NEW YORK, NY--(Marketwired - Oct 26, 2017) - First American International Corp. (
Net Income and Results of Operations
The Company today reported net income for the quarter ended September 30, 2017 of $1.5 million, or $0.68 per share, and $4.6 million, or $2.09 per share, for the first nine months of 2017. The income available to common shareholders is after deduction of $206,000 of Troubled Asset Relief Program ("TARP") costs, consisting of preferred stock dividends of $85,000 and discount accretion of $121,000 for the current quarter and $614,000 in TARP costs, consisting of preferred stock dividends of $255,000 and discount accretion of $359,000 for the first nine months of 2017. This compares to net income of $1.7 million, or $0.77 per share, basic and diluted, for the quarter ended September 30, 2016, and net income of $2.6 million for the first nine months of 2016, also after deduction of TARP dividends and discount accretion.
The current quarter and the first nine months of 2017 included $1.1 million and $1.6 million, respectively, of project-related consulting fees associated with improving the Bank's compliance and audit programs. Excluding these expenses, the Company's net income for the current quarter was $2.3 million, or $1.03 per share, and $5.7 million, or $2.57 per share, for the nine months ended September 30, 2017, after the deduction of TARP dividends and discount accretion.
The Company also reported a return on average assets of 0.69% for the quarter ended September 30, 2017, compared to 0.88% for the same period in 2016 and a return on average common equity of 9.80% for the quarter ended September 30, 2017, compared to 12.28% for the same period in 2016. Excluding the project-related consulting fees, return on average assets and return on average common equity were 1.05% and 14.87%, respectively, for the quarter ended September 30, 2017.
The decrease in reported quarterly earnings versus the same period in 2016 is due principally to a year-over-year 32.1% increase in non-interest expenses of $1.8 million, partially offset by a 56.2% increase in non-interest income of $1.2 million, and a 6.6% increase in net interest income of $417,000. Excluding the $1.1 million of project-related consulting expenses, the Company's earnings for the recent quarter of $2.3 million were $0.6 million, or 35.4%, above the same period in 2016, driven by higher non-interest income and net interest income. The increase in earnings for the nine months ended September 30th over the same period in 2016 is due principally to a year-over-year 81.7% increase in non-interest income of $3.8 million, an increase in net interest income of $2.1 million, or 11.9%, and a decrease in loan loss provision expense of $288,000, or 78.5%, partially offset by a year-over-year increase in non-interest expenses of $3.1 million, or 18.1%.
Through the first nine months of 2017, the Company has successfully executed on its strategy of generating organic growth in the loan portfolio funded by an increase in retail deposits and generating residential loans for sale on a servicing retained basis. In accordance with management's strategy, loans receivable increased by $14.3 million, or 2.1%, to $707.1 million at September 30, 2017 versus $692.8 million at June 30, 2017 due primarily to the sale of $40.6 million of residential mortgage loans, servicing retained, during the third quarter versus sales of $49.4 million of residential mortgage loans, servicing retained, in the second quarter.
"I am very pleased with our progress in consistently growing our residential loan production capacity, enabling the Bank to increase our loan portfolio, contributing to higher net interest income, and continue our loan sales, resulting in higher fee income. I remain optimistic that we can continue to grow quality earning assets and loan sale fee income. The Bank's increase in non-interest expense compared to the year ago period continues to be driven primarily by an increase in consulting fees in connection with improving the Bank's compliance and audit programs and increased compensation associated with an increase in loan production. The Bank continues to remain focused on generating high quality loans, growing core deposits and controlling core operating expenses." said Mark Ricca, President and Chief Executive Officer.
Net Interest Income
Net interest income for the three months ended September 30, 2017, before provision for loan losses, was $6.7 million, an increase of $417,000, or 6.6%, from the prior year.
The increase in net interest income is primarily due to an increase in average interest earning assets of $100.3 million, or 13.5%, from $745.5 million in 2016 to $845.8 million in 2017, driven largely by loan growth, partially offset by an increase in interest expense from an increase in average interest bearing liabilities of $82.6 million, or 15.2%, from $542.4 million in 2016 to $625.0 million in 2017. Net interest income was also negatively impacted by continued competitive pressures on loan pricing, combined with a rising deposit rate environment during the recent quarter which resulted in an 18 basis point decrease in net interest margin, from 3.38% for the three months ended September 30, 2016 to 3.20% for the same period in 2017.
Interest income increased by $0.9 million, or 11.3%, to $8.7 million in the third quarter of 2017 from $7.8 million in the same quarter of 2016. The increase in interest income is due to a year-over-year increase in average loans outstanding of $74.9 million, or 11.9%, partially offset by a decline in yield. Average residential loans outstanding increased $72.9 million, or 20.9%, and average commercial real estate loans outstanding increased $2.6 million, or 1.0%, when compared to the prior year quarter. The yield earned on loans declined 8 basis points to 4.56% for the third quarter of 2017 from 4.64% in 2016. The decrease was due principally to the continued low interest rate environment and greater competition in the Bank's primary markets, resulting in the Bank originating new loans at lower rates than the existing portfolio.
The average volume of securities decreased by $19.8 million, or 24.8%, from $79.9 million in the third quarter of 2016 to $60.1 million in the third quarter of 2017, due to the sale of securities with a book value of $11.3 million by the Bank late in the third quarter of 2016, combined with scheduled amortization and maturities during the past four quarters. Proceeds from the sale, as well as security repayments, have been redeployed into higher yielding loans. The average yield on securities increased by 10 basis points to 2.69% during the current quarter, principally because management continued its strategy of allowing lower yielding securities to mature while retaining more intermediate term securities with higher yields. The net effect of the decrease in volume and the increase in yield was a $72,000 decrease in interest and dividends earned on securities to $404,000 during the third quarter of 2017 compared to $476,000 in the prior year quarter.
Interest expense increased by $466,000, or 30.7%, during the third quarter of 2017 compared to the same quarter of 2016. The average cost of deposits increased 15 basis points to 1.04% in the third quarter of 2017 compared to the prior year quarter. This was largely due to an increase in both the volume and cost of certificates of deposit, resulting from a Chinese New Year campaign during the first quarter of 2017 and greater competition in the Company's key local markets during the last two quarters. The average balance of certificates of deposit, our highest cost deposit category, increased by $45.4 million, or 17.4%, from $261.0 million in the second quarter of 2016 to $306.4 million in 2017. The average rate paid on certificates of deposit increased by 15 basis points from 1.18% in 2016 to 1.33% in 2017. The average balance of money market deposit accounts and savings increased by $34.4 million, or 26.9%, from $128.1 million in 2016 to $162.5 million in 2017, with the average rate paid increasing from 0.33% to 0.53%.
Provision for Loan Losses
The Company made no provision for loan losses in the third quarter of 2017 and 2016. Management believes the existing $9.4 million allowance at September 30, 2017 is appropriate. The allowance as a percentage of loans was 1.33% at September 30, 2017 compared to 1.41% at September 30, 2016. The reduction in the allowance as a percentage of total loans was due primarily to continued improvement in our loan loss experience, which is based upon the last twelve quarters of loan losses, a reduction in certain qualitative loan loss factors associated with a more robust risk management program and the improved economy, and a strategic decision by management to shift the portfolio mix more towards lower risk residential loans. We remain focused on maintaining our asset quality.
Non-interest Income
Non-interest income was $3.3 million for the quarter ended September 30, 2017, an increase of $1.2 million, or 56.2%, compared to the quarter ended September 30, 2016. The quarter-over-quarter increase is largely due to a $1.0 million increase in gains on sales of loans to third parties, as the Bank sold $40.6 million of loans to third parties in the third quarter of 2017 versus $5.0 million of third party loan sales in the year ago quarter, combined with a $0.5 million volume- and rate-driven improvement year-over-year in the value of the Bank's mortgage servicing rights, and a $227,000 increase in fee income associated with receiving a Bank Enterprise Award ("BEA"). The BEA is a U.S. Government-sponsored program to support lending activities for Community Development Financial Institutions, which includes the Bank; in the third quarter of 2017, the federal government re-instituted the payment of these awards which had been suspended in 2016 for administrative reasons.
The Company recorded a $0.6 million pre-tax gain on the value of Mortgage Servicing Rights ("MSR") in the third quarter of 2017, compared to a $0.1 million pre-tax gain in the third quarter of 2016, due principally to the increase in sales of residential loans on the secondary market with servicing retained during the current quarter combined with higher mortgage interest rates versus the year ago period. The value of MSR's is the market value of the right to earn fees for servicing loans. Since loan prepayments tend to vary with changes in interest rates, an increase or decrease in interest rates generally results in an increase or decrease, respectively, in MSR value. MSR values are also impacted by general market driven supply and demand conditions.
Increases in non-interest income in the third quarter of 2017 were partially offset by a $292,000 pre-tax gain recognized in the third quarter of 2016 attributable to the sale of securities with a book value of $11.3 million.
Non-interest Expenses
Non-interest expenses were $7.4 million for the quarter ended September 30, 2017 compared to $5.6 million in 2016, an increase of $1.8 million, or 32.1%. The increase is primarily due to a $1.1 million increase in project-related professional fees, largely associated with enhancements to the Bank's compliance and audit infrastructure, $219,000 for higher volume-driven incentive compensation costs associated with the increase in residential loan originations combined with increased benefits costs and a greater emphasis on staff training, and $152,000 for higher volume-driven data processing, loan-related and marketing costs. Excluding the project-related professional fees, the Company's non-interest expenses for the quarter ended September 30, 2017 were $6.2 million, an increase of $0.6 million, or 11.6%, largely due to higher volume-driven variable expenses, such as incentive compensation, data processing and loan-related expenses.
Balance Sheet Highlights
Assets
Total assets at September 30, 2017 were $863.9 million, an increase of $70.6 million, or 8.9%, versus September 30, 2016. Total loans receivable were $707.1 million, an increase of $53.8 million, or 8.2%, compared to the same period last year. The increase is due primarily to a $186.9 million, or 48.9%, increase in 5/1 and 7/1 adjustable rate 1-4 family mortgage loans, at an average yield of 4.58%, partially offset by $132.0 million of residential loan sales to third parties.
Total assets at September 30, 2017 decreased $10.0 million, or 1.1%, as compared to June 30, 2017, due principally to a decrease in overnight investments resulting from a slight decline in deposits, $7.7 million, or 1.2%, and the payoff of $5.0 million of maturing FHLBNY borrowings during the current quarter.
Overnight investments at September 30, 2017 were $72.0 million, an increase of $21.6 million versus September 30, 2016, at an average yield of 1.09%. Investment securities at September 30, 2017 were $51.3 million, a decrease of $9.1 million versus the year ago period at an average yield of 2.64%. The decrease in investment securities is due to the continuation of management's strategy of allowing lower yielding securities to mature while retaining more intermediate term securities with higher yields. The increase in overnight investments is principally the result of a successful Chinese New Year certificate of deposit campaign during the first quarter of 2017 combined with the proceeds from sales of residential loans on the secondary market in the current quarter. The Bank anticipates redeploying a portion of its overnight investments into new loan originations during the fourth quarter of 2017.
Asset Quality
Non-performing loans increased by $136,000 at September 30, 2017 to $3.47 million, compared to $3.34 million one year earlier. Total delinquent loans decreased $511,000, to $1.63 million at September 30, 2017, or 0.23% of the loan portfolio, compared to $2.14 million, or 0.31% of the portfolio at September 30, 2016. The Company monitors delinquent loans closely and continues to work on improving the asset quality of the loan portfolio. The allowance for loan losses was $9.4 million, or 1.33% of total loans at September 30, 2017, compared to $9.2 million, or 1.41% of total loans, at September 30, 2016.
Deposits
Deposits increased by $68.0 million, or 12.3%, from $553.0 million at September 30, 2016 to $621.0 million at September 30, 2017 and were utilized principally to fund loan portfolio growth. Certificates of deposit were $301.4 million, an increase of $31.7 million, or 11.8%, over the same period in 2016. Savings and money market accounts increased $28.0 million, or 20.7%, and demand deposits increased $9.1 million, or 6.4%, when comparing September 30, 2017 to September 30, 2016. NOW accounts decreased year-over-year by $0.8 million, or 14.0%.
Borrowings
Federal Home Loan Bank of New York ("FHLBNY") Borrowings decreased by $6.0 million, or 3.9%, to $150.0 million versus the year ago period, as a $1 million borrowing matured and was paid off during the first quarter of 2017 and two additional borrowings totaling $5.0 million matured and were paid off during the third quarter of 2017. Total FHLBNY Borrowings at September 30, 2017 mainly consist of borrowings with remaining average terms of one to two years at slightly higher rates 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 $77.8 million, or 9.00% of total assets, at September 30, 2017, a $6.9 million, or 9.8%, increase from September 30, 2016. Tangible book value per share at September 30, 2017 was $27.74 per share, basic, and $27.61 per share, fully diluted, reflecting increases of $2.90, or 11.7%, and $2.77, or 11.2%, respectively, when compared to the year ago period. The increases in stockholders' equity and tangible book value were due primarily to the retention of net income.
About First American International Corp.
First American International Corp. is the holding company for First American International Bank, a community development financial institution ("CDFI") and a minority depository institution ("MDI") with eight full service branches, including offering consumer and business banking and loan products and services, and non-deposit insured investment products and services, serving principally the Chinese-American communities in Manhattan, Queens and Brooklyn in New York City.
See accompanying unaudited financial data tables for additional information.
The information contained herein is intended to provide the reader with historical information about the financial results of First American International Corp. It is not intended to provide forward looking statements or projections of future results. A variety of factors could cause actual results and experiences to differ materially from historical results and anticipated results based on historical results.
| First American International Corp. | |||||||||||||||
| Financial Highlights (unaudited) | |||||||||||||||
| ($ in thousands) | |||||||||||||||
| Balance Sheet Items | 9/30/2017 | 6/30/2017 | 9/30/2016 | ||||||||||||
| Cash and cash equivalents | |||||||||||||||
| Cash and due from banks - noninterest bearing | $ | 5,345 | $ | 5,334 | $ | 4,819 | |||||||||
| Due from banks - interest bearing | 71,956 | 96,758 | 50,362 | ||||||||||||
| Federal funds sold | 1,316 | 641 | 174 | ||||||||||||
| Total cash and cash equivalents | 78,617 | 102,733 | 55,355 | ||||||||||||
| Time deposits with banks | 3,800 | 3,800 | 3,697 | ||||||||||||
| Securities | |||||||||||||||
| Securities available for sale | 23,807 | 24,564 | 31,622 | ||||||||||||
| Securities held to maturity | 27,467 | 28,086 | 28,792 | ||||||||||||
| Total securities | 51,274 | 52,650 | 60,414 | ||||||||||||
| Loans | |||||||||||||||
| Loans held for sale | 1,829 | 1,044 | 1,202 | ||||||||||||
| Real estate - residential | 437,005 | 426,849 | 382,142 | ||||||||||||
| Real estate - commercial | 272,299 | 266,478 | 272,486 | ||||||||||||
| Commercial and industrial | 623 | 2,382 | 373 | ||||||||||||
| Consumer and installment | 366 | 394 | 359 | ||||||||||||
| Unearned loan fees | (3,169 | ) | (3,260 | ) | (1,996 | ) | |||||||||
| Loans receivable, gross | 707,124 | 692,843 | 653,364 | ||||||||||||
| Allowance for loan losses | (9,437 | ) | (9,335 | ) | (9,239 | ) | |||||||||
| Loans, net | 697,688 | 683,508 | 644,125 | ||||||||||||
| Bank premises and equipment | 6,532 | 6,729 | 6,615 | ||||||||||||
| Federal Home Loan Bank stock | 7,613 | 8,011 | 7,881 | ||||||||||||
| Accrued interest receivable | 2,767 | 2,615 | 2,584 | ||||||||||||
| Mortgage servicing rights | 7,983 | 7,365 | 6,198 | ||||||||||||
| Other assets | 5,767 | 5,406 | 5,196 | ||||||||||||
| Total Assets | $ | 863,869 | $ | 873,860 | $ | 793,267 | |||||||||
| Demand deposits | $ | 151,049 | $ | 142,656 | $ | 141,940 | |||||||||
| NOW accounts | 4,949 | 10,303 | 5,754 | ||||||||||||
| Money market and savings | 163,611 | 160,820 | 135,596 | ||||||||||||
| Certificates of deposit | 301,411 | 314,901 | 269,664 | ||||||||||||
| Total deposits | 621,021 | 628,679 | 552,954 | ||||||||||||
| Borrowings | 150,000 | 155,000 | 156,000 | ||||||||||||
| Junior subordinated debentures | 7,217 | 7,217 | 7,217 | ||||||||||||
| Accrued interest payable | 2,283 | 2,001 | 1,615 | ||||||||||||
| Accounts payable and other liabilities | 5,563 | 4,812 | 4,637 | ||||||||||||
| Total Liabilities | 786,084 | 797,709 | 722,423 | ||||||||||||
| Stockholders' equity | 77,785 | 76,150 | 70,844 | ||||||||||||
| Total Liabilities and Stockholders' Equity | $ | 863,869 | $ | 873,860 | $ | 793,267 | |||||||||
| First American International Corp. | |||||||||||||||||||
| Financial Highlights (unaudited) | |||||||||||||||||||
| ($ in thousands except per share data) | |||||||||||||||||||
| Summary Income Statement | Year to Date | Quarter Ended | |||||||||||||||||
| 9/30/2017 | 9/30/2016 | 9/30/2017 | 9/30/2016 | ||||||||||||||||
| Interest income | |||||||||||||||||||
| Real estate - residential | $ | 14,297 | $ | 11,324 | $ | 4,847 | $ | 4,232 | |||||||||||
| Real estate - commercial | 9,085 | 8,588 | 2,986 | 3,069 | |||||||||||||||
| Other | 2,422 | 2,154 | 881 | 530 | |||||||||||||||
| Total Interest income | 25,804 | 22,066 | 8,714 | 7,831 | |||||||||||||||
| Interest expense | |||||||||||||||||||
| Interest-bearing core deposits | 624 | 292 | 217 | 107 | |||||||||||||||
| Interest-bearing certificates of deposit | 2,943 | 2,096 | 1,021 | 757 | |||||||||||||||
| Interest on borrowings | 2,236 | 1,809 | 746 | 654 | |||||||||||||||
| Total Interest expense | 5,803 | 4,197 | 1,984 | 1,518 | |||||||||||||||
| Net interest income | 20,001 | 17,868 | 6,730 | 6,313 | |||||||||||||||
| Provision for loan losses | 79 | 367 | - | - | |||||||||||||||
| Net interest income after | |||||||||||||||||||
| provision for loan losses | 19,922 | 17,501 | 6,730 | 6,313 | |||||||||||||||
| Non-interest income | 8,535 | 4,698 | 3,284 | 2,102 | |||||||||||||||
| Non-interest expenses | 20,429 | 17,297 | 7,362 | 5,574 | |||||||||||||||
| Income before income taxes | 8,028 | 4,902 | 2,652 | 2,841 | |||||||||||||||
| Provision for income taxes | 2,799 | 1,697 | 953 | 968 | |||||||||||||||
| Net Income | $ | 5,229 | $ | 3,206 | $ | 1,699 | $ | 1,873 | |||||||||||
| Less: Preferred Stock dividends and discount accretion | (614 | ) | (597 | ) | (206 | ) | (200 | ) | |||||||||||
| Net Income Available to Shareholders | $ | 4,615 | $ | 2,609 | $ | 1,493 | $ | 1,673 | |||||||||||
| Year to Date | Quarter ended | ||||||||||||||||||
| 9/30/2017 | 9/30/2016 | 9/30/2017 | 9/30/2016 | ||||||||||||||||
| Performance Ratios | |||||||||||||||||||
| Return on average assets | 0.72 | % | 0.48 | % | 0.69 | % | 0.88 | % | |||||||||||
| Return on average common equity | 10.36 | % | 6.46 | % | 9.80 | % | 12.28 | % | |||||||||||
| Average interest earning assets/bearing liabilities | 134.20 | % | 139.88 | % | 135.33 | % | 137.43 | % | |||||||||||
| Net interest rate spread | 2.90 | % | 3.12 | % | 2.88 | % | 3.09 | % | |||||||||||
| Net interest margin | 3.21 | % | 3.43 | % | 3.20 | % | 3.38 | % | |||||||||||
| Yield on loans | 4.55 | % | 4.71 | % | 4.56 | % | 4.64 | % | |||||||||||
| Average cost of deposits | 1.01 | % | 0.85 | % | 1.04 | % | 0.89 | % | |||||||||||
| Net interest income after provision/total expense | 97.52 | % | 101.18 | % | 91.42 | % | 113.26 | % | |||||||||||
| Non-interest income to total revenue | 24.86 | % | 17.55 | % | 27.37 | % | 21.16 | % | |||||||||||
| Non-interest expense to total revenue | 59.49 | % | 64.63 | % | 61.36 | % | 56.12 | % | |||||||||||
| Non-interest expense to average assets | 2.38 | % | 2.41 | % | 3.41 | % | 2.92 | % | |||||||||||
| Net Worth and Asset Quality Ratios | |||||||||||||||||||
| Average total equity to average total assets | 8.85 | % | 9.71 | % | 8.97 | % | 9.25 | % | |||||||||||
| Total equity to assets end of period | 9.00 | % | 8.93 | % | 9.00 | % | 8.93 | % | |||||||||||
| Non-performing assets to total assets | 0.40 | % | 0.42 | % | 0.40 | % | 0.42 | % | |||||||||||
| Non-performing loans to total loans | 0.49 | % | 0.51 | % | 0.49 | % | 0.51 | % | |||||||||||
| Allowance for loan losses to total loans | 1.33 | % | 1.41 | % | 1.33 | % | 1.41 | % | |||||||||||
| Allowance for loan losses to NPLs | 271.71 | % | 276.87 | % | 271.71 | % | 276.87 | % | |||||||||||
| Capital, Book Value and Earnings Per Share | |||||||||||||||||||
| Total risk based capital ratio (Bank) | 16.47 | % | 15.62 | % | 16.47 | % | 15.62 | % | |||||||||||
| Tier 1 risk based capital (Bank) | 15.23 | % | 14.36 | % | 15.23 | % | 14.36 | % | |||||||||||
| Leverage ratio (Bank) | 9.70 | % | 10.08 | % | 9.70 | % | 10.08 | % | |||||||||||
| Tangible book value per share - basic | $ | 27.74 | $ | 24.84 | $ | 27.74 | $ | 24.84 | |||||||||||
| Diluted EPS available to common shareholders | $ | 2.08 | $ | 1.18 | $ | 0.67 | $ | 0.77 | |||||||||||
Contact Information:
For further information, please contact
Michael Lowengrub
Chief Financial Officer
(718) 567-8788 Ext 1388