compared to the quarter ended September 30, 2013. The decrease is mainly due to a decrease of $132,000 in the gain on sale of mortgage loans and a $452,000 decrease in mortgage loan related fees due to fewer loan sales during the quarter, a decrease in fees from sale of non-deposit products of $51,000 and a decrease of $170,000 in other miscellaneous income. These were partially offset by a $73,000 increase in gain on sale of securities that the Bank sold to reposition part of its investment portfolio and an increase in safe deposit rental income of $105,000 due to amortization of unearned safe deposit fees.

Non-interest income was $4.8 million for the nine months ended September 30, 2014, a decrease of $778,000 compared to the nine months ended September 30, 2013. The decrease is mainly due to a decrease of $566,000 in the gain on sale of mortgage loans, a $492,000 decrease in mortgage loan related fees due to fewer loan sales during the quarter and a decrease of $170,000 miscellaneous income. These were partially offset by a $244,000 increase in gain on sale of securities that the Bank sold to reposition part of its investment portfolio and an increase in safe deposit rental income of $187,000 due to amortization of previously earned but not recognized safe deposit fees.

Non-interest Expenses
Non-interest expenses were $6.0 million for the quarter ended September 30, 2014 compared to $6.2 million in third quarter of 2013, a decrease of $185,000, or 3.0%. The decrease is mainly due to a decrease in loan related expenses of $139,000, a decrease in data processing expense of $124,000 due to a change in our core processor, a decrease in tax penalty expense of $91,000, a decrease in other professional services of $67,000 and a decrease in legal expense of $66,000. . The tax penalty expense had been accrued in 2013 for a potential tax penalty on a matter that was ultimately resolved satisfactory to the Company, so the penalty was not paid.

These expense reductions were partially offset by increases in salaries and benefits of $196,000, and occupancy expenses of $75,000. Salaries and benefits increased due to higher staffing levels, salary increases for existing employees and rising health insurance costs. Occupancy expenses increased due to an increase in depreciation expense and maintenance expenses.

Non-interest expenses were $18.2 million for the nine months ended September 30, 2014 compared to $17.1 million for the nine months ended September 30, 2013, an increase of $1.1 million, or 6.2%. The increase is mainly due to an increase of $1,133,000 in salaries and benefits, an increase of $316,000 in insurance expense, an increase in occupancy expense of $245,000 and an increase in off balance sheet reserves of $70,000, offset by a decrease in legal expenses of $240,000, a decrease of $218,000 in FDIC insurance expense, a decrease in data processing expenses of $107,000 attributable to a change in our core processor and a decrease in tax penalty expense of $91,000. Salaries and benefits increased due to higher staffing levels, salary increases for existing employees and rising health insurance costs. Insurance expense increased due to a one-time reimbursement received from a borrower in 2013. Occupancy expenses increased due to an increase in depreciation expense and maintenance expenses. The tax penalty expense was an accrual for a potential penalty for a tax matter that was ultimately resolved in the Bank's favor without that amount being required to be paid.

Balance Sheet Highlights

Assets
Total assets at September 30, 2014 were $571.9 million, an increase of $30.8 million, or 5.7%, versus September 30, 2013. Loans receivable were $380.3 million, an increase of $19.0 million compared to last year. The increase is due principally to a $66.6 million increase in 10/1 and 7/1 adjustable rate 1-4 family mortgage loans, partially offset by a $45.3 million decrease in commercial mortgage loans, including commercial real estate, multifamily and construction loans and a $2.1 million decrease in commercial and industrial loans. Commercial mortgage loans decreased as the Company continued to focus on resolving asset quality issues. During the fourth quarter of 2013, the Bank recommenced its commercial mortgage loan origination program, which is starting to build momentum. Investment securities increased by $7.7 million while overnight investments decreased by $2.5 million.

Asset Quality
Non-performing loans declined by 63.7% at September 30, 2014 to $7.6 million, compared to $21.1 million one year earlier. Total delinquent loans declined by 60.3% to $10.3 million at September 30, 2014, compared to $25.9 million at September 30, 2013. The Company monitors delinquent loans closely and continues to work on improving asset quality on an overall basis. The allowance for loan losses was $7.9 million, or 2.08% of total loans at September 30, 2014, compared to $8.2 million, or 2.26%, at September 30, 2013. The reduction in the allowance was principally due to net charge offs of $613,000, partially offset by a provision of $488,000 in the second half of 2013 and $157,000 in the first quarter of 2014. The decline in the allowance was appropriate because 1-4 family mortgage loans, which increased in volume, have a lower historical loss rate than commercial real estate loans, which declined in volume. The Bank's overall historical loss experience also improved.

Deposits
Deposits at September 30, 2014 were $430.3 million, an increase of $13.2 million, or 3.2% since September 30, 2013. Certificates of deposit were $194.2 million, an increase of $10.4 million, or 5.6%, from September 30, 2013. Savings and money market accounts decreased $5.6 million, or 3.8%. Demand deposits increased $7.4 million, or 8.8%. NOW accounts increased $1.0 million, or 32.8%.

Borrowings
Federal Home Loan Bank Borrowings increased by $15.0 million to $61.0 million at the end of September 2014. The Bank took these advances to partially match fund the Bank's 10/1 and 7/1 1-4 family residential loan origination program. The remaining borrowings consist of the Company's trust preferred securities transaction originated in 2004.

Stockholders' Equity
Stockholders' equity was $67.3 million, or 11.77% of total assets, at September 30, 2014, a $1.9 million, or 2.9% increase from September 30, 2013. The increase was mainly due to net income.

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 nine branches and two mortgage offices 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)
Balance Sheet Items			$ thousands
			09/30/14				06/30/14				09/30/13
Cash and due from banks - noninterest bearing				5,979				6,450				6,222
Due from banks - interest bearing				40,734				31,689				45,422
Federal funds sold				3,612				789				1,137
Time deposits with banks				3,953				3,817				1,587
Securities available for sale				103,020				103,416				95,345
Real estate - commercial				120,611				119,160				165,909
Real estate - residential				257,096				250,154				190,507
Commercial and industrial				2,038				1,580				4,130
Consumer and installment				523				498				759
Loans receivable, gross				380,268				371,392				361,305
Unearned loan fees				(803	)			(793	)			(659	)
Allowance for possible loan losses				(7,880	)			(7,818	)			(8,162	)
Bank premises and equipment				20,228				19,942				17,366
Federal Home Loan Bank stock				3,322				3,514				2,848
Accrued interest receivable				2,061				1,892				1,223
Mortgage servicing rights				7,470				7,461				6,374
Other assets				9,953				13,975				11,117
Total Assets				571,917				555,726				541,125
Demand deposits				91,035				86,540				83,668
NOW accounts				4,225				1,826				3,181
Money market and savings				140,836				142,310				146,389
Certificate of deposit				194,155				183,224				183,808
Total deposits				430,251				413,900				417,046
Borrowings				68,217				68,217				53,217
Accrued interest payable				1,186				1,012				1,050
Accounts payable and other liabilities				4,969				5,970				4,408
Total Liabilities				504,623				489,099				475,721
Stockholders' equity				67,294				66,627				65,404
Total Liabilities and stockholders' equity				571,917				555,726				541,125
Summary Income Statement			For the nine months ended								For the quarter ended
			09/30/14				09/30/13				09/30/14				09/30/13
Interest income				19,182				19,717				6,235				6,321
Interest expense				2,877				2,495				971				813
	Net interest income			16,305				17,222				5,264				5,508
Provision for loan losses				157				488				-				488
	Net interest income after provision for loan losses			16,148				16,734				5,264				5,020
Non-interest income				4,809				5,517				1,604				2,240
BEA grant				-				70				-				-
Non-interest expenses				18,240				17,131				6,041				6,226
	Income before income taxes			2,717				5,190				827				1,034
Income taxes				944				2,338				283				464
	Net income			1,773				2,852				544				570
Less TARP Dividend and Discount Accretion				565				550				190				184
	Net Income Available to Shareholders			1,208				2,302				354				386
Performance ratios (Unaudited)
			Year-to-date								Quarter ended
			09/30/14				09/30/13				09/30/14				09/30/13
Return on average assets				0.29	%			0.58	%			0.25	%			0.29	%
Return on average net worth				3.26	%			6.49	%			2.87	%			3.17	%
Average interest earning assets/bearing liabilities				131	%			132	%			131	%			132	%
Net interest rate spread				3.95	%			4.32	%			3.80	%			4.18	%
Net interest margin				4.17	%			4.52	%			4.03	%			4.39	%
Net interest income after provision/total expense				89	%			101	%			87	%			88	%
Non-interest income to total revenue				20.05	%			24.49	%			20.46	%			28.91	%
Non-interest expense to total revenue				76.03	%			75.11	%			77.08	%			80.36	%
Non- interest expense to average assets				4.37	%			4.31	%			4.34	%			4.62	%
Net Worth and Asset Quality Ratios
Average net worth to average total assets				11.91	%			12.22	%			11.91	%			12.22	%
Total net worth to assets end of period				11.77	%			12.09	%			11.77	%			12.09	%
Non-performing assets to total assets				1.34	%			3.89	%			1.34	%			3.89	%
Non-performing loans to total loans				2.01	%			5.84	%			2.01	%			5.84	%
Allowance for loan losses to total loans				2.08	%			2.26	%			2.08	%			2.26	%
Allowance for loan losses to NPLs				103.12	%			38.73	%			103.12	%			38.73	%
Risk based total capital ratio (bank)				22.45	%			20.44	%			22.45	%			20.44	%
Capital, Book Value and Earnings Per Share
Tier 1 risk based capital (bank)				21.18	%			19.18	%			21.18	%			19.18	%
Leverage ratio (bank)				12.98	%			13.30	%			12.98	%			13.30	%
Book value per share basic			$	22.87			$	22.31			$	22.87			$	22.31
Diluted EPS available to Common Shareholders			$	0.55			$	1.05			$	0.16			$	0.18