NEW YORK, NY--(Marketwired - Nov 16, 2015) - First American International Corp. (
Net Income and Results of Operations
The Company today reported net income for the nine months ended September 30, 2015 of $858,000 or $0.39 per share, basic and diluted, after deduction of $580,000 in Troubled Asset Relief Program ("TARP") preferred stock dividends and discount accretion. This compares to net income of $1,208,000, or $0.55 per share, basic and diluted, for the nine months ended September 30, 2014, also after deduction of TARP dividends and discount accretion. The Company also reported a return on average assets of 0.20% for the nine months ended September 30, 2015, compared to 0.29% for the same period in 2014 and a return on average equity of 1.69% for nine months ended September 30, 2015, compared to 2.42% for the same period in 2014.
The lower net income is due principally to a year-over-year $2.3 million increase in non-interest expense, or 13.3% and a $423 thousand increase, or 44.8%, in income taxes. These were partially offset by an increase in net interest income of $415 thousand, or 2.7%, an increase of $1.8 million in non-interest income, or 37.3%, and a decrease of $157 thousand in provision for loan loss.
The $2.3 million increase in non-interest expense, as detailed below, is due to an increase in general and administrative expenses of $1.2 million, an increase in salaries and benefits of $802 thousand and a one-time charge for closing the Forest Hills branch of $252 thousand.
The $1.8 million increase in non-interest income is primarily due to a one-time gain of $1.3 million associated with the sale of property located at 135 Bowery, New York, NY and a gain on sale of residential mortgage loans of $461 thousand.
Net interest income increased $415 thousand due to an increase in average interest earning assets of $28.5 million from an average of $517.8 million in the first nine months of 2014 to $546.3 million in the first nine months of 2015, partially offset by a 53 basis point decrease in the average yield on loans from 5.88% to 5.35%, a 3 basis point increase in the average cost of funds from 0.71% to 0.74% and a $3.8 million increase in average interest bearing liabilities from $396.2 million in the first nine months of 2014 to $400.0 million in the same period in 2015. Due principally to the continued low interest rate environment, which resulted in the replacement or refinance of higher yielding loans at lower rates, net interest margin decreased to 3.84% for the nine months ended September 30, 2015, compared to 3.95% for the same period in 2014.
"During the third quarter, we have continued our focus on enhancing our residential and commercial real estate loan production capabilities and positioning FAIB to be more competitive and effective in 2016. We also recognize that we must grow the Bank to support our current expense structure and/or reduce our operating expenses and are taking steps to address both. Fortunately, we have built a solid team and a strong capital position that enable us to focus on growth and operating efficiencies" said Mark Ricca, President and Chief Executive Officer.
Net Interest Income
Net interest income for the nine months ended September 30, 2015, before provision for loan losses, was $15.7 million, an increase of $415 thousand or 2.7% from the prior year.
Interest income increased by $505 thousand to $18.7 million in the nine months ended September 30, 2015 from $18.2 million in the same period in 2014. The increase was due to an increase in interest income from loans of $665 thousand, which included $208 thousand of interest from payoffs of non-performing loans and loans that were returned to accrual status, which the Company recorded as interest income in 2015. There were no such loans that affected income in 2014. A decrease in interest income from investments partially offset the increase in interest income from loans.
The increased interest income from loans is the result of a $41.9 million, or 17.1% increase in average residential loans outstanding and an $11.6 million, or 9.3%, increase in average commercial real estate loans outstanding, compared to the prior year. The average yield on loans decreased to 5.35% during the first nine months of 2015 from 5.88% during the same period in 2014. The decrease was principally because of a continued lower interest rate environment resulting in higher yielding loans paying off or being refinanced at lower rates and the increase of the total portfolio with new lower yielding loans.
The average cost of deposits increased 3 basis points to 0.74% for the first nine months of 2015 compared to the same period of 2014, principally due to increases in the volume of and rate paid on certificates of deposit. The average balance of certificates of deposit increased by $5.5 million, from $186.7 million in the first nine months of 2014 to $192.1 million in the first nine months of 2015. The average rate paid on certificates of deposit increased by 2 basis points from 1.03% in the 2014 period to 1.05% in the 2015 period. The average balance of money market deposit accounts and savings accounts decreased by $5.5 million between the periods, from $138.8 million in 2014 to $133.3 million in 2015, with the average rate paid remaining level at 0.30%.
The average volume of securities decreased $6.7 million from $101.8 million in the first nine months of 2014 to $95.1 million in the first nine months of 2015; with the resulting cash being redeployed into loans at increased yields. In addition, the average yield on securities declined by 5 basis points to 2.13% due to a reduction in interest rates, which was offset partially by moving some shorter term municipal bonds into intermediate term corporate bonds.
Overall, for the nine months ended September 30, 2015, the interest rate spread of 3.58% was down 14 basis points from 3.72% for the same period in 2014; the net interest margin of 3.84% was down 11 basis points from 3.95% in the 2014 period. The decrease in the interest rate spread and net interest margin was mostly due to the reduced yield on loans which was partially offset by a shift in the mix of earning assets. Loans increased as a percentage of earning assets from 72.0% to 78.1% of earning assets.
The average balance of the loan portfolio of $426.5 million for the nine months ended September 30, 2015 was $53.7 million, or 14.4%, higher than for the same period in 2014. The average balance of the investment portfolio and interest bearing deposits decreased by $25.2 million, or 17.4%, from $145.0 million for the nine months ended September 30, 2014 to $119.8 million for the first nine months of 2015. This decrease in non-loan interest-earning assets was due primarily to redeploying low yielding assets to new loans.
The average balance of deposits increased by $22.6 million from $415.5 million for the first nine months of 2014 to $438.1 million for the first nine months of 2015, and were utilized to fund loan portfolio growth. Average borrowings from the Federal Home Loan Bank increased $3.6 million to $64.6 million. The Bank secured the new borrowings primarily for liquidity purposes. The remainder of the borrowings consists of five year and seven year term borrowings obtained prior to 2015 at a higher rate than deposits to help manage the Bank's interest rate risk.
Provision for Loan Losses
The Company made no provision for loan losses in the first nine months of 2015 and made a provision of $157 thousand in the first nine months of 2014. Management believes the existing $8.4 million allowance, aggregating 1.92% of total loans, is appropriate.
Non-interest Income
Non-interest income was $6.7 million for the nine months ended September 30, 2015, an increase of $1.8 million, or 37.3%, compared to the nine months ended September 30, 2014. The increase is mainly due to the sale of the Bank owned property at 135 Bowery, resulting in a gain of $1.3 million. The fair value of mortgage servicing rights increased $266 thousand in 2015 compared to a reduction of $132 thousand in 2014. There was an increase of $461 thousand to $1.5 million in the gain on sale of mortgage loans and an increase of $240 thousand to $1.0 million in non-deposit investment sales income, offset partially by a $178 thousand decrease to $42 thousand in the gain on sale of securities.
Non-interest Expenses
Non-interest expenses were $19.6 million for the nine months ended September 30, 2015 compared to $17.3 million in 2014, an increase of $2.3 million, or 13.3%. The increase is due to an increase in general and administrative expenses of $1.2 million, an increase in salaries and benefits of $802 thousand and the costs associated with closing the Forest Hills branch of $252 thousand.
The $1.2 million increase in general and administrative expenses is due mainly to an increase in professional fees of $301 thousand, a one-time charge for potentially unrecoverable advances made on loans serviced for others of $230 thousand, an increase in IT expenses of $204 thousand, an increase of $160 thousand in office supplies and printing and $95 thousand in capital taxes paid to New York State and New York City, an increase in occupancy expense of $90 thousand, an increase in loan related expense of $86 thousand, and an increase in FDIC insurance of $81 thousand due to booking two quarter's expenses in one quarter. Salaries and benefits increased due to higher staffing levels, mainly in the loan department, salary increases for existing employees and rising health insurance costs.
Sale of 135 Bowery
A wholly-owned subsidiary of the Bank sold the property at 135 Bowery, New York, NY in September 2015 for $13.7 million after expenses and the Bank booked a gain of $1.3 million. In addition, the Bank's attorney is holding $750 thousand of the sales proceeds in escrow, which can be released to the Bank when the previously applied for new construction New York City tax abatement appears on the New York City real estate tax bill. We expect this to occur in Q2 of 2016, at which time we expect to record a pre-tax gain of $750 thousand.
Forest Hills Branch Closing
During September 2015, the Bank announced the decision to close the Forrest Hills branch in November 2015. The Bank will move customer accounts to the Elmhurst branch. The Bank has taken a charge of $252 thousand to cover the cost of writing off assets that will no longer be used, the cost of moving safe deposit boxes, other costs associated with closing the branch and employee severance.
Pre-tax Income
Pre-tax income for the nine months ended September 30, 2015 was $2,806,000 (or $1,805,000 without the gain on sale and the costs associated with closing the branch) compared to pretax income for the same period in 2014 of $2,717,000. On a quarterly basis, pretax income for the third quarter of 2015 was $1,437,000 (or $436,000 without the gain on sale and the costs associated with closing the branch) compared to pretax income for the third quarter of 2014 of $826,000.
Income Taxes
Income tax expense of $1.4 million for the first nine months of 2015 included a one-time charge of $560 thousand, $369 thousand after federal tax benefit, as a reserve against a New York City deferred tax asset. New York City passed a law in second quarter of 2015 which effectively eliminated future New York City income taxes due to the tax benefits derived from the Company's real estate loans. New York State passed a similar law last year and the Company took a charge against its New York State deferred taxes in the fourth quarter of 2014.
New York City and New York State capital taxes of approximately $150 thousand annually are charged to non-interest expense. Capital taxes for New York State began in January 2015 and New York City began in April 2015. Through September 30, 2015, the Company has expensed $95 thousand of capital taxes.
Balance Sheet Highlights
Assets
Total assets at September 30, 2015 were $600.2 million, an increase of $28.5 million, or 5.0%, versus September 30, 2014. Total loans receivable were $445.4 million, an increase of $65.2 million, or 17.1%, compared to same period last year. The increase is due principally to a $38.2 million increase in adjustable rate 1-4 family mortgage loans and a $26.7 million increase in commercial real estate and multifamily loans. Investment securities decreased by $12.9 million while overnight investments decreased by $6.4 million. Total cash, including overnight investments, at September 30, 2015 was $43.9 million, a decrease of $6.4 million from September 30, 2014, which is principally the result of redeploying cash into higher yielding loan assets.
As noted above, a subsidiary of the Bank sold the premises at 135 Bowery, New York, NY for $13.7 million at the end of September. This significantly increased the Company's cash position, which is expected to be deployed into loans and investments.
Asset Quality
Asset quality remains strong as non-performing assets declined by 35.9% at September 30, 2015 to $4.9 million, compared to $7.7 million one year earlier. However, non-performing assets increased by $399 thousand or 8.1% during the third quarter of 2015. Total delinquent loans declined by 35.9% to $6.3 million at September 30, 2015, compared to $9.9 million at September 30, 2014. However, total delinquent loans increased $265 thousand or 4.4% during the third quarter of 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 $8.4 million, or 1.92% of total loans at September 30, 2015, compared to $8.3 million, or 2.12%, at September 30, 2014.
Deposits
Deposits increased to $452.2 million at September 30, 2015, an increase of $22.0 million, or 5.1%, versus September 30, 2014. Demand deposits increased $33.7 million to $124.7 million, or 37.1%, compared to September 30, 2014. Certificates of deposit were $200.2 million, an increase of $6.0 million, or 3.1%. Savings and money market accounts decreased $16.5 million, or 11.7%. NOW accounts decreased $1.2 million, or 28.6%.
Borrowings
Federal Home Loan Bank borrowings increased by $6.0 million to $67.0 million compared to last year, which increase the Company incurred to fund loan growth and manage liquidity. The remaining borrowings of $7.2 million consist of the Company's trust preferred securities transaction originated in 2004.
Stockholders' Equity
Stockholders' equity was $68.5 million, or 11.41% of total assets, at September 30, 2015, a $1.2 million, or 1.8 % increase from September 30, 2014. The increase was mainly due to net income and proceeds from stock options that directors and officers exercised.
About First American International Corp.
First American International Corp. is the holding company for First American International Bank, a community development financial institution ("CDFI") and a minority depository institution ("MDI") with nine branches and two mortgage offices serving principally the Chinese-American communities in Manhattan, Queens and Brooklyn in New York City.
See accompanying unaudited financial data tables for additional information. Some items, specifically related to adjustments for Financial Accounting Standard ("FAS") 91 Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, in the prior year financial statements were reclassified to conform to the current presentation.
The information contained herein is intended to provide the reader with historical information about the financial results of First American International Corp. It is not intended to provide forward looking statements or projections of future results. A variety of factors could cause actual results and experiences to differ materially from historical results and anticipated results based on historical results.
| First American International Corp. | |||||||||||||
| Financial Highlights (unaudited) | |||||||||||||
| ($ in thousands) | |||||||||||||
| Balance Sheet Items | 9/30/2015 | 9/30/2014 | 6/30/2015 | ||||||||||
| Cash and due from banks - noninterest bearing | $ | 5,949 | $ | 5,819 | $ | 5,979 | |||||||
| Due from banks - interest bearing | 37,224 | 23,123 | 40,734 | ||||||||||
| Federal funds sold | 709 | 795 | 3,612 | ||||||||||
| Time deposits with banks | 3,456 | 3,209 | 3,953 | ||||||||||
| Securities available for sale | 69,587 | 72,665 | 98,822 | ||||||||||
| Securities held to maturity | 20,579 | 18,816 | 4,198 | ||||||||||
| Total securities | 90,166 | 91,481 | 103,020 | ||||||||||
| Loans held for sale | 1,662 | 1,683 | 4,243 | ||||||||||
| Real estate - commercial | 146,150 | 144,268 | 119,433 | ||||||||||
| Real estate - residential | 296,558 | 289,006 | 258,313 | ||||||||||
| Commercial and industrial | 2,048 | 2,077 | 1,931 | ||||||||||
| Consumer and installment | 613 | 720 | 523 | ||||||||||
| Loans receivable, gross | 445,369 | 436,071 | 380,200 | ||||||||||
| Unearned loan fees | (857 | ) | (912 | ) | (803 | ) | |||||||
| Allowance for possible loan losses | (8,375 | ) | (8,294 | ) | (7,880 | ) | |||||||
| Bank premises and equipment | 7,367 | 20,827 | 20,232 | ||||||||||
| Fixed assets held for sale | - | - | - | ||||||||||
| Federal Home Loan Bank stock | 3,709 | 3,709 | 3,382 | ||||||||||
| Accrued interest receivable | 2,241 | 2,104 | 2,061 | ||||||||||
| Mortgage servicing rights | 7,453 | 7,487 | 7,470 | ||||||||||
| Other assets | 4,144 | 4,417 | 5,520 | ||||||||||
| Total Assets | $ | 600,216 | $ | 591,517 | $ | 571,722 | |||||||
| Demand deposits | $ | 124,705 | $ | 119,446 | $ | 90,972 | |||||||
| NOW accounts | 3,018 | 3,273 | 4,225 | ||||||||||
| Money market and savings | 124,298 | 130,941 | 140,831 | ||||||||||
| Certificate of deposit | 200,200 | 191,053 | 194,155 | ||||||||||
| Total deposits | 452,222 | 444,712 | 430,183 | ||||||||||
| Borrowings | 67,000 | 67,000 | 61,000 | ||||||||||
| Junior subordinated debentures | 7,217 | 7,217 | 7,217 | ||||||||||
| Accrued interest payable | 1,008 | 1,111 | 1,193 | ||||||||||
| Accounts payable and other liabilities | 4,275 | 3,931 | 4,842 | ||||||||||
| Total Liabilities | 531,722 | 523,971 | 504,434 | ||||||||||
| Stockholders' equity | 68,494 | 67,546 | 67,287 | ||||||||||
| Total liabilities and stockholders' equity | $ | 600,216 | $ | 591,517 | $ | 571,722 | |||||||
| For the nine months ended | For the quarter ended | ||||||||||||||||
| Summary Income Statement | 9/30/2015 | 9/30/2014 | 9/30/2015 | 9/30/2014 | |||||||||||||
| Interest income | $ | 18,707 | $ | 18,201 | $ | 6,317 | $ | 5,948 | |||||||||
| Interest expense | 2,967 | 2,877 | 992 | 970 | |||||||||||||
| Net interest income | 15,740 | 15,325 | 5,325 | 4,978 | |||||||||||||
| Provision for loan losses | - | 157 | - | - | |||||||||||||
| Net interest income after provision for loan losses | 15,740 | 15,167 | 5,325 | 4,978 | |||||||||||||
| Non-interest income | 6,664 | 4,854 | 2,899 | 1,634 | |||||||||||||
| Non-interest expenses | 19,598 | 17,304 | 6,787 | 5,786 | |||||||||||||
| Income before income taxes | 2,805 | 2,717 | 1,437 | 826 | |||||||||||||
| Income taxes | 1,367 | 944 | 497 | 283 | |||||||||||||
| Net income | $ | 1,438 | $ | 1,773 | $ | 941 | $ | 544 | |||||||||
| Less: Preferred Stock Dividends and Discount Accretion | (580 | ) | (565 | ) | (195 | ) | (190 | ) | |||||||||
| Net Income Available to Shareholders | $ | 858 | $ | 1,208 | $ | 746 | $ | 354 | |||||||||
| First American International Corp. | ||||||||||||||||
| Selected Financial Data (unaudited) | ||||||||||||||||
| ($ in thousands, except share data) | ||||||||||||||||
| Year to Date | Quarter ended | |||||||||||||||
| Average Balances | 9/30/2015 | 9/30/2014 | 9/30/2015 | 9/30/2014 | ||||||||||||
| Securities | $ | 95,084.71 | $ | 101,761.88 | $ | 88,985.36 | $ | 103,407.67 | ||||||||
| Loans receivable | 426,486.58 | 372,798.15 | 443,068.93 | 373,864.92 | ||||||||||||
| Assets | 583,033.33 | 556,436.90 | 591,948.13 | 558,104.36 | ||||||||||||
| Deposits | 438,099.74 | 415,462.79 | 442,106.15 | 416,557.59 | ||||||||||||
| Performance ratios | ||||||||||||||||
| Return on average assets | 0.20 | % | 0.29 | % | 0.50 | % | 0.25 | % | ||||||||
| Return on average net worth | 1.69 | % | 2.42 | % | 4.40 | % | 2.12 | % | ||||||||
| Average interest earning assets/bearing liabilities | 161 | % | 157 | % | 161 | % | 158 | % | ||||||||
| Net interest rate spread | 3.58 | % | 3.72 | % | 3.56 | % | 3.60 | % | ||||||||
| Net interest margin | 3.84 | % | 3.95 | % | 3.84 | % | 3.84 | % | ||||||||
| Yield on Loans | 5.19 | % | 5.14 | % | 5.28 | % | 4.28 | % | ||||||||
| Average Cost of Deposits | 0.74 | % | 0.71 | % | 0.72 | % | 0.73 | % | ||||||||
| Net interest income after provision/total expense | 80.31 | % | 87.65 | % | 78.47 | % | 86.04 | % | ||||||||
| Non-interest income to total revenue | 26.27 | % | 21.05 | % | 31.45 | % | 21.56 | % | ||||||||
| Non-interest expense to total revenue | 77.25 | % | 75.06 | % | 73.64 | % | 76.30 | % | ||||||||
| Non-interest expense to average assets | 4.48 | % | 4.15 | % | 4.59 | % | 4.15 | % | ||||||||
| Asset Quality Ratios | ||||||||||||||||
| Non-performing assets to total assets | 0.82 | % | 1.34 | % | 0.82 | % | 1.34 | % | ||||||||
| Non-performing loans to total loans | 1.10 | % | 2.01 | % | 1.10 | % | 2.01 | % | ||||||||
| Allowance for loan losses to total loans | 1.92 | % | 2.12 | % | 1.92 | % | 2.12 | % | ||||||||
| Allowance for loan losses to non-performing loans | 171 | % | 103 | % | 171 | % | 103 | % | ||||||||
| Capital Ratios | ||||||||||||||||
| Average equity to average total assets (Company) | 8.71 | % | 8.89 | % | 8.59 | % | 8.96 | % | ||||||||
| Equity to total assets end of period (Company) | 11.41 | % | 11.77 | % | 11.41 | % | 11.77 | % | ||||||||
| Tier 1 leverage capital (Bank) (well capitalized 5%) | 12.50 | % | 12.98 | % | 12.50 | % | 12.98 | % | ||||||||
| Tier 1 risk-based capital (Bank) (well capitalized 8%) | 18.96 | % | 21.18 | % | 18.96 | % | 21.18 | % | ||||||||
| Total risk-based capital (Bank) (well capitalized 10%) | 20.22 | % | 22.45 | % | 20.22 | % | 22.45 | % | ||||||||
| Book value per share basic | $ | 23.39 | $ | 22.73 | $ | 23.39 | $ | 22.73 | ||||||||
| Diluted EPS available to Common Shareholders | $ | 0.39 | $ | 0.55 | $ | 0.34 | $ | 0.39 | ||||||||
Contact Information:
For further information, please contact
Neil Hecht
Chief Financial Officer
(718) 567-8788 Ext 1388