F
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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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.
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As of August 3, 2023, the registrant had
FIRST FOUNDATION INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED June 30, 2023
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33 | ||||||
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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, | ||||||
2023 | 2022 | ||||||
(unaudited) | |||||||
ASSETS |
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Cash and cash equivalents | $ | | $ | | |||
Securities available-for-sale ("AFS") |
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Securities held-to-maturity ("HTM") | | | |||||
Allowance for credit losses - investments | ( | ( | |||||
Net securities | | | |||||
Loans held for investment |
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Allowance for credit losses - loans |
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Net loans |
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Investment in FHLB stock | |
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Deferred taxes |
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Premises and equipment, net |
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Real estate owned ("REO") | | | |||||
Goodwill and intangibles |
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Other assets |
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Total Assets | $ | | $ | | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Liabilities: |
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Deposits | $ | | $ | | |||
Borrowings |
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Accounts payable and other liabilities |
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Total Liabilities |
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Shareholders’ Equity |
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Common Stock |
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Additional paid-in-capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total Shareholders’ Equity |
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Total Liabilities and Shareholders’ Equity | $ | | $ | |
(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: |
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Loans | $ | | $ | | $ | | $ | | |||||
Securities |
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FHLB Stock, fed funds sold and interest-bearing deposits |
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Total interest income |
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Interest expense: |
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Deposits |
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Borrowings |
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Total interest expense |
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Net interest income |
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Provision (reversal) for credit losses | |
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Net interest income after provision for credit losses |
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Noninterest income: |
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Other income |
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Total noninterest income |
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Noninterest expense: |
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Compensation and benefits |
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Occupancy and depreciation |
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Professional services and marketing costs |
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Customer service costs |
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Goodwill impairment | | — | | — | |||||||||
Other expenses |
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Total noninterest expense |
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(Loss) income before income taxes |
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Income tax (benefit) expense |
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Net (loss) income | $ | ( | $ | | $ | ( | $ | | |||||
Net (loss) income per share: |
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Basic | $ | ( | $ | | $ | ( | $ | | |||||
Diluted | $ | ( | $ | | $ | ( | $ | | |||||
Shares used in computation: |
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Basic |
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Diluted |
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(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 |
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| Accumulated Other |
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Number | Paid-in | Retained | Comprehensive | ||||||||||||||
| of Shares |
| Amount |
| Capital |
| Earnings |
| Income (Loss) |
| Total | ||||||
Balance: December 31, 2022 | |
| $ | |
| $ | |
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| $ | ( |
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Net loss |
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Other comprehensive loss |
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Stock based compensation |
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Cash dividend | — | ( | ( | ||||||||||||||
Issuance of common stock: |
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Exercise of options |
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Stock grants – vesting of restricted stock units |
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Repurchase of shares from restricted shares vesting | ( | ( | ( | ||||||||||||||
Balance: June 30, 2023 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Balance: March 31, 2023 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net loss |
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Other comprehensive loss |
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Stock based compensation |
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Cash dividend | — |
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Issuance of common stock: |
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Stock grants – vesting of restricted stock units |
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Balance: June 30, 2023 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Balance: December 31, 2021 | | $ | | $ | | $ | | $ | | $ | | ||||||
Net income |
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Other comprehensive loss |
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Stock based compensation |
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Cash dividend |
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Issuance of common stock: |
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Exercise of options |
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Stock grants – vesting of restricted stock units |
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Repurchase of shares from restricted shares vesting |
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Stock repurchase | ( | — | ( | — | — | ( | |||||||||||
Balance: June 30, 2022 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Balance: March 31, 2022 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income | — | — | — | | — | | |||||||||||
Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||
Stock based compensation | — | — | | — | — | | |||||||||||
Cash dividend | — | — | — | ( | — | ( | |||||||||||
Issuance of common stock: | — | — | |||||||||||||||
Stock grants – vesting of restricted stock units | | ( | — | — | — | ( | |||||||||||
Repurchase of shares from restricted shares vesting | ( | — | — | — | — | — | |||||||||||
Stock repurchase | ( | — | ( | — | — | ( | |||||||||||
Balance: June 30, 2022 | | $ | | $ | | $ | | $ | ( | $ | |
(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 |
| $ | ( | $ | |
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Other comprehensive loss: |
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Unrealized holding losses on securities arising during the period |
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Credit loss expense | | | | | |||||||||
Other comprehensive loss before tax |
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Income tax benefit related to items of other comprehensive loss |
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Other comprehensive loss |
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Total comprehensive (loss) income | $ | ( | $ | | $ | ( | $ | |
(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: |
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Net (loss) income | $ | ( | $ | | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Goodwill impairment | | — | |||||
Provision for credit losses - loans |
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Provision for credit losses - securities AFS | | | |||||
Stock–based compensation expense |
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Depreciation and amortization |
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Deferred tax expense |
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Amortization of premium (discount) on securities | ( | | |||||
Amortization of core deposit intangible |
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Amortization of mortgage servicing rights - net |
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Amortization of OCI - securities transfer to HTM | | ( | |||||
Valuation allowance on mortgage servicing rights - net | ( | ( | |||||
(Increase) decrease in other assets |
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Increase (decrease) in accounts payable and other liabilities |
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Net cash provided by operating activities |
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Cash Flows from Investing Activities: |
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Net decrease (increase) in loans |
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Purchase of premises and equipment |
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Disposals of premises and equipment | — | | |||||
Recovery of allowance for credit losses |
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Purchases of securities AFS |
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Purchases of securities HTM | — | ( | |||||
Maturities of securities AFS |
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Maturities of securities HTM | | | |||||
Sale of FHLB and FRB stock, net |
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Net cash provided by (used in) investing activities |
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Cash Flows from Financing Activities: |
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Increase in deposits |
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Net (decrease) increase in FHLB & other advances |
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Line of credit net change – borrowings, net |
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Net increase in subordinated debt | | | |||||
Net increase (decrease) in repurchase agreements | ( | | |||||
Gain on sale leaseback |
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Dividends paid |
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Proceeds from exercise of stock options |
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Repurchase of stock |
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Net cash provided by financing activities |
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Increase (decrease) in cash and cash equivalents |
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Cash and cash equivalents at beginning of year |
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Cash and cash equivalents at end of period | $ | | $ | | |||
Supplemental disclosures of cash flow information: |
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Cash paid during the period for: |
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Income taxes | $ | — | $ | | |||
Interest | | | |||||
Noncash transactions: |
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Transfer of securities from available-for-sale to held-to-maturity | — | | |||||
Goodwill acquisition adjustment | — | | |||||
Right of use lease assets and liabilities recognized | | | |||||
Chargeoffs against allowance for credit losses - loans | | | |||||
Chargeoffs against allowance for credit losses - securities | | — |
(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, 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
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
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
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: |
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Investment securities available for sale: |
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Collateralized mortgage obligations | $ | | $ | — | $ | | $ | — | ||||
Agency mortgage-backed securities |
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Municipal bonds |
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SBA securities | | — | | — | ||||||||
Beneficial interests in FHLMC securitization | | — | — | | ||||||||
Corporate bonds |
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