NEW YORK, NY--(Marketwired - Aug 28, 2014) - First American International Corp. (
Net Income and Results of Operations
The Company today reported net income of $336,000, or $0.15 per share, diluted, after deduction of $188,000 in Troubled Asset Relief Program ("TARP") preferred stock dividends and discount accretion, for the quarter ended June 30, 2014. This compares to net income of $977,000, or $0.44 per share, diluted, for the quarter ended June 30, 2013, also after deduction of TARP dividends and discount accretion.
For the six months ended June 30, 2014, the Company reported net income of $854,000 or $0.39 per share, diluted, after deduction of $375,000 in TARP preferred stock dividends and discount accretion, which, due principally to a reduction in net interest margin and increase in operating expenses, as discussed below, is a decrease of $1,063,000 from net income of $1,917,000, or $0.88 per share for the six month period ended June 30, 2013.
Net interest margin decreased to 4.21% and 4.23% during the quarter and six months ended June 30, 2014, respectively, compared to 4.64% and 4.65% for the same periods in 2013. This margin decrease, coupled with an increase in operating expenses, resulted in a decrease in the return on average assets to 0.40% and 0.44% for the second quarter of 2014 and for the six months ended June 30, 2014, respectively, compared to 0.74% and 0.86% for the same periods in 2013. Return on average equity likewise decreased to 3.18% and 3.73% for the quarter and six months ended June 30, 2014, respectively, compared to 8.21% and 7.14% for the same periods in 2013.
"The Company's continued net interest margin compression, and corresponding reduction in net income, is due principally to the prolonged impact of the great recession and competition from other institutions seeking loan and deposit growth. The Company also has experienced an increase in expenses in both compensation and benefit costs and operating costs. To improve shareholder return, management is focused on growing our relatively higher yielding commercial real estate loan portfolio and growing our deposit base to fund loan growth, while continuing our efforts to improve operating efficiencies. This is not an easy task and results may be uneven, but we believe these actions will ultimately show benefits," said Mark Ricca, President and Chief Executive Officer.
Net Interest Income
Net interest income for the second quarter of 2014, before provision for loan losses, was $5.5 million, a decrease of $331,000, or 5.7% from the prior year quarter. 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. These factors were partially offset by an increase in the volume of securities and related interest income, and a decline in the rates paid on deposits as well as a decline in the volume of certificates of deposit.
The yield earned on loans declined 69 basis points to 6.24% in the second quarter 2014 from 6.93% in the second quarter of 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. This shift to residential loans occurred as the Company temporarily suspended commercial mortgage loan originations and concentrated its efforts throughout 2013 on resolving weaknesses in the commercial mortgage loan portfolio. Commercial real estate loans decreased $55.4 million, while 1-4 family loans increased $78.0 million year over 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 obtained longer term borrowings as an asset/liability management tool to address interest rate risk in the 7/1 and 10/1 fixed/adjustable residential mortgage loans that were originated for the loan portfolio.
The average volume of securities increased from $73.9 million in the second quarter of 2013 to $103.8 million in the second quarter of 2014; as excess cash was redeployed into securities investments to increase yields. The average cost of deposits declined from 0.77% in the second quarter of 2013 to 0.70% in the second quarter of 2014 due to the continuation of low market interest rates and the fact that excess cash allowed the Company to avoid competing aggressively for certificates of deposit. The average balance of certificates of deposit declined by $13.7 million, from $201.2 million in the second quarter of 2013 to $187.5 million in the second quarter of 2014. The average rate paid on certificates of deposit also declined by 10 basis points from 1.12% in the second quarter of 2013 to 1.02% in the second quarter of 2014.
Overall, for the quarter ended June 30, 2014, the interest rate spread of 3.98% was down 45 basis points from 4.43% for the quarter ended June 30, 2013; the net interest margin of 4.21% was down 43 basis points from 4.64% from the quarter ended June 30, 2013. The loan portfolio of $371.4 million at June 30, 2014 was $19.6 million, or 5.56% higher than at June 30, 2013. The increase is the result of deliberate efforts to increase the loan portfolio because loans are the Company's highest yielding asset category. Non-loan interest earning assets increased by $4.9 million, or 3.63%, from $134.8 million at June 30, 2013 to $139.7 million at June 30, 2014. This increase in non-loan interest-earning assets was due primarily to an increase in investment grade securities. Total deposits decreased $10.0 million and borrowings increased $46.0 million from June 30, 2013 to June 30, 2014.
Provision for Loan Losses
The Company did not have to make provisions for loan losses during the second quarters of 2014 and 2013. Based on the quarterly analysis of the allowance for loan and lease losses, management deemed the existing allowance appropriate and thus did not record a provision.
Non-interest income was $1.6 million for the quarter ended June 30, 2014, a decrease of $43,000 compared to the quarter ended June 30, 2013. The decrease is mainly due to a decrease of $104,000 in the gain on sale of mortgage loans and a $82,000 decrease in mortgage loan related fees due to fewer loan sales during the quarter, a decrease in fees from sale of non-deposit products of $23,000 and a decrease of $32,000 on other miscellaneous income, offset partially by a $149,000 increase in gain on sale of securities that the Bank sold to take advantage of the gains and to reinvest in longer term held-to-maturity securities and an increase in safe deposit rental income of $52,000.
Non-interest expenses were $6.3 million for the quarter ended June 30, 2014 compared to $5.4 million in second quarter 2013, an increase of $952,000, or 17.7%. The increase is mainly due to increases in salaries and benefits of $392,000, occupancy expenses of $94,000 and general and administrative expenses of $494,000. Salaries and benefits increased due to higher staffing levels, principally in the loan department, salary increases for existing employees and rising health insurance costs. Occupancy expenses increased due to an increase in depreciation expense and maintenance expenses. General and administrative expenses increased in 2014 mainly due to a $469,000 increase in insurance expense due to a one-time reimbursement received from a borrower in 2013 of $464,000.
Balance Sheet Highlights
Total assets at June 30, 2014 were $555.7 million, an increase of $37.4 million, or 7.2%, versus June 30, 2013. Loans receivable were $371.4 million, an increase of $19.6 million compared to last year. The increase is due principally to a $78.0 million increase in 10/1 and 7/1 adjustable rate 1-4 family mortgage loans, partially offset by a $55.4 million decrease in commercial mortgage loans, including commercial real estate, multifamily and construction loans and a $3.0 million decrease in commercial and industrial loans. Commercial mortgage loans decreased as the Company continued to focus on resolving asset quality issues. During the fourth quarter of 2013, the Bank recommenced its commercial mortgage loan origination program, which is starting to build momentum. Investment securities increased by $27.8 million while overnight investments decreased by $25.1 million.
Non-performing loans declined by 66.2% at June 30, 2014 were $7.5 million, compared to $22.2 million one year earlier. Total delinquent loans declined by 60.4% to $9.0 million at June 30, 2014, compared to $22.7 million at June 30, 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 $7.8 million, or 2.11% of total loans at June 30, 2014, compared to $8.5 million, or 2.43%, at June 30, 2013. The reduction in the allowance was principally due to net charge offs of $1.4 million, partially offset by a provision of $488,000 in the second half of 2013 and $157,000 in the first quarter 2014. The decline in the allowance was appropriate because 1-4 family mortgage loans, which increased in volume, have a lower historical loss rate than commercial real estate loans, which declined in volume. The Bank's overall historical loss experience also improved.
Deposits at June 30, 2014 were $413.9 million, a decrease of $10.0 million, or 2.4% since June 30, 2013. Certificates of deposit were $183.2 million, a decrease of $14.8 million, or 7.5%, from June 30, 2013. Savings and money market accounts decreased $1.7 million, or 1.2%. Demand deposits increased $6.1 million, or 7.6%. NOW accounts increased $418,000, or 29.7%. Despite the Company maintaining competitive pricing for deposit products throughout the year, deposits appear to have flowed to a few banks offering above market rates and to other investment vehicles.
Federal Home Loan Bank Borrowings increased by $46.0 million to $61.0 million at the end of June 2014. The Bank took these advances to partially match fund the Bank's 10/1 and 7/1 1-4 family residential loan origination program. The remaining borrowings consist of the Company's trust preferred securities transaction originated in 2004.
Stockholders' equity was $66.6 million, or 12.0% of total assets, at June 30, 2014, a $1.8 million, or 2.8% increase from June 30, 2013. The principal cause of the increase was retained earnings.
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|
|Cash and due from banks - noninterest bearing||6,450||6,274||5,704|
|Due from banks - interest bearing||31,689||38,647||56,746|
|Federal funds sold||789||357||887|
|Time deposits with banks||3,817||2,337||1,587|
|Securities available for sale||103,416||98,209||75,591|
|Real estate - Commercial||119,160||129,665||174,606|
|Real estate - Residential||250,154||247,123||172,127|
|Commercial and Industrial||1,580||2,176||4,550|
|Consumer and installment||498||511||544|
|Unearned loan fees||(793||)||(815||)||(701||)|
|Allowance for possible loan losses||(7,818||)||(7,682||)||(8,544||)|
|Loans Receivable, Net||362,781||370,978||342,582|
|Bank premises and equipment||19,942||18,438||16,638|
|Federal Home Loan Bank stock||3,514||3,463||1,393|
|Accrued interest receivable||1,892||2,030||1,085|
|Mortgage servicing rights||7,461||7,557||5,973|
|Liabilities and Stockholders' Equity|
|Money market and savings||142,310||137,524||144,006|
|Certificate of deposit||183,224||188,332||198,037|
|Accrued interest payable||1,012||1,014||1,165|
|Accounts payable and other liabilities||5,970||8,496||6,281|
|Total Liabilities and stockholders' equity||555,726||555,124||518,372|
|Summary Income Statement|
|For the six mos. ended||For the quarter ended|
|Net interest income||11,041||11,714||5,489||5,820|
|Provision for loan losses||157||-||-||-|
|Net interest income after|
|provision for loan losses||10,884||11,714||5,489||5,820|
|Bank Enterprise Award grant||-||70||-||-|
|Income before income taxes||1,890||4,156||787||2,113|
|Less TARP and Discount Accretion||375||365||188||183|
|Post TARP and Disc. Accretion Net Income||854||1,917||336||977|
|Performance ratios (Unaudited)|
|Return on average assets||0.44||%||0.86||%||0.40||%||0.74||%|
|Return on average net worth||3.73||%||7.14||%||3.18||%||8.21||%|
|Average interest earning assets/bearing liabilities||131||%||132||%||131||%||132||%|
|Net interest rate spread||4.01||%||4.47||%||3.98||%||4.43||%|
|Net interest margin||4.23||%||4.65||%||4.21||%||4.64||%|
|Net interest income after provision/total expense||89||%||107||%||87||%||108||%|
|Non-interest income to total revenue||19.84||%||22.22||%||20.14||%||22.27||%|
|Non-interest expense to total revenue||75.52||%||72.41||%||78.37||%||71.78||%|
|Non- interest expense to average assets||4.37||%||4.15||%||4.54||%||4.13||%|
|Net Worth and Asset Quality Ratios|
|Average net worth to average total assets||11.81||%||12.06||%||11.81||%||12.26||%|
|Total net worth to assets end of period||11.99||%||12.51||%||11.99||%||12.51||%|
|Non-performing assets to total assets||1.35||%||4.25||%||1.35||%||4.25||%|
|Non-performing loans to total loans||2.02||%||6.27||%||2.02||%||6.27||%|
|Allowance for loan losses to total loans||2.11||%||2.43||%||2.11||%||2.43||%|
|Allowance for loan losses to NPLs||104.34||%||38.82||%||104.34||%||38.82||%|
|Risk based total capital ratio (bank)||22.44||%||20.82||%||22.44||%||20.82||%|
|Capital, Book Value and Earnings Per Share|
|Tier 1 risk based capital (bank)||21.18||%||19.56||%||21.18||%||19.56||%|
|Leverage ratio (bank)||12.91||%||13.39||%||12.91||%||13.39||%|
|Book value per share basic||$||22.88||$||22.05||$||22.88||$||22.05|
|Diluted EPS available to Common Shareholders||$||0.39||$||0.88||$||0.15||$||0.45|