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Press Release

First Foundation Announces 2019 Second Quarter Financial Results

Earnings per share: $0.28 for the quarter, $0.53 for year-to-date Revenue growth of 18% for the second quarter (compared to 2018 second quarter) Loan production of $494 million for the second quarter Tangible book value per share increased to $10.94 at June 30, 2019

IRVINE, Calif.--(BUSINESS WIRE)-- First Foundation Inc. (NASDAQ: FFWM), a financial services company with two wholly-owned operating subsidiaries, First Foundation Advisors (“FFA”) and First Foundation Bank (“FFB”), announced today its financial results for the quarter and six months ended June 30, 2019. As we present certain non-GAAP measures in this release, the reader should refer to the non-GAAP reconciliations set forth below under the section “Use of Non-GAAP Financial Measures.”

“I am very pleased with our results this quarter,” said Scott F. Kavanaugh, CEO. “The banking, wealth management, and trust divisions are all contributing to the success of the company in meaningful ways as evidenced by strong noninterest income, including an increase in assets under management to $4.2 billion and trust asset growth of $82 million. Our ability to serve clients at any stage of their financial journey, while also delivering consistent results for our stockholders, is a validation of the strength of our business model.”

Highlights

Financial Results:

  • 2019 second quarter compared to 2018 second quarter:
    • Total revenues were $51.0 million, an increase of 18%
    • Net interest income was $41.9 million, an increase of 16%
    • Income before taxes was $17.5 million, an increase of 157%
    • Earnings were $12.4 million, an increase of 141%
    • Earnings per fully diluted share were $0.28, compared to $0.12 in 2018
  • 2019 year to date compared to 2018 year to date:
    • Total revenues were $100.5 million, an increase of 16%
    • Net interest income was $82.9 million, an increase of 18%
    • Income before taxes was $33.5 million, an increase of 73%
    • Earnings were $23.7 million, an increase of 68%
    • Earnings per fully diluted share were $0.53, compared to $0.35 in 2018
  • 2019 Financial ratios:
    • Return on average tangible equity of 10.4% for the quarter, 10.1% for year-to-date
    • Return on average assets of 0.81% for the quarter, 0.79% for year-to-date
    • Efficiency ratio of 63.5% for the quarter, 65.1% for year-to-date
    • Total tangible shareholders’ equity of $488 million, tangible book value of $10.94 per share, and tangible common equity to tangible assets of 7.89%, in each case, as of June 30, 2019

Other Activity:

  • Loan originations totaled $494 million for the quarter, $893 million for year-to-date
  • Deposits increased by $211 million for the first six months of 2019
  • Declared and paid cash dividend of $0.05 per share in second quarter, $0.10 per share year to date
  • Net interest margin (“NIM”):
    • 2.84% for the second quarter; 2.86% for year-to-date
    • Excluding impact of holding loans held for sale, the NIM would be 2.97% for the second quarter, 3.00% for year-to-date
  • Assets under management (“AUM”) at FFA increased by $145 million in the second quarter, $301 million year-to-date
  • AUM for our Trust operations increased by $82 million for the second quarter; $116 million for year-to-date

“We experienced another quarter of strong originations with a diversified mix due to an increase in C&I lending activity,” said David DePillo, President. “During the quarter, C&I lending represented 43% of our total originations. And while this growth is very positive, I am proud of the fact that our credit quality remains solid with NPAs at 25 bps.”

Details:

  • Total loans, including loans held for sale, increased $452 million in the first six months of 2019 as a result of $893 million of originations and a $15 million increase in the mark to market for loans held for sale which were partially offset by payoffs or scheduled payments of $456 million.
  • The $211 million growth in deposits during the first six months of 2019 included increases in specialty deposits of $248 million and wholesale deposits of $62 million which were partially offset by a $99 million decrease in branch deposits.
  • The $301 million increase in AUM during the first six months of 2019 was the net result of $132 million of new accounts, $476 million of portfolio gains and terminations and net withdrawals of $307 million.

About First Foundation

First Foundation, (NASDAQ: FFWM), a financial institution founded in 1990, provides personal banking, business banking and private wealth management. The Company has offices in California, Nevada and Hawaii with headquarters in Irvine, California. For more information, please visit www.firstfoundationinc.com .

We have two business segments, “Banking” and “Investment Management and Wealth Planning” (“Wealth Management”). Banking includes the operations of FFB and First Foundation Insurance Services, and Wealth Management includes the operations of FFA. The financial position and operating results of the stand-alone holding company, FFI, are included under the caption “Other” in certain of the tables that follow, along with any consolidation elimination entries.

Forward-Looking Statements

Statements in this news release regarding our expectations and beliefs about our future financial performance and financial condition, dividends, as well as trends in our business and markets are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "project," "outlook," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may." The forward looking statements in this news release are based on current information and on assumptions that we make about future events and circumstances that are subject to a number of risks and uncertainties that are often difficult to predict and beyond our control. As a result of those risks and uncertainties, our actual financial results in the future could differ, possibly materially, from those expressed in or implied by the forward looking statements contained in this news release and could cause us to make changes to our future plans. Those risks and uncertainties include, but are not limited to the risk of incurring loan losses, which is an inherent risk of the banking business; the risk that we will not be able to continue our internal growth rate; the risk that we will not be able to access the securitization market on favorable terms or at all; the risk that the economic recovery in the United States will stall or will be adversely affected by domestic or international economic conditions and risks associated with the Federal Reserve Board taking actions with respect to interest rates, any of which could adversely affect our interest income and interest rate margins and, therefore, our future operating results; the risk that the performance of our investment management business or of the equity and bond markets could lead clients to move their funds from or close their investment accounts with us, which would reduce our assets under management and adversely affect our operating results; the risk that we may be unable or that our board of directors may determine that it is inadvisable to pay future dividends; risks associated with changes in income tax laws and regulations; and risks associated with seeking new client relationships and maintaining existing client relationships. Additional information regarding these and other risks and uncertainties to which our business and future financial performance are subject is contained in Item 1A, entitled “Risk Factors” in our 2018 Annual Report on Form 10-K for the fiscal year ended December 31, 2018 that we filed with the SEC on March 1, 2019, and other documents we file with the SEC from time to time. We urge readers of this news release to review the Risk Factors section of that Annual Report and the Risk Factors section of other documents we file with the SEC from time to time. Also, our actual financial results in the future may differ from those currently expected due to additional risks and uncertainties of which we are not currently aware or which we do not currently view as, but in the future may become, material to our business or operating results. Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this news release, which speak only as of today's date, or to make predictions based solely on historical financial performance. We also disclaim any obligation to update forward-looking statements contained in this news release or in the above-referenced 2018 Annual Report on Form 10-K, whether as a result of new information, future events or otherwise, except as may be required by law or NASDAQ rules.

FIRST FOUNDATION INC.

CONSOLIDATED BALANCE SHEETS - Unaudited

(in thousands, except share and per share amounts)

 

 

June 30,

 

December 31,

2019

 

2018

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

84,997

 

 

$

67,312

 

Securities available-for-sale (“AFS”)

 

 

773,774

 

 

 

809,569

 

Loans held for sale

 

 

622,130

 

 

 

507,643

 

 

 

 

 

 

 

 

 

 

Loans, net of deferred fees

 

 

4,631,364

 

 

 

4,293,669

 

Allowance for loan and lease losses (“ALLL”)

 

 

(20,200

)

 

 

(19,000

)

Net loans

 

 

4,611,164

 

 

 

4,274,669

 

 

 

 

 

 

 

 

 

 

Investment in FHLB stock

 

 

19,224

 

 

 

20,307

 

Deferred taxes

 

 

9,587

 

 

 

13,251

 

Premises and equipment, net

 

 

8,846

 

 

 

9,145

 

Real estate owned (“REO”)

 

 

465

 

 

 

815

 

Goodwill and intangibles

 

 

98,254

 

 

 

99,482

 

Other assets

 

 

57,505

 

 

 

38,219

 

Total Assets

 

$

6,285,946

 

 

$

5,840,412

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Deposits

 

$

4,743,942

 

 

$

4,532,968

 

Borrowings

 

 

882,000

 

 

 

708,000

 

Accounts payable and other liabilities

 

 

73,301

 

 

 

40,260

 

Total Liabilities

 

 

5,699,243

 

 

 

5,281,228

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Common Stock, par value $.001: 70,000,000 shares authorized; 44,633,847 and 44,496,007 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

45

 

 

 

44

 

Additional paid-in-capital

 

 

432,931

 

 

 

431,832

 

Retained earnings

 

 

147,668

 

 

 

128,461

 

Accumulated other comprehensive income (loss), net of tax

 

 

6,059

 

 

 

(1,153

)

Total Shareholders’ Equity

 

 

586,703

 

 

 

559,184

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

 

$

6,285,946

 

 

$

5,840,412

 

 

 

 

 

 

 

 

 

 

FIRST FOUNDATION INC.

CONSOLIDATED INCOME STATEMENTS - Unaudited

(in thousands, except share and per share amounts)

 

 

For the Quarter

 

For the Six Months

Ended June 30,

 

Ended June 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

56,510

 

 

$

43,535

 

 

$

110,345

 

 

$

82,506

 

Securities

 

 

6,186

 

 

 

3,575

 

 

 

12,351

 

 

 

6,997

 

FHLB Stock, fed funds sold and deposits

 

 

612

 

 

 

1,388

 

 

 

1,156

 

 

 

2,314

 

Total interest income

 

 

63,308

 

 

 

48,498

 

 

 

123,852

 

 

 

91,817

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

16,296

 

 

 

8,084

 

 

 

31,744

 

 

 

13,956

 

Borrowings

 

 

5,125

 

 

 

4,163

 

 

 

9,174

 

 

 

7,342

 

Total interest expense

 

 

21,421

 

 

 

12,247

 

 

 

40,918

 

 

 

21,298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

41,887

 

 

 

36,251

 

 

 

82,934

 

 

 

70,519

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

1,231

 

 

 

2,450

 

 

 

1,771

 

 

 

4,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

 

40,656

 

 

 

33,801

 

 

 

81,163

 

 

 

66,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management, consulting and other fees

 

 

7,136

 

 

 

7,088

 

 

 

13,930

 

 

 

14,269

 

Gain (loss) on sale of loans

 

 

 

 

 

(1,490

)

 

 

 

 

 

(955

)

Other income

 

 

1,995

 

 

 

1,386

 

 

 

3,666

 

 

 

2,642

 

Total noninterest income

 

 

9,131

 

 

 

6,984

 

 

 

17,596

 

 

 

15,966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

17,333

 

 

 

16,645

 

 

 

36,235

 

 

 

33,814

 

Occupancy and depreciation

 

 

5,167

 

 

 

4,763

 

 

 

10,035

 

 

 

8,934

 

Professional services and marketing costs

 

 

2,024

 

 

 

1,820

 

 

 

4,028

 

 

 

4,309

 

Customer service costs

 

 

4,283

 

 

 

3,824

 

 

 

7,672

 

 

 

6,595

 

Other expenses

 

 

3,475

 

 

 

6,930

 

 

 

7,257

 

 

 

9,318

 

Total noninterest expense

 

 

32,282

 

 

 

33,982

 

 

 

65,227

 

 

 

62,970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes on income

 

 

17,505

 

 

 

6,803

 

 

 

33,532

 

 

 

19,377

 

Taxes on income

 

 

5,095

 

 

 

1,657

 

 

 

9,863

 

 

 

5,255

 

Net income

 

$

12,410

 

 

$

5,146

 

 

$

23,669

 

 

$

14,122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.28

 

 

$

0.13

 

 

$

0.53

 

 

$

0.36

 

Diluted

 

$

0.28

 

 

$

0.12

 

 

$

0.53

 

 

$

0.35

 

Shares used in computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

44,625,673

 

 

 

40,820,006

 

 

 

44,583,503

 

 

 

39,704,834

 

Diluted

 

 

44,894,720

 

 

 

41,332,192

 

 

 

44,846,779

 

 

 

40,234,560

 

 

FIRST FOUNDATION INC.

SELECTED FINANCIAL INFORMATION - Unaudited

(in thousands, except share and per share amounts and percentages)

 

 

For the Quarter

 

For the Six Months

Ended June 30,

 

Ended June 30,

 

 

2019

 

2018

 

2019

 

2018

Selected Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

 

41,887

 

 

$

 

36,251

 

 

$

 

82,934

 

 

$

 

70,519

 

Provision for loan losses

 

 

1,231

 

 

 

2,450

 

 

 

1,771

 

 

 

4,138

 

Noninterest Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management, consulting and other fees

 

 

7,136

 

 

 

7,088

 

 

 

13,930

 

 

 

14,269

 

Gain (loss) on sale of loans

 

 

 

 

 

(1,490

)

 

 

 

 

 

(955

)

Other

 

 

1,995

 

 

 

1,386

 

 

 

3,666

 

 

 

2,642

 

Noninterest expense

 

 

32,282

 

 

 

33,982

 

 

 

65,227

 

 

 

62,970

 

Income before taxes

 

 

17,505

 

 

 

6,803

 

 

 

33,532

 

 

 

19,377

 

Net income

 

 

12,410

 

 

 

5,146

 

 

 

23,669

 

 

 

14,122

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

0.28

 

 

$

 

0.13

 

 

$

 

0.53

 

 

$

 

0.36

 

Diluted

 

 

0.28

 

 

 

0.12

 

 

 

0.53

 

 

 

0.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected Performance Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets - annualized

 

 

0.81

%

 

 

0.39

%

 

 

0.79

%

 

 

0.57

%

Return on average equity - annualized

 

 

8.6

%

 

 

4.7

%

 

 

8.3

%

 

 

6.7

%

Return on average tangible equity – annualized(1)

 

 

10.4

%

 

 

5.3

%

 

 

10.1

%

 

 

7.5

%

Net yield on interest-earning assets

 

 

2.84

%

 

 

2.83

%

 

 

2.86

%

 

 

2.89

%

Efficiency ratio (2)

 

 

63.5

%

 

 

69.8

%

 

 

65.1

%

 

 

68.4

%

Noninterest income as a % of total revenues

 

 

17.9

%

 

 

16.2

%

 

 

17.5

%

 

 

18.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan originations

 

$

 

493,572

 

 

$

 

550,626

 

 

$

 

893,433

 

 

$

 

971,036

 

Charge-offs (recoveries) / average loans - annualized

 

 

0.02

%

 

 

0.32

%

 

 

0.02

%

 

 

0.17

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Tangible equity is a non-GAAP financial measure. See disclosures regarding “Use of Non-GAAP Financial Measures” included as a separate section in this press release.

(2)

Efficiency Ratio is a non-GAAP financial measure: See disclosures regarding “Use of Non-GAAP Financial Measures” included as a separate section in this press release.

FIRST FOUNDATION INC.

SELECTED FINANCIAL INFORMATION - Unaudited

(in thousands, except share and per share amounts and percentages)

 

June 30,

 

December 31,

2019

 

2018

Selected Balance Sheet Data:

 

 

 

 

 

 

Cash and cash equivalents

$

 

84,997

 

$

67,312

 

Loans held for sale

 

622,130

 

 

507,643

 

Loans, net of deferred fees

 

4,631,364

 

 

4,293,669

 

ALLL

 

20,200

 

 

19,000

 

Total assets

 

6,285,946

 

 

5,840,412

 

Noninterest-bearing deposits

 

1,279,218

 

 

1,074,661

 

Interest-bearing deposits

 

3,464,724

 

 

3,458,307

 

Borrowings

 

882,000

 

 

708,000

 

Shareholders’ equity

 

586,703

 

 

559,184

 

 

 

 

 

 

 

 

Selected Capital Data:

 

 

 

 

 

 

Tangible common equity to tangible assets(3)

 

7.89

%

 

8.01

%

Tangible book value per share(3)

$

 

10.94

 

$

10.33

 

Shares outstanding at end of period

 

44,633,847

 

 

44,496,007

 

 

 

 

 

 

 

 

Other Information:

 

 

 

 

 

 

Assets under management (end of period)

$

 

4,236,132

 

$

3,934,700

 

Number of employees

 

482

 

 

482

 

Loan to deposit ratio

 

110.7

%

 

105.9

%

Nonperforming assets to total assets

 

0.25

%

 

0.21

%

Ratio of ALLL to loans(4)

 

0.48

%

 

0.51

%

 

 

 

 

 

 

 

(3)

Tangible common equity and tangible book value are non-GAAP financial measures. See disclosures regarding “Use of Non-GAAP Financial Measures” included as a separate section in this press release.

(4)

This ratio excludes certain acquired loans for which GAAP requires estimated credit losses to be recorded as discounts to those loans.

FIRST FOUNDATION INC.

SEGMENT REPORTING - Unaudited

(in thousands)

 

 

For the Quarter

 

For the Six Months

Ended June 30,

 

Ended June 30,

 

 

2019

 

2018

 

2019

 

2018

Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

63,308

 

 

$

48,498

 

 

$

123,852

 

 

$

91,817

 

Interest expense

 

 

21,322

 

 

 

11,743

 

 

 

40,804

 

 

 

20,263

 

Net interest income

 

 

41,986

 

 

 

36,755

 

 

 

83,048

 

 

 

71,554

 

Provision for loan losses

 

 

1,231

 

 

 

2,450

 

 

 

1,771

 

 

 

4,138

 

Noninterest income

 

 

3,471

 

 

 

950

 

 

 

6,465

 

 

 

3,507

 

Noninterest expense

 

 

25,801

 

 

 

27,555

 

 

 

52,388

 

 

 

49,366

 

Income before taxes on income

 

$

18,425

 

 

$

7,700

 

 

$

35,354

 

 

$

21,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income

 

$

5,982

 

 

$

6,246

 

 

$

11,713

 

 

$

12,660

 

Noninterest expense

 

 

5,567

 

 

 

5,327

 

 

 

11,085

 

 

 

11,144

 

Income before taxes on income

 

$

415

 

 

$

919

 

 

$

628

 

 

$

1,516

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other and Eliminations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

 

 

$

 

 

$

 

 

$

 

Interest expense

 

 

99

 

 

 

504

 

 

 

114

 

 

 

1,035

 

Net interest income

 

 

(99

)

 

 

(504

)

 

 

(114

)

 

 

(1,035

)

Noninterest income

 

 

(322

)

 

 

(212

)

 

 

(582

)

 

 

(201

)

Noninterest expense

 

 

914

 

 

 

1,100

 

 

 

1,754

 

 

 

2,460

 

Income before taxes on income

 

$

(1,335

)

 

$

(1,816

)

 

$

(2,450

)

 

$

(3,696

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FIRST FOUNDATION INC.

ROLLING INCOME STATEMENTS - Unaudited

(in thousands, except share and per share amounts)

 

 

For the Quarter Ended

June 30,

 

September 30,

 

December 31,

 

March 31,

 

June 30,

 

 

2018

 

2018

 

2018

 

2019

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

43,535

 

 

$

53,345

 

 

$

50,360

 

 

$

53,835

 

 

$

56,510

 

Securities

 

 

3,575

 

 

 

3,579

 

 

 

6,279

 

 

 

6,165

 

 

 

6,186

 

FHLB Stock, fed funds sold and deposits

 

 

1,388

 

 

 

1,123

 

 

 

803

 

 

 

544

 

 

 

612

 

Total interest income

 

 

48,498

 

 

 

58,047

 

 

 

57,442

 

 

 

60,544

 

 

 

63,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

8,084

 

 

 

11,442

 

 

 

13,378

 

 

 

15,448

 

 

 

16,296

 

Borrowings

 

 

4,163

 

 

 

2,879

 

 

 

2,699

 

 

 

4,049

 

 

 

5,125

 

Total interest expense

 

 

12,247

 

 

 

14,321

 

 

 

16,077

 

 

 

19,497

 

 

 

21,421

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

36,251

 

 

 

43,726

 

 

 

41,365

 

 

 

41,047

 

 

 

41,887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

2,450

 

 

 

9

 

 

 

73

 

 

 

540

 

 

 

1,231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

 

33,801

 

 

 

43,717

 

 

 

41,292

 

 

 

40,507

 

 

 

40,656

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management, consulting and other fees

 

 

7,088

 

 

 

7,228

 

 

 

7,251

 

 

 

6,794

 

 

 

7,136

 

Gain (loss) on sale of loans

 

 

(1,490

)

 

 

1,364

 

 

 

 

 

 

 

 

 

 

Other income

 

 

1,386

 

 

 

2,512

 

 

 

1,450

 

 

 

1,671

 

 

 

1,995

 

Total noninterest income

 

 

6,984

 

 

 

11,104

 

 

 

8,701

 

 

 

8,465

 

 

 

9,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

16,645

 

 

 

17,577

 

 

 

16,117

 

 

 

18,902

 

 

 

17,333

 

Occupancy and depreciation

 

 

4,763

 

 

 

5,590

 

 

 

5,255

 

 

 

4,868

 

 

 

5,167

 

Professional services and marketing costs

 

 

1,820

 

 

 

2,271

 

 

 

2,003

 

 

 

2,004

 

 

 

2,024

 

Customer service costs

 

 

3,824

 

 

 

4,854

 

 

 

3,628

 

 

 

3,389

 

 

 

4,283

 

Other expenses

 

 

6,930

 

 

 

3,675

 

 

 

3,135

 

 

 

3,782

 

 

 

3,475

 

Total noninterest expense

 

 

33,982

 

 

 

33,967

 

 

 

30,138

 

 

 

32,945

 

 

 

32,282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes on income

 

 

6,803

 

 

 

20,854

 

 

 

19,855

 

 

 

16,027

 

 

 

17,505

 

Taxes on income

 

 

1,657

 

 

 

6,147

 

 

 

5,726

 

 

 

4,768

 

 

 

5,095

 

Net income

 

$

5,146

 

 

$

14,707

 

 

$

14,129

 

 

$

11,259

 

 

$

12,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

0.33

 

 

$

0.32

 

 

$

0.25

 

 

$

0.28

 

Diluted

 

$

0.12

 

 

$

0.33

 

 

$

0.31

 

 

$

0.25

 

 

$

0.28

 

Shares used in computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

40,820,006

 

 

 

44,405,094

 

 

 

44,476,829

 

 

 

44,540,865

 

 

 

44,625,673

 

Diluted

 

 

41,332,192

 

 

 

44,852,107

 

 

 

44,871,146

 

 

 

44,798,306

 

 

 

44,894,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FIRST FOUNDATION INC.

ROLLING SEGMENT REPORTING - Unaudited

(in thousands)

 

 

For the Quarter Ended

June 30,

 

September 30,

 

December 31,

 

March 31,

 

June 30,

 

 

2018

 

2018

 

2018

 

2019

 

2019

Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

48,498

 

 

$

58,047

 

 

$

57,442

 

 

$

60,544

 

 

$

63,308

 

Interest expense

 

 

11,743

 

 

 

13,786

 

 

 

15,886

 

 

 

19,482

 

 

 

21,322

 

Net interest income

 

 

36,755

 

 

 

44,261

 

 

 

41,556

 

 

 

41,062

 

 

 

41,986

 

Provision for loan losses

 

 

2,450

 

 

 

9

 

 

 

73

 

 

 

540

 

 

 

1,231

 

Noninterest income

 

 

950

 

 

 

5,079

 

 

 

2,736

 

 

 

2,994

 

 

 

3,471

 

Noninterest expense

 

 

27,555

 

 

 

27,530

 

 

 

23,882

 

 

 

26,587

 

 

 

25,801

 

Income before taxes on income

 

$

7,700

 

 

$

21,801

 

 

$

20,337

 

 

$

16,929

 

 

$

18,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income

 

$

6,246

 

 

$

6,260

 

 

$

6,327

 

 

$

5,731

 

 

$

5,982

 

Noninterest expense

 

 

5,327

 

 

 

5,189

 

 

 

5,337

 

 

 

5,518

 

 

 

5,567

 

Income before taxes on income

 

$

919

 

 

$

1,071

 

 

$

990

 

 

$

213

 

 

$

415

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other and Eliminations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Interest expense

 

 

504

 

 

 

535

 

 

 

191

 

 

 

15

 

 

 

99

 

Net interest income

 

 

(504

)

 

 

(535

)

 

 

(191

)

 

 

(15

)

 

 

(99

)

Noninterest income

 

 

(212

)

 

 

(235

)

 

 

(362

)

 

 

(260

)

 

 

(322

)

Noninterest expense

 

 

1,100

 

 

 

1,248

 

 

 

919

 

 

 

840

 

 

 

914

 

Loss before taxes on income

 

$

(1,816

)

 

$

(2,018

)

 

$

(1,472

)

 

$

(1,115

)

 

$

(1,335

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FIRST FOUNDATION INC.

SELECTED INFORMATION: INTEREST MARGIN - Unaudited

(in thousands, except percentages)

 

 

For the Quarter

 

For the Six Months

Ended June 30,

 

Ended June 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

5,064,903

 

 

$

4,372,853

 

 

$

4,951,044

 

 

$

4,158,816

 

Securities

 

 

779,903

 

 

 

522,263

 

 

 

791,141

 

 

 

520,769

 

Total interest-earnings assets

 

 

5,892,960

 

 

 

5,130,667

 

 

 

5,790,660

 

 

 

4,876,787

 

Deposits: interest-bearing

 

 

3,500,824

 

 

 

2,637,945

 

 

 

3,502,995

 

 

 

2,480,871

 

Deposits: noninterest-bearing

 

 

1,175,707

 

 

 

1,318,684

 

 

 

1,150,155

 

 

 

1,269,831

 

Borrowings

 

 

798,609

 

 

 

811,301

 

 

 

718,269

 

 

 

773,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Yield / Rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

4.46

%

 

 

3.98

%

 

 

4.46

%

 

 

3.97

%

Securities

 

 

3.17

%

 

 

2.74

%

 

 

3.12

%

 

 

2.69

%

Total interest-earnings assets

 

 

4.30

%

 

 

3.78

%

 

 

4.28

%

 

 

3.77

%

Deposits (interest-bearing only)

 

 

1.87

%

 

 

1.23

%

 

 

1.83

%

 

 

1.13

%

Deposits (noninterest and interest-bearing)

 

 

1.40

%

 

 

0.82

%

 

 

1.38

%

 

 

0.75

%

Borrowings

 

 

2.57

%

 

 

2.06

%

 

 

2.58

%

 

 

1.91

%

Total interest-bearing liabilities

 

 

2.00

%

 

 

1.42

%

 

 

1.95

%

 

 

1.32

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Rate Spread

 

 

2.30

%

 

 

2.36

%

 

 

2.33

%

 

 

2.45

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Yield on Interest-earning Assets

 

 

2.84

%

 

 

2.83

%

 

 

2.86

%

 

 

2.89

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended

 

 

June 30,

 

September 30,

 

December 31,

 

March 31,

 

June 30,

2018

2018

2018

2019

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

4,372,853

 

 

$

4,929,164

 

 

$

4,558,869

 

 

$

4,835,920

 

 

$

5,064,903

 

Securities

 

 

522,263

 

 

 

516,057

 

 

 

818,056

 

 

 

802,503

 

 

 

779,903

 

Total interest-earnings assets

 

 

5,130,667

 

 

 

5,609,150

 

 

 

5,427,610

 

 

 

5,687,224

 

 

 

5,892,960

 

Deposits: interest-bearing

 

 

2,637,945

 

 

 

3,224,812

 

 

 

3,332,969

 

 

 

3,505,191

 

 

 

3,500,824

 

Deposits: noninterest-bearing

 

 

1,318,684

 

 

 

1,520,153

 

 

 

1,257,721

 

 

 

1,124,318

 

 

 

1,175,707

 

Borrowings

 

 

811,301

 

 

 

482,753

 

 

 

427,006

 

 

 

637,036

 

 

 

798,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Yield / Rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

3.98

%

 

 

4.32

%

 

 

4.41

%

 

 

4.46

%

 

 

4.46

%

Securities

 

 

2.74

%

 

 

2.77

%

 

 

3.07

%

 

 

3.07

%

 

 

3.17

%

Total interest-earnings assets

 

 

3.78

%

 

 

4.13

%

 

 

4.23

%

 

 

4.27

%

 

 

4.30

%

Deposits (interest-bearing only)

 

 

1.23

%

 

 

1.41

%

 

 

1.59

%

 

 

1.79

%

 

 

1.87

%

Deposits (noninterest and interest-bearing)

 

 

0.82

%

 

 

0.96

%

 

 

1.16

%

 

 

1.35

%

 

 

1.40

%

Borrowings

 

 

2.06

%

 

 

2.37

%

 

 

2.51

%

 

 

2.58

%

 

 

2.57

%

Total interest-bearing liabilities

 

 

1.42

%

 

 

1.53

%

 

 

1.70

%

 

 

1.91

%

 

 

2.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Rate Spread

 

 

2.36

%

 

 

2.60

%

 

 

2.53

%

 

 

2.36

%

 

 

2.30

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Yield on Interest-earning Assets

 

 

2.83

%

 

 

3.12

%

 

 

3.05

%

 

 

2.88

%

 

 

2.84

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Use of Non-GAAP Financial Measures

To supplement our unaudited condensed consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures (including, but not limited to, non-GAAP net income and non-GAAP financial ratios) of financial performance. These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.

We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures (as applicable), provide meaningful supplemental information regarding our performance by providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance to prior periods. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, net income or other financial measures prepared in accordance with GAAP. In the information below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release, or a reconciliation of the non-GAAP calculation of the financial measure.

In this press release, we use certain non-GAAP financial ratios and measures that are not required by GAAP or exclude certain financial items from calculations that are otherwise required under GAAP, including:

  • The efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income and may exclude one-time items of income or expense.
  • Tangible common equity (also referred to as tangible book value or tangible equity) and tangible assets, are equal to common equity and assets, respectively, less $98.3 million and $99.5 million of goodwill and intangible assets as of June 30, 2019 and December 31, 2018, respectively. We believe that this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of capital ratios.
  • Average tangible equity is equal to average common equity less $98.5 million and $50.2 million of average goodwill and intangible assets for the quarters ended June 30, 2019 and 2018, respectively, and less $98.9 million and $43.0 million of average goodwill and intangible assets for the six months ended June 30, 2019 and 2018, respectively. We believe that this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of capital ratios.
  • The net yield on interest earnings assets (“NIM”) excluding loans held for sale (“LHFS”) removes the impact of holding our LHFS and any related borrowings from the NIM computation. We believe that this information provides a more useful measure of the NIM of the portfolio of loans we are holding on a long-term basis, without the impact of our short term holding of our LHFS. The following table provides a reconciliation of our NIM as reported for GAAP to the NIM excluding LHFS for the periods indicated:

For the Quarter Ended June 30, 2019

 

 

 

 

 

 

NIM

NIM as
Reported

NIM for
LHFS

Excluding
LHFS

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income / expense:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

56,510

 

 

$

6,336

 

 

$

50,174

 

Total interest-earnings assets

 

$

63,308

 

 

$

6,336

 

 

$

56,972

 

Borrowings

 

$

5,125

 

 

$

3,863

 

 

$

1,262

 

Total interest-bearing liabilities

 

$

21,421

 

 

$

3,863

 

 

$

17,558

 

Net interest income

 

$

41,887

 

 

$

2,473

 

 

$

39,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Balances:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

5,064,903

 

 

$

602,000

 

 

$

4,462,903

 

Total interest-earnings assets

 

$

5,892,960

 

 

$

602,000

 

 

$

5,290,960

 

Borrowings

 

$

798,609

 

 

$

602,000

 

 

$

196,609

 

Total interest-bearing liabilities

 

$

4,299,433

 

 

$

602,000

 

 

$

3,697,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Yield / Rate:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

4.46

%

 

 

4.21

%

 

 

4.50

%

Total interest-earnings assets

 

 

4.30

%

 

 

4.21

%

 

 

4.31

%

Borrowings

 

 

2.57

%

 

 

2.57

%

 

 

2.57

%

Total interest-bearing liabilities

 

 

2.00

%

 

 

2.57

%

 

 

1.91

%

Net Interest Rate Spread

 

 

2.30

%

 

 

1.64

%

 

 

2.40

%

Net Yield on Interest-earning Assets (NIM)

 

 

2.84

%

 

 

1.64

%

 

 

2.97

%

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2019

 

 

 

 

 

 

NIM

NIM as
Reported

NIM for
LHFS

Excluding
LHFS

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income / expense:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

110,345

 

 

$

12,672

 

 

$

97,673

 

Total interest-earnings assets

 

$

123,852

 

 

$

12,672

 

 

$

111,180

 

Borrowings

 

$

9,174

 

 

$

7,689

 

 

$

1,485

 

Total interest-bearing liabilities

 

$

40,918

 

 

$

7,689

 

 

$

33,229

 

Net interest income

 

$

82,934

 

 

$

4,983

 

 

$

77,951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Balances:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

4,951,044

 

 

$

602,000

 

 

$

4,349,044

 

Total interest-earnings assets

 

$

5,790,660

 

 

$

602,000

 

 

$

5,188,660

 

Borrowings

 

$

718,269

 

 

$

602,000

 

 

$

116,269

 

Total interest-bearing liabilities

 

$

4,221,264

 

 

$

602,000

 

 

$

3,619,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Yield / Rate:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

4.46

%

 

 

4.21

%

 

 

4.50

%

Total interest-earnings assets

 

 

4.28

%

 

 

4.21

%

 

 

4.29

%

Borrowings

 

 

2.58

%

 

 

2.58

%

 

 

2.58

%

Total interest-bearing liabilities

 

 

1.95

%

 

 

2.58

%

 

 

1.85

%

Net Interest Rate Spread

 

 

2.33

%

 

 

1.63

%

 

 

2.44

%

Net Yield on Interest-earning Assets (NIM)

 

 

2.86

%

 

 

1.63

%

 

 

3.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Discussion of Changes in Results of Operations and Financial Position

Quarter Ended June 30, 2019 as Compared to Quarter Ended June 30, 2018

Our net income and income before taxes in the second quarter of 2019 were $12.4 million and $17.5 million, respectively, as compared to $5.1 million and $6.8 million, respectively, in the second quarter of 2018. The $10.7 million increase in income before taxes was the result of a $10.7 million increase in income before taxes for Banking, a $0.5 million decrease in income before taxes for Wealth Management and a $0.4 million decrease in corporate interest expenses. The increase in Banking was due to higher net interest income, a lower provision for loan losses, higher noninterest income and lower noninterest expenses. The decrease in Wealth Management was due to lower noninterest income and higher noninterest expenses.

Our effective tax rate for the second quarter of 2019 was 29.1% as compared to 24.4% for the second quarter of 2018 and as compared to our statutory tax rate of 29.0%. During the second quarter of 2018, the effective tax rate benefited from excess tax benefits resulting from the exercise or vesting of stock awards.

Net interest income for Banking increased 16% from $36.8 million in the second quarter of 2018, to $42.0 million in the second quarter of 2019 due to a 15% increase in interest-earning assets. The net yield on interest-earning assets was relatively constant as a decrease in the net interest rate spread was offset by a larger benefit derived from noninterest bearing funding sources, including noninterest-bearing deposits and equity, as interest rates rise. The net interest rate spread decreased from 2.36% in the second quarter of 2018 to 2.30% in the second quarter of 2019 due to an increase in the cost of interest-bearing liabilities from 1.42% in the second quarter of 2018 to 2.00% in the second quarter of 2019 which was partially offset by an increase in yield on interest-earning assets from 3.78% in the second quarter of 2018 to 4.30% in the second quarter of 2019. The yield on interest-earning assets increased as new loans and securities added to the portfolio bear interest rates higher than the current portfolio rates as a result of increases in market rates. In addition, the realization of credit and yield discounts on the payoff of acquired loans was $1.3 million in the second quarter of 2019 as compared to $0.1 million in the second quarter of 2018. The increase in the cost of interest-bearing liabilities was due to increased costs of interest-bearing deposits, resulting from increases in deposit market rates, and increased costs of borrowings as the average rate on FHLB advances and other overnight borrowings increased from 1.89% in the second quarter of 2018 to 2.54% in the second quarter of 2019. The average balance outstanding under the holding company line of credit decreased from $34.6 million in the second quarter of 2018 to $6.5 million in the second quarter of 2019, resulting in a $0.4 million decrease in corporate interest expense.

The provision for loan losses in the second quarter of 2019 was $1.2 million as compared to $2.5 million in the second quarter of 2018. The $1.2 million provision for loan losses in the second quarter of 2019 was due to the growth in loan balances and $0.2 million of net chargeoffs. The $2.5 million provision for loan losses in the second quarter of 2018 was due to $3.5 million of chargeoffs recognized in the second quarter of 2018 and growth in loan balances.

Noninterest income in Banking in the second quarter of 2019 was $2.5 million higher than the second quarter of 2018 due to higher trust fees and loan fees, including prepayment and servicing fees and a $1.5 million charge in the second quarter of 2018 related to the classification of loans as held for sale. In the second quarter of 2018, we transferred $645 million of loans to loans held for sale with the intention of securitizing these loans and we entered into a swap agreement. As a result, we recognized a mark to market decrease on our loans held for sale of $3.7 million and a $2.2 million gain in the value of the swap. Noninterest income for Wealth Management decreased by $0.3 million in the second quarter of 2019 when compared to the corresponding period in 2018 due primarily to lower levels of AUM.

Noninterest expense in Banking decreased from $27.6 million in the second quarter of 2018 to $25.8 million in the second quarter of 2019, due primarily to $3.8 of acquisition costs related to the acquisition of Premier Business Bank (“PBB”) recorded in the second quarter of 2018, with no similar costs recorded in 2019. This decrease was partially offset by increases in staffing and other costs associated with the Bank’s expansion, including the acquisition of PBB in June 2018, the growth of its balances of loans and deposits and general increases in costs. Compensation and benefits for Banking increased $0.6 million during the second quarter of 2019 as compared to the second quarter of 2018 due to salary increases and an increase in the number of full time equivalent employees (“FTE”) in Banking, which increased to 420.6 in the second quarter of 2019 from 361.1 in the second quarter of 2018 as a result of the increased staffing related to the PBB acquisition and additional personnel added to support the growth in loans and deposits. A $0.4 million increase in occupancy and depreciation for Banking in the second quarter of 2019 as compared to the second quarter of 2018 was due to costs related to the PBB acquisition and increases in our data processing costs due to increased volumes. Customer service costs for Banking increased from $3.8 million in the second quarter of 2018 to $4.3 million in the second quarter of 2019 due to increases in the earnings credit rates paid on the related deposit balances which was partially offset by a decrease in the related deposit balances. Other expenses for Banking decreased by $3.3 million in the second quarter of 2019 when compared to the corresponding period in 2018 due to the $3.8 million of acquisition costs recorded in the second quarter of 2018 which was partially offset by increases in the amortization of core deposit intangibles and FDIC insurance. Noninterest expenses for Wealth Management increased by $0.2 million in the second quarter of 2019, when compared to the second quarter of 2018, due to increased compensation costs and legal costs.

Six Months Ended June 30, 2019 as Compared to Six Months Ended June 30, 2018

Our net income and income before taxes in the first six months of 2019 were $23.7 million and $33.5 million, respectively, as compared to $14.1 million and $19.4 million, respectively, in the first six months of 2018. The $14.2 million increase in income before taxes was the result of a $13.8 million increase in income before taxes for Banking, a $0.9 million decrease in income before taxes for Wealth Management, a $0.9 million decrease in corporate interest expenses and a $0.6 million decrease in corporate noninterest expenses. The increase in Banking was due to higher net interest income, a lower provision for loan losses and higher noninterest income which were partially offset by higher noninterest expenses. The decrease in Wealth Management was due to lower noninterest income.

Our effective tax rate for the six months of 2019 was 29.4% as compared to 27.1% for the first six months of 2018 and as compared to our statutory tax rate of 29.0%. During the first six months of 2018, the effective tax rate benefited from excess tax benefits resulting from the exercise or vesting of stock awards.

Net interest income for Banking increased 16% from $71.6 million in the first six months of 2018, to $83.0 million in the first six months of 2019 due primarily to a 19% increase in interest-earning assets. On a consolidated basis our net yield on interest earning assets was 2.86% for the first six months of 2019 as compared to 2.89% in the first six months of 2018. This decrease was due to a decrease in the net interest rate spread from 2.45% in the first six months of 2018 to 2.33% in the first six months of 2019, the effects of which were partially offset by a larger benefit derived from noninterest bearing funding sources, including noninterest-bearing deposits and equity, as interest rates rise. The decrease in the net interest rate spread was due to an increase in the cost of interest-bearing liabilities from 1.32% in the first six months of 2018 to 1.95% in the first six months of 2019 which was partially offset by an increase in yield on total interest-earning assets from 3.77% in the first six months of 2018 to 4.28% in the first six months of 2019. The yield on interest-earning assets increased as new loans added to the portfolio bear interest rates higher than the current portfolio rates as a result of increases in market rates. The increase in the cost of interest-bearing liabilities was due to increased costs of interest-bearing deposits, resulting from increases in deposit market rates, and increased costs of borrowings as the average rate on FHLB advances and other overnight borrowings increased from 1.73% in the first six months of 2018 to 2.56% in the first six months of 2019. The average balance outstanding under the holding company line of credit decreased from $38.1 million in the first six months of 2018 to $3.8 million in the first six months of 2019, resulting in a $0.9 million decrease in corporate interest expense.

The $1.8 million provision for loan losses in the first six months of 2019 was due to the growth in loan balances and $0.6 million of net chargeoffs. The $4.1 million provision for loan losses in the first six months of 2018 was due to $3.5 million of net chargeoffs and growth in loan balances.

Noninterest income in Banking in the first six months of 2019 was $3.0 million higher than the corresponding period in 2018 due to higher trust fees and loan fees, including prepayment and servicing fees and a $1.5 million charge in the second quarter of 2018 related to the classification of loans as held for sale. In the second quarter of 2018, we transferred $645 million of loans to loans held for sale with the intention of securitizing these loans and we entered into a swap agreement. As a result, we recognized a mark to market decrease on our loans held for sale of $3.7 million and a $2.2 million gain in the value of the swap. Noninterest income for Wealth Management decreased by $1.0 million in the first six months of 2019 when compared to the first six months of 2018 due primarily to lower levels of AUM.

Noninterest expense in Banking increased from $49.4 million in the first six months of 2018 to $52.4 million in the first six months of 2019, due to increases in staffing and other costs associated with the Bank’s expansion, including the acquisition of PBB in June 2018, the growth of its balances of loans and deposits and general increases in costs. Compensation and benefits for Banking increased $2.3 million during the first six months of 2019 as compared to the first six months of 2018 due to salary increases and an increase in the FTE in Banking, which increased to 422.8 in the first six months of 2019 from 349.7 in the first six months of 2018 as a result of the increased staffing related to the PBB acquisition and additional personnel added to support the growth in loans and deposits. The $1.1 million increase in occupancy and depreciation for Banking in the first six months of 2019 as compared to the first six months of 2018 was due to costs related to the PBB acquisition and increases in our data processing costs due to increased volumes. Customer service costs for Banking increased from $6.6 million in the first six months of 2018 to $7.7 million in the first six months of 2019 due to increases in the earnings credit rates paid on the related deposit balances which was partially offset by a decrease in the related deposit balances. Other expenses decreased by $1.6 million in the first six months of 2019 when compared to the corresponding period in 2018 due to the $3.8 million of acquisition costs recorded in the second quarter of 2018 which was partially offset by increases in the amortization of core deposit intangibles and FDIC insurance.

Quarter Ended June 30, 2019 as Compared to Quarter Ended March 31, 2019

Our net income and income before taxes in the second quarter of 2019 were $12.4 million and $17.5 million, respectively, as compared to $11.3 million and $16.0 million, respectively, in the first quarter of 2019. Income before taxes for Banking increased by $1.5 million and income before taxes for Wealth Management increased by $0.2 million.

Our effective tax rate for the second quarter of 2019 was 29.1% as compared to 29.7% for the first quarter of 2019 and as compared to our statutory tax rate of 29.0%.

Net interest income for Banking increased 2% from $41.1 million in the first quarter of 2019 to $42.0 million in the second quarter of 2019 due to a 4% increase in interest earning assets which was partially offset by a decrease in our net interest rate spread. The decrease in the net interest rate spread from 2.36% in the first quarter of 2019 to 2.30% in the second quarter of 2019 was due to an increase in the cost of interest-bearing liabilities, which increased from 1.91% in the first quarter of 2019 to 2.00% in the second quarter of 2019, which was partially offset by an increase in yield on total interest-earning assets, which increased from 4.27% in the first quarter of 2019 to 4.30% in the second quarter of 2019. The yield on interest-earning assets increased as new loans added to the portfolio bear interest rates higher than the current portfolio rates as a result of increases in market rates. The increase in the cost of interest-bearing liabilities was due to increased costs of interest-bearing deposits, resulting from increases in deposit market rates. The average balance outstanding under the holding company line of credit increased from $1.1 million in the first quarter of 2019 to $6.5 million in the second quarter of 2019, resulting in a $0.1 million increase in corporate interest expenses.

The provision for loan losses in the second quarter of 2019 was $1.2 million as compared to $0.5 million in the first quarter of 2019 as the growth in loan balances in the second quarter of 2019 was greater than the growth in loan balances in the first quarter of 2019.

Noninterest income in Banking increased from $3.0 million in the first quarter of 2019 to $3.5 million in the second quarter of 2019 due to due to higher trust fees and loan fees, including prepayment and servicing fees. Noninterest income for Wealth Management increased by $0.3 million in the second quarter of 2019 when compared to the first quarter of 2019 due primarily to higher levels of AUM.

Noninterest expense in Banking decreased from $26.6 million in the first quarter of 2019 to $25.8 million in the second quarter of 2019. Compensation and benefit costs for Banking decreased $1.5 million due to seasonal decreases in costs associated with employer taxes and employer contributions to retirement plans and lower staffing levels. FTE for Banking decreased from 422.8 in the first quarter of 2019 to 420.6 in the second quarter of 2019. Customer service costs increased by $0.9 million in the second quarter of 2019 when compared to the first quarter of 2019 due to higher balances of related deposit balances.

Changes in Financial Position

During the first six months of 2019, total assets increased by $446 million primarily due to increases in loans, including loans held for sale. Loans and loans held for sale increased $452 million in the first six months of 2019 as a result of $893 million of originations and a $15 million increase in the mark to market for loans held for sale which were partially offset by payoffs or scheduled payments of $456 million. The $211 million growth in deposits during the first six months of 2019 included increases in specialty deposits of $248 million and wholesale deposits of $62 million which were partially offset by a $99 million decrease in branch deposits. Borrowings increased by $174 million due primarily to the additional borrowings utilized to support our loan growth. At June 30, 2019 and December 31, 2018, the outstanding balance on the holding company line of credit was $20 million and $5 million, respectively.

We entered into two swap agreements in the fourth quarter of 2018 to reduce the interest rate risk of our portfolio of loans held for sale, which we expect to sell in the third quarter of 2019. We elected to utilize hedge accounting for these swaps. As a result, as of June 30, 2019, we have recorded a liability related to the swaps of $19.5 million and an offsetting mark to market increase of $19.8 million in our loans held for sale. The swaps were structured such that there will be no fixed versus floating payment between the origination date of the swaps and the expected sale date in the third quarter of 2019.

Our credit quality remains strong as our ratio of non-performing assets to total assets is at 0.25% at June 30, 2019. We recorded $0.6 million of net loan chargeoffs in the first six months of 2019 as compared to $3.5 million of net chargeoffs in first six months of 2018. The ratio of the allowance for loan and lease losses to loans, excluding loans acquired in acquisitions, was 0.48% an 0.51% at June 30, 2019 and December 31, 2018, respectively.

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Deposit and loan products offered by First Foundation Bank, Member FDIC and Equal Housing Lender.

Investment and Advisory Services provided by First Foundation Advisors, an SEC-Registered Investment Advisor. Trust Services and Insurance Services are offered through First Foundation Bank. First Foundation Insurance Services license number #0H38553.

Investment, Insurance, and Advisory Products and Services:

  • ARE NOT FDIC INSURED
  • ARE NOT BANK GUARANTEED
  • MAY LOSE VALUE
  • ARE NOT A DEPOSIT
  • ARE NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY