UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission File Number 001-36461

 

FIRST FOUNDATION INC.

(Exact name of Registrant as specified in its charter)

 

 

California

 

20-8639702

(State or other jurisdiction
of incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

 

 

18101 Von Karman Avenue, Suite 700 Irvine, CA 92612

 

92612

(Address of principal executive offices)

 

(Zip Code)

(949) 202-4160

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed, since last year)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.) (Check one):

 

Large accelerated filer

¨

Accelerated filer

¨

 

 

 

 

Non-accelerated filer

x

Smaller reporting company

x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  

7,886,513 shares of Common Stock, par value $0.001 per share, as of May 8, 2015

 

 

 


 

FIRST FOUNDATION INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2015

TABLE OF CONTENTS

 

 

  

 

 

Exhibit No.

 

 

 

Part I. Financial Information

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

34

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

 

Item 1A

 

Risk Factors

 

34

 

 

 

 

 

Item 5

 

Other Information

 

34

 

 

 

 

 

Item 6

 

Exhibits

 

35

 

 

 

 

 

SIGNATURES

 

S-1

 

 

 

 

 

EXHIBITS

 

E-1

 

 

 

(i)


 

PART I — FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

FIRST FOUNDATION INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

March 31,
2015

 

 

December 31,
2014

 

 

 

    (unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

35,318

 

 

$

29,692

 

Securities available-for-sale (“AFS”)

 

136,640

 

 

 

138,270

 

 

Loans, net of deferred fees

 

1,269,129

 

 

 

1,166,392

 

Allowance for loan and lease losses (“ALLL”)

 

(10,300

)

 

 

(10,150

)

Net loans

 

1,258,829

 

 

 

1,156,242

 

 

 

 

 

 

 

 

 

 

Premises and equipment, net

 

2,484

 

 

 

2,187

 

Investment in FHLB stock

 

17,061

 

 

 

12,361

 

Deferred taxes

 

9,413

 

 

 

9,748

 

Real estate owned (“REO”)

 

334

 

 

 

334

 

Other assets

 

6,522

 

 

 

6,590

 

Total Assets

$

1,466,601

 

 

$

1,355,424

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Deposits

$

961,157

 

 

$

962,954

 

Borrowings

 

393,000

 

 

 

282,886

 

Accounts payable and other liabilities

 

8,922

 

 

 

10,088

 

Total Liabilities

 

1,363,079

 

 

 

1,255,928

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

-

 

 

 

-

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

Common Stock, par value $.001: 20,000,000 shares authorized;  7,880,339 and 7,845,182 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively

 

8

 

 

 

8

 

Additional paid-in-capital

 

78,859

 

 

 

78,204

 

Retained earnings

 

23,010

 

 

 

20,384

 

Accumulated other comprehensive income, net of tax

 

1,645

 

 

 

900

 

Total Shareholders’ Equity

 

103,522

 

 

 

99,496

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

$

1,466,601

 

 

$

1,355,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(See accompanying notes to the consolidated financial statements)

 

 

1


 

FIRST FOUNDATION INC.

CONSOLIDATED INCOME STATEMENTS - UNAUDITED

(In thousands, except share and per share amounts)

 

 

For the Quarter Ended March 31,

 

 

2015

 

 

2014

 

Interest income:

 

 

 

 

 

 

 

Loans

$

12,101

 

 

$

10,104

 

Securities

 

815

 

 

 

392

 

FHLB stock, fed funds and deposits

 

242

 

 

 

179

 

Total interest income

 

13,158

 

 

 

10,675

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

Deposits

 

923

 

 

 

804

 

Borrowings

 

364

 

 

 

121

 

Total interest expense

 

1,287

 

 

 

925

 

 

 

 

 

 

 

 

 

Net interest income

 

11,871

 

 

 

9,750

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

150

 

 

 

235

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

11,721

 

 

 

9,515

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

Asset management, consulting and other fees

 

5,850

 

 

 

5,039

 

Other income

 

354

 

 

 

512

 

Total noninterest income

 

6,204

 

 

 

5,551

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

Compensation and benefits

 

9,180

 

 

 

8,480

 

Occupancy and depreciation

 

1,957

 

 

 

1,828

 

Professional services and marketing costs

 

1,058

 

 

 

1,249

 

Other expenses

 

1,163

 

 

 

989

 

Total noninterest expense

 

13,358

 

 

 

12,546

 

 

 

 

 

 

 

 

 

Income before taxes on income

 

4,567

 

 

 

2,520

 

Taxes on income

 

1,941

 

 

 

1,058

 

Net income

$

2,626

 

 

$

1,462

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

Basic

$

0.33

 

 

$

0.19

 

Diluted

$

0.32

 

 

$

0.18

 

Shares used in computation:

 

 

 

 

 

 

 

Basic

 

7,855,457

 

 

 

7,733,514

 

Diluted

 

8,211,145

 

 

 

8,094,814

 

 

 

 

 

 

 

 

 

 

 

 

(See accompanying notes to the consolidated financial statements)

 

 

 

2


 

FIRST FOUNDATION INC.

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME - UNAUDITED

(In thousands)

 

 

For the Quarter Ended March 31,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Net income

$

2,626

 

 

$

1,462

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

Unrealized holding gains (losses) on securities arising during the period

 

1,265

 

 

 

800

 

Other comprehensive income before tax

 

1,265

 

 

 

800

 

Income tax (expense) benefit related to items of other comprehensive income

 

(520

)

 

 

(329

)

Other comprehensive income

 

745

 

 

 

471

 

 

 

 

 

 

 

 

 

Total comprehensive income

$

3,371

 

 

$

1,933

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(See accompanying notes to the consolidated financial statements)

 

 

 

3


 

FIRST FOUNDATION INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In thousands)

 

 

For the Quarter Ended March 31,

 

 

2015

 

 

2014

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

$

2,626

 

 

$

1,462

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Provision for loan losses

 

150

 

 

 

235

 

Stock–based compensation expense

 

152

 

 

 

146

 

Depreciation and amortization

 

326

 

 

 

328

 

Deferred tax expense (benefit)

 

(185

)

 

 

523

 

Amortization of premiums on purchased loans - net

 

(231

)

 

 

(1,041

)

Increase (decrease) in other assets

 

126

 

 

 

(277

)

Increase in accounts payable and other liabilities

 

(713

)

 

 

(1,550

)

Net cash provided by operating activities

 

2,251

 

 

 

(174

)

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Net increase in loans

 

(102,506

)

 

 

(45,658

)

Purchase of AFS securities

 

-

 

 

 

(13,983

)

Maturities of AFS securities

 

2,837

 

 

 

605

 

Sale (purchase) of FHLB stock, net

 

(4,700

)

 

 

141

 

Purchase of premises and equipment

 

(623

)

 

 

(57

)

Net cash used in investing activities

 

(104,992

)

 

 

(59,993

)

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Increase (decrease) in deposits

 

(1,797

)

 

 

52,647

 

Net increase in FHLB advances

 

100,000

 

 

 

(15,000

)

Term note - borrowings

 

10,114

 

 

 

15,000

 

Term note - payments

 

-

 

 

 

(188

)

Proceeds from sale of stock, net

 

50

 

 

 

-

 

Net cash provided by financing activities

 

108,367

 

 

 

52,459

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

5,626

 

 

 

(6,667

)

Cash and cash equivalents at beginning of year

 

29,692

 

 

 

56,954

 

Cash and cash equivalents at end of period

$

35,318

 

 

$

50,287

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest

$

1,180

 

 

$

855

 

Income taxes

$

750

 

 

$

100

 

Noncash transactions:

 

 

 

 

 

 

 

Transfer of foreclosed loan to REO

$

-

 

 

$

1,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(See accompanying notes to the consolidated financial statements)

 

4


FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Quarter Ended March 31, 2015 – UNAUDITED

 

 

NOTE 1: BASIS OF PRESENTATION

The consolidated financial statements include First Foundation Inc. (“FFI”) and its wholly owned subsidiaries: First Foundation Advisors (“FFA”), First Foundation Bank (“FFB” or the “Bank”) and First Foundation Insurance Services (“FFIS”), a wholly owned subsidiary of FFB (collectively referred to as the “Company”). All inter-company balances and transactions have been eliminated in consolidation. The results of operations reflect any interim adjustments, all of which are of a normal recurring nature and which, in the opinion of management, are necessary for a fair presentation of the results for the interim period presented. The results for the 2015 interim periods are not necessarily indicative of the results expected for the full year.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates.

The accompanying unaudited consolidated financial statements include all information and footnotes required for interim financial statement presentation. The financial information provided herein is written with the presumption that the users of the interim financial statements have read, or have access to, the most recent Annual Report which contains the latest available audited consolidated financial statements and notes thereto, as of December 31, 2014.

Certain reclassifications have been made to the prior year consolidated financial statements to conform to the 2015 presentation.

Accounting pronouncements: In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 660): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40).” The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2016. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company's consolidated financial statements.

 

 

5


FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Quarter Ended March 31, 2015 – UNAUDITED

 

NOTE 2: FAIR VALUE

Assets Measured at Fair Value on a Recurring Basis

The following tables show the recorded amounts of assets and liabilities measured at fair value on a recurring basis as of:

 

 

  

 

 

  

Fair Value Measurement Level

 

 

  

Total

 

  

Level 1

 

  

Level 2

 

  

Level 3

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Treasury securities

 

$

300

 

 

$

300

 

 

$

 

 

$

 

FNMA and FHLB Agency notes

 

 

10,444

 

 

 

 

 

 

10,444

 

 

 

 

Agency mortgage-backed securities

 

 

125,896

 

 

 

 

 

 

125,896

 

 

 

 

Total assets at fair value on a recurring basis

 

$

136,640

 

 

$

300

 

 

$

136,340

 

 

$

 

December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Treasury securities

 

$

300

 

 

$

300

 

 

$

 

 

$

 

FNMA and FHLB Agency notes

 

 

10,277

 

 

 

 

 

 

10,277

 

 

 

 

Agency mortgage-backed securities

 

 

127,693

 

 

 

 

 

 

127,693

 

 

 

 

Total assets at fair value on a recurring basis

 

$

138,270

 

 

$

300

 

 

$

137,970

 

 

$

 

Fair Value of Financial Instruments

We have elected to use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale are measured at fair value on a recurring basis. Additionally, from time to time, we may be required to measure at fair value other assets on a nonrecurring basis, such as loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair value estimates are made at a discrete point in time based on relevant market information and other information about the financial instruments. Because no active market exists for a significant portion of our financial instruments, fair value estimates are based in large part on judgments we make primarily regarding current economic conditions, risk characteristics of various financial instruments, prepayment rates, and future expected loss experience. These estimates are subjective in nature and invariably involve some inherent uncertainties. Additionally, unexpected changes in events or circumstances can occur that could require us to make changes to our assumptions and which, in turn, could significantly affect and require us to make changes to our previous estimates of fair value.

In addition, the fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of existing and anticipated future customer relationships and the value of assets and liabilities that are not considered financial instruments, such as premises and equipment and other real estate owned.

The following methods and assumptions were used to estimate the fair value of financial instruments.

Cash and Cash Equivalents. The fair value of cash and cash equivalents approximates its carrying value.

Interest-Bearing Deposits with Financial Institutions. The fair values of interest-bearing deposits maturing within ninety days approximate their carrying values.

6


FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Quarter Ended March 31, 2015 – UNAUDITED

 

Investment Securities Available for Sale. Investment securities available-for-sale are measured at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as level 3 include asset-backed securities in less liquid markets.

Federal Home Loan Bank and Federal Reserve Bank Stock. The Bank is a member of the Federal Home Loan Bank (the “FHLB”) and the Federal Reserve Bank of San Francisco (the “FRB”). As members, we are required to own stock of the FHLB and the FRB, the amount of which is based primarily on the level of our borrowings from those institutions. We also have the right to acquire additional shares of stock in either or both of the FHLB and the FRB; however, to date, we have not done so. The fair values of that stock are equal to their respective carrying amounts, are classified as restricted securities and are periodically evaluated for impairment based on our assessment of the ultimate recoverability of our investments in that stock. Any cash or stock dividends paid to us on such stock are reported as income.

Loans. The fair value for loans with variable interest rates is the carrying amount. The fair value of fixed rate loans is derived by calculating the discounted value of future cash flows expected to be received by the various homogeneous categories of loans. All loans have been adjusted to reflect changes in credit risk.

Impaired Loans. ASC 820-10 applies to loans measured for impairment in accordance with ASC 310-10, “Accounting by Creditors for Impairment of a Loan”, including impaired loans measured at an observable market price (if available), and at the fair value of the loan’s collateral (if the loan is collateral dependent) less selling cost. The fair value of an impaired loan is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. When the fair value of the collateral is based on an observable market price or a current appraised value, we measure the impaired loan at nonrecurring Level 2. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price or a discounted cash flow has been used to determine the fair value, we measure the impaired loan at nonrecurring Level 3.

Deposits. The fair value of demand deposits, savings deposits, and money market deposits is defined as the amounts payable on demand at quarter-end. The fair value of fixed maturity certificates of deposit is estimated based on the discounted value of the future cash flows expected to be paid on the deposits.

Borrowings. The fair value of $363 million in borrowings is the carrying value of overnight FHLB advances that approximate fair value because of the short-term maturity of this instrument, resulting in a Level 2 classification. The fair value of term borrowings is derived by calculating the discounted value of future cash flows expected to be paid out by the Company. The $30.0 million term loan is a variable rate loan for which the rate adjusts quarterly, and as such, its fair value is based on its carrying value resulting in a Level 3 classification. The carrying amounts and estimated fair values of financial instruments are as follows as of:

7


FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Quarter Ended March 31, 2015 – UNAUDITED

 

 

 

Carrying

 

 

Fair Value Measurement Level

 

(dollars in thousands)

Value

 

 

1

 

 

2

 

 

3

 

 

Total

 

March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

35,318

 

 

$

35,318

 

 

$

 

 

$

 

 

$

35,318

 

Securities AFS

 

136,640

 

 

 

300

 

 

 

136,340

 

 

 

 

 

 

136,640

 

Loans

 

1,258,829

 

 

 

 

 

 

 

 

 

1,289,060

 

 

 

1,289,060

 

Investment in FHLB stock

 

17,061

 

 

 

17,061

 

 

 

 

 

 

 

 

 

17,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

961,157

 

 

 

720,651

 

 

 

240,413

 

 

 

 

 

 

961,064

 

Borrowings

 

393,000

 

 

 

 

 

 

363,000

 

 

 

30,000

 

 

 

393,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

29,692

 

 

$

29,692

 

 

$

 

 

$

 

 

$

29,692

 

Securities AFS

 

138,270

 

 

 

300

 

 

 

137,970

 

 

 

 

 

 

138,270

 

Loans

 

1,156,242

 

 

 

 

 

 

 

 

 

1,186,408

 

 

 

1,186,408

 

Investment in FHLB stock

 

12,361

 

 

 

12,361

 

 

 

 

 

 

 

 

 

12,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

962,954

 

 

 

709,604

 

 

 

253,244

 

 

 

 

 

 

962,848

 

Borrowings

 

282,886

 

 

 

 

 

 

263,000

 

 

 

19,886

 

 

 

282,886

 

 

 

NOTE 3: SECURITIES

The following table provides a summary of the Company’s securities AFS portfolio as of:

 

 

Amortized

 

 

Gross Unrealized

 

 

Estimated

 

(dollars in thousands)

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Treasury securities

$

300

 

 

$

 

 

$

 

 

$

300

 

FNMA and FHLB Agency notes

 

10,496

 

 

 

11

 

 

 

(63

)

 

 

10,444

 

Agency mortgage-backed securities

 

123,049

 

 

 

2,847

 

 

 

 

 

 

125,896

 

Total

$

133,845

 

 

$

2,858

 

 

$

(63

)

 

$

136,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Treasury securities

$

300

 

 

$

 

 

$

 

 

$

300

 

FNMA and FHLB Agency notes

 

10,496

 

 

 

 

 

 

(219

)

 

 

10,277

 

Agency mortgage-backed securities

 

125,944

 

 

 

1,881

 

 

 

(132

)

 

 

127,693

 

Total

$

136,740

 

 

$

1,881

 

 

$

(351

)

 

$

138,270

 

 

The US Treasury securities are pledged as collateral to the State of California to meet regulatory requirements related to the Bank’s trust operations.

The table below indicates, as of March 31, 2015, the gross unrealized losses and fair values of our investments, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

 

 

  

Securities with Unrealized Loss at March 31, 2015

 

(dollars in thousands)

  

Less than 12 months

 

 

12 months or more

 

 

Total

 

  

Fair
Value

 

  

Unrealized
Loss

 

 

Fair
Value

 

  

Unrealized
Loss

 

 

Fair
Value

 

  

Unrealized
Loss

 

FNMA and FHLB Agency notes

 

$

4,964

 

 

$

(36

)

 

$

2,722

 

 

$

(27

)

 

$

7,686

 

 

$

(63

)

Agency mortgage backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

4,964

 

 

$

(36

)

 

$

2,722

 

 

$

(27

)

 

$

7,686

 

 

$

(63

)

8


FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Quarter Ended March 31, 2015 – UNAUDITED

 

Unrealized losses on FNMA and FHLB agency notes and agency mortgage-backed securities have not been recognized into income because the issuer bonds are of high credit quality, management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the bonds approach maturity.

The scheduled maturity of securities AFS and the related weighted average yield is as follows as of March 31, 2015:

 

(dollars in thousands)

Less than
1 Year

 

 

1 Through
5 years

 

 

5 Through
10 Years

 

 

After 10
Years

 

 

Total

 

Amortized Cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Treasury securities

$

 

 

$

300

 

 

$

 

 

$

 

 

$

300

 

FNMA and FHLB Agency notes

 

 

 

 

5,000

 

 

 

5,496

 

 

 

 

 

 

10,496

 

Total

$

 

 

$

5,300

 

 

$

5,496

 

 

$

 

 

$

10,796

 

Weighted average yield

 

0.00

%

 

 

1.60

%

 

 

1.89

%

 

 

0.00

%

 

 

1.75

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Treasury securities

$

 

 

$

300

 

 

$

 

 

$

 

 

$

300

 

FNMA and FHLB Agency notes

 

 

 

 

4,964

 

 

 

5,480

 

 

 

 

 

 

10,444

 

Total

$

 

 

$

5,264

 

 

$

5,480

 

 

$

 

 

$

10,744

 

Agency mortgage backed securities are excluded from the above table because such securities are not due at a single maturity date. The weighted average yield of the agency mortgage backed securities as of March 31, 2015 was 2.48%.

 

 

NOTE 4: LOANS

The following is a summary of our loans as of:

 

(dollars in thousands)

March 31,
2015

 

 

December 31,
2014

 

Recorded investment balance:

 

 

 

 

 

 

 

Loans secured by real estate:

 

 

 

 

 

 

 

Residential properties:

 

 

 

 

 

 

 

Multifamily

$

508,732

 

 

$

481,491

 

Single family

 

393,168

 

 

 

360,644

 

Total real estate loans secured by residential properties

 

901,900

 

 

 

842,135

 

Commercial properties

 

224,481

 

 

 

205,320

 

Land and construction

 

5,325

 

 

 

4,309

 

Total real estate loans

 

1,131,706

 

 

 

1,051,764

 

Commercial and industrial loans

 

95,419

 

 

 

93,537

 

Consumer loans

 

42,077

 

 

 

21,125

 

Total loans

 

1,269,202

 

 

 

1,166,426

 

Premiums, discounts and deferred fees and expenses

 

(73

)

 

 

(34

)

Total

$

1,269,129

 

 

$

1,166,392

 

As of March 31, 2015 and December 31, 2014, the principal balances shown above are net of unaccreted discount related to loans acquired in an acquisition of $0.5 million and $0.8 million, respectively.

9


FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Quarter Ended March 31, 2015 – UNAUDITED

 

In 2012, the Company purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of these purchased credit impaired loans is as follows as of:

 

(dollars in thousands)

March 31,
2015

 

 

December 31,
2014

 

Outstanding principal balance:

 

 

 

 

 

 

 

Loans secured by real estate:

 

 

 

 

 

 

 

Commercial properties

$

204

 

 

$

206

 

Land

 

 

 

 

 

Total real estate loans

 

204

 

 

 

206

 

Commercial and industrial loans

 

1,971

 

 

 

2,002

 

Consumer loans

 

5

 

 

 

249

 

Total loans

 

2,180

 

 

 

2,457

 

Unaccreted discount on purchased credit impaired loans

 

(436

)

 

 

(651

)

Total

$

1,744

 

 

$

1,806

 

Accretable yield, or income expected to be collected on purchased credit impaired loans, is as follows as of:

 

(dollars in thousands)

March 31,
2015

 

 

December 31,
2014

 

 

 

 

 

 

 

 

 

Beginning balance

$

130

 

 

$

2,349

 

Accretion of income

 

(60

)

 

 

(1,076

)

Reclassifications from nonaccretable difference

 

 

 

 

(391

)

Disposals

 

 

 

 

(752

)

Ending balance

$

70

 

 

$

130

 

 

10


FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Quarter Ended March 31, 2015 – UNAUDITED

 

The following table summarizes our delinquent and nonaccrual loans as of:

 

 

Past Due and Still Accruing

 

 

 

 

 

Total Past

 

 

 

 

 

 

 

(dollars in thousands)

30–59 Days

 

 

60-89 Days

 

 

90 Days 
or More

 

 

Nonaccrual

 

 

Due and
Nonaccrual

 

 

Current

 

 

Total

 

March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential properties

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

901,900

 

 

$

901,900

 

Commercial properties

 

1,194

 

 

 

 

 

 

805

 

 

 

770

 

 

 

2,769

 

 

 

221,712

 

 

 

224,481

 

Land and construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,325

 

 

 

5,325

 

Commercial and industrial loans

 

1,445

 

 

 

1,373

 

 

 

357

 

 

 

349

 

 

 

3,524

 

 

 

91,895

 

 

 

95,419

 

Consumer loans

 

 

 

 

 

 

 

793

 

 

 

113

 

 

 

906

 

 

 

41,171

 

 

 

42,077

 

Total

$

2,639

 

 

$

1,373

 

 

$

1,955

 

 

$

1,232

 

 

$

7,199

 

 

$

1,262,003

 

 

$

1,269,202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total loans

 

0.21

%

 

 

0.11

%

 

 

0.15

%

 

 

0.10

%

 

 

0.57

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential properties

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

842,135

 

 

$

842,135

 

Commercial properties

 

 

 

 

805

 

 

 

200

 

 

 

596

 

 

 

1,601

 

 

 

203,719

 

 

 

205,320

 

Land and construction

 

 

 

 

 

 

 

651

 

 

 

 

 

 

651

 

 

 

3,658

 

 

 

4,309

 

Commercial and industrial loans

 

2,092

 

 

 

289

 

 

 

700

 

 

 

342

 

 

 

3,423

 

 

 

90,114

 

 

 

93,537

 

Consumer loans

 

 

 

 

 

 

 

637

 

 

 

163

 

 

 

800

 

 

 

20,325

 

 

 

21,125

 

Total

$

2,092

 

 

$

1,094

 

 

$

2,188

 

 

$

1,101

 

 

$

6,475

 

 

$

1,159,951

  

 

$

1,166,426

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total loans

 

0.18

%

 

 

0.09

%

 

 

0.19

%

 

 

0.09

%

 

 

0.56

%

 

 

 

 

 

 

 

 

Accrual of interest on loans is discontinued when reasonable doubt exists as to the full, timely collection of interest or principal and, generally, when a loan becomes contractually past due for ninety days or more with respect to principal or interest. The accrual of interest may be continued on a well-secured loan contractually past due ninety days or more with respect to principal or interest if the loan is in the process of collection or collection of the principal and interest is deemed probable. The Bank considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The determination of past due, nonaccrual or impairment status of loans acquired in an acquisition, other than loans deemed purchased impaired, is the same as loans we originate.

As of March 31, 2015 and December 31, 2014, the Company had two loans with a balance of $0.5 million classified as troubled debt restructurings (“TDR”) which are included as nonaccrual in the table above. Both loans were classified as a TDR as a result of a reduction in required principal payments and an extension of the maturity date of the loans.

 

 

11


FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Quarter Ended March 31, 2015 – UNAUDITED

 

NOE 5: ALLOWANCE FOR LOAN LOSSES

The following is a rollforward of the Bank’s allowance for loan losses for the quarters ended March 31:

 

(dollars in thousands)

 

Beginning
Balance

 

 

Provision for
Loan Losses

 

 

Charge-offs

 

 

Recoveries

 

 

Ending
Balance

 

2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential properties

 

$

6,586

 

 

$

(139

)

 

$

 

 

$

 

 

$

6,447

 

Commercial properties

 

 

1,526

 

 

 

(57

)

 

 

 

 

 

 

 

 

1,469

 

Commercial and industrial loans

 

 

1,897

 

 

 

183

 

 

 

 

 

 

 

 

 

2,080

 

Consumer loans

 

 

141

 

 

 

163

 

 

 

 

 

 

 

 

 

304

 

Total

 

$

10,150

 

 

$

150

 

 

$

 

 

$

 

 

$

10,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential properties

 

$

6,157

 

 

$

98

 

 

$

 

 

$

 

 

$

6,255

 

Commercial properties

 

 

1,440

 

 

 

153

 

 

 

 

 

 

 

 

 

1,593

 

Commercial and industrial loans

 

 

2,149

 

 

 

8

 

 

 

 

 

 

 

 

 

2,157

 

Consumer loans

 

 

169

 

 

 

(24

)

 

 

 

 

 

 

 

 

145

 

Total

 

$

9,915

 

 

$

235

 

 

$

 

 

$

 

 

$

10,150

 

12


FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Quarter Ended March 31, 2015 – UNAUDITED

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by impairment method as of:

 

(dollars in thousands)

 

Allowance for Loan Losses

 

Unaccreted
Credit

 

 

 

Evaluated for Impairment

 

 

Purchased

 

 

 

 

 

 

Component

 

 

 

Individually

 

Collectively

 

 

Impaired

 

 

Total

 

 

Other Loans

 

March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential properties

 

$

21

 

 

$

6,426

 

 

$

 

 

$

6,447

 

 

$

25

 

Commercial properties

 

 

40

 

 

 

1,429

 

 

 

 

 

 

1,469

 

 

 

158

 

Land and construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Commercial and industrial loans

 

 

1,178

 

 

 

902

 

 

 

 

 

 

2,080

 

 

 

30

 

Consumer loans

 

 

 

 

 

304

 

 

 

 

 

 

304

 

 

 

 

Total

 

$

1,239

 

 

$

9,061

 

 

$

 

 

$

10,300

 

 

$

217

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential properties

 

$

42

 

 

$

901,858

 

 

$

 

 

$

901,900

 

 

$

2,732

 

Commercial properties

 

 

6,942

 

 

 

217,339

 

 

 

200

 

 

 

224,481

 

 

 

19,257

 

Land and construction

 

 

 

 

 

5,325

 

 

 

 

 

 

5,325

 

 

 

436

 

Commercial and industrial loans

 

 

8,532

 

 

 

85,343

 

 

 

1,544

 

 

 

95,419

 

 

 

5,037

 

Consumer loans

 

 

113

 

 

 

41,964

 

 

 

 

 

 

42,077

 

 

 

7

 

Total

 

$

15,629

 

 

$

1,251,829

 

 

$

1,744

 

 

$

1,269,202

 

 

$

27,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential properties

 

$

 

 

$

6,586

 

 

$

 

 

$

6,586

 

 

$

26

 

Commercial properties

 

 

26

 

 

 

1,500

 

 

 

 

 

 

1,526

 

 

 

193

 

Land and construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Commercial and industrial loans

 

 

686

 

 

 

1,211

 

 

 

 

 

 

1,897

 

 

 

45

 

Consumer loans

 

 

 

 

 

141

 

 

 

 

 

 

141

 

 

 

 

Total

 

$

712

 

 

$

9,438

 

 

$

 

 

$

10,150

 

 

$

268

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential properties

 

$

43

 

 

$

842,092

 

 

$

 

 

$

842,135

 

 

$

2,861

 

Commercial properties

 

 

5,742

 

 

 

199,378

 

 

 

200

 

 

 

205,320

 

 

 

21,126

 

Land and construction

 

 

 

 

 

4,309

 

 

 

 

 

 

4,309

 

 

 

1,099

 

Commercial and industrial loans

 

 

5,635

 

 

 

86,343

 

 

 

1,559

 

 

 

93,537

 

 

 

5,893

 

Consumer loans

 

 

116

 

 

 

20,962

 

 

 

47

 

 

 

21,125

 

 

 

8

 

Total

 

$

11,536

 

 

$

1,153,084

 

 

$

1,806

 

 

$

1,166,426

 

 

$

30,987

 

The column labeled “Unaccreted Credit Component Other Loans” represents the amount of unaccreted credit component discount for loans acquired in the Merger that were not classified as purchased impaired or individually evaluated for impairment as of the dates indicated, and the stated principal balance of the related loans. The unaccreted credit component discount is equal to 0.79% and 0.86% of the stated principal balance of these loans, as of March 31, 2015 and December 31, 2014, respectively. In addition to this unaccreted credit component discount, an additional $0.2 million and $0.3 million of the ALLL have been provided for these loans as of March 31, 2015 and December 31, 2014, respectively.

13


FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Quarter Ended March 31, 2015 – UNAUDITED

 

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as loans secured by multifamily or commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Bank uses the following definitions for risk ratings:

Pass: Loans classified as pass are strong credits with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Impaired: A loan is considered impaired, when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Additionally, all loans classified as troubled debt restructurings (“TDRs”) are considered impaired. Purchased credit impaired loans are not considered impaired loans for these purposes.

Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions above and smaller, homogeneous loans not assessed on an individual basis.

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows as of:

 

(dollars in thousands)

 

Pass

 

 

Special
Mention

 

 

Substandard

 

 

Impaired

 

 

Total

 

March 31, 2015: