UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2018
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)
Delaware |
|
20-8639702 |
(State or other jurisdiction |
|
(I.R.S. Employer |
|
|
|
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)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
Accelerated filer |
☒ |
|
|
|
|
Non-accelerated filer |
☐ |
Smaller reporting company |
☐ |
|
|
|
|
Emerging growth company |
☒ |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 7, 2018, there were 44,397,035 shares of registrant’s common stock outstanding
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018
TABLE OF CONTENTS
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Page No. |
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Item 1. |
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1 |
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Item 2 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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23 |
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Item 3. |
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43 |
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Item 4. |
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43 |
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Item 1A |
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43 |
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Item 6 |
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44 |
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S-1 |
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(i)
PART I — FINANCIAL INFORMATION
FIRST FOUNDATION INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
|
June 30, |
|
|
December 31, |
|
||
|
|
(unaudited) |
|
|
|
|
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ASSETS |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
370,390 |
|
|
$ |
120,394 |
|
Securities available-for-sale (“AFS”) |
|
492,877 |
|
|
|
519,364 |
|
Loans held for sale |
|
644,605 |
|
|
|
154,380 |
|
Loans, net of deferred fees |
|
4,287,390 |
|
|
|
3,663,727 |
|
Allowance for loan and lease losses (“ALLL”) |
|
(19,000 |
) |
|
|
(18,400 |
) |
Net loans |
|
4,268,390 |
|
|
|
3,645,327 |
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
9,010 |
|
|
|
6,581 |
|
Investment in FHLB stock |
|
22,707 |
|
|
|
19,060 |
|
Deferred taxes |
|
18,290 |
|
|
|
12,143 |
|
Real estate owned (“REO”) |
|
2,979 |
|
|
|
2,920 |
|
Goodwill and intangibles |
|
100,370 |
|
|
|
33,576 |
|
Other assets |
|
36,383 |
|
|
|
27,440 |
|
Total Assets |
$ |
5,966,001 |
|
|
$ |
4,541,185 |
|
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|
|
|
|
|
|
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
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Liabilities: |
|
|
|
|
|
|
|
Deposits |
$ |
4,632,950 |
|
|
$ |
3,443,527 |
|
Borrowings |
|
791,000 |
|
|
|
678,000 |
|
Accounts payable and other liabilities |
|
24,082 |
|
|
|
24,707 |
|
Total Liabilities |
|
5,448,032 |
|
|
|
4,146,234 |
|
|
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Commitments and contingencies |
|
— |
|
|
|
— |
|
Shareholders’ Equity |
|
|
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|
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|
Common Stock, par value $0.01: 70,000,000 shares authorized; 44,397,035 and 38,207,766 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively |
|
44 |
|
|
|
38 |
|
Additional paid-in-capital |
|
430,479 |
|
|
|
314,501 |
|
Retained earnings |
|
99,625 |
|
|
|
85,503 |
|
Accumulated other comprehensive loss, net of tax |
|
(12,179 |
) |
|
|
(5,091 |
) |
Total Shareholders’ Equity |
|
517,969 |
|
|
|
394,951 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity |
$ |
5,966,001 |
|
|
$ |
4,541,185 |
|
(See accompanying notes to the consolidated financial statements)
1
CONSOLIDATED INCOME STATEMENTS - UNAUDITED
(In thousands, except share and per share amounts)
|
Quarter Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2018 |
|
|
2017 |
|
|
2018 |
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|
2017 |
|
||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
$ |
43,535 |
|
|
$ |
29,982 |
|
|
$ |
82,506 |
|
|
$ |
56,473 |
|
Securities AFS |
|
3,575 |
|
|
|
3,126 |
|
|
|
6,997 |
|
|
|
6,157 |
|
Fed funds sold, FHLB stock and deposits |
|
1,388 |
|
|
|
544 |
|
|
|
2,314 |
|
|
|
1,382 |
|
Total interest income |
|
48,498 |
|
|
|
33,652 |
|
|
|
91,817 |
|
|
|
64,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
8,084 |
|
|
|
4,012 |
|
|
|
13,956 |
|
|
|
7,204 |
|
Borrowings |
|
4,163 |
|
|
|
1,745 |
|
|
|
7,342 |
|
|
|
2,855 |
|
Total interest expense |
|
12,247 |
|
|
|
5,757 |
|
|
|
21,298 |
|
|
|
10,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
36,251 |
|
|
|
27,895 |
|
|
|
70,519 |
|
|
|
53,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
2,450 |
|
|
|
1,092 |
|
|
|
4,138 |
|
|
|
1,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
33,801 |
|
|
|
26,803 |
|
|
|
66,381 |
|
|
|
52,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management, consulting and other fees |
|
7,088 |
|
|
|
6,557 |
|
|
|
14,269 |
|
|
|
12,772 |
|
Gain on sale of loans |
|
— |
|
|
|
2,050 |
|
|
|
545 |
|
|
|
2,350 |
|
Gain on sale of REO |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
104 |
|
Loss on capital market activities |
|
(1,490 |
) |
|
|
— |
|
|
|
(1,490 |
) |
|
|
— |
|
Other income |
|
1,386 |
|
|
|
1,090 |
|
|
|
2,642 |
|
|
|
2,254 |
|
Total noninterest income |
|
6,984 |
|
|
|
9,697 |
|
|
|
15,966 |
|
|
|
17,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
16,645 |
|
|
|
13,983 |
|
|
|
33,814 |
|
|
|
28,738 |
|
Occupancy and depreciation |
|
4,763 |
|
|
|
3,879 |
|
|
|
8,934 |
|
|
|
7,293 |
|
Professional services and marketing costs |
|
1,820 |
|
|
|
207 |
|
|
|
4,309 |
|
|
|
3,636 |
|
Customer service costs |
|
3,824 |
|
|
|
1,319 |
|
|
|
6,595 |
|
|
|
2,012 |
|
Other expenses |
|
6,930 |
|
|
|
2,825 |
|
|
|
9,318 |
|
|
|
5,243 |
|
Total noninterest expense |
|
33,982 |
|
|
|
22,213 |
|
|
|
62,970 |
|
|
|
46,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes on income |
|
6,803 |
|
|
|
14,287 |
|
|
|
19,377 |
|
|
|
23,350 |
|
Taxes on income |
|
1,657 |
|
|
|
4,671 |
|
|
|
5,255 |
|
|
|
7,621 |
|
Net income |
$ |
5,146 |
|
|
$ |
9,616 |
|
|
$ |
14,122 |
|
|
$ |
15,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.13 |
|
|
$ |
0.29 |
|
|
$ |
0.36 |
|
|
$ |
0.47 |
|
Diluted |
$ |
0.12 |
|
|
$ |
0.28 |
|
|
$ |
0.35 |
|
|
$ |
0.46 |
|
Shares used to compute net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
40,820,006 |
|
|
|
33,623,671 |
|
|
|
39,704,834 |
|
|
|
33,216,602 |
|
Diluted |
|
41,332,192 |
|
|
|
34,564,319 |
|
|
|
40,234,560 |
|
|
|
34,264,436 |
|
(See accompanying notes to the consolidated financial statements)
2
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY - Unaudited
(In thousands, except share amounts)
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
||||||
|
|
Number of Shares |
|
Amount |
|
Additional Paid-in Capital |
|
Retained Earnings |
|
Comprehensive Income (Loss) |
|
Total |
||||||||||
Balance: December 31, 2017 |
|
38,207,766 |
|
$ |
38 |
|
|
$ |
314,501 |
|
|
$ |
85,503 |
|
|
$ |
(5,091 |
) |
|
$ |
394,951 |
|
Net income |
|
— |
|
|
— |
|
|
|
— |
|
|
|
14,122 |
|
|
|
— |
|
|
|
14,122 |
|
Other comprehensive income |
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,088 |
) |
|
|
(7,088 |
) |
Stock based compensation |
|
— |
|
|
— |
|
|
|
1,675 |
|
|
|
— |
|
|
|
— |
|
|
|
1,675 |
|
Issuance of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options |
|
193,000 |
|
|
— |
|
|
|
1,468 |
|
|
|
— |
|
|
|
— |
|
|
|
1,468 |
|
Stock grants – vesting of Restricted Stock Units |
|
135,946 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Acquisition |
|
5,234,593 |
|
|
5 |
|
|
|
101,494 |
|
|
|
— |
|
|
|
— |
|
|
|
101,499 |
|
Capital raise |
|
625,730 |
|
|
1 |
|
|
|
11,341 |
|
|
|
— |
|
|
|
— |
|
|
|
11,342 |
|
Balance: June 30, 2018 |
|
44,397,035 |
|
$ |
44 |
|
|
$ |
430,479 |
|
|
$ |
99,625 |
|
|
$ |
(12,179 |
) |
|
$ |
517,969 |
|
(See accompanying notes to the consolidated financial statements)
3
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME - UNAUDITED
(In thousands)
|
Quarter Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
5,146 |
|
|
$ |
9,616 |
|
|
$ |
14,122 |
|
|
$ |
15,729 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on securities arising during the period |
|
(2,578 |
) |
|
|
4,247 |
|
|
|
(10,018 |
) |
|
|
3,469 |
|
Other comprehensive income before tax |
|
(2,578 |
) |
|
|
4,247 |
|
|
|
(10,018 |
) |
|
|
3,469 |
|
Income tax (benefit) expense related to items of other comprehensive income |
|
(754 |
) |
|
|
1,748 |
|
|
|
(2,930 |
) |
|
|
1,428 |
|
Other comprehensive income (loss) |
|
(1,824 |
) |
|
|
2,499 |
|
|
|
(7,088 |
) |
|
|
2,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for gains included in net earnings |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Income tax (benefit) related to reclassification adjustment |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Reclassification adjustment for gains included in net earnings, net of tax |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other comprehensive income (loss), net of tax |
|
(1,824 |
) |
|
|
2,499 |
|
|
|
(7,088 |
) |
|
|
2,041 |
|
Total comprehensive income |
$ |
3,322 |
|
|
$ |
12,115 |
|
|
$ |
7,034 |
|
|
$ |
17,770 |
|
(See accompanying notes to the consolidated financial statements)
4
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
|
For the Six Months Ended June 30, |
|
|||||
|
2018 |
|
|
2017 |
|
||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
Net income |
$ |
14,122 |
|
|
$ |
15,729 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Provision for loan losses |
|
4,138 |
|
|
|
1,161 |
|
Stock–based compensation expense |
|
1,675 |
|
|
|
662 |
|
Depreciation and amortization |
|
1,317 |
|
|
|
1,163 |
|
Deferred tax expense |
|
442 |
|
|
|
273 |
|
Amortization of core deposit intangible |
|
755 |
|
|
|
109 |
|
Amortization of mortgage servicing rights – net |
|
473 |
|
|
|
210 |
|
Accretion of premiums on purchased loans – net |
|
(1,047 |
) |
|
|
(344 |
) |
Gain on sale of loans |
|
(545 |
) |
|
|
(2,350 |
) |
Gain on sale of REO |
|
— |
|
|
|
(104 |
) |
Increase in other assets |
|
(3,194 |
) |
|
|
(1,703 |
) |
Increase (decrease) in accounts payable and other liabilities |
|
(5,929 |
) |
|
|
3,524 |
|
Net cash provided by operating activities |
|
12,207 |
|
|
|
18,330 |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
Net increase in loans |
|
(645,628 |
) |
|
|
(608,507 |
) |
Proceeds from sale of loans |
|
52,376 |
|
|
|
175,758 |
|
Proceeds from sale of REO |
|
755 |
|
|
|
438 |
|
Purchases of premises and equipment |
|
(1,471 |
) |
|
|
(1,656 |
) |
Purchases of AFS securities |
|
(20,937 |
) |
|
|
(4,055 |
) |
Proceeds from sale of AFS securities |
|
9,982 |
|
|
|
— |
|
Maturities of AFS securities |
|
37,470 |
|
|
|
33,638 |
|
Cash acquired in acqusition |
|
47,582 |
|
|
|
— |
|
Sale (purchases) of FHLB stock, net |
|
(418 |
) |
|
|
11,178 |
|
Net cash used in investing activities |
|
(520,289 |
) |
|
|
(393,206 |
) |
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
Increase in deposits |
|
711,838 |
|
|
|
680,609 |
|
FHLB Advances – net (decrease) increase |
|
43,430 |
|
|
|
(813,965 |
) |
Line of credit net change – borrowings (paydowns), net |
|
(10,000 |
) |
|
|
25,000 |
|
Proceeds from sale of stock, net |
|
12,810 |
|
|
|
14,231 |
|
Net cash provided by (used in) financing activities |
|
758,078 |
|
|
|
(94,125 |
) |
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
249,996 |
|
|
|
(469,001 |
) |
Cash and cash equivalents at beginning of year |
|
120,394 |
|
|
|
597,946 |
|
Cash and cash equivalents at end of period |
$ |
370,390 |
|
|
$ |
128,945 |
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
Interest |
$ |
19,066 |
|
|
$ |
9,432 |
|
Income taxes |
|
11,090 |
|
|
|
5,405 |
|
Noncash transactions: |
|
|
|
|
|
|
|
Transfer of loans to loans held for sale |
$ |
544,795 |
|
|
$ |
53,601 |
|
Mortgage servicing rights from loan sales, net |
|
317 |
|
|
|
(1,080 |
) |
Chargeoffs (recoveries) against allowance for loans losses |
|
3,538 |
|
|
|
(239 |
) |
C1B acquisition reconciliation – goodwill/deferred taxes |
|
300 |
|
|
|
— |
|
(See accompanying notes to the consolidated financial statements)
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2018 - UNAUDITED
NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements include First Foundation Inc. (“FFI”) and its wholly owned subsidiaries: First Foundation Advisors (“FFA”) and First Foundation Bank (“FFB” or the “Bank”) and the wholly owned subsidiaries of FFB, First Foundation Insurance Services (“FFIS”) and Blue Moon Management, LLC (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 2018 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. These financial statements assume that readers have read the most recent Annual Report on Form 10-K which contains the latest available audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2017.
Certain reclassifications have been made to the prior year consolidated financial statements to conform to the 2018 presentation.
In February 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2017-05 “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” which clarifies that the guidance in Accounting Standards Codification (“ASC”) 610-20 on accounting for derecognition of a nonfinancial asset and in-substance nonfinancial asset applies only when the asset (or asset group) does not meet the definition of a business and provides guidance for partial sales of nonfinancial assets. The ASU became effective on January 1, 2018. The adoption of ASU No. 2017-05 did not have a material impact on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities”. The amendments in this ASU were issued to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. As a result, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Current GAAP contains limitations on how an entity can designate the hedged risk in certain cash flow and fair value hedging relationships. To address those current limitations, the amendments in this ASU permit hedge accounting for risk components in hedging relationships involving nonfinancial risk and interest rate risk. In addition, the amendments in this ASU change the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The adoption of ASU 2017-12 is not expected to have a material impact on the Company’s financial statements.
In January 2017, the FASB issued ASU 2017-04 “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” which provides updated guidance on how an entity is required to test goodwill for impairment. This update is effective for the Company for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The adoption of ASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” which introduces new guidance for the accounting for credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new model, referred to as the current expected credit losses (CECL) model, will apply to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. Upon initial recognition of the exposure, the CECL model requires an entity to estimate the credit losses expected over the life of an exposure. This update is effective for the Company for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The Company has begun analyzing the data requirements needed to implement the adoption of ASU 2016-13 and we expect that the adoption of ASU 2016-13 may have a significant impact on the Company’s
6
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2018 – UNAUDITED
recording of its allowance for loan losses. Management is continuing to evaluate the effects of 2016-13 and the impact of its implementation is undeterminable at this time.
In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842), Targeted Improvements. ASU 2018-10 provides improvements to clarify ASU 2016-02, Leases (Topic 842), or to correct unintended application of guidance. ASU 2018-11 provides amendments to a new and optional transition method to adopt the new lease requirements in ASU 2016-02. We expect the adoption of ASU 2018-10 and ASU 2018-11 will impact the Company’s accounting for its building leases at each of its locations through an increase in assets and liabilities in the same manner as the guidance in ASU 2016-02 described below.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The most significant change for lessees is the requirement under the new guidance to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases, which is generally defined as a lease term of less than 12 months. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases accounted for as operating leases under current lease accounting guidance. The amendments in this update are effective for interim and annual periods beginning after December 15, 2018. We expect the adoption of ASU 2016-02 to impact the Company’s accounting for its building leases at each of its locations through an increase in assets and liabilities.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The guidance affects the accounting for equity investments and adjusts the fair value disclosures for financial instruments carried at amortized cost such that the disclosed fair values represent an exit price as opposed to an entry price. ASU 2016-01 was effective for the Company on January 1, 2018 and resulted in separate classification of equity securities with changes in the fair value of the equity securities captured in the consolidated statements of income. The adoption of ASU 2016-01 did not have a material effect on the Company’s financial statements and disclosures.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This update replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements and related disclosures, as the Company’s primary sources of revenues are generated from financial instruments, such as loans and investment securities that are not within the scope of ASU 2014-09. Descriptions of our primary revenue-generating activities that are within the scope of this update, which are presented in our income statements as components of non-interest income are as follows:
Wealth management and trust fee income
Asset management fees are billed on a monthly or quarterly basis based on the amount of assets under management and the applicable contractual fee percentage. Asset management fees are recognized as revenue in the period in which they are billed and earned. Financial planning fees are due and billed at the completion of the planning project and are recognized as revenue at that time.
Service charges on deposit accounts
Service charges on deposit accounts represent general service fees for monthly account maintenance and activity or transaction-based fees. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed. Payment for such performance obligations are generally received at the time the performance obligations are satisfied.
Gains and Losses on Sales of REO
The new guidance requires judgment in evaluating if: (a) a commitment on the buyer’s part exists, (b) collection is probable in circumstances where the initial investment is minimal and (c) the buyer has obtained control of the asset, including the significant risks and rewards of the ownership. If there is no commitment on the buyer’s part, collection is not probable or the buyer has not obtained control of the asset, then a gain cannot be recognized. The initial investment requirement for the buyer along with the various methods for profit recognition are no longer applicable. The Company does not expect the new guidance to have a significant impact on the consolidated financial statements.
Other non-interest income includes revenue related to mortgage servicing activities and gains on sales of loans, which are not subject to the requirements of ASU 2014-09.
7
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2018 – UNAUDITED
On June 1, 2018, the Company completed the acquisition of PBB Bancorp and its wholly owned subsidiary Premier Business Bank (collectively “PBB”), through a merger of PBB with and into the Bank, in exchange for 5,234,593 shares of its common stock with a fair value of $19.39 per share. The primary reason for acquiring PBB was to expand our operations in Southern California.
The acquisition is accounted for under the purchase method of accounting. The acquired assets, assumed liabilities and identifiable intangible assets are recorded at their respective acquisition date fair values. Goodwill of $61 million, which is not tax deductible, is included in intangible assets in the table below.
The following table represents the assets acquired and liabilities assumed of PBB as of June 1, 2018 and the fair value adjustments and amounts recorded by the Bank in 2018 under the acquisition method of accounting:
|
PBB Book Value |
|
Fair Value Adjustments |
|
Fair Value |
||||||
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Assets Acquired: |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
47,582 |
|
|
$ |
— |
|
|
$ |
47,582 |
|
Securities AFS |
|
10,072 |
|
|
|
(90 |
) |
|
|
9,982 |
|
Loans, net of deferred fees |
|
537,885 |
|
|
|
(14,986 |
) |
|
|
522,899 |
|
Allowance for loan losses |
|
(3,011 |
) |
|
|
3,011 |
|
|
|
— |
|
Premises and equipment, net |
|
3,811 |
|
|
|
(1,536 |
) |
|
|
2,275 |
|
Investment in FHLB stock |
|
3,229 |
|
|
|
— |
|
|
|
3,229 |
|
Deferred taxes |
|
1,451 |
|
|
|
2,398 |
|
|
|
3,849 |
|
REO |
|
934 |
|
|
|
(109 |
) |
|
|
825 |
|
Goodwill and Core deposit intangible |
|
634 |
|
|
|
66,615 |
|
|
|
67,249 |
|
Other assets |
|
6,634 |
|
|
|
(566 |
) |
|
|
6,068 |
|
Total assets acquired |
$ |
609,221 |
|
|
$ |
54,737 |
|
|
$ |
663,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities Assumed: |
|
|
|
|
|
|
|
|
|
|
|
Deposits |
$ |
477,366 |
|
|
$ |
219 |
|
|
$ |
477,585 |
|
Borrowings |
|
79,911 |
|
|
|
(341 |
) |
|
|
79,570 |
|
Accounts payable and other liabilities |
|
5,204 |
|
|
|
100 |
|
|
|
5,304 |
|
Total liabilities assumed |
|
562,481 |
|
|
|
(22 |
) |
|
|
562,459 |
|
Excess of assets acquired over liabilities assumed |
|
46,740 |
|
|
|
54,759 |
|
|
|
101,499 |
|
Total |
$ |
609,221 |
|
|
$ |
54,737 |
|
|
$ |
663,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration: |
|
|
|
|
|
|
|
|
|
|
|
Stock issued |
|
|
|
|
|
|
|
|
$ |
101,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the cash flows expected to result from those assets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used was that of acquired loans. The excess of expected cash flows above the fair value of the majority of loans will be accreted to interest income over the remaining lives of the loans in accordance with FASB Accounting Standards Codification (“ASC”) 310-20.
Certain loans, for which specific credit-related deterioration since origination was identified, are recorded at fair value reflecting the present value of the amounts expected to be collected. Income recognition on these “purchased credit impaired” loans is based on a reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on nonaccrual status and have no accretable yield. All purchased credit impaired loans were classified as accruing loans as of and subsequent to the acquisition date.
8
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2018 – UNAUDITED
In accordance with generally accepted accounting principles there was no carryover of the allowance for loan losses that had been previously recorded by PBB.
The Company recorded a deferred income tax asset of $3.8 million related to PBB’s operating loss carry-forward and other tax attributes of PBB, along with the effects of fair value adjustments resulting from applying the purchase method of accounting.
The fair value of savings and transaction deposit accounts acquired from PBB were assumed to approximate their carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit accounts were valued by comparing the contractual cost of the portfolio to an identical portfolio bearing current market rates. The portfolio was segregated into pools based on remaining maturity. For each pool, the projected cash flows from maturing certificates were then calculated based on contractual rates and prevailing market rates. The valuation adjustment for each pool is equal to the present value of the difference of these two cash flows, discounted at the assumed market rate for a certificate with a corresponding maturity. This valuation adjustment will be accreted to reduce interest expense over the remaining maturities of the respective pools. The Company also recorded a core deposit intangible, which represents the value of the deposit relationships acquired from PBB, of $6.7 million. The core deposit intangible will be amortized over a period of 10 years.
Pro Forma Information (unaudited)
The following table presents unaudited pro forma information for the six months periods ending June 30, 2018 as if the acquisition of PBB had occurred on January 1, 2018, and unaudited pro forma information for the six months periods ending June 30, 2017 as if the acquisition of Commercial 1st Bancorp (“C1B”) and PBB had occurred on January 1, 2017, after giving effect to certain adjustments. The unaudited pro forma information for these periods includes adjustments for interest income on loans acquired, amortization of intangibles arising from the transaction, adjustments for interest expense on deposits acquired, acquisition costs, and the related income tax effects of all these items. The net effect of these pro forma adjustments were increases of $9.5 million and $0.7 million in net income for the six months ended June 30, 2018 and 2017, respectively. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed dates.
|
|
Six Months Ended June 30, |
||||||
|
|
2018 |
|
2017 |
||||
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
81,974 |
|
|
$ |
72,275 |
|
Provision for loan losses |
|
|
4,138 |
|
|
|
1,526 |
|
Noninterest income |
|
|
16,733 |
|
|
|
18,940 |
|
Noninterest expenses |
|
|
66,597 |
|
|
|
59,083 |
|
Income before taxes |
|
|
27,972 |
|
|
|
30,606 |
|
Taxes on income |
|
|
7,529 |
|
|
|
7,682 |
|
Net income |
|
$ |
20,443 |
|
|
$ |
22,924 |
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.46 |
|
|
$ |
0.55 |
|
Diluted |
|
$ |
0.46 |
|
|
$ |
0.54 |
|
|
|
|
|
|
|
|
|
|
The revenues (net interest income and noninterest income) and net income for the period from June 1, 2018 to June 30, 2018 related to the operations acquired from PBB and included in our results of operations for the six months ended June 30, 2018 were approximately $2.3 million and $1.0 million, respectively.
NOTE 3: FAIR VALUE MEASUREMENTS
Assets Measured at Fair Value on a Recurring Basis
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable
9
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2018 – UNAUDITED
inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect the Company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Assets Measured at Fair Value on a Recurring Basis
Securities available for sale and effective with the adoption of ASU 2016-01 on January 1, 2018, investments in equity securities, are measured at fair value on a recurring basis depending upon whether the inputs are Level 1, 2 or 3 as described above.
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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities |
$ |
418,667 |
|
|
$ |
— |
|
|
$ |
418,667 |
|
|
$ |
— |
|
Corporate bonds |
|
39,150 |
|
|
|
— |
|
|
|
39,150 |
|
|
|
— |
|
Beneficial interest – FHLMC securitizations |
|
33,622 |
|
|
|
— |
|
|
|
— |
|
|
|
33,622 |
|
Other |
|
1,438 |
|
|
|
1,438 |
|
|
|
— |
|
|
|
— |
|
Investment in equity securities |
|
422 |
|
|
|
422 |
|
|
|
— |
|
|
|
— |
|
Total assets at fair value on a recurring basis |
$ |
493,299 |
|
|
$ |
1,860 |
|
|
$ |
457,817 |
|
|
$ |
33,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities |
$ |
464,019 |
|
|
|
— |
|
|
|
464,019 |
|
|
|
— |
|
Corporate bonds |
|
19,000 |
|
|
|
— |
|
|
|
19,000 |
|
|
|
— |
|
Beneficial interest – FHLMC securitizations |
|
35,852 |
|
|
|
— |
|
|
|
— |
|
|
|
35,852 |
|
Other |
|
493 |
|
|
|
493 |
|
|
|
— |
|
|
|
— |
|
Total assets at fair value on a recurring basis |
$ |
519,364 |
|
|
$ |
493 |
|
|
$ |
483,019 |
|
|
$ |
35,852 |
|
The decrease in level 3 assets from December 31, 2017 was due to beneficial interest – FHLMC securitization maturities.
Assets Measured at Fair Value on a Nonrecurring Basis
Additionally, from time to time, we may be required to measure other assets at fair value on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
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”, at the fair value of the loan’s collateral (if the loan is collateral dependent) less estimated selling costs. 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. The total collateral dependent impaired Level 3 loans were $11.1 million and $13.4 million at June 30, 2018 and December 31, 2017, respectively. There were $0.9 million of specific reserves related to these loans at both June 30, 2018 and December 31, 2017.
10
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2018 – UNAUDITED
Real Estate Owned. The fair value of real estate owned is based on external appraised values that include adjustments for estimated selling costs and assumptions of market conditions that are not directly observable, resulting in a Level 3 classification. As of June 30, 2018 and December 31, 2017, the fair value of real estate owned was $3.0 million and $2.9 million, respectively.
Fair Value of Financial Instruments
Fair value estimates are made at a discrete point in time based on relevant market information and other information about the financial instruments. Considerable judgment is required to interpret market data to develop estimates of fair value. These estimates are subjective in nature and invariably involve some inherent uncertainties. Additionally, unexpected events or changes in 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.
The methods of determining the fair value of assets and liabilities presented in this note as of June 30, 2018 are consistent with Note 3 of the Company’s 2017 Form 10-K except for the valuation of investment in equity securities. We refined the calculation used to determine the disclosed fair value of our investment in equity securities as part of adopting ASU 2016-01. The refined calculation did not have a significant impact on our fair value disclosures.
The carrying amounts and estimated fair values of financial instruments are as follows as of:
|
Carrying |
|
|
Fair Value Measurement Level |
|
||||||||||||||
(dollars in thousands) |
Value |
|
|
1 |
|
|
2 |
|
|
3 |
|
|
Total |
|
|||||
June 30, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
370,390 |
|
|
$ |
370,390 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
370,390 |
|
Securities AFS |
|
492,877 |
|
|
|
1,438 |
|
|
|
457,817 |
|
|
|
33,622 |
|
|
|
492,877 |
|
Loans held for sale |
|
644,605 |
|
|
|
— |
|
|
|
644,605 |
|
|
|
— |
|
|
|
644,605 |
|
Loans, net |
|
4,268,390 |
|
|
|
— |
|
|
|
— |
|
|
|
4,220,596 |
|
|
|
4,220,596 |
|
Investment in FHLB stock |
|
22,707 |
|
|
|
— |
|
|
|
22,707 |
|
|
|
— |
|
|
|
22,707 |
|
Investment in equity securities |
|
422 |
|
|
|
422 |
|
|
|
— |
|
|
|
— |
|
|
|
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
4,632,950 |
|
|
|
3,081,179 |
|
|
|
1,554,674 |
|
|
|
— |
|
|
|
4,635,853 |
|
Borrowings |
|
791,000 |
|
|
|
— |
|
|
|
751,000 |
|
|
|
40,000 |
|
|
|
791,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
120,394 |
|
|
$ |
120,394 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
120,934 |
|
Securities AFS |
|
519,364 |
|
|
|
493 |
|
|
|
483,019 |
|
|
|
35,852 |
|
|
|
519,364 |
|
Loans, held for sale |
|
154,380 |
|
|
|
— |
|
|
|
155,345 |
|
|
|
— |
|
|
|
154,345 |
|
Loans, net |
|
3,645,327 |
|
|
|
— |
|
|
|
— |
|
|
|
3,617,060 |
|
|
|
3,617,060 |
|
Investment in FHLB stock |
|
19,060 |
|
|
|
— |
|
|
|
19,060 |
|
|
|
— |
|
|
|
19,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
3,443,527 |
|
|
|
2,542,730 |
|
|
|
901,877 |
|
|
|
— |
|
|
|
3,444,607 |
|
Borrowings |
|
678,000 |
|
|
|
— |
|
|
|
628,000 |
|
|
|
50,000 |
|
|
|
678,000 |
|
11
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2018 – UNAUDITED
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 |
|
||||
June 30, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities |
$ |
435,876 |
|
|
$ |
— |
|
|
$ |
(17,209 |
) |
|
$ |
418,667 |
|
Corporate bonds |
|
39,000 |
|
|
|
150 |
|
|
|
— |
|
|
|
39,150 |
|
Beneficial interests in FHLMC securitization |
|
33,772 |
|
|
|
1,832 |
|
|
|
(1,982 |
) |
|
|
33,622 |
|
Other |
|
1,443 |
|
|
|
1 |
|
|
|
(6 |
) |
|
|
1,438 |
|
Total |
$ |
510,091 |
|
|
$ |
1,983 |
|
|
$ |
(19,197 |
) |
|
$ |
492,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities |
$ |
471,131 |
|
|
$ |
287 |
|
|
$ |
(7,399 |
) |
|
$ |
464,019 |
|
Corporate bonds |
|
19,000 |
|
|
|
— |
|
|
|
— |
|
|
|
19,000 |
|
Beneficial interests in FHLMC securitization |
|
35,930 |
|
|
|
1,811 |
|
|
|
(1,889 |
) |
|
|
35,852 |
|
Other |
|
499 |
|
|
|
— |
|
|
|
(6 |
) |
|
|
493 |
|
Total |
$ |
526,560 |
|
|
$ |
2,098 |
|
|
$ |
(9,294 |
) |
|
$ |
519,364 |
|
US Treasury securities of $0.5 million as of June 30, 2018 that are included in the table above as Other are pledged as collateral to the State of California to meet regulatory requirements related to the Bank’s trust operations.
The tables below indicate, as of June 30, 2018 and December 31, 2017, 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 June 30, 2018 |
|
|||||||||||||||||||||
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|||||||||||||||
(dollars in thousands) |
|
Fair Value |
|
|
|
Unrealized |
|
|
Fair Value |
|
|
|
Unrealized Loss |
|
|
Fair Value |
|
|
Unrealized |
|
||||
Agency mortgage backed securities |
|
$ |
182,125 |
|
|
$ |
(5,655 |
) |
|
$ |
236,542 |
|
|
$ |
(11,554 |
) |
|
$ |
418,667 |
|
|
$ |
(17,209 |
) |
Beneficial interests in FHLMC securitization |
|
|
— |
|
|
|
— |
|
|
|
7,734 |
|
|
|
(1,982 |
) |
|
|
7,734 |
|
|
|
(1,982 |
) |
Other |
|
$ |
197 |
|
|
$ |
(2 |
) |
|
$ |
296 |
|
|
$ |
(4 |
) |
|
$ |
493 |
|
|
$ |
(6 |
) |
Total temporarily impaired securities |
|
$ |
182,322 |
|
|
$ |
(5,657 |
) |
|
$ |
244,572 |
|
|
$ |
(13,540 |
) |
|
$ |
426,894 |
|
|
$ |
(19,197 |
) |
|
|
Securities with Unrealized Loss at December 31, 2017 |
|
|||||||||||||||||||||
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|||||||||||||||
(dollars in thousands) |
|
Fair Value |
|
|
Unrealized |
|
|
Fair Value |
|
|
Unrealized |
|
|
Fair Value |
|
|
Unrealized |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage backed securities |
|
|
158,984 |
|
|
|
(1,394 |
) |
|
|
259,213 |
|
|
|
(6,005 |
) |
|
|
418,197 |
|
|
|
(7,399 |
) |
Beneficial interests in FHLMC securitization |
|
|
— |
|
|
|
— |
|
|
|
8,738 |
|
|
|
(1,889 |
) |
|
|
8,738 |
|
|
|
(1,889 |
) |
Other |
|
|
197 |
|
|
$ |
(2 |
) |
|
$ |
296 |
|
|
$ |
(4 |
) |
|
$ |
493 |
|
|
$ |
(6 |
) |
Total temporarily impaired securities |
|
$ |
159,181 |
|
|
$ |
(1,396 |
) |
|
$ |
268,247 |
|
|
$ |
(7,898 |
) |
|
$ |
427,428 |
|
|
$ |
(9,294 |
) |
Unrealized losses in agency mortgage backed securities, beneficial interests in FHLMC securitizations, and other securities have not been recognized into income because the issuer bonds are of high credit quality, management does not intend to sell, 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 discount rates and assumptions regarding future interest rates. The fair value is expected to recover as the bonds approach maturity.
12
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2018 – UNAUDITED
The scheduled maturities of securities AFS and the related weighted average yields were as follows for the periods indicated:
(dollars in thousands) |
|
Less than |
|
|
1 Through |
|
|
5 Through |
|
|
After |
|
|
Total |
|
|||||
June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
39,000 |
|
|
$ |
— |
|
|
$ |
39,000 |
|
Other |
|
|
499 |
|
|
|
— |
|
|
|
944 |
|
|
|
— |
|
|
|
1,443 |
|
Total |
|
|
499 |
|
|
|
— |
|
|
|
39,944 |
|
|
|
— |
|
|
|
40,443 |
|
Weighted average yield |
|
|
1.03 |
% |
|
|
— |
% |
|
|
5.06 |
% |
|
|
— |
% |
|
|
5.01 |
% |
Estimated Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
39,150 |
|
|
$ |
— |
|
|
$ |
39,150 |
|
Other |
|
|
493 |
|
|
|
— |
|
|
|
945 |
|
|
|
— |
|
|
|
1,438 |
|
Total |
|
$ |
493 |
|
|
$ |
— |
|
|
$ |
40,095 |
|
|
$ |
— |
|
|
$ |
40,588 |
|
(dollars in thousands) |
|
Less than |
|
|
1 Through |
|
|
5 Through |
|
|
After |
|
|
Total |
|
|||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost: |
|
|
|
|
|
|
|
|
|
|
|
|