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First American International Corp. Announces First Quarter Results for 2018

ACCESSWIRE

By First American International Corp.

NEW YORK, NY / ACCESSWIRE / May 8, 2018 / First American International Corp. (OTCQB: FAIT) (www.faib.com) (the “Company” or “FAIC”), the holding company for First American International Bank (the “Bank”), today reported net income available to common shareholders for the quarter ended March 31, 2018 of $3.4 million. Earnings per share available to common shareholders were $1.52 per share, basic and $1.51 fully diluted.

Net Income and Results of Operations

The Company today reported net income available to common shareholders for the quarter ended March 31, 2018 of $3.4 million, or $1.52 per share, basic and $1.51 fully diluted, after deduction of $209,000 in Troubled Asset Relief Program (“TARP”) costs, comprised of preferred stock dividends of $85,000 and discount accretion of $124,000. This compares to net income available to common shareholders of $1.4 million, or $0.63 per share, basic and fully diluted, for the quarter ended March 31, 2017, also after deduction of TARP dividends and discount accretion. The Company also reported a return on average assets of 1.51% for the quarter ended March 31, 2018, compared to 0.66% for the same period in 2017 and a return on average common equity of 20.96% for the quarter ended March 31, 2018, compared to 9.63% for the same period in 2017.

The increase in reported quarterly earnings compared to the same period in 2017 is due principally to an increase in net interest income of $0.6 million, or 8.5%, and an increase in non-interest income of $2.1 million, or 118.5%, partially offset by a year-over-year increase in noninterest expenses of $0.6 million, or 10.6%, and a slight increase in the provision for income taxes as the effect of the increase in pretax income was partially offset by a decrease in the Company’s effective tax rate from 35% to 21% due to the Tax Cuts and Jobs Act effective January 1, 2018.

In the first quarter of 2018, the Company continued to successfully execute on its strategy of generating residential loans for portfolio and for sale with servicing retained, and growing deposits. Loans receivable decreased by $22.3 million, or 3.1%, to $693.2 million at March 31, 2018 compared to $715.4 million at March 31, 2017 due principally to the sale of $48.3 million of residential mortgage loans with servicing retained during the first quarter of 2018 compared to sales of $10.1 million of residential mortgage loans, servicing retained, during the corresponding period of 2017.

“I am proud of our performance this quarter, which, despite strong competition for loans and deposits, is the result of our continued progress in implementing our core strategies in residential lending and retail deposits,” said Mark Ricca, President and Chief Executive Officer.

Net Interest Income

Net interest income for the three months ended March 31, 2018, before provision for loan losses, was $7.3 million, an increase of $0.6 million, or 8.5%, from the corresponding period in 2017.

The increase in net interest income is attributable principally to the combined effect of an increase in average interest earning assets and an increase in yields on those assets. Average interest earning assets increased by $45.8 million, or 5.6%, from $823.8 million in 2017 to $869.6 million in 2018. The increase in earning assets was driven largely by loan growth and an increase in overnight investments as we temporarily invested the proceeds of a $48.3 million sale of residential mortgage loans, servicing retained, in short term liquid assets pending redeployment into loans.

The average yield on interest earning assets increased by 17 basis points from 4.15% in the 2017 period to 4.32% in the 2018 period. The increase in average yield was generally driven by market conditions resulting from the Federal Reserve’s gradual increases in its target federal funds rate during 2017. Net interest income was also positively impacted by prepayment fees totaling $299,000 associated with two Commercial Real Estate loans with an aggregate principal balance of $4.8 million and two Commercial & Industrial loans with an aggregate principal balance of $4.5 million, which paid off during the first quarter of 2018.

The positive effects of the growth in volume and increase in yield on average assets was partially offset by an increase in interest expense from an increase in average rates paid on deposits and other funding sources of 13 basis points between the periods, coupled with an increase in average interest bearing liabilities of $17.5 million, or 2.8%, from $624.4 million in 2017 to $641.9 million. A modest improvement in loan pricing, partially offset by a rising deposit rate environment during the first quarter of 2018, resulted in a 9 basis point increase in net interest margin, to 3.35% for the three months ended March 31, 2018 as compared to 3.26% for the same period in 2017.

Interest income increased by $0.8 million, or 9.8%, to $9.4 million in the first quarter of 2018 from $8.6 million in the same quarter in 2017. The reported yield earned on loans increased by 19 basis points to 4.77% for the first quarter of 2018 from 4.58% in 2017; however, this increase was principally due to the effect of $299,000 of prepayment fees received during the current quarter that were treated as interest income. Excluding the $299,000 of loan prepayment fees, the yield on loans improved by 2 basis points, from 4.58% to 4.60% due to the Bank originating new residential mortgage and commercial real estate loans at higher rates than the existing portfolio. Average residential loans outstanding increased $39.7 million, or 9.7%, while average commercial real estate loans outstanding decreased $12.0 million, or 4.4%, when compared to the 2017 first quarter. Interest income was also favorably impacted by a $32.5 million increase in average overnight investments in the first quarter of 2018 compared to the corresponding period in the prior year, due to a greater volume of residential loan sales on the secondary market pending redeployment into new loan originations.

The average volume of securities decreased by $12.5 million, from $63.5 million in the first quarter of 2017 to $51.0 million in the first quarter of 2018, 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 37 basis points to 3.02%, principally as a result of management’s decision to allow 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 $35,000 decrease in interest and dividends earned on securities to $386,000 during the first quarter of 2018 compared to $421,000 in the first quarter of 2017.

Interest expense increased by $267,000, or 14.5%, during the first quarter of 2018 compared to the first quarter of 2017. The average cost of deposits increased 18 basis points to 1.13% in the first quarter of 2018 compared to the same quarter of 2017. This was largely due to an increase in both the volume and cost of certificates of deposit, resulting from a Chinese New Year campaign, the increase in the target federal funds rate and greater competition during the recent quarter impacting the rates on our deposit products. The average balance of certificates of deposit, our highest cost deposit category, increased by $23.2 million, from $294.0 million in the first quarter of 2017 to $317.2 million in the first quarter of 2018. The average rate paid on certificates of deposit increased by 19 basis points from 1.23% in 2017 to 1.42% in 2018. The average balance of money market deposit accounts and savings increased by $0.6 million, from $163.0 million in 2017 to $163.6 million in 2018 with the average rate paid increasing from 0.49% to 0.61%.

Provision for Loan Losses

In the quarter ended March 31, 2018, the Company recorded no provision for loan losses, compared to a provision for loan losses of $79,000 in the first quarter of 2017. Management believes the existing $9.5 million allowance for loan losses at March 31, 2018 is appropriate. The allowance as a percentage of loans was 1.37% at March 31, 2018 compared to 1.30% at March 31, 2017. The increase in the allowance as a percentage of total loans was due to a slight increase in certain qualitative factors associated with current economic conditions, combined with downgrades in the risk ratings from Pass to Special Mention of two commercial loans totaling $6.5 million compared to the same period of 2017. These factors were partially offset by a more robust risk management program, a reduction in the level of non-performing loans, continued improvement in our historical loan loss experience, which is based upon the last twelve quarters of loan losses, the modest decrease in the loan portfolio and a general shift of the portfolio to lower risk residential loans. The Bank continues to remain focused on improving the quality of its assets.

Non-interest Income

The Company recorded a $1.4 million pre-tax gain on the value of its Mortgage Servicing Rights (“MSR”) in the first quarter of 2018, compared to a $0.1 million pre-tax gain in the first quarter of 2017. The increase was due principally to the combined effect of greater increases in market interest rates and the size of the Bank’s loan servicing portfolio in the 2018 quarter compared to the same quarter in 2017. Interest rates rose more sharply during the first quarter of 2018 as compared to the corresponding period in 2017, which resulted in an $874,000 increase in the value of the loan servicing portfolio during the current quarter versus the first quarter of 2017. An increase in the volume of loans serviced for others, due largely to the retention of servicing rights when the Bank sold $48.3 million of residential loans to third parties in the first quarter of 2018, as compared to $10.1 million of third party loan sales with servicing retained in the first quarter of 2017, resulted in an additional $378,000 quarter-over-quarter increase in the value of servicing rights. 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 values. MSR values are also impacted by general market driven supply and demand conditions.

Non-interest Expenses

Non-interest expenses were $6.6 million for the quarter ended March 31, 2018 compared to $6.0 million for the corresponding period in 2017, an increase of $0.6 million, or 10.6%. The increase is primarily due to higher compensation and benefits costs of $264,000 to support the Company’s growth and higher volume-driven data processing, loan-related and marketing expenses of $319,000.

Balance Sheet Highlights

Assets

Total assets at March 31, 2018 were $889.6 million, an increase of $39.3 million, or 4.6%, compared to March 31, 2017. Total loans receivable were $693.2 million, a decrease of $22.3 million, or 3.1%, compared to the same period last year. The decrease is due primarily to the sale of $48.3 million of residential mortgage loans, servicing retained, during the first quarter of 2018 compared to sales of $10.1 million of residential mortgage loans, servicing retained, in the first quarter of 2017.

Overnight investments at March 31, 2018 were $122.1 million, an increase of $73.5 million, or 151.3%, versus March 31, 2017. The average yield on overnight investments for the first quarter of 2018 was 1.54%. Investment securities at March 31, 2018 were $42.8 million, a decrease of $12.0 million compared to March 31, 2017. The average yield on investment securities for the 2018 quarter was 3.02%. 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 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 second quarter of 2018.

Asset Quality

Non-performing loans declined by $456,000, or 14.6%, at March 31, 2018 to $2.66 million, compared to $3.12 million at March 31, 2017. Total delinquent loans decreased to $1.1 million at March 31, 2018, or 0.15% of the loan portfolio, compared to $2.4 million, or 0.33% of the portfolio at March 31, 2017. The Company monitors delinquent loans closely and continues to work on improving asset quality on an overall basis. The allowance for loan losses was $9.5 million, or 1.37% of total loans at March 31, 2018, compared to $9.3 million, or 1.30%, at March 31, 2017.

Deposits

Deposits increased by $43.7 million, or 7.2%, from $605.8 million at March 31, 2017 to $649.5 million at March 31, 2018. At March 31, 2018, demand deposits were $160.0 million, an increase of $24.4 million, or 18.0% over the same period in 2017. At March 31, 2018, certificates of deposit were $324.2 million, an increase of $17.3 million, or 5.6%, over the same period last year, while savings and money market accounts increased $1.4 million, or 0.9% when comparing March 31, 2018 to March 31, 2017. NOW accounts increased $0.4 million, or 10.3%.

Borrowings

Federal Home Loan Bank of New York (“FHLBNY”) Borrowings decreased by $12.5 million, or 8.1%, from the prior year to $142.5 million, as a $7.5 million borrowing matured and was paid off during the first quarter of 2018 and two additional borrowings totaling $5.0 million had previously matured and were paid off during the third quarter of 2017. FHLBNY Borrowings at March 31, 2018 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 originated in 2004.

Stockholders’ Equity

Stockholders’ equity was $82.7 million, or 9.3% of total assets, at March 31, 2018, an $8.4 million, or 11.4%, increase from March 31, 2017. Tangible book value per share at March 31, 2018 was $29.87 per share, basic, and $29.70 per share, fully diluted, reflecting increases of $3.61, or 13.7%, and $3.44, or 13.1%, respectively, when compared to March 31, 2017. The increase was due mainly to increased retained earnings during the preceding twelve months.

Recent Developments

On April 23, 2018, FAIC entered into an agreement and plan of merger with RBB Bancorp, a California bank holding company (“RBB”), pursuant to which, FAIC will merge with and into RBB, with RBB as the surviving corporation and thereafter, the Bank will merge with and into Royal Business Bank, a wholly owned subsidiary of RBB, with Royal Business Bank as the surviving entity. Upon the consummation of the transaction, all of FAIC’s common shares will be exchanged for approximately 3.0 million shares of RBB common stock and $33.7 million in cash (based on a 71/29 stock/cash consideration mix). Based on the closing price of RBB common stock of $27.48 as of April 20, 2018, the aggregate transaction value is approximately $116.8 million, or $52.32 per share. Existing RBB shareholders will own approximately 84.6% of the outstanding shares of the combined company and FAIC shareholders will own approximately 15.4%. The transaction is subject to FAIC shareholders’ approval, requisite regulatory approvals and other customary closing conditions and is expected to close during the second half of 2018. You can access the press release announcing this transaction at https://www.faib.com/about-faib/press-releases.

“I believe this merger is very good news because the combined entity will have greater capabilities that will benefit our employees, customers, community and shareholders. RBB, a Los Angeles based commercial bank, and FAIC have similar cultures, both being focused on the Chinese-American community, as well as complementary products and services,” said Mr. Ricca.

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, 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.

Cautionary Statements Regarding Forward-Looking Information

This press release contains a number of forward-looking statements. These statements may be identified by the use of such words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” and similar terms and phrases, including references to assumptions.

Forward-looking statements are based on various assumptions and analyses made by us in light of our management’s experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond our control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These factors include, without limitation, the following: the timing and occurrence or non-occurrence of events that may be subject to circumstances beyond our control; increases in competitive pressure among financial institutions or from non-financial institutions; changes in the interest rate environment; changes in deposit flows, loan demand or collateral values; changes in accounting principles, policies or guidelines; changes in general economic conditions, either nationally or locally in some or all areas in which we do business, or conditions in the real estate or securities markets or the banking industry; legislative or regulatory changes, including those that may be implemented by the new administration in Washington, D.C.; supervision and examination by our regulators; effects of changes in existing U.S. government or government-sponsored mortgage programs; our ability to successfully implement technological changes; our ability to successfully consummate new business initiatives; litigation or other matters before regulatory agencies, whether currently existing or commencing in the future; or our ability to implement enhanced risk management policies, procedures and controls commensurate with shifts in our business strategies and regulatory expectations.

This press release may also contain forward-looking statements about the benefits of the merger with RBB Bancorp (“RBB”), including future financial and operating results of RBB, First American International Corp. (“FAIC”) or the combined company following the merger, the combined company’s plans, objectives, expectations and intentions, the expected timing of the completion of the merger, financing plans and the availability of capital, the likelihood of success and impact of litigation and other statements that are not historical facts. These forward-looking statements are subject to numerous assumptions, risks, and uncertainties which change over time. The following factors, among others, could cause actual results to differ materially from forward-looking statements: ability to obtain regulatory approvals and meet other closing conditions to the merger, including approval by FAIC shareholders, on the expected terms and schedule; delay in closing the merger; difficulties and delays in integrating the RBB and FAIC businesses or fully realizing cost savings and other benefits; and business disruption following the proposed transaction.

We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this press release.

For further information, please contact Michael Lowengrub, Chief Financial Officer, at (718) 567-8788 Ext 1388.

First American International Corp.
Financial Highlights (unaudited)

($ in thousands)
Balance Sheet Items
3/31/2018
3/31/2017
Cash and cash equivalents
Cash and due from banks – noninterest bearing
$ 5,095 $ 4,917
Due from banks – interest bearing
122,057 48,579
Federal funds sold
556 66
Total cash and cash equivalents
127,708 53,562
Time deposits with banks
3,800 3,797
Securities
Securities available for sale
16,205 26,387
Securities held to maturity
26,565 28,352
Total securities
42,770 54,739
Loans
Loans held for sale
1,707 1,939
Real estate – residential
435,495 442,461
Real estate – commercial
259,239 274,686
Commercial and industrial
790 1,062
Consumer and installment
297 369
Unearned loan fees
(2,655) (3,141)
Loans receivable, gross
693,166 715,437
Allowance for loan losses
(9,518) (9,329)
Loans, net
683,648 706,108
Bank premises and equipment
6,251 6,933
Federal Home Loan Bank stock
7,276 7,776
Accrued interest receivable
2,648 2,766
Mortgage servicing rights
10,504 7,129
Other assets
3,307 5,523
Total Assets
$ 889,618 $ 850,272
Demand deposits
$ 160,036 $ 135,592
NOW accounts
4,669 4,233
Money market and savings
160,566 159,118
Certificates of deposit
324,233 306,895
Total deposits
649,505 605,838
Borrowings
142,500 155,000
Junior subordinated debentures
7,217 7,217
Accrued interest payable
2,118 1,649
Accounts payable and other liabilities
5,572 6,299
Total Liabilities
806,911 776,003
Stockholders’ equity
82,707 74,269
Total Liabilities and Stockholders’ Equity
$ 889,618 $ 850,272

First American International Corp.
Financial Highlights (unaudited)

($ in thousands except per share data)
Summary Income Statement
For the Quarter Ended
3/31/2018
3/31/2017
Interest income
Real estate – residential
$ 5,224 $ 4,695
Real estate – commercial
3,116 3,085
Other
1,053 777
Total Interest income
9,393 8,557
Interest expense
Interest-bearing core deposits
250 201
Interest-bearing certificates of deposit
1,125 902
Interest on borrowings
732 737
Total Interest expense
2,107 1,840
Net interest income
7,286 6,717
Provision for loan losses
79
Net interest income after
provision for loan losses
7,286 6,639
Non-interest income
3,885 1,778
Non-interest expenses
6,633 5,999
Income before income taxes
4,539 2,418
Provision for income taxes
973 827
Net income
$ 3,566 $ 1,591
Less: Preferred Stock dividends and discount accretion
(209) (203)
Net income available to common shareholders
$ 3,357 $ 1,388
For the Quarter Ended
3/31/2018
3/31/2017
Performance Ratios
Return on average assets
1.51 % 0.66 %
Return on average common equity
20.96 % 9.63 %
Average interest earning assets/bearing liabilities
135.5 % 133.5 %
Net interest rate spread
3.01 % 2.98 %
Net interest margin
3.35 % 3.26 %
Yield on loans
4.77 % 4.58 %
Average cost of deposits
1.13 % 0.95 %
Net interest income after provision/total expense
109.86 % 110.66 %
Non-interest income to total revenue
29.26 % 17.21 %
Non-interest expense to total revenue
49.95 % 58.05 %
Non-interest expense to average assets
2.99 % 2.85 %
Net Worth and Asset Quality Ratios
Average total equity to average total assets
9.12 % 8.78 %
Total equity to assets end of period
9.30 % 8.73 %
Non-performing assets to total assets
0.30 % 0.37 %
Non-performing loans to total loans
0.38 % 0.44 %
Allowance for loan losses to total loans
1.37 % 1.30 %
Allowance for loan losses to NPLs
357.43 % 299.10 %
Capital, Book Value and Earnings Per Share
Total risk based capital ratio (Bank)
17.14 % 15.76 %
Tier 1 risk based capital (Bank)
15.88 % 14.51 %
Leverage ratio (Bank)
9.95 % 9.55 %
Tangible book value per share – basic
$ 29.87 $ 26.26
Diluted EPS available to common shareholders
$ 1.51 $ 0.63

SOURCE: First American International Corp.

ReleaseID: 498960