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First Foundation Announces 2019 Full Year Results

01/28/2020
  • Earnings per share: $0.34 for the quarter, $1.25 for the year
  • Annual earnings of $56 million, year over year growth of 31%
  • Annual revenues of $212 million, year over year growth of 11%
  • Loan production of $553 million for the fourth quarter, $1.9 billion for the year
  • Tangible book value per share: $11.57 at December 31, 2019, a 12% increase from prior year

IRVINE, Calif.--(BUSINESS WIRE)-- First Foundation Inc. (NASDAQ: FFWM), a financial services company with two wholly-owned operating subsidiaries, First Foundation Advisors (“FFA”) and First Foundation Bank (“FFB”), announced today its financial results for the quarter and year ended December 31, 2019. As we present certain non-GAAP measures in this release, the reader should refer to the non-GAAP reconciliations set forth below under the section “Use of Non-GAAP Financial Measures.”

“2019 was another strong year across all aspects of our business,” said Scott F. Kavanaugh, CEO. “Banking and trust revenues experienced record years and our assets under management ended the year at peak levels. We have been able to elevate our brand through successful digital marketing efforts and our financial performance is a reflection of the valuable franchise we have created for our clients, employees, and stockholders. With the economy in a solid place and our business model performing well, I believe we are well-positioned for the year ahead.”

Highlights

Financial Results:

  • 2019 fourth quarter compared to 2018 fourth quarter:
    • Total revenues were $54 million, an increase of 8%
    • Net interest income was $44 million, an increase of 6%
    • Income before taxes was $22 million, an increase of 9%
    • Earnings were $15 million, an increase of 8%
    • Earnings per fully diluted share were $0.34, compared to $0.31
  • 2019 compared to 2018 (full year):
    • Total revenues were $212 million, an increase of 11%
    • Net interest income was $170 million, an increase of 9%
    • Income before taxes was $79 million, an increase of 32%
    • Earnings were $56 million, an increase of 31%
    • Earnings per fully diluted share were $1.25, compared to $1.01
  • 2019 Financial ratios:
    • Return on average tangible equity of 11.9% for the quarter (annualized), 11.5% for the year
    • Return on average assets of 0.96% for the quarter (annualized), 0.91% for the year
    • Efficiency ratio of 58.6% for the quarter, 61.9% for the year
    • Total tangible shareholders’ equity of $517 million, tangible book value of $11.57 per share, and tangible common equity to tangible assets of 8.31%, in each case, as of December 31, 2019

Other Activity:

  • Loan originations totaled $553 million for the quarter, $1.9 billion for the year
  • Deposits increased by $358 million in 2019
  • Declared and paid cash dividend of $0.05 per share in fourth quarter, $0.20 per share for the year
  • Net interest margin (“NIM”): 2.88% for the fourth quarter; 2.87% for the year
  • Assets under management (“AUM”) at FFA increased by $504 million in 2019 to $4.4 billion
  • AUM for our Trust operations increased by $146 million, or 20%, during 2019, with an increase in trust fees of 33%

“I am very pleased with our loan and deposit accomplishments in 2019,” said David DePillo, President. “Our accomplishments included record loan originations, higher deposit balances, increased loan yields, lower deposit costs and lower borrowing costs. In addition, we maintained strong credit quality as evidenced by our non-performing assets ratio decreasing to 20 basis points as of the end of the year. Lastly, we were able to increase our operating efficiencies and enhance our digital banking offerings, which will continue to be a focus in 2020.”

Details

  • Total loans, including loans held for sale, increased $254 million in 2019 as a result of $1.9 billion of originations which was partially offset by the sale of $551 million of multifamily loans and payoffs or scheduled payments of $1.1 billion.
  • The $358 million growth in deposits during 2019 included increases in branch deposits of $138 million and specialty deposits of $222 million and a $2 million decrease in wholesale deposits.
  • The $504 million increase in AUM at FFA during 2019 was the net result of $285 million of new accounts, $691 million of portfolio gains and terminations and net withdrawals of $473 million.

About First Foundation

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

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

Forward-Looking Statements

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

FIRST FOUNDATION INC.

CONSOLIDATED BALANCE SHEETS - Unaudited

(in thousands, except share and per share amounts)

 

 

December 31,
2019

 

December 31,
2018

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

65,387

 

 

$

67,312

 

Securities available-for-sale (“AFS”)

 

 

1,014,966

 

 

 

809,569

 

Loans held for sale

 

 

503,036

 

 

 

507,643

 

 

 

 

 

 

 

 

 

 

Loans, net of deferred fees

 

 

4,547,633

 

 

 

4,293,669

 

Allowance for loan and lease losses (“ALLL”)

 

 

(20,800

)

 

 

(19,000

)

Net loans

 

 

4,526,833

 

 

 

4,274,669

 

 

 

 

 

 

 

 

 

 

Investment in FHLB stock

 

 

21,519

 

 

 

20,307

 

Deferred taxes

 

 

11,079

 

 

 

13,251

 

Premises and equipment, net

 

 

8,355

 

 

 

9,145

 

Real estate owned (“REO”)

 

 

 

 

 

815

 

Goodwill and intangibles

 

 

97,191

 

 

 

99,482

 

Other assets

 

 

66,070

 

 

 

38,219

 

Total Assets

 

$

6,314,436

 

 

$

5,840,412

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Deposits

 

$

4,891,144

 

 

$

4,532,968

 

Borrowings

 

 

743,000

 

 

 

708,000

 

Accounts payable and other liabilities

 

 

66,423

 

 

 

40,260

 

Total Liabilities

 

 

5,700,567

 

 

 

5,281,228

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Common Stock, par value $.001: 70,000,000 shares authorized; 44,670,743 and 44,496,007 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively

 

 

45

 

 

 

44

 

Additional paid-in-capital

 

 

433,775

 

 

 

431,832

 

Retained earnings

 

 

175,773

 

 

 

128,461

 

Accumulated other comprehensive income (loss), net of tax

 

 

4,276

 

 

 

(1,153

)

Total Shareholders’ Equity

 

 

613,869

 

 

 

559,184

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

 

$

6,314,436

 

 

$

5,840,412

 

 

 

 

 

 

 

 

 

 

FIRST FOUNDATION INC.

CONSOLIDATED INCOME STATEMENTS - Unaudited

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

For the Quarter

Ended December 31,

 

For the Year

Ended December 31,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

54,123

 

 

$

50,360

 

 

$

220,951

 

 

$

186,211

 

Securities

 

 

7,304

 

 

 

6,279

 

 

 

25,004

 

 

 

16,855

 

FHLB Stock, fed funds sold and deposits

 

 

867

 

 

 

803

 

 

 

2,805

 

 

 

4,240

 

Total interest income

 

 

62,294

 

 

 

57,442

 

 

 

248,760

 

 

 

207,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

15,763

 

 

 

13,378

 

 

 

64,182

 

 

 

38,776

 

Borrowings

 

 

2,643

 

 

 

2,699

 

 

 

14,624

 

 

 

12,920

 

Total interest expense

 

 

18,406

 

 

 

16,077

 

 

 

78,806

 

 

 

51,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

43,888

 

 

 

41,365

 

 

 

169,954

 

 

 

155,610

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

694

 

 

 

73

 

 

 

2,637

 

 

 

4,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

 

43,194

 

 

 

41,292

 

 

 

167,317

 

 

 

151,390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management, consulting and other fees

 

 

7,424

 

 

 

7,251

 

 

 

28,658

 

 

 

28,748

 

Gain on sale of loans

 

 

 

 

 

 

 

 

4,218

 

 

 

419

 

Other income

 

 

2,774

 

 

 

1,450

 

 

 

8,900

 

 

 

6,604

 

Total noninterest income

 

 

10,198

 

 

 

8,701

 

 

 

41,776

 

 

 

35,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

16,531

 

 

 

16,117

 

 

 

69,933

 

 

 

67,508

 

Occupancy and depreciation

 

 

5,420

 

 

 

5,255

 

 

 

20,905

 

 

 

19,779

 

Professional services and marketing costs

 

 

1,644

 

 

 

2,003

 

 

 

7,417

 

 

 

8,583

 

Customer service costs

 

 

4,266

 

 

 

3,628

 

 

 

17,858

 

 

 

15,077

 

Other expenses

 

 

3,812

 

 

 

3,135

 

 

 

13,481

 

 

 

16,128

 

Total noninterest expense

 

 

31,673

 

 

 

30,138

 

 

 

129,594

 

 

 

127,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes on income

 

 

21,719

 

 

 

19,855

 

 

 

79,499

 

 

 

60,086

 

Taxes on income

 

 

6,505

 

 

 

5,726

 

 

 

23,260

 

 

 

17,128

 

Net income

 

$

15,214

 

 

$

14,129

 

 

$

56,239

 

 

$

42,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.34

 

 

$

0.32

 

 

$

1.26

 

 

$

1.02

 

Diluted

 

$

0.34

 

 

$

0.31

 

 

$

1.25

 

 

$

1.01

 

Shares used in computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

44,661,852

 

 

 

44,476,829

 

 

 

44,617,361

 

 

 

42,092,361

 

Diluted

 

 

45,014,092

 

 

 

44,871,146

 

 

 

44,911,265

 

 

 

42,567,108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FIRST FOUNDATION INC.

SELECTED FINANCIAL INFORMATION - Unaudited

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

 

 

 

 

 

 

 

For the Quarter

Ended December 31,

 

For the Year

Ended December 31,

 

 

2019

 

2018

 

2019

 

2018

Selected Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

43,888

 

 

$

41,365

 

 

$

169,954

 

 

$

155,610

 

Provision for loan losses

 

 

694

 

 

 

73

 

 

 

2,637

 

 

 

4,220

 

Noninterest Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management, consulting and other fees

 

 

7,424

 

 

 

7,251

 

 

 

28,658

 

 

 

28,748

 

Gain (loss) on sale of loans

 

 

 

 

 

 

 

 

4,218

 

 

 

419

 

Other

 

 

2,774

 

 

 

1,450

 

 

 

8,900

 

 

 

6,604

 

Noninterest expense

 

 

31,673

 

 

 

30,138

 

 

 

129,594

 

 

 

127,075

 

Income before taxes

 

 

21,719

 

 

 

19,855

 

 

 

79,499

 

 

 

60,086

 

Net income

 

 

15,214

 

 

 

14,129

 

 

 

56,239

 

 

 

42,958

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.34

 

 

$

0.32

 

 

$

1.26

 

 

$

1.02

 

Diluted

 

 

0.34

 

 

 

0.31

 

 

 

1.25

 

 

 

1.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected Performance Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets - annualized

 

 

0.96

%

 

 

1.01

%

 

 

0.91

%

 

 

0.81

%

Return on average equity - annualized

 

 

10.0

%

 

 

10.4

%

 

 

9.6

%

 

 

9.1

%

Return on average tangible equity – annualized(1)

 

 

11.9

%

 

 

12.8

%

 

 

11.5

%

 

 

10.6

%

Net yield on interest-earning assets

 

 

2.88

%

 

 

3.05

%

 

 

2.87

%

 

 

2.99

%

Efficiency ratio (2)

 

 

58.6

%

 

 

60.2

%

 

 

61.9

%

 

 

64.4

%

Noninterest income as a % of total revenues

 

 

18.9

%

 

 

17.4

%

 

 

19.7

%

 

 

18.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan originations

 

$

553,212

 

 

$

505,084

 

 

$

1,932,462

 

 

$

1,844,209

 

Charge-offs (recoveries) / average loans - annualized

 

 

0.03

%

 

 

0.01

%

 

 

0.02

%

 

 

0.08

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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)

 

 

 

December 31,

2019

 

December 31,
2018

 

Selected Balance Sheet Data:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

65,387

 

 

$

67,312

 

 

Loans held for sale

 

 

503,036

 

 

 

507,643

 

 

Loans, net of deferred fees

 

 

4,547,633

 

 

 

4,293,669

 

 

ALLL

 

 

20,800

 

 

 

19,000

 

 

Total assets

 

 

6,314,436

 

 

 

5,840,412

 

 

Noninterest-bearing deposits

 

 

1,192,481

 

 

 

1,074,661

 

 

Interest-bearing deposits

 

 

3,698,663

 

 

 

3,458,307

 

 

Borrowings

 

 

743,000

 

 

 

708,000

 

 

Shareholders’ equity

 

 

613,869

 

 

 

559,184

 

 

 

 

 

 

 

 

 

 

 

 

Selected Capital Data:

 

 

 

 

 

 

 

 

 

Tangible common equity to tangible assets(3)

 

 

8.31

%

 

 

8.01

%

 

Tangible book value per share(3)

 

$

11.57

 

 

$

10.33

 

 

Shares outstanding at end of period

 

 

44,670,743

 

 

 

44,496,007

 

 

 

 

 

 

 

 

 

 

 

 

Other Information:

 

 

 

 

 

 

 

 

 

Assets under management (end of period)

 

$

4,438,252

 

 

$

3,934,700

 

 

Number of employees

 

 

485

 

 

 

482

 

 

Loan to deposit ratio

 

 

103

%

 

 

106

%

 

Nonperforming assets to total assets

 

 

0.20

%

 

 

0.21

%

 

Ratio of ALLL to loans(4)

 

 

0.49

%

 

 

0.51

%

 

 

 

 

 

 

 

 

 

 

 

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

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

FIRST FOUNDATION INC.

SEGMENT REPORTING - Unaudited

(in thousands)

 

 

 

 

 

 

 

For the Quarter

Ended December 31,

 

For the Year

Ended December 31,

 

 

2019

 

2018

 

2019

 

2018

Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

62,294

 

 

$

57,442

 

 

$

248,760

 

 

$

207,306

 

Interest expense

 

 

18,318

 

 

 

15,886

 

 

 

78,450

 

 

 

49,935

 

Net interest income

 

 

43,976

 

 

 

41,556

 

 

 

170,310

 

 

 

157,371

 

Provision for loan losses

 

 

694

 

 

 

73

 

 

 

2,637

 

 

 

4,220

 

Noninterest income

 

 

4,206

 

 

 

2,736

 

 

 

18,844

 

 

 

11,322

 

Noninterest expense

 

 

25,582

 

 

 

23,882

 

 

 

104,367

 

 

 

100,778

 

Income before taxes on income

 

$

21,906

 

 

$

20,337

 

 

$

82,150

 

 

$

63,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income

 

$

6,262

 

 

$

6,327

 

 

$

24,136

 

 

$

25,247

 

Noninterest expense

 

 

5,423

 

 

 

5,337

 

 

 

21,931

 

 

 

21,670

 

Income before taxes on income

 

$

839

 

 

$

990

 

 

$

2,205

 

 

$

3,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other and Eliminations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

 

 

$

 

 

$

 

 

$

 

Interest expense

 

 

88

 

 

 

191

 

 

 

356

 

 

 

1,761

 

Net interest income

 

 

(88

)

 

 

(191

)

 

 

(356

)

 

 

(1,761

)

Noninterest income

 

 

(270

)

 

 

(362

)

 

 

(1,204

)

 

 

(798

)

Noninterest expense

 

 

668

 

 

 

919

 

 

 

3,296

 

 

 

4,627

 

Income before taxes on income

 

$

(1,026

)

 

$

(1,472

)

 

$

(4,856

)

 

$

(7,186

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FIRST FOUNDATION INC.

ROLLING INCOME STATEMENTS - Unaudited

(in thousands, except share and per share amounts)

 

 

 

 

 

For the Quarter Ended

 

 

 

December 31,

2018

 

 

March 31,

2019

 

June 30,

2019

 

 

September 30,

2019

 

 

 

December 31,

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

50,360

 

 

$

53,835

 

 

$

56,510

 

 

$

56,483

 

 

$

54,123

 

Securities

 

 

6,279

 

 

 

6,165

 

 

 

6,186

 

 

 

5,349

 

 

 

7,304

 

FHLB Stock, fed funds sold and deposits

 

 

803

 

 

 

544

 

 

 

612

 

 

 

782

 

 

 

867

 

Total interest income

 

 

57,442

 

 

 

60,544

 

 

 

63,308

 

 

 

62,614

 

 

 

62,294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

13,378

 

 

 

15,448

 

 

 

16,296

 

 

 

16,675

 

 

 

15,763

 

Borrowings

 

 

2,699

 

 

 

4,049

 

 

 

5,125

 

 

 

2,807

 

 

 

2,643

 

Total interest expense

 

 

16,077

 

 

 

19,497

 

 

 

21,421

 

 

 

19,482

 

 

 

18,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

41,365

 

 

 

41,047

 

 

 

41,887

 

 

 

43,132

 

 

 

43,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

73

 

 

 

540

 

 

 

1,231

 

 

 

172

 

 

 

694

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

 

41,292

 

 

 

40,507

 

 

 

40,656

 

 

 

42,960

 

 

 

43,194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset management, consulting and other fees

 

 

7,251

 

 

 

6,794

 

 

 

7,136

 

 

 

7,304

 

 

 

7,424

 

Gain (loss) on sale of loans

 

 

 

 

 

 

 

 

 

 

 

4,218

 

 

 

 

Other income

 

 

1,450

 

 

 

1,671

 

 

 

1,995

 

 

 

2,460

 

 

 

2,774

 

Total noninterest income

 

 

8,701

 

 

 

8,465

 

 

 

9,131

 

 

 

13,982

 

 

 

10,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

16,117

 

 

 

18,902

 

 

 

17,333

 

 

 

17,167

 

 

 

16,531

 

Occupancy and depreciation

 

 

5,255

 

 

 

4,868

 

 

 

5,167

 

 

 

5,450

 

 

 

5,420

 

Professional services and marketing costs

 

 

2,003

 

 

 

2,004

 

 

 

2,024

 

 

 

1,745

 

 

 

1,644

 

Customer service costs

 

 

3,628

 

 

 

3,389

 

 

 

4,283

 

 

 

5,920

 

 

 

4,266

 

Other expenses

 

 

3,135

 

 

 

3,782

 

 

 

3,475

 

 

 

2,412

 

 

 

3,812

 

Total noninterest expense

 

 

30,138

 

 

 

32,945

 

 

 

32,282

 

 

 

32,694

 

 

 

31,673

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes on income

 

 

19,855

 

 

 

16,027

 

 

 

17,505

 

 

 

24,248

 

 

 

21,719

 

Taxes on income

 

 

5,726

 

 

 

4,768

 

 

 

5,095

 

 

 

6,892

 

 

 

6,505

 

Net income

 

$

14,129

 

 

$

11,259

 

 

$

12,410

 

 

$

17,356

 

 

$

15,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.32

 

 

$

0.25

 

 

$

0.28

 

 

$

0.39

 

 

$

0.34

 

Diluted

 

$

0.31

 

 

$

0.25

 

 

$

0.28

 

 

$

0.39

 

 

$

0.34

 

Shares used in computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

44,476,829

 

 

 

44,540,865

 

 

 

44,625,673

 

 

 

44,639,481

 

 

 

44,661,852

 

Diluted

 

 

44,871,146

 

 

 

44,798,306

 

 

 

44,894,720

 

 

 

44,935,308

 

 

 

45,014,092

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FIRST FOUNDATION INC.

ROLLING SEGMENT REPORTING - Unaudited

(in thousands)

 

 

 

 

 

For the Quarter Ended

 

 

December 31,

2018

 

March 31,

2019

 

June 30,

2019

 

September 30,

2019

 

December 31,

2019

Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

57,442

 

 

$

60,544

 

 

$

63,308

 

 

$

62,614

 

 

$

62,294

 

Interest expense

 

 

15,886

 

 

 

19,482

 

 

 

21,322

 

 

 

19,328

 

 

 

18,318

 

Net interest income

 

 

41,556

 

 

 

41,062

 

 

 

41,986

 

 

 

43,286

 

 

 

43,976

 

Provision for loan losses

 

 

73

 

 

 

540

 

 

 

1,231

 

 

 

172

 

 

 

694

 

Noninterest income

 

 

2,736

 

 

 

2,994

 

 

 

3,471

 

 

 

8,173

 

 

 

4,206

 

Noninterest expense

 

 

23,882

 

 

 

26,587

 

 

 

25,801

 

 

 

26,397

 

 

 

25,582

 

Income before taxes on income

 

$

20,337

 

 

$

16,929

 

 

$

18,425

 

 

$

24,890

 

 

$

21,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income

 

$

6,327

 

 

$

5,731

 

 

$

5,982

 

 

$

6,161

 

 

$

6,262

 

Noninterest expense

 

 

5,337

 

 

 

5,518

 

 

 

5,567

 

 

 

5,423

 

 

 

5,423

 

Income before taxes on income

 

$

990

 

 

$

213

 

 

$

415

 

 

$

738

 

 

$

839

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other and Eliminations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Interest expense

 

 

191

 

 

 

15

 

 

 

99

 

 

 

154

 

 

 

88

 

Net interest income

 

 

(191

)

 

 

(15

)

 

 

(99

)

 

 

(154

)

 

 

(88

)

Noninterest income

 

 

(362

)

 

 

(260

)

 

 

(322

)

 

 

(352

)

 

 

(270

)

Noninterest expense

 

 

919

 

 

 

840

 

 

 

914

 

 

 

874

 

 

 

668

 

Loss before taxes on income

 

$

(1,472

)

 

$

(1,115

)

 

$

(1,335

)

 

$

(1,380

)

 

$

(1,026

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FIRST FOUNDATION INC.

SELECTED INFORMATION: INTEREST MARGIN - Unaudited

(in thousands, except percentages)

 

 

 

For the Quarter

Ended December 31,

 

For the Year

Ended December 31,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

4,942,708

 

 

$

4,558,869

 

 

$

5,032,447

 

 

$

4,453,822

 

Securities

 

 

1,023,715

 

 

 

818,056

 

 

 

805,724

 

 

 

594,514

 

Total interest-earnings assets

 

 

6,114,122

 

 

 

5,427,610

 

 

 

5,921,326

 

 

 

5,200,220

 

Deposits: interest-bearing

 

 

3,616,384

 

 

 

3,332,969

 

 

 

3,544,346

 

 

 

2,883,161

 

Deposits: noninterest-bearing

 

 

1,443,233

 

 

 

1,257,721

 

 

 

1,314,296

 

 

 

1,329,873

 

Borrowings

 

 

583,458

 

 

 

427,006

 

 

 

625,948

 

 

 

612,817

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Yield / Rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

4.37

%

 

 

4.41

%

 

 

4.39

%

 

 

4.18

%

Securities

 

 

2.85

%

 

 

3.07

%

 

 

3.10

%

 

 

2.84

%

Total interest-earnings assets

 

 

4.07

%

 

 

4.23

%

 

 

4.20

%

 

 

3.99

%

Deposits (interest-bearing only)

 

 

1.73

%

 

 

1.59

%

 

 

1.81

%

 

 

1.34

%

Deposits (noninterest and interest-bearing)

 

 

1.24

%

 

 

1.16

%

 

 

1.32

%

 

 

0.92

%

Borrowings

 

 

1.80

%

 

 

2.51

%

 

 

2.34

%

 

 

2.11

%

Total interest-bearing liabilities

 

 

1.74

%

 

 

1.70

%

 

 

1.89

%

 

 

1.48

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Rate Spread

 

 

2.33

%

 

 

2.53

%

 

 

2.31

%

 

 

2.51

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Yield on Interest-earning Assets

 

 

2.88

%

 

 

3.05

%

 

 

2.87

%

 

 

2.99

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended

 

 

December 31,

2018

 

March 31,

2019

 

June 30,

2019

 

September 30,

2019

 

December 31,

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

4,558,869

 

 

$

4,835,920

 

 

$

5,064,903

 

 

$

5,282,338

 

 

$

4,942,708

 

Securities

 

 

818,056

 

 

 

802,503

 

 

 

779,903

 

 

 

616,424

 

 

 

1,023,715

 

Total interest-earnings assets

 

 

5,427,610

 

 

 

5,687,224

 

 

 

5,892,960

 

 

 

5,985,601

 

 

 

6,114,122

 

Deposits: interest-bearing

 

 

3,332,969

 

 

 

3,505,191

 

 

 

3,500,824

 

 

 

3,553,660

 

 

 

3,616,384

 

Deposits: noninterest-bearing

 

 

1,257,721

 

 

 

1,124,318

 

 

 

1,175,707

 

 

 

1,508,290

 

 

 

1,443,233

 

Borrowings

 

 

427,006

 

 

 

637,036

 

 

 

798,609

 

 

 

486,807

 

 

 

583,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Yield / Rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

4.41

%

 

 

4.46

%

 

 

4.46

%

 

 

4.27

%

 

 

4.37

%

Securities

 

 

3.07

%

 

 

3.07

%

 

 

3.17

%

 

 

3.47

%

 

 

2.85

%

Total interest-earnings assets

 

 

4.23

%

 

 

4.27

%

 

 

4.30

%

 

 

4.18

%

 

 

4.07

%

Deposits (interest-bearing only)

 

 

1.59

%

 

 

1.79

%

 

 

1.87

%

 

 

1.86

%

 

 

1.73

%

Deposits (noninterest and interest-bearing)

 

 

1.16

%

 

 

1.35

%

 

 

1.40

%

 

 

1.31

%

 

 

1.24

%

Borrowings

 

 

2.51

%

 

 

2.58

%

 

 

2.57

%

 

 

2.29

%

 

 

1.80

%

Total interest-bearing liabilities

 

 

1.70

%

 

 

1.91

%

 

 

2.00

%

 

 

1.91

%

 

 

1.74

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Rate Spread

 

 

2.53

%

 

 

2.36

%

 

 

2.30

%

 

 

2.27

%

 

 

2.33

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Yield on Interest-earning Assets

 

 

3.05

%

 

 

2.88

%

 

 

2.84

%

 

 

2.89

%

 

 

2.88

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Use of Non-GAAP Financial Measures

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

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

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

  • The efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income and may exclude one-time items of income or expense.
  • Tangible common equity (also referred to as tangible book value or tangible equity) and tangible assets, are equal to common equity and assets, respectively, less $97.2 million and $99.5 million of goodwill and intangible assets as of December 31, 2019 and December 31, 2018, respectively. We believe that this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of capital ratios.
  • Average tangible equity is equal to average common equity less $97.5 million and $99.6 million of average goodwill and intangible assets for the quarters ended December 31, 2019 and 2018, respectively, and less $98.3 million and $69.2 million of average goodwill and intangible assets for the years ended December 31, 2019 and 2018, respectively. We believe that this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of capital ratios.

Discussion of Changes in Results of Operations and Financial Position

Quarter Ended December 31, 2019 as Compared to Quarter Ended December 31, 2018

Our net income and income before taxes in the fourth quarter of 2019 were $15.2 million and $21.7 million, respectively, as compared to $14.1 million and $19.9 million, respectively, in the fourth quarter of 2018. The $1.9 million increase in income before taxes was the result of a $1.6 million increase in income before taxes for Banking, a $0.2 million decrease in income before taxes for Wealth Management and a $0.4 million decrease in corporate expenses. The increase in Banking was due to higher interest income and higher noninterest income which were partially offset by a higher provision for loan losses and higher noninterest expenses. The decrease in Wealth Management was due to lower noninterest income and higher noninterest expenses. The decrease in corporate expenses was due to decreases in interest expense and noninterest expenses.

Our effective tax rate for the fourth quarter of 2019 was 30.0% as compared to 28.8% for the fourth quarter of 2018 and as compared to our statutory tax rate of 29.0%.

Net interest income for Banking increased $2.4 million from $41.6 million in the fourth quarter of 2018, to $44.0 million in the fourth quarter of 2019 as a 13% increase in interest-earning assets was partially offset by a decrease in the net yield on interest earning assets. On a consolidated basis, the net yield on interest-earning assets decreased from 3.05% in the fourth quarter of 2018 to 2.88% in the fourth quarter of 2019 due primarily to a decrease in the net interest rate spread which was partially offset by an increase in the proportion of noninterest-bearing deposits to total deposits. The net interest rate spread decreased from 2.53% in the fourth quarter of 2018 to 2.33% in the fourth quarter of 2019 due to a decrease in yield on interest-earning assets and an increase in costs of interest-bearing liabilities. The yield on interest-earning assets decreased from 4.23% in the fourth quarter of 2018 to 4.07% in the fourth quarter of 2019 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 as the realization of credit and yield discounts on the payoff of acquired loans decreased from $2.1 million in the fourth quarter of 2018 to $1.1 million in the fourth quarter of 2019. 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 2018. The increase in the cost of interest-bearing liabilities from 1.70% in the fourth quarter of 2018 to 1.74% in the fourth quarter of 2019 was due to increased costs of interest-bearing deposits, resulting from increases in deposit market rates, which was partially offset by a decrease in the cost of borrowings due to decreases in the Fed Funds rates which strongly influences our borrowing rates. The average balance outstanding under the holding company line of credit decreased from $12.8 million in the fourth quarter of 2018 to $6.2 million in the fourth quarter of 2019, resulting in a $0.1 million decrease in corporate interest expense.

The $0.7 million provision for loan losses in the fourth quarter of 2019 was due to the growth in loan balances and $0.4 million of net chargeoffs. The provision for loan losses was $0.1 million for the fourth quarter of 2018 reflecting net chargeoffs of the same amount.

Noninterest income in Banking in the fourth quarter of 2019 was $1.5 million higher than the fourth quarter of 2018 due to a $1.2 million increase in loan fees and a $0.3 million increase in trust fees. The increase in loan fees was due primarily to higher prepayment fees and higher servicing fees. Noninterest income for Wealth Management decreased by $0.1 million in the fourth quarter of 2019 when compared to the corresponding period in 2018 due to lower investment management fees.

Noninterest expense in Banking increased from $23.9 million in the fourth quarter of 2018 to $25.6 million in the fourth quarter of 2019 primarily due to higher customer service costs and higher other expenses. Customer service costs increased from $3.6 million in the fourth quarter of 2018 to $4.3 million in the fourth quarter of 2019 due to higher balances of related deposits. In the fourth quarter of 2018, we recognized a $0.8 million recovery of merger related costs with no similar recovery in 2019. Noninterest expenses for Wealth Management increased by $0.1 million in the fourth quarter of 2019, when compared to the fourth quarter of 2018, due to increased occupancy and depreciation costs. The $0.3 million decrease in corporate expenses was due to one-time compliance consulting costs incurred in 2018.

2019 as Compared to 2018

Our net income and income before taxes in 2019 were $56.2 million and $79.5 million, respectively, as compared to $43.0 million and $60.1 million, respectively, in 2018. The $19.4 million increase in income before taxes was the result of a $18.5 million increase in income before taxes for Banking, a $1.4 million decrease in income before taxes for Wealth Management and a $2.4 million decrease in corporate expenses. The increase in Banking was due to higher net interest income, a lower provision for loan losses and higher noninterest income which were partially offset by higher noninterest expenses. The decrease in Wealth Management was due to lower noninterest income and higher noninterest expenses. The decrease in corporate expenses was due to decreases in interest expense and noninterest expenses.

Our effective tax rate for 2019 was 29.3% as compared to 28.5% for 2018 and as compared to our statutory tax rate of 29.0%. During 2018, the effective tax rate benefited from excess tax benefits resulting from the exercise or vesting of stock awards.

Net interest income for Banking increased from $157.4 million in 2018, to $170.3 million in 2019 due primarily to a 14% increase in interest-earning assets which was partially offset by a decrease in our net yield on interest earning assets. On a consolidated basis, the net yield on interest earning assets decreased from 2.99% in 2018 to 2.87% in 2019 due to a decrease in the net interest rate spread which was partially offset by a larger benefit derived from noninterest bearing funding sources, including noninterest-bearing deposits and equity, as interest rates rise. The net interest rate spread decreased from 2.51% in 2018 to 2.31% in 2019 due to an increase in the cost of interest-bearing liabilities which was partially offset by an increase in yield on total interest-earning assets. The yield on interest-earning assets increased as new loans added to the portfolio during the year bore interest rates higher than the current portfolio rates. The increase in the cost of interest-bearing liabilities was due to increased costs of interest-bearing deposits, resulting from increases in deposit market rates, and increased costs of borrowings as the average rate on FHLB advances and other Bank borrowings increased from 1.92% in 2018 to 2.30% in 2019. The average balance outstanding under the holding company line of credit decreased from $31.4 million in 2018 to $6.1 million in 2019, resulting in a $1.4 million decrease in corporate interest expense.

The $2.6 million provision for loan losses in 2019 was due to the growth in loan balances and $0.8 million of net chargeoffs. The $4.2 million provision for loan losses in 2018 was due to $3.5 million of net chargeoffs and growth in loan balances.

Noninterest income in Banking in 2019 was $7.5 million higher than 2018 due to a higher gain on sale of loans, higher loan fess, higher trust fees and gains on sales of REO which were partially offset by a $0.3 million loss on the sale of securities. The $3.8 million higher gain on sale was due to the benefits of a decreasing interest rate environment in 2019. The $2.2 million increase in loan fees was due primarily to higher prepayment fees and higher servicing fees. The $1.3 million increase in trust fees relates primarily to new clients, some of which were transferred from or referred by Wealth Management. The $0.7 million gain on sale of REO relates to the sale of properties obtained in recent acquisitions. Noninterest income for Wealth Management decreased by $1.1 million in 2019 when compared to 2018 due primarily to lower levels, on average, of billable AUM in 2019.

Noninterest expense in Banking increased from $100.8 million in 2018 to $104.4 million in 2019, due to increases in staffing and other costs associated with the Bank’s expansion, including the acquisition of Premier Business Bank (“PBB) in June 2018, and increases in customer service costs which were partially offset by a $3.4 million decrease in merger related costs. Compensation and benefits for Banking increased $2.0 million during 2019 as compared to 2018 due to salary increases and an increase in the FTE in Banking, which increased to 421.4 in 2019 from 385.8 in 2018 primarily as a result of the increased staffing related to the PBB acquisition. The $1.1 million increase in occupancy and depreciation for Banking in 2019 as compared to 2018 was due to costs related to the PBB acquisition and increases in our data processing costs due to increased volumes. Customer service costs for Banking increased from $15.1 million in 2018 to $17.9 million in 2019 due to increases in the earnings credit rates paid on the related deposit balances. Other expenses decreased by $2.4 million in 2019 when compared to the corresponding period in 2018 due to a $3.4 million decrease in merger related costs which was partially offset by increases in the amortization of core deposit intangibles and FDIC insurance. Increases in FDIC insurance were partially offset by a $1.2 million refund received from the FDIC for deposit insurance fees in the third quarter of 2019. Noninterest expenses for Wealth Management increased by $0.3 million for 2019, when compared to the comparable period in 2018, due to increased compensation costs. The $1.0 million decrease in corporate expenses for 2019, when compared to 2018, was due to lower marketing costs, lower legal costs and $0.5 million one-time compliance consulting costs incurred in 2018.

Quarter Ended December 31, 2019 as Compared to Quarter Ended September 30, 2019

Our net income and income before taxes in the fourth quarter of 2019 were $15.2 million and $21.7 million, respectively, as compared to $17.4 million and $24.2 million, respectively, in the third quarter of 2019. The $2.5 million decrease in income before taxes was the result of a $3.0 million decrease in income before taxes for Banking, a $0.1 million increase in income before taxes for Wealth Management and a $0.3 million decrease in corporate expenses. The decrease in Banking was due to lower noninterest income and a higher provision for loan losses which were partially offset by higher net interest income and lower noninterest expenses. The increase in Wealth Management was due to higher noninterest income. The decrease in corporate expenses was due to decreases in interest expense and noninterest expenses.

Our effective tax rate for the fourth quarter of 2019 was 30.0% as compared to 28.4% for the third quarter of 2019 and as compared to our statutory tax rate of 29.0%.

Net interest income for Banking increased from $43.3 million in the third quarter of 2019 to $44.0 million in the fourth quarter of 2019 due to a 2% increase in interest earning assets. On a consolidated basis, the net yield on interest earning assets decreased from 2.89% in the third quarter of 2019 to 2.88% in the fourth quarter of 2019 due to a lower proportion of noninterest bearing deposits during the fourth quarter as compared to the third quarter. The net interest rate spread increased from 2.27% in the third quarter of 2019 to 2.33% in the fourth quarter of 2019 as a decrease in the cost of our interest-bearing liabilities was partially offset by a decrease in yield on interest-earning assets. The decrease in yield on interest earning assets was primarily due to the higher proportion of lower yielding securities and cash and a decrease in the yield on securities due to purchase of $576 million of securities in the third quarter at current market rates. 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 decreased from $10.5 million in the third quarter of 2019 to $6.2 million in the fourth quarter of 2019, resulting in a $0.1 million decrease in corporate interest expense.

The provision for loan losses in the fourth quarter of 2019 was $0.7 million as compared to $0.2 million in the third quarter of 2019.

Noninterest income in Banking decreased from $8.2 million in the third quarter of 2019 to $4.2 million in the fourth quarter of 2019 due to a $4.2 million gain on sale of loans realized in the third quarter and $0.5 million of gains on sale of REO realized in the third quarter which was partially offset by a $0.3 million loss on the sale of securities realized in the third quarter and higher prepayment fees realized in the fourth quarter. Noninterest income for Wealth Management increased by $0.1 million in the fourth quarter of 2019 when compared to the third quarter of 2019 due primarily to higher levels of AUM.

Noninterest expense in Banking decreased from $26.4 million in the third quarter of 2019 to $25.6 million in the fourth quarter of 2019 due to lower customer service costs which were partially offset by a $1.2 million refund received from the FDIC for deposit insurance fees in the third quarter of 2019. Customer service costs decreased by $1.6 million in the fourth quarter of 2019 when compared to the third quarter of 2019 due primarily to lower rates and lower balances of related deposits. Corporate noninterest expenses decreased by $0.2 million for the fourth quarter of 2019 when compared to the third quarter of 2019 due to lower legal and contribution costs.

Changes in Financial Position

During 2019, total assets increased by $474 million primarily due to increases in securities and loans, including loans held for sale. During 2019, securities increased by $205 million as we sold $284 million of lower yielding securities and purchased $576 million of securities from our loan securitization in the third quarter. Loans and loans held for sale increased $249 million in 2019 as a result of $1.9 billion of originations which were partially offset by the sale of $551 million of loans and payoffs or scheduled payments of $1.1 billion. The $358 million growth in deposits during 2019 included increases in branch deposits of $138 million and specialty deposits of $222 million and a $2 million decrease in wholesale deposits. Borrowings increased by $35 million during 2019 primarily to support the growth in our total assets. At December 31, 2019 and December 31, 2018, the outstanding balance on the holding company line of credit was $10 million and $5 million, respectively.

Our credit quality remains strong as our ratio of non-performing assets to total assets is at 0.20% at December 31, 2019. We recorded $0.8 million and $3.5 million of net loan chargeoffs in 2019 and 2018, respectively. The ratio of the allowance for loan and lease losses to loans, excluding loans acquired in acquisitions, was 0.49% and 0.51% at December 31, 2019 and December 31, 2018, respectively.

John Michel
Chief Financial Officer
First Foundation Inc.
949-202-4160
jmichel@ff-inc.com

Source: First Foundation Inc.

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