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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, 2023

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
of incorporation or organization)

(I.R.S. Employer
Identification Number)

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, 2023, the registrant had 56,443,774 shares of common stock, $0.001 par value per share, outstanding.

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, 

2023

2022

(unaudited)

ASSETS

    

  

    

  

Cash and cash equivalents

$

926,081

$

656,494

Securities available-for-sale ("AFS")

 

209,298

 

237,597

Securities held-to-maturity ("HTM")

814,661

862,544

Allowance for credit losses - investments

(8,535)

(11,439)

Net securities

1,015,424

1,088,702

Loans held for investment

 

10,585,201

 

10,726,193

Allowance for credit losses - loans

 

(31,485)

 

(33,731)

Net loans

 

10,553,716

 

10,692,462

Investment in FHLB stock

19,485

 

25,358

Deferred taxes

 

23,187

 

24,198

Premises and equipment, net

 

36,584

 

36,141

Real estate owned ("REO")

6,210

6,210

Goodwill and intangibles

 

5,730

 

221,835

Other assets

 

254,137

 

262,779

Total Assets

$

12,840,554

$

13,014,179

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

Liabilities:

 

  

 

Deposits

$

10,806,986

$

10,362,612

Borrowings

 

975,541

 

1,369,936

Accounts payable and other liabilities

 

142,493

 

147,253

Total Liabilities

 

11,925,020

 

11,879,801

Shareholders’ Equity

 

 

Common Stock

 

56

 

56

Additional paid-in-capital

 

719,779

 

719,606

Retained earnings

 

215,540

 

426,659

Accumulated other comprehensive loss

 

(19,841)

 

(11,943)

Total Shareholders’ Equity

 

915,534

 

1,134,378

Total Liabilities and Shareholders’ Equity

$

12,840,554

$

13,014,179

(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, 

2023

2022

2023

2022

Interest income:

    

  

    

  

  

    

  

Loans

$

123,471

$

82,032

$

244,114

$

154,059

Securities

 

6,772

 

6,621

 

13,663

 

12,981

FHLB Stock, fed funds sold and interest-bearing deposits

 

15,085

 

1,318

 

24,551

 

2,075

Total interest income

 

145,328

 

89,971

 

282,328

 

169,115

Interest expense:

 

 

 

Deposits

 

72,932

 

6,340

 

135,072

 

9,698

Borrowings

 

23,412

 

1,826

 

39,517

 

3,118

Total interest expense

 

96,344

8,166

 

174,589

 

12,816

Net interest income

 

48,984

 

81,805

 

107,739

 

156,299

Provision (reversal) for credit losses

887

 

173

 

1,304

 

(619)

Net interest income after provision for credit losses

 

48,097

 

81,632

 

106,435

 

156,918

Noninterest income:

 

Asset management, consulting and other fees

 

9,016

 

9,893

 

17,812

 

20,090

Other income

 

3,063

 

3,507

 

5,965

 

8,737

Total noninterest income

 

12,079

 

13,400

 

23,777

 

28,827

Noninterest expense:

 

 

 

 

Compensation and benefits

 

21,026

 

27,634

 

46,312

 

57,455

Occupancy and depreciation

 

9,181

 

8,814

 

18,078

 

17,381

Professional services and marketing costs

 

3,642

 

3,030

 

7,937

 

6,447

Customer service costs

 

19,004

 

4,611

 

35,719

 

6,399

Goodwill impairment

215,252

215,252

Other expenses

 

4,659

 

4,716

 

8,806

 

8,741

Total noninterest expense

 

272,764

 

48,805

 

332,104

 

96,423

(Loss) income before income taxes

 

(212,588)

 

46,227

 

(201,892)

 

89,322

Income tax (benefit) expense

 

(300)

 

12,911

 

1,900

 

25,170

Net (loss) income

$

(212,288)

$

33,316

$

(203,792)

$

64,152

Net (loss) income per share:

 

  

 

  

 

 

Basic

$

(3.76)

$

0.59

$

(3.61)

$

1.14

Diluted

$

(3.76)

$

0.59

$

(3.61)

$

1.13

Shares used in computation:

 

 

  

 

 

  

Basic

 

56,430,813

 

56,471,470

 

56,403,891

 

56,468,678

Diluted

 

56,430,813

 

56,519,669

 

56,403,891

 

56,543,492

(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, 2022

56,325,242

 

$

56

 

$

719,606

 

$

426,659

 

$

(11,943)

 

$

1,134,378

Net loss

 

 

 

 

(203,792)

 

 

(203,792)

Other comprehensive loss

 

 

 

 

 

(7,898)

 

(7,898)

Stock based compensation

 

 

 

550

 

 

 

550

Cash dividend

(7,327)

(7,327)

Issuance of common stock:

 

  

 

  

 

  

 

  

 

  

 

Exercise of options

 

19,500

 

 

157

 

 

 

157

Stock grants – vesting of restricted stock units

 

133,386

 

 

 

 

 

Repurchase of shares from restricted shares vesting

(35,058)

(534)

(534)

Balance: June 30, 2023

56,443,070

$

56

$

719,779

$

215,540

$

(19,841)

$

915,534

Balance: March 31, 2023

56,424,276

$

56

$

719,261

$

428,956

$

(14,535)

$

1,133,738

Net loss

 

 

 

 

(212,288)

 

 

(212,288)

Other comprehensive loss

 

 

 

 

 

(5,306)

 

(5,306)

Stock based compensation

 

 

 

518

 

 

 

518

Cash dividend

 

 

 

(1,128)

 

 

(1,128)

Issuance of common stock:

 

  

 

  

 

  

 

  

 

  

 

  

Stock grants – vesting of restricted stock units

 

18,794

 

 

 

 

 

Balance: June 30, 2023

56,443,070

$

56

$

719,779

$

215,540

$

(19,841)

$

915,534

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:

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

(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, 

2023

2022

2023

2022

Net (loss) income

    

$

(212,288)

$

33,316

    

$

(203,792)

$

64,152

Other comprehensive loss:

 

  

 

  

 

  

 

  

Unrealized holding losses on securities arising during the period

 

(8,423)

 

(7,095)

 

(13,932)

 

(15,170)

Credit loss expense

504

483

1,477

827

Other comprehensive loss before tax

 

(7,919)

 

(6,612)

 

(12,455)

 

(14,343)

Income tax benefit related to items of other comprehensive loss

 

2,613

 

1,471

 

4,557

 

2,995

Other comprehensive loss

 

(5,306)

 

(5,141)

 

(7,898)

 

(11,348)

Total comprehensive (loss) income

$

(217,594)

$

28,175

$

(211,690)

$

52,804

(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, 

2023

2022

Cash Flows from Operating Activities:

    

  

    

  

Net (loss) income

$

(203,792)

$

64,152

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

 

 

Goodwill impairment

215,252

Provision for credit losses - loans

 

237

 

(1,446)

Provision for credit losses - securities AFS

1,067

827

Stock–based compensation expense

 

550

 

2,037

Depreciation and amortization

 

2,157

 

2,019

Deferred tax expense

 

4,654

 

1,941

Amortization of premium (discount) on securities

(53)

1,677

Amortization of core deposit intangible

 

853

 

999

Amortization of mortgage servicing rights - net

 

1,155

 

1,070

Amortization of OCI - securities transfer to HTM

914

(591)

Valuation allowance on mortgage servicing rights - net

(979)

(319)

(Increase) decrease in other assets

 

9,485

 

(6,482)

Increase (decrease) in accounts payable and other liabilities

 

(6,092)

 

4,476

Net cash provided by operating activities

 

25,408

 

70,360

Cash Flows from Investing Activities:

 

  

 

  

Net decrease (increase) in loans

 

137,902

 

(2,016,119)

Purchase of premises and equipment

 

(2,603)

 

(3,523)

Disposals of premises and equipment

3,388

Recovery of allowance for credit losses

 

920

 

298

Purchases of securities AFS

 

 

(398)

Purchases of securities HTM

(171,852)

Maturities of securities AFS

 

11,488

 

18,524

Maturities of securities HTM

48,322

156,811

Sale of FHLB and FRB stock, net

 

5,873

 

999

Net cash provided by (used in) investing activities

 

201,902

 

(2,011,872)

Cash Flows from Financing Activities:

 

  

 

  

Increase in deposits

 

444,375

 

726,784

Net (decrease) increase in FHLB & other advances

 

(295,000)

 

149,000

Line of credit net change – borrowings, net

 

 

(18,500)

Net increase in subordinated debt

32

147,608

Net increase (decrease) in repurchase agreements

(99,426)

5,493

Gain on sale leaseback

 

 

(1,123)

Dividends paid

 

(7,327)

 

(12,424)

Proceeds from exercise of stock options

 

157

 

18

Repurchase of stock

 

(534)

 

(3,577)

Net cash provided by financing activities

 

42,277

 

993,279

Increase (decrease) in cash and cash equivalents

 

269,587

 

(948,233)

Cash and cash equivalents at beginning of year

 

656,494

 

1,121,757

Cash and cash equivalents at end of period

$

926,081

$

173,524

Supplemental disclosures of cash flow information:

 

  

 

  

Cash paid during the period for:

 

  

 

  

Income taxes

$

$

22,500

Interest

142,628

10,563

Noncash transactions:

 

 

  

Transfer of securities from available-for-sale to held-to-maturity

916,777

Goodwill acquisition adjustment

1,623

Right of use lease assets and liabilities recognized

1,019

5,428

Chargeoffs against allowance for credit losses - loans

3,090

145

Chargeoffs against allowance for credit losses - securities

3,971

(See accompanying notes to the consolidated financial statements)

5

Table of Contents

FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation

First Foundation Inc. (“FFI”) is a financial services holding company whose operations are conducted through 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 Public Finance (“FFPF”), First Foundation Insurance Services (“FFIS”) and Blue Moon Management, LLC (collectively the “Company”).  FFI also has two inactive wholly owned subsidiaries, First Foundation Consulting and First Foundation Advisors, LLC.  In addition, FFA has set up a limited liability company, which is not included in these consolidated financial statements, as a private investment fund to provide an investment vehicle for its clients.  FFI is incorporated in the state of Delaware.  The corporate headquarters for FFI is located in Dallas, Texas.  The Company provides a comprehensive platform of financial services to individuals, businesses and other organizations and has offices in California, Nevada, Florida, Texas, and Hawaii.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 the accounts of the Company as of June 30, 2023 and December 31, 2022, and for the six months ended June 30, 2023 and 2022, and include all information and footnotes required for interim financial reporting presentation.  All intercompany accounts and transactions have been eliminated in consolidation. The results for the 2023 interim periods are not necessarily indicative of the results expected for the full year.  These financial statements assume that readers have read the most recent Annual Report on Form 10-K filed with the SEC which contains the latest available audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2022.

Significant Accounting Policies

The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the banking industry.  We have not made any changes in our significant accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

New Accounting Pronouncements

On January 1, 2023, the Company adopted 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. These disclosures are presented within Note 4: “Loans” in the accompanying unaudited financial statements.  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. This information is presented as part of the disclosure for risk categories of loans based on year of origination within Note 5: ‘‘Allowance for Credit Losses’’ in the accompanying unaudited financial statements.  

In March 2020, the Financial Accounting Standards Board (“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

6

Table of Contents

FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

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 Company has permanently ceased originating any new loans or entering into any transaction that would increase its LIBOR-based exposure.  For all new variable-rate loans and transactions, the Company primarily offers Prime, SOFR, and other indices as the variable-rate index.  All variable rate loans tied to LIBOR will index to Prime, SOFR, or other indices at the next loan reset date.  This transition did not have a material impact on the consolidated financial statements.

NOTE 2: 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.

7

Table of Contents

FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - 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, 2023:

    

  

    

  

    

  

    

  

Investment securities available for sale:

 

  

 

  

 

  

 

  

Collateralized mortgage obligations

$

8,095

$

$

8,095

$

Agency mortgage-backed securities

 

6,571

 

 

6,571

 

Municipal bonds

 

46,295

 

 

46,295

 

SBA securities

15,715

15,715

Beneficial interests in FHLMC securitization

7,599

7,599

Corporate bonds

 

115,262

 

 

115,262