F
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-36461
FIRST FOUNDATION INC.
(Exact name of Registrant as specified in its charter)
| | |
Delaware | | 20-8639702 |
(State or other jurisdiction | | (I.R.S. Employer |
| | |
200 Crescent Court, Suite 1400 Dallas, Texas | | 75201 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (469) 638-9636
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock | | FFWM | | NASDAQ Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | |
| | | | |
Large accelerated filer | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 3, 2022, the registrant had 56,387,671 shares of common stock, $0.001 par value per share, outstanding.
FIRST FOUNDATION INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022
TABLE OF CONTENTS
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| 1 | ||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 30 | |||||
| 51 | ||||||
| 51 | ||||||
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| 52 | ||||||
| 52 | ||||||
| 53 | ||||||
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| S-1 |
(i)
PART I — FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
FIRST FOUNDATION INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| | | | | | | |
| | June 30, | | December 31, | | ||
| | 2022 | | 2021 | | ||
| | | (unaudited) | | | | |
ASSETS |
| |
|
| |
| |
Cash and cash equivalents | | $ | 173,524 | | $ | 1,121,757 | |
| | | | | | | |
Securities available-for-sale ("AFS") | |
| 251,496 | |
| 1,201,777 | |
Securities held-to-maturity ("HTM") | | | 930,562 | | | — | |
Allowance for credit losses - investments | | | (11,226) | | | (10,399) | |
Net securities | | | 1,170,832 | | | 1,191,378 | |
| | | | | | | |
Loans held for sale | |
| 485,296 | |
| 501,436 | |
| | | | | | | |
Loans held for investment | |
| 8,938,841 | |
| 6,906,728 | |
Allowance for credit losses - loans | |
| (33,165) | |
| (33,776) | |
Net loans | |
| 8,905,676 | |
| 6,872,952 | |
| | | | | | | |
Investment in FHLB stock | | | 17,250 | |
| 18,249 | |
Deferred taxes | |
| 21,471 | |
| 20,835 | |
Premises and equipment, net | |
| 37,160 | |
| 37,920 | |
Real estate owned ("REO") | | | 6,210 | | | 6,210 | |
Goodwill and intangibles | |
| 222,749 | |
| 222,125 | |
Other assets | |
| 209,072 | |
| 203,342 | |
Total Assets | | $ | 11,249,240 | | $ | 10,196,204 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
| | |
Liabilities: | |
|
| |
| | |
Deposits | | $ | 9,538,744 | | $ | 8,811,960 | |
Borrowings | |
| 493,728 | |
| 210,127 | |
Accounts payable and other liabilities | |
| 113,859 | |
| 110,066 | |
Total Liabilities | |
| 10,146,331 | |
| 9,132,153 | |
| | | | | | | |
Shareholders’ Equity | |
|
| |
| | |
Common Stock | |
| 56 | |
| 56 | |
Additional paid-in-capital | |
| 719,222 | |
| 720,744 | |
Retained earnings | |
| 392,704 | |
| 340,976 | |
Accumulated other comprehensive (loss) income | |
| (9,073) | |
| 2,275 | |
Total Shareholders’ Equity | |
| 1,102,909 | |
| 1,064,051 | |
Total Liabilities and Shareholders’ Equity | | $ | 11,249,240 | | $ | 10,196,204 | |
(See accompanying notes to the consolidated financial statements)
1
FIRST FOUNDATION INC.
CONSOLIDATED INCOME STATEMENTS - UNAUDITED
(In thousands, except share and per share amounts)
| | | | | | | | | | | | | |
| | Quarter Ended | | Six Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | | ||||
Interest income: |
| |
|
| |
| | |
|
| |
| |
Loans | | $ | 82,032 | | $ | 55,979 | | $ | 154,059 | | $ | 109,510 | |
Securities | |
| 6,621 | |
| 4,927 | |
| 12,981 | |
| 10,133 | |
FHLB Stock, fed funds sold and interest-bearing deposits | |
| 1,318 | |
| 497 | |
| 2,075 | |
| 898 | |
Total interest income | |
| 89,971 | |
| 61,403 | |
| 169,115 | |
| 120,541 | |
| | | | | | | | | | | | | |
Interest expense: | |
|
| |
|
| |
| | | | | |
Deposits | |
| 6,340 | |
| 3,387 | |
| 9,698 | |
| 8,010 | |
Borrowings | |
| 1,826 | |
| 106 | |
| 3,118 | |
| 392 | |
Total interest expense | |
| 8,166 | | | 3,493 | |
| 12,816 | |
| 8,402 | |
| | | | | | | | | | | | | |
Net interest income | |
| 81,805 | |
| 57,910 | |
| 156,299 | |
| 112,139 | |
| | | | | | | | | | | | | |
Provision for credit losses | | | 173 | |
| 44 | |
| (619) | |
| 404 | |
| | | | | | | | | | | | | |
Net interest income after provision for credit losses | |
| 81,632 | |
| 57,866 | |
| 156,918 | |
| 111,735 | |
| | | | | | | | | | | | | |
Noninterest income: | |
| | | | | | | | | | | |
Asset management, consulting and other fees | |
| 9,893 | |
| 8,748 | |
| 20,090 | |
| 17,097 | |
Gain on sale of loans | | | — | | | 3,324 | | | — | | | 3,324 | |
Other income | |
| 3,507 | |
| 1,963 | |
| 8,737 | |
| 5,522 | |
Total noninterest income | |
| 13,400 | |
| 14,035 | |
| 28,827 | |
| 25,943 | |
| | |
| | | | | | | | | | |
Noninterest expense: | |
| | |
|
| |
|
| |
| | |
Compensation and benefits | |
| 27,634 | |
| 20,203 | |
| 57,455 | |
| 41,729 | |
Occupancy and depreciation | |
| 8,814 | |
| 5,710 | |
| 17,381 | |
| 11,870 | |
Professional services and marketing costs | |
| 3,030 | |
| 3,907 | |
| 6,447 | |
| 6,029 | |
Customer service costs | |
| 4,611 | |
| 2,353 | |
| 6,399 | |
| 4,123 | |
Other expenses | |
| 4,716 | |
| 3,444 | |
| 8,741 | |
| 6,377 | |
Total noninterest expense | |
| 48,805 | |
| 35,617 | |
| 96,423 | |
| 70,128 | |
| | | | | | | | | | | | | |
Income before taxes on income | |
| 46,227 | |
| 36,284 | |
| 89,322 | |
| 67,550 | |
Taxes on income | |
| 12,911 | |
| 10,230 | |
| 25,170 | |
| 19,141 | |
Net income | | $ | 33,316 | | $ | 26,054 | | $ | 64,152 | | $ | 48,409 | |
| | | | | | | | | | | | | |
Net income per share: | |
|
| |
|
| |
| | |
| | |
Basic | | $ | 0.59 | | $ | 0.58 | | $ | 1.14 | | $ | 1.08 | |
Diluted | | $ | 0.59 | | $ | 0.58 | | $ | 1.13 | | $ | 1.07 | |
Shares used in computation: | |
| | |
|
| |
| | |
|
| |
Basic | |
| 56,471,470 | |
| 44,792,358 | |
| 56,468,678 | |
| 44,750,272 | |
Diluted | |
| 56,519,669 | |
| 45,101,958 | |
| 56,543,492 | |
| 45,057,330 | |
(See accompanying notes to the consolidated financial statements)
2
FIRST FOUNDATION INC.
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY - UNAUDITED
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | |
|
| Common Stock |
| Additional |
| | |
| Accumulated Other |
| | | |||||
| | Number | | | | | Paid-in | | Retained | | Comprehensive | | | | |||
|
| of Shares |
| Amount |
| Capital |
| Earnings |
| Income (Loss) |
| Total | |||||
Balance: December 31, 2021 | | 56,432,070 | | $ | 56 | | $ | 720,744 | | $ | 340,976 | | $ | 2,275 | | $ | 1,064,051 |
Net income |
| — | |
| — | |
| — | |
| 64,152 | |
| — | |
| 64,152 |
Other comprehensive loss |
| — | |
| — | |
| — | |
| — | |
| (11,348) | |
| (11,348) |
Stock based compensation |
| — | |
| — | |
| 2,037 | |
| — | |
| — | |
| 2,037 |
Cash dividend | | — | |
| — | |
| — | |
| (12,424) | |
| — | |
| (12,424) |
Issuance of common stock: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Exercise of options |
| 2,000 | |
| — | |
| 18 | |
| — | |
| — | |
| 18 |
Stock grants – vesting of restricted stock units |
| 133,374 | |
| — | |
| — | |
| — | |
| — | |
| — |
Repurchase of shares from restricted shares vesting |
| (42,947) | |
| — | |
| (1,120) | |
| — | |
| — | |
| (1,120) |
Stock repurchase | | (137,583) | | | — | | | (2,457) | | | — | | | — | | | (2,457) |
Balance: June 30, 2022 |
| 56,386,914 | | $ | 56 | | $ | 719,222 | | $ | 392,704 | | $ | (9,073) | | $ | 1,102,909 |
| | | | | | | | | | | | | | | | | |
Balance: March 31, 2022 |
| 56,514,168 | | $ | 57 | | $ | 720,846 | | $ | 365,604 | | $ | (3,932) | | $ | 1,082,575 |
Net income |
| — | |
| — | |
| — | |
| 33,316 | |
| — | |
| 33,316 |
Other comprehensive loss |
| — | |
| — | |
| — | |
| — | |
| (5,141) | |
| (5,141) |
Stock based compensation |
| — | |
| — | |
| 833 | |
| — | |
| — | |
| 833 |
Cash dividend |
| — | |
| — | |
| — | |
| (6,216) | |
| — | |
| (6,216) |
Issuance of common stock: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Exercise of options |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Stock grants – vesting of restricted stock units |
| 10,674 | |
| (1) | |
| — | |
| — | |
| — | |
| (1) |
Repurchase of shares from restricted shares vesting |
| (345) | |
| — | |
| — | |
| — | |
| — | |
| — |
Stock repurchase | | (137,583) | | | — | | | (2,457) | | | — | | | — | | | (2,457) |
Balance: June 30, 2022 |
| 56,386,914 | | $ | 56 | | $ | 719,222 | | $ | 392,704 | | $ | (9,073) | | $ | 1,102,909 |
| | | | | | | | | | | | | | | | | |
Balance: December 31, 2020 |
| 44,667,650 | | $ | 45 | | $ | 433,941 | | $ | 247,638 | | $ | 14,087 | | $ | 695,711 |
Net income |
| — | |
| — | |
| — | |
| 48,409 | |
| — | |
| 48,409 |
Other comprehensive loss |
| — | |
| — | |
| — | |
| — | |
| (3,312) | |
| (3,312) |
Stock based compensation |
| — | |
| — | |
| 1,629 | |
| — | |
| — | |
| 1,629 |
Cash dividend |
| — | |
| — | |
| — | |
| (8,050) | |
| — | |
| (8,050) |
Issuance of common stock: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Exercise of options |
| 75,807 | |
| — | |
| 819 | |
| — | |
| — | |
| 819 |
Stock grants – vesting of restricted stock units |
| 117,223 | |
| — | |
| — | |
| — | |
| — | |
| — |
Repurchase of shares from restricted shares vesting |
| (40,937) | |
| — | |
| (1,188) | |
| — | |
| — | |
| (1,188) |
Balance: June 30, 2021 |
| 44,819,743 | | $ | 45 | | $ | 435,201 | | $ | 287,997 | | $ | 10,775 | | $ | 734,018 |
| | | | | | | | | | | | | | | | | |
Balance: March 31, 2021 |
| 44,782,155 | | $ | 45 | | $ | 434,346 | | $ | 265,970 | | $ | 14,069 | | $ | 714,430 |
Net income |
| — | |
| — | |
| — | |
| 26,054 | |
| — | |
| 26,054 |
Other comprehensive loss |
| — | |
| — | |
| — | |
| — | |
| (3,294) | |
| (3,294) |
Stock based compensation |
| — | |
| — | |
| 634 | |
| — | |
| — | |
| 634 |
Cash dividend |
| — | |
| — | |
| — | |
| (4,027) | |
| — | |
| (4,027) |
Issuance of common stock: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Exercise of options |
| 28,807 | |
| — | |
| 465 | |
| — | |
| — | |
| 465 |
Stock grants – vesting of restricted stock units |
| 9,138 | |
| — | |
| — | |
| — | |
| — | |
| — |
Repurchase of shares from restricted shares vesting |
| (357) | |
| — | |
| (244) | |
| — | |
| — | |
| (244) |
Balance: June 30, 2021 |
| 44,819,743 | | $ | 45 | | $ | 435,201 | | $ | 287,997 | | $ | 10,775 | | $ | 734,018 |
(See accompanying notes to the consolidated financial statements)
3
FIRST FOUNDATION INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME - UNAUDITED
(In thousands)
| | | | | | | | | | | | | |
| | Quarter Ended June 30, | | Six Months Ended June 30, | | ||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | | ||||
Net income |
| $ | 33,316 | | $ | 26,054 |
| $ | 64,152 | | $ | 48,409 | |
Other comprehensive income (loss): |
| |
|
| |
|
| |
|
| |
| |
Unrealized holding gains (losses) on securities arising during the period |
| | (6,612) |
| | (4,657) |
| | (14,343) |
| | (4,682) | |
Other comprehensive income (loss) before tax |
| | (6,612) |
| | (4,657) |
| | (14,343) |
| | (4,682) | |
Income tax benefit (expense) related to items of other comprehensive income |
| | 1,471 |
| | 1,363 |
| | 2,995 |
| | 1,370 | |
Other comprehensive income (loss) |
| | (5,141) |
| | (3,294) |
| | (11,348) |
| | (3,312) | |
Total comprehensive income | | $ | 28,175 | | $ | 22,760 | | $ | 52,804 | | $ | 45,097 | |
(See accompanying notes to the consolidated financial statements)
4
FIRST FOUNDATION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
| | | | | | | |
| | For the Six Months Ended | | ||||
| | June 30, | | ||||
| | 2022 | | 2021 | | ||
Cash Flows from Operating Activities: |
| |
|
| |
| |
Net income | | $ | 64,152 | | $ | 48,409 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | |
Provision for credit losses - loans | |
| (1,446) | |
| (1,467) | |
Provision for credit losses - securities AFS | | | 827 | | | 1,871 | |
Stock–based compensation expense | |
| 2,037 | |
| 1,629 | |
Depreciation and amortization | |
| 2,019 | |
| 1,655 | |
Deferred tax expense | |
| 1,941 | |
| 355 | |
Amortization of premium (discount) on securities | | | 1,677 | | | 399 | |
Amortization of core deposit intangible | |
| 999 | |
| 842 | |
Amortization of mortgage servicing rights - net | |
| 1,070 | |
| 935 | |
Gain on sale of loans | |
| — | |
| (3,324) | |
Amortization of OCI - securities transfer to HTM | | | (591) | | | — | |
Valuation allowance on mortgage servicing rights - net | | | (319) | | | 1,309 | |
Increase in other assets | |
| (6,482) | |
| (10,695) | |
Increase (decrease) in accounts payable and other liabilities | |
| 4,476 | |
| (1,264) | |
Net cash provided by operating activities | |
| 70,360 | |
| 40,654 | |
Cash Flows from Investing Activities: | |
|
| |
|
| |
Net increase in loans | |
| (2,016,119) | |
| (841,088) | |
Proceeds from sale of loans | |
| — | |
| 142,000 | |
Purchase of premises and equipment | |
| (3,523) | |
| (1,826) | |
Disposals of premises and equipment | | | 3,388 | | | — | |
Recovery of allowance for credit losses | |
| 298 | |
| 509 | |
Purchases of securities AFS | |
| (398) | |
| (83,372) | |
Purchases of securities HTM | | | (171,852) | | | — | |
Proceeds from sale of securities | |
| — | |
| 3,400 | |
Maturities of securities AFS | |
| 18,524 | |
| 143,712 | |
Maturities of securities HTM | | | 156,811 | | | — | |
Sale of FHLB and FRB stock, net | |
| 999 | |
| — | |
Net cash used in investing activities | |
| (2,011,872) | |
| (636,665) | |
Cash Flows from Financing Activities: | |
|
| |
|
| |
Increase in deposits | |
| 726,784 | �� |
| 1,193,369 | |
Net increase (decrease) in FHLB advances | |
| 149,000 | |
| (255,000) | |
Line of credit net change – borrowings, net | |
| (18,500) | |
| 6,000 | |
Net increase in subordinated debt | | | 147,608 | | | — | |
Net increase in repurchase agreements | | | 5,493 | | | — | |
Gain on sale leaseback | |
| (1,123) | |
| — | |
Dividends paid | |
| (12,424) | |
| (8,050) | |
Proceeds from exercise of stock options | |
| 18 | |
| 819 | |
Repurchase of stock | |
| (3,577) | |
| (1,188) | |
Net cash provided by financing activities | |
| 993,279 | |
| 935,950 | |
Increase (decrease) in cash and cash equivalents | |
| (948,233) | |
| 339,939 | |
Cash and cash equivalents at beginning of year | |
| 1,121,757 | |
| 629,707 | |
Cash and cash equivalents at end of period | | $ | 173,524 | | $ | 969,646 | |
Supplemental disclosures of cash flow information: | |
|
| |
|
| |
Cash paid during the period for: | |
|
| |
|
| |
Income taxes | | $ | 22,500 | | $ | 17,424 | |
Interest | | | 10,563 | | | 10,019 | |
Noncash transactions: | |
| | |
|
| |
Transfer of loans to loans held for sale | | $ | — | | $ | 132,521 | |
Transfer of securities from available-for-sale to held-to-maturity | | | 916,777 | | | — | |
Goodwill acquisition adjustment | | | 1,623 | | | — | |
Operating lease liabilities recognized | | | 5,428 | | | — | |
(See accompanying notes to the consolidated financial statements)
5
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements include First Foundation Inc. (“FFI”) and its wholly owned subsidiaries: First Foundation Advisors (“FFA”) and First Foundation Bank (“FFB” or the “Bank”) and the wholly owned subsidiaries of FFB, First Foundation Insurance Services (“FFIS”), Blue Moon Management, LLC, and First Foundation Public Finance (“FFPF”) (collectively referred to as the “Company”). FFI also has 2 inactive wholly owned subsidiaries, First Foundation Consulting and First Foundation Advisors, LLC. All intercompany balances and transactions have been eliminated in consolidation. The results of operations reflect any interim adjustments, all of which are of a normal recurring nature and which, in the opinion of management, are necessary for a fair presentation of the results for the interim period presented. The results for the 2022 interim periods are not necessarily indicative of the results expected for the full year.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates.
The accompanying unaudited consolidated financial statements include all information and footnotes required for interim financial statement presentation. These financial statements assume that readers have read the most recent Annual Report on Form 10-K which contains the latest available audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2021.
Certain reclassifications have been made to the prior year consolidated financial statements to conform to the 2022 presentation.
New Accounting Pronouncements
In March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures”. ASU 2022-02 eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors and provides amendments to ASU 2016-13, Financial Instruments – Credit Losses on Financial Instruments by enhancing existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU 2022-02 also requires that entities disclose current-period gross write-offs by year of origination for financing receivables within the scope of Subtopic 326-20. For entities that have adopted the amendments in Update 2016-13, the amendments in this ASU are effective for fiscal years beginning after December 15, 2022. The adoption of ASU 2022-02 is not expected to have a significant impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. ASU 2020-04 provides optional guidance for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04 is not expected to have a significant impact on the Company’s consolidated financial statements.
6
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
NOTE 2: ACQUISITIONS
On December 17, 2021, the Company completed the acquisition of TGR Financial, Inc. (“TGRF”) and its wholly owned subsidiary, First Florida Integrity Bank, through a merger of TGRF with and into FFI followed immediately by the merger of First Florida Integrity Bank with and into FFB, in exchange for 11,352,232 shares of FFI common stock with a fair value of $24.93 per share.
The acquisition was accounted for under the purchase method of accounting. The acquired assets, assumed liabilities and identifiable intangible assets are recorded at their respective acquisition date fair values. Goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining TGRF into FFI. NaN of the goodwill recognized is expected to be deductible for income tax purposes.
The following table represents the assets acquired and liabilities assumed of TGRF as of December 17, 2021 and the fair value adjustments and amounts recorded by the Company in 2021 under the acquisition method of accounting:
| | | | | | | | | |
|
| TGRF Book |
| Fair Value |
| | | ||
(dollars in thousands) | | Value | | Adjustments | | Fair Value | |||
Assets Acquired: |
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 1,145,335 | | $ | 5 | | $ | 1,145,340 |
Securities AFS | |
| 147,739 | |
| 109 | |
| 147,848 |
Securities held-to-maturity | | | 71,790 | | | 2,115 | | | 73,905 |
Loans, net of deferred fees | |
| 1,045,193 | |
| (5,387) | |
| 1,039,806 |
Investment in FHLB stock | |
| 4,510 | |
| — | |
| 4,510 |
Premises and equipment, net | |
| 34,199 | |
| (4,180) | |
| 30,019 |
Goodwill and intangibles | |
| 181 | |
| 129,850 | |
| 130,031 |
Bank owned life insurance | |
| 46,163 | |
| — | |
| 46,163 |
Deferred taxes | |
| 3,414 | |
| 738 | |
| 4,152 |
Other assets | |
| 13,562 | |
| (298) | |
| 13,264 |
Total assets acquired | | $ | 2,512,086 | | $ | 122,952 | | $ | 2,635,038 |
| | | | | | | | | |
Liabilities Assumed: | |
|
| |
|
| |
|
|
Deposits | | $ | 2,170,676 | | $ | 313 | | $ | 2,170,989 |
Borrowings | |
| 177,114 | |
| 1,929 | |
| 179,043 |
Accounts payable and other liabilities | |
| 7,386 | |
| 182 | |
| 7,568 |
Total liabilities assumed | |
| 2,355,176 | |
| 2,424 | |
| 2,357,600 |
Excess of assets acquired over liabilities assumed | |
| 156,910 | |
| 120,528 | |
| 277,438 |
Total | | $ | 2,512,086 | | $ | 122,952 | | $ | 2,635,038 |
| | | | | | | | | |
Consideration: | |
|
| |
|
| |
|
|
Stock issued | |
|
| |
|
| | $ | 283,011 |
Cash paid | | | | | | | | | 10 |
Total consideration (1) | | | | | | | | $ | 283,021 |
In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the cash flows expected to result from those assets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used was that of acquired loans. The excess of expected cash
7
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
flows above the fair value (Level 3 inputs) of the majority of loans will be accreted to interest income over the remaining lives of the loans in accordance with Accounting Standards Codification (“ASC”) 310-20. The fair values are estimates and are subject to adjustment for up to one year after the merger date.
Certain loans, for which specific credit-related deterioration since origination was identified, are recorded at fair value reflecting the present value of the amounts expected to be collected. Income recognition on these purchased credit deteriorated (“PCD”) loans is based on a reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on nonaccrual status and have no accretable yield. All PCD loans were classified as accruing loans as of and subsequent to the acquisition date.
In accordance with generally accepted accounting principles there was no carryover of the allowance for credit losses that had been previously recorded by TGRF.
The Company recorded a deferred income tax asset of $4.2 million related to the acquisition of TGRF, including operating loss carry-forwards of $0.1 million that are subject to limitation under Section 382 of the Internal Revenue Code.
The fair value of savings and transaction deposit accounts acquired from TGRF were assumed to approximate their carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit accounts were valued by comparing the contractual cost of the portfolio to an identical portfolio bearing current market rates (Level 2 inputs). The portfolio was segregated into pools based on remaining maturity. For each pool, the projected cash flows from maturing certificates were then calculated based on contractual rates and prevailing market rates. The valuation adjustment for each pool is equal to the present value of the difference of these two cash flows, discounted at the assumed market rate for a certificate with a corresponding maturity. This valuation adjustment will be accreted to reduce interest expense over the remaining maturities of the respective pools. The Company also recorded a core deposit intangible, which represents the value of the deposit relationships acquired from TGRF, of $3.3 million. The core deposit intangible will be amortized over a period of 10 years.
8
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
Pro Forma Information (unaudited)
The following table presents unaudited pro forma information for the six months ended June 30, 2021, as if the acquisition of TGRF had occurred on January 1, 2021, after giving effect to certain adjustments. The unaudited pro forma information for this period includes adjustments for interest income on loans acquired, amortization of intangibles arising from the transaction, adjustments for interest expense on deposits acquired, and the related income tax effects of all these items and the income tax costs or benefits derived from the income or loss before taxes of TGRF. The net effect of these pro forma adjustments was an increase of $1.0 million in net income for the six months ended June 30, 2021. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed dates.
| | | |
| | Six Months Ended | |
(dollars in thousands) |
| June 30, 2021 | |
Net interest income | | $ | 140,686 |
Provision for credit losses |
| | 11,572 |
Noninterest income |
| | 28,474 |
Noninterest expenses |
| | 117,319 |
Income before taxes |
| | 40,269 |
Taxes on income |
| | 16,451 |
Net income | | $ | 23,818 |
| | | |
Net income per share: | |
|
|
Basic | | $ | 0.43 |
Diluted | | $ | 0.42 |
NOTE 3: FAIR VALUE MEASUREMENTS
Assets Measured at Fair Value on a Recurring Basis
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
9
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
The following tables show the recorded amounts of assets and liabilities measured at fair value on a recurring basis as of:
| | | | | | | | | | | | |
| | | | | Fair Value Measurement Level | |||||||
(dollars in thousands) | | Total | | Level 1 | | Level 2 | | Level 3 | ||||
June 30, 2022: |
| |
|
| |
|
| |
|
| |
|
Investment securities available for sale: |
| |
|
| |
|
| |
|
| |
|
Collateralized mortgage obligations | | $ | 10,005 | | $ | — | | $ | 10,005 | | $ | — |
Agency mortgage-backed securities | |
| 9,000 | |
| — | |
| 9,000 | |
| — |
Municipal bonds | |
| 46,834 | |
| — | |
| 46,834 | |
| — |
SBA securities | | | 23,105 | | | — | | | 23,105 | | | — |
Beneficial interests in FHLMC securitization | | | 8,990 | | | — | | | — | | | 8,990 |
Corporate bonds | |
| 141,499 | |
| — | |
| 141,499 | |
| — |
U.S. Treasury | | | 837 | | | 837 | | | — | | | — |
Investment in equity securities | |
| 16,025 | |
| — | |
| — | |
| 16,025 |
Total assets at fair value on a recurring basis | | $ | 256,295 | | $ | 837 | | $ | 230,443 | | $ | 25,015 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
December 31, 2021: | | | | | | | | | | | | |
Investment securities available for sale: | |
|
| |
|
| |
|
| |
|
|
Collateralized mortgage obligations | | $ | 13,825 | | $ | — | | $ | 13,825 | | $ | — |
Agency mortgage-backed securities | | | 928,989 | | | — | | | 928,989 | | | — |
Municipal bonds | |
| 52,146 | |
| — | |
| 52,146 | |
| — |
SBA securities | |
| 27,972 | |
| — | |
| 27,972 | |
| — |
Beneficial interests in FHLMC securitization | |
| 11,580 | |
| — | |
| — | |
| 11,580 |
Corporate bonds | | | 156,376 | | | — | | | 156,376 | | | — |
U.S. Treasury | |
| 490 | |
| 490 | |
| — | |
| — |
Investment in equity securities | |
| 16,025 | |
| 16,025 | |
| — | |
| — |
Total assets at fair value on a recurring basis | | $ | 1,207,403 | | $ | 16,515 | | $ | 1,179,308 | | $ | 11,580 |
The increase in Level 3 assets from December 31, 2021, was due to securitization paydowns, a reclassification of investment in equity securities, and to $0.8 million in provisions for credit losses in the first six months of 2022. The reclassification was due to additional factors and assumptions that management utilized to determine the Investment in equity securities amount should presented as Level 3 assets at June 30, 2022. This reclassification did not change the fair value amounts assigned to these securities.
Assets Measured at Fair Value on a Nonrecurring Basis
From time to time, we may be required to measure other assets at fair value on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
Loans. Loans measured at fair value on a nonrecurring basis include collateral dependent loans held for investment. The specific reserves for these loans are based on collateral value, net of estimated disposition costs and other identified quantitative inputs. Collateral value is determined based on independent third-party appraisals or internally-developed discounted cash flow analyses. Internal discounted cash flow analyses are also utilized to estimate the fair value of these loans, which considers internally-developed, unobservable inputs such as discount rates, default rates, and loss severity. When the fair value of the collateral is based on an observable market price or a current appraised value, we measure the impaired loan at nonrecurring Level 2. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price or a
10
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
discounted cash flow has been used to determine the fair value, we measure the impaired loan at nonrecurring Level 3. The total collateral dependent impaired Level 3 loans were $6.2 million and $2.8 million at June 30, 2022, and December 31, 2021, respectively. There were $0.7 million in specific reserves related to these loans at June 30, 2022 and 0 specific reserves at December 31, 2021.
Real Estate Owned. The fair value of real estate owned is based on external appraised values that include adjustments for estimated selling costs and assumptions of market conditions that are not directly observable, resulting in a Level 3 classification.
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 gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income, resulting in a Level 3 classification. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Significant assumptions in the valuation of these Level 3 mortgage servicing rights as of June 30, 2022 included prepayment rates ranging from 20% to 30% and a discount rate ranging from 2.56% to 10%.
Fair Value of Financial Instruments
FASB ASC 825-10, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. The methodologies for estimating the fair value of financial assets and financial liabilities measured at fair value on a recurring and non-recurring basis are discussed above. The estimated fair value amounts have been determined by management using available market information and appropriate valuation methodologies and are based on the exit price notion set forth by ASU 2016-01. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Company.
Fair value estimates are made at a discrete point in time based on relevant market information and other information about the financial instruments. Because no active market exists for a significant portion of our financial instruments, fair value estimates are based in large part on judgments we make primarily regarding current economic conditions, risk characteristics of various financial instruments, prepayment rates, and future expected loss experience. These estimates are subjective in nature and invariably involve some inherent uncertainties. Additionally, unexpected changes in events or circumstances can occur that could require us to make changes to our assumptions and which, in turn, could significantly affect and require us to make changes to our previous estimates of fair value.
In addition, the fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of existing and anticipated future customer relationships and the value of assets and liabilities that are not considered financial instruments, such as premises and equipment and other real estate owned.
The following methods and assumptions were used to estimate the fair value of financial instruments:
Cash and Cash Equivalents. The fair value of cash and cash equivalents approximates its carrying value.
Investment Securities Available for Sale. Investment securities available-for-sale are measured at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value
11
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. When a market is illiquid or there is a lack of transparency around the inputs to valuation, the securities are classified as Level 3 and reliance is placed upon internally developed models, and management judgment and evaluation for valuation. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include beneficial interests in FHLMC securitizations and investment in equity securities. Significant assumptions in the valuation of these Level 3 securities as of June 30, 2022, and December 31, 2021 included prepayment rates ranging from 30% to 45% and discount rates ranging from 7.11% to 12.20%.
Investment in Equity Securities. The fair value on investment in equity securities is the carrying amount and is evaluated for impairment on an annual basis.
Federal Home Loan Bank Stock. The Bank is a member of the Federal Home Loan Bank (the “FHLB”). As a member, we are required to own stock of the FHLB, the amount of which is based primarily on the level of our borrowings from this institution. The fair value of the stock is equal to the carrying amount, is classified as restricted securities and is periodically evaluated for impairment based on our assessment of the ultimate recoverability of our investments in that stock. Any cash or stock dividends paid to us on such stock are reported as income.
Loans Held For Sale. The fair value of loans held for sale is determined using secondary market pricing.
Loans Held for Investment. The fair value for loans with variable interest rates is the carrying amount. The fair value of fixed rate loans is derived by calculating the discounted value of future cash flows expected to be received by the various homogeneous categories of loans or by reference to secondary market pricing. All loans have been adjusted to reflect changes in credit risk.
Deposits. The fair value of demand deposits, savings deposits, and money market deposits is defined as the amounts payable on demand. The fair value of fixed maturity certificates of deposit is estimated based on the discounted value of the future cash flows expected to be paid on the deposits.
Borrowings. The fair value on repurchase agreements is the carrying amount. The fair value of overnight FHLB advances is the carrying value that approximates fair value because of the short-term maturity of this instrument, resulting in a Level 2 classification. The fair value of term borrowings and subordinated debt are derived by calculating the discounted value of future cash flows expected to be paid out by the Company, resulting in a Level 3 classification.
12
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
The carrying amounts and estimated fair values of financial instruments are as follows as of:
| | | | | | | | | | | | | | | |
| | Carrying | | Fair Value Measurement Level | |||||||||||
(dollars in thousands) | | Value | | 1 | | 2 | | 3 | | Total | |||||
June 30, 2022: |
| |
|
| |
|
| |
|
| |
|
| |
|
Assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 173,524 | | $ | 173,524 | | $ | — | | $ | — | | $ | 173,524 |
Securities AFS, net | |
| 240,270 | |
| 837 | |
| 230,443 | |
| 8,990 | |
| 240,270 |
Securities HTM | | | 930,562 | | | — | | | 859,636 | | | — | | | 859,636 |
Loans held for sale | |
| 485,296 | |
| — | |
| 485,053 | |
| — | |
| 485,053 |
Loans, net | |
| 8,905,676 | |
| — | |
| — | |
| 8,901,213 | |
| 8,901,213 |
Investment in FHLB stock | |
| 17,250 | |
| — | |
| 17,250 | |
| — | |
| 17,250 |
Investment in equity securities | |
| 16,025 | |
| — | |
| — | |
| 16,025 | |
| 16,025 |
Liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
|
Deposits | | $ | 9,538,744 | | $ | 8,882,941 | | $ | 652,524 | | $ | — | | $ | 9,535,465 |
Borrowings | |
| 493,728 | |
| 320,423 | |
| — | |
| 161,446 | |
| 481,869 |
| | | | | | | | | | | | | | | |
December 31, 2021: | | | | | | | | | | | | | | | |
Assets: | |
|
| |
|
| |
|
| |
|
| |
|
|
Cash and cash equivalents | | $ | 1,121,757 | | $ | 1,121,757 | | $ | — | | $ | — | | $ | 1,121,757 |
Securities AFS, net | |
| 1,191,378 | |
| 490 | |
| 1,179,308 | |
| 11,580 | |
| 1,191,378 |
Loans held for sale | |
| 501,436 | |
| — | |
| 515,978 | |
| — | |
| 515,978 |
Loans, net | |
| 6,872,952 | |
| — | |
| — | |
| 7,072,878 | |
| 7,072,878 |
Investment in FHLB stock | |
| 18,249 | |
| — | |
| 18,249 | |
| — | |
| 18,249 |
Investment in equity securities | |
| 16,025 | |
| 16,025 | |
| — | |
| — | |
| 16,025 |
Liabilities: | |
|
| |
|
| |
|
| |
|
| |
| |
Deposits | | $ | 8,811,960 | | $ | 8,143,473 | | $ | 668,487 | | $ | — | | $ | 8,811,960 |
Borrowings | |
| 210,127 | |
| 165,930 | |
| — | |
| 44,197 | |
| 210,127 |
13
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
NOTE 4: SECURITIES
The following table provides a summary of the Company’s securities AFS portfolio as of:
| | | | | | | | | | | | | | | |
| | Amortized | | Gross Unrealized | | Allowance for | | Estimated | |||||||
(dollars in thousands) | | Cost | | Gains | | Losses | | Credit Losses | | Fair Value | |||||
June 30, 2022: | | | | | | | | | | | | | | | |
Collateralized mortgage obligations | | $ | 10,941 | | $ | — | | $ | (936) | | $ | — | | $ | 10,005 |
Agency mortgage-backed securities | | | 9,530 | | | — | | | (530) | | | — | | | 9,000 |
Municipal bonds | | | 50,567 | | | — | | | (3,733) | | | — | | | 46,834 |
SBA securities | | | 23,039 | | | 69 | | | (3) | | | — | | | 23,105 |
Beneficial interests in FHLMC securitization | |
| 20,015 | |
| 201 | |
| — | |
| (11,226) | |
| 8,990 |
Corporate bonds | |
| 147,635 | |
| 191 | |
| (6,327) | |
| — | |
| 141,499 |
U.S. Treasury | |
| 897 | |
| — | |
| (60) | |
| — | |
| 837 |
Total | | $ | 262,624 | | $ | 461 | | $ | (11,589) | | $ | (11,226) | | $ | 240,270 |
| | | | | | | | | | | | | | | |
December 31, 2021: | | | | | | | | | | | | | | | |
Collateralized mortgage obligations | | $ | 13,862 | | $ | — | | $ | (37) | | $ | — | | $ | 13,825 |
Agency mortgage-backed securities | | | 928,546 | | | 6,563 | | | (6,120) | | | — | | | 928,989 |
Municipal bonds | | | 52,052 | | | 94 | | | — | | | — | | | 52,146 |
SBA securities | | | 27,970 | | | 2 | | | — | | | — | | | 27,972 |
Beneficial interests in FHLMC securitization | |
| 21,606 | |
| 373 | |
| — | |
| (10,399) | |
| 11,580 |
Corporate bonds | |
| 154,027 | |
| 2,441 | |
| (92) | |
| — | |
| 156,376 |
U.S. Treasury | |
| 499 | |
| — | |
| (9) | |
| — | |
| 490 |
Total | | $ | 1,198,562 | | $ | 9,473 | | $ | (6,258) | | $ | (10,399) | | $ | 1,191,378 |
As of June 30, 2022, US Treasury securities of $0.9 million included in the table above are pledged as collateral to the State of California to meet regulatory requirements related to the Bank’s trust operations, $239.8 million of agency mortgage-backed securities are pledged as collateral as support for the Bank’s obligations under loan sales and securitizations agreements entered into from 2018 and 2021, and $179.7 million of SBA securities are pledged as collateral for repurchase agreements obtained from the TGRF acquisition.
The following table provides a summary of the Company’s securities HTM portfolio as of:
| | | | | | | | | | | | | | | |
| | Amortized | | Gross Unrecognized | | Allowance for | | Estimated | |||||||
(dollars in thousands) | | Cost | | Gains | | Losses | | Credit Losses | | Fair Value | |||||
June 30, 2022: | | | | | | | | | | | | | | | |
Agency mortgage-backed securities | | $ | 930,562 | | $ | — | | $ | (70,926) | | $ | — | | $ | 859,636 |
Total | | $ | 930,562 | | $ | — | | $ | (70,926) | | $ | — | | $ | 859,636 |
There were 0 securities HTM as of December 31, 2021.
The Company reassessed classification of certain securities AFS and effective January 1, 2022, the Company transferred $917 million in securities AFS to securities HTM. The securities were transferred at their amortized cost basis, net of any remaining unrealized gain or loss reported in accumulated other comprehensive income. The related unrealized loss of $0.6 million included in other comprehensive income remained in other comprehensive income to be amortized, with an offsetting entry to interest income as a yield adjustment through earnings over the remaining term of the securities. Subsequent to transfer, the ACL on these securities was evaluated under the accounting policy for securities HTM.
14
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
We monitor the credit quality of these securities by evaluating various quantitative attributes. The credit quality indicators the Company monitors include, but are not limited to, credit ratings of individual securities and the credit rating of government sponsored enterprises that guarantee the securities. Credit ratings express opinions about the credit quality of a security. Securities rated investment grade, that is, those with ratings similar to BBB-/Baa3 or above, as defined by NRSROs, are generally considered by the rating agencies and market participants to be low credit risk. As of June 30, 2022, all of the Company’s securities were either investment grade or were issued by a U.S. government agency or a U.S. government sponsored enterprise with an investment grade rating.
The tables below indicate, as of June 30, 2022 and December 31, 2021, the gross unrealized losses and fair values of our investments AFS, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
| | | | | | | | | | | | | | | | | | |
| | Securities with Unrealized Loss at June 30, 2022 | ||||||||||||||||
| | Less than 12 months | | 12 months or more | | Total | ||||||||||||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
(dollars in thousands) |
| Value |
| Loss |
| Value |
| Loss |
| Value |
| Loss | ||||||
Collateralized mortgage obligations | | $ | 9,979 | | $ | (936) | | $ | — | | $ | — | | $ | 9,979 | | $ | (936) |
Agency mortgage-backed securities | | | 9,000 | | | (530) | | | — | | | — | | | 9,000 | | | (530) |
Municipal bonds | | | 46,835 | | | (3,733) | | | — | | | — | | | 46,835 | | | (3,733) |
SBA securities | | | 2,016 | | | (3) | | | — | | | — | | | 2,016 | | | (3) |
Corporate bonds | | | 126,308 | | | (6,327) | ��� | | — | | | — | | | 126,308 | | | (6,327) |
U.S. Treasury | | | 838 | | | (60) | | | — | | | — | | | 838 | | | (60) |
Total temporarily impaired securities | | $ | 194,976 | | $ | (11,589) | | $ | — | | $ | — | | $ | 194,976 | | $ | (11,589) |
| | | | | | | | | | | | | | | | | | |
| | Securities with Unrealized Loss at December 31, 2021 | ||||||||||||||||
| | Less than 12 months | | 12 months or more | | Total | ||||||||||||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
(dollars in thousands) |
| Value |
| Loss |
| Value |
| Loss |
| Value |
| Loss | ||||||
Collateralized mortgage obligations |
| $ | 12,971 |
| $ | (37) |
| $ | — |
| $ | — |
| $ | 12,971 |
| $ | (37) |
Agency mortgage-backed securities | | | 434,973 | | | (5,051) | | | 36,136 | | | (1,069) | | | 471,109 | | | (6,120) |
Corporate bonds | | | 47,880 | | | (92) | | | — | | | — | | | 47,880 | | | (92) |
U.S. Treasury |
| | 491 | |
| (9) | |
| — | |
| — | |
| 491 | |
| (9) |
Total temporarily impaired securities | | $ | 496,315 | | $ | (5,189) | | $ | 36,136 | | $ | (1,069) | | $ | 532,451 | | $ | (6,258) |
The table below indicates, as of June 30, 2022, the gross unrealized losses and fair values of our investments HTM, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
| | | | | | | | | | | | | | | | | | |
| | Securities with Unrecognized Loss at June 30, 2022 | ||||||||||||||||
| | Less than 12 months | | 12 months or more | | Total | ||||||||||||
| | Fair | | Unrecognized | | Fair | | Unrecognized | | Fair | | Unrecognized | ||||||
(dollars in thousands) |
| Value |
| Loss |
| Value |
| Loss |
| Value |
| Loss | ||||||
Agency mortgage-backed securities | | $ | 827,772 | | $ | (68,544) | | $ | 31,864 | | $ | (2,382) | | $ | 859,636 | | $ | (70,926) |
Total temporarily impaired securities | | $ | 827,772 | | $ | (68,544) | | $ | 31,864 | | $ | (2,382) | | $ | 859,636 | | $ | (70,926) |
There were 0 securities HTM as of December 31, 2021.
Unrealized losses in agency mortgage backed securities, beneficial interests in FHLMC securitizations, and other securities have not been recognized into income because the issuer bonds are of high credit quality, management does not intend to sell, it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in discount rates and assumptions regarding future interest rates. The fair value is expected to recover as the bonds approach maturity.
15
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
The following is a roll forward of our allowance for credit losses related to securities for the following periods:
| | | |
(dollars in thousands) | | | Total |
| | | |
Three Months Ended June 30, 2022: | | | |
Beginning balance |
| $ | 10,743 |
Provision for credit losses |
| | 483 |
Balance: June 30, 2022 |
| $ | 11,226 |
| | | |
Six Months Ended June 30, 2022: | | | |
Beginning balance |
| $ | 10,399 |
Provision for credit losses |
| | 827 |
Balance: June 30, 2022 |
| $ | 11,226 |
| | | |
Year Ended December 31, 2021: | | | |
Beginning balance |
| $ | 7,245 |
Provision for credit losses |
| | 3,154 |
Balance: December 31, 2021 |
| $ | 10,399 |
Due to a change in expected cash flows of interest only strip securities, $0.5 million and $0.8 million in allowances were taken in the three and six months ended June 30, 2022, respectively, and $0.2 million and $1.9 million in allowances were taken in the three and six months ended June 30, 2021, respectively. The allowances were included as a charge in provision for credit losses on the consolidated income statement.
The ACL on investment securities is determined for both held-to-maturity and available-for-sale classifications of the investment portfolio in accordance with ASC 326, and is evaluated on a quarterly basis. The ACL for held-to-maturity investment securities is determined on a collective basis, based on shared risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. Under ASC 326-20, for investment securities where the Company has reason to believe the credit loss exposure is remote, such as those guaranteed by the U.S. government or government sponsored entities, a zero loss expectation is applied and a company is not required to estimate and recognize an ACL.
For securities AFS in an unrealized loss position, the Company first evaluates whether it intends to sell, or whether it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of these criteria regarding intent or requirement to sell is met, the security amortized cost basis is written down to fair value through income. If neither criteria is met, the Company is required to assess whether the decline in fair value has resulted from credit losses or noncredit-related factors. In determining whether a security’s decline in fair value is credit related, the Company considers a number of factors including, but not limited to: (i) the extent to which the fair value of the investment is less than its amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) downgrades in credit ratings; (iv) payment structure of the security, and (v) the ability of the issuer of the security to make scheduled principal and interest payments. If, after considering these factors, the present value of expected cash flows to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit loss is recorded through income as a component of provision for credit loss expense. If the assessment indicates that a credit loss does not exist, the Company records the decline in fair value through other comprehensive income, net of related income tax effects. The Company has made the election to exclude accrued interest receivable on securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
16
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
The scheduled maturities of securities AFS and the related weighted average yields were as follows for the periods indicated:
| | | | | | | | | | | | | | | | |
|
| Less than |
| 1 Through |
| 5 Through |
| After |
| | |
| ||||
(dollars in thousands) | | 1 Year | | 5 years | | 10 Years | | 10 Years | | Total |
| |||||
June 30, 2022 | | | | | | | | | | | | | | | | |
Amortized Cost: |
| |
|
| |
|
| |
|
| |
|
| |
| |
Collateralized mortgage obligations | | $ | — | | $ | — | | $ | 740 | | $ | 10,201 | | $ | 10,941 | |
Agency mortgage-backed securities | | | — | | | 4,120 | | | 3,714 | | | 1,696 | | | 9,530 | |
Municipal bonds | | | 304 | | | 5,176 | | | 35,374 | | | 9,713 | | | 50,567 | |
SBA securities | | | 55 | | | 1,836 | | | 1,507 | | | 19,641 | | | 23,039 | |
Beneficial interests in FHLMC securitization | | | — | | | 10,546 | | | — | | | 9,469 | | | 20,015 | |
Corporate bonds | | | 6,018 | | | 10,412 | | | 125,671 | | | 5,534 | | | 147,635 | |
U.S. Treasury | |
| — | |
| 897 | |
| — | |
| — | |
| 897 | |
Total | | $ | 6,377 | | $ | 32,987 | | $ | 167,006 | | $ | 56,254 | | $ | 262,624 | |
Weighted average yield | |
| 1.97 | % |
| 1.98 | % |
| 3.48 | % |
| 2.00 | % |
| 2.94 | % |
Estimated Fair Value: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Collateralized mortgage obligations | | $ | — | | $ | — | | $ | 687 | | $ | 9,318 | | $ | 10,005 | |
Agency mortgage-backed securities | | | — | | | 3,969 | | | 3,460 | | | 1,571 | | | 9,000 | |
Municipal bonds | | | 301 | | | 4,839 | | | 33,370 | | | 8,324 | | | 46,834 | |
SBA securities | | | 55 | | | 1,833 | | | 1,510 | | | 19,707 | | | 23,105 | |
Beneficial interests in FHLMC securitization | | | — | | | 10,546 | | | — | | | 9,670 | | | 20,216 | |
Corporate bonds | | | 5,985 | | | 9,877 | | | 120,654 | | | 4,983 | | | 141,499 | |
U.S. Treasury | |
| — | |
| 837 | |
| — | |
| — | |
| 837 | |
Total | | $ | 6,341 | | $ | 31,901 | | $ | 159,681 | | $ | 53,573 | | $ | 251,496 | |
| | | | | | | | | | | | | | | | |
|
| Less than |
| 1 Through |
| 5 Through |
| After |
| | |
| ||||
(dollars in thousands) | | 1 Year | | 5 years | | 10 Years | | 10 Years | | Total |
| |||||
December 31, 2021 | | | | | | | | | | | | | | | | |
Amortized Cost: |
| |
|
| |
|
| |
|
| |
|
| |
| |
Collateralized mortgage obligations | | $ | — | | $ | 710 | | $ | 802 | | $ | 12,350 | | $ | 13,862 | |
Agency mortgage-backed securities | | | — | | | 4,990 | | | 24,568 | | | 898,988 | | | 928,546 | |
Municipal bonds | | | — | | | 1,625 | | | 38,853 | | | 11,574 | | | 52,052 | |
SBA securities | | | 70 | | | 1,613 | | | 2,952 | | | 23,335 | | | 27,970 | |
Beneficial interests in FHLMC securitization | | | — | | | 11,902 | | | — | | | 9,704 | | | 21,606 | |
Corporate bonds | | | 9,534 | | | 10,519 | | | 128,438 | | | 5,536 | | | 154,027 | |
U.S. Treasury | |
| — | |
| 499 | |
| — | |
| — | |
| 499 | |
Total | | $ | 9,604 | | $ | 31,858 | | $ | 195,613 | | $ | 961,487 | | $ | 1,198,562 | |
Weighted average yield | |
| (2.28) | % |
| 2.06 | % |
| 3.03 | % |
| 1.63 | % |
| 1.84 | % |
Estimated Fair Value: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Collateralized mortgage obligations | | $ | — | | $ | 710 | | $ | 799 | | $ | 12,316 | | $ | 13,825 | |
Agency mortgage-backed securities | | | — | | | 5,082 | | | 25,056 | | | 898,851 | | | 928,989 | |
Municipal bonds | | | — | | | 1,704 | | | 38,865 | | | 11,577 | | | 52,146 | |
SBA securities | | | 70 | | | 1,613 | | | 2,953 | | | 23,336 | | | 27,972 | |
Beneficial interests in FHLMC securitization | | | — | | | 11,902 | | | — | | | 10,077 | | | 21,979 | |
Corporate bonds | | | 9,529 | | | 10,499 | | | 130,754 | | | 5,594 | | | 156,376 | |
U.S. Treasury | |
| — | |
| 490 | |
| — | |
| — | |
| 490 | |
Total | | $ | 9,599 | | $ | 32,000 | | $ | 198,427 | | $ | 961,751 | | $ | 1,201,777 | |
17
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
The following is a summary of scheduled maturities of securities HTM and the related weighted average yields as of:
| | | | | | | | | | | | | | | | |
|
| Less than |
| 1 Through |
| 5 Through |
| After |
| | |
| ||||
(dollars in thousands) | | 1 Year | | 5 years | | 10 Years | | 10 Years | | Total |
| |||||
June 30, 2022 | | | | | | | | | | | | | | | | |
Amortized Cost: |
| |
|
| |
|
| |
|
| |
|
| |
| |
Agency mortgage-backed securities | | $ | — | | $ | 131 | | $ | 19,227 | | $ | 911,204 | | $ | 930,562 | |
Total | | $ | — | | $ | 131 | | $ | 19,227 | | $ | 911,204 | | $ | 930,562 | |
Weighted average yield | |
| — | % |
| 0.28 | % |
| 1.05 | % |
| 1.72 | % | | 1.70 | % |
| | | | | | | | | | | | | | | | |
Estimated Fair Value: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Agency mortgage-backed securities | | $ | — | | $ | 123 | | $ | 17,937 | | $ | 841,576 | | $ | 859,636 | |
Total | | $ | — | | $ | 123 | | $ | 17,937 | | $ | 841,576 | | $ | 859,636 | |
There were 0 securities HTM as of December 31, 2021.
NOTE 5: LOANS
The following is a summary of our loans as of:
| | | | | | |
|
| June 30, | | December 31, | ||
(dollars in thousands) |
| 2022 |
| 2021 | ||
Outstanding principal balance: | |
| | |
| |
Loans secured by real estate: |
| |
|
| |
|
Residential properties: |
| |
|
| |
|
Multifamily | | $ | 3,953,717 | | $ | 2,886,055 |
Single family | |
| 958,348 | |
| 933,445 |
Total real estate loans secured by residential properties | |
| 4,912,065 | |
| 3,819,500 |
Commercial properties | |
| 1,237,664 | |
| 1,309,200 |
Land and construction | |
| 170,887 | |
| 156,028 |
Total real estate loans | |
| 6,320,616 | |
| 5,284,728 |
Commercial and industrial loans | |
| 2,593,948 | |
| 1,598,422 |
Consumer loans | |
| 10,845 | |
| 10,834 |
Total loans | |
| 8,925,409 | |
| 6,893,984 |
Premiums, discounts and deferred fees and expenses | |
| 13,432 | |
| 12,744 |
Total | | $ | 8,938,841 | | $ | 6,906,728 |
18
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
The following table summarizes our delinquent and nonaccrual loans as of:
| | | | | | | | | | | | | | | | | | | | | |
| | Past Due and Still Accruing | | | | | Total Past | | | | | | | ||||||||
| | | | | | | | 90 Days | | | | | Due and | | | | | | | ||
(dollars in thousands) |
| 30–59 Days |
| 60-89 Days |
| or More |
| Nonaccrual |
| Nonaccrual |
| Current |
| Total | |||||||
June 30, 2022: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Real estate loans: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Residential properties | | $ | 480 | | $ | — | | $ | — | | $ | 3,154 | | $ | 3,634 | | $ | 4,924,740 | | $ | 4,928,374 |
Commercial properties | |
| 1,932 | |
| 343 | |
| 2,877 | |
| 4,246 | |
| 9,398 | |
| 1,226,767 | |
| 1,236,165 |
Land and construction | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 169,722 | |
| 169,722 |
Commercial and industrial loans | |
| 823 | |
| 2,064 | |
| — | |
| 3,684 | |
| 6,571 | |
| 2,587,155 | |
| 2,593,726 |
Consumer loans | |
| 170 | |
| — | |
| — | |
| — | |
| 170 | |
| 10,684 | |
| 10,854 |
Total | | $ | 3,405 | | $ | 2,407 | | $ | 2,877 | | $ | 11,084 | | $ | 19,773 | | $ | 8,919,068 | | $ | 8,938,841 |
| | | | | | | | | | | | | | | | | | | | | |
Percentage of total loans | |
| 0.04 | % |
| 0.03 | % |
| 0.03 | % |
| 0.12 | % |
| 0.22 | % |
|
| |
|
|
| | | | | | | | | | | | | | | | | | | | | |
December 31, 2021: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate loans: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Residential properties | | $ | 1,519 | | $ | 310 | | $ | — | | $ | 3,281 | | $ | 5,110 | | $ | 3,827,385 | | $ | 3,832,495 |
Commercial properties | |
| 2,934 | |
| — | |
| — | |
| 1,529 | |
| 4,463 | |
| 1,305,112 | |
| 1,309,575 |
Land and construction | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 155,926 | |
| 155,926 |
Commercial and industrial loans | |
| 303 | |
| 260 | |
| — | |
| 3,520 | |
| 4,083 | |
| 1,593,782 | |
| 1,597,865 |
Consumer loans | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 10,867 | |
| 10,867 |
Total | | $ | 4,756 | | $ | 570 | | $ | — | | $ | 8,330 | | $ | 13,656 | | $ | 6,893,072 | | $ | 6,906,728 |
| | | | | | | | | | | | | | | | | | | | | |
Percentage of total loans | |
| 0.07 | % |
| 0.01 | % |
| — | % |
| 0.12 | % |
| 0.20 | % |
|
| |
|
|
The following table summarizes our nonaccrual loans as of:
| | | | | | |
| | Nonaccrual | | Nonaccrual | ||
| | with Allowance | | with no Allowance | ||
(dollars in thousands) |
| for Credit Losses |
| for Credit Losses | ||
June 30, 2022: | |
| | |
|
|
Real estate loans: | | | | | | |
Residential properties | | $ | — | | $ | 3,154 |
Commercial properties | | | — | | | 4,246 |
Commercial and industrial loans | |
| 1,835 | |
| 1,849 |
Total | | $ | 1,835 | | $ | 9,249 |
| | | | | | |
December 31, 2021: | |
| | |
|
|
Real estate loans: | | | | | | |
Residential properties | | $ | — | | $ | 3,281 |
Commercial properties | | | — | | | 1,529 |
Commercial and industrial loans | |
| 1,733 | |
| 1,787 |
Total | | $ | 1,733 | | $ | 6,597 |
19
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
The following table presents the loans classified as troubled debt restructurings (“TDR”) by accrual and nonaccrual status as of:
| | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 | ||||||||||||||
(dollars in thousands) | | Accrual | | Nonaccrual | �� | Total | | Accrual | | Nonaccrual | | Total | ||||||
Residential loans |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,200 |
| $ | — |
| $ | 1,200 |
Commercial real estate loans | |
| 976 | |
| 1,121 | |
| 2,097 | |
| 1,021 | |
| 1,174 | |
| 2,195 |
Commercial and industrial loans | |
| 102 | |
| 1,630 | |
| 1,732 | |
| 493 | |
| 2,030 | |
| 2,523 |
Total | | $ | 1,078 | | $ | 2,751 | | $ | 3,829 | | $ | 2,714 | | $ | 3,204 | | $ | 5,918 |
The following table provides information on loans that were modified as TDRs for the following periods:
| | | | | | | | | | | |
| | | | Outstanding Recorded Investment | | | | ||||
(dollars in thousands) | | Number of loans | | Pre-Modification | | Post-Modification | | Financial Impact | |||
Six Months Ended June 30, 2022: |
|
|
| |
|
| |
|
| |
|
Commercial and industrial loans |
| 1 | | $ | 236 | | $ | 236 | | $ | — |
Total |
| 1 | | $ | 236 | | $ | 236 | | $ | — |
| | | | | | | | | | | |
| | | | Outstanding Recorded Investment | | | | ||||
(dollars in thousands) | | Number of loans | | Pre-Modification | | Post-Modification | | Financial Impact | |||
Year Ended December 31, 2021 |
|
| |
|
| |
|
| |
|
|
Commercial and industrial loans |
| 1 | | $ | 346 | | $ | 346 | | $ | — |
Total |
| 1 | | $ | 346 | | $ | 346 | | $ | — |
All of these loans were classified as a TDR as a result of a reduction in required principal payments and an extension of the maturity date of the loans. These loans have been paying in accordance with the terms of their restructure.
20
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
NOTE 6: ALLOWANCE FOR CREDIT LOSSES
The following is a roll forward of the Bank’s allowance for credit losses related to loans for the following periods:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | Initial Allowance | | | | | | | | | | |
|
| Beginning |
| Provision for |
| on Acquired |
| | |
| |
| Ending | |||||
(dollars in thousands) | | Balance | | Credit Losses | | PCD Loans | | Charge-offs | | Recoveries | | Balance | ||||||
Three Months Ended June 30, 2022: |
| |
|
| |
| | | |
| |
|
| |
|
| |
|
Real estate loans: |
| |
|
| |
| | | |
| |
|
| |
|
| |
|
Residential properties | | $ | 3,198 | | $ | 1,248 | | $ | — | | $ | — | | $ | — | | $ | 4,446 |
Commercial properties | |
| 15,636 | |
| (2,922) | |
| — | |
| — | |
| — | |
| 12,714 |
Land and construction | |
| 1,768 | |
| (308) | |
| — | |
| — | |
| — | |
| 1,460 |
Commercial and industrial loans | |
| 12,130 | |
| 2,187 | |
| — | |
| — | |
| 164 | |
| 14,481 |
Consumer loans | |
| 90 | |
| (26) | |
| — | |
| — | |
| — | | �� | 64 |
Total | | $ | 32,822 | | $ | 179 | | $ | | | $ | — | | $ | 164 | | $ | 33,165 |
| | | | | | | |
| | | | | | | | | | |
Six Months Ended June 30, 2022: | |
|
| |
|
| |
| | |
|
| |
|
| |
|
|
Real estate loans: | |
|
| |
|
| | | | |
|
| |
|
| |
|
|
Residential properties | | $ | 2,637 | | $ | 1,809 | | $ | — | | $ | — | | $ | — | | $ | 4,446 |
Commercial properties | |
| 17,049 | |
| (4,335) | |
| — | |
| — | |
| — | |
| 12,714 |
Land and construction | |
| 1,995 | |
| (535) | |
| — | |
| — | |
| — | |
| 1,460 |
Commercial and industrial loans | |
| 11,992 | |
| 2,336 | |
| — | |
| (145) | |
| 298 | |
| 14,481 |
Consumer loans | |
| 103 | |
| (39) | |
| — | |
| — | |
| — | |
| 64 |
Total | | $ | 33,776 | | $ | (764) | | $ | — | | $ | (145) | | $ | 298 | | $ | 33,165 |
| | | | | | | |
| | | | | | | | | | |
Year Ended December 31, 2021: | |
|
| |
|
| | | | |
|
| |
|
| |
|
|
Real estate loans: | |
|
| |
|
| | | | |
|
| |
|
| |
|
|
Residential properties | | $ | 5,115 | | $ | (1,453) | | $ | 93 | | $ | (1,118) | | $ | — | | $ | 2,637 |
Commercial properties | |
| 8,711 | |
| 774 | |
| 7,564 | |
| — | |
| — | |
| 17,049 |
Land and construction | |
| 892 | |
| 1,051 | |
| 52 | |
| — | |
| — | |
| 1,995 |
Commercial and industrial loans | |
| 9,249 | |
| 614 | |
| 1,836 | |
| (706) | |
| 999 | |
| 11,992 |
Consumer loans | |
| 233 | |
| (130) | |
| — | |
| — | |
| — | |
| 103 |
Total | | $ | 24,200 | | $ | 856 | | $ | 9,545 | | $ | (1,824) | | $ | 999 | | $ | 33,776 |
21
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
The following table presents the balance in the allowance for credit losses and the recorded investment in loans by impairment method as of:
| | | | | | | | | | |
| | Allowance for Credit Losses | | |||||||
| | Loans Evaluated | | | | | ||||
(dollars in thousands) |
| Individually |
| Collectively |
| Total |
| |||
June 30, 2022: | | | | | | | | | | |
Allowance for credit losses: |
| |
|
| |
|
| |
|
|
Real estate loans: |
| |
|
| |
|
| |
|
|
Residential properties | | $ | 79 | | $ | 4,367 | | $ | 4,446 | |
Commercial properties | |
| 5,170 | |
| 7,544 | |
| 12,714 | |
Land and construction | |
| — | |
| 1,460 | |
| 1,460 | |
Commercial and industrial loans | |
| 2,225 | |
| 12,256 | |
| 14,481 | |
Consumer loans | |
| — | |
| 64 | |
| 64 | |
Total | | $ | 7,474 | | $ | 25,691 | | $ | 33,165 | |
Loans: | |
|
| |
|
| |
|
| |
Real estate loans: | |
|
| |
|
| |
|
| |
Residential properties | | $ | 8,376 | | $ | 4,919,998 | | $ | 4,928,374 | |
Commercial properties | |
| 40,646 | |
| 1,195,519 | |
| 1,236,165 | |
Land and construction | |
| — | |
| 169,722 | |
| 169,722 | |
Commercial and industrial loans | |
| 8,108 | |
| 2,585,618 | |
| 2,593,726 | |
Consumer loans | |
| — | |
| 10,854 | |
| 10,854 | |
Total | | $ | 57,130 | | $ | 8,881,711 | | $ | 8,938,841 | |
| | | | | | | | | | |
December 31, 2021: | | | | | | | | | | |
Allowance for credit losses: | |
|
| |
|
| |
|
| |
Real estate loans: | |
|
| |
|
| |
|
| |
Residential properties | | $ | 111 | | $ | 2,526 | | $ | 2,637 | |
Commercial properties | |
| 7,967 | |
| 9,082 | |
| 17,049 | |
Land and construction | |
| 52 | |
| 1,943 | |
| 1,995 | |
Commercial and industrial loans | |
| 2,386 | |
| 9,606 | |
| 11,992 | |
Consumer loans | |
| — | |
| 103 | |
| 103 | |
Total | | $ | 10,516 | | $ | 23,260 | | $ | 33,776 | |
Loans: | |
|
| |
|
| |
|
| |
Real estate loans: | |
|
| |
|
| |
|
| |
Residential properties | | $ | 9,593 | | $ | 3,822,902 | | $ | 3,832,495 | |
Commercial properties | |
| 41,313 | |
| 1,268,262 | |
| 1,309,575 | |
Land and construction | |
| 694 | |
| 155,232 | |
| 155,926 | |
Commercial and industrial loans | |
| 9,963 | |
| 1,587,902 | |
| 1,597,865 | |
Consumer loans | |
| — | |
| 10,867 | |
| 10,867 | |
Total | | $ | 61,563 | | $ | 6,845,165 | | $ | 6,906,728 | |
22
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
The following tables present risk categories of loans based on year of origination, as of:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving | | | | |
(dollars in thousands) |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| Loans |
| Total | ||||||||
June 30, 2022: | | | | | | | | | | | | | | | | | | | | | | | | |
Loans secured by real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | | | | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 1,364,976 |
| $ | 1,081,884 | | $ | 817,796 |
| $ | 320,841 |
| $ | 179,739 | | $ | 202,422 |
| $ | — |
| $ | 3,967,658 |
Special mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total |
| $ | 1,364,976 |
| $ | 1,081,884 | | $ | 817,796 |
| $ | 320,841 |
| $ | 179,739 | | $ | 202,422 |
| $ | — |
| $ | 3,967,658 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Single family | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 130,550 |
| $ | 292,826 | | $ | 100,637 |
| $ | 44,070 |
| $ | 52,904 | | $ | 261,117 |
| $ | 70,211 |
| $ | 952,315 |
Special mention | | | — | | | — | | | — | | | — | | | — | | | — | | | 26 | | | 26 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 8,238 | | | 137 | | | 8,375 |
Total |
| $ | 130,550 |
| $ | 292,826 | | $ | 100,637 |
| $ | 44,070 |
| $ | 52,904 | | $ | 269,355 |
| $ | 70,374 |
| $ | 960,716 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 143,795 |
| $ | 226,528 | | $ | 142,764 |
| $ | 119,380 |
| $ | 171,603 | | $ | 351,594 |
| $ | — |
| $ | 1,155,664 |
Special mention | | | — | | | 13,715 | | | 46 | | | 16,243 | | | 5,772 | | | 7,990 | | | — | | | 43,766 |
Substandard | | | 5,963 | | | 9,200 | | | 829 | | | 10,279 | | | — | | | 10,464 | | | — | | | 36,735 |
Total |
| $ | 149,758 |
| $ | 249,443 | | $ | 143,639 |
| $ | 145,902 |
| $ | 177,375 | | $ | 370,048 |
| $ | — |
| $ | 1,236,165 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Land and construction | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 32,273 |
| $ | 54,823 | | $ | 48,199 |
| $ | 12,272 |
| $ | 5,145 | | $ | 2,678 |
| $ | — |
| $ | 155,390 |
Special mention | | | — | | | — | | | — | | | — | | | 14,332 | | | — | | | — | | | 14,332 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total |
| $ | 32,273 |
| $ | 54,823 | | $ | 48,199 |
| $ | 12,272 |
| $ | 19,477 | | $ | 2,678 |
| $ | — |
| $ | 169,722 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 855,797 |
| $ | 439,281 | | $ | 224,157 |
| $ | 91,489 |
| $ | 41,946 | | $ | 41,136 |
| $ | 881,333 |
| $ | 2,575,139 |
Special mention | | | — | | | — | | | 1,441 | | | 419 | | | — | | | — | | | 7,025 | | | 8,885 |
Substandard | | | — | | | 331 | | | 2,563 | | | 1,902 | | | 518 | | | 2,502 | | | 1,886 | | | 9,702 |
Total |
| $ | 855,797 |
| $ | 439,612 | | $ | 228,161 |
| $ | 93,810 |
| $ | 42,464 | | $ | 43,638 |
| $ | 890,244 |
| $ | 2,593,726 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 522 |
| $ | 2,285 | | $ | 4 |
| $ | 356 |
| $ | 284 | | $ | 74 |
| $ | 7,195 |
| $ | 10,720 |
Special mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | 134 | | | — | | | — | | | — | | | 134 |
Total |
| $ | 522 |
| $ | 2,285 | | $ | 4 |
| $ | 490 |
| $ | 284 | | $ | 74 |
| $ | 7,195 |
| $ | 10,854 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total loans | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 2,527,913 |
| $ | 2,097,627 | | $ | 1,333,557 |
| $ | 588,408 |
| $ | 451,621 | | $ | 859,021 |
| $ | 958,739 |
| $ | 8,816,886 |
Special mention | | | — | | | 13,715 | | | 1,487 | | | 16,662 | | | 20,104 | | | 7,990 | | | 7,051 | | | 67,009 |
Substandard | | | 5,963 | | | 9,531 | | | 3,392 | | | 12,315 | | | 518 | | | 21,204 | | | 2,023 | | | 54,946 |
Total |
| $ | 2,533,876 |
| $ | 2,120,873 | | $ | 1,338,436 |
| $ | 617,385 |
| $ | 472,243 | | $ | 888,215 |
| $ | 967,813 |
| $ | 8,938,841 |
23
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving | | | | |
(dollars in thousands) |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| Prior |
| Loans |
| Total | ||||||||
December 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | |
Loans secured by real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | | | | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 1,092,903 |
| $ | 868,483 | | $ | 418,346 |
| $ | 265,872 |
| $ | 141,433 | | $ | 108,529 |
| $ | — |
| $ | 2,895,566 |
Special mention | | | — | | | — | | | 1,177 | | | — | | | — | | | — | | | — | | | 1,177 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total |
| $ | 1,092,903 |
| $ | 868,483 | | $ | 419,523 |
| $ | 265,872 |
| $ | 141,433 | | $ | 108,529 |
| $ | — |
| $ | 2,896,743 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Single family | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 278,337 |
| $ | 122,530 | | $ | 52,995 |
| $ | 60,559 |
| $ | 57,174 | | $ | 280,216 |
| $ | 74,934 |
| $ | 926,745 |
Special mention | | | — | | | — | | | — | | | — | | | — | | | — | | | 26 | | | 26 |
Substandard | | | — | | | — | | | — | | | — | | | 1,873 | | | 6,830 | | | 278 | | | 8,981 |
Total |
| $ | 278,337 |
| $ | 122,530 | | $ | 52,995 |
| $ | 60,559 |
| $ | 59,047 | | $ | 287,046 |
| $ | 75,238 |
| $ | 935,752 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 114,678 |
| $ | 39,135 | | $ | 59,426 |
| $ | 94,930 |
| $ | 115,614 | | $ | 804,295 |
| $ | — |
| $ | 1,228,078 |
Special mention | | | — | | | — | | | 23,495 | | | — | | | — | | | 30,389 | | | — | | | 53,884 |
Substandard | | | — | | | — | | | 2,934 | | | — | | | 2,217 | | | 22,462 | | | — | | | 27,613 |
Total |
| $ | 114,678 |
| $ | 39,135 | �� | $ | 85,855 |
| $ | 94,930 |
| $ | 117,831 | | $ | 857,146 |
| $ | — |
| $ | 1,309,575 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Land and construction | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 14,738 |
| $ | — | | $ | 17,692 |
| $ | 31,952 |
| $ | 2,529 | | $ | 88,321 |
| $ | — |
| $ | 155,232 |
Special mention | | | — | | | — | | | — | | | — | | | — | | | 694 | | | — | | | 694 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total |
| $ | 14,738 |
| $ | — | | $ | 17,692 |
| $ | 31,952 |
| $ | 2,529 | | $ | 89,015 |
| $ | — |
| $ | 155,926 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 471,431 |
| $ | 191,405 | | $ | 88,050 |
| $ | 20,709 |
| $ | 5,531 | | $ | 167,201 |
| $ | 636,507 |
| $ | 1,580,834 |
Special mention | | | 883 | | | 1,101 | | | 833 | | | — | | | — | | | 1,370 | | | 2,790 | | | 6,977 |
Substandard | | | — | | | 1,535 | | | 1,765 | | | 982 | | | 192 | | | 2,688 | | | 2,892 | | | 10,054 |
Total |
| $ | 472,314 |
| $ | 194,041 | | $ | 90,648 |
| $ | 21,691 |
| $ | 5,723 | | $ | 171,259 |
| $ | 642,189 |
| $ | 1,597,865 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 54 |
| $ | — | | $ | — |
| $ | 1,174 |
| $ | — | | $ | 2,617 |
| $ | 7,022 |
| $ | 10,867 |
Special mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total |
| $ | 54 |
| $ | — | | $ | — |
| $ | 1,174 |
| $ | — | | $ | 2,617 |
| $ | 7,022 |
| $ | 10,867 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total loans | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 1,972,141 |
| $ | 1,221,553 | | $ | 636,509 |
| $ | 475,196 |
| $ | 322,281 | | $ | 1,451,179 |
| $ | 718,463 |
| $ | 6,797,322 |
Special mention | | | 883 | �� | | 1,101 | | | 25,505 | | | — | | | — | | | 32,453 | | | 2,816 | | | 62,758 |
Substandard | | | — | | | 1,535 | | | 4,699 | | | 982 | | | 4,282 | | | 31,980 | | | 3,170 | | | 46,648 |
Total |
| $ | 1,973,024 |
| $ | 1,224,189 | | $ | 666,713 |
| $ | 476,178 |
| $ | 326,563 | | $ | 1,515,612 |
| $ | 724,449 |
| $ | 6,906,728 |
24
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses and the related allowance for credit losses (“ACL”) allocated to these loans:
| | | | | | | | | | | | | | | |
| | | | | | | | Equipment/ | | | | | | ACL | |
(dollars in thousands) | | Real Estate | | Cash | | Receivables | | Total | | | Allocation | ||||
June 30, 2022: | | | | | | | | | | | | | | | |
Loans secured by real estate: |
| |
|
| |
| | |
|
| |
| | | |
Residential properties | | | | | | | | | | | | | | | |
Single family | | $ | 2,475 | | $ | — | | $ | — | | $ | 2,475 | | $ | — |
Commercial real estate loans | |
| 2,803 | |
| — | |
| — | |
| 2,803 | |
| — |
Commercial loans | |
| — | |
| 250 | |
| 700 | |
| 950 | |
| 700 |
Total | | $ | 5,278 | | $ | 250 | | $ | 700 | | $ | 6,228 | | $ | 700 |
| | | | | | | | | | | | | | | |
December 31, 2021: | | | | | | | | | | | | | | | |
Loans secured by real estate: |
| |
|
| |
| | |
|
| |
| | | |
Residential properties | | | | | | | | | | | | | | | |
Single family | | $ | 2,568 | | $ | — | | $ | — | | $ | 2,568 | | $ | — |
Commercial loans | |
| — | |
| 250 | |
| — | |
| 250 | |
| — |
Consumer loans | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 2,568 | | $ | 250 | | $ | — | | $ | 2,818 | | $ | — |
NOTE 7: LOAN SALES AND MORTGAGE SERVICING RIGHTS
In 2021, FFB sold $559 million of multifamily loans and recognized a gain of $21.5 million. For sales of multifamily loans, FFB retained servicing rights for the majority of these loans and recognized mortgage servicing rights as part of the transactions. As of June 30, 2022, and December 31, 2021, mortgage servicing rights were $9.0 million and $6.8 million, respectively. The mortgage servicing rights as of June 30, 2022, and December 31, 2021, are net of $3.0 million and $1.9 million valuation allowances, respectively. The amount of loans serviced for others totaled $1.1 billion and $1.7 billion as of June 30, 2022, and December 31, 2021, respectively. Servicing fees were $0.9 million for both the six months ended June 30, 2022, and the six months ended June 30, 2021.
NOTE 8: DEPOSITS
The following table summarizes the outstanding balance of deposits and average rates paid thereon as of:
| | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 | | | ||||||
| | | | | Weighted | | | | | Weighted | | |
(dollars in thousands) | | Amount | | Average Rate | | Amount | | Average Rate | | | ||
Demand deposits: |
| |
|
|
|
| |
|
|
|
| |
Noninterest-bearing | | $ | 3,587,375 |
| — | | $ | 3,280,455 |
| — | | |
Interest-bearing | |
| 2,425,847 |
| 0.930 | % |
| 2,242,684 |
| 0.070 | % | |
Money market and savings | |
| 2,869,719 |
| 0.643 | % |
| 2,620,336 |
| 0.275 | % | |
Certificates of deposits | |
| 655,803 |
| 0.581 | % |
| 668,485 |
| 0.145 | % | |
Total | | $ | 9,538,744 |
| 0.470 | % | $ | 8,811,960 |
| 0.111 | % | |
At June 30, 2022, of the $391 million of certificates of deposits over $250,000, $383 million mature within one year and $8 million mature after one year. Of the $264 million of certificates of deposit of $250,000 or less, $209 million mature within one year and $55 million mature after one year. At December 31, 2021, of the $367 million of certificates of deposits over $250,000, $361 million mature within one year and $6 million mature after one year. Of the
25
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
$301 million of certificates of deposit of $250,000 or less, $229 million mature within one year and $72 million mature after one year.
NOTE 9: BORROWINGS
At June 30, 2022, our borrowings consisted of $149 million in an overnight FHLB advance at the Bank, $174 million in subordinated notes at the holding company, and $171 million of repurchase agreements at the Bank. At December 31, 2021, our borrowings consisted of $26 million in subordinated notes at FFI, $166 million of repurchase agreements at the Bank, and $18.5 million of borrowings under a holding company line of credit. The FHLB overnight advance was paid in full in the early part of July 2022 and bore an interest rate of 1.66%. As of June 30, 2022, $150 million of the subordinated notes are fixed-to-floating rate notes that mature in February 2032. The notes will initially bear a rate of 3.50% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2022, until February 1, 2027. From and including February 1, 2027 to, but excluding February 1, 2032, or the date of earlier redemption, the notes will bear interest at a floating rate per annum equal to the Benchmark rate (which is expected to be Three-Month Term Secured Overnight Financing Rate, or “SOFR”), each as defined in and subject to the provisions of the indenture under which the notes were issued, plus 204 basis points (2.04%), payable quarterly in arrears on February 1, May 1, August 1, and November 1 of each year, commencing on May 1, 2027. $24 million of the subordinated notes mature in June 2030 and bear a fixed interest rate of 6.0%, until June 30, 2025, at which time they will convert to a floating rate based on three month SOFR, plus 590 basis points (5.90%), until maturity.
As a matter of practice, the Bank provides substantially all of its qualifying loans as collateral to the FHLB or the Federal Reserve Bank. FHLB advances are collateralized primarily by loans secured by single family, multifamily, and commercial real estate properties with a carrying value of $5.0 billion as of June 30, 2022. The Bank’s total borrowing capacity from the FHLB at June 30, 2022 was $2.9 billion. The Bank had in place $315 million of letters of credit from the FHLB, as of June 30, 2022 which are used to meet collateral requirements for borrowings from the State of California and local agencies.
During 2017, FFI entered into a loan agreement with an unaffiliated lender that provides for a revolving line of credit for up to $20 million. The loan agreement matures in February 2023, with an option to extend the maturity date subject to certain conditions, and bears interest at Prime rate, plus 50 basis points (0.50%). FFI’s obligations under the loan agreement are secured by, among other things, a pledge of all of its equity in FFB. We are required to meet certain financial covenants during the term of the loan, including minimum capital levels and limits on classified assets. As of June 30, 2022, and December 31, 2021, FFI was in compliance with the covenants on this loan agreement.
The Bank also has $245 million available borrowing capacity through unsecured fed funds lines, ranging in size from $20 million to $100 million, with 5 other financial institutions, and a $133 million secured line with the Federal Reserve Bank, secured by single family loans. NaN of these lines had outstanding borrowings as June 30, 2022. Combined, the Bank’s unused lines of credit as of June 30, 2022, and December 31, 2021, were $3.2 billion and $3.1 billion, respectively. The average balance of overnight borrowings during the first six months of 2022 was $3.4 million, as compared to $1 million during all of 2021.
26
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
NOTE 10: EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if contracts to issue common stock were exercised or converted into common stock that would then share in earnings. The following table sets forth the Company’s unaudited earnings per share calculations for the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | ||||||||
| | June 30, 2022 | | June 30, 2021 | | ||||||||
(dollars in thousands, except per share amounts) | | Basic | | Diluted | | Basic | | Diluted | | ||||
Net income |
| $ | 33,316 |
| $ | 33,316 |
| $ | 26,054 |
| $ | 26,054 | |
Basic common shares outstanding | |
| 56,471,470 | |
| 56,471,470 | |
| 44,792,358 | |
| 44,792,358 | |
Effect of options, restricted stock and contingent shares issuable | | | | | | 48,199 | | | | | | 309,600 | |
Diluted common shares outstanding | |
|
| |
| 56,519,669 | |
|
| |
| 45,101,958 | |
Earnings per share | | $ | 0.59 | | $ | 0.59 | | $ | 0.58 | | $ | 0.58 | |
Based on a weighted average basis, restricted stock units to purchase 6,820 shares of common stock were excluded for the three months ended June 30, 2021, because their effect would have been anti-dilutive.
| | | | | | | | | | | | |
| | Six Months Ended | | Six Months Ended | ||||||||
| | June 30, 2022 | | June 30, 2021 | ||||||||
(dollars in thousands, except share and per share amounts) | | Basic | | Diluted | | Basic | | Diluted | ||||
Net income |
| $ | 64,152 |
| $ | 64,152 |
| $ | 48,409 |
| $ | 48,409 |
Basic common shares outstanding | |
| 56,468,678 | |
| 56,468,678 | |
| 44,750,272 | |
| 44,750,272 |
Effect of options, restricted stock and contingent shares issuable | | | | | | 74,814 | | | | | | 307,058 |
Diluted common shares outstanding | |
|
| |
| 56,543,492 | |
|
| |
| 45,057,330 |
Earnings per share | | $ | 1.14 | | $ | 1.13 | | $ | 1.08 | | $ | 1.07 |
Based on a weighted average basis, restricted stock units to purchase 62,267 shares of common stock were excluded for the six months ended June 30, 2021, because their effect would have been anti-dilutive.
27
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2022 - UNAUDITED
NOTE 11: SEGMENT REPORTING
For the three and six months ended June 30, 2022 and 2021, the Company had 2 reportable business segments: Banking (FFB and FFIS, Blue Moon, and FFPF) and Wealth Management (FFA). The results of FFI and any elimination entries are included in the column labeled “Other”. The following tables show key operating results for each of our business segments used to arrive at our consolidated totals for the following periods:
| | | | | | | | | | | | |
|
| | |
| Wealth |
| | |
| | | |
(dollars in thousands) | | Banking | | Management | | Other | Total | |||||
Three Months Ended June 30, 2022: |
| |
|
| |
|
| |
|
| |
|
Interest income | | $ | 89,971 | | $ | — | | $ | — | | $ | 89,971 |
Interest expense | |
| 6,476 | |
| — | |
| 1,690 | |
| 8,166 |
Net interest income | |
| 83,495 | |
| — | |
| (1,690) | |
| 81,805 |
Provision for credit losses | |
| 173 | |
| — | |
| — | |
| 173 |
Noninterest income | |
| 5,857 | |
| 7,980 | |
| (437) | |
| 13,400 |
Noninterest expense | |
| 42,032 | |
| 6,189 | |
| 584 | |
| 48,805 |
Income (loss) before taxes on income | | $ | 47,147 | | $ | 1,791 | | $ | (2,711) | | $ | 46,227 |
| | | | | | | | | | | | |
Three Months Ended June 30, 2021: | |
|
| |
|
| |
|
| |
|
|
Interest income | | $ | 61,403 | | $ | — | | $ | — | | $ | 61,403 |
Interest expense | |
| 3,387 | |
| — | |
| 106 | |
| 3,493 |
Net interest income | |
| 58,016 | |
| — | |
| (106) | |
| 57,910 |
Provision for credit losses | |
| 44 | |
| — | |
| — | |
| 44 |
Noninterest income | |
| 7,199 | |
| 7,240 | |
| (404) | |
| 14,035 |
Noninterest expense | |
| 28,868 | |
| 5,372 | |
| 1,377 | |
| 35,617 |
Income (loss) before taxes on income | | $ | 36,303 | | $ | 1,868 | | $ | (1,887) | |