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Press Release

First Foundation Announces 2020 Second Quarter Financial Results

  • Earnings per share: $0.40 for the quarter
  • Return on average assets of 1.06% for the quarter
  • Return on average tangible equity of 13.3% for the quarter
  • Net interest margin increased to 2.96% for the quarter
  • Credit quality remained strong with allowance for credit losses increasing to 0.55% of loans and nonperforming assets to total assets ratio of 0.22%
  • Tangible book value per share increased to $12.16 at June 30, 2020

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 three and six months ended June 30, 2020. 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.”

“Consistent with recent quarters, our second quarter results were very strong,” said Scott F. Kavanaugh, CEO. “I am so proud of our employees who have helped us safely keep all of our branch offices open and meet the needs of our clients through strong loan production and record deposit growth. Our wealth advisory and trust services also saw a return to near-peak levels of assets under management. While there are still some uncertainties regarding the overall economy, our solid business model positions us well to deliver the results we reported today. We are committed to promoting the safety of our employees and clients while remaining open to serve the financial needs of the community.”

Additionally, First Foundation announced today that its Board of Directors has approved the payment of a quarterly cash dividend of $0.07 per common share, payable on August 7, 2020 to common stockholders of record as of July 24, 2020.

Highlights

Financial Results:

  • 2020 second quarter compared to 2019 second quarter:
    • Total revenues were $57.4 million, an increase of 13%
    • Net interest income was $48.4 million, an increase of 16%
    • Income before taxes was $25.1 million, an increase of 43%
    • Earnings were $17.9 million, an increase of 44%
    • Earnings per fully diluted share were $0.40, compared to $0.28
  • 2020 year to date compared to 2019 year to date:
    • Total revenues were $113.0 million, an increase of 12%
    • Net interest income was $93.3 million, an increase of 13%
    • Income before taxes was $43.7 million, an increase of 30%
    • Earnings were $31.1 million, an increase of 31%
    • Earnings per fully diluted share were $0.69, compared to $0.53
  • 2020 Financial ratios:
    • Return on average tangible equity of 13.3% for the quarter, 11.7% for year-to-date
    • Return on average assets of 1.06% for the quarter, 0.94% for year-to-date
    • Efficiency ratio of 53.0% at First Foundation Inc. and 47% at First Foundation Bank for the quarter
    • Total tangible shareholders’ equity of $543 million, tangible book value of $12.16 per share, and tangible common equity to tangible assets of 7.70%

Other Activity:

  • We have not seen any significant need for forbearances in our multifamily and single-family portfolios, and total forbearances moved to 2.3% of total loan portfolio.
  • Approximately 85% of our total loan portfolio is secured by stabilized real estate properties.
  • Net interest margin (“NIM”) was 2.96% for the second quarter.
  • Hedge placed on loans held for sale. $11.7 million recorded as liability and increase to loans held for sale.
  • Loan originations totaled $701 million for the quarter, including $171 million of PPP loans.
  • Deposits increased by $757 million for the first six months of 2020.
  • Declared and paid cash dividend of $0.07 per share in the quarter.
  • Assets under management (“AUM”) at FFA increased to $4.3 billion.

“Our credit quality remains strong, and even with the uncertainties in the economy, our non-performing assets continue to remain low at 22 bps,” said David DePillo, President. “The investments we have made in technology over the past few years are allowing us to serve our clients digitally while also enhancing employee productivity as evidenced by the improvement in our efficiency ratio to 53% for the quarter.”

Details

  • Total loans, including loans held for sale, increased $614 million in the first six months of 2020 as a result of $1.4 billion of originations, which were partially offset by payoffs or scheduled payments of $760 million.
  • The $757 million growth in deposits during the first six months of 2020 included increases in specialty deposits of $467 million and branch deposits of $483 million, which were partially offset by a $193 million decrease in wholesale deposits.
  • The $394 million increase in AUM during the second quarter of 2020 was the net result of $46 million of new accounts, $466 million of portfolio gains, and terminations and net withdrawals of $118 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, including statements in the Discussion of Changes in Results of Operations and Financial Position below, 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 negative impacts and disruptions resulting from the COVID-19 pandemic on our colleagues, clients, the communities we serve and the domestic and global economy, which may have an adverse effect on our business, financial position and results of operations; 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; changes in general economic conditions, either nationally or locally in the areas in which we conduct or will conduct our business; risks associated with the Federal Reserve Board taking actions with respect to interest rates, 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 our 2019 Annual Report on Form 10-K for the fiscal year ended December 31, 2019 that we filed with the SEC on March 2, 2020, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 that we filed with the SEC on May 8, 2020, and other documents we file with the SEC from time to time. We urge readers of this news release to review those reports and 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 reports, 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,

 

 

2020

 

2019

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

414,179

 

$

65,387

Securities available-for-sale (“AFS”)

 

 

863,778

 

 

1,014,966

Loans held for sale

 

 

527,970

 

 

503,036

 

 

 

 

 

 

 

Loans, net of deferred fees

 

 

5,136,812

 

 

4,547,633

Allowance for credit losses (“ACL”)

 

 

(30,500)

 

 

(20,800)

Net loans

 

 

5,106,312

 

 

4,526,833

 

 

 

 

 

 

 

Investment in FHLB stock

 

 

23,598

 

 

21,519

Deferred taxes

 

 

9,194

 

 

11,079

Premises and equipment, net

 

 

8,188

 

 

8,355

Goodwill and intangibles

 

 

96,181

 

 

97,191

Other assets

 

 

88,943

 

 

66,070

Total Assets

 

$

7,138,343

 

$

6,314,436

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Deposits

 

$

5,647,841

 

$

4,891,144

Borrowings

 

 

764,600

 

 

743,000

Accounts payable and other liabilities

 

 

87,181

 

 

66,423

Total Liabilities

 

 

6,499,622

 

 

5,700,567

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

Common Stock, par value $.001: 70,000,000 shares authorized; 44,625,324 and 44,496,007 shares issued and outstanding at June 30, 2020 and December 31, 2019 respectively

 

 

45

 

 

45

Additional paid-in-capital

 

 

432,791

 

 

433,775

Retained earnings

 

 

200,582

 

 

175,773

Accumulated other comprehensive income, net of tax

 

 

5,303

 

 

4,276

Total Shareholders’ Equity

 

 

638,721

 

 

613,869

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

 

$

7,138,343

 

$

6,314,436

FIRST FOUNDATION INC.

CONSOLIDATED INCOME STATEMENTS - Unaudited

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

55,134

 

$

56,510

 

$

110,018

 

$

110,345

Securities

 

 

6,539

 

 

6,186

 

 

13,536

 

 

12,351

FHLB Stock, fed funds sold and deposits

 

 

259

 

 

612

 

 

716

 

 

1,156

Total interest income

 

 

61,932

 

 

63,308

 

 

124,270

 

 

123,852

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

10,914

 

 

16,296

 

 

25,560

 

 

31,744

Borrowings

 

 

2,571

 

 

5,125

 

 

5,395

 

 

9,174

Total interest expense

 

 

13,485

 

 

21,421

 

 

30,955

 

 

40,918

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

48,447

 

 

41,887

 

 

93,315

 

 

82,934

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for credit losses

 

 

1,367

 

 

1,231

 

 

5,431

 

 

1,771

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for credit losses

 

 

47,080

 

 

40,656

 

 

87,884

 

 

81,163

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

Asset management, consulting and other fees

 

 

6,733

 

 

7,136

 

 

14,495

 

 

13,930

Other income

 

 

2,236

 

 

1,995

 

 

5,149

 

 

3,666

Total noninterest income

 

 

8,969

 

 

9,131

 

 

19,644

 

 

17,596

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

18,288

 

 

17,333

 

 

38,145

 

 

36,235

Occupancy and depreciation

 

 

5,855

 

 

5,167

 

 

11,367

 

 

10,035

Professional services and marketing costs

 

 

2,049

 

 

2,024

 

 

3,803

 

 

4,028

Customer service costs

 

 

1,622

 

 

4,283

 

 

3,994

 

 

7,672

Other expenses

 

 

3,123

 

 

3,475

 

 

6,500

 

 

7,257

Total noninterest expense

 

 

30,937

 

 

32,282

 

 

63,809

 

 

65,227

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes on income

 

 

25,112

 

 

17,505

 

 

43,719

 

 

33,532

Taxes on income

 

 

7,258

 

 

5,095

 

 

12,654

 

 

9,863

Net income

 

$

17,854

 

$

12,410

 

$

31,065

 

$

23,669

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.40

 

$

0.28

 

$

0.70

 

$

0.53

Diluted

 

$

0.40

 

$

0.28

 

$

0.69

 

$

0.53

Shares used in computation:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

44,620,716

 

 

44,625,673

 

 

44,645,189

 

 

44,583,503

Diluted

 

 

44,812,369

 

 

44,894,720

 

 

44,882,520

 

 

44,846,779

FIRST FOUNDATION INC.

SELECTED FINANCIAL INFORMATION - Unaudited

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

2019

 

2020

 

2019

 

Selected Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

48,447

 

$

41,887

 

$

93,315

 

$

82,934

 

Provision for credit losses

 

 

1,367

 

 

1,231

 

 

5,431

 

 

1,771

 

Noninterest Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management, consulting and other fees

 

 

6,733

 

 

7,136

 

 

14,495

 

 

13,930

 

Other

 

 

2,236

 

 

1,995

 

 

5,149

 

 

3,666

 

Noninterest expense

 

 

30,937

 

 

32,282

 

 

63,809

 

 

65,227

 

Income before taxes

 

 

25,112

 

 

17,505

 

 

43,719

 

 

33,532

 

Net income

 

 

17,854

 

 

12,410

 

 

31,065

 

 

23,669

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.40

 

$

0.28

 

$

0.70

 

$

0.53

 

Diluted

 

 

0.40

 

 

0.28

 

 

0.69

 

 

0.53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected Performance Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets - annualized

 

 

1.06

%

 

0.81

%

 

0.94

%

 

0.79

%

Return on average equity - annualized

 

 

11.3

%

 

8.6

%

 

9.9

%

 

8.3

%

Return on average tangible equity – annualized(1)

 

 

13.3

%

 

10.4

%

 

11.7

%

 

10.1

%

Net yield on interest-earning assets

 

 

2.96

%

 

2.84

%

 

2.94

%

 

2.86

%

Efficiency ratio(2)

 

 

53.0

%

 

63.5

%

 

56.0

%

 

65.1

%

Noninterest income as a % of total revenues

 

 

15.6

%

 

17.9

%

 

17.4

%

 

17.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan originations

 

$

701,090

 

$

493,572

 

$

1,364,258

 

$

893,433

 

Charge-offs (recoveries) / average loans - annualized

 

 

0.03

%

 

0.02

%

 

0.02

%

 

0.02

%

 

 

 

(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,

 

 

 

2020

 

2019

 

Selected Balance Sheet Data:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

414,179

 

$

65,387

 

Loans held for sale

 

 

527,970

 

 

503,036

 

Loans, net of deferred fees

 

 

5,136,812

 

 

4,547,633

 

Allowance for credit losses

 

 

30,500

 

 

20,800

 

Total assets

 

 

7,138,343

 

 

6,314,436

 

Noninterest-bearing deposits

 

 

1,770,382

 

 

1,192,481

 

Interest-bearing deposits

 

 

3,877,460

 

 

3,698,663

 

Borrowings

 

 

764,600

 

 

743,000

 

Shareholders’ equity

 

 

638,721

 

 

613,869

 

 

 

 

 

 

 

 

 

Selected Capital Data:

 

 

 

 

 

 

 

Tangible common equity to tangible assets(3)

 

 

7.70

%

 

8.31

%

Tangible book value per share(3)

 

$

12.16

 

$

11.57

 

Shares outstanding at end of period

 

 

44,625,324

 

 

44,670,743

 

 

 

 

 

 

 

 

 

Other Information:

 

 

 

 

 

 

 

Assets under management (end of period)

 

$

4,292,252

 

$

4,438,252

 

Number of employees

 

 

493

 

 

485

 

Loan to deposit ratio

 

 

100.3

%

 

103.0

%

Nonperforming assets to total assets

 

 

0.22

%

 

0.20

%

Ratio of ACL to loans(4)

 

 

0.55

%

 

0.49

%

   

(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 allowance for credit losses on investments.

FIRST FOUNDATION INC.

SEGMENT REPORTING - Unaudited

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2020

 

2019

 

2020

 

2019

Banking:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

61,932

 

$

63,308

 

$

124,270

 

$

123,852

Interest expense

 

 

13,435

 

 

21,322

 

 

30,875

 

 

40,804

Net interest income

 

 

48,497

 

 

41,986

 

 

93,395

 

 

83,048

Provision for credit losses

 

 

1,367

 

 

1,231

 

 

5,431

 

 

1,771

Noninterest income

 

 

3,635

 

 

3,471

 

 

8,294

 

 

6,465

Noninterest expense

 

 

25,042

 

 

25,801

 

 

51,286

 

 

52,388

Income before taxes on income

 

$

25,723

 

$

18,425

 

$

44,972

 

$

35,354

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management:

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income

 

$

5,631

 

$

5,982

 

$

12,119

 

$

11,713

Noninterest expense

 

 

5,404

 

 

5,567

 

 

11,569

 

 

11,085

Income before taxes on income

 

$

227

 

$

415

 

$

550

 

$

628

 

 

 

 

 

 

 

 

 

 

 

 

 

Other and Eliminations:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

 

$

 

$

 

$

Interest expense

 

 

50

 

 

99

 

 

80

 

 

114

Net interest income

 

 

(50)

 

 

(99)

 

 

(80)

 

 

(114)

Noninterest income

 

 

(297)

 

 

(322)

 

 

(769)

 

 

(582)

Noninterest expense

 

 

491

 

 

914

 

 

954

 

 

1,754

Income before taxes on income

 

$

(838)

 

$

(1,335)

 

$

(1,803)

 

$

(2,450)

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,

 

 

2019

 

2019

 

2019

 

2020

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

56,510

 

$

56,483

 

$

54,123

 

$

54,884

 

$

55,134

Securities

 

 

6,186

 

 

5,349

 

 

7,304

 

 

6,997

 

 

6,539

FHLB Stock, fed funds sold and deposits

 

 

612

 

 

782

 

 

867

 

 

457

 

 

259

Total interest income

 

 

63,308

 

 

62,614

 

 

62,294

 

 

62,338

 

 

61,932

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

16,296

 

 

16,675

 

 

15,763

 

 

14,646

 

 

10,914

Borrowings

 

 

5,125

 

 

2,807

 

 

2,643

 

 

2,824

 

 

2,571

Total interest expense

 

 

21,421

 

 

19,482

 

 

18,406

 

 

17,470

 

 

13,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

41,887

 

 

43,132

 

 

43,888

 

 

44,868

 

 

48,447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for credit losses

 

 

1,231

 

 

172

 

 

694

 

 

4,079

 

 

1,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for credit losses

 

 

40,656

 

 

42,960

 

 

43,194

 

 

40,789

 

 

47,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management, consulting and other fees

 

 

7,136

 

 

7,304

 

 

7,424

 

 

7,762

 

 

6,733

Gain on sale of loans

 

 

 

 

4,218

 

 

 

 

 

 

Other income

 

 

1,995

 

 

2,460

 

 

2,774

 

 

2,913

 

 

2,236

Total noninterest income

 

 

9,131

 

 

13,982

 

 

10,198

 

 

10,675

 

 

8,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

17,333

 

 

17,167

 

 

16,531

 

 

19,857

 

 

18,288

Occupancy and depreciation

 

 

5,167

 

 

5,450

 

 

5,420

 

 

5,512

 

 

5,855

Professional services and marketing costs

 

 

2,024

 

 

1,745

 

 

1,644

 

 

1,754

 

 

2,049

Customer service costs

 

 

4,283

 

 

5,920

 

 

4,266

 

 

2,372

 

 

1,622

Other expenses

 

 

3,475

 

 

2,412

 

 

3,812

 

 

3,362

 

 

3,123

Total noninterest expense

 

 

32,282

 

 

32,694

 

 

31,673

 

 

32,857

 

 

30,937

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes on income

 

 

17,505

 

 

24,248

 

 

21,719

 

 

18,607

 

 

25,112

Taxes on income

 

 

5,095

 

 

6,892

 

 

6,505

 

 

5,396

 

 

7,258

Net income

 

$

12,410

 

$

17,356

 

$

15,214

 

$

13,211

 

$

17,854

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.28

 

$

0.39

 

$

0.34

 

$

0.30

 

$

0.40

Diluted

 

$

0.28

 

$

0.39

 

$

0.34

 

$

0.29

 

$

0.40

Shares used in computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

44,625,673

 

 

44,639,481

 

 

44,661,852

 

 

44,669,661

 

 

44,620,716

Diluted

44,894,720

44,935,308

45,014,092

44,952,669

44,812,369

FIRST FOUNDATION INC.

ROLLING SEGMENT REPORTING - Unaudited

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended

 

 

June 30,

 

September 30,

 

December 31,

 

March 31,

 

June 30,

 

 

2019

 

2019

 

2019

 

2020

 

2020

Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

63,308

 

$

62,614

 

$

62,294

 

$

62,338

 

$

61,932

Interest expense

 

 

21,322

 

 

19,328

 

 

18,318

 

 

17,440

 

 

13,435

Net interest income

 

 

41,986

 

 

43,286

 

 

43,976

 

 

44,898

 

 

48,497

Provision for credit losses

 

 

1,231

 

 

172

 

 

694

 

 

4,064

 

 

1,367

Noninterest income

 

 

3,471

 

 

8,173

 

 

4,206

 

 

4,659

 

 

3,635

Noninterest expense

 

 

25,801

 

 

26,397

 

 

25,582

 

 

26,244

 

 

25,042

Income before taxes on income

 

$

18,425

 

$

24,890

 

$

21,906

 

$

19,249

 

$

25,723

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income

 

$

5,982

 

$

6,161

 

$

6,262

 

$

6,488

 

$

5,631

Noninterest expense

 

 

5,567

 

 

5,423

 

 

5,423

 

 

6,165

 

 

5,404

Income before taxes on income

 

$

415

 

$

738

 

$

839

 

$

323

 

$

227

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other and Eliminations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

 

$

 

$

 

$

 

$

Interest expense

 

 

99

 

 

154

 

 

88

 

 

30

 

 

50

Net interest income

 

 

(99)

 

 

(154)

 

 

(88)

 

 

(30)

 

 

(50)

Noninterest income

 

 

(322)

 

 

(352)

 

 

(270)

 

 

(472)

 

 

(297)

Noninterest expense

 

 

914

 

 

874

 

 

668

 

 

463

 

 

491

Loss before taxes on income

 

$

(1,335)

 

$

(1,380)

 

$

(1,026)

 

$

(965)

 

$

(838)

FIRST FOUNDATION INC.

SELECTED INFORMATION: INTEREST MARGIN - Unaudited

(in thousands, except percentages)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

2019

 

2020

 

2019

 

Average Balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

5,475,796

 

$

5,064,903

 

$

5,278,974

 

$

4,951,044

 

Securities

 

 

919,788

 

 

779,903

 

 

959,707

 

 

791,141

 

Total interest-earnings assets

 

 

6,550,312

 

 

5,892,960

 

 

6,347,055

 

 

5,790,660

 

Deposits: interest-bearing

 

 

3,791,997

 

 

3,500,824

 

 

3,748,952

 

 

3,502,995

 

Deposits: noninterest-bearing

 

 

1,442,333

 

 

1,175,707

 

 

1,354,331

 

 

1,150,155

 

Borrowings

 

 

810,844

 

 

798,609

 

 

746,890

 

 

718,269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Yield / Rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

4.03

%

 

4.46

%

 

4.17

%

 

4.46

%

Securities

 

 

2.84

%

 

3.17

%

 

2.82

%

 

3.12

%

Total interest-earnings assets

 

 

3.78

%

 

4.30

%

 

3.92

%

 

4.28

%

Deposits (interest-bearing only)

 

 

1.16

%

 

1.87

%

 

1.37

%

 

1.83

%

Deposits (noninterest and interest-bearing)

 

 

0.84

%

 

1.40

%

 

1.01

%

 

1.38

%

Borrowings

 

 

1.28

%

 

2.57

%

 

1.45

%

 

2.58

%

Total interest-bearing liabilities

 

 

1.18

%

 

2.00

%

 

1.38

%

 

1.95

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Rate Spread

 

 

2.61

%

 

2.30

%

 

2.53

%

 

2.33

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Yield on Interest-earning Assets

 

 

2.96

%

 

2.84

%

 

2.94

%

 

2.86

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended

 

 

 

June 30,

 

September 30,

 

December 31,

 

March 31,

 

June 30,

 

 

 

2019

 

2019

 

2019

 

2020

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

5,064,903

 

$

5,282,338

 

$

4,942,708

 

$

5,082,152

 

$

5,475,796

 

Securities

 

 

779,903

 

 

616,424

 

 

1,023,715

 

 

999,625

 

 

919,788

 

Total interest-earnings assets

 

 

5,892,960

 

 

5,985,601

 

 

6,114,122

 

 

6,143,797

 

 

6,550,312

 

Deposits: interest-bearing

 

 

3,500,824

 

 

3,553,660

 

 

3,616,384

 

 

3,705,907

 

 

3,791,997

 

Deposits: noninterest-bearing

 

 

1,175,707

 

 

1,508,290

 

 

1,443,233

 

 

1,266,328

 

 

1,442,333

 

Borrowings

 

 

798,609

 

 

486,807

 

 

583,458

 

 

682,936

 

 

810,844

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Yield / Rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

4.46

%

 

4.27

%

 

4.37

%

 

4.32

%

 

4.03

%

Securities

 

 

3.17

%

 

3.47

%

 

2.85

%

 

2.80

%

 

2.84

%

Total interest-earnings assets

 

 

4.30

%

 

4.18

%

 

4.07

%

 

4.06

%

 

3.78

%

Deposits (interest-bearing only)

 

 

1.87

%

 

1.86

%

 

1.73

%

 

1.59

%

 

1.16

%

Deposits (noninterest and interest-bearing)

 

 

1.40

%

 

1.31

%

 

1.24

%

 

1.18

%

 

0.84

%

Borrowings

 

 

2.57

%

 

2.29

%

 

1.80

%

 

1.66

%

 

1.28

%

Total interest-bearing liabilities

 

 

2.00

%

 

1.91

%

 

1.74

%

 

1.60

%

 

1.18

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Rate Spread

 

 

2.30

%

 

2.27

%

 

2.33

%

 

2.46

%

 

2.61

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Yield on Interest-earning Assets

 

 

2.84

%

 

2.89

%

 

2.88

%

 

2.92

%

 

2.96

%

FIRST FOUNDATION INC.

SELECTED INFORMATION: LOAN AND DEPOSIT BALANCES - Unaudited

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended

 

 

June 30,

 

September 30,

 

December 31,

 

March 31,

 

June 30,

 

 

2019

 

2019

 

2019

 

2020

 

2020

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding principal balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans secured by real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

2,179,750

 

$

1,941,624

 

$

2,143,919

 

$

2,369,081

 

$

2,556,332

Single Family

 

 

904,413

 

 

896,607

 

 

871,181

 

 

851,443

 

 

839,537

Subtotal

 

 

3,084,163

 

 

2,838,231

 

 

3,015,100

 

 

3,220,524

 

 

3,395,869

Commercial properties

 

 

897,303

 

 

871,225

 

 

834,042

 

 

793,182

 

 

774,939

Land and construction

 

 

62,990

 

 

71,110

 

 

70,257

 

 

68,101

 

 

65,094

Total real estate loans

 

 

4,044,456

 

 

3,780,566

 

 

3,919,399

 

 

4,081,807

 

 

4,235,902

Commercial and industry loans

 

 

558,532

 

 

566,390

 

 

600,213

 

 

696,596

 

 

875,464

Consumer loans

 

 

17,477

 

 

16,505

 

 

16,273

 

 

17,476

 

 

18,640

Total loans

 

 

4,620,465

 

 

4,363,461

 

 

4,535,885

 

 

4,795,879

 

 

5,130,006

Deferred fees and expenses

 

 

10,899

 

 

10,747

 

 

11,748

 

 

9,634

 

 

6,806

Total

 

$

4,631,364

 

$

4,374,208

 

$

4,547,633

 

$

4,805,513

 

$

5,136,812

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

$

622,130

 

$

501,860

 

$

503,036

 

$

520,721

 

$

527,970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

1,279,218

 

$

1,532,105

 

$

1,192,481

 

$

1,315,114

 

$

1,770,382

Interest-bearing

 

 

316,806

 

 

350,344

 

 

386,276

 

 

384,215

 

 

411,053

Money market and savings

 

 

1,166,734

 

 

1,316,899

 

 

1,334,736

 

 

1,380,903

 

 

1,643,871

Certificates of deposits

 

 

1,981,184

 

 

1,971,218

 

 

1,977,651

 

 

1,950,595

 

 

1,822,535

Total

 

$

4,743,942

 

$

5,170,566

 

$

4,891,144

 

$

5,030,827

 

$

5,647,841

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 and non-operating items of income or expense. Core deposit intangible amortization for the three and six months ended June 30, 2020 of $0.5 million and $1.0 million, respectively, was excluded from noninterest expenses. For the six months ended June 30, 2019, a $0.1 million of gain on sale of REO was excluded from noninterest income.
  • 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 $96.2 million and $97.2 million of goodwill and intangible assets as of June 30, 2020 and December 31, 2019, 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 $96.4 million and $98.5 million of average goodwill and intangible assets for the quarters ended June 30, 2020 and 2019, respectively, and less $96.7 million and $98.9 million of average goodwill and intangible assets for the six months ended June 30, 2020 and 2019, 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.

Discussion of Changes in Results of Operations and Financial Position

Quarter Ended June 30, 2020 as Compared to Quarter Ended June 30, 2019

Our net income and income before taxes in the second quarter of 2020 were $ 17.9 million and $ 25.1 million, respectively, as compared to $12.4 million and $17.5 million, respectively, in the second quarter of 2019. The $7.6 million increase in income before taxes was the result of a $7.3 million increase in income before taxes for Banking, a $0.1 million decrease in income before taxes for Wealth Management and a $ 0.4 million decrease in corporate noninterest expenses. The increase in Banking was due to higher net interest income, higher noninterest income and lower noninterest expenses. The decrease in Wealth Management was due to lower noninterest income, offset partially by lower noninterest expenses.

Our effective tax rate for the second quarter of 2020 was 28.9% as compared to 29.1% for the second quarter of 2019 and as compared to our statutory tax rate of 29.0%.

Net interest income for Banking increased 16% from $42.0 million in the second quarter of 2019, to $48.5 million in the second quarter of 2020 due to an 11% increase in interest-earning assets and an increase in the net interest rate spread. The net interest rate spread increased from 2.30% in the second quarter of 2019 to 2.61% in the second quarter of 2020 due to a decrease in the cost of interest-bearing liabilities from 2.00% in the second quarter of 2019 to 1.18% in the second quarter of 2020, which was partially offset by a decrease in yield on interest-earning assets from 4.30% in the second quarter of 2019 to 3.78% in the second quarter of 2020. The decrease in the cost of interest-bearing liabilities was due to decreased costs of interest-bearing deposits, resulting from decreases in deposit market rates, and decreased costs of borrowings as the average rate on FHLB advances and other overnight borrowings increased from 2.54% in the second quarter of 2019 to 1.26% in the second quarter of 2020. The yield on interest-earning assets decreased from 4.30% in the second quarter of 2019 to 3.78% in the second quarter of 2020 due to decreases in yields on loans and securities and an increase in the proportion of lower yielding securities and deposits to total interest-earning assets. The yield on loans decreased due to accelerated payoffs of higher yielding loans during the last year and the decrease in market rates, which resulted in lower rates on loans added to the portfolio. The yield on securities decreased due to the purchase of $576 million of securities in the third quarter of 2019 at current market rates, which were lower than the overall yield realized in 2019. The average balance outstanding under the holding company line of credit decreased from $6.5 million in the second quarter of 2019 to $3.4 million in the second quarter of 2020, resulting in a $0.1 million decrease in corporate interest expense.

The provision for credit losses in the second quarter of 2020 was $ 1.4 million as compared to $1.2 million in the second quarter of 2019. The $1.4 million provision for credit losses in the second quarter of 2020 was due to the growth in loan balances and $0.4 million of net chargeoffs. The $1.2 million provision for credit losses in the second quarter of 2019 was due to the growth in loan balances and $0.2 million of net chargeoffs.

Noninterest income in Banking in the second quarter of 2020 was $0.2 million higher than the second quarter of 2019 due to loan fees, including prepayment and servicing fees. Noninterest income for Wealth Management decreased by $0.3 million in the second quarter of 2020 when compared to the corresponding period in 2019 due primarily to lower levels of AUM.

Noninterest expense in Banking decreased from $25.8 million in the second quarter of 2019 to $25.0 million in the second quarter of 2020 primarily due to lower customer service costs, which were partially offset by higher compensation and benefits, and occupancy and depreciation expenses. The $2.6 million decrease in customer service costs were due to decreases in the earnings credit rates paid on deposit balances, as interest rates have declined. Compensation and benefits were $1.0 million higher due to raises effective in the first quarter of 2020 and commission costs related to higher production volume during 2020. Occupancy and depreciation costs were $0.7 million higher due primarily to higher core processing costs related to higher volumes and services added during 2020. Noninterest expenses for Wealth Management decreased by $0.2 million in the second quarter of 2020, when compared to the second quarter of 2019, due to lower compensation and benefits and professional services and marketing expenses. The $0.4 million decrease in corporate expenses was due primarily to lower professional services and marketing expenses.

Six Months Ended June 30, 2020 as Compared to Six Months Ended June 30, 2019

Our net income and income before taxes in the first six months of 2020 were $31.1 million and $43.7 million, respectively, as compared to $23.7 million and $33.5 million, respectively, in the first six months of 2019. The $10.2 million increase in income before taxes was the result of a $9.6 million increase in income before taxes for Banking, a $0.1 million decrease in income before taxes for Wealth Management, and a $0.8 million decrease in corporate noninterest expenses. The increase in Banking was due to higher net interest income, a lower provision for credit 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 2020 was 28.9% as compared to 29.4% for the first six months of 2019 and as compared to our statutory tax rate of 29.0%.

Net interest income for Banking increased 12% from $83.0 million in the first six months of 2019, to $93.4 million in the first six months of 2020 due primarily to a 10% increase in interest-earning assets. On a consolidated basis our net yield on interest earning assets was 2.94% for the first six months of 2020 as compared to 2.86% in the first six months of 2019. This increase was due to an increase in the net interest rate spread, from 2.33% in the first six months of 2019 to 2.53% in the first six months of 2020. The increase in the net interest rate spread was due to a decrease in the cost of interest-bearing liabilities, from 1.95% in the first six months of 2019, to 1.38% in the first six months of 2020, which was partially offset by a decrease in yield on total interest-earning assets, from 4.28% in the first six months of 2019, to 3.92% in the first six months of 2020. The decrease in the cost of interest-bearing liabilities was due to decreased costs of interest-bearing deposits, resulting from decreases in deposit market rates, and decreased costs of borrowings, as the average rate on FHLB advances and other overnight borrowings decreased from 2.56% in the first six months of 2019 to 1.44% in the first six months of 2020. The yield on interest-earning assets decreased as new loans added to the portfolio bear interest rates lower than the current portfolio rates, due to decreases in market rates. The average balance outstanding under the holding company line of credit decreased from $3.8 million in the first six months of 2019 to $3.2 million in the first six months of 2020.

The $5.4 million provision for credit losses in the first six months of 2020 includes $2 million resulting from the computation of the provision for credit losses related to loans under CECL, as compared to what the computation would have been if CECL was not adopted, and a $1.8 million allowance taken in the first quarter of 2020 due to a change in expected cash flows of an interest only strip security. The $1.8 million provision for credit losses in the first six months of 2019 was due to growth in loan balances and $0.6 million of net chargeoffs.

Noninterest income in Banking in the first six months of 2020 was $1.8 million higher than the corresponding period in 2019 due a $1.8 increase in loan fees. Noninterest income for Wealth Management increased by $0.4 million in the first six months of 2020 when compared to the first six months of 2019 due primarily to higher investment management fees as a result of a corresponding increase in AUM.

Noninterest expense in Banking decreased from $52.4 million in the first six months of 2019 to $51.3 million in the first six months of 2020, due to a decrease in customer service costs, which were partially offset by increases in compensation and benefits and occupancy and depreciation. Customer service costs for Banking decreased from $7.7 million in the first six months of 2019 to $4.0 million in the first six months of 2020 due to decreases in the earnings credit rates paid on the related deposit balances, as interest rates declined during the first six months of 2020. Compensation and benefits for Banking increased $1.5 million during the first six months of 2020 as compared to the first six months of 2019 due to salary increases and an increase in the FTE in Banking, which increased to 431.1 in the first six months of 2020 from 422.8 in the first six months of 2019, as a result of the increased staffing related to additional personnel added to support the growth in loans and deposits. The $1.3 million increase in occupancy and depreciation for Banking in the first six months of 2020 as compared to the first six months of 2019 were due to higher core processing costs related to higher volumes and services added during 2019. Noninterest expenses for Wealth Management increased by $0.5 million in the first six months of 2020, when compared to the first six months of 2019, due to higher compensation and benefits and professional services and marketing expenses. Compensation and benefits were $0.3 million higher due to raises effective in the first quarter of 2020 and compensation paid on the higher levels of income. Professional services and marketing expenses were $0.2 million higher due to costs incurred on a legal matter. The $0.8 million decrease in corporate expenses was due primarily to lower legal expenses resulting from the recovery of legal costs on the settlement of a matter.

Quarter Ended June 30, 2020 as Compared to Quarter Ended March 31, 2020

Our net income and income before taxes in the second quarter of 2020 were $17.9 million and $25.1 million, respectively, as compared to $13.2 million and $18.6 million, respectively, in the first quarter of 2020. The $6.5 million increase in income before taxes was the result of a $6.5 million increase in income before taxes for Banking, a $0.1 million decrease in income before taxes for Wealth Management and a $0.1 million decrease in corporate expenses. The increase in Banking was due to higher net interest income and a lower provision for credit losses, which were partially offset by lower noninterest income.

Our effective tax rate for the second quarter of 2020 was 28.9% as compared to 29.0% for the first quarter of 2020 and as compared to our statutory tax rate of 29.0%.

Net interest income for Banking increased 8% from $44.9 million in the first quarter of 2020 to $48.5 million in the second quarter of 2020 due to a 23% decrease in interest earning liabilities. On a consolidated basis, the net yield on interest earning assets increased from 2.92% in the first quarter of 2020 to 2.96% in the second quarter of 2020 due to an increase in the net interest rate spread. The net interest rate spread increased from 2.46% in the first quarter of 2020 to 2.61% in the second quarter of 2020 due to a decrease in the cost of our interest-bearing liabilities. The decrease in the cost of interest-bearing liabilities was due to decreased costs of interest-bearing deposits, resulting from decreases in deposit market rates and decreases in our borrowing costs due to declines in the Fed Funds rates, which strongly influence our borrowing rates. The average balance outstanding under the holding company line of credit increased from $2.5 million in the first quarter of 2020 to $4.1 million in the second quarter of 2020.

The provision for credit losses in the second quarter of 2020 was $1.4 million as compared to $4.1 million in the first quarter of 2020. The $4.1 million provision for credit losses in the first quarter of 2020 includes $2 million resulting from the computation of the provision for credit losses under CECL as compared to what the computation would have been if CECL was not adopted, and a $1.8 million allowance taken in the first quarter of 2020 due to a change in expected cash flows of an interest only strip security. The $1.4 million provision for credit losses in the second quarter of 2020 was due to the growth in loan balances, $0.4 million of net chargeoffs, and $0.5 million of changes in expected cash flows of securities.

Noninterest income in Banking decreased from $4.7 million in the first quarter of 2020 to $3.6 million in the second quarter of 2020 due to due to lower trust fees and loan fees, including prepayment and servicing fees. Noninterest income for Wealth Management decreased by $0.9 million in the second quarter of 2020 when compared to the first quarter of 2020 due primarily to lower levels of fees earned on AUM.

Noninterest expense in Banking decreased from $26.2 million in the first quarter of 2020 to $25.0 million in the second quarter of 2020 due to lower compensation and benefits and customer service costs, which were partially offset by higher occupancy and depreciation costs. Compensation and benefits were $1.0 million lower in the second quarter of 2020 due to seasonal increases in costs associated with raises, employer taxes and employer contributions to retirement plans, and commission costs related to higher loan production volume in the first quarter of 2020. Customer service costs decreased by $0.8 million in the second quarter of 2020 when compared to the first quarter of 2020 due primarily to lower rates and lower balances of related deposits. Occupancy and depreciation expenses increased by $0.4 million in the second quarter of 2020 when compared to the first quarter of 2020 due primarily to higher core processing costs related to higher volumes and services. Noninterest expenses for wealth management decreased from $6.2 million in the first quarter of 2020 to $5.4 million in the second quarter of 2020 due to lower compensation and benefits costs. Compensation and benefits were $0.5 million lower in the second quarter of 2020 due to seasonal increases in costs associated with raises, employer taxes and employer contributions to retirement plans in the first quarter of 2020.

Changes in Financial Position

During the first six months of 2020, total assets increased by $824 million primarily due to an increase in loans, including loans held for sale which was partially offset by a decrease in securities. During the first six months of 2020, securities decreased by $151 million primarily due to payoffs of mortgage backed securities. Loans and loans held for sale increased $614 million in the first six months of 2020 as a result of $1.4 billion of originations, which were partially offset by payoffs or scheduled payments of $760 million. The $757 million growth in deposits during the first six months of 2020 included increases in branch deposits of $483 million and specialty deposits of $467 million, offset partially by a $193 million decrease in wholesale deposits. Borrowings increased by $22 million during the first six months of 2020 primarily to support the growth in our total assets. At June 30, 2020 and December 31, 2019, the outstanding balance on the holding company line of credit was $4.6 million and $10 million, respectively.

Our credit quality remains strong, as our ratio of nonperforming assets to total assets is at 0.22% at June 30, 2020. We recorded $0.4 million and $0.6 million of net loan chargeoffs in the first six months of 2020 and 2019, respectively. At June 30, 2020 and December 31, 2019, the ratio of the allowance for credit losses to loans, was 0.55% and 0.49%, respectively.

Kevin Thompson
Chief Financial Officer
First Foundation Inc.
949-202-4164
[email protected]

Source: First Foundation Inc.

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Deposit and loan products offered by First Foundation Bank, Member FDIC and Equal Housing Lender. NMLS #793235.

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