First Foundation Inc. [FFWM] Filings

10-Q 1 ffwm-20230630x10q.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, 2023

☐	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.

Table of Contents

FIRST FOUNDATION INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED June 30, 2023

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	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 4.	Controls and Procedures	56

Part II. Other Information
Item 1A	Risk Factors	57
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 5	Other Information	57
Item 6	Exhibits	58

SIGNATURE		S-1

(i)

Table of Contents

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)

Table of Contents

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)

Table of Contents

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)

Table of Contents

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)

Table of Contents

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)

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

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.

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