First American International Corp. Announces Results for Fourth Quarter and Full Year Ended December 31, 2017

NEW YORK, NY / ACCESSWIRE / March 27, 2018 / 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 December 31, 2017 of $1.4 million and $6.0 million for the twelve months ended December 31, 2017. Earnings per share available to common shareholders were $0.64 per share for the fourth quarter and $2.73 per share for the full year of 2017, both basic and fully diluted.

Net Income and Results of Operations

The Company today reported net income for the quarter ended December 31, 2017 of $1.4 million, or $0.64 per share, and $6.0 million, or $2.73 per share, for the twelve months of 2017. The fourth quarter 2017 income available to common shareholders is after deduction of $208,000 of Troubled Asset Relief Program (“TARP”) costs, consisting of preferred stock dividends of $85,000 and discount accretion of $123,000, and $7,000 of dividends to the preferred shareholders of the Bank’s real estate investment trust (“REIT”) subsidiary. For the full year 2017, reported net income is after $822,000 in TARP costs, consisting of preferred stock dividends, $340,000, and discount accretion, $482,000, and the REIT dividend. This compares to net income of $2.0 million, or $0.90 per share, basic and diluted, for the quarter ended December 31, 2016, and net income of $4.6 million, or $2.08 per share basic and diluted for the twelve months of 2016, also after deduction of TARP costs and the REIT dividend.

The fourth quarter and the twelve months of 2017 included $0.4 million and $2.0 million, respectively, of project-related consulting fees associated with improving the Bank’s compliance and audit programs and a one-time increase in income tax expense of $0.6 million recorded in the current quarter due to the revaluation and write-down of the Company’s deferred tax assets resulting from the Tax Cuts and Jobs Act signed into law by President Trump on December 22, 2017. Excluding these one-time expenses, the Company’s net income for the fourth quarter of 2017 was $2.2 million, or $1.00 per share, and $7.9 million, or $3.58 per share, for the twelve months ended December 31, 2017, after the deduction of TARP costs and the REIT dividend.

The Company also reported a return on average assets of 0.65% for the quarter ended December 31, 2017, compared to 0.99% for the same period in 2016 and a return on average common equity of 9.04% for the quarter ended December 31, 2017, compared to 14.56% for the same period in 2016. Excluding the 2017 project-related consulting fees and one-time increase in tax expense, return on average assets and return on average common equity were 1.03% and 14.17%, respectively, for the quarter ended December 31, 2017. For the twelve months of 2017, the Company reported a return on average assets and a return on average common equity of 0.70% and 10.03%, respectively, as compared to 0.63% and 8.47%, respectively, for the prior year.

The decrease in reported quarterly earnings versus the same period in 2016 is due principally to a year-over-year 14.2% increase in non-interest expense of $928,000 and a 46.0% increase in income tax expense of $569,000 resulting from a downward valuation of the Company’s deferred tax asset as a result of the tax law change. Although the change is not effective until 2018, the Company was required to record the revaluation in the quarter in which the new tax law was adopted. The increases in non-interest expense and income tax expense were partially offset by a 13.6% increase in non-interest income of $459,000 and a 6.8% increase in net interest income of $438,000. Excluding the $0.4 million of current quarter project-related consulting expenses and the $0.6 million one-time increase in income tax expense, the Company’s earnings for the recent quarter of $2.2 million were $0.2 million, or 12.2%, above the same period in 2016, driven by higher non-interest income and net interest income. The increase in earnings for the twelve months ended December 31st over the same period in 2016 is due principally to a year-over-year 52.1% increase in non-interest income of $4.3 million, an increase in net interest income of $2.6 million, or 10.8%, and a decrease in loan loss provision expense of $218,000, or 59.4%, partially offset by a year-over-year increase in non-interest expenses of $4.1 million, or 16.9%.

Throughout the fourth quarter and full year 2017, the Company continued to successfully execute 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 $7.0 million, or 1.0%, to $714.2 million at December 31, 2017 versus $707.1 million at September 30, 2017 due primarily to growth in the residential portfolio. The Company sold $40.1 million of residential mortgage loans, servicing retained, during the fourth quarter as compared to sales of $40.6 million of residential mortgage loans, servicing retained, in the third quarter. For the full year, the Company sold $140.3 million of residential mortgage loans, servicing retained, in 2017 as compared to sales of $36.9 million of residential mortgage loans, servicing retained, in the prior year.

“We are proud of our performance in the fourth quarter and for the full year of 2017, which is the direct result of our continued focus on building our residential loan origination and servicing program, growing deposits and enhancing bank operations. During the fourth quarter, the Bank grew loans serviced for others to exceed $1 billion. I am also pleased to announce that this month the Bank is opening a loan production office in Bensonhurst, Brooklyn. Competition continues to be fierce, especially for deposits, leading to further margin compression, but at a slower rate for the Company than during the prior year. The Company will continue our core residential lending and loan servicing focus, as well as our activities to further develop our team, deepen customer relationships and improve our operating efficiencies, all in the best interest of all our employees, customers, community and shareholders,” said Mark Ricca, President and Chief Executive Officer.

Net Interest Income

Net interest income for the three months ended December 31, 2017, before provision for loan losses, was $7.0 million, an increase of $508,000, or 7.8%, from the prior year.

The increase in net interest income from the fourth quarter of 2016 to the fourth quarter of 2017 is primarily due to an increase in average interest earning assets of $62.9 million, or 8.0%, from $784.0 million in 2016 to $846.9 million in 2017, driven largely by loan growth, partially offset by a $348,000 increase in interest expense attributable to the combined effect of an increase in average interest bearing liabilities of $44.2 million and a 14 basis point increase in our average cost of funds. The increase in the average cost of funds was caused by the combined effect of an increase in interest rates, as the Federal Reserve gradually increased market interest rates during 2017, an increase in competition for deposits and an increase in certificates of deposit (our highest cost retail deposit category) as a percentage of total deposits. Overall, the Bank experienced a 1 basis point decrease in net interest margin, from 3.32% for the three months ended December 31, 2016 to 3.31% for the same period in 2017.

Interest income increased by $0.8 million, or 10.5%, to $9.0 million in the fourth quarter of 2017 from $8.2 million in the same quarter of 2016. The increase in interest income is primarily due to a year-over-year increase in average loans outstanding of $57.6 million, or 8.6%, combined with a lesser positive effect of an increase in average loan yield. Average residential loans outstanding increased $63.7 million, or 16.8%, while average commercial real estate loans outstanding decreased $3.3 million, or 1.2%, when compared to the prior year quarter. The yield earned on loans increased 6 basis points to 4.66% for the fourth quarter of 2017 from 4.60% in 2016. The increase was due principally to improved pricing on commercial real estate loans in the current quarter, while increased competition for residential loans has resulted in the Bank originating new residential loans at lower rates than the existing portfolio.

The average volume of securities decreased by $11.2 million, or 16.5%, from $67.4 million in the fourth quarter of 2016 to $56.2 million in the fourth quarter of 2017, due to scheduled amortization and maturities during the past four quarters combined with the sale of securities with a book value of $1.8 million in the fourth quarter of 2017. The average yield on securities increased by 40 basis points to 2.79% from the fourth quarter of 2016 to the same quarter in 2017, 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 $26,000 decrease in interest and dividends earned on securities to $392,000 during the fourth quarter of 2017 compared to $418,000 in the prior year quarter.

Interest expense increased by $348,000, or 20.6%, during the fourth quarter of 2017 compared to the same quarter of 2016. The average cost of deposits increased 20 basis points to 1.10% in the fourth 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 several quarters. The average balance of certificates of deposit, our highest cost deposit category, increased by $36.2 million, or 13.8%, from $263.0 million in the fourth quarter of 2016 to $299.2 million in 2017. The average rate paid on certificates of deposit increased by 21 basis points from 1.18% in 2016 to 1.39% in 2017. The average balance of money market deposit accounts and savings increased by $13.3 million, or 8.8%, from $150.3 million in the 2016 quarter to $163.6 million in the 2017 quarter, with the average rate paid increasing from 0.43% to 0.60%.

Net interest income for the twelve months ended December 31, 2017, before provision for loan losses, was $27.0 million, an increase of $2.6 million, or 10.8%, 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 $120.1 million, or 16.7%, largely driven by loan growth, from an average of $720.9 million in 2016 to $841.0 million in 2017. 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 $104.3 million, or 19.8%, from $526.1 million in 2016 to $630.4 million in 2017. 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 17 basis point decrease in net interest margin from 3.38% for the twelve months ended December 31, 2016 to 3.21% for the twelve months ended December 31, 2017. Also impacting average yields was a $29.6 million increase in overnight investments, our lowest yielding asset category, as we increased our level of liquid assets pending redeployment into loans.

Provision for Loan Losses

The Company made a $70,000 provision for loan losses in the fourth quarter of 2017 as compared to no provision in the fourth quarter of 2016. Management believes the existing $9.5 million allowance for loan losses at December 31, 2017 is appropriate. The allowance as a percentage of loans was 1.33% at December 31, 2017 compared to 1.36% at December 31, 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 $3.8 million for the quarter ended December 31, 2017, an increase of $0.5 million, or 13.6%, compared to the quarter ended December 31, 2016. The quarter-over-quarter increase is largely due to a $0.3 million volume- and rate-driven improvement year-over-year in the value of the Bank’s mortgage servicing rights, a $0.2 million volume-driven increase in loan servicing fee income and a $0.2 million increase in gains on sales of loans to third parties, as the Bank sold $40.1 million of loans to third parties in the fourth quarter of 2017 versus $31.9 million of third party loan sales in the year ago quarter.

The Company recorded a $1.1 million pre-tax gain on the value of its Mortgage Servicing Rights (“MSR”) in the fourth quarter of 2017, compared to a $0.8 million pre-tax gain in the fourth quarter of 2016. The increase was due principally to a one-time $500,000 gain due to a change in the MSR valuation methodology to utilize the mid-point third party value assessment, which is in line with the general industry, versus the conservative low-point assessment used in prior periods, partially offset by a $200,000 decrease in MSR value resulting from the combination of a change in the mix of sales of residential loans to third parties with servicing retained during the current quarter and a more moderate general market increase in MSR values in the fourth quarter of 2017 versus the year ago period. The value of MSRs 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 fourth quarter of 2017 were partially offset by an $86,000 pre-tax loss recognized in the current quarter attributable to the sale of securities with a book value of $1.8 million.

For full year 2017, non-interest income was $12.6 million, an increase of $4.3 million, or 52.1% compared to the prior year. This increase was primarily due to increased gains on sales of loans of $2.7 million, a $2.5 million volume- and rate-driven increase in the value of the Bank’s mortgage servicing rights, higher volume-driven loan servicing fee income of $339,000 and a $227,000 increase in the Bank’s 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. These increases were partially offset by a decrease in fee income because the Company recognized a $740,000 gain on the sale of real property at 135 Bowery, New York, N.Y. in 2016, a $410,000 year-over-year decrease in gains on securities sold and a $221,000 decrease in investment and insurance product sales fees.

Non-interest Expenses

Non-interest expenses were $7.5 million for the quarter ended December 31, 2017 compared to $6.6 million in 2016, an increase of $0.9 million, or 14.2%. The increase is primarily due to $0.4 million in project-related professional fees in 2017, largely associated with enhancements to the Bank’s compliance and audit infrastructure, $442,000 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 $187,000 for higher volume-driven data processing, loan-related and marketing costs. Excluding the current year project-related professional fees, the Company’s non-interest expenses for the quarter ended December 31, 2017 were $7.1 million, an increase of $0.5 million, or 8.1%, largely due to higher volume-driven variable expenses, such as incentive compensation, data processing and loan-related expenses.

For full year 2017, non-interest expenses were $28.1 million, an increase of $4.1 million, or 16.9% compared to the prior year. This increase was primarily due to $2.0 million of project-related professional fees in 2017, largely associated with enhancements to the Bank’s compliance and audit infrastructure, higher compensation and benefits costs of $1.5 million, largely to support the Company’s growth, and higher volume-driven data processing, loan-related and marketing expenses of $508,000.

Balance Sheet Highlights

Assets

Total assets at December 31, 2017 were $872.9 million, an increase of $56.6 million, or 6.9%, versus December 31, 2016. Total loans receivable were $714.2 million, an increase of $37.8 million, or 5.6%, compared to the same period last year. The increase is due primarily to a $184.9 million, or 46.0%, increase in 5/1 and 7/1 adjustable rate 1-4 family mortgage loans, at an average yield of 4.64%, partially offset by $140.3 million of residential loan sales to third parties.

Total assets at December 31, 2017 increased $9.1 million, or 1.1%, as compared to September 30, 2017, due principally to an increase in overnight investments resulting from an increase in deposits of $8.7 million, or 1.4%, during the current quarter.

Overnight investments at December 31, 2017 were $85.2 million, an increase of $34.2 million versus December 31, 2016, at an average yield of 1.41%. Investment securities at December 31, 2017 were $43.8 million, a decrease of $12.8 million versus the year ago period at an average yield of 2.47%. 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 due to proceeds from sales of residential loans on the secondary market late in the current quarter pending redeployment into new loan originations. The Bank anticipates redeploying a portion of its overnight investments into new loan originations during the first quarter of 2018.

Asset Quality

Non-performing loans decreased by $0.5 million, or 15.4%, at December 31, 2017 to $2.7 million, compared to $3.2 million one year earlier. Total delinquent loans decreased $10.2 million, to $1.6 million at December 31, 2017, or 0.23% of the loan portfolio, compared to $11.8 million, or 1.74% of the portfolio at December 31, 2016. The year-over-year decrease is primarily 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, total delinquent loans at December 31, 2017 were flat to the prior year. 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 $9.5 million, or 1.33% of total loans at December 31, 2017, compared to $9.2 million, or 1.36% of total loans, at December 31, 2016.

Deposits

Deposits increased by $57.1 million, or 10.0%, from $572.7 million at December 31, 2016 to $629.8 million at December 31, 2017 and were utilized principally to fund loan portfolio growth. Certificates of deposit were $307.7 million, an increase of $40.0 million, or 14.9%, over the same period in 2016. Demand deposits increased $11.5 million, or 8.5%, and savings and money market accounts increased $5.7 million, or 3.5%, when comparing December 31, 2017 to December 31, 2016. NOW accounts decreased year-over-year by $0.2 million, or 3.8%.

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 December 31, 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 $79.3 million, or 9.1% of total assets, at December 31, 2017, a $6.6 million, or 9.1%, increase from stockholders’ equity at December 31, 2016. Tangible book value per share at December 31, 2017 was $28.35 per share, basic, and $28.18 per share, fully diluted, reflecting increases of $2.74, or 10.7%, and $2.57, or 10.0%, 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, offering consumer and business banking and loan products and services, and non-deposit insured investment products and services, and one satellite mortgage origination office, 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 current year 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

12/31/2017

12/31/2016

9/30/2017

Cash and cash equivalents

Cash and due from banks – noninterest bearing

$
5,097

$
5,038

$
5,345

Due from banks – interest bearing

85,152

50,969

71,956

Federal funds sold

781

220

1,316

Total cash and cash equivalents

91,030

56,227

78,617

Time deposits with banks

3,800

3,797

3,800

Securities

Securities available for sale

16,902

28,068

23,807

Securities held to maturity

26,932

28,578

27,467

Total securities

43,834

56,646

51,274

Loans

Loans held for sale

440

2,528

1,829

Real estate – residential

446,472

401,833

437,005

Real estate – commercial

265,325

275,431

272,299

Commercial and industrial

4,959

1,194

623

Consumer and installment

332

382

366

Unearned loan fees

(2,918
)

(2,487
)

(3,169
)

Loans receivable, gross

714,170

676,353

707,124

Allowance for loan losses

(9,513
)

(9,244
)

(9,437
)

Loans, net

704,657

667,109

697,687

Bank premises and equipment

6,397

6,921

6,532

Federal Home Loan Bank stock

7,613

7,821

7,613

Accrued interest receivable

2,741

2,661

2,767

Mortgage servicing rights

9,131

7,008

7,983

Other assets

3,288

5,569

5,767

Total Assets

$
872,931

$
816,287

$
863,869

Demand deposits

$
147,696

$
136,163

$
151,049

NOW accounts

4,951

5,149

4,949

Money market and savings

169,383

163,638

163,611

Certificates of deposit

307,738

267,742

301,412

Total deposits

629,768

572,692

621,021

Borrowings

150,000

156,000

150,000

Junior subordinated debentures

7,217

Accrued interest payable

2,462

1,773

2,283

Accounts payable and other liabilities

4,156

5,870

5,563

Total Liabilities

793,603

743,551

786,084

Stockholders’ equity

79,328

72,736

77,785

Total Liabilities and Stockholders’ Equity

$
872,931

$
816,287

$
863,869

First American International Corp.
Financial Highlights (unaudited)

($ in thousands except per share data)

Summary Income Statement

For the Year Ended

For the Quarter Ended

12/31/2017

12/31/2016

12/31/2017

12/31/2016

Interest income

Real estate – residential

$
19,411

$
16,358

$
5,114

$
4,552

Real estate – commercial

12,250

11,795

3,165

3,141

Other

3,148

2,081

753

483

Total Interest income

34,810

30,234

9,032

8,176

Interest expense

Interest-bearing core deposits

870

456

246

164

Interest-bearing certificates of deposit

3,986

2,873

1,043

776

Interest on borrowings

2,982

2,555

746

747

Total Interest expense

7,838

5,884

2,035

1,687

Net interest income

26,972

24,350

6,998

6,489

Provision for loan losses

149

367

–

Net interest income after

provision for loan losses

26,824

23,983

6,928

6,489

Non-interest income

12,601

8,284

3,844

3,385

Non-interest expenses

28,102

24,039

7,476

6,548

Income before income taxes

11,323

8,228

3,295

3,326

Provision for income taxes

4,462

2,836

1,663

1,139

Net income

$
6,861

$
5,392

$
1,632

$
2,187

Less: Preferred Stock dividends and discount accretion

(829
)

(806
)

(215
)

(209
)

Net income available to shareholders

$
6,031

$
4,586

$
1,417

$
1,978

Year to Date

Quarter ended

12/31/2017

12/31/2016

12/31/2017

12/31/2016

Performance Ratios

Return on average assets

0.70%

0.63%

0.65%

0.99%

Return on average common equity

10.03%

8.47%

9.04%

14.56%

Average interest earning assets/bearing liabilities

133.4%

137.0%

135.5%

135.0%

Net interest rate spread

2.90%

3.08%

2.96%

3.01%

Net interest margin

3.21%

3.38%

3.31%

3.32%

Yield on loans

4.58%

4.68%

4.66%

4.60%

Average cost of deposits

1.03%

0.86%

1.10%

0.90%

Net interest income after provision/total expense

95.45%

99.77%

92.66%

99.10%

Non-interest income to total revenue

26.58%

21.51%

29.85%

29.28%

Non-interest expense to total revenue

59.27%

62.41%

58.06%

56.64%

Non-interest expense to average assets

3.27%

3.30%

3.46%

3.27%

Net Worth and Asset Quality Ratios

Average total equity to average total assets

8.92%

9.62%

9.12%

8.82%

Total equity to assets end of period

9.09%

8.91%

9.09%

8.91%

Non-performing assets to total assets

0.31%

0.40%

0.31%

0.40%

Non-performing loans to total loans

0.38%

0.49%

0.38%

0.49%

Allowance for loan losses to total loans

1.33%

1.36%

1.33%

1.36%

Allowance for loan losses to NPLs

347.95%

285.84%

347.95%

285.84%

Capital, Book Value and Earnings Per Share

Total risk based capital ratio (Bank)

16.54%

16.00%

16.54%

16.00%

Tier 1 risk based capital (Bank)

15.28%

14.74%

15.28%

14.74%

Leverage ratio (Bank)

9.88%

Tangible book value per share – basic

$
28.35

$
25.61

$
28.35

$
25.61

Diluted EPS available to common shareholders

$
2.73

$
2.08

$
0.64

$
0.90

Contact Information:

For further information, please contact
Michael Lowengrub
Chief Financial Officer
(718) 467-8788 Ext 1388

SOURCE: First American International Corp.

ReleaseID: 494432

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