First American International Corp. Announces Second Quarter Results and First Half Results for 2016
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E-mailNEW YORK, NY -- (Marketwired) -- 08/24/16 -- 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 June 30, 2016 of $386,000 and $894,000 for the first half of 2016. Earnings per share available to common shareholders were $0.18 per share for the second quarter and $0.41 for the first half of 2016, both basic and diluted.
Net Income and Results of Operations
The Company today reported net income for the quarter ended June 30, 2016 of $386,000, $0.18 per share, and $894,000, $0.41 per share, for first half of 2016. The income available to common shareholders is after deduction of $199,000 in Troubled Asset Relief Program ("TARP") costs, consisting of preferred stock dividends ($85,000) and discount accretion ($114,000) for the quarter and $397,000 in TARP costs, consisting of preferred stock dividends ($170,000) and discount accretion ($227,000) for the first half of 2016. This compares to a net loss of $5,000, or $0.00 per share, basic and diluted, for the quarter ended June 30, 2015, and net income of $113,000 for the first half of 2015 also after deduction of TARP dividends and discount accretion. The Company also reported a return on average assets of 0.21% for the quarter ended June 30, 2016, compared to 0.00% for the same period in 2015 and a return on average equity of 2.80% for the quarter ended June 30, 2016, compared to -0.04% for the same period in 2015.
Due principally to a reduction in mortgage interest rates during 2016, the Company recorded a $1,281,000 pre-tax loss on the value of Mortgage Serving Rights ("MSR") in June 2016, compared to the Company recognizing a $266,000 pre-tax gain in June of 2015. The value of MSR is the market value of the right to earn fees for servicing loans. Because loan prepayment speeds tend to change with changes in interest rates, an increase or decrease in interest rates generally results in an increase or decrease in MSR value.
The Company recognized a $751,000 gain in June 2016 attributable to the release of escrow related to the Company's satisfaction of a post-sale performance requirement for the sale in September 2015 of the property located at 135 Bowery, New York, NY.
The Company also recorded a one-time severance expense of $235,000 in the second quarter of 2016 in connection with a reduction in staff that resulted from increased productivity and moving branches to a six-day a week schedule; but with alternating weekend days opened at nearby branches, thus ensuring seven-day a week availability in the Bank's key markets of Sunset Park, Brooklyn, Flushing, Queens and Chinatown, Manhattan.
The net impact of the one-time MSR and severance charges, which were partially offset by the one-time gain for the sale of property, decreased pre-tax income in the second quarter of 2016 by $765,000 ($505,000 after taxes).
The increase in quarterly earnings over the same period in 2015 is due principally to a year-over-year increase in interest income of $945,000, or 15%, and a decrease in non-interest expense of $415,000, or 6.4%, which was offset partially by a year-over-year decrease in non-interest income of $865,000, or 42.8% and an increase in interest expense of $405,000 or 41.1%.
"I continue to be pleased with our progress in growing core earnings and reducing operating expenses. Although the reduction in the value of mortgage servicing rights is significant, I believe the value of the Bank's mortgage servicing portfolio continues to be strong and a reliable source of income. Although, my optimism continues to be tempered by the impact that the prolonged low interest rate environment, competition and regulatory burdens are having on net interest margin and profitability. As such, our team will continue to focus on generating high quality loans, growing customer relationships and deposits and controlling expenses. The Bank also continues to utilize borrowings and wholesale funding to support growth," said Mark Ricca, President and Chief Executive Officer.
Net Interest Income Net interest income for the three months ended June 30, 2016, before provision for loan losses, was $5.9 million, an increase of $540,000, or 10.1%, from the prior year.
The increase in net interest income is attributable principally to an increase in average interest earning assets of $151.3 million, or 27.7%, from $546.5 million in the second quarter of 2015 to $697.8 million in the same period in 2016, partially offset by an increase in interest expense from an increase in average interest bearing liabilities of $103.3 million, or 26.1%, from $395.3 million in the 2015 quarter to $498.7 million in 2016. Earnings were also negatively impacted by a 54 basis point decrease in net interest margin from 3.90% for the three months ended June 30, 2015 to 3.37% for the same period in 2016.
Interest income increased by $945,000, or 15.0%, to $7.3 million in the second quarter of 2016 from $6.3 million in the same quarter in 2015. The yield earned on loans declined 80 basis points to 4.67% for the second quarter of 2016 from 5.47% 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 $107.8 million, including a $49.0 million loan participation purchase at a net yield of 3.32%, and average residential loans outstanding increased $47.1 million for the second quarter compared to the prior year quarter.
The average volume of securities decreased from $100.2 million in the second quarter of 2015 to $81.7 million in the second quarter of 2016, as repayments were redeployed into loans. The average yield on securities increased by 38 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 $15,000 decrease in interest and dividends earned on securities during the second quarter of 2016 compared to the second quarter of 2015.
Interest expense increased during the second quarter of 2016 compared to 2015 by $405,000, or 41.1%. The average cost of interest bearing deposits increased 12 basis points to 0.86% in the second 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 $63.2 million, from $190.0 million in 2015 to $253.2 million in 2016. The average rate paid on certificates of deposit increased by 7 basis points from 1.05% in 2015 to 1.12% in 2016. The average balance of money market deposit accounts and savings decreased by $12.1 million, from $133.1 million in 2015 to $121.0 million in 2016 with the average rate paid increasing slightly from 0.31% to 0.32%.
Provision for Loan Losses The Company made no provision for loan losses in Q2 of 2016 or Q2 of 2015. Management believes the existing $9.2 million allowance, aggregating 1.53% of total loans, is appropriate.
Non-interest Income Non-interest income was $1.2 million for the quarter ended June 30, 2016, a decrease of $865,000, or 42.8%, compared to the quarter ended June 30, 2015. The decrease is mainly due to the reduction in the value of the mortgage servicing rights of $1.28 million which is recorded as a reduction in the gain on sale of mortgages and a decrease of $390,000 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 which was partially offset by the additional gain on sale of 135 Bowery of $751,000.
Non-interest Expenses Non-interest expenses were $6.1 million for the quarter ended June 30, 2016 compared to $6.5 million in 2015, a decrease of $415,000, or 6.4%. The decrease is mainly due to a decrease in occupancy expenses of $191,000, other professional fees of $180,000, and loan related expenses of $109,000.
Balance Sheet Highlights
Assets Total assets at June 30, 2016 were $729.4 million, an increase of $137.8 million, or 23.3%, versus June 30, 2015. Total loans receivable were $607.6 million at June 30, 2016, an increase of $170.7 million, or 39.1%, compared to one year earlier. The increase is due principally to a $115.8 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 $56.3 million of adjustable rate 1-4 family mortgage loans.
Overnight investments decreased by $2.3 million, or 9.8%, to $21.6 million, while investment securities decreased by $18.0 million, or 19.7%, to $73.5 million. These funds were used to fund our loan portfolio.
Fixed assets held for sale at June 30, 2015 were $13.1 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 recognized a $751,000 additional gain in connection with the sale of the property during Q2 of 2016.
Asset Quality At June 30, 2016, nonperforming loans totaled $3.5 million, or 0.58% of total loans, compared to $4.5 million, or 1.04% of total loans one year earlier. Total delinquent loans declined by 76% to $1.0 million or 0.17% of total loans at June 30, 2016, compared to $4.1 million or 0.93% at June 30, 2015. The allowance for loan losses was $9.2 million, or 1.53% of total loans at June 30, 2016, compared to $8.3 million, or 1.91%, at June 30, 2015.
Deposits Deposits increased by $69.3 million, or 15.6%, from $444.7 million at June 30, 2015 to $514.0 million and were utilized to fund loan portfolio growth. Certificates of deposit were $255.9 million, an increase of $64.8 million, or 33.9%. Demand deposits increased $8.6 million, or 7.2%, compared to June 30, 2015. NOW accounts increased $654,000, or 20.0%. Savings and money market accounts decreased $4.8 million, or 3.6%.
Borrowings Federal Home Loan Bank of New York ("FHLBNY") borrowings increased by $66.0 million, or 98.5% to $133.0 million, $45.0 million of the increase 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 in December 2015. Total FHLBNY borrowings at June 30, 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.
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 $69.4 million, or 9.51% of total assets, at June 30, 2016, a $1.8 million, or 2.7%, increase from June 30, 2015. The increase was due mainly to retained 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. Please note that prior period financial information may have been revised to conform to current period classifications, the impact of such changes was not material.
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 6/30/2016 3/31/2016 6/30/2015
--------- --------- ---------
Cash and cash equivalents
Cash and due from banks - noninterest
bearing $ 5,719 $ 5,324 $ 5,819
Due from banks - interest bearing 21,207 44,828 23,123
Federal funds sold 374 948 795
--------- --------- ---------
Total cash and cash equivalents 27,300 51,100 29,736
Time deposits with banks 3,697 3,947 3,209
Securities
Securities available for sale 44,574 47,874 72,665
Securities held to maturity 28,888 27,776 18,816
--------- --------- ---------
Total securities 73,462 75,650 91,481
Loans
Loans held for sale 2,770 982 1,683
Real estate - commercial 260,063 221,375 144,268
Real estate - residential 345,286 323,995 289,006
Commercial and industrial 426 227 2,077
Consumer and installment 386 383 720
Unearned loan fees (1,377) (850) (912)
--------- --------- ---------
Loans receivable, gross 607,555 546,113 436,842
Allowance for loan losses (9,234) (9,223) (8,294)
--------- --------- ---------
Loans, net 598,321 536,889 428,547
Bank premises and equipment 6,864 7,070 7,678
Fixed assets held for sale - - 13,149
Federal Home Loan Bank stock 6,786 5,674 3,649
Accrued interest receivable 2,453 2,387 2,104
Mortgage servicing rights 6,097 7,351 7,487
Other assets 4,392 4,819 4,543
--------- --------- ---------
Total Assets $ 729,372 $ 694,888 $ 591,582
========= ========= =========
Demand deposits $ 128,078 $ 127,086 $ 119,446
NOW accounts 3,927 2,903 3,273
Money market and savings 126,167 117,980 130,941
Certificate of deposit 255,861 253,591 191,053
--------- --------- ---------
Total deposits 514,033 501,560 444,712
Borrowings 133,000 112,000 67,000
Junior subordinated debentures 7,217 7,217 7,217
Accrued interest payable 1,372 1,129 1,111
Accounts payable and other liabilities 4,365 4,274 3,996
--------- --------- ---------
Total Liabilities 659,987 626,181 524,036
Stockholders' equity 69,385 68,707 67,546
--------- --------- ---------
Total liabilities and stockholders'
equity $ 729,372 $ 694,888 $ 591,582
========= ========= =========
First American International Corp.
Financial Highlights (unaudited)
($ in thousands except per share data)
Summary Income Statement Year to Date Quarter ended
-------------------- --------------------
6/30/2016 6/30/2015 6/30/2016 6/30/2015
--------- --------- --------- ---------
Interest income $ 14,226 $ 12,451 $ 7,263 $ 6,318
Interest expense 2,679 1,976 1,389 984
--------- --------- --------- ---------
Net interest income 11,547 10,475 5,874 5,334
Provision for loan losses 367 - - -
Net interest income after
provision for loan losses 11,180 10,475 5,874 5,334
Non-interest income 2,611 3,794 1,158 2,023
Non-interest expenses 11,818 12,921 6,106 6,521
--------- --------- --------- ---------
Income before income taxes 1,974 1,349 926 836
Income taxes 683 850 342 647
--------- --------- --------- ---------
Net income $ 1,291 $ 499 $ 585 $ 189
========= ========= ========= =========
Less: Preferred Stock dividends
and discount accretion 397 386 199 193
--------- --------- --------- ---------
Net income available to
shareholders $ 894 $ 113 $ 386 $ (5)
========= ========= ========= =========
Year to Date Quarter ended
-------------------- --------------------
6/30/2016 6/30/2015 6/30/2016 6/30/2015
--------- --------- --------- ---------
Performance Ratios
Return on average assets 0.26% 0.04% 0.21% 0.00%
Return on average net worth
(less TARP) 3.29% 0.43% 2.80% -0.04%
Average interest earning
assets/bearing liabilities 107.65% 107.03% 107.61% 107.06%
Net interest rate spread 3.10% 3.57% 3.05% 3.63%
Net interest margin 3.41% 3.84% 3.37% 3.90%
Yield on loans 4.75% 5.43% 4.67% 5.47%
Average cost of deposits 0.83% 0.74% 0.86% 0.74%
Net interest income after
provision/total expense 94.60% 81.07% 96.21% 81.79%
Non-interest income to total
revenue 15.51% 23.36% 15.94% 32.02%
Non-interest expense to total
revenue 70.19% 79.54% 72.51% 78.18%
Non- interest expense to average
assets 1.69% 2.23% 1.69% 2.23%
Net Worth and Asset Quality
Ratios
Average net worth to average
total assets 10.14% 11.91% 10.14% 11.91%
Total net worth to assets end of
period 9.57% 11.50% 9.57% 11.50%
Non-performing assets to total
assets 0.48% 0.76% 0.48% 0.76%
Non-performing loans to total
loans 0.58% 1.04% 0.58% 1.04%
Allowance for loan losses to
total loans 1.53% 1.91% 1.53% 1.91%
Allowance for loan losses to
NPLs 261.80% 184.10% 261.80% 184.10%
Capital, Book Value and Earnings
Per Share
Risk based total capital ratio
(Bank) 15.83% 20.10% 15.83% 20.10%
Tier 1 risk based capital (Bank) 14.57% 18.84% 14.57% 18.84%
Leverage ratio (Bank) 10.46% 12.60% 10.46% 12.60%
Book value per share basic $ 24.23 $ 23.60 $ 24.23 $ 23.60
Diluted EPS available to common
shareholders $ 0.41 $ 0.05 $ 0.18 $ 0.00
For further information, please contact Mark Ricca Chief Executive Officer (212) 619-8338 Ext 2823
Source: First American International Corp.
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