First Foundation Inc. [FFWM] Filings

10-Q 1 ffwm-20220630x10q.htm 10-Q

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

☐	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, 2022, the registrant had 56,387,671 shares of common stock, $0.001 par value per share, outstanding.

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FIRST FOUNDATION INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

TABLE OF CONTENTS


		Page No.
Part I. Financial Information
Item 1.	Financial Statements	1
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	51

Part II. Other Information
Item 1A	Risk Factors	52
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 6	Exhibits	53

SIGNATURES		S-1

(i)

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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)

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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)

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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)

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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)

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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)

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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 two 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.

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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. None 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