NEW YORK, NY--(Marketwired - Apr 22, 2015) - First American International Corp. (
Net Income and Results of Operations
The Company today reported net income for the year ended December 31, 2014 of $1,066,000, or $0.48 per share, basic and diluted, after deduction of $762,000 in Troubled Asset Relief Program ("TARP") preferred stock dividends, discount accretion and minority preferred stock dividend. This compares to net income of $2,160,000, or $1.00 per share, basic, or $0.99 per share, diluted, for the year ended December 31, 2013, also after deduction of TARP dividends and discount accretion. The Company also reported a return on average assets 0.19% for the year ended December 31, 2014, compared to 0.40% for the same period in 2013 and a return on average equity of 2.14% for year ended December 31, 2014, compared to 4.51% for the same period in 2013.
The decrease is due principally to a year-over-year decrease in non-interest income of $1.3 million, or 13.8%, which is primarily attributable to a market decrease in mortgage servicing rights valuation, and an increase in operating expenses of $0.7 million, or 2.7%. Net interest margin also decreased to 4.05% for the twelve months ended December 31, 2014, compared to 4.22% for the same period in 2013 (a $0.9 million reduction in interest income). However, this decrease was offset by an increase in earning assets of $19.8 million from $505.5 million in 2013 to $525.5 million in 2014, keeping net interest income unchanged at $21.3 million.
"The Company, as well as the banking industry as a whole, continues to experience a reduction in net interest margin. To help offset this, we have continued to enhance our residential lending program and, although total outstanding commercial real estate loan balances decreased, we increased our commercial real estate loan production. We continue to maintain a strong capital base, which supports our ability address the challenges we will face and enhance shareholder value. At December 31, 2014 our capital ratio stood at 11.67%, which is substantially above the amount needed to be considered a 'well capitalized' bank," said Mark Ricca, President and Chief Executive Officer.
Net Interest Income
Net interest income for year 2014, before provision for loan losses, was $21.3 million, a decrease of $14,000 or .07% from the prior year. As discussed below, the decline is due principally to a decrease in the yield earned on loans coupled with an increase in borrowing costs, which increased the average cost of funds, substantially offset by an increase in the volume of securities and related interest income.
We received $1.3 million in interest from a payoff of a non-performing loan during Q4 of 2014. This was recorded as interest income at that time. This is the primary reason that interest income of $6.0 million in Q4 of 2014 was substantially higher than the $5.0 million recorded in Q4 of 2013.
The yield earned on loans declined 21 basis points to 6.07% for the year 2014 from 6.28% in 2013. The decrease was principally because of a shift in the mix of loans towards residential 1-4 family loans and away from commercial mortgage loans, which tend to have higher yields. Commercial real estate loans decreased $7.7 million, while 1-4 family loans increased $51.2 million for the year. To a lesser extent, the Bank also experienced a reduction in the yield on existing and new commercial real estate loans due to competitive market conditions.
Borrowing costs increased as the Company increased longer term borrowings to reduce interest rate risk. The interest paid on borrowings increased by $683,000 to $1.3 million due to higher average borrowings in 2014, which the Bank acquired principally to mitigate interest rate risk. The average cost of deposits decreased 3 basis point to 0.72% in the year 2014 compared to 2013. The average balance of certificates of deposit declined by $7.9 million, from $197.0 million in 2013 to $189.2 million in 2014. The average rate paid on certificates of deposit decreased by 3 basis points from 1.07% in 2013 to 1.04% in 2014.
The average volume of securities increased from $83.4 million in 2013 to $105.6 million in 2014; as excess cash was redeployed into securities investments to increase yields. However, the average yield on securities declined by 2 basis points due to the Bank investing in shorter term investments. The net effect of the increase in volume and the decrease in yield was a $437,000 increase in interest earned on securities.
Overall, for the year ended December 31, 2014, the interest rate spread of 3.82% was down 19 basis points from 4.01% for the year ended December 31, 2013; the net interest margin of 4.05% was down 17 basis points from 4.22% from the year ended December 31, 2013. The reduction in the interest rate spread was due to the interest rate earned on loans declining faster than the interest rate paid on deposits and other borrowings.
The total loan portfolio of $405.6 million at December 31, 2014 was $43.1 million, or 11.9%, higher than at December 31, 2013. Non-loan interest earning assets decreased by $21.3 million, or 14.0%, from $151.6 million at December 31, 2013 to $130.3 million at December 31, 2014. This decrease in non-loan interest-earning assets was due primarily to redeploying excess cash into new loans.
Total deposits increased by $24.3 million from $411.3 million at December 31, 2013 to $435.6 million at December 31, 2014, and were utilized to fund loan portfolio growth. Borrowings from the Federal Home Loan Bank remained flat at $61 million and consists of five year and seven year term borrowings at a higher rate than deposits to help manage our interest rate risk. Since they were outstanding for all of 2014, the interest paid on these borrowings were significantly higher in 2014 than in 2013 and raised the Bank's overall cost of funds.
Provision for Loan Losses
The Company made a provision for loan losses of $157,000 in 2014 compared to $488,000 in 2013. Management believes the existing $8.0 million allowance, aggregating 1.97% of total loans, is appropriate.
Non-interest Income
Non-interest income, including a Bank Enterprise Award ("BEA") grant, was $7.9 million for the year ended December 31, 2014, a decrease of $1.3 million, or 13.8%, compared to the year ended December 31, 2013. The decrease is mainly due to a decrease of $2,151,000 in the gain on sale of mortgage loans to $1.2 million, offset by an increase in service and transaction fees of $627,000, and an increase in gain on sale of securities of $229,000. The principal reason for the decrease in the gain on sale of mortgage loans is due to a change in the value of mortgage servicing rights of $1.6 million. They decreased by $1.2 million in 2014, reducing the gain in 2014 and increased by $0.4 million in 2013, which increased the gain on sale in 2013. This also resulted in a significant difference in non-interest income between Q4 2013 and Q4 2014 of approximately $1.0 million.
Non-interest Expenses
Non-interest expenses were $25.5 million for the year ended December 31, 2014 compared to $24.8 million in 2013, an increase of $679,000, or 2.70%. The increase is mainly due to an increase in salaries and benefits of $1,453,000, an increase in occupancy expenses of $387,000 offset by a decrease in general administrative expenses of $1,161,000.
Salaries and benefits increased due to higher staffing levels, principally in the loan department, salary increases for existing employees and rising health insurance costs. The increase in occupancy expenses is primarily due to a $499,000 lease accounting charge to comply with GAAP. The decrease in general and administrative expenses is mainly due to a decrease in loan related expenses of $659,000, professional fees of $500,000, and a decrease in FDIC insurance of $343,000.
TAXES
Recent New York State tax law changes make it unlikely that the Company will be paying any significant New York State income taxes in the future. Therefore, the Company has established a valuation allowance of $432,000, net of federal taxes, of its New York State deferred tax asset in 2014.
The changes in New York tax law are expected to reduce our combined Federal and New York effective income tax rate to 34% starting in year 2015.
Balance Sheet Highlights
Assets
Total assets at December 31, 2014 were $576.5 million, an increase of $23.8 million, or 4.3%, versus December 31, 2013. Total loans receivable were $405.6 million, an increase of $43.1 million compared to last year. The increase is due principally to a $51.2 million increase in adjustable rate 1-4 family mortgage loans, partially offset by a $7.7 million decrease in commercial mortgage loans, including commercial real estate, multifamily and construction loans and an $898 thousand decrease in commercial and industrial loans. Investment securities increased by $11.3 million while overnight investments decreased by $34.6 million.
Asset Quality
Asset quality continued to improve as non-performing loans declined by 43.7% at December 31, 2014 to $5.9 million, compared to $10.4 million one year earlier. Total delinquent loans declined by 53.9% to $6.9 million at December 31, 2014, compared to $15.0 million at December 31, 2013. The Company monitors delinquent loans closely and continues to work on improving asset quality on an overall basis. The allowance for loan losses was $8.0 million, or 1.97% of total loans at December 31, 2014, compared to $7.2 million, or 2.04%, at December 31, 2013. The increase in the allowance was principally due to net recoveries of $598,000 and a provision of $157,000.
Deposits
Deposits increased to $435.6 million at December 31, 2014, an increase of $24.3 million, or 5.9%, since December 31, 2013. Demand deposits increased $12.4 million, or 14.3%. Certificates of deposit were $195.6 million, an increase of $9.4 million, or 5.0%, from December 31, 2013. Savings and money market accounts increased $2.2 million, or 1.6%. NOW accounts increased $267 thousand, or 12.5%.
Borrowings
Federal Home Loan Bank Borrowings remained steady in 2014 after increasing by $15.0 million to $61.0 million during 2013. The Bank took these advances to partially match fund the Bank's 1-4 family residential loan origination program. The remaining borrowings of $7.2 million consist of the Company's trust preferred securities transaction originated in 2004.
Stockholders' Equity
Stockholders' equity was $67.3 million, or 11.67% of total assets, at December 31, 2014, a $2.0 million, or 3.0% increase from December 31, 2013. The increase was mainly due to net income, proceeds from stock options exercised and proceeds from issuance of minority stock.
About First American International Corp
First American International Corp. is the holding company for First American International Bank, a community development financial institution ("CDFI") and a minority depository institution ("MDI") with nine branches and two mortgage offices serving principally the Chinese-American communities in Manhattan, Queens and Brooklyn in New York City.
See accompanying unaudited financial data tables for additional information.
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) | ||||||||||||
| Balance Sheet Items | $ thousands | |||||||||||
| 12/31/14 | 09/30/14 | 12/31/13 | ||||||||||
| Cash and due from banks - noninterest bearing | 5,625 | 5,979 | 6,092 | |||||||||
| Due from banks - interest bearing | 20,736 | 40,734 | 49,119 | |||||||||
| Federal funds sold | 1,333 | 3,612 | 7,123 | |||||||||
| Time deposits with banks | 3,456 | 3,953 | 1,837 | |||||||||
| Securities available for sale | 85,507 | 98,822 | 93,546 | |||||||||
| Securities held to maturity | 19,339 | 4,198 | - | |||||||||
| Loans held for sale | 4,984 | 4,243 | 3,575 | |||||||||
| Loans | ||||||||||||
| Real estate - commercial | 129,193 | 120,611 | 136,891 | |||||||||
| Real estate - residential | 273,941 | 257,096 | 222,366 | |||||||||
| Commercial and industrial | 1,805 | 2,038 | 2,703 | |||||||||
| Consumer and installment | 665 | 523 | 586 | |||||||||
| Loans receivable, gross | 405,604 | 380,268 | 362,546 | |||||||||
| Unearned loan fees | (851 | ) | (803 | ) | (724 | ) | ||||||
| Allowance for possible loan losses | (7,981 | ) | (7,880 | ) | (7,226 | ) | ||||||
| Loans, net | 396,772 | 371,585 | 354,596 | |||||||||
| Bank premises and equipment | 7,812 | 20,228 | 18,386 | |||||||||
| Fixed assets held for sale | 12,871 | - | - | |||||||||
| Federal Home Loan Bank stock | 3,322 | 3,322 | 3,463 | |||||||||
| Accrued interest receivable | 2,097 | 2,061 | 1,884 | |||||||||
| Mortgage servicing rights | 7,246 | 7,470 | 7,520 | |||||||||
| Other assets | 5,354 | 5,710 | 5,482 | |||||||||
| Total Assets | 576,454 | 571,917 | 552,623 | |||||||||
| Demand deposits | 99,452 | 91,035 | 87,013 | |||||||||
| NOW accounts | 2,403 | 4,225 | 2,136 | |||||||||
| Money market and savings | 138,159 | 140,836 | 135,962 | |||||||||
| Certificate of deposit | 195,550 | 194,155 | 186,200 | |||||||||
| Total deposits | 435,564 | 430,251 | 411,311 | |||||||||
| Borrowings | 68,217 | 68,217 | 68,217 | |||||||||
| Accrued interest payable | 1,039 | 1,186 | 924 | |||||||||
| Accounts payable and other liabilities | 4,341 | 4,969 | 6,838 | |||||||||
| Total Liabilities | 509,161 | 504,623 | 487,290 | |||||||||
| Stockholders' equity | 67,293 | 67,294 | 65,333 | |||||||||
| Total Liabilities and stockholders' equity | 576,454 | 571,917 | 552,623 | |||||||||
| First American International Corp. | |||||||||||
| Financial Highlights (unaudited) | |||||||||||
| Summary Income Statement | For the twelve months ended | For the quarter ended | |||||||||
| 12/31/14 | 12/31/13 | 12/31/14 | 12/31/13 | ||||||||
| Interest income | 25,208 | 24,726 | 6,026 | 5,009 | |||||||
| Interest expense | 3,898 | 3,402 | 1,021 | 907 | |||||||
| Net interest income | 21,310 | 21,324 | 5,005 | 4,102 | |||||||
| Provision for loan losses | 157 | 488 | - | - | |||||||
| Net interest income after provision for loan losses | 21,153 | 20,836 | 5,005 | 4,102 | |||||||
| Non-interest income | 7,513 | 8,731 | 2,704 | 3,214 | |||||||
| BEA grant | 355 | 393 | 355 | 323 | |||||||
| Non-interest expenses | 25,483 | 24,804 | 7,243 | 7,673 | |||||||
| Income before income taxes | 3,538 | 5,156 | 821 | (34 | ) | ||||||
| Income taxes | 1,710 | 2,245 | 766 | (93 | ) | ||||||
| Net income | 1,828 | 2,911 | 55 | 59 | |||||||
| Less Preferred Stock Dividends and Discount Accretion | 762 | 751 | 197 | 201 | |||||||
| Net Income Available to Shareholders | 1,066 | 2,160 | (142 | ) | (142 | ) | |||||
| Performance ratios (Unaudited) | ||||||||||||||||
| Year-to-date | Quarter ended | |||||||||||||||
| 12/31/14 | 12/31/13 | 12/31/14 | 12/31/13 | |||||||||||||
| Return on average assets | 0.19 | % | 0.40 | % | -0.10 | % | -0.09 | % | ||||||||
| Return on average net worth | 2.14 | % | 4.51 | % | -1.13 | % | -1.05 | % | ||||||||
| Average interest earning assets/bearing liabilities | 131 | % | 132 | % | 132 | % | 134 | % | ||||||||
| Net interest rate spread | 3.82 | % | 4.01 | % | 3.44 | % | 4.63 | % | ||||||||
| Net interest margin | 4.05 | % | 4.22 | % | 3.69 | % | 4.87 | % | ||||||||
| Net interest income after provision/total expense | 83 | % | 81 | % | 69 | % | 69 | % | ||||||||
| Non-interest income to total revenue | 23.79 | % | 25.40 | % | 33.67 | % | 28.24 | % | ||||||||
| Non-interest expense to total revenue | 77.04 | % | 79.05 | % | 79.71 | % | 91.22 | % | ||||||||
| Non- interest expense to average assets | 4.53 | % | 4.90 | % | 5.00 | % | 6.68 | % | ||||||||
| Net Worth and Asset Quality Ratios | ||||||||||||||||
| Average net worth to average total assets | 8.86 | % | 8.96 | % | 9.26 | % | 8.90 | % | ||||||||
| Total net worth to assets end of period | 11.67 | % | 11.82 | % | 11.67 | % | 11.82 | % | ||||||||
| Non-performing assets to total assets | 1.02 | % | 1.88 | % | 1.02 | % | 1.88 | % | ||||||||
| Non-performing loans to total loans | 1.45 | % | 2.93 | % | 1.45 | % | 2.93 | % | ||||||||
| Allowance for loan losses to total loans | 1.97 | % | 1.99 | % | 1.97 | % | 1.99 | % | ||||||||
| Allowance for loan losses to NPLs | 136.16 | % | 69.45 | % | 136.16 | % | 69.45 | % | ||||||||
| Risk based total capital ratio (bank) | 21.16 | % | 22.56 | % | 21.16 | % | 22.56 | % | ||||||||
| Capital, Book Value and Earnings Per Share | ||||||||||||||||
| Tier 1 risk based capital (bank) | 19.90 | % | 21.30 | % | 19.90 | % | 21.30 | % | ||||||||
| Leverage ratio (bank) | 12.51 | % | 13.05 | % | 12.51 | % | 13.05 | % | ||||||||
| Book value per share basic | $ | 22.87 | $ | 22.28 | $ | 22.87 | $ | 22.28 | ||||||||
| Diluted EPS available to Common Shareholders | 0.48 | 0.99 | (0.06 | ) | (0.06 | ) | ||||||||||
Contact Information:
For further information, please contact
Neil Hecht
Chief Financial Officer
(631) 553-9512