UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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 September 30, 20172020
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.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 700Irvine, CA 92612 | | 92612 |
(Address of principal executive offices) | | (Zip Code) |
(949) 202-4160
(Registrant’s telephone number, including area code)code: (949) 202-4160
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock | | FFWM | | NASDAQ Global Market |
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 fileInteractive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405(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 November 6, 2017, there were 35,231,0993, 2020, the registrant had 44,626,324 shares of registrant’s common stock, $0.001 par value per share, outstanding
FIRST FOUNDATION INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20172020
TABLE OF CONTENTS
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| 1 | |||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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45 | ||||||||
| 45 | |||||||
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| 46 | |||||||
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| 49 | |||||||
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| S-1 | |||||||
(i)
PART I — FINANCIAL INFORMATION
FIRST FOUNDATION INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| September 30, |
|
| December 31, |
| ||
|
| (unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 123,210 |
|
| $ | 597,946 |
|
Securities available-for-sale (“AFS”) |
| 471,502 |
|
|
| 509,578 |
|
Loans held for sale |
| 153,405 |
|
|
| 250,942 |
|
Loans, net of deferred fees |
|
3,256,874 |
|
|
| 2,555,709 |
|
Allowance for loan and lease losses (“ALLL”) |
| (17,500 | ) |
|
| (15,400 | ) |
Net loans |
| 3,239,374 |
|
|
| 2,540,309 |
|
|
|
|
|
|
|
|
|
Investment in FHLB stock |
| 17,250 |
|
|
| 33,750 |
|
Premises and equipment, net |
| 6,732 |
|
|
| 6,730 |
|
Deferred taxes |
| 14,925 |
|
|
| 16,811 |
|
Real estate owned (“REO”) |
| 1,400 |
|
|
| 1,734 |
|
Goodwill and intangibles |
| 2,021 |
|
|
| 2,177 |
|
Other assets |
| 21,242 |
|
|
| 15,426 |
|
Total Assets | $ | 4,051,061 |
|
| $ | 3,975,403 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
Deposits | $ | 3,268,726 |
|
| $ | 2,426,795 |
|
Borrowings |
| 421,000 |
|
|
| 1,250,000 |
|
Accounts payable and other liabilities |
| 20,882 |
|
|
| 14,344 |
|
Total Liabilities |
| 3,710,608 |
|
|
| 3,691,139 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
| — |
|
|
| — |
|
Shareholders’ Equity |
|
|
|
|
|
|
|
Common Stock, par value $0.01: 70,000,000 shares authorized; 35,169,653 and 32,719,632 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively |
|
35 |
|
|
| 16 |
|
Additional paid-in-capital |
| 260,626 |
|
|
| 232,428 |
|
Retained earnings |
| 82,374 |
|
|
| 57,065 |
|
Accumulated other comprehensive loss, net of tax |
| (2,582 | ) |
|
| (5,245 | ) |
Total Shareholders’ Equity |
| 340,453 |
|
|
| 284,264 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity | $ | 4,051,061 |
|
| $ | 3,975,403 |
|
| | | | | | | |
| | September 30, | | December 31, | | ||
| | 2020 | | 2019 | | ||
| | | (unaudited) | | | | |
ASSETS |
| |
|
| |
| |
Cash and cash equivalents | | $ | 282,983 | | $ | 65,387 | |
Securities available-for-sale | |
| 890,981 | |
| 1,014,966 | |
Allowance for credit losses - investments | | | (8,049) | | | — | |
Net securities | | | 882,932 | | | 1,014,966 | |
| | | | | | | |
Loans held for sale | |
| 512,598 | |
| 503,036 | |
| | | | | | | |
Loans held for investment | |
| 4,615,323 | |
| 4,547,633 | |
Allowance for credit losses - loans | |
| (24,183) | |
| (20,800) | |
Net loans | |
| 4,591,140 | |
| 4,526,833 | |
| | | | | | | |
Investment in FHLB stock | | | 17,250 | |
| 21,519 | |
Deferred taxes | |
| 7,157 | |
| 11,079 | |
Premises and equipment, net | |
| 8,265 | |
| 8,355 | |
Goodwill and intangibles | |
| 95,735 | |
| 97,191 | |
Other assets | |
| 83,878 | |
| 66,070 | |
Total Assets | | $ | 6,481,938 | | $ | 6,314,436 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
| | |
Liabilities: | |
|
| |
| | |
Deposits | | $ | 5,463,813 | | $ | 4,891,144 | |
Borrowings | |
| 269,000 | |
| 743,000 | |
Accounts payable and other liabilities | |
| 71,189 | |
| 66,423 | |
Total Liabilities | |
| 5,804,002 | |
| 5,700,567 | |
| | | | | | | |
Shareholders’ Equity | |
|
| |
| | |
Common Stock | |
| 45 | |
| 45 | |
Additional paid-in-capital | |
| 433,263 | |
| 433,775 | |
Retained earnings | |
| 228,396 | |
| 175,773 | |
Accumulated other comprehensive income (loss) | |
| 16,232 | |
| 4,276 | |
Total Shareholders’ Equity | |
| 677,936 | |
| 613,869 | |
Total Liabilities and Shareholders’ Equity | | $ | 6,481,938 | | $ | 6,314,436 | |
(See accompanying notes to the consolidated financial statements)
1
FIRST FOUNDATION INC.
CONSOLIDATED INCOME STATEMENTS - UNAUDITED
(In thousands, except share and per share amounts)
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans | $ | 31,236 |
|
| $ | 22,231 |
|
| $ | 87,709 |
|
| $ | 61,362 |
|
Securities AFS |
| 3,023 |
|
|
| 3,202 |
|
|
| 9,180 |
|
|
| 9,423 |
|
Fed funds sold, FHLB stock and deposits |
| 619 |
|
|
| 571 |
|
|
| 2,001 |
|
|
| 1,490 |
|
Total interest income |
| 34,878 |
|
|
| 26,004 |
|
|
| 98,890 |
|
|
| 72,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| 4,899 |
|
|
| 2,426 |
|
|
| 12,103 |
|
|
| 6,194 |
|
Borrowings |
| 1,539 |
|
|
| 415 |
|
|
| 4,394 |
|
|
| 1,636 |
|
Total interest expense |
| 6,438 |
|
|
| 2,841 |
|
|
| 16,497 |
|
|
| 7,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
| 28,440 |
|
|
| 23,163 |
|
|
| 82,393 |
|
|
| 64,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
| 701 |
|
|
| 1,231 |
|
|
| 1,862 |
|
|
| 2,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
| 27,739 |
|
|
| 21,932 |
|
|
| 80,531 |
|
|
| 61,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management, consulting and other fees |
| 6,900 |
|
|
| 6,141 |
|
|
| 19,672 |
|
|
| 18,127 |
|
Gain on sale of loans |
| 1,962 |
|
|
| 7,238 |
|
|
| 4,312 |
|
|
| 7,238 |
|
Gain (loss) on capital markets activities |
| — |
|
|
| 997 |
|
|
| — |
|
|
| (1,043 | ) |
Other income |
| 1,001 |
|
|
| 703 |
|
|
| 3,359 |
|
|
| 2,652 |
|
Total noninterest income |
| 9,863 |
|
|
| 15,079 |
|
|
| 27,343 |
|
|
| 26,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
| 14,117 |
|
|
| 12,059 |
|
|
| 42,855 |
|
|
| 36,707 |
|
Occupancy and depreciation |
| 3,801 |
|
|
| 3,072 |
|
|
| 11,094 |
|
|
| 8,783 |
|
Professional services and marketing costs |
| 1,479 |
|
|
| 3,525 |
|
|
| 5,115 |
|
|
| 7,808 |
|
Other expenses |
| 3,996 |
|
|
| 2,880 |
|
|
| 11,251 |
|
|
| 7,505 |
|
Total noninterest expense |
| 23,393 |
|
|
| 21,536 |
|
|
| 70,315 |
|
|
| 60,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes on income |
| 14,209 |
|
|
| 15,475 |
|
|
| 37,559 |
|
|
| 27,735 |
|
Taxes on income |
| 4,629 |
|
|
| 6,417 |
|
|
| 12,250 |
|
|
| 10,949 |
|
Net income | $ | 9,580 |
|
| $ | 9,058 |
|
| $ | 25,309 |
|
| $ | 16,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 0.28 |
|
| $ | 0.28 |
|
| $ | 0.75 |
|
| $ | 0.52 |
|
Diluted | $ | 0.27 |
|
| $ | 0.27 |
|
| $ | 0.73 |
|
| $ | 0.50 |
|
Shares used to compute net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| 34,565,949 |
|
|
| 32,514,016 |
|
|
| 33,671,327 |
|
|
| 32,264,224 |
|
Diluted |
| 35,259,632 |
|
|
| 33,575,894 |
|
|
| 34,599,813 |
|
|
| 33,365,614 |
|
| | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | ||||
Interest income: |
| |
|
| |
| | |
|
| |
| |
Loans | | $ | 55,231 | | $ | 56,483 | | $ | 165,249 | | $ | 166,828 | |
Securities | |
| 6,107 | |
| 5,349 | |
| 19,643 | |
| 17,700 | |
FHLB stock, fed funds sold and interest-bearing deposits | |
| 353 | |
| 782 | |
| 1,069 | |
| 1,938 | |
Total interest income | |
| 61,691 | |
| 62,614 | |
| 185,961 | |
| 186,466 | |
| | | | | | | | | | | | | |
Interest expense: | |
|
| |
|
| |
| | | | | |
Deposits | |
| 7,988 | |
| 16,675 | |
| 33,548 | |
| 48,419 | |
Borrowings | |
| 2,086 | |
| 2,807 | |
| 7,481 | |
| 11,981 | |
Total interest expense | |
| 10,074 | | | 19,482 | |
| 41,029 | |
| 60,400 | |
| | | | | | | | | | | | | |
Net interest income | |
| 51,617 | |
| 43,132 | |
| 144,932 | |
| 126,066 | |
| | | | | | | | | | | | | |
Provision for credit losses | | | 1,548 | |
| 172 | |
| 6,979 | |
| 1,943 | |
| | | | | | | | | | | | | |
Net interest income after provision for credit losses | |
| 50,069 | |
| 42,960 | |
| 137,953 | |
| 124,123 | |
| | | | | | | | | | | | | |
Noninterest income: | |
| | | | | | | | | | | |
Asset management, consulting and other fees | |
| 7,368 | |
| 7,304 | |
| 21,863 | |
| 21,234 | |
Gain on sale of loans | | | 15,140 | | | 4,218 | | | 15,140 | | | 4,218 | |
Other income | |
| 1,133 | |
| 2,460 | |
| 6,282 | |
| 6,126 | |
Total noninterest income | |
| 23,641 | |
| 13,982 | |
| 43,285 | |
| 31,578 | |
| | |
| | | | | | | | | | |
Noninterest expense: | |
| | |
|
| |
|
| |
| | |
Compensation and benefits | |
| 17,914 | |
| 17,167 | |
| 56,059 | |
| 53,402 | |
Occupancy and depreciation | |
| 6,052 | |
| 5,450 | |
| 17,419 | |
| 15,485 | |
Professional services and marketing costs | |
| 2,077 | |
| 1,745 | |
| 5,880 | |
| 5,773 | |
Customer service costs | |
| 1,723 | |
| 5,920 | |
| 5,717 | |
| 13,592 | |
Other expenses | |
| 2,829 | |
| 2,412 | |
| 9,329 | |
| 9,669 | |
Total noninterest expense | |
| 30,595 | |
| 32,694 | |
| 94,404 | |
| 97,921 | |
| | | | | | | | | | | | | |
Income before taxes on income | |
| 43,115 | |
| 24,248 | |
| 86,834 | |
| 57,780 | |
Taxes on income | |
| 12,177 | |
| 6,892 | |
| 24,831 | |
| 16,755 | |
Net income | | $ | 30,938 | | $ | 17,356 | | $ | 62,003 | | $ | 41,025 | |
| | | | | | | | | | | | | |
Net income per share: | |
|
| |
|
| |
| | |
| | |
Basic | | $ | 0.69 | | $ | 0.39 | | $ | 1.39 | | $ | 0.92 | |
Diluted | | $ | 0.69 | | $ | 0.39 | | $ | 1.38 | | $ | 0.91 | |
Shares used in computation: | |
|
| |
|
| |
|
| |
|
| |
Basic | |
| 44,625,668 | |
| 44,639,481 | |
| 44,638,634 | |
| 44,602,368 | |
Diluted | |
| 44,885,776 | |
| 44,935,308 | |
| 44,883,612 | |
| 44,876,614 | |
(See accompanying notes to the consolidated financial statements)
2
FIRST FOUNDATION INC.
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY - UnauditedUNAUDITED
(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, 2016 |
| 32,719,632 |
| $ | 16 |
|
| $ | 232,428 |
|
| $ | 57,065 |
|
| $ | (5,245 | ) |
| $ | 284,264 |
|
Effect of stock split |
| — |
|
| 16 |
|
|
| (16 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
| — |
|
| — |
|
|
| — |
|
|
| 25,309 |
|
|
| — |
|
|
| 25,309 |
|
Other comprehensive income |
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,663 |
|
|
| 2,663 |
|
Stock based compensation |
| — |
|
| — |
|
|
| 912 |
|
|
| — |
|
|
| — |
|
|
| 912 |
|
Issuance of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options |
| 1,059,000 |
|
| 1 |
|
|
| 5,469 |
|
|
| — |
|
|
| — |
|
|
| 5,470 |
|
Issuance of restricted stock |
| 64,961 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Capital raise |
| 1,326,060 |
|
| 2 |
|
|
| 21,833 |
|
|
|
|
|
|
|
|
|
|
| 21,835 |
|
Balance: September 30, 2017 |
| 35,169,653 |
| $ | 35 |
|
| $ | 260,626 |
|
| $ | 82,374 |
|
| $ | (2,582 | ) |
| $ | 340,453 |
|
(See accompanying notes to the consolidated financial statements)
| | | | | | | | | | | | | | | | | |
|
| Common Stock |
| Additional |
| | |
| Accumulated Other |
| | | |||||
| | Number | | | | | Paid-in | | Retained | | Comprehensive | | | | |||
|
| of Shares |
| Amount |
| Capital |
| Earnings |
| Income (Loss) |
| Total | |||||
Balance: December 31, 2018 |
| 44,496,007 | | $ | 44 | | $ | 431,832 | | $ | 128,461 | | $ | (1,153) | | $ | 559,184 |
Net income |
| — | |
| — | |
| — | |
| 41,025 | |
| — | |
| 41,025 |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 9,250 | |
| 9,250 |
Stock based compensation |
| — | |
| — | |
| 1,336 | |
| — | |
| — | |
| 1,336 |
Cash dividend | | — | | | — | | | — | | | (6,694) | | | — | | | (6,694) |
Stock repurchase | | (1,800) | | | — | | | (23) | | | — | | | — | | | (23) |
Issuance of common stock: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Exercise of options |
| 37,000 | |
| — | |
| 282 | |
| — | |
| — | |
| 282 |
Stock grants – vesting of Restricted Stock Units |
| 121,640 | |
| 1 | |
| (1) | |
| — | |
| — | |
| — |
Balance: September 30, 2019 |
| 44,652,847 | | $ | 45 | | $ | 433,426 | | $ | 162,792 | | $ | 8,097 | | $ | 604,360 |
| | | | | | | | | | | | | | | | | |
Balance: December 31, 2019 |
| 44,670,743 | | $ | 45 | | $ | 433,775 | | $ | 175,773 | | $ | 4,276 | | $ | 613,869 |
Net income |
| — | |
| — | |
| — | |
| 62,003 | |
| — | |
| 62,003 |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 11,956 | |
| 11,956 |
Stock based compensation |
| — | |
| — | |
| 1,660 | |
| — | |
| — | |
| 1,660 |
Cash dividend |
| — | |
| — | |
| — | |
| (9,380) | |
| — | |
| (9,380) |
Issuance of common stock: |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Exercise of options |
| 87,000 | |
| — | |
| 652 | |
| — | |
| — | |
| 652 |
Stock grants – vesting of Restricted Stock Units |
| 92,915 | |
| — | |
| — | |
| — | |
| — | |
| — |
Stock Repurchase |
| (224,334) | |
| — | |
| (2,824) | |
| — | |
| — | |
| (2,824) |
Balance: September 30, 2020 |
| 44,626,324 | | $ | 45 | | $ | 433,263 | | $ | 228,396 | | $ | 16,232 | | $ | 677,936 |
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME - UNAUDITED
(In thousands)
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 9,580 |
|
| $ | 9,058 |
|
| $ | 25,309 |
|
| $ | 16,786 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on securities arising during the period |
|
1,057 |
|
|
| (1,033 | ) |
|
|
4,526 |
|
|
| 9,805 |
|
Other comprehensive income before tax |
| 1,057 |
|
|
| (1,033 | ) |
|
| 4,526 |
|
|
| 9,805 |
|
Income tax expense (benefit) related to items of other comprehensive income |
|
435 |
|
|
| (413 | ) |
|
|
1,863 |
|
|
| 4,033 |
|
Other comprehensive income (loss) |
| 622 |
|
|
| (620 | ) |
|
| 2,663 |
|
|
| 5,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for gains (losses) included in net earnings |
| — |
|
|
| (997 | ) |
|
| — |
|
|
| 1,043 |
|
Income tax expense (benefit) related to reclassification adjustment |
| — |
|
|
| 413 |
|
|
| — |
|
|
| (412 | ) |
Reclassification adjustment for gains (losses) included in net earnings, net of tax |
| — |
|
|
| (584 | ) |
|
| — |
|
|
| 631 |
|
Other comprehensive income (loss), net of tax |
| 622 |
|
|
| (1,204 | ) |
|
| 2,663 |
|
|
| 6,403 |
|
Total comprehensive income | $ | 10,202 |
|
| $ | 7,854 |
|
| $ | 27,972 |
|
| $ | 23,189 |
|
(See accompanying notes to the consolidated financial statements)
3
FIRST FOUNDATION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMPREHENSIVE INCOME - UNAUDITED
(In thousands)
| | | | | | | | | | | | | |
| | Quarter Ended September 30, | | Nine Months Ended September 30, | | ||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | ||||
Net income |
| $ | 30,938 | | $ | 17,356 |
| $ | 62,003 | | $ | 41,025 | |
Other comprehensive income: |
| |
|
| |
|
| |
|
| |
| |
Unrealized holding gains on securities arising during the period |
| | 15,448 |
| | 2,883 |
| | 16,898 |
| | 13,074 | |
Other comprehensive income before tax |
| | 15,448 |
| | 2,883 |
| | 16,898 |
| | 13,074 | |
Income tax expense related to items of other comprehensive income |
| | 4,519 |
| | 619 |
| | 4,942 |
| | 3,600 | |
Other comprehensive income |
| | 10,929 |
| | 2,264 |
| | 11,956 |
| | 9,474 | |
| | | | | | | | | | | | | |
Less: Reclassification adjustment for gains (loss) included in net earnings |
| | — |
| | (316) |
| | — |
| | (316) | |
Income tax (expense) benefit related to reclassification adjustment |
| | — |
| | 90 |
| | — |
| | 92 | |
Reclassification adjustment for gains included in net earnings, net of tax |
| | — |
| | (226) |
| | — |
| | (224) | |
Other comprehensive income (loss), net of tax |
| | 10,929 |
| | 2,038 |
| | 11,956 |
| | 9,250 | |
Total comprehensive income | | $ | 41,867 | | $ | 19,394 | | $ | 73,959 | | $ | 50,275 | |
| For the Nine Months Ended September 30, |
| |||||
| 2017 |
|
| 2016 |
| ||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
Net income | $ | 25,309 |
|
| $ | 16,786 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Provision for loan losses |
| 1,862 |
|
|
| 2,881 |
|
Stock–based compensation expense |
| 912 |
|
|
| 712 |
|
Depreciation and amortization |
| 1,765 |
|
|
| 1,338 |
|
Deferred tax expense |
| 23 |
|
|
| 758 |
|
Accretion of discounts on purchased loans, net |
| (430 | ) |
|
| (755 | ) |
Gain on sale of loans |
| (4,312 | ) |
|
| (7,238 | ) |
Gain on sale of capital market activities |
| — |
|
|
| (1,307 | ) |
Gain on sale of REO |
| (104 | ) |
|
| — |
|
Increase in other assets |
| (3,934 | ) |
|
| (1,429 | ) |
Increase in accounts payable and other liabilities |
| 6,538 |
|
|
| 1,970 |
|
Net cash provided by operating activities |
| 27,629 |
|
|
| 13,716 |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
Net increase in loans (including changes in loans held for sale) |
| (889,326 | ) |
|
| (1,008,136 | ) |
Proceeds from sale of loans |
| 288,724 |
|
|
| 270,005 |
|
Proceeds from sale of REO |
| 438 |
|
|
| 4,442 |
|
Purchases of premises and equipment |
| (1,767 | ) |
|
| (4,027 | ) |
Purchases of securities AFS |
| (10,338 | ) |
|
| (130,829 | ) |
Proceeds from sale of securities AFS |
| — |
|
|
| 104,146 |
|
Maturities/payments – securities AFS |
| 53,168 |
|
|
| 60,715 |
|
Purchases (net of redemptions) of FHLB stock |
| 16,500 |
|
|
| (4,185 | ) |
Net cash used in investing activities |
| (542,601 | ) |
|
| (707,869 | ) |
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
Increase in deposits |
| 841,931 |
|
|
| 816,561 |
|
FHLB Advances – net (decrease) increase |
| (844,000 | ) |
|
| 155,000 |
|
Proceeds – term note |
| 15,000 |
|
|
| — |
|
Proceeds from sale of stock, net |
| 27,305 |
|
|
| 3,657 |
|
Net cash provided by financing activities |
| 40,236 |
|
|
| 975,218 |
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
| (474,736 | ) |
|
| 281,065 |
|
Cash and cash equivalents at beginning of year |
| 597,946 |
|
|
| 215,748 |
|
Cash and cash equivalents at end of period | $ | 123,210 |
|
| $ | 496,813 |
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
Interest | $ | 15,353 |
|
| $ | 7,334 |
|
Income taxes |
| 11,135 |
|
|
| 10,050 |
|
Noncash transactions: |
|
|
|
|
|
|
|
Transfer of loans to loans held for sale | $ | 189,928 |
|
| $ | 468,743 |
|
Mortgage servicing rights created from loan sales |
| 1,954 |
|
|
| 1,945 |
|
Chargeoffs (recoveries) against allowance for loans losses |
| 238 |
|
|
| 119 |
|
Transfer of loans to REO |
| — |
|
|
| 950 |
|
(See accompanying notes to the consolidated financial statements)
4
FIRST FOUNDATION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
| | | | | | | |
| | For the Nine Months Ended | | ||||
| | September 30, | | ||||
| | 2020 | | 2019 | | ||
Cash Flows from Operating Activities: |
| |
|
| |
| |
Net income | | $ | 62,003 | | $ | 41,025 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | |
Provision for credit losses - loans | |
| 3,990 | |
| 1,943 | |
Provision for credit losses - securities AFS | | | 8,049 | | | — | |
Stock–based compensation expense | |
| 1,660 | |
| 1,336 | |
Depreciation and amortization | |
| 2,367 | |
| 2,256 | |
Deferred tax expense | |
| (1,020) | |
| (107) | |
Amortization of core deposit intangible | |
| 1,456 | |
| 1,765 | |
Amortization of mortgage servicing rights - net | |
| 1,034 | |
| 1,199 | |
Amortization of premiums on purchased loans - net | |
| (4,169) | |
| (4,231) | |
Gain on sale of loans | |
| (15,140) | |
| (4,218) | |
Gain from hedging activities | |
| — | |
| (655) | |
Loss on sale of securities | |
| — | |
| 316 | |
Gain on sale of REO | |
| — | |
| (742) | |
Increase in other assets | |
| (4,689) | |
| (1,499) | |
Increase (decrease) in accounts payable and other liabilities | |
| (5,149) | |
| 8,758 | |
Net cash provided by operating activities | |
| 50,392 | |
| 47,146 | |
Cash Flows from Investing Activities: | |
|
| |
|
| |
Net increase in loans | |
| (625,373) | |
| (628,176) | |
Proceeds from sale of loans | |
| 577,875 | |
| 573,897 | |
Proceeds from sale of REO | |
| — | |
| 1,557 | |
Purchase of premises and equipment | |
| (2,277) | |
| (1,805) | |
Recovery of allowance for credit losses | |
| 786 | |
| 1,770 | |
Purchases of AFS securities | |
| (60,988) | |
| (576,539) | |
Proceeds from sale of securities | |
| — | |
| 283,893 | |
Maturities of AFS securities | |
| 197,271 | |
| 73,054 | |
Sale of FHLB stock, net | |
| 4,269 | |
| 3,057 | |
Net cash provided by (used in) investing activities | |
| 91,563 | |
| (269,292) | |
Cash Flows from Financing Activities: | |
|
| |
|
| |
Increase in deposits | |
| 572,669 | |
| 637,598 | |
Net increase in FHLB advances | |
| (474,000) | |
| (203,000) | |
Line of credit net change – borrowings (paydowns), net | |
| — | |
| 15,000 | |
Dividends paid | |
| (9,380) | |
| (6,694) | |
Settlement of swap | |
| (11,476) | |
| (19,883) | |
Proceeds from sale of stock, net | |
| 652 | |
| 282 | |
Repurchase of stock | |
| (2,824) | |
| (23) | |
Net cash provided by financing activities | |
| 75,641 | |
| 423,280 | |
Increase in cash and cash equivalents | |
| 217,596 | |
| 201,134 | |
Cash and cash equivalents at beginning of year | |
| 65,387 | |
| 67,312 | |
Cash and cash equivalents at end of period | | $ | 282,983 | | $ | 268,446 | |
Supplemental disclosures of cash flow information: | |
|
| |
|
| |
Cash paid during the period for: | |
|
| |
|
| |
Income taxes | | $ | 19,369 | | $ | 14,434 | |
Interest | | | 41,500 | | | 55,785 | |
Noncash transactions: | |
| | |
|
| |
Transfer of loans to loans held for sale | | $ | 567,618 | | $ | 553,498 | |
Mortgage servicing rights from loan sales | | | 3,853 | | | 1,861 | |
Chargeoffs against allowance for credit losses | | | 1,393 | | | 2,213 | |
(See accompanying notes to the consolidated financial statements)
5
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 20172020 - 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-companyintercompany 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 20172020 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, 2016.
On January 18, 2017, the Company completed a two-for-one stock split in the form of a stock dividend. Each stockholder of record at the close of business of January 4, 2017 received one additional share of common stock for every share held. All share and per share amounts included in the financial statements have been adjusted to reflect the effect of this stock split.2019.
Certain reclassifications have been made to the prior year consolidated financial statements to conform to the 20172020 presentation.
Recently Adopted Accounting Guidance
Measurement of Credit Losses on Financial Instruments: In February 2017,June 2016, the Financial Accounting Standards Board (the “FASB”(“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 adoption of ASU No. 2017-05 is not expected to have a material impact on the Company’s consolidated 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 No. 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business” which provides guidance in clarifying the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The adoption of ASU No. 2017-01 is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” which provides guidance for eight specific cash flow issues. FASB issued the standard to clarify areas where GAAP has been either unclear or lacking in specific guidance. This update is effective for the Company for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The adoption of ASU No. 2016-15 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” Instrumentswhich 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)(“CECL”) model, will applyapplies 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
The Company adopted the amendments within ASU 2016-13 on January 1, 2020 using the modified retrospective method for the Companyall financial assets measured at amortized cost and off-balance sheet credit exposures. Results for annualthe periods beginning after December 15,that date are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable generally accepted accounting principles (“GAAP”). There was not any cumulative effect adjustment upon adoption. The instruments that were accounted for as purchased credit impaired (“PCI”) are transitioned under the new purchased credit deteriorated (“PCD”) model using the prospective transition approach. The Company applied the prospective transition approach for debt securities for which other than temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date.
Allowance for credit losses on investment securities: On January 1, 2020, the Company adopted the amendments within ASU 2016-13, which replaces the legacy US GAAP Other Than Temporary Impairment (“OTTI”) model with a credit loss model. The credit loss model under Accounting Standards Codification (“ASC”) 326-30, applicable to debt securities available for sale (“Securities AFS”), requires recognition of credit losses through an allowance account, but
6
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 –2020 - UNAUDITED
retains the concept from the OTTI model that credit losses are recognized once securities become impaired. For Securities AFS, a decline in fair value due to credit loss results in recognition of an allowance for credit losses. Impairment may result from credit deterioration of the issuer or collateral underlying the security. The assessment of determining if a decline in fair value resulted from a credit loss is performed at the individual security level. Among other factors, the Company considers: 1) the extent to which the fair value is less than the amortized cost basis; 2) the financial condition and near term prospects of the issuer, including consideration of relevant financial metrics or ratios of the issuer; 3) any adverse conditions related to an industry or geographic area of an issuer; 4) any changes to the rating of the security by a rating agency; and 5) any past due principal or interest payments from the issuer. If an assessment of the above factors indicates that a credit loss exists, the Company records an allowance for credit losses for the excess of the amortized cost basis over the present value of cash flows expected to be collected, limited to the amount that the security’s fair value is less than its amortized cost basis. Subsequent changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is recognized in earnings. Any interest received after the security has been placed on nonaccrual status is recognized on a cash basis. Accrued interest receivable on Securities AFS is excluded from the estimate of expected credit losses.
2019,The provision for credit losses on the consolidated income statement includes the provisions for credit losses for loans and interim periods within those annual periods.securities AFS. For the nine months ending September 30, 2020, the provision for credit losses was $7 million.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. ASU 2020-04 provides optional guidance for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The Company has begun analyzing the data requirements neededamendments in this ASU apply only to implement thecontracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022. The adoption of ASU 2016-13 and we expect that the adoption of ASU 2016-13 may2020-04 is not expected to have a significant impact on the Company’s 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.consolidated financial statements.
On February 25, 2016,In November 2019, the FASB issued ASU 2016-02, Leases2019-12, “Income Taxes (Topic 842)740), Simplifying the Accounting for Income Taxes”. The most significant changeASU 2019-12 provides amendments to simplify the accounting for lessees isincome taxes by removing certain exceptions to 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 resultgeneral principles in lessees recognizing right-of-use assets and lease liabilities for most leases accounted for as operating leases under current lease accounting guidance. Topic 740. The amendments in this updateASU are effective for fiscal years, and 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 and the Company is evaluating the effects of the adoption of ASU 2016-02 on its financial statements and disclosures.
On January 5, 2016, the FASB issued ASU 2016-01,Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). Changes made to the current measurement model primarily affect the accounting for equity securities with readily determinable fair values, where changes in fair value will impact earnings instead of other comprehensive income. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. This update also changes the presentation and disclosure requirements for financial instruments including a requirement that public business entities use exit price when measuring the fair value of financial instruments measured at amortized cost for disclosure purposes. This update is generally effective for public business entities inwithin those fiscal years, beginning after December 15, 2017, including interim periods within those fiscal years. 2020. The adoption of ASU No. 2016-012019-12 is not expected to have a materialsignificant impact on the Company’s consolidated financial statements.statements.
In May 2014,July 2019, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 660): Summary2019-07, Codification Updates to SEC Sections. ASU 2019-07 amends certain Securities and Amendments that Create Revenue from Contracts with Customers (Topic 606)Exchange Commission (“SEC”) sections or paragraphs within the ASC to reflect changes in SEC Final Rule Releases (“SEC Releases”) No. 33-10532, Disclosure Update and Other AssetsSimplification and Deferred Costs-Contracts with Customers (Subtopic 340-40)”Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization. The guidanceeffective date and transition requirements for the amendments in this update supersedesASU are the revenue recognitionsame as the effective dates and transition requirements in ASC Topic 605, Revenue Recognition,SEC Releases 33-10532, 33-10231, and most industry-specific guidance throughout33-10442, as amended by this ASU. The adoption of ASU 2019-07 is not expected to have a significant impact on the industry topics of the codification. This update is effective for annual reporting periods beginning on or after December 15, 2017 and interim periods therein and requires expanded disclosures. Management is continuing to evaluate the effects of 2014-09 and the impact of its implementation is undeterminable at this time.Company’s consolidated financial statements.
NOTE 2: 2: FAIRVALUEMEASUREMENTS
Assets Measured at Fair Value on a Recurring Basis
FairFair 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
7
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 - UNAUDITED
the use of observable 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'sCompany’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
7
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ForSecurities available for sale and effective with the Nine Months Ended September 30, 2017 – UNAUDITED
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 |
| ||||||||||||||||||
| | | | | | | | | | | | | |||||||||||||||
| | | | | Fair Value Measurement Level | ||||||||||||||||||||||
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
| | Total | | Level 1 | | Level 2 | | Level 3 | ||||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
September 30, 2020: |
| |
|
| |
|
| |
|
| |
| |||||||||||||||
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
| ||||
US Treasury securities | $ | 495 |
|
| $ | 495 |
| $ | — |
| $ | — |
| ||||||||||||||
Agency mortgage-backed securities |
| 432,448 |
|
|
| — |
| 432,448 |
| — |
| | $ | 798,193 | | $ | — | | $ | 798,193 | | $ | — | ||||
Beneficial interest – FHLMC securitizations |
| 38,559 |
|
|
| — |
|
| — |
|
| 38,559 |
| |
| 24,814 | |
| — | |
| — | |
| 24,814 | ||
Corporate bonds | |
| 58,321 | |
| — | |
| 58,321 | |
| — | |||||||||||||||
Other | |
| 1,604 | |
| 505 | |
| 1,099 | |
| — | |||||||||||||||
Investment in equity securities | |
| 282 | |
| 282 | |
| — | |
| — | |||||||||||||||
Total assets at fair value on a recurring basis | $ | 471,502 |
|
| $ | 495 |
| $ | 432,448 |
| $ | 38,559 |
| | $ | 883,214 | | $ | 787 | | $ | 857,613 | | $ | 24,814 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| | | | | | | | | | | | | |||||||||||||||
| | | | | | | | | | | | | |||||||||||||||
December 31, 2019: | | | | | | | | | | | | | |||||||||||||||
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| ||||
US Treasury securities | $ | 297 |
|
| $ | 297 |
| $ | — |
| $ | — |
| ||||||||||||||
Agency mortgage-backed securities |
| 468,909 |
|
|
| — |
| 468,909 |
| — |
| | $ | 914,977 | | $ | — | | $ | 914,977 | | $ | — | ||||
Beneficial interest – FHLMC securitizations |
| 40,372 |
|
|
| — |
|
| — |
|
| 40,372 |
| |
| 42,706 | |
| — | |
| — | |
| 42,706 | ||
Corporate bonds | |
| 55,834 | |
| — | |
| 55,834 | |
| — | |||||||||||||||
Other | |
| 1,449 | |
| 403 | |
| 1,046 | |
| — | |||||||||||||||
Investment in equity securities | |
| 434 | |
| 434 | |
| — | |
| — | |||||||||||||||
Total assets at fair value on a recurring basis | $ | 509,578 |
|
| $ | 297 |
| $ | 468,909 |
| $ | 40,372 |
| | $ | 1,015,400 | | $ | 837 | | $ | 971,857 | | $ | 42,706 |
The decrease in levelLevel 3 assets from December 31, 20162019 was due to beneficialBeneficial interest – FHLMC securitization maturities. paydowns, and due to a change in expected cash flows on an interest only strip security, an $8.0 million allowance was taken in the first nine months of 2020.
Assets Measured at Fair Value of Financial Instruments
We have elected to use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale are measured at fair value on a recurring basis. Additionally, fromNonrecurring Basis
From time to time, we may be required to measure other assets at fair value other assets 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.
8
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 - UNAUDITED
Loans. Loans measured at fair value on a nonrecurring basis include collateral dependent loans held for investment. The specific reserves for these loans are based on collateral value, net of estimated disposition costs and other identified quantitative inputs. Collateral value is determined based on independent third-party appraisals or internally-developed discounted cash flow analyses. Internal discounted cash flow analyses are also utilized to estimate the fair value of these loans, which considers internally-developed, unobservable inputs such as discount rates, default rates, and loss severity. 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 $13.3 million and $18.9 million at September 30, 2020 and December 31, 2019, respectively. There were $0.1 million in specific reserves related to these loans at September 30, 2020 and 0 specific reserves related to these loans at December 31, 2019.
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.
Mortgage Servicing Rights. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income, resulting in a Level 3 classification. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.
Fair Value of Financial Instruments
FASB ASC 825-10, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. The methodologies for estimating the fair value of financial assets and financial liabilities measured at fair value on a recurring and non-recurring basis are discussed above. The estimated fair value amounts have been determined by management using available market information and appropriate valuation methodologies and are based on the exit price notion set forth by ASU 2016-01. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Company.
Fair value estimates are made at a discrete point in time based on relevant market information and other information about the financial instruments. Because no active market exists for a significant portion of our financial instruments, fair value estimates are based in large part on judgments we make primarily regarding current economic conditions, risk characteristics of various financial instruments, prepayment rates, and future expected loss experience. These estimates are subjective in nature and invariably involve some inherent uncertainties. Additionally, unexpected changes in events or circumstances can occur that could require us to make changes to our assumptions and which, in turn, could significantly affect and require us to make changes to our previous estimates of fair value.
In addition, the fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of existing and anticipated future customer relationships and the value of assets and liabilities that are not considered financial instruments, such as premises and equipment and other real estate owned.
9
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 - UNAUDITED
The following methods and assumptions were used to estimate the fair value of financial instruments.instruments:
Cash and Cash Equivalents. The fair value of cash and cash equivalents approximates its carrying value.
Interest-Bearing Deposits with Financial Institutions. The fair values of interest-bearing deposits maturing within ninety days approximate their carrying values.
Investment Securities Available for Sale. Investment securities available-for-sale are measured at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. When a market is illiquid or there is a lack of transparency around the inputs to valuation, the securities are classified as Level 3 and reliance is placed upon internally developed models, and management judgment and evaluation for valuation. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include beneficial interests –in FHLMC securitization.securitizations. Significant assumptions in the valuation of these Level 3 securities as of September 30, 20172020 and December 31, 2019 included a prepayment rate of 15%rates ranging from 20% to 30% and discount rates ranging from 4.0%7.35% to 10%.
8
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 – UNAUDITED
Federal Home Loan Bank Stock. The Bank is a member of the Federal Home Loan Bank (the “FHLB”). As a member, we are required to own stock of the FHLB, the amount of which is based primarily on the level of our borrowings from this institution. The fair value of thatthe stock is equal to the carrying amount, is classified as restricted securities and is periodically evaluated for impairment based on our assessment of the ultimate recoverability of our investments in that stock. Any cash or stock dividends paid to us on such stock are reported as income.
Loans other than impairedHeld For Sale. The fair value of loans held for sale is determined using secondary market pricing.
Loans Held for Investment. The fair value for loans with variable interest rates is the carrying amount. The fair value of fixed rate loans is derived by calculating the discounted value of future cash flows expected to be received by the various homogeneous categories of loans.loans or by reference to secondary market pricing. All loans have been adjusted to reflect changes in credit risk.
Loans Held For Sale. Loans held for sale are accounted for at the lower of amortized cost or fair value. The fair value of loans held for sale is generally based on observable market prices from other loans in the secondary market that have similar collateral, credit, and interest rate characteristics. If quoted market prices are not readily available, the Company may consider other observable market data such as dealer quotes for similar loans or forward sale commitments. In certain cases, the fair value may be based on a discounted cash flow model.
Deposits. The fair value of demand deposits, savings deposits, and money market deposits is defined as the amounts payable on demand at quarter-end.demand. The fair value of fixed maturity certificates of deposit is estimated based on the discounted value of the future cash flows expected to be paid on the deposits.
Borrowings. The fair value of $421 million in borrowings is the carrying value of overnight FHLB advances that approximate fair value because of the short-term maturity of this instrument, resulting in a Level 2 classification. The fair value of term borrowings is derived by calculating the discounted value of future cash flows expected to be paid out by the Company. The $25 million holding company line
10
Assets Measured at Fair Value on a Nonrecurring Basis
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 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 Level 3. The total collateral dependent impaired Level 3 loans were $14.4 million and $9.0 million at September 30, 2017 and December 31, 2016, respectively. There were no specific reserves related to these loans at September 30, 2017 and December 31, 2016.
9
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 –2020 - UNAUDITED
The carrying amounts and estimated fair values of financial instruments are as follows as of:
| Carrying |
| Fair Value Measurement Level |
| ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
| | Carrying | | Fair Value Measurement Level | ||||||||||||||||||||||||||||||
(dollars in thousands) | Value |
| 1 |
| 2 |
| 3 |
| Total |
| | Value | | 1 | | 2 | | 3 | | Total | ||||||||||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
September 30, 2020: |
| |
|
| |
|
| |
|
| |
|
| |
| |||||||||||||||||||
Assets: |
| |
|
| |
|
| |
|
| |
|
| |
| |||||||||||||||||||
Cash and cash equivalents | | $ | 282,983 | | $ | 282,983 | | $ | — | | $ | — | | $ | 282,983 | |||||||||||||||||||
Securities AFS, net | |
| 882,932 | |
| 505 | |
| 857,613 | |
| 24,814 | |
| 882,932 | |||||||||||||||||||
Loans held for sale | |
| 512,598 | |
| — | |
| 517,922 | |
| — | |
| 517,922 | |||||||||||||||||||
Loans, net | |
| 4,591,140 | |
| — | |
| — | |
| 4,639,003 | |
| 4,639,003 | |||||||||||||||||||
Investment in FHLB stock | |
| 17,250 | |
| — | |
| 17,250 | |
| — | |
| 17,250 | |||||||||||||||||||
Investment in equity securities | |
| 282 | |
| 282 | |
| — | |
| — | |
| 282 | |||||||||||||||||||
Liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
| |||||||||||||||||||
Deposits | | $ | 5,463,813 | | $ | 4,209,230 | | $ | 1,259,324 | | $ | — | | $ | 5,468,554 | |||||||||||||||||||
Borrowings | |
| 269,000 | |
| — | |
| 260,000 | |
| 9,000 | |
| 269,000 | |||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
December 31, 2019: | | | | | | | | | | | | | | | | |||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Cash and cash equivalents | $ | 123,210 |
|
| $ | 123,210 |
|
| $ | — |
|
| $ | — |
|
| $ | 123,210 |
| | $ | 65,387 | | $ | 65,387 | | $ | — | | $ | — | | $ | 65,387 |
Securities AFS |
| 471,502 |
|
|
| 495 |
|
|
| 432,448 |
|
|
| 38,559 |
|
|
| 471,502 |
| |
| 1,014,966 | |
| 403 | |
| 971,857 | |
| 42,706 | |
| 1,014,966 |
Loans |
| 3,239,374 |
|
|
| — |
|
|
| — |
|
|
| 3,381,237 |
|
|
| 3,381,237 |
| |||||||||||||||
Loans held for sale |
| 153,405 |
|
|
| — |
|
|
| — |
|
|
| 155,246 |
|
|
| 155,246 |
| |
| 503,036 | |
| — | |
| 506,750 | |
| — | |
| 506,750 |
Loans, net | |
| 4,526,833 | |
| — | |
| — | |
| 4,573,516 | |
| 4,573,516 | |||||||||||||||||||
Investment in FHLB stock |
| 17,250 |
|
|
| — |
|
|
| 17,250 |
|
|
| — |
|
|
| 17,250 |
| |
| 21,519 | |
| — | |
| 21,519 | |
| — | |
| 21,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Investment in equity securities | |
| 434 | |
| 434 | |
| — | |
| — | |
| 434 | |||||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
| | |
| | |
| | |
| |
Deposits |
| 3,268,726 |
|
|
| 2,385,687 |
|
|
| 883,359 |
|
|
| — |
|
|
| 3,269,046 |
| | $ | 4,891,144 | | $ | 2,913,493 | | $ | 1,977,652 | | $ | — | | $ | 4,891,145 |
Borrowings |
| 421,000 |
|
|
| — |
|
|
| 406,000 |
|
|
| 15,000 |
|
|
| 421,000 |
| |
| 743,000 | |
| — | |
| 733,000 | |
| 10,000 | |
| 743,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Cash and cash equivalents | $ | 597,946 |
|
| $ | 597,946 |
|
| $ | — |
|
| $ | — |
|
| $ | 597,946 |
| |||||||||||||||
Securities AFS |
| 509,578 |
|
|
| 297 |
|
|
| 468,909 |
|
|
| 40,372 |
|
|
| 509,578 |
| |||||||||||||||
Loans, net |
| 2,540,309 |
|
|
| — |
|
|
| — |
|
|
| 2,529,360 |
|
|
| 2,529,360 |
| |||||||||||||||
Loans held for sale |
| 250,942 |
|
|
| — |
|
|
| — |
|
|
| 253,953 |
|
|
| 253,953 |
| |||||||||||||||
Investment in FHLB stock |
| 33,750 |
|
|
| — |
|
|
| 33,750 |
|
|
| — |
|
|
| 33,750 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Deposits |
| 2,426,795 |
|
|
| 1,797,329 |
|
|
| 629,594 |
|
|
| — |
|
|
| 2,426,923 |
| |||||||||||||||
Borrowings |
| 1,250,000 |
|
|
| — |
|
|
| 1,250,000 |
|
|
| — |
|
|
| 1,250,000 |
|
NOTE 3: SECURITIES
The following table provides a summary of the Company’s securities AFS portfolio as of:
| Amortized |
| Gross Unrealized |
|
| Estimated |
| |||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
| | Amortized | | Gross Unrealized | | Allowance for | | Estimated | ||||||||||||||||||||||
(dollars in thousands) | Cost |
|
| Gains |
| Losses |
|
| Fair Value |
| | Cost | | Gains | | Losses | | Credit Losses | | Fair Value | ||||||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
US Treasury securities | $ | 499 |
|
| $ | — |
|
| $ | (4 | ) |
| $ | 495 |
| |||||||||||||||
September 30, 2020: | | | | | | | | | | | | | | | | |||||||||||||||
Agency mortgage-backed securities |
| 436,415 |
|
|
| 497 |
|
|
| (4,464 | ) |
|
| 432,448 |
| | $ | 776,956 | | $ | 21,237 | | $ | — | | $ | — | | $ | 798,193 |
Beneficial interests in FHLMC securitization |
| 38,975 |
|
|
| 1,756 |
|
|
| (2,172 | ) |
|
| 38,559 |
| |
| 32,577 | |
| 286 | |
| — | |
| (8,049) | |
| 24,814 |
Corporate bonds | |
| 57,000 | |
| 1,321 | |
| — | |
| — | |
| 58,321 | |||||||||||||||
Other | |
| 1,505 | |
| 99 | |
| — | |
| — | |
| 1,604 | |||||||||||||||
Total | $ | 475,889 |
|
| $ | 2,253 |
|
| $ | (6,640 | ) |
| $ | 471,502 |
| | $ | 868,038 | | $ | 22,943 | | $ | — | | $ | (8,049) | | $ | 882,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
US Treasury securities | $ | 300 |
|
| $ | — |
|
| $ | (3 | ) |
| $ | 297 |
| |||||||||||||||
December 31, 2019: | | | | | | | | | | | | | | | | |||||||||||||||
Agency mortgage-backed securities |
| 476,163 |
|
|
| 160 |
|
|
| (7,414 | ) |
|
| 468,909 |
| | $ | 905,949 | | $ | 9,174 | | $ | (146) | | $ | — | | $ | 914,977 |
Beneficial interests in FHLMC securitization |
| 42,028 |
|
|
| 711 |
|
|
| (2,367 | ) |
|
| 40,372 |
| |
| 47,586 | |
| 1,801 | |
| (6,681) | |
| — | |
| 42,706 |
Corporate bonds | |
| 54,000 | |
| 1,834 | |
| — | |
| — | |
| 55,834 | |||||||||||||||
Other | |
| 1,386 | |
| 63 | |
| — | |
| — | |
| 1,449 | |||||||||||||||
Total | $ | 518,491 |
|
| $ | 871 |
|
| $ | (9,784 | ) |
| $ | 509,578 |
| | $ | 1,008,921 | | $ | 12,872 | | $ | (6,827) | | $ | — | | $ | 1,014,966 |
The
US Treasury securities of $0.5 million as of September 30, 2020 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. As
11
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 –2020 - UNAUDITED
of September 30, 2020, $194.8 million of agency mortgage-backed securities are pledged as collateral as support for the Bank’s obligations under loan sales and securitization agreements entered into from 2018 through 2020.
Thetables belowbelow indicate,,asof as of September 30,, 2017 2020 and December 31, 2016,thegrossunrealizedlossesandfairvaluesofourinvestments,aggregatedbyinvestmentcategory2019, the gross unrealized losses and lengthoftimethattheindividualsecuritieshavebeeninfair values of our investments, aggregated by investment category and length of time that the individual securities have been in a continuousunrealizedloss continuous unrealized loss position.
|
| Securities with Unrealized Loss at September 30, 2017 |
| |||||||||||||||||||||
|
| Less than 12 months |
|
| 12 months or more |
|
| Total |
| |||||||||||||||
(dollars in thousands) |
| Fair Value |
|
|
| Unrealized |
|
| Fair Value |
|
|
| Unrealized Loss |
|
| Fair Value |
|
| Unrealized |
| ||||
US Treasury securities |
| $ | 495 |
|
| $ | (4 | ) |
| $ | — |
|
| $ | — |
|
| $ | 495 |
|
| $ | (4 | ) |
Agency mortgage backed securities |
|
| 287,342 |
|
|
| (2,670 | ) |
|
| 58,044 |
|
|
| (1,794 | ) |
|
| 345,386 |
|
|
| (4,464 | ) |
Beneficial interests in FHLMC securitization |
|
|
— |
|
|
|
— |
|
|
|
9,347 |
|
|
|
(2,172 | ) |
|
|
9,347 |
|
|
|
(2,172 | ) |
Total temporarily impaired securities |
| $ | 287,837 |
|
| $ | (2,674 | ) |
| $ | 67,391 |
|
| $ | (3,966 | ) |
| $ | 355,228 |
|
| $ | (6,640 | ) |
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Securities with Unrealized Loss at September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Less than 12 months | | 12 months or more | | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
| Value | Loss | Value | Loss | Value | Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Agency mortgage-backed securities | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beneficial interests in FHLMC securitization | | | — | | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total temporarily impaired securities | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | |
| | Securities with Unrealized Loss at December 31, 2019 | ||||||||||||||||
| | Less than 12 months | | 12 months or more | | Total | ||||||||||||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
(dollars in thousands) |
| Value |
| Loss |
| Value |
| Loss |
| Value |
| Loss | ||||||
Agency mortgage-backed securities |
| $ | 5,488 |
| $ | (2) |
| $ | 13,880 |
| $ | (144) |
| $ | 19,368 |
| $ | (146) |
Beneficial interests in FHLMC securitization |
| | 20,609 | |
| (2,856) | |
| 3,220 | |
| (3,825) | |
| 23,829 | |
| (6,681) |
Total temporarily impaired securities | | $ | 26,097 | | $ | (2,858) | | $ | 17,100 | | $ | (3,969) | | $ | 43,197 | | $ | (6,827) |
Unrealized losses in agency mortgage backedmortgage-backed securities, and 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. The assessment of determining if a decline in fair value resulted from a credit loss is performed at the individual security level. Among other factors considered are: 1) the extent to which the fair value is less than the amortized cost basis; 2) the financial condition and near term prospects of the issuer, including consideration of relevant financial metrics or ratios of the issuer; 3) any adverse conditions related to an industry or geographic area of an issuer; 4) any changes to the rating of the security by a rating agency; and 5) any past due principal or interest payments from the issuer. If an assessment of the above factors indicates that a credit loss exists, the Company records an allowance for credit losses for the excess of the amortized cost basis over the present value of cash flows expected to be collected, limited to the amount that the security’s fair value is less than its amortized cost basis. Subsequent changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is recognized in earnings. Any interest received after the security has been placed on nonaccrual status is recognized on a cash basis.
12
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 - UNAUDITED
| | | |
Allowance for credit losses - Investments |
| | |
(dollars in thousands) | | | |
Quarter Ended September 30, 2020: | | | |
Balance: June 30, 2020 |
| $ | 2,371 |
Provision for credit losses |
| | 5,678 |
Balance: September 30, 2020 |
| $ | 8,049 |
| | | |
Nine Months Ended September 30, 2020: | | | |
Balance: December 31, 2019 |
| $ | — |
Provision for credit losses |
| | 8,049 |
Balance: September 30, 2020 |
| $ | 8,049 |
Due to a change in expected cash flows of an interest only strip security, $5.6 million and $8 million in allowances were taken in the three and nine months ended September 30, 2020, respectively. The allowances were included as a charge in provision for credit losses on the consolidated income statement.
The scheduled maturities of securities AFS and the related weighted average yields were as follows as of September 30, 2017:for the periods indicated:
| | | | | | | | | | | | | | | | | |||||||||||||||||||
|
| Less than |
| 1 Through |
| 5 Through |
| After |
| | |
| |||||||||||||||||||||||
(dollars in thousands) | Less than |
|
| 1 Through |
|
| 5 Through |
|
| After 10 |
|
| Total |
| | 1 Year | | 5 years | | 10 Years | | 10 Years | | Total |
| ||||||||||
September 30, 2020 | | | | | | | | | | | | | | | | | |||||||||||||||||||
Amortized Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
| |
US Treasury securities | $ | — |
|
| $ | 499 |
|
| $ | — |
|
| $ | — |
|
| $ | 499 |
| ||||||||||||||||
Corporate bonds | | $ | — | | $ | — | | $ | 57,000 | | $ | — | | $ | 57,000 | | |||||||||||||||||||
Other | |
| 500 | |
| — | |
| 1,006 | |
| — | |
| 1,506 | | |||||||||||||||||||
Total | | $ | 500 | | $ | — | | $ | 58,006 | | $ | — | | $ | 58,506 | | |||||||||||||||||||
Weighted average yield |
| — | % |
|
| 1.03 | % |
|
| — | % |
|
| — | % |
|
| 1.03 | % | |
| 1.76 | % |
| — | % |
| 5.35 | % |
| — | % |
| 5.32 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Estimated Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
US Treasury Securities | $ | — |
|
| $ | 495 |
|
| $ | — |
|
| $ | — |
|
| $ | 495 |
| ||||||||||||||||
Corporate bonds | | $ | — | | $ | — | | $ | 58,322 | | $ | — | | $ | 58,322 | | |||||||||||||||||||
Other | |
| 505 | |
| — | |
| 1,100 | |
| — | |
| 1,605 | | |||||||||||||||||||
Total | | $ | 505 | | $ | — | | $ | 59,422 | | $ | — | | $ | 59,927 | |
| | | | | | | | | | | | | | | | |
|
| Less than |
| 1 Through |
| 5 Through |
| After |
| | |
| ||||
(dollars in thousands) | | 1 Year | | 5 years | | 10 Years | | 10 Years | | Total |
| |||||
December 31, 2019 | | | | | | | | | | | | | | | | |
Amortized Cost: |
| |
|
| |
|
| |
|
| |
|
| |
| |
Corporate bonds | | $ | — | | $ | — | | $ | 54,000 | | $ | — | | $ | 54,000 | |
Other | |
| — | |
| 400 | |
| 986 | |
| — | |
| 1,386 | |
Total | | $ | — | | $ | 400 | | $ | 54,986 | | $ | — | | $ | 55,386 | |
Weighted average yield | |
| — | % |
| 2.25 | % |
| 5.29 | % |
| — | % |
| 5.27 | % |
Estimated Fair Value: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Corporate bonds | | $ | — | | $ | — | | $ | 55,834 | | $ | — | | $ | 55,834 | |
Other | |
| — | |
| 403 | |
| 1,046 | |
| — | |
| 1,449 | |
Total | | $ | — | | $ | 403 | | $ | 56,880 | | $ | — | | $ | 57,283 | |
Agency mortgage backedmortgage-backed securities and beneficial interests in FHLMC securitizations are excluded from the above table because such securities are not due at a single maturity date. The weighted average yield of the agency mortgage backedmortgage-backed securities and beneficial interests as of September 30, 20172020 was 2.54%2.46%.
11
13
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 –2020 - UNAUDITED
NOTE 4: LOANS
The following is a summary of our loans as of:
| | | | | | | |||||||
|
| September 30, | | December 31, | |||||||||
(dollars in thousands) | September 30, |
| December 31, |
|
| 2020 |
| 2019 | |||||
Outstanding principal balance: |
|
|
|
|
|
|
| |
| | |
| |
Loans secured by real estate: |
|
|
|
|
|
|
|
| |
|
| |
|
Residential properties: |
|
|
|
|
|
|
|
| |
|
| |
|
Multifamily | $ | 1,784,061 |
|
| $ | 1,178,003 |
| | $ | 2,084,175 | | $ | 2,143,919 |
Single family |
| 616,478 |
|
|
| 602,886 |
| |
| 818,436 | |
| 871,181 |
Total real estate loans secured by residential properties |
| 2,400,539 |
|
|
| 1,780,889 |
| |
| 2,902,611 | |
| 3,015,100 |
Commercial properties |
| 529,590 |
|
|
| 476,959 |
| |
| 770,964 | |
| 834,042 |
Land and construction |
| 31,304 |
|
|
| 24,100 |
| ||||||
Land | |
| 57,722 | |
| 70,257 | |||||||
Total real estate loans |
| 2,961,433 |
|
|
| 2,281,948 |
| |
| 3,731,297 | |
| 3,919,399 |
Commercial and industrial loans |
| 259,958 |
|
|
| 237,941 |
| |
| 858,744 | |
| 600,213 |
Consumer loans |
| 28,469 |
|
|
| 32,127 |
| |
| 18,399 | |
| 16,273 |
Total loans |
| 3,249,860 |
|
|
| 2,552,016 |
| |
| 4,608,440 | |
| 4,535,885 |
Premiums, discounts and deferred fees and expenses |
| 7,014 |
|
|
| 3,693 |
| |
| 6,883 | |
| 11,748 |
Total | $ | 3,256,874 |
|
| $ | 2,555,709 |
| | $ | 4,615,323 | | $ | 4,547,633 |
As of September 30,
In 2017 and December 31, 2016, the principal balances shown above are net of unaccreted discount related to loans acquired in an acquisition of $1.1 million and $1.6 million, respectively.
In 2012 and 2015,2018 the Company purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. As of December 31, 2019, the principal balance shown above is net of unaccreted discount related to loans acquired in acquisitions of $8.4 million. The carrying amount of these purchased credit impairedPCD loans is as follows as of:
| | | | | | | |||||||
|
| September 30, |
| December 31, | |||||||||
(dollars in thousands) | September 30, 2017 |
| December 31, |
|
| 2020 |
| 2019 | |||||
Outstanding principal balance: |
|
|
|
|
|
|
| |
| | |
| |
Loans secured by real estate: |
| |
|
| |
| |||||||
Residential properties | | $ | 288 | | $ | 366 | |||||||
Commercial properties | |
| 5,513 | |
| 6,146 | |||||||
Land | |
| — | |
| 1,058 | |||||||
Total real estate loans | $ | 285 |
|
| $ | 295 |
| |
| 5,801 | |
| 7,570 |
Commercial and industrial loans |
| 2,416 |
|
|
| 4,258 |
| |
| 305 | |
| 603 |
Consumer loans |
| — |
|
|
| 17 |
| ||||||
Total loans |
| 2,701 |
|
|
| 4,570 |
| |
| 6,106 | |
| 8,173 |
Unaccreted discount on purchased credit impaired loans |
| (884 | ) |
|
| (1,197 | ) | ||||||
Unaccreted discount on purchased credit deteriorated loans | |
| — | |
| (3,657) | |||||||
Total | $ | 1,817 |
|
| $ | 3,373 |
| | $ | 6,106 | | $ | 4,516 |
Accretable yield, or income expected to be collected on purchased credit impaired loans, and the related changes, is as follows for the periods indicated:
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 –2020 - UNAUDITED
The following table summarizes our delinquent and nonaccrual loans as of:
|
| Past Due and Still Accruing |
|
|
|
|
| Total Past |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
| | Past Due and Still Accruing | | | | | Total Past | | | | | | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | 90 Days | | | | | Due and | | | | | | | ||||||||||||||||||||||||||||||
(dollars in thousands) |
| 30–59 Days |
|
| 60-89 Days |
|
| 90 Days |
|
| Nonaccrual |
|
| Due and |
|
| Current |
|
| Total |
|
| 30–59 Days |
| 60-89 Days |
| or More |
| Nonaccrual |
| Nonaccrual |
| Current |
| Total | ||||||||||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
September 30, 2020: | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Residential properties |
| $ | 53 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 53 |
|
| $ | 2,400,486 |
|
| $ | 2,400,539 |
| | $ | — | | $ | 24 | | $ | 1,922 | | $ | 12,532 | | $ | 14,478 | | $ | 2,888,133 | | $ | 2,902,611 |
Commercial properties |
|
| 762 |
|
|
| — |
|
|
| 1,330 |
|
|
| 1,278 |
|
|
| 3,370 |
|
|
| 526,220 |
|
| 529,590 |
| |
| 722 | |
| 215 | |
| — | |
| 1,738 | |
| 2,675 | |
| 768,289 | |
| 770,964 | |
Land and construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31,304 |
|
| 31,304 |
| ||||||||||||||||||||||
Land | |
| 411 | |
| — | |
| — | |
| — | |
| 411 | |
| 57,311 | |
| 57,722 | ||||||||||||||||||||||||||||
Commercial and industrial loans |
|
| 10,926 |
|
|
| — |
|
|
| 815 |
|
|
| 5,216 |
|
|
| 16,957 |
|
|
| 243,001 |
|
| 259,958 |
| |
| 442 | |
| 1,038 | |
| 481 | |
| 6,306 | |
| 8,267 | |
| 850,477 | |
| 858,744 | |
Consumer loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,469 |
|
|
| 28,469 |
| |
| — | |
| — | |
| — | |
| 16 | |
| 16 | |
| 18,383 | |
| 18,399 |
Total |
| $ | 11,741 |
|
| $ | — |
|
| $ | 2,145 |
|
| $ | 6,494 |
|
| $ | 20,380 |
|
| $ | 3,229,480 |
|
| $ | 3,249,860 |
| | $ | 1,575 | | $ | 1,277 | | $ | 2,403 | | $ | 20,592 | | $ | 25,847 | | $ | 4,582,593 | | $ | 4,608,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
Percentage of total loans |
|
| 0.36 | % |
|
| — | % |
|
| 0.07 | % |
|
| 0.20 | % |
|
| 0.63 | % |
|
|
|
|
|
|
| |
| 0.03 | % |
| 0.03 | % |
| 0.05 | % |
| 0.45 | % |
| 0.56 | % |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
December 31, 2019: | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Residential properties |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 3,759 |
|
| $ | 3,759 |
|
| $ | 1,777,130 |
|
| $ | 1,780,889 |
| | $ | 89 | | $ | 13 | | $ | — | | $ | 1,743 | | $ | 1,845 | | $ | 3,013,255 | | $ | 3,015,100 |
Commercial properties |
|
| — |
|
|
| — |
|
|
| 2,128 |
|
|
| 1,120 |
|
|
| 3,248 |
|
|
| 473,711 |
|
|
| 476,959 |
| |
| 7,586 | |
| — | |
| 403 | |
| 2,410 | |
| 10,399 | |
| 823,643 | |
| 834,042 |
Land and construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24,100 |
|
|
| 24,100 |
| |||||||||||||||||||||
Land | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 70,257 | |
| 70,257 | ||||||||||||||||||||||||||||
Commercial and industrial loans |
|
| — |
|
|
| 2 |
|
|
| 3,800 |
|
|
| 3,359 |
|
|
| 7,161 |
|
|
| 230,780 |
|
|
| 237,941 |
| |
| 695 | |
| 2,007 | |
| — | |
| 8,714 | |
| 11,416 | |
| 588,797 | |
| 600,213 |
Consumer loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32,127 |
|
|
| 32,127 |
| |
| 22 | |
| 3 | |
| — | |
| — | |
| 25 | |
| 16,248 | |
| 16,273 |
Total |
| $ | — |
|
| $ | 2 |
|
| $ | 5,928 |
|
| $ | 8,238 |
|
| $ | 14,168 |
|
| $ | 2,537,848 |
|
| $ | 2,552,016 |
| | $ | 8,392 | | $ | 2,023 | | $ | 403 | | $ | 12,867 | | $ | 23,685 | | $ | 4,512,200 | | $ | 4,535,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
Percentage of total loans |
|
| — | % |
|
| 0.00 | % |
|
| 0.23 | % |
|
| 0.32 | % |
|
| 0.56 | % |
|
|
|
|
|
|
| |
| 0.19 | % |
| 0.04 | % |
| 0.01 | % |
| 0.28 | % |
| 0.52 | % |
|
| |
|
|
The level of delinquent loans and nonaccrual loans have been adversely impacted byfollowing table presents the loans acquired from acquisitions. As of September 30, 2017, of the $8.6 million in loans over 90 days past due, including loans on nonaccrual, $3.1 million, or 36% were loans acquired from acquisitions.
Accrual of interest on loans is discontinued when reasonable doubt exists as to the full, timely collection of interest or principal and, generally, when a loan becomes contractually past due for sixty days or more with respect to principal or interest. The accrual of interest may be continued on a well-secured loan contractually past due sixty days or more with respect to principal or interest if the loan is in the process of collection or collection of the principal and interest is deemed probable. The Bank considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The determination of past due, nonaccrual or impairment status of loans acquired in an acquisition, other than loans deemed purchased impaired, is the same as loans we originate.
During the first nine months of 2017 the Company did not have any additional loans classified as troubled debt restructurings (“TDR”). As by accrual and nonaccrual status as of:
| | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | ||||||||||||||
(dollars in thousands) | | Accrual | | Nonaccrual | | Total | | Accrual | | Nonaccrual | | Total | ||||||
Residential loans |
| $ | 1,200 |
| $ | — |
| $ | 1,200 |
| $ | 1,200 |
| $ | — |
| $ | 1,200 |
Commercial real estate loans | |
| 1,127 | |
| 1,303 | |
| 2,430 | |
| 1,188 | |
| 2,166 | |
| 3,354 |
Commercial and industrial loans | |
| 1,014 | |
| 3,439 | |
| 4,453 | |
| 557 | |
| 2,972 | |
| 3,529 |
Total | | $ | 3,341 | | $ | 4,742 | | $ | 8,083 | | $ | 2,945 | | $ | 5,138 | | $ | 8,083 |
The following table provides information on loans that were modified as TDRs for the following periods:
| | | | | | | | | | | |
| | | | Outstanding Recorded Investment | | | | ||||
(dollars in thousands) | | Number of loans | | Pre-Modification | | Post-Modification | | Financial Impact | |||
Nine Months Ended September 30, 2020: |
|
|
| |
|
| |
|
| |
|
Commercial and industrial loans |
| 1 | | $ | 514 | | $ | 514 | | $ | — |
Total |
| 1 | | $ | 514 | | $ | 514 | | $ | — |
| | | | | | | | | | | |
| | | | Outstanding Recorded Investment | | | | ||||
(dollars in thousands) | | Number of loans | | Pre-Modification | | Post-Modification | | Financial Impact | |||
Year Ended December 31, 2019 |
|
| |
|
| |
|
| |
|
|
Residential loans | | 1 | | $ | 1,200 | | $ | 1,200 | | $ | — |
Commercial real estate loans |
| 1 | | | 2,872 | | | 2,872 | | | — |
Commercial and industrial loans |
| 7 | |
| 1,754 | |
| 1,754 | |
| — |
Total |
| 9 | | $ | 5,826 | | $ | 5,826 | | $ | — |
15
|
| September 30, 2017 |
|
|
| December 31, 2016 |
| |||||||||||||||||
(dollars in thousands) |
| Accrual |
|
|
| Nonaccrual |
|
| Total |
|
|
| Accrual |
|
| Nonaccrual |
|
| Total |
| ||||
Commercial and industrial |
| $ | 225 |
|
| $ | 2,522 |
|
| $ | 2,747 |
|
| $ | 317 |
|
| $ | 3,109 |
|
| $ | 3,426 |
|
These loans were classified as a TDR as a result of a reduction in required principal payments and/or an extension of the maturity date of the loans.
13
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 –2020 - UNAUDITED
All of these loans were classified as a TDR as a result of a reduction in required principal payments and an extension of the maturity date of the loans. These loans have been paying in accordance with the terms of their restructure.
NOTE 5: ALLOWANCE FOR LOANCREDIT LOSSES
The following is a roll forward of the Bank’s allowance for loancredit losses related to loans for the following periods:
| | | | | | | | | | | | | | | | | | |
|
| Beginning | | Adoption of |
| Provision for |
| | |
| | |
| Ending | ||||
(dollars in thousands) | | Balance | | ASC 326 | | Credit Losses | | Charge-offs | | Recoveries | | Balance | ||||||
Quarter Ended September 30, 2020: |
| |
| | |
|
| |
|
| |
|
| |
|
| |
|
Real estate loans: |
| |
| | |
|
| |
|
| |
|
| |
|
| |
|
Residential properties | | $ | 6,756 | | $ | — | | $ | (3,791) | | $ | — | | $ | — | | $ | 2,965 |
Commercial properties | |
| 9,311 | |
| — | |
| 336 | |
| — | |
| — | |
| 9,647 |
Land | |
| 3,368 | |
| — | |
| (2,211) | |
| — | |
| — | |
| 1,157 |
Commercial and industrial loans | |
| 8,488 | |
| — | |
| 1,831 | |
| (338) | |
| 222 | |
| 10,203 |
Consumer loans | |
| 206 | |
| — | |
| 5 | |
| — | |
| — | |
| 211 |
Total | | $ | 28,129 | | $ | — | | $ | (3,830) | | $ | (338) | | $ | 222 | | $ | 24,183 |
| | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2020: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate loans: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Residential properties | | $ | 8,423 | | $ | (363) | | $ | (5,095) | | $ | — | | $ | — | | $ | 2,965 |
Commercial properties | |
| 4,166 | |
| (3,760) | |
| 9,241 | |
| — | |
| — | |
| 9,647 |
Land | |
| 573 | |
| (92) | |
| 676 | |
| — | |
| — | |
| 1,157 |
Commercial and industrial loans | |
| 7,448 | |
| — | |
| 3,362 | |
| (1,393) | |
| 786 | |
| 10,203 |
Consumer loans | |
| 190 | |
| — | |
| 21 | |
| — | |
| — | |
| 211 |
Total | | $ | 20,800 | | $ | (4,215) | | $ | 8,205 | | $ | (1,393) | | $ | 786 | | $ | 24,183 |
| | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2019: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate loans: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Residential properties | | $ | 9,216 | | $ | — | | $ | (793) | | $ | — | | $ | — | | $ | 8,423 |
Commercial properties | |
| 4,547 | |
| — | |
| (381) | |
| — | |
| — | |
| 4,166 |
Land | |
| 391 | |
| — | |
| 182 | |
| — | |
| — | |
| 573 |
Commercial and industrial loans | |
| 4,628 | |
| — | |
| 3,653 | |
| (2,687) | |
| 1,854 | |
| 7,448 |
Consumer loans | |
| 218 | |
| — | |
| (24) | |
| (5) | |
| 1 | |
| 190 |
Total | | $ | 19,000 | | $ | — | | $ | 2,637 | | $ | (2,692) | | $ | 1,855 | | $ | 20,800 |
(dollars in thousands) |
| Beginning |
|
| Provision for |
|
| Charge-offs |
|
| Recoveries |
|
| Ending |
| |||||
Quarter Ended September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential properties |
| $ | 8,851 |
|
| $ | 469 |
|
| $ | — |
|
| $ | — |
|
| $ | 9,320 |
|
Commercial properties |
|
| 3,285 |
|
|
| 281 |
|
|
| — |
|
|
| — |
|
|
| 3,566 |
|
Land and construction |
|
| 287 |
|
|
| 66 |
|
|
| — |
|
|
| — |
|
|
| 353 |
|
Commercial and industrial loans |
|
| 4,093 |
|
|
| (119 | ) |
|
| — |
|
|
| (1 | ) |
|
| 3,973 |
|
Consumer loans |
|
| 284 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 288 |
|
Total |
| $ | 16,800 |
|
| $ | 701 |
|
| $ | — |
|
| $ | (1 | ) |
| $ | 17,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential properties |
| $ | 6,669 |
|
| $ | 2,651 |
|
| $ | — |
|
| $ | — |
|
| $ | 9,320 |
|
Commercial properties |
|
| 2,983 |
|
|
| 583 |
|
|
| — |
|
|
| — |
|
|
| 3,566 |
|
Land and construction |
|
| 233 |
|
|
| 120 |
|
|
| — |
|
|
| — |
|
|
| 353 |
|
Commercial and industrial loans |
|
| 5,227 |
|
|
| (1,492 | ) |
|
| — |
|
|
| 238 |
|
|
| 3,973 |
|
Consumer loans |
|
| 288 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 288 |
|
Total |
| $ | 15,400 |
|
| $ | 1,862 |
|
| $ | — |
|
| $ | 238 |
|
| $ | 17,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential properties |
| $ | 6,799 |
|
| $ | (130 | ) |
| $ | — |
|
| $ | — |
|
| $ | 6,669 |
|
Commercial properties |
|
| 1,813 |
|
|
| 1,051 |
|
|
| (50 | ) |
|
| 169 |
|
|
| 2,983 |
|
Land and construction |
|
| 103 |
|
|
| 130 |
|
|
| — |
|
|
| — |
|
|
| 233 |
|
Commercial and industrial loans |
|
| 1,649 |
|
|
| 3,578 |
|
|
| — |
|
|
| — |
|
|
| 5,227 |
|
Consumer loans |
|
| 236 |
|
|
| 52 |
|
|
| — |
|
|
| — |
|
|
| 288 |
|
Total |
| $ | 10,600 |
|
| $ | 4,681 |
|
| $ | (50 | ) |
| $ | 169 |
|
| $ | 15,400 |
|
16
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 –2020 - UNAUDITED
The following table presents the balance in the allowance for loancredit losses and the recorded investment in loans by impairment method as of:
| | | | | | | | | | | | | | | | ||||||||||||||||||||
| | Allowance for Credit Losses | | Unaccreted | |||||||||||||||||||||||||||||||
| | | | | | | | Purchased | | | | | Credit | ||||||||||||||||||||||
| | Evaluated for Impairment | | Credit | | | | | Component | ||||||||||||||||||||||||||
(dollars in thousands) |
| Allowance for Loan Losses |
| Unaccreted |
|
| Individually |
| Collectively |
| Deteriorated |
| Total |
| Other Loans | ||||||||||||||||||||
|
| Evaluated for Impairment |
| Purchased |
|
|
| Component |
| ||||||||||||||||||||||||||
|
| Individually |
| Collectively |
| Impaired |
| Total |
| Other Loans |
| ||||||||||||||||||||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
September 30, 2020: | | | | | | | | | | | | | | | | ||||||||||||||||||||
Allowance for credit losses: |
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Residential properties |
| $ | — |
|
| $ | 9,320 |
|
| $ | — |
| $ | 9,320 |
|
| $ | 84 |
| | $ | 7 | | $ | 2,954 | | $ | 4 | | $ | 2,965 | | $ | | |
Commercial properties |
|
| — |
|
|
| 3,566 |
|
|
| — |
|
| 3,566 |
|
|
| 78 |
| |
| 98 | |
| 9,268 | |
| 281 | |
| 9,647 | |
| | |
Land and construction |
|
| — |
|
|
| 353 |
|
|
| — |
|
| 353 |
|
|
| — |
| ||||||||||||||||
Land | |
| — | |
| 1,157 | |
| — | |
| 1,157 | |
| | ||||||||||||||||||||
Commercial and industrial loans |
|
| 1,413 |
|
|
| 2,560 |
|
|
| — |
|
| 3,973 |
|
|
| 89 |
| |
| 1,095 | |
| 9,102 | |
| 6 | |
| 10,203 | |
| | |
Consumer loans |
|
| — |
|
|
| 288 |
|
|
| — |
|
| 288 |
|
|
| 6 |
| |
| — | |
| 211 | |
| — | |
| 211 | |
| | |
Total |
| $ | 1,413 |
|
| $ | 16,087 |
|
| $ | — |
| $ | 17,500 |
|
| $ | 257 |
| | $ | 1,200 | | $ | 22,692 | | $ | 291 | | $ | 24,183 | | $ | — | |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Residential properties |
| $ | — |
|
| $ | 2,400,539 |
|
| $ | — |
| $ | 2,400,539 |
|
| $ | 9,043 |
| | $ | 13,714 | | $ | 2,888,609 | | $ | 288 | | $ | 2,902,611 | | $ | | |
Commercial properties |
|
| 3,603 |
|
|
| 525,822 |
|
|
| 165 |
|
| 529,590 |
|
|
| 10,290 |
| |
| 11,873 | |
| 753,578 | |
| 5,513 | |
| 770,964 | |
| | |
Land and construction |
|
| — |
|
|
| 31,304 |
|
|
| — |
|
| 31,304 |
|
|
| — |
| ||||||||||||||||
Land | |
| — | |
| 57,722 | |
| — | |
| 57,722 | |
| | ||||||||||||||||||||
Commercial and industrial loans |
|
| 10,747 |
|
|
| 247,559 |
|
|
| 1,652 |
|
| 259,958 |
|
|
| 14,771 |
| |
| 7,320 | |
| 851,119 | |
| 305 | |
| 858,744 | |
| | |
Consumer loans |
|
| — |
|
|
| 28,469 |
|
|
| — |
|
| 28,469 |
|
|
| 760 |
| |
| 16 | |
| 18,383 | |
| — | |
| 18,399 | |
| | |
Total |
| $ | 14,350 |
|
| $ | 3,233,693 |
|
| $ | 1,817 |
| $ | 3,249,860 |
|
| $ | 34,864 |
| | $ | 32,923 | | $ | 4,569,411 | | $ | 6,106 | | $ | 4,608,440 | | $ | — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
December 31, 2019: | | | | | | | | | | | | | | | | ||||||||||||||||||||
Allowance for credit losses: | |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Residential properties |
| $ | — |
|
| $ | 6,669 |
|
| $ | — |
| $ | 6,669 |
| $ | 128 |
| | $ | — | | $ | 8,423 | | $ | — | | $ | 8,423 | | $ | 1,013 | ||
Commercial properties |
|
| — |
|
|
| 2,983 |
|
|
| — |
|
| 2,983 |
| 136 |
| |
| 107 | |
| 4,059 | |
| — | |
| 4,166 | |
| 1,048 | |||
Land and construction |
|
| — |
|
|
| 233 |
|
|
| — |
|
| 233 |
| 2 |
| ||||||||||||||||||
Land | |
| — | |
| 573 | |
| — | |
| 573 | |
| 6 | ||||||||||||||||||||
Commercial and industrial loans |
|
| — |
|
|
| 5,227 |
|
|
| — |
|
| 5,227 |
| 147 |
| |
| 763 | |
| 6,685 | |
| — | |
| 7,448 | |
| 277 | |||
Consumer loans |
|
| — |
|
|
| 288 |
|
|
| — |
|
| 288 |
|
| 19 |
| |
| — | |
| 190 | |
| — | |
| 190 | |
| 1 | ||
Total |
| $ | — |
|
| $ | 15,400 |
|
| $ | — |
| $ | 15,400 |
| $ | 432 |
| | $ | 870 | | $ | 19,930 | | $ | — | | $ | 20,800 | | $ | 2,345 | ||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Residential properties |
| $ | 6,093 |
|
| $ | 1,774,796 |
|
| $ | — |
| $ | 1,780,889 |
| $ | 12,373 |
| | $ | 2,897 | | $ | 3,012,203 | | $ | — | | $ | 3,015,100 | | $ | 189,339 | ||
Commercial properties |
|
| 2,148 |
|
|
| 474,634 |
|
|
| 177 |
|
| 476,959 |
| 24,796 |
| |
| 6,689 | |
| 824,026 | |
| 3,327 | |
| 834,042 | |
| 201,370 | |||
Land and construction |
|
| — |
|
|
| 24,100 |
|
|
| — |
|
| 24,100 |
| 437 |
| ||||||||||||||||||
Land | |
| — | |
| 69,476 | |
| 781 | |
| 70,257 | |
| 28,660 | ||||||||||||||||||||
Commercial and industrial loans |
|
| 753 |
|
|
| 233,992 |
|
|
| 3,196 |
|
| 237,941 |
| 20,165 |
| |
| 9,316 | |
| 590,489 | |
| 408 | |
| 600,213 | |
| 24,143 | |||
Consumer loans |
|
| — |
|
|
| 32,127 |
|
|
| — |
|
| 32,127 |
|
| 1,266 |
| |
| — | |
| 16,273 | |
| — | |
| 16,273 | |
| 253 | ||
Total |
| $ | 8,994 |
|
| $ | 2,539,649 |
|
| $ | 3,373 |
| $ | 2,552,016 |
| $ | 59,037 |
| | $ | 18,902 | | $ | 4,512,467 | | $ | 4,516 | | $ | 4,535,885 | | $ | 443,765 |
The column labeled “Unaccreted Credit Component Other Loans” represents the amount of unaccreted credit component discount for the other loans acquired in an acquisition that were not classified as purchased impaired or individually evaluated for impairment as of the dates indicated,a business combination, and the stated principal balance of the related loans. The unaccreted credit component discount is equal to 0.74% and 0.73%0.53% of the stated principal balance of these loans as of September 30, 2017 and December 31, 2016, respectively.2019. In addition to this unaccreted credit component discount, an additional $0.1 million and $0.5$0.3 million of the ALLLACL has been provided for these loans as of September 30, 2017 and December 31, 2016, respectively.2019.
1517
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 –2020 - UNAUDITED
Assets that were previously accounted for as PCI under ASC 310-30 are accounted for as PCD assets under the new impairment standard. When instruments that were accounted for as PCI are transitioned to the new PCD model, a “gross up” is recorded to the amortized cost basis of the asset and the allowance for credit losses of these instruments. If any noncredit discount still exists, it is accredited to interest income using the interest method.
The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as loans secured by multifamily or commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Bank uses the following definitions for risk ratings:
Pass: Loans classified as pass are strong credits with no existing or known potential weaknesses deserving of management’s close attention.
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Impaired: A loan is considered impaired, when, based on current information and events, it is probable that the Bank will be unable PCD (PCI prior to collect all amounts due according to the contractual terms of the loan agreement.
Additionally, allJanuary 1, 2020) loans are classified as TDRs are considered impaired at the time they are restructured. Purchased credit impairedsubstandard loans.
Loans individually evaluated: Substandard loans and other TDR loans are not considered impaired loansindividually evaluated for these purposes.credit losses and are broken out separately in the table below.
Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions above and smaller, homogeneous loans not assessed on an individual basis.
18
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 - UNAUDITED
Based on the most recent analysis performed, the risk category of loans by class of loans is as follows as of:
| | | | | | | | | | | | | | | |
| | | | | | | | | | Loans Individually | | | | ||
(dollars in thousands) |
| Pass |
| Special Mention |
| Substandard Loans |
| Evaluated |
| Total | |||||
| | | | | | | | | | | | | | | |
September 30, 2020: | | | | | | | | | | | | | | | |
Real estate loans: |
| |
|
| |
|
| |
|
| |
|
| |
|
Residential properties | | $ | 2,887,890 | | $ | 990 | | $ | 17 | | $ | 13,714 | | $ | 2,902,611 |
Commercial properties | |
| 740,035 | |
| 12,840 | |
| 6,216 | |
| 11,873 | |
| 770,964 |
Land | |
| 57,311 | |
| 411 | |
| — | |
| — | |
| 57,722 |
Commercial and industrial loans | |
| 839,377 | |
| 8,260 | |
| 3,787 | |
| 7,320 | |
| 858,744 |
Consumer loans | |
| 18,383 | |
| — | |
| — | |
| 16 | |
| 18,399 |
Total | | $ | 4,542,996 | | $ | 22,501 | | $ | 10,020 | | $ | 32,923 | | $ | 4,608,440 |
| | | | | | | | | | | | | | | |
December 31, 2019: | | | | | | | | | | | | | | | |
Real estate loans: | |
|
| |
|
| |
|
| |
|
| |
|
|
Residential properties | | $ | 3,012,203 | | $ | — | | $ | — | | $ | 2,897 | | $ | 3,015,100 |
Commercial properties | |
| 821,425 | |
| 679 | |
| 5,249 | |
| 6,689 | |
| 834,042 |
Land | |
| 69,476 | |
| — | |
| 781 | |
| — | |
| 70,257 |
Commercial and industrial loans | |
| 579,153 | |
| 8,202 | |
| 3,542 | |
| 9,316 | |
| 600,213 |
Consumer loans | |
| 16,273 | |
| — | |
| — | |
| — | |
| 16,273 |
Total | | $ | 4,498,530 | | $ | 8,881 | | $ | 9,572 | | $ | 18,902 | | $ | 4,535,885 |
(dollars in thousands) |
| Pass |
|
| Special |
|
| Substandard |
|
| Impaired |
|
| Total |
| |||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential properties |
| $ | 2,398,246 |
|
| $ | — |
|
| $ | 2,293 |
|
| $ | — |
|
| $ | 2,400,539 |
|
Commercial properties |
|
| 519,931 |
|
|
| 5,131 |
|
|
| 925 |
|
|
| 3,603 |
|
|
| 529,590 |
|
Land and construction |
|
| 31,304 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31,304 |
|
Commercial and industrial loans |
|
| 246,499 |
|
|
| 815 |
|
|
| 1,897 |
|
|
| 10,747 |
|
|
| 259,958 |
|
Consumer loans |
|
| 28,469 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,469 |
|
Total |
| $ | 3,224,449 |
|
| $ | 5,946 |
|
| $ | 5,115 |
|
| $ | 14,350 |
|
| $ | 3,249,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential properties |
| $ | 1,773,296 |
|
| $ | 1,500 |
|
| $ | — |
|
| $ | 6,093 |
|
| $ | 1,780,889 |
|
Commercial properties |
|
| 470,484 |
|
|
| 1,913 |
|
|
| 2,414 |
|
|
| 2,148 |
|
|
| 476,959 |
|
Land and construction |
|
| 24,100 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24,100 |
|
Commercial and industrial loans |
|
| 219,676 |
|
|
| 3,625 |
|
|
| 13,887 |
|
|
| 753 |
|
|
| 237,941 |
|
Consumer loans |
|
| 32,127 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32,127 |
|
Total |
| $ | 2,519,683 |
|
| $ | 7,038 |
|
| $ | 16,301 |
|
| $ | 8,994 |
|
| $ | 2,552,016 |
|
19
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 –2020 - UNAUDITED
The risk categories of loans based on year of origination, with classified loans defined as special mention loans, substandard loans and loans individually evaluated as of September 30, 2020, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving | | | | |
(dollars in thousands) |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| Prior |
| Loans |
| Total | ||||||||
Loans secured by Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | | | | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 414,824 |
| $ | 671,855 | | $ | 556,493 |
| $ | 283,805 |
| $ | 90,563 | | $ | 66,635 |
| $ | — |
| $ | 2,084,175 |
Classified | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total |
| $ | 414,824 |
| $ | 671,855 | | $ | 556,493 |
| $ | 283,805 |
| $ | 90,563 | | $ | 66,635 |
| $ | — |
| $ | 2,084,175 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Single Family | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 121,026 |
| $ | 98,636 | | $ | 123,467 |
| $ | 102,171 |
| $ | 122,259 | | $ | 211,628 |
| $ | 24,528 |
| $ | 803,715 |
Classified | | | — | | | — | | | — | | | 2,949 | | | — | | | 8,693 | | | 3,079 | | | 14,721 |
Total |
| $ | 121,026 |
| $ | 98,636 | | $ | 123,467 |
| $ | 105,120 |
| $ | 122,259 | | $ | 220,321 |
| $ | 27,607 |
| $ | 818,436 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 23,813 |
| $ | 101,270 | | $ | 128,506 |
| $ | 135,422 |
| $ | 125,552 | | $ | 225,472 |
| $ | — |
| $ | 740,035 |
Classified | | | — | | | 6,693 | | | 10,935 | | | 2,365 | | | 3,397 | | | 7,539 | | | — | | | 30,929 |
Total |
| $ | 23,813 |
| $ | 107,963 | | $ | 139,441 |
| $ | 137,787 |
| $ | 128,949 | | $ | 233,011 |
| $ | — |
| $ | 770,964 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Land | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | — |
| $ | 15,506 | | $ | 29,931 |
| $ | 10,532 |
| $ | 712 | | $ | 630 |
| $ | — |
| $ | 57,311 |
Classified | | | — | | | — | | | — | | | — | | | — | | | 411 | | | — | | | 411 |
Total |
| $ | — |
| $ | 15,506 | | $ | 29,931 |
| $ | 10,532 |
| $ | 712 | | $ | 1,041 |
| $ | — |
| $ | 57,722 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 326,810 |
| $ | 162,434 | | $ | 64,528 |
| $ | 17,995 |
| $ | 15,426 | | $ | 18,127 |
| $ | 234,057 |
| $ | 839,377 |
Classified | | | 2,041 | | | 3,093 | | | 5,177 | | | 1,302 | | | 2,261 | | | 290 | | | 5,203 | | | 19,367 |
Total |
| $ | 328,851 |
| $ | 165,527 | | $ | 69,705 |
| $ | 19,297 |
| $ | 17,687 | | $ | 18,417 |
| $ | 239,260 |
| $ | 858,744 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 2,108 |
| $ | — | | $ | 1,389 |
| $ | 4 |
| $ | 6,924 | | $ | 127 |
| $ | 7,831 |
| $ | 18,383 |
Classified | | | — | | | — | | | — | | | 16 | | | — | | | — | | | — | | | 16 |
Total |
| $ | 2,108 |
| $ | — | | $ | 1,389 |
| $ | 20 |
| $ | 6,924 | | $ | 127 |
| $ | 7,831 |
| $ | 18,399 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total loans | | | | | | | | | | | | | | | | | | | | | | | | |
Pass |
| $ | 888,581 |
| $ | 1,049,701 | | $ | 904,314 |
| $ | 549,929 |
| $ | 361,436 | | $ | 522,619 |
| $ | 266,416 |
| $ | 4,542,996 |
Classified | | | 2,041 | | | 9,786 | | | 16,112 | | | 6,632 | | | 5,658 | | | 16,933 | | | 8,282 | | | 65,444 |
Total |
| $ | 890,622 |
| $ | 1,059,487 | | $ | 920,426 |
| $ | 556,561 |
| $ | 367,094 | | $ | 539,552 |
| $ | 274,698 |
| $ | 4,608,440 |
20
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 - UNAUDITED
Loans evaluated individually and any related allowance are as follows as of:
|
| With No Allowance Recorded |
|
| With an Allowance Recorded |
| |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
| | With No Allowance Recorded | | With an Allowance Recorded | |||||||||||||||||||||||||||||||
| | Unpaid | | | | | Unpaid | | | | | | | ||||||||||||||||||||||
| | Principal | | Recorded | | Principal | | Recorded | | Related | |||||||||||||||||||||||||
(dollars in thousands) |
| Unpaid Principal Balance |
| Recorded Investment |
| Unpaid Principal Balance |
| Recorded Investment |
| Related Allowance |
|
| Balance |
| Investment |
| Balance |
| Investment |
| Allowance | ||||||||||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Commercial properties |
| $ | 3,603 |
| $ | 3,603 |
| $ | — |
| $ | — |
| $ | — |
| |||||||||||||||||||
Commercial and industrial loans |
|
| 501 |
| 501 |
| 10,246 |
| 10,246 |
| 1,413 |
| |||||||||||||||||||||||
Total |
| $ | 4,104 |
| $ | 4,104 |
| $ | 10,246 |
| $ | 10,246 |
| $ | 1,413 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
September 30, 2020: | | | | | | | | | | | | | | | | ||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||
Residential properties |
| $ | 6,093 |
| $ | 6,093 |
| $ | — |
| $ | — |
| $ | — |
| | $ | 12,934 | | $ | 12,887 | | $ | 882 | | $ | 827 | | $ | 7 | ||||
Commercial properties |
|
| 2,148 |
| 2,148 |
| — |
| — |
| — |
| |
| 11,027 | |
| 10,745 | |
| 1,127 | |
| 1,127 | |
| 98 | ||||||||
Land | |
| — | |
| — | |
| — | |
| — | |
| — | ||||||||||||||||||||
Commercial and industrial loans |
|
| 753 |
| 753 |
| — |
| — |
| — |
| |
| 3,474 | |
| 3,090 | |
| 4,399 | |
| 4,231 | |
| 1,095 | ||||||||
Consumer loans |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| | | 16 | | | 16 | | | — | | | — | | | — | ||||
Total |
| $ | 8,994 |
| $ | 8,994 |
| $ | — |
| $ | — |
| $ | — |
| | $ | 27,451 | | $ | 26,738 | | $ | 6,408 | | $ | 6,185 | | $ | 1,200 | ||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
December 31, 2019: | | | | | | | | | | | | | | | | ||||||||||||||||||||
Real estate loans: | |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||||
Residential properties | | $ | 2,970 | | $ | 2,897 | | $ | — | | $ | — | | $ | — | ||||||||||||||||||||
Commercial properties | |
| 5,683 | |
| 5,456 | |
| 1,188 | |
| 1,188 | |
| 107 | ||||||||||||||||||||
Land | |
| — | |
| — | |
| — | |
| — | |
| — | ||||||||||||||||||||
Commercial and industrial loans | |
| 6,485 | |
| 5,708 | |
| 3,764 | |
| 3,653 | |
| 763 | ||||||||||||||||||||
Total | | $ | 15,138 | | $ | 14,061 | | $ | 4,952 | | $ | 4,841 | | $ | 870 |
The weighted average annualized average balance of the recorded investment for impairedthese loans, beginning from when the loan became impaired,classified as a loan individually evaluated, and any interest income recorded on impairedthese loans after they became impairedclassified as a loan individually evaluated is as follows for the:
|
| Nine months Ended |
| Year Ended |
| ||||||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||
| | Nine Months Ended | | Year Ended | | ||||||||||||||||||||||||
| | September 30, 2020 | | December 31, 2019 | | ||||||||||||||||||||||||
| | Average | | | | | Average | | | | |||||||||||||||||||
| | Recorded | | Interest | | Recorded | | Interest | | ||||||||||||||||||||
(dollars in thousands) |
| Average Recorded Investment |
| Interest Income after Impairment |
| Average Recorded Investment |
| Interest Income after Impairment |
| | Investment | | Income | | Investment | | Income | | |||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
| | |
|
| |
| | |||
Residential properties |
| $ | 2,427 |
| $ | 20 |
| $ | 1,970 |
| $ | 14 |
| | $ | 18,963 | | $ | 40 | | $ | 1,765 | | $ | 13 | | |||
Commercial properties |
| 2,201 |
| 16 |
| 2,252 |
| 17 |
| |
| 20,138 | |
| 173 | |
| 8,889 | |
| 341 | | |||||||
Land | |
| 335 | |
| — | |
| 523 | |
| — | | ||||||||||||||||
Commercial and industrial loans |
| 3,792 |
| 13 |
| 1,673 |
| 20 |
| |
| 19,275 | |
| 905 | |
| 10,608 | |
| 11 | | |||||||
Consumer loans |
| — |
| — |
| 4 |
| — |
| |
| 42 | |
| — | |
| — | |
| — | | |||||||
Total |
| $ | 8,420 |
| $ | 49 |
| $ | 5,899 |
| $ | 51 |
| | $ | 58,753 | | $ | 1,118 | | $ | 21,785 | | $ | 365 | |
There was no0 interest income recognized on a cash basis in either 20172020 or 20162019 on impairedthese loans.
21
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 - UNAUDITED
The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses and the related ACL allocated to these loans:
| | | | | | | | | | | | | | | |
| | | | | | | | Equipment/ | | | | | | ACL | |
(dollars in thousands) | | Real Estate | | Cash | | Receivables | | Total | | | Allocation | ||||
September 30, 2020: | | | | | | | | | | | | | | | |
Loans secured by Real Estate: |
| |
|
| |
| | |
|
| |
| | | |
Residential properties | | | | | | | | | | | | | | | |
Single family | | $ | 11,734 | | $ | — | | $ | — | | $ | 11,734 | | $ | — |
Commercial real estate loans | |
| — | |
| — | |
| — | |
| — | |
| — |
Land | |
| — | |
| — | |
| — | |
| — | |
| — |
Commercial loans | |
| 1,039 | |
| 250 | |
| 252 | |
| 1,541 | |
| 113 |
Consumer loans | |
| — | |
| 16 | |
| — | |
| 16 | |
| — |
Total | | $ | 12,773 | | $ | 266 | | $ | 252 | | $ | 13,291 | | $ | 113 |
NOTE 6: LOAN SALES AND MORTGAGE SERVICING RIGHTS
During the first nine months of 2017,2020, FFB recognized $4.3$15.1 million of gains on the sale of $286$553 million of multifamily loans and recorded mortgage servicing rightsloans. In 2019, FFB recognized $4.2 million of $2.0 milliongains on the sale of those$549 million of multifamily loans. For sales of multifamily loans, FFB retained servicing rights for the majority of these loans and recognized mortgage servicing rights as part of the transactions. As of September 30, 20172020 and December 31, 2016,2019, mortgage servicing rights were $3.8$9.8 million and $2.2$7 million, respectively, and the amount of loans serviced for others totaled $620$1.7 billion at September 30, 2020 and December 31, 2019. The $9.8 million in mortgage servicing rights as of September 30, 2020 is net of a $1.7 million valuation allowance, and $382 million, respectively.as a result, servicing fees for the nine months ended September 30, 2020 decreased by $0.5 million. Servicing fees collected infor 2019 were $1.7 million. There was 0 valuation allowance on the first nine monthsmortgage servicing rights as of 2017December 31, 2019.
NOTE 7: DEPOSITS
The following table summarizes the outstanding balance of deposits and in allaverage rates paid thereon as of:
| | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | | ||||||
| | | | | Weighted | | | | | Weighted | | |
(dollars in thousands) | | Amount | | Average Rate | | Amount | | Average Rate | | | ||
Demand deposits: |
| |
|
|
|
| |
|
|
|
| |
Noninterest-bearing | | $ | 1,890,028 |
| — | | $ | 1,192,481 |
| — | | |
Interest-bearing | |
| 396,938 |
| 0.255 | % |
| 386,276 |
| 0.635 | % | |
Money market and savings | |
| 1,922,264 |
| 0.634 | % |
| 1,334,736 |
| 1.355 | % | |
Certificates of deposits | |
| 1,254,583 |
| 0.902 | % |
| 1,977,651 |
| 1.971 | % | |
Total | | $ | 5,463,813 |
| 0.449 | % | $ | 4,891,144 |
| 1.217 | % | |
At September 30, 2020, of 2016 werethe $457 million of certificates of deposits of $250,000 or more, $450 million mature within one year and $7 million mature after one year. Of the $798 million of certificates of deposit of less than $250,000, $781 million mature within one year and $17 million mature after one year. At December 31, 2019, of the $472 million of certificates of deposits of $250,000 or more, $471 million mature within one year and $0.8 million mature after one year. Of the $1.5 billion of certificates of deposit of less than $250,000, $1.5 billion mature within one year and $0.3$13 million respectively.mature after one year.
22
17
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 –2020 - UNAUDITED
The following table summarizes the outstanding balance of deposits and average rates paid thereon as of:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||
(dollars in thousands) |
| Amount |
|
| Weighted |
|
| Amount |
|
| Weighted |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing |
| $ | 1,096,472 |
|
|
| — |
|
| $ | 661,781 |
|
|
| — |
|
Interest-bearing |
|
| 278,917 |
|
|
| 0.654 | % |
|
| 194,274 |
|
|
| 0.471 | % |
Money market and savings |
|
| 1,010,298 |
|
|
| 0.854 | % |
|
| 941,344 |
|
|
| 0.677 | % |
Certificates of deposits |
|
| 883,039 |
|
|
| 1.094 | % |
|
| 629,396 |
|
|
| 0.589 | % |
Total |
| $ | 3,268,726 |
|
|
| 0.615 | % |
| $ | 2,426,795 |
|
|
| 0.453 | % |
At September 30, 2017, of the $266.7 million of certificates of deposits of $250,000 or more, $186.9 million mature within one year and $79.8 million mature after one year. Of the $616.4 million of certificates of deposit of less than $250,000, $534.5 million mature within one year and $81.9 million mature after one year. At December 31, 2016, of the $189.9 million of certificates of deposits of $250,000 or more, $182.8 million mature within one year and $7.1 million mature after one year. Of the $439.5 million of certificates of deposit of less than $250,000, $416.3 million mature within one year and $23.2 million mature after one year.
NOTE 8: BORROWINGS
At September 30, 2017,2020, our borrowings consisted of $406$250 million of overnightin FHLB term advances at the Bank, $10 million in FHLB zero interest advances, and $15$9 million of borrowings under a holding company line of credit. At December 31, 2016,2019, our borrowings consisted of $1.3 billion$233 million of overnight FHLB advances.advances at the Bank, a $500 million FHLB term advance at the Bank, and $10 million of borrowings under a holding company line of credit. The $250 million FHLB term advance outstanding at September 30, 2020 matures in March 2021, and bears an interest rate of 0.47%. The 2 $5 million zero interest advances outstanding at September 30, 2020 mature in October 2020 and April 2021. At September 30, 2020, the interest rate on the holding company line of credit was 3.80%.
FHLB advances were paid in full in the early partare collateralized primarily by loans secured by single family, multifamily, and commercial real estate properties with a carrying value of October 2017 and January 2017, respectively, and bore interest rates$3.4 billion as of 1.14% and 0.56%, respectively. BecauseSeptember 30, 2020. As a matter of practice, the Bank utilizes overnight borrowings, the balance of outstanding borrowings fluctuates on a daily basis. The average balance of overnight borrowings during the first nine months of 2017 was $549.4 million, as compared to $507.0 million duringprovides substantially all of 2016.its qualifying loans as collateral to the FHLB or the Federal Reserve Bank. The Bank’s total borrowing capacity from the FHLB at September 30, 2020 was $1.8 billion. In addition to the $269 million borrowing at September 30, 2020, the Bank had in place $283 million of letters of credit from the FHLB which are used to meet collateral requirements for borrowings from the State of California and local agencies.
During the first quarter of 2017, the CompanyFFI entered into a loan agreement with an unaffiliated lender that provides for a revolving line of credit for up to $25 million. This line of credit was amended in the second quarter of 2017 to increase the maximum loan amount to $50$40 million. The loan agreement matures in five years, with an option to extend the maturity date subject to certain conditions, and bears interest at 90 day LIBOR plus 350 basis points (3.50%). FFI’s obligations under the loan agreement are secured by, among other things, a pledge of all of its equity in FFB. We are required to meet certain financial covenants during the term of the loan, including minimum capital levels and limits on classified assets. As of December 31, 2019 and September 30, 2020, FFI was in compliance with the covenants on this loan agreement.
The Company’s obligations underBank also has $195 million available borrowing capacity through unsecured fed funds lines, ranging in size from $20 million to $100 million, with 5 other financial institutions, and a $210 million secured line with the loan agreement areFederal Reserve Bank, secured by among other things, a pledgesingle family loans. NaN of allthese lines had outstanding borrowings as September 30, 2020. Combined, the Bank’s unused lines of its equity in FFB. Ascredit as of September 30, 2017,2020 and December 31, 2019 were $2.2 billion and $1.4 billion, respectively. The average balance of overnight borrowings during the balancefirst nine months of 2020 was $15$74 million, at a rateas compared to $413 million during all of 4.80%.2019.
NOTE 9: EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if contracts to issue common stock were exercised or converted into common stock that would then share in earnings. The following table sets forth the Company’s unaudited earnings per share calculations for the periods indicated:quarters and nine months ended September 30:
| | | | | | | | | | | | | |
| | Quarter Ended | | Quarter Ended | | ||||||||
| | September 30, 2020 | | September 30, 2019 | | ||||||||
(dollars in thousands, except per share amounts) | | Basic | | Diluted | | Basic | | Diluted | | ||||
Net income |
| $ | 30,938 |
| $ | 30,938 |
| $ | 17,356 |
| $ | 17,356 | |
Basic common shares outstanding | |
| 44,625,668 | |
| 44,625,668 | |
| 44,639,481 | |
| 44,639,481 | |
Effect of contingent shares issuable | | | | | | — | | | | | | 1,592 | |
Effect of options and restricted stock | | | | | | 260,108 | | | | | | 294,235 | |
Diluted common shares outstanding | |
|
| |
| 44,885,776 | |
|
| |
| 44,935,308 | |
Earnings per share | | $ | 0.69 | | $ | 0.69 | | $ | 0.39 | | $ | 0.39 | |
| Quarter Ended September 30, 2017 |
|
| Quarter Ended September 30, 2016 |
| ||||||||||
(dollars in thousands, except per share amounts) | Basic |
|
| Diluted |
|
| Basic |
|
| Diluted |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 9,580 |
|
| $ | 9,580 |
|
| $ | 9,058 |
|
| $ | 9,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic common shares outstanding |
| 34,565,949 |
|
|
| 34,565,949 |
|
|
| 32,514,016 |
|
|
| 32,514,016 |
|
Effect of contingent shares issuable |
|
|
|
|
| 1,592 |
|
|
|
|
|
|
| 1,592 |
|
Effect of options and restricted stock |
|
|
|
|
| 692,091 |
|
|
|
|
|
|
| 1,060,286 |
|
Diluted common shares outstanding |
|
|
|
|
| 35,259,632 |
|
|
|
|
|
|
| 33,575,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share | $ | 0.28 |
|
| $ | 0.27 |
|
| $ | 0.28 |
|
| $ | 0.27 |
|
23
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 –2020 - UNAUDITED
| | | | | | | | | | | | |
| | Nine Months Ended | | Nine Months Ended | ||||||||
| | September 30, 2020 | | September 30, 2019 | ||||||||
(dollars in thousands, except share and per share amounts) | | Basic | | Diluted | | Basic | | Diluted | ||||
Net income |
| $ | 62,003 |
| $ | 62,003 |
| $ | 41,025 |
| $ | 41,025 |
Basic common shares outstanding | |
| 44,638,634 | |
| 44,638,634 | |
| 44,602,368 | |
| 44,602,368 |
Effect of contingent shares issuable | | | | | | — | | | | | | 1,592 |
Effect of options and restricted stock | | | | | | 244,978 | | | | | | 272,654 |
Diluted common shares outstanding | |
|
| |
| 44,883,612 | |
|
| |
| 44,876,614 |
Earnings per share | | $ | 1.39 | | $ | 1.38 | | $ | 0.92 | | $ | 0.91 |
| Nine Months Ended September 30, 2017 |
|
| Nine Months Ended September 30, 2016 |
| ||||||||||
(dollars in thousands, except per share amounts) | Basic |
|
| Diluted |
|
| Basic |
|
| Diluted |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 25,309 |
|
| $ | 25,309 |
|
| $ | 16,786 |
|
| $ | 16,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic common shares outstanding |
| 33,671,327 |
|
|
| 33,671,327 |
|
|
| 32,264,224 |
|
|
| 32,264,224 |
|
Effect of contingent shares issuable |
|
|
|
|
| 1,592 |
|
|
|
|
|
|
| 1,592 |
|
Effect of options and restricted stock |
|
|
|
|
| 926,894 |
|
|
|
|
|
|
| 1,099,798 |
|
Diluted common shares outstanding |
|
|
|
|
| 34,599,813 |
|
|
|
|
|
|
| 33,365,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share | $ | 0.75 |
|
| $ | 0.73 |
|
| $ | 0.52 |
|
| $ | 0.50 |
|
Based on a weighted average basis, optionsrestricted stock units to purchase 8,80239,439 shares of common stock were excluded for the nine months ended September 30, 2016,2020 because their effect would have been anti-dilutive.
NOTE 10: SEGMENT REPORTING
For the quarterthree and nine months ended September 30, 20172020 and 2016,2019, the Company had two2 reportable business segments: Banking (FFB and FFIS) and Wealth Management (FFA). The results of FFI and any elimination entries are included in the column labeled Other. The following tables show key operating results for each of our business segments used to arrive at our consolidated totals for the following periods:
| | | | | | | | | | | | |
|
| | |
| Wealth |
| | |
| | | |
(dollars in thousands) | | Banking | | Management | | Other | Total | |||||
Quarter ended September 30, 2020: |
| |
|
| |
|
| |
|
| |
|
Interest income | | $ | 61,691 | | $ | — | | $ | — | | $ | 61,691 |
Interest expense | |
| 10,024 | |
| — | |
| 50 | |
| 10,074 |
Net interest income | |
| 51,667 | |
| — | |
| (50) | |
| 51,617 |
Provision for credit losses | |
| 1,548 | |
| — | |
| — | |
| 1,548 |
Noninterest income | |
| 17,976 | |
| 6,020 | |
| (355) | |
| 23,641 |
Noninterest expense | |
| 24,949 | |
| 5,166 | |
| 480 | |
| 30,595 |
Income (loss) before taxes on income | | $ | 43,146 | | $ | 854 | | $ | (885) | | $ | 43,115 |
| | | | | | | | | | | | |
Quarter ended September 30, 2019: | |
|
| |
|
| |
|
| |
|
|
Interest income | | $ | 62,614 | | $ | — | | $ | — | | $ | 62,614 |
Interest expense | |
| 19,328 | |
| — | |
| 154 | |
| 19,482 |
Net interest income | |
| 43,286 | |
| — | |
| (154) | |
| 43,132 |
Provision for credit losses | |
| 172 | |
| — | |
| — | |
| 172 |
Noninterest income | |
| 8,173 | |
| 6,161 | |
| (352) | |
| 13,982 |
Noninterest expense | |
| 26,397 | |
| 5,423 | |
| 874 | |
| 32,694 |
Income (loss) before taxes on income | | $ | 24,890 | | $ | 738 | | $ | (1,380) | | $ | 24,248 |
(dollars in thousands) |
| Banking |
|
| Wealth Management |
|
| Other |
|
| Total |
| ||||
Quarter ended September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | 34,877 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 34,878 |
|
Interest expense |
|
| 6,210 |
|
|
| — |
|
|
| 228 |
|
|
| 6,438 |
|
Net interest income |
|
| 28,667 |
|
|
| 1 |
|
|
| (228 | ) |
|
| 28,440 |
|
Provision for loan losses |
|
| 701 |
|
|
| — |
|
|
| — |
|
|
| 701 |
|
Noninterest income |
|
| 3,955 |
|
|
| 6,132 |
|
|
| (224 | ) |
|
| 9,863 |
|
Noninterest expense |
|
| 17,333 |
|
|
| 5,096 |
|
|
| 964 |
|
|
| 23,393 |
|
Income (loss) before taxes on income |
| $ | 14,588 |
|
| $ | 1,037 |
|
| $ | (1,416 | ) |
| $ | 14,209 |
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | 26,004 |
|
| $ | — |
|
| $ | — |
|
| $ | 26,004 |
|
Interest expense |
|
| 2,841 |
|
|
| — |
|
|
| — |
|
|
| 2,841 |
|
Net interest income |
|
| 23,163 |
|
|
| — |
|
|
| — |
|
|
| 23,163 |
|
Provision for loan losses |
|
| 1,231 |
|
|
| — |
|
|
| — |
|
|
| 1,231 |
|
Noninterest income |
|
| 9,923 |
|
|
| 5,319 |
|
|
| (163 | ) |
|
| 15,079 |
|
Noninterest expense |
|
| 16,134 |
|
|
| 4,697 |
|
|
| 705 |
|
|
| 21,536 |
|
Income (loss) before taxes on income |
| $ | 15,721 |
|
| $ | 622 |
|
| $ | (868 | ) |
| $ | 15,475 |
|
19
FIRST FOUNDATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2017 –2020 - UNAUDITED
| | | | | | | | | | | | |
|
| | |
| Wealth |
| | |
| | | |
(dollars in thousands) | | Banking | | Management | | Other | Total | |||||
Nine Months Ended September 30, 2020: |
| |
|
| |
|
| |
|
| |
|
Interest income | | $ | 185,961 | | $ | — | | $ | — | | $ | 185,961 |
Interest expense | |
| 40,899 | |
| — | |
| 130 | |
| 41,029 |
Net interest income | |
| 145,062 | |
| — | |
| (130) | |
| 144,932 |
Provision for credit losses | |
| 6,979 | |
| — | |
| — | |
| 6,979 |
Noninterest income | |
| 26,270 | |
| 18,139 | |
| (1,124) | |
| 43,285 |
Noninterest expense | |
| 76,235 | |
| 16,735 | |
| 1,434 | |
| 94,404 |
Income (loss) before taxes on income | | $ | 88,118 | | $ | 1,404 | | $ | (2,688) | | $ | 86,834 |
| | | | | | | | | | | | |
Nine Months Ended September 30, 2019: | |
|
| |
|
| |
|
| |
|
|
Interest income | | $ | 186,466 | | $ | — | | $ | — | | $ | 186,466 |
Interest expense | |
| 60,132 | |
| — | |
| 268 | |
| 60,400 |
Net interest income | |
| 126,334 | |
| — | |
| (268) | |
| 126,066 |
Provision for credit losses | |
| 1,943 | |
| — | |
| — | |
| 1,943 |
Noninterest income | |
| 14,638 | |
| 17,874 | |
| (934) | |
| 31,578 |
Noninterest expense | |
| 78,785 | |
| 16,508 | |
| 2,628 | |
| 97,921 |
Income (loss) before taxes on income | | $ | 60,244 | | $ | 1,366 | | $ | (3,830) | | $ | 57,780 |
|
| Banking |
|
| Wealth Management |
|
| Other |
|
| Total |
| ||||||||||||||||||
Nine months ended September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Interest income |
| $ | 98,889 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 98,890 |
| ||||||||||||||
Interest expense |
|
| 16,062 |
|
|
| — |
|
|
| 435 |
|
|
| 16,497 |
| ||||||||||||||
Net interest income |
|
| 82,827 |
|
|
| 1 |
|
|
| (435 | ) |
|
| 82,393 |
| ||||||||||||||
Provision for loan losses |
|
| 1,862 |
|
|
| — |
|
|
| — |
|
|
| 1,862 |
| ||||||||||||||
Noninterest income |
|
| 10,636 |
|
|
| 17,334 |
|
|
| (627 | ) |
|
| 27,343 |
| ||||||||||||||
Noninterest expense |
|
| 51,506 |
|
|
| 15,328 |
|
|
| 3,481 |
|
|
| 70,315 |
| ||||||||||||||
Income (loss) before taxes on income |
| $ | 40,095 |
|
| $ | 2,007 |
|
| $ | (4,543 | ) |
| $ | 37,559 |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Nine months ended September 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Interest income |
| $ | 72,275 |
|
| $ | — |
|
| $ | — |
|
| $ | 72,275 |
| ||||||||||||||
Interest expense |
|
| 7,830 |
|
|
| — |
|
|
| — |
|
|
| 7,830 |
| ||||||||||||||
Net interest income |
|
| 64,445 |
|
|
| — |
|
|
| — |
|
|
| 64,445 |
| ||||||||||||||
Provision for loan losses |
|
| 2,881 |
|
|
| — |
|
|
| — |
|
|
| 2,881 |
| ||||||||||||||
Noninterest income |
|
| 11,505 |
|
|
| 15,917 |
|
|
| (448 | ) |
|
| 26,974 |
| ||||||||||||||
Noninterest expense |
|
| 43,746 |
|
|
| 14,536 |
|
|
| 2,521 |
|
|
| 60,803 |
| ||||||||||||||
Income (loss) before taxes on income |
| $ | 29,323 |
|
| $ | 1,381 |
|
| $ | (2,969 | ) |
| $ | 27,735 |
|
NOTE 11: SUBSEQUENT EVENTS
Cash Dividend
On October 27, 2020, the Board of Directors of the Company declared a quarterly cash dividend of $0.07 per common share to be paid on November 17, 2020 to stockholders of record as of the close of business on November 9, 2020.
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to facilitate the understanding and assessment of significant changes and trends in our businesses that accounted for the changes in our results of operations in the quarterthree and nine months ended September 30, 20172020 as compared to our results of operations in the quarterthree and nine months ended September 30, 2016;2019; and our financial condition at September 30, 20172020 as compared to our financial condition at December 31, 2016.2019. This discussion and analysis is based on and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto contained elsewhere in this report and our audited consolidated financial statements for the year ended December 31, 2016,2019, and the notes thereto, which are set forth in Item 8 of our Annual Report on Form 10-K (our “2016“2019 10-K”) which we filed with the Securities and Exchange Commission (“SEC”) on March 15, 2017.2, 2020.
Forward-Looking Statements
Statements contained in this report that are not historical facts or that discuss our expectations, beliefs or views regarding our future financial performance or future financial condition, or financial or other trends in our business or in the markets in which we operate, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project,” “forecast” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” Such forward-looking statements are based on current information that is available to us, and on assumptions that we make, about future events or economic or financial conditions or trends over which we do not have control. In addition, our businesses and the markets in which we operate are subject to a number of risks and uncertainties. Those risks and uncertainties, and unexpected future events, could cause our financial condition or actual operating results in the future to differ, possibly significantly, from our expected financial condition and operating results that are set forth in the forward-looking statements contained in this report.
The principal risks and uncertainties to which our businesses are subject are discussed in this Item 1A2 and under the heading “Risk Factors” in our 20162019 10-K and in this Item 2 below.report. Therefore, you are urged to read not only the information contained in this Item 2, but also the risk factors and other cautionary information contained under the heading “Risk Factors” in Item 1A of our 20162019 10-K and in this report, which qualify the forward-looking statements contained in this report.
The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and may continue to adversely affect, our business, operations, financial performance and prospects. Even after the COVID-19 pandemic subsides, it is possible that the U.S. and other major economies experience or continue to experience a prolonged recession, which could materially and adversely affect our business, operations, financial performance and prospects. Statements about the effects of the COVID-19 pandemic on our business, operations, financial performance and prospects may constitute forward-looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us.
Due to these risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements contained in this report and not to make predictions about our future financial performance based solely on our historical financial performance. We also disclaim any obligation to update forward-looking statements contained in this report or in our 20162019 10-K, except as may otherwise be required by applicable law or government regulations.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and accounting practices in the banking industry. Certain of those accounting policies are
26
considered critical accounting policies, because they require us to make estimates and assumptions regarding circumstances or trends that could materially affect the value of those assets, such as economic conditions or trends that could impact our ability to fully collect our loans or ultimately realize the carrying value of certain of our other assets. Those estimates and assumptions are made based on current information available to us regarding those economic conditions or trends or other circumstances. If changes were to occur in the events, trends or other circumstances on which our estimates or assumptions were based, or other unanticipated events were to occur that might affect our operations, we may be required under GAAP to adjust our earlier estimates and to reduce the carrying values of the affected assets on our balance sheet, generally by means of charges against income, which could also affect our results of operations in the fiscal periods when those charges are recognized.
Allowance for Credit Losses. We adopted CECL to compute our ACL on January 1, 2020. Our ACL is established through a provision for credit losses charged to expense and may be reduced by a recapture of previously established loss reserves, which are also reflected in the income statement. Loans are charged against the ACL when management believes that collectability of the principal is unlikely. The CECL model requires the ACL to cover estimated credit losses expected over the life of an exposure. This evaluation takes into consideration such factors as current economic projections, projected payment estimates, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and certain other factors that may affect the borrower’s ability to pay. While we use the best information available to make this evaluation, future adjustments to our ACL may be necessary if there are significant changes in economic or other conditions that can affect the collectability in full of loans in our loan portfolio.
Utilization and Valuation of Deferred Income Tax Benefits. We record as a “deferred tax asset” on our balance sheet an amount equal to the tax credit and tax loss carryforwards and tax deductions (collectively “tax benefits”) that we believe will be available to us to offset or reduce income taxes in future periods. Under applicable federal and state income tax laws and regulations, tax benefits related to tax loss carryforwards will expire if they cannot be used within specified periods of time. Accordingly, the ability to fully use our deferred tax asset related to tax loss carryforwards to reduce income taxes in the future depends on the amount of taxable income that we generate during those time periods. At least once each year, or more frequently, if warranted, we make estimates of future taxable income that we believe we are likely to generate during those future periods. If we conclude, on the basis of those estimates and the amount of the tax benefits available to us, that it is more likely than not that we will be able to fully utilize those tax benefits prior to their expiration, we recognize the deferred tax asset in full on our balance sheet. On the other hand, if we conclude on the basis of those estimates and the amount of the tax benefits available to us that it has become more likely than not that we will be unable to utilize those tax benefits in full prior to their expiration, then we would establish a valuation allowance to reduce
the deferred tax asset on our balance sheet to the amount with respect to which we believe it is still more likely than not that we will be able to use to offset or reduce taxes in the future. The establishment of such a valuation allowance, or any increase in an existing valuation allowance, would be effectuated through a charge to the provision for income taxes or a reduction in any income tax credit for the period in which such valuation allowance is established or increased.
Allowance for Loan and Lease Losses. Our ALLL is established through a provision for loan losses charged to expense and may be reduced by a recapture of previously established loss reserves, which are also reflected in the statement of income. Loans are charged against the ALLL when management believes that collectability of the principal is unlikely. The ALLL is an amount that management believes will be adequate to absorb estimated losses on existing loans that may become uncollectible based on an evaluation of the collectability of loans and prior loan loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions and certain other subjective factors that may affect the borrower’s ability to pay. While we use the best information available to make this evaluation, future adjustments to our ALLL may be necessary if there are significant changes in economic or other conditions that can affect the collectability in full of loans in our loan portfolio.
Adoption of new or revised accounting standards. For some accounting standards, we may elect to take advantage of the extended transition period afforded by the JOBS Act, for the implementation of new or revised accounting standards. As a result, we may not be required to comply with new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies or we cease to be an “emerging growth” company as defined in the JOBS Act. As a result of this election, our financial statements may not be comparable to the financials statements of companies that comply with public company effective dates.
We have two business segments, “Banking” and “Investment Management and Wealth Planning” (“Wealth Management”).“Wealth Management.” Banking includes the operations of FFB and FFIS 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.
Overview and Recent Developments
The COVID-19 pandemic has caused economic and Overviewsocial disruption on an unprecedented scale. While some industries have been impacted more severely than others, all businesses have been impacted to some degree. This disruption has resulted in the shuttering of businesses across the country, significant job loss, and aggressive measures by the federal government.
We experienced strong growth duringCongress, the first nine monthsPresident, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of 2017 with loan originationsMarch 2020 as a $2 trillion legislative package. The goal of $1.2 billion, deposit growththe CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and providers. In addition
27
to the higher levelgeneral impact of interest earnings assets.COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts could have a material impact on our operations and financial results. The following is a list of the impacts that are considered significant at this time.
DuringIn response to the first nine monthspotential impact on liquidity resulting from the COVID-19 pandemic and to encourage banks to work with borrowers, FASB issued accounting guidelines that do not require forbearance or restructuring of 2017, the Company sold 1.3 million shares of its common stock through its ATM offering at an average price of $16.77 per share, generating net proceeds of $21.8 million.
After a determination that additional investment would not provide adequate returns, the Company has decided to discontinue its property and casualty insurance activities effective in the fourth quarter of 2017. The Company does not expect to incur any significant costsloans completed as a result of this action.the COVID-19 pandemic to be classified as troubled debt restructures.
ResultsUpon the World Health Organization’s pandemic declaration, we implemented our Pandemic Response Business Continuity Plan, under which we moved approximately 60% of Operationsour corporate employees to a remote working strategy and implemented protocols for the safety of our clients and employees. The transition to working remotely was achieved within a week and did not require any significant costs due to our existing technology platform in place. Additional costs associated with the safety protocols, such as additional cleaning and supplies has been offset by reduced costs for parking, meals, entertainment and travel. We have implemented alternative procedures, such as electronic signatures and approvals, to maintain effective internal controls over our financial reporting processes.
Our net incomefinancial position and results of operations through the first three quarters of 2020 have been impacted by increases in the allowance for credit losses as current economic projections, used in our CECL modeling, contemplate a significant adverse impact on the quartereconomy in the coming months resulting in higher estimates of credit losses. Due to the significant decrease in rates, our funding costs started to decline in March and nine months ending September 30, 2017 was $9.6 millionare expected to decline over the course of the year if the current interest rate environment persists.
Potential impacts to our future financial position and $25.3 million, respectively as comparedresults of operation include:
● | Continuing adverse impacts of loan performance, including increased levels of chargeoffs and the need for additional allowance for credit loss reserves. |
● | Origination of loans under the Paycheck Protection Program (“the PPP”) administered by the Small Business Administration. These loans bear interest at 1%, are for a term of two years and we are paid a fee for originating these loans, which we expect to average between 2.5% to 3%. While uncertain at this time, we anticipate a significant portion of these loans will be repaid within 180 days from the time the SBA forgiveness process commences. |
● | Continuing low levels of funding costs due to the expected continuation of the current low interest rate environment. |
● | After funding of existing pipelines, expectations of significantly lower origination volumes due in part to the large credit spreads on certain lending and investment security products. |
● | The issuance of forbearance agreements to accommodate our borrowers. We have received and granted requests for forbearance on certain commercial loans, primarily to smaller businesses. However, we do require documentation of financial difficulty before granting a request, and we do not expect a significant level of forbearance activity in our loans secured by multifamily or single family real estate. The change in accounting guidelines that do not require forbearance or restructuring of loans completed as a result of the COVID 19 pandemic to be classified as troubled debt restructures will minimize the financial impact of these accommodations. |
● | Pricing volatility of our AFS securities portfolio. |
● | Potential servicing advances required under our loan servicing agreements if borrowers are granted forbearances or do not pay their loans on a timely basis. |
28
As previously mentioned, our funding costs have and are expected to $9.1 million and $16.8 million forcontinue to decrease. We do not expect any significant impact to our liquidity or contingent liquidity sources at this time. Due to available funding sources, we do not expect reduced cash flows caused by forbearances, loans issued under the corresponding periodsPPP, servicing advances or increases in 2016. Income before taxes for the quarter and nine months ending September 30, 2017 was $14.2 million and $37.6 million, respectively, as compareddelinquencies to $15.5 million and $27.7 million for the corresponding periods in 2016.have a material adverse impact on our liquidity position.
The effective tax rateOur results of operations for the first nine months of 2017 was 32.6% as compared to 39.5%2020 include:
● | Completed securitization of $553 million of loans, recognizing a $15.1 million gain, inclusive of associated mortgage servicing rights of $3.9 million. |
● | Total loans, including loans held for sale, increased $77 million in the |
● | During the nine months ended September 30, 2020, total deposits increased by $573 million and total revenues (net interest income and noninterest income) increased by 19% when compared to the nine months ended September 30, 2019. |
Results of 2016, and as compared to a statutory rate of approximately 41.5%, as the Company benefited from reductions in taxes on income related to excess tax benefits resulting from the exercise of stock awards in both periods.Operations
The primary sources of revenue for Banking are net interest income, fees from its deposits and trust and insurance services, gains on sales of loans, certain loan fees, and consulting fees. The primary sourcesources of revenue for Wealth Management isare asset management fees assessed on the balance of AUM.assets under management (“AUM”). Compensation and benefit costs, which represent the largest component of noninterest expense, accounted for 58%56% and 78%75%, respectively, of the total noninterest expense for Banking and Wealth Management in the first nine months of 2017.ended September 30, 2020.
The following table shows key operating results for each of our business segments for the quarter ended September 30:
| | | | | | | | | | | | | | ||||||||||||||||
|
| | |
| Wealth |
| | |
| | | | |||||||||||||||||
(dollars in thousands) |
| Banking |
|
| Wealth Management |
|
| Other |
|
| Total |
|
| Banking |
| Management |
| Other |
| Total | | ||||||||
2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2020: |
| |
|
| |
|
| |
|
| |
| | ||||||||||||||||
Interest income |
| $ | 34,877 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 34,878 |
| | $ | 61,691 | | $ | — | | $ | — | | $ | 61,691 | |
Interest expense |
|
| 6,210 |
|
|
| — |
|
|
| 228 |
|
|
| 6,438 |
| |
| 10,024 | |
| — | |
| 50 | |
| 10,074 | |
Net interest income |
|
| 28,667 |
|
|
| 1 |
|
|
| (228 | ) |
|
| 28,440 |
| |
| 51,667 | |
| — | |
| (50) | |
| 51,617 | |
Provision for loan losses |
|
| 701 |
|
|
| — |
|
|
| — |
|
|
| 701 |
| |||||||||||||
Provision for credit losses | |
| 1,548 | |
| — | |
| — | |
| 1,548 | | ||||||||||||||||
Noninterest income |
|
| 3,955 |
|
|
| 6,132 |
|
|
| (224 | ) |
|
| 9,863 |
| |
| 17,976 | |
| 6,020 | |
| (355) | |
| 23,641 | |
Noninterest expense |
|
| 17,333 |
|
|
| 5,096 |
|
|
| 964 |
|
|
| 23,393 |
| |
| 24,949 | |
| 5,166 | |
| 480 | |
| 30,595 | |
Income (loss) before taxes on income |
| $ | 14,588 |
|
| $ | 1,037 |
|
| $ | (1,416 | ) |
| $ | 14,209 |
| | $ | 43,146 | | $ | 854 | | $ | (885) | | $ | 43,115 | |
2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||
2019: | |
|
| |
|
| |
|
| |
|
| | ||||||||||||||||
Interest income |
| $ | 26,004 |
|
| $ | — |
|
| $ | — |
|
| $ | 26,004 |
| | $ | 62,614 | | $ | — | | $ | — | | $ | 62,614 | |
Interest expense |
|
| 2,841 |
|
|
| — |
|
|
| — |
|
|
| 2,841 |
| |
| 19,328 | |
| — | |
| 154 | |
| 19,482 | |
Net interest income |
|
| 23,163 |
|
|
| — |
|
|
| — |
|
|
| 23,163 |
| |
| 43,286 | |
| — | |
| (154) | |
| 43,132 | |
Provision for loan losses |
|
| 1,231 |
|
|
| — |
|
|
| — |
|
|
| 1,231 |
| |||||||||||||
Provision for credit losses | |
| 172 | |
| — | |
| — | |
| 172 | | ||||||||||||||||
Noninterest income |
|
| 9,923 |
|
|
| 5,319 |
|
|
| (163 | ) |
|
| 15,079 |
| |
| 8,173 | |
| 6,161 | |
| (352) | |
| 13,982 | |
Noninterest expense |
|
| 16,134 |
|
|
| 4,697 |
|
|
| 705 |
|
|
| 21,536 |
| |
| 26,397 | |
| 5,423 | |
| 874 | |
| 32,694 | |
Income (loss) before taxes on income |
| $ | 15,721 |
|
| $ | 622 |
|
| $ | (868 | ) |
| $ | 15,475 |
| | $ | 24,890 | | $ | 738 | | $ | (1,380) | | $ | 24,248 | |
General. ConsolidatedOur net income and income before taxes forin the third quarter of 2017 was $14.2three months ended September 30, 2020 were $30.9 million and $43.1 million, respectively, as compared to $15.5$17.4 million forand $24.2 million, respectively, in the third quarter of 2016.three months ended September 30, 2019. The decrease$18.9 million increase in income before taxes was the result of a $1.1$18.3 million decreaseincrease in income before taxes for Banking, and a $0.5 million increase in corporate expenses which were partially offset by a $0.4$0.1 million increase in income before taxes for Wealth Management.Management and a $ 0.4 million decrease in corporate noninterest expenses. The decreaseincrease in Banking was due to lower noninterest income and higher noninterest expenses which were partially offset by higher net interest income, higher
29
noninterest income and a lower provision for loan losses.noninterest expenses. The increase in Wealth Management was due to higher noninterest income which was partially offset by higher noninterest expenses. Corporate interest expenses are related to the holding company line of credit which did not exist in 2016. Corporatelower noninterest expenses, increasedoffset partially by $0.3 million due primarily to costs incurred related to the pending acquisition of Community 1st Bancorp. We expect to incur approximately $3.8 million in costs related to the acquisition of Community 1st Bancorp in the fourth quarter.lower noninterest income.
The following table shows key operating results for each of our business segments for the nine months ended September 30:
| | | | | | | | | | | | |
|
| | |
| Wealth |
| | |
| | | |
(dollars in thousands) |
| Banking |
| Management |
| Other |
| Total | ||||
2020: |
| |
|
| |
|
| |
|
| |
|
Interest income | | $ | 185,961 | | $ | — | | $ | — | | $ | 185,961 |
Interest expense | |
| 40,899 | |
| — | |
| 130 | |
| 41,029 |
Net interest income | |
| 145,062 | |
| — | |
| (130) | |
| 144,932 |
Provision for credit losses | |
| 6,979 | |
| — | |
| — | |
| 6,979 |
Noninterest income | |
| 26,270 | |
| 18,139 | |
| (1,124) | |
| 43,285 |
Noninterest expense | |
| 76,235 | |
| 16,735 | |
| 1,434 | |
| 94,404 |
Income (loss) before taxes on income | | $ | 88,118 | | $ | 1,404 | | $ | (2,688) | | $ | 86,834 |
| | | | | | | | | | | | |
2019: | |
|
| |
|
| |
|
| |
|
|
Interest income | | $ | 186,466 | | $ | — | | $ | — | | $ | 186,466 |
Interest expense | |
| 60,132 | |
| — | |
| 268 | |
| 60,400 |
Net interest income | |
| 126,334 | |
| — | |
| (268) | |
| 126,066 |
Provision for credit losses | |
| 1,943 | |
| — | |
| — | |
| 1,943 |
Noninterest income | |
| 14,638 | |
| 17,874 | |
| (934) | |
| 31,578 |
Noninterest expense | |
| 78,785 | |
| 16,508 | |
| 2,628 | |
| 97,921 |
Income (loss) before taxes on income | | $ | 60,244 | | $ | 1,366 | | $ | (3,830) | | $ | 57,780 |
(dollars in thousands) |
| Banking |
|
| Wealth Management |
|
| Other |
|
| Total |
| ||||
2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | 98,889 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 98,890 |
|
Interest expense |
|
| 16,062 |
|
|
| — |
|
|
| 435 |
|
|
| 16,497 |
|
Net interest income |
|
| 82,827 |
|
|
| 1 |
|
|
| (435 | ) |
|
| 82,393 |
|
Provision for loan losses |
|
| 1,862 |
|
|
| — |
|
|
| — |
|
|
| 1,862 |
|
Noninterest income |
|
| 10,636 |
|
|
| 17,334 |
|
|
| (627 | ) |
|
| 27,343 |
|
Noninterest expense |
|
| 51,506 |
|
|
| 15,328 |
|
|
| 3,481 |
|
|
| 70,315 |
|
Income (loss) before taxes on income |
| $ | 40,095 |
|
| $ | 2,007 |
|
| $ | (4,543 | ) |
| $ | 37,559 |
|
2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | 72,275 |
|
| $ | — |
|
| $ | — |
|
| $ | 72,275 |
|
Interest expense |
|
| 7,830 |
|
|
| — |
|
|
| — |
|
|
| 7,830 |
|
Net interest income |
|
| 64,445 |
|
|
| — |
|
|
| — |
|
|
| 64,445 |
|
Provision for loan losses |
|
| 2,881 |
|
|
| — |
|
|
| — |
|
|
| 2,881 |
|
Noninterest income |
|
| 11,505 |
|
|
| 15,917 |
|
|
| (448 | ) |
|
| 26,974 |
|
Noninterest expense |
|
| 43,746 |
|
|
| 14,536 |
|
|
| 2,521 |
|
|
| 60,803 |
|
Income (loss) before taxes on income |
| $ | 29,323 |
|
| $ | 1,381 |
|
| $ | (2,969 | ) |
| $ | 27,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General. Consolidated Our net income and income before taxes forin the nine months ended September 30, 2020 were $62.0 million and $86.8 million, respectively, as compared to $41.0 million and $57.8 million, respectively, in the first nine months of 2017 was $37.62019. The $29.1 million as compared to $27.7 million for the first nine months of 2016. The increase in income before taxes was the result of a $10.8$27.9 million increase in income before taxes for Banking, and a $0.6$1.2 million increase in income before taxes for Wealth Management, which were partially offset by a $1.4 million increasedecrease in corporate noninterest expenses.The increase in Banking was due to higher net interest income, higher noninterest income and a lower provision for loan losses which wasnoninterest expenses, partially offset by lower noninterest income anda higher noninterest expenses. The increase in Wealth Management was due to higher noninterest income which was partially offset by higher noninterest expense. Corporate interest expenses are related to the holding company lineprovision for credit losses.
30
Net Interest Income.The following tables set forth, for the periods indicated, information regarding (i) the total dollar amount of interest income from interest-earning assets and the resultant average yields on those assets; (ii) the total dollar amount of interest expense and the average rate of interest on our interest-bearing liabilities; (iii) net interest income; (iv) net interest rate spread; and (v) net yield on interest-earning assets:interest margin:
| | | | | | | | | | | | | | | | | | |
|
| Quarter Ended September 30: |
| | ||||||||||||||
|
| 2020 |
| 2019 |
| | ||||||||||||
| | Average | | | | | Average | | Average | | | | | Average | | | ||
(dollars in thousands) |
| Balances |
| Interest |
| Yield /Rate |
| Balances |
| Interest |
| Yield /Rate |
| | ||||
Interest-earning assets: | |
| | |
| | |
| |
| | |
| | |
|
| |
Loans | | $ | 5,644,646 | | $ | 55,231 |
| 3.91 | % | $ | 5,282,338 | | $ | 56,483 |
| 4.27 | % | |
Securities | |
| 840,593 | |
| 6,107 |
| 2.91 | % |
| 616,424 | |
| 5,349 |
| 3.47 | % | |
FHLB stock, fed funds, and deposits | |
| 329,311 | |
| 353 |
| 0.43 | % |
| 86,839 | |
| 782 |
| 3.57 | % | |
Total interest-earning assets | |
| 6,814,550 | |
| 61,691 |
| 3.62 | % |
| 5,985,601 | |
| 62,614 |
| 4.18 | % | |
Noninterest-earning assets: | |
| | |
|
|
|
| |
|
| |
|
|
|
| | |
Nonperforming assets | |
| 16,506 | | | |
|
| |
| 18,001 | |
|
|
|
| | |
Other | |
| 186,751 | | | |
|
| |
| 206,065 | |
|
|
|
| | |
Total assets | | $ | 7,017,807 | | | |
|
| | $ | 6,209,667 | |
|
|
|
| | |
Interest-bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
| | | |
Demand deposits | | $ | 425,674 | | $ | 369 |
| 0.35 | % | $ | 370,681 | | $ | 897 |
| 0.96 | % | |
Money market and savings | |
| 1,805,284 | |
| 3,071 |
| 0.68 | % |
| 1,194,714 | |
| 3,946 |
| 1.31 | % | |
Certificates of deposit | |
| 1,538,377 | |
| 4,548 |
| 1.18 | % |
| 1,988,265 | |
| 11,832 |
| 2.36 | % | |
Total interest-bearing deposits | |
| 3,769,335 | |
| 7,988 |
| 0.84 | % |
| 3,553,660 | |
| 16,675 |
| 1.86 | % | |
Borrowings | |
| 698,860 | |
| 2,086 |
| 1.19 | % |
| 486,807 | |
| 2,807 |
| 2.29 | % | |
Total interest-bearing liabilities | |
| 4,468,195 | |
| 10,074 |
| 0.90 | % |
| 4,040,467 | |
| 19,482 |
| 1.91 | % | |
Noninterest-bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | |
Demand deposits | |
| 1,832,709 | | | |
|
| |
| 1,508,290 | |
|
|
|
| | |
Other liabilities | |
| 75,555 | | | |
|
| |
| 72,424 | |
|
|
|
| | |
Total liabilities | |
| 6,376,459 | | | |
|
| |
| 5,621,181 | |
|
|
|
| | |
Shareholders’ equity | |
| 641,348 | | | |
|
| |
| 588,486 | |
|
|
|
| | |
Total liabilities and equity | | $ | 7,017,807 | | | |
|
| | $ | 6,209,667 | |
|
|
|
| | |
Net Interest Income | | | | | $ | 51,617 |
| | |
|
| | $ | 43,132 |
|
| | |
Net Interest Rate Spread | |
| | |
| | | 2.72 | % |
|
| |
|
|
| 2.27 | % | |
Net Interest Margin | |
| | |
| | | 3.03 | % |
|
| |
|
|
| 2.89 | % | |
|
| Quarter Ended September 30: |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
| |||||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
| Average |
|
| Interest |
|
| Average |
|
| Average |
|
| Interest |
|
| Average |
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Loans |
| $ | 3,345,159 |
|
| $ | 31,236 |
|
|
| 3.73 | % |
| $ | 2,357,956 |
|
| $ | 22,231 |
|
|
| 3.77 | % | |||||||||||||||||||||
Securities |
|
| 481,741 |
|
|
| 3,023 |
|
|
| 2.51 | % |
|
| 508,193 |
|
|
| 3,202 |
|
|
| 2.52 | % | |||||||||||||||||||||
Fed funds, FHLB stock, and deposits |
|
| 103,960 |
|
|
| 619 |
|
|
| 2.36 | % |
|
| 77,731 |
|
|
| 571 |
|
|
| 2.92 | % | |||||||||||||||||||||
Total interest-earning assets |
|
| 3,930,860 |
|
|
| 34,878 |
|
|
| 3.55 | % |
|
| 2,943,880 |
|
|
| 26,004 |
|
|
| 3.53 | % | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Nonperforming assets |
|
| 5,250 |
|
|
|
|
|
|
|
|
|
|
| 8,794 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Other |
|
| 31,869 |
|
|
|
|
|
|
|
|
|
|
| 38,379 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total assets |
| $ | 3,967,979 |
|
|
|
|
|
|
|
|
|
| $ | 2,991,053 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Demand deposits |
| $ | 271,270 |
|
|
| 440 |
|
|
| 0.64 | % |
| $ | 191,133 |
|
|
| 213 |
|
|
| 0.44 | % | |||||||||||||||||||||
Money market and savings |
|
| 1,027,892 |
|
|
| 2,194 |
|
|
| 0.85 | % |
|
| 761,778 |
|
|
| 1,307 |
|
|
| 0.68 | % | |||||||||||||||||||||
Certificates of deposit |
|
| 858,120 |
|
|
| 2,265 |
|
|
| 1.05 | % |
|
| 568,068 |
|
|
| 906 |
|
|
| 0.63 | % | |||||||||||||||||||||
Total interest-bearing deposits |
|
| 2,157,282 |
|
|
| 4,899 |
|
|
| 0.90 | % |
|
| 1,520,979 |
|
|
| 2,426 |
|
|
| 0.63 | % | |||||||||||||||||||||
Borrowings |
|
| 454,273 |
|
|
| 1,539 |
|
|
| 1.34 | % |
|
| 362,576 |
|
|
| 415 |
|
|
| 0.46 | % | |||||||||||||||||||||
Total interest-bearing liabilities |
|
| 2,61,555 |
|
|
| 6,438 |
|
|
| 0.98 | % |
|
| 1,883,555 |
|
|
| 2,841 |
|
|
| 0.60 | % | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Demand deposits |
|
| 1,013,753 |
|
|
|
|
|
|
|
|
|
|
| 806,861 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Other liabilities |
|
| 17,281 |
|
|
|
|
|
|
|
|
|
|
| 18,578 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total liabilities |
|
| 3,642,589 |
|
|
|
|
|
|
|
|
|
|
| 2,708,994 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Shareholders’ equity |
|
| 325,390 |
|
|
|
|
|
|
|
|
|
|
| 282,059 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total liabilities and equity |
| $ | 3,967,979 |
|
|
|
|
|
|
|
|
|
| $ | 2,991,053 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net Interest Income |
|
|
|
|
| $ | 28,440 |
|
|
|
|
|
|
|
|
|
| $ | 23,163 |
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net Interest Rate Spread |
|
|
|
|
|
|
|
|
|
| 2.57 | % |
|
|
|
|
|
|
|
|
|
| 2.93 | % | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net Yield on Interest-earning Assets |
|
|
|
|
|
|
|
|
|
| 2.90 | % |
|
|
|
|
|
|
|
|
|
| 3.15 | % |
31
|
| Nine Months Ended September 30: |
| |||||||||||||||||||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
| ||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
| Average |
|
| Interest |
|
| Average |
|
| Average |
|
| Interest |
|
| Average |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Loans |
| $ | 3,174,155 |
|
| $ | 87,709 |
|
|
| 3.69 | % |
| $ | 2,143,315 |
|
| $ | 61,362 |
|
|
| 3.82 | % | ||||||||||||||||||||||
Securities |
|
| 496,756 |
|
|
| 9,180 |
|
|
| 2.46 | % |
|
| 525,089 |
|
|
| 9,423 |
|
|
| 2.39 | % | ||||||||||||||||||||||
Fed funds, FHLB stock, and deposits |
|
| 87,216 |
|
|
| 2,001 |
|
|
| 3.07 | % |
|
| 62,147 |
|
|
| 1,490 |
|
|
| 3.20 | % | ||||||||||||||||||||||
Total interest-earning assets |
|
| 3,758,127 |
|
|
| 98,890 |
|
|
| 3.51 | % |
|
| 2,730,551 |
|
|
| 72,275 |
|
|
| 3.53 | % | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Nonperforming assets |
|
| 6,227 |
|
|
|
|
|
|
|
|
|
|
| 6,682 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Other |
|
| 30,433 |
|
|
|
|
|
|
|
|
|
|
| 35,450 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Total assets |
| $ | 3,794,787 |
|
|
|
|
|
|
|
|
|
| $ | 2,772,683 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Demand deposits |
| $ | 259,660 |
|
|
| 1,100 |
|
|
| 0.57 | % |
| $ | 223,490 |
|
|
| 779 |
|
|
| 0.47 | % | ||||||||||||||||||||||
Money market and savings |
|
| 1,003,696 |
|
|
| 5,934 |
|
|
| 0.79 | % |
|
| 636,612 |
|
|
| 3,087 |
|
|
| 0.65 | % | ||||||||||||||||||||||
Certificates of deposit |
|
| 780,228 |
|
|
| 5,069 |
|
|
| 0.87 | % |
|
| 509,790 |
|
|
| 2,328 |
|
|
| 0.61 | % | ||||||||||||||||||||||
Total interest-bearing deposits |
|
| 2,043,584 |
|
|
| 12,103 |
|
|
| 0.79 | % |
|
| 1,369,892 |
|
|
| 6,194 |
|
|
| 0.60 | % | ||||||||||||||||||||||
Borrowings |
|
| 588,590 |
|
|
| 4,394 |
|
|
| 1.00 | % |
|
| 499,191 |
|
|
| 1,636 |
|
|
| 0.44 | % | ||||||||||||||||||||||
Total interest-bearing liabilities |
|
| 2,632,174 |
|
|
| 16,497 |
|
|
| 0.84 | % |
|
| 1,869,083 |
|
|
| 7,830 |
|
|
| 0.56 | % | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Demand deposits |
|
| 842,312 |
|
|
|
|
|
|
|
|
|
|
| 615,049 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Other liabilities |
|
| 15,233 |
|
|
|
|
|
|
|
|
|
|
| 15,573 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Total liabilities |
|
| 3,489,719 |
|
|
|
|
|
|
|
|
|
|
| 2,499,705 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Shareholders’ equity |
|
| 305,068 |
|
|
|
|
|
|
|
|
|
|
| 272,978 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Total liabilities and equity |
| $ | 3,794,787 |
|
|
|
|
|
|
|
|
|
| $ | 2,772,683 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Net Interest Income |
|
|
|
|
| $ | 82,393 |
|
|
|
|
|
|
|
|
|
| $ | 64,445 |
|
|
|
|
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Net Interest Rate Spread |
|
|
|
|
|
|
|
|
|
| 2.67 | % |
|
|
|
|
|
|
|
|
|
| 2.97 | % | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Net Yield on Interest-earning Assets |
|
|
|
|
|
|
|
|
|
| 2.92 | % |
|
|
|
|
|
|
|
|
|
| 3.15 | % |
| | | | | | | | | | | | | | | | | |
|
| Nine Months Ended September 30: |
| ||||||||||||||
|
| 2020 |
| 2019 |
| ||||||||||||
| | Average | | | | | Average | | Average | | | | | Average | | ||
(dollars in thousands) |
| Balances |
| Interest |
| Yield /Rate |
| Balances |
| Interest |
| Yield /Rate |
| ||||
Interest-earning assets: | |
| | |
| | |
| |
| | |
| | |
|
|
Loans | | $ | 5,401,754 | | $ | 165,249 |
| 4.08 | % | $ | 5,062,689 | | $ | 166,828 |
| 4.40 | % |
Securities | |
| 919,712 | |
| 19,643 |
| 2.85 | % |
| 732,262 | |
| 17,700 |
| 3.22 | % |
FHLB stock, fed funds and deposits | |
| 182,558 | |
| 1,069 |
| 0.78 | % |
| 61,403 | |
| 1,938 |
| 4.22 | % |
Total interest-earning assets | |
| 6,504,024 | |
| 185,961 |
| 3.81 | % |
| 5,856,354 | |
| 186,466 |
| 4.25 | % |
Noninterest-earning assets: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Nonperforming assets | |
| 13,095 | | | |
|
| |
| 15,123 | |
|
|
|
| |
Other | |
| 180,735 | | | |
|
| |
| 193,176 | |
|
|
|
| |
Total assets | | $ | 6,697,854 | | | |
|
| | $ | 6,064,653 | |
|
|
|
| |
Interest-bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Demand deposits | | $ | 386,249 | |
| 1,466 |
| 0.51 | % | $ | 333,838 | |
| 2,392 |
| 0.96 | % |
Money market and savings | |
| 1,554,295 | |
| 10,595 |
| 0.91 | % |
| 1,181,657 | |
| 10,972 |
| 1.24 | % |
Certificates of deposit | |
| 1,815,252 | |
| 21,487 |
| 1.58 | % |
| 2,004,574 | |
| 35,055 |
| 2.34 | % |
Total interest-bearing deposits | |
| 3,755,796 | |
| 33,548 |
| 1.19 | % |
| 3,520,069 | |
| 48,419 |
| 1.84 | % |
Borrowings | |
| 730,763 | |
| 7,481 |
| 1.37 | % |
| 640,267 | |
| 11,981 |
| 2.50 | % |
Total interest-bearing liabilities | |
| 4,486,559 | |
| 41,029 |
| 1.22 | % |
| 4,160,336 | |
| 60,400 |
| 1.94 | % |
Noninterest-bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Demand deposits | |
| 1,514,954 | | | |
|
| |
| 1,270,845 | |
|
|
|
| |
Other liabilities | |
| 67,887 | | | |
|
| |
| 60,639 | |
|
|
|
| |
Total liabilities | |
| 6,069,400 | | | |
|
| |
| 5,491,820 | |
|
|
|
| |
Stockholders’ equity | |
| 628,454 | | | |
|
| |
| 572,833 | |
|
|
|
| |
Total liabilities and equity | | $ | 6,697,854 | | | |
|
| | $ | 6,064,653 | |
|
|
|
| |
Net Interest Income | | | | | $ | 144,932 |
| | |
|
| | $ | 126,066 |
|
| |
Net Interest Rate Spread | |
| | |
| | | 2.59 | % |
|
| |
|
|
| 2.31 | % |
Net Interest Margin | |
| | |
| | | 2.97 | % |
|
| |
|
|
| 2.87 | % |
Net interest income is impacted by the volume (changes in volume multiplied by prior rate), interest rate (changes in rate multiplied by prior volume) and mix of interest-earning assets and interest-bearing liabilities. Variances attributable to both rate and volume changes, calculated by multiplying the change in rates by the change in average balances, have been allocated to the rate variance. The following table provides a breakdown of the changes in net interest income due to volume and rate changes for the quarter and nine months ended September 30, 2017,2020, as compared to corresponding periods in 2016:the quarter and nine months ended September 30, 2019:
| | | | | | | | | | | | | | | | | | | |
|
| Quarter Ended | | | Nine Months Ended | | |||||||||||||
| | September 30, 2020 vs. 2019 | | September 30, 2020 vs. 2019 | | ||||||||||||||
|
| Increase (Decrease) due to | | Increase (Decrease) due to | | ||||||||||||||
(dollars in thousands) |
| Volume |
| Rate |
| Total |
| Volume |
| Rate |
| Total | | ||||||
Interest earned on: |
| |
|
| |
|
| |
| | |
|
| |
|
| |
| |
Loans | | $ | 3,699 | | $ | (4,951) | | $ | (1,252) | | $ | 10,790 | | $ | (12,369) | | $ | (1,579) | |
Securities | |
| 1,727 | |
| (969) | |
| 758 | |
| 4,165 | |
| (2,222) | |
| 1,943 | |
FHLB stock, fed funds and deposits | |
| 711 | |
| (1,140) | |
| (429) | |
| 1,622 | |
| (2,491) | |
| (869) | |
Total interest-earning assets | |
| 6,137 | |
| (7,060) | |
| (923) | |
| 16,577 | |
| (17,082) | |
| (505) | |
Interest paid on: | |
|
| |
|
| |
|
| |
|
| |
| | |
|
| |
Demand deposits | |
| 109 | |
| (637) | |
| (528) | |
| 335 | |
| (1,262) | |
| (927) | |
Money market and savings | |
| 1,488 | |
| (2,363) | |
| (875) | |
| 2,973 | |
| (3,350) | |
| (377) | |
Certificates of deposit | |
| (2,313) | |
| (4,971) | |
| (7,284) | |
| (3,040) | |
| (10,527) | |
| (13,567) | |
Borrowings | |
| 924 | |
| (1,645) | |
| (721) | |
| 1,523 | |
| (6,023) | |
| (4,500) | |
Total interest-bearing liabilities | |
| 208 | |
| (9,616) | |
| (9,408) | |
| 1,791 | |
| (21,162) | |
| (19,371) | |
Net interest income | | $ | 5,929 | | $ | 2,556 | | $ | 8,485 | | $ | 14,786 | | $ | 4,080 | | $ | 18,866 | |
| Quarter Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
(dollars in thousands) | Increase (Decrease) due to: |
|
|
| Increase (Decrease) due to: |
| |||||||||||||||||
|
| Volume |
|
|
| Rate |
|
|
| Total |
|
|
| Volume |
|
|
| Rate |
|
|
| Total |
|
Interest earned on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans | $ | 9,234 |
|
| $ | (229 | ) |
| $ | 9,005 |
|
| $ | 28,572 |
|
| $ | (2,225 | ) |
| $ | 26,347 |
|
Securities |
| (167 | ) |
|
| (12 | ) |
|
| (179 | ) |
|
| (528 | ) |
|
| 285 |
|
|
| (243 | ) |
Fed funds, FHLB stock, and deposits |
| 170 |
|
|
| (122 | ) |
|
| 48 |
|
|
| 575 |
|
|
| (64 | ) |
|
| 511 |
|
Total interest-earning assets |
| 9,237 |
|
|
| (363 | ) |
|
| 8,874 |
|
|
| 28,619 |
|
|
| (2,004 | ) |
|
| 26,615 |
|
Interest paid on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
| 107 |
|
|
| 120 |
|
|
| 227 |
|
|
| 144 |
|
|
| 177 |
|
|
| 321 |
|
Money market and savings |
| 524 |
|
|
| 363 |
|
|
| 887 |
|
|
| 2,073 |
|
|
| 774 |
|
|
| 2,847 |
|
Certificates of deposit |
| 595 |
|
|
| 764 |
|
|
| 1,359 |
|
|
| 1,523 |
|
|
| 1,218 |
|
|
| 2,741 |
|
Borrowings |
| 143 |
|
|
| 981 |
|
|
| 1,124 |
|
|
| 347 |
|
|
| 2,411 |
|
|
| 2,758 |
|
Total interest-bearing liabilities |
| 1,369 |
|
|
| 2,228 |
|
|
| 3,597 |
|
|
| 4,087 |
|
|
| 4,580 |
|
|
| 8,667 |
|
Net interest income | $ | 7,868 |
|
| $ | (2,591 | ) |
| $ | 5,277 |
|
| $ | 24,532 |
|
| $ | (6,584 | ) |
| $ | 17,948 |
|
32
Net interest income for Banking increased 24%20% from $23.2$43.1 million in the third quarter of 2016,2019, to $28.7$51.6 million in the third quarter of 20172020 due to a 34%14% increase in interest-earning assets and an increase in the net interest rate spread. The net interest rate spread increased from 2.27% in the third quarter of 2019 to 2.72% in the third quarter of 2020 due to a decrease in the cost of interest-bearing liabilities, from 1.91% in the third quarter of 2019, to 0.90% in the third quarter of 2020, which was partially offset by a decrease in our net interest rate spread. The decrease in the net interest rate spreadyield on interest-earning assets, from 2.93%4.18% in the third quarter of 20162019, to 2.57%3.62% in the third quarter of 2017 was due to an increase in the cost of interest-bearing liabilities from 0.60% in the third quarter of 2016 to 0.98% in the third quarter of 2017.2020. The yield on interest-earning assets increased due to a higher proportion of loans even though the yield on loans decreased slightly due to prepayments of higher yielding loans. The increasedecrease in the cost of interest-bearing liabilities was due to increaseddecreased costs of interest-bearing deposits, resulting from increasesdecreases in deposit market rates, and increaseddecreased costs of borrowings, as the average rate on FHLB advances increasedand other overnight borrowings decreased from 0.46%2.29% in the third quarter of 20162019 to 1.20%1.19% in the third quarter of 2017. In addition,2020. The yield on interest-earning assets decreased due to decreases in yields on loans and securities and an increase in the Company hadproportion of lower yielding securities and deposits to total interest-earning assets. The yield on loans decreased due to accelerated payoffs of higher yielding loans during the last year and the decrease in market rates, which resulted in lower rates on loans added to the portfolio. The yield on securities decreased due to the purchase of $576 million of securities in the third quarter of 2019 at current market rates, which were lower than the overall yield realized in 2019. The average balance outstanding borrowings on itsunder the holding company line of credit duringdecreased from $10.5 million in the third quarter of 2017. 2019 to $5.3 million in the third quarter of 2020, resulting in a $0.1 million decrease in corporate interest expense.
Net interest income for Banking increased 29%15% from $64.4$126.3 million in the first nine months of 2016,2019, to $82.8$145.1 million in the first nine months of 20172020 due primarily to a 11% increase in interest-earning assets. On a consolidated basis our net interest margin was 2.97% for the first nine months of 2020 as compared to 2.87% in the first nine months of 2019. This increase was due to an increase in the net interest rate spread, from 2.31% in the first nine months of 2019 to 2.59% in the first nine months of 2020. The increase in the net interest rate spread was due to a 38% increasedecrease in interest-earning assets,the cost of interest-bearing liabilities, from 1.94% in the first nine months of 2019, to 1.22% in the first nine months of 2020, which was partially offset by a decrease in our net interest rate spread. The decrease in the net interest rate spreadyield on total interest-earning assets, from 2.97%4.25% in the first nine months of 20162019, to 2.67%3.81% in the first nine months of 2017 was due to a2020. The decrease in the yield on interest-earning assets and an increase in the cost of interest-bearing liabilities. The yield on interest-earning assets decreased from 3.53% to 3.51%liabilities was due to a decrease in the yield on loans due to prepayments of higher yielding loans and the addition of loans at market rates in the latter half of 2016 which were lower than the then-current yield on our loan portfolio. The cost of interest-bearing liabilities increased from 0.56% to 0.84% due to increaseddecreased costs of interest-bearing deposits, resulting from increasesdecreases in deposit market rates, and increaseddecreased costs of borrowings, as the average rate on FHLB advances increasedand other overnight borrowings decreased from 0.44%2.50% in the first nine months of 20162019 to 0.92%1.37% in the first nine months of 2017. In addition,2020. The yield on interest-earning assets decreased as new loans added to the Company borrowed on itsportfolio bear interest rates lower than the current portfolio rates, due to decreases in market rates. The average balance outstanding under the holding company line of credit duringdecreased from $12.5 million in the first nine months of 2017. 2019 to $3.9 million in the first nine months of 2020.
Provision for loancredit losses.The provision for loancredit losses represents our estimate of the amount necessary to be charged against the current period’s earnings to maintain the ALLLACL at a level that we consider adequate in relation to the estimated losses inherent in the loan portfolio. The provision for loancredit losses is impacted by changes in loan balances as well as changes in estimated loss assumptions and charge-offs and recoveries. The amount of the provision also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions and certain other subjective factors that may affect the ability of borrowers to meet their repayment obligations to us. For the quarterthree and nine months ended September 30, 2017,2020, we recorded provisions for loancredit losses of $0.7$1.5 million and $7.0 million, respectively, as compared to $0.2 million and $1.9 million, respectively, as compared to $1.2 million and $2.9 million, respectively, for the quarterthree and nine months ended September 30, 2016. The lower provision recorded in2019. Net chargeoffs against the third quarter of 2017ACL were $0.1 million and $0.6 million for the three and nine months ended September 30, 2020, respectively, as compared to net recoveries of $0.1 million and net chargeoffs of $0.4 for the corresponding period of 2016 reflected the 46% lower growththree and nine months ended September 30, 2019. The $7.0 million provision for credit losses in outstanding loans in the third quarter of 2017 as compared to the third quarter of 2016. During the first nine months of 2017,2020 was due to an $8.0 million increase in the Bank realized $0.2allowance for credit losses for investments. With the current interest rate environment and the increase we have experienced in prepayment speeds in our interest-only strip securities, this allowance represents the change in expected cash flows on these securities. These increases were partially offset by a decrease in the allowance for credit losses for loans, which was a result of a decrease in loans held for investment, as $513 million of recoveries and experienced improving credit trendsloan balances were transferred to the held for sale category in its criticized loans.preparation for a securitization next year, as well as a change in the economic factor we utilize for the CECL calculation.
Noninterest income.Noninterest income for Banking includes fees charged to clients for trust services and deposit services, consulting fees, prepayment and late fees charged on loans, gain on sale of loans, and gains and losses from
33
capital market activities and insurance commissions. The following table provides a breakdown of noninterest income for Banking for the quarterthree and nine months ended September 30:30, 2020 and 2019.
| | | | | | | |||||||
(dollars in thousands) | 2017 |
| 2016 |
|
| 2020 |
| 2019 | |||||
Quarter Ended September 30: |
|
|
|
|
|
|
| | | | | | |
Trust fees | $ | 825 |
|
| $ | 799 |
| | $ | 1,504 | | $ | 1,305 |
Loan related fees | |
| 713 | |
| 1,857 | |||||||
Deposit charges | |
| 326 | |
| 309 | |||||||
Gain on sale of loans | | | 15,140 | | | 4,218 | |||||||
Consulting fees |
| 112 |
|
|
| 145 |
| |
| 99 | |
| 95 |
Deposit charges |
| 100 |
|
|
| 105 |
| ||||||
Gain on capital markets activities |
| — |
|
|
| 997 |
| ||||||
Gain on sale of loans |
| 1,962 |
|
|
| 7,238 |
| ||||||
Gain on sale of REO |
| 104 |
|
|
| — |
| ||||||
Prepayment fees |
| 372 |
|
|
| 210 |
| ||||||
Other |
| 480 |
|
|
| 429 |
| |
| 194 | |
| 389 |
Total noninterest income | $ | 3,955 |
|
| $ | 9,923 |
| | $ | 17,976 | | $ | 8,173 |
| | | | | | | |||||||
Nine Months Ended September 30: |
|
|
|
|
|
|
| | | | | | |
Trust fees | $ | 2,485 |
|
| $ | 2,001 |
| | $ | 4,200 | | $ | 3,790 |
Loan related fees | |
| 5,104 | |
| 4,454 | |||||||
Deposit charges | |
| 917 | |
| 727 | |||||||
Gain on sale of loans | | | 15,140 | | | 4,218 | |||||||
Consulting fees |
| 334 |
|
|
| 536 |
| |
| 299 | |
| 300 |
Deposit charges |
| 329 |
|
|
| 348 |
| ||||||
Loss on capital markets activities |
| — |
|
|
| (1,043 | ) | ||||||
Gain on sale of loans |
| 4,312 |
|
|
| 7,238 |
| ||||||
Gain on sale of REO |
| 104 |
|
|
| — |
| ||||||
Prepayment fees |
| 1,243 |
|
|
| 898 |
| ||||||
Other |
| 1,829 |
|
|
| 1,527 |
| |
| 610 | |
| 1,149 |
Total noninterest income | $ | 10,636 |
|
| $ | 11,505 |
| | $ | 26,270 | | $ | 14,638 |
Noninterest income in Banking was $5.9 million lower in the third quarter of 2017 as compared to the third quarter of 2016. During the third quarter of 2017, we realized $2.0 million in gains on the sale of $112 million of multifamily loans, while in the third quarter of 2016, we realized a gain of $7.2 million on the sale of $265 million of multifamily loans.
Noninterest income infor Banking decreased $0.9 million from $11.5 million in the firstthree and nine months of 2016 to $10.6ended September 30, 2020 were $9.8 million inand $11.6 million higher than the firstthree and nine months of 2017. During the first nine months of 2016, we realized $7.2 million in gains on the sale of multifamily loans and $1.0 million in losses from capital activities as comparedended September 30, 2019, respectively, due to $4.3$15.1 million in gains on sales of loans forin the first ninethird quarter of 2020, as compared to $4.2 million in the third quarter of 2019. Other loan fees decreased by $1.4 million in three months of 2017.ended September 30, 2020 when compared to the corresponding period in 2019, due to a $1.3 million valuation allowance on mortgage servicing rights, which was due to an increase in prepayment speeds.
Noninterest income for Wealth Management includes fees charged to high net-worth clients for managing their assets and for providing financial planning consulting services. The following table provides a breakdownthe amounts of noninterest income for Wealth Management for the quarterthree and nine months ended September 30:30, 2020 and 2019:
(dollars in thousands) | 2017 |
|
| 2016 |
| ||
Quarter Ended September 30: |
|
|
|
|
|
|
|
Asset management fees | $ | 6,124 |
|
| $ | 5,301 |
|
Financial consulting fees |
| 16 |
|
|
| 22 |
|
Other |
| (8 | ) |
|
| (4 | ) |
Total noninterest income | $ | 6,132 |
|
| $ | 5,319 |
|
| | | | | | |
(dollars in thousands) |
| 2020 |
| 2019 | ||
Quarter Ended September 30: | | | | | | |
Noninterest income | | $ | 6,020 | | $ | 6,161 |
| | | | | | |
Nine Months Ended September 30: | | | | | | |
Noninterest income | | $ | 18,139 | | $ | 17,874 |
Nine Months Ended September 30: |
|
|
|
|
|
|
|
Asset management fees | $ | 17,290 |
|
| $ | 15,856 |
|
Financial consulting fees |
| 54 |
|
|
| 73 |
|
Other |
| (10 | ) |
|
| (12 | ) |
Total noninterest income | $ | 17,334 |
|
| $ | 15,917 |
|
Noninterest revenueincome for Wealth Management decreased by $0.1 million in the third quarter of 2020 when compared to the corresponding period in 2019 due primarily to lower levels of billable AUM in the quarter. Noninterest income for Wealth Management increased by $0.8$0.3 million in the third quarter and $1.4 million for the nine months ended September 30, 2017 when compared to the corresponding periods in 2016 due to higher levels of AUM balances on which the asset management fees are calculated. AUM, which totaled $4.2 billion at September 30, 2017, increased by $585 million during the first nine months of 2017 as new account growth2020 when compared to the first nine months of $355 million and portfolio gains2019 due primarily to higher investment management fees in the first quarter of $321 million were partially offset by net additions and account terminations2020.
34
Noninterest Expense. The following table provides a breakdown of noninterest expense for Banking and Wealth Management for the quarter and nine months ended September 30:periods indicated:
|
| Banking |
|
| Wealth Management |
| ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
| | Banking | | Wealth Management | ||||||||||||||||||||||||
(dollars in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| | 2020 | | 2019 | | 2020 | | 2019 | ||||||||
Quarter Ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |||
Compensation and benefits |
| $ | 9,863 |
| $ | 8,252 |
| $ | 3,928 |
| $ | 3,576 |
|
| $ | 13,696 |
| $ | 12,613 |
| $ | 3,897 |
| $ | 4,185 | |||
Occupancy and depreciation |
|
| 3,221 |
| 2,506 |
| 537 |
| 547 |
| |
| 5,414 | |
| 4,814 | |
| 620 | |
| 578 | ||||||
Professional services and marketing |
|
| 560 |
| 2,797 |
| 485 |
| 421 |
| |
| 1,595 | |
| 1,173 | |
| 544 | |
| 474 | ||||||
Customer service costs | |
| 1,723 | |
| 5,920 | |
| — | |
| — | ||||||||||||||||
Other expenses |
|
| 3,689 |
|
| 2,579 |
|
| 146 |
|
| 153 |
| |
| 2,521 | |
| 1,877 | |
| 105 | |
| 186 | |||
Total noninterest expense |
| $ | 17,333 |
| $ | 16,134 |
| $ | 5,096 |
| $ | 4,697 |
| | $ | 24,949 | | $ | 26,397 | | $ | 5,166 | | $ | 5,423 | |||
|
|
|
|
|
|
| ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
Nine Months Ended September 30: |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | ||||||
Compensation and benefits |
| $ | 29,913 |
| $ | 24,887 |
| $ | 11,956 |
| $ | 11,068 |
|
| $ | 42,376 |
| $ | 39,774 |
| $ | 12,567 |
| $ | 12,549 | |||
Occupancy and depreciation |
|
| 9,404 |
| 7,072 |
| 1,608 |
| 1,619 |
| |
| 15,529 | |
| 13,630 | |
| 1,796 | |
| 1,716 | ||||||
Professional services and marketing |
|
| 2,320 |
| 5,511 |
| 1,320 |
| 1,397 |
| |
| 4,287 | |
| 3,519 | |
| 1,961 | |
| 1,702 | ||||||
Customer Service Costs | |
| 5,717 | |
| 13,592 | |
| — | |
| — | ||||||||||||||||
Other expenses |
|
| 9,869 |
|
| 6,276 |
|
| 444 |
|
| 452 |
| |
| 8,326 | |
| 8,270 | |
| 411 | |
| 541 | |||
Total noninterest expense |
| $ | 51,506 |
| $ | 43,746 |
| $ | 15,328 |
| $ | 14,536 |
| | $ | 76,235 | | $ | 78,785 | | $ | 16,735 | | $ | 16,508 |
Noninterest expense in Banking increaseddecreased from $16.1$26.4 million in the third quarter of 20162019 to $17.3$25.0 million in the third quarter of 20172020 primarily due to increases in staffing andlower customer service costs, associated with the Bank’s expansion, the growth of its balances of loans and deposits, which waswere partially offset by higher compensation and benefits, and occupancy and depreciation expenses. The $4.2 million decrease in customer service costs was due to decreases in the earnings credit rates paid on deposit balances, as interest rates have declined. Compensation and benefits were $1.1 million higher due to higher compensation costs and commission costs related to higher production volume during 2020. Occupancy and depreciation costs were $0.6 million higher due primarily to higher core processing costs related to higher volumes and services added during 2020. Noninterest expenses for Wealth Management decreased by $0.3 million in the third quarter of 2020, when compared to the third quarter of 2019, due to lower legal costs.compensation and benefits expenses.
Noninterest expense in Banking decreased from $78.8 million in the first nine months of 2019 to $76.2 million in the first nine months of 2020, due to a decrease in customer service costs, which were partially offset by increases in compensation and benefits, occupancy and depreciation, and professional services and marketing. Customer service costs for Banking decreased from $13.6 million in the first nine months of 2019 to $5.7 million in the first nine months of 2020 due to decreases in the earnings credit rates paid on the related deposit balances, as interest rates declined during the first nine months of 2020. Compensation and benefits for Banking increased $1.6$2.6 million or 20% during the third quarterfirst nine months of 20172020 as compared to the third quarterfirst nine months of 2016 as2019, due to salary increases and an increase in the number of full time equivalent employees (“FTE”)FTE in Banking, which increased to 315.7431.1 in the first nine months of 2020, from 266.3422.7 in the first nine months of 2019, as a result of the increased staffing related to the December 2016 acquisition of two branches and additional personnel added to support the growth in loans and deposits. A $0.7 million increase in occupancy and depreciation for Banking in the third quarter of 2017 as compared to the third quarter of 2016 was due to costs associated with our expansion into additional corporate space and the acquisition and opening of new offices during 2016 and increases in our data processing costs due to increased volumes and the implementation of enhancements. Litigation related costs for Banking were $2.3 million lower in the
third quarter of 2017 as compared to the third quarter of 2016 due to the reimbursement from our insurance providers of previously incurred legal costs and costs incurred for a litigation matter in the third quarter of 2016. The $1.1 million increase in other expenses in Banking in the third quarter of 2017 as compared to the third quarter of 2016 was due to a $1.6 million increase in customer service costs related to the increases in noninterest demand deposits.
Noninterest expense in Banking increased from $43.7 million in the first nine months of 2016 to $51.5 million in the first nine months of 2017 due to increases in staffing and costs associated with the Bank’s expansion, the growth of its balances of loans and deposits, which was partially offset by lower legal costs. Compensation and benefits for Banking increased $5.0 million or 20% during the first nine months of 2017 as compared to the first nine months of 2016 as the number of FTE in Banking increased to 303.8 from 256.2 as a result of the increased staffing related to the December 2016 acquisition of two branches and additional personnel added to support the growth in loans and deposits. A $2.4$1.9 million increase in occupancy and depreciation for Banking in the first nine months of 20172020 as compared to the first nine months of 2016 was2019 were due to costs associated with our expansion into additional corporate space, the acquisition and opening of new offices during 2016 and increases in our datahigher core processing costs duerelated to increasedhigher volumes and the implementation of enhancements. Litigation related costsservices added during 2019. Noninterest expenses for Banking were $3.1Wealth Management increased by $0.2 million lower in the first nine months of 2017 as2020, when compared to the first nine months of 20162019, due to the reimbursement from our insurance providers of $1.8higher professional services and marketing expenses. Professional services and marketing expenses were $0.3 million of previously incurred legal costs which was offset byhigher due to costs incurred foron a trial in 2016. A $3.6 million increase in other expenses in Bankinglegal matter in the first nine monthsquarter of 2017 as compared to the first nine months2020.
35
The increases in noninterest expense in Wealth Management for the third quarter and nine months of 2017 as compared to the corresponding periods in 2016 were due to increases of $0.4 million and $0.9 million, respectively, in compensation and benefits. The increases in compensation and benefits were due to increases in FTE and cost of living increases.
The following table shows the financial position for each of our business segments, and of FFI and elimination entries used to arrive at our consolidated totals which are included in the column labeled Other and Eliminations, as of:
| | | | | | | | | | | | | ||||||||||||||||
|
| | |
| Wealth |
| Other and |
| | | ||||||||||||||||||
(dollars in thousands) |
| Banking |
| Wealth Management |
| Other and Eliminations |
| Total |
| | Banking | | Management | | Eliminations | | Total | |||||||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
September 30, 2020: | |
| | |
| | |
| | |
| | ||||||||||||||||
Cash and cash equivalents |
| $ | 123,030 |
| $ | 3,837 |
| $ | (3,657 | ) |
| $ | 123,210 |
| | $ | 282,502 | | $ | 2,117 | | $ | (1,636) | | $ | 282,983 | ||
Securities AFS |
|
| 471,502 |
| — |
| — |
| 471,502 |
| ||||||||||||||||||
Loans Held For Sale |
|
| 153,405 |
| — |
| — |
| 153,405 |
| ||||||||||||||||||
Securities AFS, net | |
| 882,932 | |
| — | |
| — | |
| 882,932 | ||||||||||||||||
Loans held for sale | |
| 512,598 | |
| — | |
| — | |
| 512,598 | ||||||||||||||||
Loans, net |
|
| 3,239,374 |
| — |
| — |
| 3,239,374 |
| |
| 4,591,140 | |
| — | |
| — | |
| 4,591,140 | ||||||
Premises and equipment | |
| 7,510 | |
| 619 | |
| 136 | |
| 8,265 | ||||||||||||||||
FHLB Stock |
|
| 17,250 |
| — |
| — |
| 17,250 |
| |
| 17,250 | |
| — | |
| — | |
| 17,250 | ||||||
Premises and equipment |
|
| 5,600 |
| 996 |
| 136 |
| 6,732 |
| ||||||||||||||||||
Deferred taxes |
|
| 14,857 |
| 161 |
| (93 | ) |
| 14,925 |
| |
| 7,208 | |
| 186 | |
| (237) | |
| 7,157 | |||||
REO |
|
| 1,400 |
| — |
| — |
| 1,400 |
| ||||||||||||||||||
Goodwill and intangibles |
|
| 2,021 |
| — |
| — |
| 2,021 |
| |
| 95,735 | |
| — | |
| — | |
| 95,735 | ||||||
Other assets |
|
| 18,015 |
|
| 264 |
|
| 2,963 |
|
| 21,242 |
| |
| 68,481 | |
| 332 | |
| 15,065 | |
| 83,878 | |||
Total assets |
| $ | 4,046,454 |
| $ | 5,258 |
| $ | (651 | ) |
| $ | 4,051,061 |
| | $ | 6,465,356 | | $ | 3,254 | | $ | 13,328 | | $ | 6,481,938 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
Deposits |
| $ | 3,284,176 |
| $ | — |
| $ | (15,450 | ) |
| $ | 3,268,726 |
| | $ | 5,469,019 | | $ | — | | $ | (5,206) | | $ | 5,463,813 | ||
Borrowings |
|
| 406,000 |
| — |
| 15,000 |
| 421,000 |
| |
| 260,000 | |
| — | |
| 9,000 | |
| 269,000 | ||||||
Intercompany balances |
|
| 3,490 |
| (917 | ) |
| (2,573 | ) |
| — |
| |
| 10,426 | |
| (1,397) | |
| (9,029) | |
| — | ||||
Other liabilities |
|
| 17,240 |
| 2,705 |
| 937 |
| 20,882 |
| |
| 48,687 | |
| 3,186 | |
| 19,316 | |
| 71,189 | ||||||
Shareholders’ equity |
|
| 335,548 |
|
| 3,470 |
|
| 1,435 |
|
| 340,453 |
| |
| 677,224 | |
| 1,465 | |
| (753) | |
| 677,936 | |||
Total liabilities and equity |
| $ | 4,046,454 |
| $ | 5,258 |
| $ | (651 | ) |
| $ | 4,051,061 |
| | $ | 6,465,356 | | $ | 3,254 | | $ | 13,328 | | $ | 6,481,938 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
December 31, 2019: | |
| | |
| | |
| | |
| | ||||||||||||||||
Cash and cash equivalents |
| $ | 597,795 |
|
| $ | 2,576 |
|
| $ | (2,425 | ) |
| $ | 597,946 |
| | $ | 65,083 | | $ | 5,054 | | $ | (4,750) | | $ | 65,387 |
Securities AFS |
|
| 509,578 |
|
|
| — |
|
|
| — |
| 509,578 |
| ||||||||||||||
Securities AFS, net | |
| 1,014,966 | |
| — | |
| — | |
| 1,014,966 | ||||||||||||||||
Loans held for sale |
|
| 250,942 |
|
|
| — |
|
|
| — |
| 250,942 |
| |
| 503,036 | |
| — | |
| — | |
| 503,036 | ||
Loans, net |
|
| 2,540,309 |
|
|
| — |
|
|
| — |
| 2,540,309 |
| |
| 4,526,833 | |
| — | |
| — | |
| 4,526,833 | ||
Premises and equipment | |
| 7,561 | |
| 658 | |
| 136 | |
| 8,355 | ||||||||||||||||
FHLB Stock |
|
| 33,750 |
|
|
| — |
|
|
| — |
| 33,750 |
| |
| 21,519 | |
| — | |
| — | |
| 21,519 | ||
Premises and equipment |
|
| 5,603 |
|
|
| 991 |
|
|
| 136 |
| 6,730 |
| ||||||||||||||
Deferred taxes |
|
| 16,602 |
|
|
| 283 |
|
|
| (74 | ) |
| 16,811 |
| |
| 10,778 | |
| 133 | |
| 168 | |
| 11,079 | |
REO |
|
| 1,734 |
|
|
| — |
|
|
| — |
| 1,734 |
| ||||||||||||||
Goodwill and Intangibles |
|
| 2,177 |
|
|
| — |
|
|
| — |
| 2,177 |
| |
| 97,191 | |
| — | |
| — | |
| 97,191 | ||
Other assets |
|
| 13,270 |
|
|
| 445 |
|
|
| 1,711 |
|
| 15,426 |
| |
| 51,229 | |
| 445 | |
| 14,396 | |
| 66,070 | |
Total assets |
| $ | 3,971,760 |
|
| $ | 4,295 |
|
| $ | (652 | ) |
| $ | 3,975,403 |
| | $ | 6,298,196 | | $ | 6,290 | | $ | 9,950 | | $ | 6,314,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
Deposits |
| $ | 2,435,538 |
|
| $ | — |
|
| $ | (8,743 | ) |
| $ | 2,426,795 |
| | $ | 4,902,958 | | $ | — | | $ | (11,814) | | $ | 4,891,144 |
Borrowings |
|
| 1,250,000 |
|
|
| — |
|
|
| — |
| 1,250,000 |
| |
| 733,000 | |
| — | |
| 10,000 | |
| 743,000 | ||
Intercompany balances |
|
| 3,019 |
|
|
| 539 |
|
|
| (3,558 | ) |
| — |
| |
| 3,111 | |
| 469 | |
| (3,580) | |
| — | |
Other liabilities |
|
| 11,670 |
|
|
| 2,744 |
|
|
| (70 | ) |
| 14,344 |
| |
| 48,159 | |
| 3,400 | |
| 14,864 | |
| 66,423 | |
Shareholders’ equity |
|
| 271,533 |
|
|
| 1,012 |
|
|
| 11,719 |
|
|
| 284,264 |
| |
| 610,968 | |
| 2,421 | |
| 480 | |
| 613,869 |
Total liabilities and equity |
| $ | 3,971,760 |
|
| $ | 4,295 |
|
| $ | (652 | ) |
| $ | 3,975,403 |
| | $ | 6,298,196 | | $ | 6,290 | | $ | 9,950 | | $ | 6,314,436 |
Our consolidated balance sheet is primarily affected by changes occurring in our Banking operations as our Wealth Management operations do not maintain significant levels of assets. Banking has experienced and is expected to continue to experience increases in its total assets as a result of our growth strategy.
During the first nine months of 2017,ended September 30, 2020, total assets increased by $168 million primarily due to an increase in cash and cash equivalents and loans, which was partially offset by a decrease in securities. During the nine months ended September 30, 2020, securities decreased by $475$124 million loansprimarily due to payoffs of mortgage backed securities. Loans and loans held for sale increased $77 million in the nine months ended September 30, 2020 as a result of $1.8 billion of originations, which were partially offset by $604payoffs or scheduled payments of $1.1 billion and loan sales of
36
$553 million. The $573 million growth in deposits during the nine months of 2020 included increases in specialty deposits of $564 million, branch deposits of $353 million, and digital channel deposits increasedof $329 million, which were partially offset by $842 million. Totala $674 million decrease in wholesale deposits. Borrowings decreased by $474 million during the nine months ended September 30, 2020 as cash provided by the increase in deposits, which exceeded the growth in our assets, was used to pay down our borrowings which included $15 millionat the Bank. At September 30, 2020 and December 31, 2019, the outstanding balance on ourthe holding company line of credit decreased by $829 million.was $9 million and $10 million, respectively.
Cash and cash equivalents, certificates of deposit and securities.Cash and cash equivalents, which primarily consist of funds held at the Federal Reserve Bank or at correspondent banks, including fed funds, decreased $475increased by $218 million during the first nine months of 2017.ended September 30, 2020. Changes in cash and cash equivalents are primarily affected by the funding of loans, investments in securities, and changes in our sources of funding: deposits, FHLB advances and FFI borrowings.
Securities available for sale. The following table provides a summary of the Company’s AFS securities portfolio as of:
|
| Amortized |
| Gross Unrealized |
| Estimated |
| ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||
|
| Amortized |
| Gross Unrealized |
| Allowance for |
| Estimated | |||||||||||||||||||||||
(dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Fair Value |
|
| Cost |
| Gains |
| Losses |
| Credit Losses |
| Fair Value | ||||||||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
US Treasury security |
| $ | 499 |
|
| $ | — |
|
| $ | (4 | ) |
| $ | 495 |
| |||||||||||||||
September 30, 2020: | |
| | |
| | |
| | | | | |
| | ||||||||||||||||
Agency mortgage-backed securities |
|
| 436,415 |
|
|
| 497 |
|
|
| (4,464 | ) |
|
| 432,448 |
| | $ | 776,956 | | $ | 21,237 | | $ | — | | $ | — | | $ | 798,193 |
Beneficial interest – FHLMC securitization |
|
| 38,975 |
|
|
| 1,756 |
|
|
| (2,172 | ) |
|
| 38,559 |
| |
| 32,577 | |
| 286 | |
| — | |
| (8,049) | |
| 24,814 |
Corporate bonds | |
| 57,000 | |
| 1,321 | |
| — | |
| — | |
| 58,321 | ||||||||||||||||
Other | |
| 1,505 | |
| 99 | |
| — | |
| — | |
| 1,604 | ||||||||||||||||
Total |
| $ | 475,889 |
|
| $ | 2,253 |
|
| $ | (6,640 | ) |
| $ | 471,502 |
| | $ | 868,038 | | $ | 22,943 | | $ | — | | $ | (8,049) | | $ | 882,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
US Treasury security |
| $ | 300 |
|
| $ | — |
|
| $ | (3 | ) |
| $ | 297 |
| |||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||
December 31, 2019: | |
|
| |
|
| |
| | |
| | |
|
| ||||||||||||||||
Agency mortgage-backed securities |
|
| 476,163 |
|
|
| 160 |
|
|
| (7,414 | ) |
|
| 468,909 |
| | $ | 905,949 | | $ | 9,174 | | $ | (146) | | $ | — | | $ | 914,977 |
Beneficial interest – FHLMC securitization |
|
| 42,028 |
|
|
| 711 |
|
|
| (2,367 | ) |
|
| 40,372 |
| |
| 47,586 | |
| 1,801 | |
| (6,681) | |
| — | |
| 42,706 |
Corporate bonds | |
| 54,000 | |
| 1,834 | |
| — | |
| — | |
| 55,834 | ||||||||||||||||
Other | |
| 1,386 | |
| 63 | |
| — | |
| — | |
| 1,449 | ||||||||||||||||
Total |
| $ | 518,491 |
|
| $ | 871 |
|
| $ | (9,784 | ) |
| $ | 509,578 |
| | $ | 1,008,921 | | $ | 12,872 | | $ | (6,827) | | $ | — | | $ | 1,014,966 |
The
US Treasury securitiesSecurities that are included in the table above are pledged as collateral to the State of California to meet regulatory requirements related to FFB’s trust operations. Agency mortgage-backed securities are pledged as collateral as support for the Bank’s obligations under loan sales and securitization agreements entered into from 2018 through 2020.
The scheduled maturities of securities AFS, other than agencySeptember 30, 2020:
| | | | | | | | | | | | | | | | |
|
| Less than |
| 1 Through |
| 5 Through |
| After |
| | |
| ||||
(dollars in thousands) | | 1 Year | | 5 years | | 10 Years | | 10 Years | | Total |
| |||||
Amortized Cost: | |
| | |
| | |
| | |
| | |
| |
|
Corporate bonds | | $ | — | | $ | — | | $ | 57,000 | | $ | — | | $ | 57,000 | |
Other | |
| 500 | |
| — | |
| 1,006 | |
| — | |
| 1,506 | |
Total | | $ | 500 | | $ | — | | $ | 58,006 | | $ | — | | $ | 58,506 | |
Weighted average yield | |
| 1.76 | % |
| — | % |
| 5.35 | % |
| — | % |
| 5.32 | % |
Estimated Fair Value: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Corporate bonds | | $ | — | | $ | — | | $ | 58,322 | | $ | — | | $ | 58,322 | |
Other | |
| 505 | |
| — | |
| 1,100 | |
| — | |
| 1,605 | |
Total | | $ | 505 | | $ | — | | $ | 59,422 | | $ | — | | $ | 59,927 | |
Agency mortgage-backed securities and the related weighted average yield is as follows as of September 30, 2017:
(dollars in thousands) | Less than |
|
| 1 Through |
|
| 5 Through 10 Years |
|
| After 10 Years |
|
| Total |
| |||||
Amortized Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury securities | $ | — |
|
| $ | 499 |
|
| $ | — |
|
| $ | — |
|
| $ | 499 |
|
Weighted average yield |
| — | % |
|
| 1.03 | % |
|
| — | % |
|
| — | % |
|
| 1.03 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury securities | $ | — |
|
| $ | 495 |
|
| $ | — |
|
| $ | — |
|
| $ | 495 |
|
Agency mortgage backed securities and beneficial interest –interests in FHLMC securitizations are excluded from the above table because such securities are not due at a single maturity date. The weighted average yield of the agency mortgage backedmortgage-backed securities and beneficial interests as of September 30, 20172020 was 2.54%2.46%.
37
Loans. The following table sets forth our loans, by loan category, as of:
| | | | | | | | |||||||
|
| September 30, |
| December 31, | | |||||||||
(dollars in thousands) | September 30, |
|
| December 31, |
|
| 2020 |
| 2019 | | ||||
Outstanding principal balance: |
|
|
|
|
|
|
| |
|
| |
| | |
Loans secured by real estate: |
|
|
|
|
|
| |
|
| |
| | ||
Residential properties: |
|
|
|
|
|
| |
|
| |
| | ||
Multifamily | $ | 1,784,061 |
| $ | 1,178,003 |
| | $ | 2,084,175 | | $ | 2,143,919 | | |
Single family |
| 616,478 |
|
| 602,886 |
| |
| 818,436 | |
| 871,181 | | |
Total real estate loans secured by residential properties |
| 2,400,539 |
|
| 1,780,889 |
| |
| 2,902,611 | |
| 3,015,100 | | |
Commercial properties |
| 529,590 |
| 476,959 |
| |
| 770,964 | |
| 834,042 | | ||
Land and construction |
| 31,304 |
|
| 24,100 |
| ||||||||
Land | |
| 57,722 | |
| 70,257 | | |||||||
Total real estate loans |
| 2,961,433 |
|
| 2,281,948 |
| |
| 3,731,297 | |
| 3,919,399 | | |
Commercial and industrial loans |
| 259,958 |
| 237,941 |
| |
| 858,744 | |
| 600,213 | | ||
Consumer loans |
| 28,469 |
|
| 32,127 |
| |
| 18,399 | |
| 16,273 | | |
Total loans |
| 3,249,860 |
|
| 2,552,016 |
| |
| 4,608,440 | |
| 4,535,885 | | |
Premiums, discounts and deferred fees and expenses |
| 7,014 |
|
| 3,693 |
| |
| 6,883 | |
| 11,748 | | |
Total | $ | 3,256,874 |
| $ | 2,555,709 |
| | $ | 4,615,323 | | $ | 4,547,633 | |
Total loans, including
Loans and loans held for sale increased $604$77 million during the first nine months of 2017ended September 30, 2020 as a result of $1.2$1.8 billion of originations, and $8 million of purchases which were partially offset by the sale of $286 million of multifamily loans and payoffs or scheduled payments of $344 million.$1.1 billion, and $553 million of loan sales.
Deposits.The following table sets forth information with respect to our deposits and the average rates paid on deposits, as of:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
|
| September 30, 2020 |
| December 31, 2019 |
| | ||||||||||||||||||||||
| | | | | Weighted | | | | | Weighted | | | ||||||||||||||||
(dollars in thousands) |
| Amount |
| Weighted Average Rate |
|
| Amount |
| Weighted Average Rate |
|
| Amount |
| Average Rate |
| Amount |
| Average Rate |
| | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Demand deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
| |
| | |
| | | |||
Noninterest-bearing |
| $ | 1,096,472 |
|
| — |
|
| $ | 661,781 |
| — |
| | $ | 1,890,028 |
| — | | $ | 1,192,481 |
| — | | | |||
Interest-bearing |
|
| 278,917 |
|
| 0.654 | % |
|
| 194,274 |
| 0.471 | % | |
| 396,938 |
| 0.255 | % |
| 386,276 |
| 0.635 | % | | |||
Money market and savings |
|
| 1,010,298 |
|
| 0.854 | % |
|
| 941,344 |
| 0.677 | % | |
| 1,922,264 |
| 0.634 | % |
| 1,334,736 |
| 1.355 | % | | |||
Certificates of deposits |
|
| 883,039 |
|
| 1.094 | % |
|
| 629,396 |
| 0.589 | % | |
| 1,254,583 |
| 0.902 | % |
| 1,977,651 |
| 1.971 | % | | |||
Total |
| $ | 3,268,726 |
|
| 0.615 | % |
| $ | 2,426,795 |
| 0.453 | % | | $ | 5,463,813 |
| 0.449 | % | $ | 4,891,144 |
| 1.217 | % | |
During the first nine months of 2017, the2020, our deposit rates have moved in a manner consistent with overall deposit market rates. The weighted average rate of our interest-bearing deposits increaseddecreased from 0.62%1.61% at December 31, 20162019 to 0.93%0.69% at September 30, 2017,2020 due to decreased costs of interest-bearing deposits, while the weighted average interest rates of both interest-bearing and noninterest-bearing deposits increasedhave decreased from 0.45%1.22% at December 31, 20162019 to 0.62%0.45% at September 30, 2017.2020. The increase in the weighted average ratefinancial impact of our interest-bearing deposits was the result of increases in market rates and our success in attracting higher balance accounts which generally bear higher interest rates. The increase in our overall cost of deposits was less than the increase in interest-bearing deposits as a result of a higher proportion of noninterest-bearing deposits at September 30, 2017 when compared to December 31, 2016.
The $842 million growthis reflected in deposits during the first nine months of 2017 was primarily due to the organic growthcustomer service costs, which are included in deposits from our specialty deposit group, which increased by 48%, and our branch offices, which increased by 21%.noninterest expenses.
The maturities of our Certificatescertificates of deposit of $100,000 or more were as follows as of September 30, 2017:2020:
| | | | |||
(dollars in thousands) | (dollars in thousands) | | | | ||
|
|
|
| |||
3 months or less | $ | 132,215 |
|
| $ | 249,794 |
Over 3 months through 6 months |
| 93,875 |
| |
| 216,798 |
Over 6 months through 12 months |
| 80,358 |
| |
| 163,605 |
Over 12 months |
| 138,897 |
| |
| 17,626 |
Total | $ | 445,345 |
| | $ | 647,823 |
FFB utilizes third party programs called CDARs and ICS which allows FFB to transfer funds of its clients in excess of the FDIC insurance limit (currently $250,000) to other institutions in exchange for an equal amount of funds from clients of these other institutions. This has allowed FFB to provide FDIC insurance coverage to its clients. Under certain regulatory guidelines, these deposits are considered brokered deposits.
From time to time, the Bank will utilize brokered deposits as a source of funding. As of September 30, 20172020, the Bank held $493$534 million of deposits which are classified as brokered deposits, including $112 milliondeposits.
38
Borrowings.At September 30, 20172020, our borrowings consisted of $406$250 million in overnight FHLB term advances at the Bank, $10 million in FHLB zero interest advances, and $15$9 million of borrowings on ourunder a holding company line of credit. At December 31, 2016,2019, our borrowings consisted of $1.3 billion in$233 million of overnight FHLB advances.advances at the Bank, a $500 million FHLB term advance at the Bank, and $10 million of borrowings under a holding company line of credit. The $250 million FHLB advances were paidterm advance outstanding at September 30, 2020 matures in full in the early partsMarch 2021 and bears an interest rate of October 2017 and January 2017, respectively.0.47%. Because FFB generally utilizes overnight borrowings, the balance of outstanding borrowings fluctuatesmay fluctuate on a daily basis. The average balance of overnight borrowingsFHLB advances outstanding during the first nine months of 2017ended September 30, 2020 was $549$727 million, as compared to $499$640 million duringfor the first nine months of 2016.ended September 30, 2019. The weighted average interest rate on these overnight borrowings was 1.14%1.35% for the first nine months of 2017,ended September 30, 2020 as compared to 0.44% during 2016.2.50% for the nine months ended September 30, 2019. The maximum amount of overnight borrowings at the Bank outstanding at any month-end during the first nine months ended September 30, 2020 and during all of 2017 and 20162019 was $818$865 million and $951$956 million, respectively.
Delinquent Loans, Nonperforming Assets and Provision for Credit Losses
Loans are considered past due following the date when either interest or principal is contractually due and unpaid. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued when reasonable doubt exists as to the full, timely collection of interest or principal and, generally, when a loan becomes contractually past due for 90 days or more with respect to principal or interest. However, the accrual of interest may be continued on a well-secured loan contractually past due 90 days or more with respect to principal or interest if the loan is in the process of collection or collection of the principal and interest is deemed probable. The following tables provide a summary of past due and nonaccrual loans as of:
|
| Past Due and Still Accruing |
|
|
|
|
| Total Past |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
| | | | | | | | 90 Days | | | | | Total Past Due | | | | | | | |||||||||||||||||||||||||||||||
(dollars in thousands) |
| 30–59 Days |
|
| 60-89 Days |
|
| 90 Days |
|
| Nonaccrual |
|
| Due and Nonaccrual |
|
| Current |
| Total |
|
| 30–59 Days |
| 60-89 Days |
| or More |
| Nonaccrual |
| and Nonaccrual |
| Current |
| Total | ||||||||||||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
September 30, 2020: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |||||||||||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||
Residential properties |
| $ | 53 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 53 |
|
| $ | 2,400,486 |
| $ | 2,400,539 |
| | $ | — | | $ | 24 | | $ | 1,922 | | $ | 12,532 | | $ | 14,478 | | $ | 2,888,133 | | $ | 2,902,611 | ||
Commercial properties |
|
| 762 |
|
| — |
|
| 1,330 |
|
| 1,278 |
|
| 3,370 |
|
| 526,220 |
| 529,590 |
| |
| 722 | |
| 215 | |
| — | |
| 1,738 | |
| 2,675 | |
| 768,289 | |
| 770,964 | ||||||||
Land and construction |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 31,304 |
| 31,304 |
| |||||||||||||||||||||||||||||
Land | |
| 411 | |
| — | |
| — | |
| — | |
| 411 | |
| 57,311 | |
| 57,722 | |||||||||||||||||||||||||||||
Commercial and industrial loans |
|
| 10,926 |
|
| — |
|
| 815 |
|
| 5,216 |
|
| 16,957 |
|
| 243,001 |
| 259,958 |
| |
| 442 | |
| 1,038 | |
| 481 | |
| 6,306 | |
| 8,267 | |
| 850,477 | |
| 858,744 | ||||||||
Consumer loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,469 |
|
| 28,469 |
| |
| — | |
| — | |
| — | |
| 16 | |
| 16 | |
| 18,383 | |
| 18,399 | ||
Total |
| $ | 11,741 |
|
| $ | — |
|
| $ | 2,145 |
|
| $ | 6,494 |
|
| $ | 20,380 |
|
| $ | 3,229,480 |
| $ | 3,249,860 |
| | $ | 1,575 | | $ | 1,277 | | $ | 2,403 | | $ | 20,592 | | $ | 25,847 | | $ | 4,582,593 | | $ | 4,608,440 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Percentage of total loans |
|
| 0.36 | % |
| — | % |
| 0.07 | % |
| 0.20 | % |
| 0.63 | % |
|
|
|
|
| |
| 0.03 | % |
| 0.03 | % |
| 0.05 | % |
| 0.45 | % |
| 0.56 | % |
|
| |
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
December 31, 2019: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |||||||||||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||
Residential properties |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 3,759 |
|
| $ | 3,759 |
|
| $ | 1,777,130 |
| $ | 1,780,889 |
| | $ | 89 | | $ | 13 | | $ | — | | $ | 1,743 | | $ | 1,845 | | $ | 3,013,255 | | $ | 3,015,100 | ||
Commercial properties |
|
| — |
|
| — |
|
| 2,128 |
|
| 1,120 |
|
| 3,248 |
|
| 473,711 |
| 476,959 |
| |
| 7,586 | |
| — | |
| 403 | |
| 2,410 | |
| 10,399 | |
| 823,643 | |
| 834,042 | ||||||||
Land and construction |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 24,100 |
| 24,100 |
| |||||||||||||||||||||||||||||
Land | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 70,257 | |
| 70,257 | |||||||||||||||||||||||||||||
Commercial and industrial loans |
|
| — |
|
| 2 |
|
| 3,800 |
|
| 3,359 |
|
| 7,161 |
|
| 230,780 |
| 237,941 |
| |
| 695 | |
| 2,007 | |
| — | |
| 8,714 | |
| 11,416 | |
| 588,797 | |
| 600,213 | ||||||||
Consumer loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32,127 |
|
| 32,127 |
| |
| 22 | |
| 3 | |
| — | |
| — | |
| 25 | |
| 16,248 | |
| 16,273 | ||
Total |
| $ | — |
|
| $ | 2 |
|
| $ | 5,928 |
|
| $ | 8,238 |
|
| $ | 14,168 |
|
| $ | 2,537,848 |
| $ | 2,552,016 |
| | $ | 8,392 | | $ | 2,023 | | $ | 403 | | $ | 12,867 | | $ | 23,685 | | $ | 4,512,200 | | $ | 4,535,885 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Percentage of total loans |
|
| — | % |
| 0.00 | % |
| 0.23 | % |
| 0.32 | % |
| 0.56 | % |
|
|
|
|
| |
| 0.19 | % |
| 0.04 | % |
| 0.01 | % |
| 0.28 | % |
| 0.52 | % |
|
| |
|
|
The following table presents the composition of TDRs by accrual and nonaccrual status as of:
|
| September 30, 2017 |
| December 31, 2016 |
| |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
|
| September 30, 2020 |
| December 31, 2019 | ||||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
| Accrual |
|
|
| Nonaccrual |
|
| Total |
|
| Accrual |
| Nonaccrual |
| Total |
|
| Accrual |
| Nonaccrual |
| Total |
| Accrual |
| Nonaccrual |
| Total | |||||||||||||
Commercial and industrial |
| $ | 225 |
|
| $ | 2,522 |
|
| $ | 2,747 |
| $ | 317 |
|
| $ | 3,109 |
|
| $ | 3,426 |
| |||||||||||||||||||
Residential real estate loans | | $ | 1,200 | | $ | — | | $ | 1,200 | | $ | 1,200 | | $ | — | | $ | 1,200 | ||||||||||||||||||||||||
Commercial real estate loans | |
| 1,127 | |
| 1,303 | |
| 2,430 | |
| 1,188 | |
| 2,166 | |
| 3,354 | ||||||||||||||||||||||||
Commercial and industrial loans | |
| 1,014 | |
| 3,439 | |
| 4,453 | |
| 557 | |
| 2,972 | |
| 3,529 | ||||||||||||||||||||||||
Total | | $ | 3,341 | | $ | 4,742 | | $ | 8,083 | | $ | 2,945 | | $ | 5,138 | | $ | 8,083 |
These loans were classified as a TDR as a result of a reduction in required principal payments, reductions in rates and/or an extension of the maturity date of the loans.
39
The following is a breakdown of our loan portfolio by the risk category of loans as of:
| | | | | | | | | | | | | | | | ||||||||||||||||||||
|
| | | | | | | | | | | Loans Individually | | | | ||||||||||||||||||||
(dollars in thousands) |
| Pass |
| Special |
| Substandard |
| Impaired |
| Total |
|
| Pass |
| Special Mention |
| Substandard |
| Evaluated |
| Total | ||||||||||||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
September 30, 2020: | |
| | |
| | |
| | |
| | |
| | ||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||
Residential properties |
| $ | 2,398,246 |
| $ | — |
| $ | 2,293 |
| $ | — |
| $ | 2,400,539 |
| | $ | 2,887,890 | | $ | 990 | | $ | 17 | | $ | 13,714 | | $ | 2,902,611 | ||||
Commercial properties |
|
| 519,931 |
| 5,131 |
| 925 |
| 3,603 |
| 529,590 |
| |
| 740,035 | |
| 12,840 | |
| 6,216 | |
| 11,873 | |
| 770,964 | ||||||||
Land and construction |
|
| 31,304 |
| — |
| — |
| — |
| 31,304 |
| |||||||||||||||||||||||
Land | |
| 57,311 | |
| 411 | |
| — | |
| — | |
| 57,722 | ||||||||||||||||||||
Commercial and industrial loans |
|
| 246,499 |
| 815 |
| 1,897 |
| 10,747 |
| 259,958 |
| |
| 839,377 | |
| 8,260 | |
| 3,787 | |
| 7,320 | |
| 858,744 | ||||||||
Consumer loans |
|
| 28,469 |
|
| — |
|
| — |
|
| — |
|
| 28,469 |
| |
| 18,383 | |
| — | |
| — | |
| 16 | |
| 18,399 | ||||
Total |
| $ | 3,224,449 |
| $ | 5,946 |
| $ | 5,115 |
| $ | 14,350 |
| $ | 3,249,860 |
| | $ | 4,542,996 | | $ | 22,501 | | $ | 10,020 | | $ | 32,923 | | $ | 4,608,440 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
December 31, 2019: | |
| | |
| | |
| | |
| | |
|
| ||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
| | |
| | |
| | |
|
| ||||||||
Residential properties |
| $ | 1,773,296 |
|
| $ | 1,500 |
|
| $ | — |
|
| $ | 6,093 |
|
| $ | 1,780,889 |
| | $ | 3,012,203 | | $ | — | | $ | — | | $ | 2,897 | | $ | 3,015,100 |
Commercial properties |
|
| 470,484 |
|
|
| 1,913 |
|
|
| 2,414 |
|
|
| 2,148 |
|
|
| 476,959 |
| |
| 821,425 | |
| 679 | |
| 5,249 | |
| 6,689 | |
| 834,042 |
Land and construction |
|
| 24,100 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24,100 |
| |||||||||||||||
Land | |
| 69,476 | |
| — | |
| 781 | |
| — | |
| 70,257 | ||||||||||||||||||||
Commercial and industrial loans |
|
| 219,676 |
|
|
| 3,625 |
|
|
| 13,887 |
|
|
| 753 |
|
|
| 237,941 |
| |
| 579,153 | |
| 8,202 | |
| 3,542 | |
| 9,316 | |
| 600,213 |
Consumer loans |
|
| 32,127 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32,127 |
| |
| 16,273 | |
| — | |
| — | |
| — | |
| 16,273 |
Total |
| $ | 2,519,683 |
|
| $ | 7,038 |
|
| $ | 16,301 |
|
| $ | 8,994 |
|
| $ | 2,552,016 |
| | $ | 4,498,530 | | $ | 8,881 | | $ | 9,572 | | $ | 18,902 | | $ | 4,535,885 |
We consider a loan to be impaired when, based upon current information and events, we believe that it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan. We measure impairment using either the present value of the expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the properties collateralizing the loan, for collateral dependent loans. Impairment losses are included in the ALLL through a charge to provision for loan losses. Adjustments to impairment losses due to changes in the fair value of the property collateralizing an impaired loan are considered in computing the provision for loan losses. Loans collectively reviewed for impairment include all loans except for loans which are individually reviewed based on specific criteria, such as delinquency, debt coverage, adequacy of collateral and condition of property collateralizing the loans. Impaired loans include nonaccrual loans (excluding those collectively reviewed for impairment), certain restructured loans and certain performing loans less than 90 days delinquent (“other impaired loans”) which we believe are not likely to be collected in accordance with the contractual terms of the loans.
In 2015, we purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of these purchased credit impaired loans is as follows as of:
(dollars in thousands) | September 30, |
|
| December 31, |
| ||
Outstanding principal balance: |
|
|
|
|
|
|
|
Total real estate loans | $ | 285 |
|
| $ | 295 |
|
Commercial and industrial loans |
| 2,416 |
|
|
| 4,258 |
|
Consumer loans |
| — |
|
|
| 17 |
|
Total loans |
| 2,701 |
|
|
| 4,570 |
|
Unaccreted discount on purchased credit impaired loans |
| (884 | ) |
|
| (1,197 | ) |
Total | $ | 1,817 |
|
| $ | 3,373 |
|
Allowance for LoanCredit Losses.The following table summarizes the activity in our ALLLACL related to loans for the periods indicated:
| | | | | | | | | | | | | | | | | | |
| | Beginning | | Adoption of | | Provision for | | | | | | | | Ending | ||||
(dollars in thousands) |
| Balance | | ASC 326 |
| Credit Losses |
| Charge-offs |
| Recoveries |
| Balance | ||||||
Quarter ended September 30, 2020: | | | | | | | | | | | | | | | | | | |
Real estate loans: |
| |
| | |
|
| |
|
| |
|
| |
|
| |
|
Residential properties | | $ | 6,756 | | $ | — | | $ | (3,791) | | $ | — | | $ | — | | $ | 2,965 |
Commercial properties | |
| 9,311 | |
| — | |
| 336 | |
| — | |
| — | |
| 9,647 |
Land | |
| 3,368 | |
| — | |
| (2,211) | |
| — | |
| — | |
| 1,157 |
Commercial and industrial loans | |
| 8,488 | |
| — | |
| 1,831 | |
| (338) | |
| 222 | |
| 10,203 |
Consumer loans | |
| 206 | |
| — | |
| 5 | |
| — | |
| — | |
| 211 |
Total | | $ | 28,129 | | $ | — | | $ | (3,830) | | $ | (338) | | $ | 222 | | $ | 24,183 |
| | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2020: | | | | | | | | | | | | | | | | | | |
Real estate loans: |
| |
| | |
|
| |
|
| |
|
| |
|
| |
|
Residential properties | | $ | 8,423 | | $ | (363) | | $ | (5,095) | | $ | — | | $ | — | | $ | 2,965 |
Commercial properties | |
| 4,166 | |
| (3,760) | |
| 9,241 | |
| — | |
| — | |
| 9,647 |
Land | |
| 573 | |
| (92) | |
| 676 | |
| — | |
| — | |
| 1,157 |
Commercial and industrial loans | |
| 7,448 | |
| — | |
| 3,362 | |
| (1,393) | |
| 786 | |
| 10,203 |
Consumer loans | |
| 190 | |
| — | |
| 21 | |
| — | |
| — | |
| 211 |
Total | | $ | 20,800 | | $ | (4,215) | | $ | 8,205 | | $ | (1,393) | | $ | 786 | | $ | 24,183 |
| | | | | | | | | | | | | | | | | | |
Year ended December 31, 2019: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate loans: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Residential properties | | $ | 9,216 | | $ | — | | $ | (793) | | $ | — | | $ | — | | $ | 8,423 |
Commercial properties | |
| 4,547 | |
| — | |
| (381) | |
| — | |
| — | |
| 4,166 |
Land | |
| 391 | |
| — | |
| 182 | |
| — | |
| — | |
| 573 |
Commercial and industrial loans | |
| 4,628 | |
| — | |
| 3,653 | |
| (2,687) | |
| 1,854 | |
| 7,448 |
Consumer loans | |
| 218 | |
| — | |
| (24) | |
| (5) | |
| 1 | |
| 190 |
Total | | $ | 19,000 | | $ | — | | $ | 2,637 | | $ | (2,692) | | $ | 1,855 | | $ | 20,800 |
(dollars in thousands) | Beginning Balance |
|
| Provision for Loan Losses |
|
| Charge-offs |
|
| Recoveries |
|
| Ending Balance |
| |||||
Quarter ended September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential properties | $ | 8,851 |
|
| $ | 469 |
|
| $ | — |
|
| $ | — |
|
| $ | 9,320 |
|
Commercial properties |
| 3,285 |
|
|
| 281 |
|
|
| — |
|
|
| — |
|
|
| 3,566 |
|
Land and construction |
| 287 |
|
|
| 66 |
|
|
| — |
|
|
| — |
|
|
| 353 |
|
Commercial and industrial loans |
| 4,093 |
|
|
| (119 | ) |
|
| — |
|
|
| (1 | ) |
|
| 3,973 |
|
Consumer loans |
| 284 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 288 |
|
Total | $ | 16,800 |
|
| $ | 701 |
|
| $ | — |
|
| $ | (1 | ) |
| $ | 17,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential properties | $ | 6,669 |
|
| $ | 2,651 |
|
| $ | — |
|
| $ | — |
|
| $ | 9,320 |
|
Commercial properties |
| 2,983 |
|
|
| 583 |
|
|
| — |
|
|
| — |
|
|
| 3,566 |
|
Land and construction |
| 233 |
|
|
| 120 |
|
|
| — |
|
|
| — |
|
|
| 353 |
|
Commercial and industrial loans |
| 5,227 |
|
|
| (1,492 | ) |
|
| — |
|
|
| 238 |
|
|
| 3,973 |
|
Consumer loans |
| 288 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 288 |
|
Total | $ | 15,400 |
|
| $ | 1,862 |
|
| $ | — |
|
| $ | 238 |
|
| $ | 17,500 |
|
Year ended December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential properties | $ | 6,799 |
|
| $ | (130 | ) |
| $ | — |
|
| $ | — |
|
| $ | 6,669 |
|
Commercial properties |
| 1,813 |
|
|
| 1,051 |
|
|
| (50 | ) |
|
| 169 |
|
|
| 2,983 |
|
Land and construction |
| 103 |
|
|
| 130 |
|
|
| — |
|
|
| — |
|
|
| 233 |
|
Commercial and industrial loans |
| 1,649 |
|
|
| 3,578 |
|
|
| — |
|
|
| — |
|
|
| 5,227 |
|
Consumer loans |
| 236 |
|
|
| 52 |
|
|
| — |
|
|
| — |
|
|
| 288 |
|
Total | $ | 10,600 |
|
| $ | 4,681 |
|
| $ | (50 | ) |
| $ | 169 |
|
| $ | 15,400 |
|
40
Excluding theTable of Contents
Including PCD loans, acquired in acquisitions, our ALLLACL related to loans represented 0.54%,0.52% and 0.60%0.49% of total loans outstanding as of September 30, 20172020 and December 31, 2016,2019, respectively.
The amount of the ALLLACL is adjusted periodically by charges to operations (referred to in our income statement as the “provision for loancredit losses”) (i) to replenish the ALLLACL after it has been reduced due to loan write-downs or charge-offs, (ii) to reflect increases in the volume of outstanding loans, and (iii) to take account of changes in the risk of potential loancredit losses due to a deterioration in the condition of borrowers, or in the value of property securing non–performing loans, or adverse changes in economic conditions. The amounts of the provisions we make for loancredit losses are based on our estimate of losses in our loan portfolio. In estimating such losses, we use economic and loss migration models that are based on bank regulatory guidelines and industry standards, and our historical charge-off experience and loan delinquency rates, local and national economic conditions, a borrower’s ability to repay its borrowings, and the value of any property collateralizing the loan, as well as a number of subjective factors. However, these determinations involve judgments about changes and trends in current economic conditions and other events that can affect the ability of borrowers to meet their loan obligations to us and a weighting among the quantitative and qualitative factors we consider in determining the sufficiency of the ALLL.ACL. Moreover, the duration and anticipated effects of prevailing economic conditions or trends can be uncertain and can be affected by a number of risks and circumstances that are outside of our control. If changes in economic or market conditions or unexpected subsequent events were to occur, or if changes were made to bank regulatory guidelines or industry standards that are used to assess the sufficiency of the ALLL,ACL, it could become necessary for us to incur additional, and possibly significant, charges to increase the ALLL,ACL, which would have the effect of reducing our income.
In addition, the FDICFederal Deposit Insurance Corporation (“FDIC”) and the California Department of Business Oversight,Financial Protection and Innovation, as an integral part of their examination processes, periodically review the adequacy of our ALLL.ACL. These agencies may require us to make additional provisions for loancredit losses, over and above the provisions that we have already made, the effect of which would be to reduce our income.
The following table presents the balance in the ALLLACL and the recorded investment in loans by impairment method as of:
| | | | | | | | | | | | | | | |
|
| | | | | | | Purchased | | | |
| Unaccreted Credit | ||
| | Evaluated for Impairment | | Credit | | | | | Component | ||||||
(dollars in thousands) |
| Individually |
| Collectively |
| Deteriorated |
| Total |
| Other Loans | |||||
| | | | | | | | | | | | | | | |
September 30, 2020: | | | | | | | | | | | | | | | |
Allowance for credit losses: |
| |
|
| |
|
| |
|
| |
|
| |
|
Real estate loans: |
| |
|
| |
|
| |
|
| |
|
| |
|
Residential properties | | $ | 7 | | $ | 2,954 | | $ | 4 | | $ | 2,965 | | $ | |
Commercial properties | |
| 98 | |
| 9,268 | |
| 281 | |
| 9,647 | |
| |
Land | |
| — | |
| 1,157 | |
| — | |
| 1,157 | |
| |
Commercial and industrial loans | |
| 1,095 | |
| 9,102 | |
| 6 | |
| 10,203 | |
| |
Consumer loans | |
| — | |
| 211 | |
| — | |
| 211 | |
| |
Total | | $ | 1,200 | | $ | 22,692 | | $ | 291 | | $ | 24,183 | | $ | |
Loans: | |
|
| |
|
| |
|
| |
|
| | | |
Real estate loans: | |
|
| |
|
| |
|
| |
|
| | | |
Residential properties | | $ | 13,714 | | $ | 2,888,609 | | $ | 288 | | $ | 2,902,611 | | $ | |
Commercial properties | |
| 11,873 | |
| 753,578 | |
| 5,513 | |
| 770,964 | |
| |
Land | |
| — | |
| 57,722 | |
| — | |
| 57,722 | |
| |
Commercial and industrial loans | |
| 7,320 | |
| 851,119 | |
| 305 | |
| 858,744 | |
| |
Consumer loans | |
| 16 | |
| 18,383 | |
| — | |
| 18,399 | |
| |
Total | | $ | 32,923 | | $ | 4,569,411 | | $ | 6,106 | | $ | 4,608,440 | | $ | |
(dollars in thousands) |
| Allowance for Loan Losses |
| Unaccreted Credit |
| |||||||||||||||
|
| Evaluated for Impairment |
|
| Purchased |
|
|
|
|
|
| Component |
| |||||||
|
| Individually |
|
| Collectively |
|
| Impaired |
|
| Total |
|
| Other Loans |
| |||||
September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential properties |
| $ | — |
|
| $ | 9,320 |
|
| $ | — |
|
| $ | 9,320 |
|
| $ | 84 |
|
Commercial properties |
|
| — |
|
|
| 3,566 |
|
|
| — |
|
|
| 3,566 |
|
|
| 78 |
|
Land and construction |
|
| — |
|
|
| 353 |
|
|
| — |
|
|
| 353 |
|
|
| — |
|
Commercial and industrial loans |
|
| 1,413 |
|
|
| 2,560 |
|
|
| — |
|
|
| 3,973 |
|
|
| 89 |
|
Consumer loans |
|
| — |
|
|
| 288 |
|
|
| — |
|
|
| 288 |
|
|
| 6 |
|
Total |
| $ | 1,413 |
|
| $ | 16,087 |
|
| $ | — |
|
| $ | 17,500 |
|
| $ | 257 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential properties |
| $ | — |
|
| $ | 2,400,539 |
|
| $ | — |
|
| $ | 2,400,539 |
|
| $ | 9,043 |
|
Commercial properties |
|
| 3,603 |
|
|
| 525,822 |
|
|
| 165 |
|
|
| 529,590 |
|
|
| 10,290 |
|
Land and construction |
|
| — |
|
|
| 31,304 |
|
|
| — |
|
|
| 31,304 |
|
|
| — |
|
Commercial and industrial loans |
|
| 10,747 |
|
|
| 247,559 |
|
|
| 1,652 |
|
|
| 259,958 |
|
|
| 14,771 |
|
Consumer loans |
|
| — |
|
|
| 28,469 |
|
|
| — |
|
|
| 28,469 |
|
|
| 760 |
|
Total |
| $ | 14,350 |
|
| $ | 3,233,693 |
|
| $ | 1,817 |
|
| $ | 3,249,860 |
|
| $ | 34,864 |
|
41
| | | | | | | | | | | | | | | | ||||||||||||||||||||
|
| Allowance for Credit Losses |
| Unaccreted Credit | |||||||||||||||||||||||||||||||
| | Evaluated for Impairment | | | | | | | Component | ||||||||||||||||||||||||||
(dollars in thousands) |
| Allowance for Loan Losses |
| Unaccreted Credit |
|
| Individually |
| Collectively |
| PCI |
| Total |
| Other Loans | ||||||||||||||||||||
|
| Evaluated for Impairment |
| Purchased |
|
|
|
| Component |
| |||||||||||||||||||||||||
|
| Individually |
| Collectively |
| Impaired |
| Total |
| Other Loans |
| ||||||||||||||||||||||||
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
December 31, 2019: | |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||||
Allowance for credit losses: | |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||
Residential properties |
| $ | — |
|
| $ | 6,669 |
|
| $ | — |
|
| $ | 6,669 |
|
| $ | 128 |
| | $ | — | | $ | 8,423 | | $ | — | | $ | 8,423 | | $ | 1,013 |
Commercial properties |
|
| — |
|
|
| 2,983 |
|
|
| — |
|
|
| 2,983 |
|
|
| 136 |
| |
| 107 | |
| 4,059 | |
| — | |
| 4,166 | |
| 1,048 |
Land and construction |
|
| — |
|
|
| 233 |
|
|
| — |
|
|
| 233 |
|
|
| 2 |
| |||||||||||||||
Land | |
| — | |
| 573 | |
| — | |
| 573 | |
| 6 | ||||||||||||||||||||
Commercial and industrial loans |
|
| — |
|
|
| 5,227 |
|
|
| — |
|
|
| 5,227 |
|
|
| 147 |
| |
| 763 | |
| 6,685 | |
| — | |
| 7,448 | |
| 277 |
Consumer loans |
|
| — |
|
|
| 288 |
|
|
| — |
|
|
| 288 |
|
|
| 19 |
| |
| — | |
| 190 | |
| — | |
| 190 | |
| 1 |
Total |
| $ | — |
|
| $ | 15,400 |
|
| $ | — |
|
| $ | 15,400 |
|
| $ | 432 |
| | $ | 870 | | $ | 19,930 | | $ | — | | $ | 20,800 | | $ | 2,345 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||
Residential properties |
| $ | 6,093 |
|
| $ | 1,774,796 |
|
| $ | — |
|
| $ | 1,780,889 |
|
| $ | 12,373 |
| | $ | 2,897 | | $ | 3,012,203 | | $ | — | | $ | 3,015,100 | | $ | 189,339 |
Commercial properties |
|
| 2,148 |
|
|
| 474,634 |
|
|
| 177 |
|
|
| 476,959 |
|
|
| 24,796 |
| |
| 6,689 | |
| 824,026 | |
| 3,327 | |
| 834,042 | |
| 201,370 |
Land and construction |
|
| — |
|
|
| 24,100 |
|
|
| — |
|
|
| 24,100 |
|
|
| 437 |
| |||||||||||||||
Land | |
| — | |
| 69,476 | |
| 781 | |
| 70,257 | |
| 28,660 | ||||||||||||||||||||
Commercial and industrial loans |
|
| 753 |
|
|
| 233,992 |
|
|
| 3,196 |
|
|
| 237,941 |
|
|
| 20,165 |
| |
| 9,316 | |
| 590,489 | |
| 408 | |
| 600,213 | |
| 24,143 |
Consumer loans |
|
| — |
|
|
| 32,127 |
|
|
| — |
|
|
| 32,127 |
|
|
| 1,266 |
| |
| — | |
| 16,273 | |
| — | |
| 16,273 | |
| 253 |
Total |
| $ | 8,994 |
|
| $ | 2,539,649 |
|
| $ | 3,373 |
|
| $ | 2,552,016 |
|
| $ | 59,037 |
| | $ | 18,902 | | $ | 4,512,467 | | $ | 4,516 | | $ | 4,535,885 | | $ | 443,765 |
The column labeled “Unaccreted Credit Component Other Loans” represents the amount of unaccreted credit component discount for the other loans acquired in an acquisition that were not classified as purchased credit impaired or individually evaluated for impairment as of the dates indicated,acquisitions, and the stated principal balancesbalance of the related loans. The unaccreted credit component discount is equal to 0.74% and 0.73%0.53% of the stated principal balances ofbalance on these loans as of September 30, 2017 and December 31, 2016, respectively.2019. In addition to this unaccreted credit component discount, an additional $0.1 million and $0.5$0.3 million of the ALLL wereACL was provided for these loans as of September 30, 2017 and December 31, 2016.2019.
Liquidity
Liquidity management focuses on our ability to generate, on a timely and cost-effective basis, cash sufficient to meet the funding needs of current loan demand, deposit withdrawals, principal and interest payments with respect to outstanding borrowings and to pay operating expenses. Our liquidity management is both a daily and long-term function of funds management. Liquid assets are generally invested in marketable securities or held as cash at the Federal Reserve Bank of San Francisco or other financial institutions.
We monitor our liquidity in accordance with guidelines established by our Board of Directors and applicable regulatory requirements. Our need for liquidity is affected by our loan activity, net changes in deposit levels and the maturities of our borrowings. The principal sources of our liquidity consist of deposits, loan interest and principal payments and prepayments, investment management and consulting fees, FHLB advances and proceeds from borrowings and sales of shares by FFI.FFI common stock. The remaining balances of the Bank’sCompany’s lines of credit available to draw down totaled $1.1$2.2 billion at September 30, 2017. 2020.
Cash Flows Provided by Operating Activities. During the nine months ended September 30, 2017,2020, operating activities provided net cash of $28$50 million, primarily due to net income of $62 million, $7 million in provisions for credit losses, and a net decrease of $5 million in other liabilities, partially offset by a net increase of $5 million in other assets and $4 million in amortization of premiums on purchased loans. During the nine months ended September 30, 2019, operating activities provided net cash of $47 million, comprised primarily of our net income of $25.3 million, and $6.5 million increase$41 million.
Cash Flows Used in accounts payable and other liabilities, offset partially by $4.3 million in gains on sales of loans.Investing Activities. During the nine months ended September 30, 2016, operating2020, investing activities provided net cash of $13.7$92 million, comprised primarily from proceeds from sales of our net incomeloans of $16.8$578 million and $5.7$197 million in cash received in principal collection and maturities of non-cash charges, including provisions for loan losses, stock based compensation expense, depreciation and amortization and deferred income tax provision,securities, offset partially by $8.5 gains on sales ofa $625 million net increase in loans and $61 million in securities and a $1.4 million increase in other assets.
Cash Flows Used in Investing Activities.purchases. During the nine months ended September 30, 2017,2019, investing activities used net cash of $543$269 million, primarily to fund a $889$628 million net increase in loans offset partially by $289and $577 million in loan sales and $53securities purchases, offset partially
42
by $357 million in cash received in proceeds from the sale, principal collection, and maturities of securities and $574 million in proceeds from the sale of securities.
Cash Flow Provided by Financing Activities. During the nine months ended September 30, 2016, investing activities used net cash of $708 million, primarily to fund a $1 billion net increase in loans and $131 million of securities purchases, offset partially by $270 million in cash received from the sale of loans and $165 million in cash received in proceeds from the sale, principal collection, and maturities of securities.
Cash Flow Provided by Financing Activities. During the nine months ended September 30, 2017,2020, financing activities provided net cash of $40 million, consisting primarily of $15 million in proceeds from a holding company line of credit and $27.3 million in proceeds from the sale of stock. During the nine months ended September 30, 2016, financing activities provided net cash of $975$76 million, consisting primarily of a net increase of $817$573 million in deposits, andoffset partially by a $155$474 million increasedecrease in FHLB advances.advances, $9 million in dividends paid, and $11 million in the settlement of a swap transaction. During the nine months ended September 30, 2019, financing activities provided net cash of $423 million, consisting primarily of a net increase of $638 million in deposits, offset partially by a $203 million decrease in FHLB advances, and $20 million cash paid in the settlement of a swap transaction.
Ratio of Loans to Deposits.The relationship between gross loans and total deposits can provide a useful measure of a bank’s liquidity. Since repayment of loans tends to be less predictable than the maturity of investments and other liquid resources, the higher the loan-to-deposit ratio the less liquid are our assets. On the other hand, since we realize greater yields on loans than we do on other interest-earning assets, a lower loan-to-deposit ratio can adversely affect interest income and earnings. As a result, our goal is to achieve a loan-to-deposit ratio that appropriately balances the requirements of liquidity and the need to generate a fair return on our assets. At September 30, 20172020 and December 31, 2016,2019, the loan-to-deposit ratios at the BankFFB were 104%94%, and 116%103%, respectively.
Off-Balance Sheet Arrangements
The following table provides the off-balance sheet arrangements of the Company as of September 30, 2017:2020:
| | | | ||
(dollars in thousands) |
|
|
| | |
Commitments to fund new loans | $ | 39,308 | | $ | 37,739 |
Commitments to fund under existing loans, lines of credit |
| 191,768 | |
| 515,536 |
Commitments under standby letters of credit |
| 2,334 | |
| 16,305 |
Some of the commitments to fund existing loans, lines of credit and letters of credit are expected to expire without being drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. As of September 30, 2017, the Bank2020, FFB was obligated on $157$283 million of letters of credit to the FHLB which were being used as collateral for public fund deposits, including $136$263 million of deposits from the State of California.
Capital Resources and Dividend Policy
On February 16, 2017, the Company and the Bank entered into an Equity Distribution Agreement (the “Distribution Agreement”) with FBR Capital Markets & Co., Raymond James & Associates, Inc., Sandler O’Neill & Partners, L.P., and D.A. Davidson & Co. (collectively, the “Distribution Agents”)The capital rules applicable to sell shares of the Company’s common stock, par value $0.001 per share (the “ATM Shares”), having an aggregate offering price of up to $80 million, from time to time, through an “at-the-market” equity offering program (the “ATM Program”).
The sales of the ATM Shares may be made in negotiated transactions or transactions that are deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on or through the NASDAQ Global Market, sales made to or through a market maker other than on an exchange, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such market prices, or any other method permitted by law. Subject to the terms and conditions of the Distribution Agreement, upon its acceptance of written instructions from the Company, the Distribution Agent designated by the Company to sell ATM Shares will use its commercially reasonable efforts to sell on the Company’s behalf all of the designated ATM Shares. The Company may also sell ATM Shares under the Distribution Agreement to each of the Distribution
Agents, as principals for their respective accounts, at a price per share agreed upon at the time of sale. Actual sales will depend on a variety of factors to be determined by the Company from time to time. The Company has no obligation to sell any of the ATM Shares under the Distribution Agreement, and may at any time suspend sales of the ATM Shares under the Distribution Agreement. The Company will pay the Distribution Agents’ commissions for their services in acting as agent in the sale of ATM Shares, and the Company advanced $90,000 to the Distribution Agents for their out-of-pocket legal fees incurred in connection with the ATM Program. The Distribution Agents will be entitled to compensation at a commission rate equal to 2.0% of the gross proceeds from the sale of ATM Shares pursuant to the Distribution Agreement; provided, however, that the compensation payable to each Distribution Agent upon the sale of ATM Shares pursuant to the Distribution Agreement will be reduced by $22,500 in a manner such that no compensation will be paid to a Distribution Agent until the amount of the commission earned by such Distribution Agent exceeds $22,500. The Distribution Agreement contains representations and warranties and covenants that are customary for transactions of this type. In addition, the Company has agreed to indemnify the Distribution Agents against certain liabilities on customary terms, subject to limitations on such arrangements imposed by applicable law and regulation.
During the second quarter of 2017, we commenced sales of common stock through the ATM Program. The details of the shares of common stock sold through the ATM Program during 2017 are as follows:
Month |
| Number of Shares Sold |
| Weighted Average Price |
| Net Proceeds |
| ||
(in thousands, except share and per share amounts) | |||||||||
|
|
|
|
|
|
|
|
|
|
April, 2017 |
| 115,270 |
| $ | 16.24 |
| $ | 1,857 |
|
May, 2017 |
| 528,036 |
| $ | 16.40 |
|
| 8,486 |
|
June, 2017 |
| 11,272 |
| $ | 16.51 |
|
| 182 |
|
July, 2017 |
| 191,900 |
| $ | 16.57 |
|
| 3,116 |
|
August, 2017 |
| 100,552 |
| $ | 17.52 |
|
| 1,725 |
|
September, 2017 |
| 379,030 |
| $ | 17.35 |
|
| 6,469 |
|
|
|
|
|
|
|
|
|
|
|
Total |
| 1,326,060 |
| $ | 16.77 |
| $ | 21,835 |
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017, the remaining dollar value of common stock we had available to sell under the ATM Program was $57.8 million. The actual number of shares of our common stock, if any, that may be sold under the ATM Program in the future will depend upon the sale price for such shares.
Under federal banking regulations that apply to all United States based bank holding companies and federally insured banks,depository institutions (“Capital Rules”) require the Company (on a consolidated basis) and FFB (on a stand-alone basis) mustto meet specific capital adequacy requirements that, for the most part, involve quantitative measures, primarily in terms of the ratios of their capital to their assets, liabilities, and certain off-balance sheet items, calculated under regulatory accounting practices. Under thoseIn addition, prompt correct action regulations which are based primarily on those quantitative measures, each bank holding company must meetplace a minimum capital ratio and each federally insured bank is determined by its primary federal bank regulatory agency to come withindepository institution, such as FFB, into one of the followingfive capital adequacy categories on the basis of its capital ratios: (i) well capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv) significantly undercapitalized; or (v) critically undercapitalized.
Certain qualitative assessments also are made by a banking A depository institution’s primary federal regulatory agency that could lead the agency tomay determine that, based on certain qualitative assessments, the bankingdepository institution should be assigned to a lower capital category than the one indicated by the quantitative measures used to assess the institution’sits capital adequacy.ratios. At each successive lower capital category, a bankingdepository institution is subject to greater operating restrictions and increased regulatory supervision by its federal bank regulatory agency.
43
The following table sets forth the capital and capital ratios of FFI (on a consolidated basis) and FFB as of the respective dates indicated below, as compared to the respective regulatory requirements applicable to them:
|
| Actual |
|
| For Capital |
|
| To Be Well Capitalized Under Prompt Corrective Action Provisions |
| |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
|
| | | | |
| | | | |
| To Be Well Capitalized |
| |||||||||||||||||||||||||||
| | | | | | | For Capital | | Under Prompt Corrective | | ||||||||||||||||||||||||||||||
| | Actual | | Adequacy Purposes | | Action Provisions | | |||||||||||||||||||||||||||||||||
(dollars in thousands) |
| Amount |
| Ratio |
|
| Amount |
| Ratio |
|
| Amount |
| Ratio |
|
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| ||||||||||||
FFI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
| |
| | |
| |
| | |
|
| |
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
September 30, 2020: |
| |
|
|
|
| |
|
|
|
| |
|
|
| | ||||||||||||||||||||||||
CET1 capital ratio |
| $ | 338,832 |
|
| 12.50 | % |
| $ | 121,983 |
|
| 4.50 | % |
|
|
|
|
|
|
| | $ | 569,234 |
| 10.96 | % | $ | 233,748 |
| 4.50 | % | |
|
|
| | |||
Tier 1 leverage ratio |
|
| 338,832 |
|
| 8.54 | % |
|
| 158,711 |
|
| 4.00 | % |
|
|
|
|
|
|
| |
| 569,234 |
| 8.21 | % |
| 277,495 |
| 4.00 | % | |
|
|
| | |||
Tier 1 risk-based capital ratio |
|
| 338,832 |
|
| 12.50 | % |
|
| 162,644 |
|
| 6.00 | % |
|
|
|
|
|
|
| |
| 569,234 |
| 10.96 | % |
| 311,664 |
| 6.00 | % | |
|
|
| | |||
Total risk-based capital ratio |
|
| 356,932 |
|
| 13.17 | % |
|
| 216,859 |
|
| 8.00 | % |
|
|
|
|
|
|
| |
| 592,879 |
| 11.41 | % |
| 415,553 |
| 8.00 | % | |
|
|
| | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
December 31, 2019: | |
| |
| | |
| |
| |
| |
|
|
| | ||||||||||||||||||||||||
CET1 capital ratio |
| $ | 285,754 |
|
| 12.80 | % |
| $ | 100,432 |
|
| 4.50 | % |
|
|
|
|
|
|
| | $ | 513,083 |
| 10.65 | % | $ | 216,782 |
| 4.50 | % | |
|
|
| | |||
Tier 1 leverage ratio |
|
| 285,754 |
|
| 8.76 | % |
|
| 130,525 |
|
| 4.00 | % |
|
|
|
|
|
|
| |
| 513,083 |
| 8.25 | % |
| 248,798 |
| 4.00 | % | |
|
|
| | |||
Tier 1 risk-based capital ratio |
|
| 285,754 |
|
| 12.80 | % |
|
| 133,910 |
|
| 6.00 | % |
|
|
|
|
|
|
| |
| 513,083 |
| 10.65 | % |
| 289,043 |
| 6.00 | % | |
|
|
| | |||
Total risk-based capital ratio |
|
| 301,664 |
|
| 13.52 | % |
|
| 178,547 |
|
| 8.00 | % |
|
|
|
|
|
|
| |
| 537,048 |
| 11.15 | % |
| 385,390 |
| 8.00 | % | |
|
|
| | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
FFB |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
| | |
| |
| |
| |
|
|
| | |||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
September 30, 2020: | |
| |
| | |
| |
| |
| |
|
|
| | ||||||||||||||||||||||||
CET1 capital ratio |
| $ | 333,948 |
|
| 12.34 | % |
| $ | 121,761 |
|
| 4.50 | % |
| $ | 212,187 |
|
| 6.50 | % | | $ | 568,476 |
| 10.98 | % | $ | 233,023 |
| 4.50 | % | $ | 336,588 |
| 6.50 | % | |||
Tier 1 leverage ratio |
|
| 333,948 |
|
| 8.42 | % |
|
| 158,575 |
|
| 4.00 | % |
|
| 175,373 |
|
| 5.00 | % | |
| 568,476 |
| 8.21 | % |
| 276,824 |
| 4.00 | % |
| 346,030 |
| 5.00 | % | |||
Tier 1 risk-based capital ratio |
|
| 333,948 |
|
| 12.34 | % |
|
| 162,348 |
|
| 6.00 | % |
|
| 171,600 |
|
| 8.00 | % | |
| 568,476 |
| 10.98 | % |
| 310,697 |
| 6.00 | % |
| 414,263 |
| 8.00 | % | |||
Total risk-based capital ratio |
|
| 352,048 |
|
| 13.01 | % |
|
| 216,464 |
|
| 8.00 | % |
|
| 135,584 |
|
| 10.00 | % | |
| 592,121 |
| 11.43 | % |
| 414,263 |
| 8.00 | % |
| 517,828 |
| 10.00 | % | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
December 31, 2019: | |
| |
| | |
| |
| | |
| |
| | | ||||||||||||||||||||||||
CET1 capital ratio |
| $ | 272,221 |
|
| 12.23 | % |
| $ | 100,166 |
|
| 4.50 | % |
| $ | 144,685 |
|
| 6.50 | % | | $ | 510,142 |
| 10.62 | % | $ | 216,063 |
| 4.50 | % | $ | 312,091 |
| 6.50 | % | |||
Tier 1 leverage ratio |
|
| 272,221 |
|
| 8.36 | % |
|
| 130,305 |
|
| 4.00 | % |
|
| 162,881 |
|
| 5.00 | % | |
| 510,142 |
| 8.22 | % |
| 248,119 |
| 4.00 | % |
| 310,148 |
| 5.00 | % | |||
Tier 1 risk-based capital ratio |
|
| 272,221 |
|
| 12.23 | % |
|
| 133,555 |
|
| 6.00 | % |
|
| 178,074 |
|
| 8.00 | % | |
| 510,142 |
| 10.62 | % |
| 288,084 |
| 6.00 | % |
| 384,112 |
| 8.00 | % | |||
Total risk-based capital ratio |
|
| 288,131 |
|
| 12.94 | % |
|
| 178,074 |
|
| 8.00 | % |
|
| 222,592 |
|
| 10.00 | % | |
| 534,107 |
| 11.12 | % |
| 384,112 |
| 8.00 | % |
| 480,140 |
| 10.00 | % |
As of each of the dates set forth in the above table, the Company (on a consolidated basis) exceeded the minimum required capital ratios applicable to it and FFB (on a stand-alone basis) qualifiedFFB’s capital ratios exceeded the minimums necessary to qualify as a well-capitalized depository institution under the prompt corrective action regulations. The required ratios for capital adequacy guidelines described above.set forth in the above table do not include the Capital Rules’ additional capital conservation buffer, though each of the Company and FFB maintained capital ratios necessary to satisfy the capital conservation buffer requirements as of the dates indicated.
As of September 30, 2017, the amount of capital at FFB in excess of amounts required to be Well Capitalized was $158.1 million for the CET-1 capital ratio, $135.7 million for the Tier 1 leverage ratio, $117.5 million for the Tier 1 risk-based capital ratio and $81.5 million for the Total risk-based capital ratio.
The “Basel III” rules adopted by the Federal Reserve Board and the FDIC (the “New Capital Rules”) introduced a capital conservation buffer which is an increment added to the minimum capital ratios. If a banking organization does not hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements, it will face constraints on dividends, equity repurchases and executive compensation based on the amount of the shortfall. The capital buffer is measured against risk weighted assets and is therefore not applicable to the tier 1 leverage ratio. The implementation of the capital conservation buffer began on January 1, 2016 at 0.625%, and will increase by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019. The following table sets forth the minimum capital ratios plus the applicable increment of the capital conservation buffer as of the current year and when it is fully implemented in 2019:
|
| 2016 |
| 2019 | ||
CET-1 to risk-weighted assets |
| 5.125 | % |
| 7.000 | % |
Tier 1 capital (i.e., CET-1 plus Additional Tier 1) to risk-weighted assets |
| 6.625 | % |
| 8.500 | % |
Total capital (i.e., Tier 1 plus Tier 2) to risk-weighted assets |
| 8.625 | % |
| 10.500 | % |
During the nine months of 2017, and during the entirety of 2016, FFI made cash capital contributions to FFB of $35 million and $40 million, respectively. As of September 30, 2017,2020, FFI had $19.1$16.1 million of available capitalliquidity as well as a revolving line of credit and, therefore, has the ability and financial resources to contribute additional capital to FFB, if needed.
We did not pay dividendsAs of September 30, 2020, the amount of capital at FFB in 2017 or 2016excess of amounts required to be well capitalized for purposes of the prompt corrective action regulations was $232 million for the CET1 capital ratio, $222 million for the Tier 1 Leverage Ratio, $154 million for the Tier 1 risk-based capital ratio and we have no plans$74 million for the Total risk-based capital ratio.
The Company paid a quarterly cash dividend of $0.07 per common share in each of the first three quarters of 2020. It is our current intention to continue to pay quarterly dividends. The amount and declaration of future cash dividends at leastare subject to approval by our Board of Directors and certain regulatory restrictions which are discussed in Item 1 “Business—Supervision and Regulation—Dividends and Stock Repurchases” in Part I of our Annual Report on Form 10-K for the foreseeable future. Instead, it is our intention to retain internally generated cash flow to support our growth. Moreover,year ended December 31, 2019. Additionally, under the paymentterms of the holding company line of credit agreement, FFI may only declare and pay a dividend if the total amount of dividends is subject to certain regulatory restrictions.and stock repurchases during the current twelve months does not exceed 50% of FFI’s net income for the same twelve month period. We paid $8.9 million in dividends ($0.20 per share) in 2019.
44
We had no material commitments for capital expenditures as of September 30, 2017.2020. However, we intend to take advantage of opportunities that may arise in the future to grow our businesses, which may include opening additional offices or acquiring complementary businesses that we believe will provide us with attractive risk-adjusted returns. As a result, we may seek to obtain additional borrowings and to sell additional shares of our common stock to raise funds which we might need for these purposes. There is no assurance, however, that, if required, we will succeed in obtaining additional borrowings or selling additional shares of our common stock on terms that are acceptable to us, if at all, as this will depend on market conditions and other factors outside of our control, as well as our future results of operations.
|
|
We are exposed to certain financial risks, which are discussed in detail in Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations in the section titled Asset and Liability Management: Interest Rate Risk in our Annual Report on Form 10-K which we filed with the Securities and Exchange Commission on March 15, 2017.2, 2020. There have been no material changes to our quantitative and qualitative disclosures about market risk since December 31, 2016.2019.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
In accordance with SEC rules, an evaluation was performed under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness, as of September 30, 2017,2020, of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2017,2020, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There was no change in our internal control over financial reporting that occurred during the quarterthree months ended September 30, 20172020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
45
PART II — OTHER INFORMATION
There have been no material changesITEM 1A.RISK FACTORS
The following risk factors supplement, and should be read in conjunction with, the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
The COVID-19 pandemic and measures intended to prevent its spread are adversely affecting us and our customers, employees and third-party service providers, and the ultimate extent of the impacts on our business, financial condition, results of operations, liquidity and prospects is uncertain.
Global health concerns relating to the COVID-19 pandemic and related government actions taken to reduce the spread of the virus have created significant economic uncertainty and reduced economic activity, including within our market areas. Governmental authorities have implemented numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, “stay at home” orders and business limitations and shutdowns. These measures have caused significant unemployment and have negatively impacted consumer and business spending. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion. Continued deterioration in general business and economic conditions caused by the COVID-19 pandemic, including further increases in unemployment rates, or turbulence in domestic or global financial markets, could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility, which could result in impairment to our goodwill in future periods. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways, including the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance.
Our business is dependent upon the willingness and ability of our customers and employees to conduct banking and other financial transactions. Disruptions to our customers caused by the COVID-19 pandemic could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans, as well as reductions in loan demand, the liquidity of loan guarantors, loan collateral values (particularly in real estate), loan originations, interest and noninterest income and deposit availability. These factors may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 pandemic has subsided. We also could be adversely affected if key personnel or a significant number of employees were disclosedto become unavailable due to the effects and restrictions of the COVID-19 pandemic in Item 1A, underour market areas. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective. In addition, we rely upon our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our customers.
The extent to which the captionCOVID-19 pandemic impacts our business, financial condition, results of operations, liquidity and prospects will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s economic impact and any recession that has occurred or may occur in the future.
There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, we do not yet know the full extent of the impacts on our business, our operations or the economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the “Risk Factors” in Part Isection of our Annual Report on Form 10-K for the year ended December 31, 2016, which we filed2019.
46
Our participation in the PPP exposes us to risks related to noncompliance with the SECPPP, as well as litigation risk related to our administration of the PPP loan program, which could have a material adverse impact on March 15, 2017.our business, financial condition and results of operations.
We are a participating lender in the PPP, a loan program administered through the SBA, that was created to help eligible businesses, organizations and self-employed persons fund their operational costs during the COVID-19 pandemic. Under this program, the SBA guarantees 100% of the amounts loaned under the PPP. The PPP opened on April 3, 2020; however, because of the short window between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes us to risks relating to noncompliance with the PPP. For instance, other financial institutions have experienced litigation related to their processes and procedures used in processing applications for the PPP. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations. In addition, we may be exposed to credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced. If a deficiency is identified, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.
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ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company adopted a stock repurchase plan on October 30, 2018 for the repurchase of up to 2,200,000 shares of its common stock from time to time as market conditions allow. This plan has no stated expiration date for the repurchases. The Company did not repurchase any shares during the three months ended September 30, 2020. As of September 30, 2020, the maximum number of shares that may be purchased under the program was 1,938,600.
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Exhibit No. |
| Description of Exhibit |
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3.2 | | |
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31.1(1) | | Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 |
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| | Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 |
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| | Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 |
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| | Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 |
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| | Inline XBRL |
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101.SCH | | Inline XBRL Taxonomy Extension Schema |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase |
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101.LAB | | Inline XBRL Taxonomy Extension Labels Linkbase |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase |
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104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
(1) | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| �� | | ||
| FIRST FOUNDATION INC. | |||
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Dated: November | 6, 2020 | By: | /s/ | |
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| | Executive Vice President and |
S-1