rbb-8ka_20181015.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K/A

(Amendment No. 3)

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  January 10, 2019 (October 15, 2018)

 

RBB BANCORP

(Exact name of Registrant as Specified in Its Charter)

 

 

California

001-38149

27-2776416

(State or Other Jurisdiction
of Incorporation)

(Commission
File Number)

(IRS Employer
Identification No.)

 

 

 

1055 Wilshire Blvd.,

Los Angeles, California

 

90017

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (213) 627-9888

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

 

 

 

 


 

Explanatory Note

This Amendment No. 2 to Current Report on Form 8-K/A is being filed with the Securities and Exchange Commission (the “SEC”) solely to amend and supplement Item 9.01 of the Current Report on Form 8-K (the “Original 8-K”) filed by RBB Bancorp (“RBB” ) on October 15, 2018,reporting under Item 2.01 the completion of its previously announced merger (the “Merger”) with First American International Bancorp (“FAIC”).  Under Item 9.01 of the Original 8-K, RBB stated that (a) the historical financial statements required by Item 9.01(a) of Form 8-K would be filed as an amendment to the Original 8-K not later than 71 days after the date the Original 8-K was required to be filed, and (b) as permitted by Item 9.01(b)(2) of Form 8-K, RBB would file the pro forma financial information required by Item 9.01(b) of Form 8-K as an amendment to the Original 8-K not later than 71 days after the date the Original 8-K was required to be filed.

On December 21, 2018, RBB filed Amendment No. 1 to the Current Report on Form 8-K/A, indicating that:

(i) RBB expects the audited consolidated balance sheets of FAIC as of December 31, 2017 and 2016, the related audited consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows of FAIC for the years ended December 31, 2017 and 2016, the notes related thereto and the Independent Auditor's Report to be filed by January 4, 2019;

(ii) RBB expects the unaudited consolidated financial statements of FAIC as of and for the nine months ended September 30, 2018 to be filed by January 4, 2019; and

(iii) RBB expects the unaudited pro forma combined condensed consolidated balance sheet of RBB and FAIC as of September 30, 2018 and the unaudited pro forma combined condensed consolidated statements of income for the nine months ended September 30, 2018 and the year ended December 31, 2017, and the notes related thereto to be filed by January 4, 2019.

On January 4, 2019, 2018, RBB filed Amendment No. 2 to the Current Report on Form 8-K/A, indicating that:

(i) RBB expects the audited consolidated balance sheets of FAIC as of December 31, 2017 and 2016, the related audited consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows of FAIC for the years ended December 31, 2017 and 2016, the notes related thereto and the Independent Auditor's Report to be filed by January 8, 2019;

(ii) RBB expects the unaudited consolidated financial statements of FAIC as of and for the nine months ended September 30, 2018such unaudited financial statements to be filed by January 8, 2019; and

(iii) RBB expects the unaudited pro forma combined condensed consolidated balance sheet of RBB and FAIC as of September 30, 2018 and the unaudited pro forma combined condensed consolidated statements of income for the nine months ended September 30, 2018 and the year ended December 31, 2017, and the notes related thereto to be filed by January 8, 2019.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial statements of businesses acquired

The audited consolidated balance sheets of FAIC as of December 31, 2017 and 2016, the related audited consolidated statements of income and comprehensive income, stockholder’s equity, and cash flows of FAIC for the years ended December 31, 2017 and 2016, the notes related thereto and the Independent Auditor's Report, are attached hereto as Exhibit 99.1 and incorporated herein by reference.

The unaudited consolidated financial statements of FAIC as of and for the nine months ended September 30, 2018, are attached hereto as Exhibit 99.2 and incorporated herein by reference.

(b) Pro forma financial information

The following unaudited pro forma combined condensed consolidated financial information giving effect to the Merger is furnished under this Item 9.01(b) as Exhibit 99.3 attached hereto, and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability of such section, not shall be deemed incorporated by reference in any filing of Community Bank System under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference in such filing:

•  Unaudited pro forma combined condensed balance sheet as of September 30, 2018, giving effect to the Merger as if it occurred on September 30, 2018;

•   Unaudited pro forma combined condensed consolidated statement of income for the nine months ended September 30, 2018, giving effect to the Merger as if it occurred on January 1, 2017; and

2


 

•   Unaudited pro forma combined condensed consolidated statement of income for the year ended December 31, 2017, giving effect to the Merger as if it occurred on January 1, 2017.

 

The unaudited pro forma combined condensed consolidated balance sheet of RBB and FAIC as of September 30, 2018 and the unaudited pro forma combined condensed consolidated statements of income for the nine months ended September 30, 2018 and the year ended December 31, 2017, and the notes related thereto are attached hereto as exhibit 99.3 and incorporated herein by reference.

(d) Exhibits

EXHIBIT INDEX

 

Exhibit

 

 

No.

 

Exhibit Description

 

 

 

23.1

 

Consent of BDO USA, LLP (filed herewith)

 

 

 

99.1

 

Audited consolidated financial statements of First American International Bancorp as of and for the years ended December 31, 2017 and 2016 (filed herewith)

 

 

 

99.2

 

Unaudited consolidated financial statements of First American International Bancorp as of September 30, 2018 and for the nine months ended September 30, 2018 and 2017 (filed herewith)

 

 

 

99.3

 

Unaudited pro forma combined condensed consolidated balance sheet of RBB Bancorp as of September 30, 2018, giving effect to the Merger as if it occurred on September 30, 2018; and unaudited pro forma combined condensed consolidated statements of income for the nine months ended September 30, 2018 and year ended December 31, 2017, giving effect to the Merger as if it occurred on January 1, 2017 (filed herewith)

 

 

3


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

RBB BANCORP

(Registrant)

 

 

 

 

Date:  January 10, 2019

 

By:

/s/ David Morris

 

 

 

David Morris

 

 

 

Executive Vice President and

Chief Financial Officer

 

4

rbb-ex231_602.htm

 

Exhibit 23.1

 

 

 

 

Consent of Independent Auditor

 

RBB Bancorp

Los Angeles, California

 

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-219626) of RBB Bancorp of our report dated March 9, 2018, relating to the consolidated financial statements of First American International Corp., which appears in this Form 8­K/A.

/s/ BDO USA, LLP

BDO USA, LLP

New York, New York

January 10, 2019

 

 

 

 

rbb-ex991_10.htm

 

Exhibit 99.1

 

FIRST AMERICAN INTERNATIONAL CORP. AND SUBSIDIARIES

Brooklyn, New York

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

CONTENTS

 

 

 

CONSOLIDATED FINANCIAL STATEMENTS

 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

F-2

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

F-3

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

F-4

CONSOLIDATED STATEMENTS OF CASH FLOWS

F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-6

 

 

F-1


 

FIRST AMERICAN INTERNATIONAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

December 31, 2017 and 2016

 

 

 

2017

 

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks – noninterest bearing

 

$

5,096,701

 

 

$

5,038,332

 

Due from banks – interest-bearing overnight and money market accounts

 

 

85,152,433

 

 

 

50,969,087

 

Federal funds sold – overnight

 

 

781,000

 

 

 

220,000

 

Cash and cash equivalents

 

 

91,030,134

 

 

 

56,227,419

 

Time deposits with banks

 

 

3,800,066

 

 

 

3,796,802

 

Securities available for sale

 

 

16,902,282

 

 

 

28,068,002

 

Securities held to maturity (fair value of $26,821,316 and $28,488,625 at

   December 31, 2017 and 2016, respectively)

 

 

26,931,942

 

 

 

28,577,765

 

Loans held for sale

 

 

440,000

 

 

 

2,528,000

 

Loans receivable, net

 

 

704,656,904

 

 

 

667,108,934

 

Bank premises and equipment, net

 

 

6,396,523

 

 

 

6,920,782

 

Federal Home Loan Bank (“FHLB”) stock, at cost

 

 

7,613,100

 

 

 

7,821,100

 

Accrued interest receivable

 

 

2,740,936

 

 

 

2,661,426

 

Mortgage servicing rights

 

 

9,131,030

 

 

 

7,008,026

 

Other assets

 

 

3,288,199

 

 

 

5,569,018

 

 

 

$

872,931,116

 

 

$

816,287,274

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Demand

 

$

147,696,322

 

 

$

136,162,533

 

NOW

 

 

4,950,724

 

 

 

5,148,635

 

Money market and savings

 

 

169,382,786

 

 

 

163,638,057

 

Time deposits

 

 

307,738,028

 

 

 

267,742,533

 

 

 

 

629,767,860

 

 

 

572,691,758

 

Other borrowed funds

 

 

150,000,000

 

 

 

156,000,000

 

Junior subordinated debentures

 

 

7,217,000

 

 

 

7,217,000

 

Accrued interest payable

 

 

2,462,252

 

 

 

1,773,099

 

Accounts payable and other liabilities

 

 

4,156,351

 

 

 

5,869,179

 

Total liabilities

 

 

793,603,463

 

 

 

743,551,036

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 750,000 shares authorized; Series B

   preferred stock, $0.01 par value; 17,000 shares authorized, issued

   and outstanding; and aggregate liquidation value of $17,000,000

   at December 31, 2017 and 2016, respectively

 

 

170

 

 

 

170

 

Common stock, $.0001 par value; 8,000,000 shares authorized; and

   2,206,546 shares issued and 2,204,046 shares outstanding at

   December 31, 2017 and 2016

 

 

221

 

 

 

221

 

Non-controlling interest

 

 

71,500

 

 

 

71,500

 

Additional paid-in capital

 

 

55,235,383

 

 

 

54,679,267

 

Treasury stock, 2,500 shares of common stock at cost

 

 

(68,000

)

 

 

(68,000

)

Retained earnings

 

 

24,115,246

 

 

 

18,084,100

 

Accumulated other comprehensive loss

 

 

(26,867

)

 

 

(31,020

)

Total stockholders’ equity

 

 

79,327,653

 

 

 

72,736,238

 

 

 

$

872,931,116

 

 

$

816,287,274

 

 

See accompanying notes to the consolidated financial statements.

 

F-2


 

FIRST AMERICAN INTERNATIONAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

December 31, 2017 and 2016

 

 

 

2017

 

 

2016

 

Interest and dividend income

 

 

 

 

 

 

 

 

Loans, including fees

 

$

32,444,276

 

 

$

28,165,213

 

Securities

 

 

1,186,356

 

 

 

1,565,138

 

FHLB Stock

 

 

434,548

 

 

 

278,626

 

Due from banks and money market accounts

 

 

731,234

 

 

 

219,996

 

Federal funds sold

 

 

13,952

 

 

 

5,026

 

 

 

 

34,810,366

 

 

 

30,233,999

 

Interest expense

 

 

 

 

 

 

 

 

Deposits

 

 

4,855,590

 

 

 

3,328,847

 

Other borrowed funds

 

 

2,725,541

 

 

 

2,343,398

 

Junior subordinated debentures

 

 

256,427

 

 

 

211,959

 

 

 

 

7,837,558

 

 

 

5,884,204

 

Net interest income

 

 

26,972,808

 

 

 

24,349,795

 

Provision for loan losses

 

 

148,982

 

 

 

367,000

 

Net interest income after provision for loan losses

 

 

26,823,826

 

 

 

23,982,795

 

Noninterest income

 

 

 

 

 

 

 

 

Service and transaction fees

 

 

4,540,225

 

 

 

4,395,110

 

Gain on sale of fixed assets held of sale

 

 

 

 

 

740,003

 

(Loss) Gain on sale, redemption and recovery of securities, net

 

 

(86,135

)

 

 

435,247

 

Grants from U.S. Treasury Department

 

 

227,282

 

 

 

 

Gain on sales of loans, net

 

 

7,919,685

 

 

 

2,713,844

 

 

 

 

12,601,057

 

 

 

8,284,204

 

Noninterest expenses

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

14,690,340

 

 

 

13,083,490

 

General and administrative

 

 

9,155,027

 

 

 

6,712,385

 

Depreciation, amortization and occupancy

 

 

4,256,874

 

 

 

4,243,158

 

 

 

 

28,102,241

 

 

 

24,039,033

 

Income before income tax expense

 

 

11,322,642

 

 

 

8,227,966

 

Income tax expense

 

 

4,462,027

 

 

 

2,835,674

 

Net income

 

 

6,860,615

 

 

 

5,392,292

 

Preferred stock dividends and discount accretion

 

 

829,469

 

 

 

806,093

 

Net income available to common stockholders

 

$

6,031,146

 

 

$

4,586,199

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

2.74

 

 

$

2.08

 

Diluted

 

$

2.73

 

 

$

2.08

 

Net income

 

$

6,860,615

 

 

$

5,392,292

 

Unrealized holding (loss) gain arising during the period

 

 

(91,151

)

 

 

582,247

 

Reclassification adjustment for losses (gains) included in gain (loss) on

   sale of securities, net in the statements of operations and

   comprehensive income

 

 

86,135

 

 

 

(435,247

)

Tax effect

 

 

9,168

 

 

 

(49,980

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Unrealized gain on securities, net of reclassifications and taxes

 

 

4,153

 

 

 

97,020

 

Comprehensive income

 

$

6,864,767

 

 

$

5,489,312

 

 

See accompanying notes to the consolidated financial statements.

 

 

F-3


 

FIRST AMERICAN INTERNATIONAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

December 31, 2017 and 2016

 

 

 

Preferred Stock

(Series B)

 

 

Common Stock

 

 

 

 

 

 

Non-

 

 

Additional

 

 

Treasury Stock

 

 

 

 

 

 

Accumulated

Other

 

 

 

 

 

 

 

Number of

Shares

 

 

Amount

 

 

Number of

Shares

 

 

Amount

 

 

Number of

Shares

 

 

Controlling

Interest

 

 

Paid-in

Capital

 

 

Number of

Shares

 

 

Amount

 

 

Retained

Earnings

 

 

Comprehensive

Loss

 

 

Total

 

Balance at December 31, 2015

 

 

17,000

 

 

$

170

 

 

 

2,201,446

 

 

$

220

 

 

 

144

 

 

$

72,000

 

 

$

54,213,710

 

 

 

(2,500

)

 

$

(68,000

)

 

$

13,504,520

 

 

$

(128,040

)

 

$

67,594,580

 

Adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,619

 

 

 

 

 

 

 

 

 

(6,619

)

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,392,292

 

 

 

 

 

 

5,392,292

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

97,020

 

 

 

97,020

 

Dividends FAIB Capital Corp

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,150

)

 

 

 

 

 

(7,150

)

Preferred stock repurchased

   and retired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(500

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(500

)

Restricted stock issued

 

 

 

 

 

 

 

 

5,100

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

458,938

 

 

 

 

 

 

 

 

 

(798,943

)

 

 

 

 

 

(340,005

)

Balance at December 31, 2016

 

 

17,000

 

 

$

170

 

 

 

2,206,546

 

 

$

221

 

 

 

143

 

 

$

71,500

 

 

$

54,679,267

 

 

 

(2,500

)

 

$

(68,000

)

 

$

18,084,100

 

 

$

(31,020

)

 

$

72,736,238

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,860,615

 

 

 

 

 

 

6,860,615

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,153

 

 

 

4,153

 

Dividends FAIB Capital Corp

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,150

)

 

 

 

 

 

(7,150

)

Preferred stock repurchased

   and retired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock award

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

73,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

73,797

 

Preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

482,319

 

 

 

 

 

 

 

 

 

(822,319

)

 

 

 

 

 

(340,000

)

Balance at December 31, 2017

 

 

17,000

 

 

$

170

 

 

 

2,206,546

 

 

$

221

 

 

 

143

 

 

$

71,500

 

 

$

55,235,383

 

 

 

(2,500

)

 

$

(68,000

)

 

$

24,115,246

 

 

$

(26,867

)

 

$

79,327,653

 

 

See accompanying notes to the consolidated financial statements.

 

 

F-4


 

FIRST AMERICAN INTERNATIONAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2017 and 2016

 

 

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

6,860,615

 

 

$

5,392,292

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

148,982

 

 

 

367,000

 

Loss (Gain) on sale, redemption and recovery of securities, net

 

 

86,135

 

 

 

(435,247

)

Gain on sale of loans held for sale

 

 

(2,248,585

)

 

 

(2,825,320

)

Gain on sale of loans held for investment

 

 

(5,560,951

)

 

 

(1,583,963

)

Change in fair value of mortgage servicing rights

 

 

(110,092

)

 

 

1,695,439

 

Depreciation

 

 

1,065,939

 

 

 

1,096,022

 

Gain on sale of fixed assets held for sale

 

 

 

 

 

(740,003

)

Deferred tax expense (benefit)

 

 

2,545,843

 

 

 

(1,350,542

)

Residential mortgage loans originated for sale

 

 

(85,212,325

)

 

 

(105,295,844

)

Proceeds from sales of residential mortgage loans held for sale

 

 

88,919,829

 

 

 

108,398,386

 

Proceeds from sale of commercial loan held for sale

 

 

 

 

 

1,100,000

 

Restricted Stock award

 

 

73,797

 

 

 

 

Increase in accrued interest receivable

 

 

(79,510

)

 

 

(480,869

)

(Increase) Decrease in other assets

 

 

(265,025

)

 

 

516,941

 

(Decrease) Increase in accrued interest payable, accounts payable and

   other liabilities

 

 

(1,023,675

)

 

 

2,256,343

 

Net cash provided by operating activities

 

 

5,200,977

 

 

 

8,110,635

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from sales of securities AFS

 

 

1,743,158

 

 

 

14,897,421

 

Proceeds from maturities, calls, redemption and principal payments of securities AFS

 

 

9,340,579

 

 

 

8,163,030

 

Proceeds from maturities, calls and principal payments of securities HTM

 

 

1,645,823

 

 

 

1,748,002

 

Purchases of securities HTM

 

 

 

 

 

(8,047,930

)

Sale (Purchase) of FHLB stock

 

 

208,000

 

 

 

(1,922,200

)

Proceeds from sale of commercial loan

 

 

 

 

 

860,000

 

(Decrease) Increase in time deposits with banks

 

 

(3,264

)

 

 

149,962

 

Net increase in loans receivable

 

 

(177,504,465

)

 

 

(198,265,787

)

Proceeds from sales of residential mortgage loans

 

 

143,984,635

 

 

 

37,567,407

 

Proceeds from sale of fixed assets

 

 

 

 

 

740,003

 

Capital expenditures

 

 

(541,680

)

 

 

(698,046

)

Net cash used in investing activities

 

 

(21,127,214

)

 

 

(144,808,138

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Dividends paid on Series B preferred stock

 

 

(340,000

)

 

 

(340,005

)

Dividends paid on REIT preferred stock

 

 

(7,150

)

 

 

(7,150

)

Preferred stock repurchase and retirement

 

 

 

 

 

(500

)

Proceeds from other borrowed funds

 

 

 

 

 

92,367,000

 

Repayment of other borrowed funds

 

 

(6,000,000

)

 

 

(53,367,000

)

Net increase in deposits

 

 

57,076,102

 

 

 

127,220,300

 

Net cash provided by financing activities

 

 

50,728,952

 

 

 

165,872,645

 

Net increase in cash and cash equivalents

 

 

34,802,715

 

 

 

29,175,142

 

Cash and cash equivalents, beginning of year

 

 

56,227,419

 

 

 

27,052,277

 

Cash and cash equivalents, end of year

 

$

91,030,134

 

 

$

56,227,419

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for

 

 

 

 

 

 

 

 

Interest

 

$

7,148,405

 

 

$

5,174,085

 

Income taxes

 

 

3,484,597

 

 

 

3,000,000

 

Supplemental non-cash disclosures

 

 

 

 

 

 

 

 

Transfer of loans receivable to loans held for sale

 

$

140,333,540

 

 

$

36,877,280

 

 

See accompanying notes to the consolidated financial statements.

F-5


 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: First American International Corp. (“Company”) is a bank holding company headquartered in Sunset Park, Brooklyn, New York. Through its subsidiaries, First American International Bank (“Bank”), FAIB Capital Corp. (“REIT”) and FAIC Insurance Services, Inc., the Company provides individuals, corporations and other businesses, and institutions with commercial and retail banking services, including loans and deposits, mortgage banking, insurance and other financial services.

The Bank is a New York State chartered commercial bank. The Bank is a member of the Federal Deposit Insurance Corporation (“FDIC”) and provides full banking services to customers through its eight branches located in Brooklyn, Queens and Manhattan.

The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America (with U.S. generally accepted accounting principles) management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of mortgage servicing rights and the valuation of deferred tax assets.

Cash Flows: For purposes of reporting cash flows, cash and cash equivalents include cash and amounts with maturities less than 90 days including due from banks, interest and non-interest-bearing, overnight, money market accounts and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, and federal funds purchased.

Interest-Bearing Deposits in Other Financial Institutions: Interest-bearing deposits in other financial institutions, including money market funds and time deposits with banks are carried at cost.

Securities: Debt securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available-for-sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income (loss), net of tax.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income (loss). The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

Loans Held for Sale: Loans intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

Mortgage loans originated for sale are generally sold with servicing rights retained. The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

F-6


 

Interest income on mortgage, commercial, and consumer loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Interest income may be discontinued on loans less than 90 days past due at discretion of management. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

A loan is impaired when full payment under the loan terms is not expected. Commercial and commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The current factors for which the Company evaluates when determining adjustments to the historical loss factors include changes to, or the strength of the Company’s underwriting and related policies and procedures, economic trends within the tri-state area, changes within the composition of the portfolio, related to either changes in underlying loan types or the underlying past due or nonaccrual status within that loan type, changes in management and staff, trends within the underlying collateral values, regulatory factors, and evaluation of credit concentrations.

The following portfolio segments have been identified: Commercial and industrial loans, commercial real estate loans, residential real estate loans, and consumer and installment loans.

Commercial and industrial loans: Commercial credit is extended to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or other projects. The majority of these borrowers are customers doing business within our geographic regions. These loans are generally underwritten individually and secured with the assets of the borrower and the personal guarantee of the business owners. Commercial loans are made based primarily on the historical and projected cash flow of the borrower and the underlying collateral provided by the borrower.

Commercial real estate loans: Commercial real estate loans, including multifamily, are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and property type. Commercial real estate loans also include construction loans, which are primarily collateralized by the acquired land and the constructed premises. These loans require continuous attention and monitoring of the construction progress. The repayment of these loans is contingent upon the borrower’s ability to complete and sell the constructed property or generate enough rental income to service the permanent debt. As a result the risk with these loans is that they are contingent upon future events whose probability at the time of origination is uncertain. Therefore these loans receive a higher risk rating than all other loan types.

F-7


 

Residential real estate loans: Residential mortgage loans represent loans to consumers for the purchase or refinance of a one-to-four family residence. These loans are generally financed as fifteen to thirty year mortgages, and in most cases, are extended to borrowers to finance their primary residence. Real estate market values at the time of origination directly affect the amount of credit extended and, in the event of default, subsequent changes in these values may impact the severity of losses.

Consumer and installment loans: Consumer loans are primarily comprised of lines of credit or closed-end loans secured by second mortgages. The maximum amount of a home equity line of credit is generally limited to 80% (with acceptable credit scores) of the appraised value of the property less the balance of the first mortgage. Consumer loans also include installment loans made directly to consumers. These loans have a specific matrix which consists of several factors including debt to income, type of collateral and loan to collateral value, credit history and relationship with the borrower.

Bank Premises and Equipment: Land is carried at cost. Premises and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the related assets, or lease term, whichever is shorter.

Federal Home Loan Bank (“FHLB”) Stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Mortgage Servicing Rights: When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gain on sale of loans. Fair value is based on market prices for comparable mortgage servicing contracts when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.

Under the fair value measurement method, the Company measures servicing rights at fair value at each reporting date and reports changes in fair value of servicing assets in earnings in the period in which the changes occur, and are included with service and transaction fees on the Consolidated Statements of Income and Comprehensive Income. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed. There was no other real estate owned as of December 31, 2017 or 2016.

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was signed into law resulting in a reduction in the Company’s federal income tax rate to 21% from 34% effective January 1, 2018.

In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which requires entities to reclassify from accumulated other comprehensive income (AOCI) to retained earnings the effects of the change in the federal tax rate under the TCJA on deferred amounts that were originally recorded in other comprehensive income (OCI). The amount of the reclassification excludes the effects of any valuation allowance previously charged to income from continuing operations. The Company adopted this ASU resulting in a reclassification of $14,225 from AOCI to retained earnings in the consolidated financial statements.

F-8


 

Stock-Based Compensation: Compensation cost is recognized for stock options issued to employees based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. Compensation cost is recognized over the required service period, generally defined as the vesting period.

Earnings Per Common Share: Basic earnings per common share is net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options.

Comprehensive Income: Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Other comprehensive income (loss) consists of the change in unrealized gain (loss) on securities available for sale, net of reclassification adjustments and tax effects.

Concentrations of Credit Risk: Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of temporary cash investments, which include due from banks and loans receivable. As of December 31, 2017 and 2016, the Company had approximately $2,250,000 and $2,251,000, respectively, in deposit balances at certain financial institutions which were in excess of usual federally-insured limits. The Company limits the amount of credit exposure with any one financial institution and believes that no significant concentration of credit risk exists with respect to these cash investments.

There are no significant concentrations of loans to any one industry or customer. However, the majority of the Company’s loans and loan commitments have been granted to customers in the Company’s market area. Accordingly, the collectability of loans and management’s ability to increase net interest income will be impacted, to some extent, by economic conditions in the New York metropolitan area.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Subsequent Events: The Company has evaluated subsequent events for recognition and disclosure through March 9, 2018, which is the date the financial statements were available to be issued.

NOTE 2 – SECURITIES

The amortized cost and fair value of securities available for sale, and related gross unrealized gains and losses were are follows:

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

 

 

$

 

 

$

 

 

$

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage backed securities – residential

 

 

2,259,705

 

 

 

6,660

 

 

 

(21,155

)

 

 

2,245,210

 

Mortgage backed securities – commercial

 

 

2,544,872

 

 

 

 

 

 

(34,540

)

 

 

2,510,332

 

Corporate note securities

 

 

9,936,067

 

 

 

16,061

 

 

 

(12,063

)

 

 

9,940,065

 

Collateralized mortgage obligations

 

 

2,213,654

 

 

 

10,206

 

 

 

(17,185

)

 

 

2,206,675

 

 

 

$

16,954,298

 

 

$

32,927

 

 

$

(84,943

)

 

$

16,902,282

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

2,212,535

 

 

$

2,489

 

 

$

(3,926

)

 

$

2,211,098

 

U.S. Treasury securities

 

 

1,000,050

 

 

 

348

 

 

 

 

 

 

1,000,398

 

Mortgage backed securities – residential

 

 

4,044,440

 

 

 

15,387

 

 

 

(24,385

)

 

 

4,035,442

 

Mortgage backed securities – commercial

 

 

4,729,046

 

 

 

614

 

 

 

(48,370

)

 

 

4,681,290

 

Corporate note securities

 

 

12,205,230

 

 

 

28,291

 

 

 

(26,844

)

 

 

12,206,677

 

Collateralized mortgage obligations

 

 

3,923,701

 

 

 

19,716

 

 

 

(10,320

)

 

 

3,933,097

 

 

 

$

28,115,002

 

 

$

66,845

 

 

$

(113,845

)

 

$

28,068,002

 

F-9


 

 

The amortized cost and fair value of securities held to maturity, and related gross unrealized gains and losses, were as follows:

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

December 31, 2017