IRVINE, Calif.--(BUSINESS WIRE)--First Foundation Inc. (NASDAQ: FFWM), a financial services company with two wholly-owned operating subsidiaries, First Foundation Advisors (“FFA”) and First Foundation Bank (“FFB”), announced today its financial results for the quarter and six months ended June 30, 2016.
“We are pleased with this quarter’s financial results,” said Scott F. Kavanaugh, CEO. “Our banking business experienced record growth and our wealth management business demonstrated resiliency in the face of a volatile market environment.”
John Hakopian, President of First Foundation Advisors, stated, “The market uncertainty in the second quarter posed challenges in growing assets under management and revenues. Despite this, we were able to bring in new clients, manage our costs and maintain profitability in the second quarter.”
Financial Highlights:
- Loans and loans held for sale increased $707 million during the first six months of 2016 due to record originations of $520 million and $899 million during the quarter and six months ended June 30, 2016. Due to the success of our specialty deposit group in raising deposits and growth in deposits at our branches, we experienced record growth in deposits of $492 million and $743 million during the quarter and six months ended June 30, 2016.
- Net income for the second quarter of 2016 increased 13% as compared to the second quarter of 2015. Net income for the second quarter of 2016 was $3.3 million or $0.20 per fully diluted share, as compared to $2.9 million, or $0.35 per fully diluted share for the second quarter of 2015. Net income for the first six months of 2016 increased 28% as compared to the first six months of 2015. Net income for the first six months of 2016 was $7.1 million or $0.43 per fully diluted share, as compared to $5.6 million, or $0.67 per fully diluted share for the first six months of 2015. The comparability of earnings per share is impacted by the approximately 80% increase in share count resulting from the public offering completed in the third quarter of 2015.
- The Company entered an agreement to sell $265 million of loans secured by multifamily properties which provided for changes in pricing based upon changes in rates on certain treasury swap indices. In an effort to reduce the interest rate risk associated with this agreement, the Company entered into a swap agreement. Effective June 20, 2016, in conjunction with the finalization of pricing under the agreement, the Company closed out its swap position. As a result of changes in interest rates, the Company paid $2.4 million, including fees, to counterparties under the swap agreement, and the pricing to be received by the Company on the loan sale increased by $2.2 million. Because the swap agreement closed during the second quarter, the Company recognized an after tax expense of $1.4 million, which is equivalent to $0.08 per fully diluted share. This sale of loans is expected to close on July 28, 2016.
- Total revenues, which consist of net interest income and noninterest income, increased by $7.0 million or 35% in the second quarter of 2016 as compared to the second quarter of 2015 as higher net interest income of $8.5 million, was partially offset by the $2.4 million of costs to close out the swap as discussed above, which are included in noninterest income. Total revenues increased by $15.3 million or 40% in the first six months of 2016 as compared to the first six months of 2015 primarily as a result of higher net interest income of $16.0 million. The higher levels of net interest income for the both the quarter and six month periods were the result of higher levels of interest-earning assets.
- Assets under management (“AUM”) at FFA, which totaled $3.5 billion at June 30, 2016, increased by $57 million during the first six months of 2016 in spite of a volatile market as new account growth of $129 million and portfolio gains of $134 million were partially offset by net withdrawals and account terminations of $206 million.
- Noninterest expense in the second quarter of 2016 increased by $5.9 million as compared to the second quarter of 2015 due to costs related to the operations of Pacific Rim Bank (“PRB”), which was acquired by the Company in June of 2015, increased staffing, higher legal costs, costs associated with opening new offices in both Northern and Southern California and costs associated with the increased levels of loans and deposits.
“I am proud of our entire team’s contribution to this quarter’s record growth in loans and deposits,” said David DePillo, President of First Foundation Bank. “As we take into account the effects of seasonality and expected market conditions, we anticipate loan origination volume may decline slightly in coming quarters from these record levels.”
About First Foundation
First Foundation, a financial institution founded in 1990, provides personal banking, business banking and private wealth management. The Company has offices in California, Nevada and Hawaii with headquarters in Irvine, California. For more information, please visit www.ff-inc.com.
We have two business segments, “Banking” and “Investment Management and Wealth Planning” (“Wealth Management”). Banking includes the operations of FFB and First Foundation Insurance Services, and Wealth Management includes the operations of FFA. The financial position and operating results of the stand-alone holding company, FFI, are included under the caption “Other” in certain of the tables that follow, along with any consolidation elimination entries.
Forward-Looking Statements
Statements in this news release regarding our expectations and beliefs about our future financial performance and financial condition, as well as trends in our business and markets are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” The forward-looking statements in this news release are based on current information and on assumptions that we make about future events and circumstances that are subject to a number of risks and uncertainties that are often difficult to predict and beyond our control. As a result of those risks and uncertainties, our actual financial results in the future could differ, possibly materially, from those expressed in or implied by the forward-looking statements contained in this news release and could cause us to make changes to our future plans. Those risks and uncertainties include, but are not limited to, the risk of incurring loan losses, which is an inherent risk of the banking business; the risk that we will not be able to continue our internal growth rate; the risk that we will not be able to access the securitization market on favorable terms or at all; the risk that the economic recovery in the United States will stall or will be adversely affected by domestic or international economic conditions and the risk that the Federal Reserve Board will continue to keep interest rates low, any of which could adversely affect our interest income and interest rate margins and, therefore, our future operating results; the risk that the performance of our investment management business or of the equity and bond markets could lead clients to move their funds from or close their investment accounts with us, which would reduce our assets under management and adversely affect our operating results; and the risk that we do not successfully integrate Pacific Rim Bank’s business and customers or otherwise fail to achieve anticipated business enhancements related to the acquisition. Additional information regarding these and other risks and uncertainties to which our business and future financial performance are subject is contained in Item 1A, entitled “Risk Factors” in our 2015 Annual Report on Form 10-K for the fiscal year ended December 31, 2015 that we filed with the SEC on March 15, 2016, and other documents we file with the SEC from time to time. We urge readers of this news release to review the Risk Factors section of that Annual Report. Also, our actual financial results in the future may differ from those currently expected due to additional risks and uncertainties of which we are not currently aware or which we do not currently view as, but in the future may become, material to our business or operating results. Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this news release, which speak only as of today’s date, or to make predictions based solely on historical financial performance. We also disclaim any obligation to update forward-looking statements contained in this news release or in the above-referenced 2015 Annual Report on Form 10-K, whether as a result of new information, future events or otherwise, except as may be required by law or NASDAQ rules.
FIRST FOUNDATION INC. | ||||||||||||
CONSOLIDATED BALANCE SHEETS - Unaudited | ||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||
June 30, | December 31, | |||||||||||
2016 | 2015 | |||||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 444,518 | $ | 215,748 | ||||||||
Securities available-for-sale (“AFS”) | 532,231 | 565,135 | ||||||||||
Loans held for sale | 468,277 | - | ||||||||||
Loans, net of deferred fees | 2,003,821 | 1,765,483 | ||||||||||
Allowance for loan and lease losses (“ALLL”) | (12,200 | ) | (10,600 | ) | ||||||||
Net loans | 1,991,621 | 1,754,883 | ||||||||||
Investment in FHLB stock | 25,326 | 21,492 | ||||||||||
Deferred taxes | 10,077 | 15,392 | ||||||||||
Premises and equipment, net | 4,774 | 2,653 | ||||||||||
Real estate owned (“REO”) | 1,074 | 4,036 | ||||||||||
Goodwill and intangibles | 2,288 | 2,416 | ||||||||||
Other assets | 12,754 | 10,824 | ||||||||||
Total Assets | $ | 3,492,940 | $ | 2,592,579 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Liabilities: | ||||||||||||
Deposits | $ | 2,265,596 | $ | 1,522,176 | ||||||||
Borrowings | 938,000 | 796,000 | ||||||||||
Accounts payable and other liabilities | 11,836 | 14,667 | ||||||||||
Total Liabilities | 3,215,432 | 2,332,843 | ||||||||||
Commitments and contingencies | - | - | ||||||||||
Shareholders’ Equity |
||||||||||||
Common Stock, par value $.001: 70,000,000 shares authorized; 16,207,160 and 15,980,526 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively | 16 | 16 | ||||||||||
Additional paid-in-capital | 230,316 | 227,262 | ||||||||||
Retained earnings | 40,873 | 33,762 | ||||||||||
Accumulated other comprehensive income (loss), net of tax | 6,303 | (1,304 | ) | |||||||||
Total Shareholders’ Equity | 277,508 | 259,736 | ||||||||||
Total Liabilities and Shareholders’ Equity | $ | 3,492,940 | $ | 2,592,579 | ||||||||
FIRST FOUNDATION INC. | ||||||||||||||||||||||||
CONSOLIDATED INCOME STATEMENTS - Unaudited | ||||||||||||||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||||||||||
For the Quarter | For the Six Months | |||||||||||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||
Loans | $ | 20,961 | $ | 13,362 | $ | 39,131 | $ | 25,463 | ||||||||||||||||
Securities | 3,100 | 822 | 6,221 | 1,637 | ||||||||||||||||||||
FHLB Stock, fed funds sold and deposits | 512 | 809 | 919 | 1,051 | ||||||||||||||||||||
Total interest income | 24,573 | 14,993 | 46,271 | 28,151 | ||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||
Deposits | 1,973 | 1,115 | 3,768 | 2,038 | ||||||||||||||||||||
Borrowings | 679 | 454 | 1,221 | 818 | ||||||||||||||||||||
Total interest expense | 2,652 | 1,569 | 4,989 | 2,856 | ||||||||||||||||||||
Net interest income | 21,921 | 13,424 | 41,282 | 25,295 | ||||||||||||||||||||
Provision for loan losses | 1,250 | 753 | 1,650 | 903 | ||||||||||||||||||||
Net interest income after provision for loan losses | 20,671 | 12,671 | 39,632 | 24,392 | ||||||||||||||||||||
Noninterest income: | ||||||||||||||||||||||||
Asset management, consulting and other fees | 5,985 | 5,922 | 11,986 | 11,772 | ||||||||||||||||||||
Gain (loss) on capital markets activities | (2,358 | ) | (15 | ) | (2,048 | ) | (26 | ) | ||||||||||||||||
Other income | 1,283 | 513 | 1,957 | 878 | ||||||||||||||||||||
Total noninterest income | 4,910 | 6,420 | 11,985 | 12,624 | ||||||||||||||||||||
Noninterest expense: | ||||||||||||||||||||||||
Compensation and benefits | 11,924 | 9,390 | 24,648 | 18,570 | ||||||||||||||||||||
Occupancy and depreciation | 2,896 | 1,968 | 5,711 | 3,925 | ||||||||||||||||||||
Professional services and marketing costs | 2,560 | 1,512 | 4,283 | 2,570 | ||||||||||||||||||||
Other expenses | 2,470 | 1,104 | 4,625 | 2,267 | ||||||||||||||||||||
Total noninterest expense | 19,850 | 13,974 | 39,267 | 27,332 | ||||||||||||||||||||
Income before taxes on income | 5,731 | 5,117 | 12,260 | 9,684 | ||||||||||||||||||||
Taxes on income | 2,407 | 2,175 | 5,149 | 4,116 | ||||||||||||||||||||
Net income | $ | 3,324 | $ | 2,942 | $ | 7,111 | $ | 5,568 | ||||||||||||||||
Net income per share: | ||||||||||||||||||||||||
Basic | $ | 0.21 | $ | 0.36 | $ | 0.44 | $ | 0.70 | ||||||||||||||||
Diluted | $ | 0.20 | $ | 0.35 | $ | 0.43 | $ | 0.67 | ||||||||||||||||
Shares used in computation: | ||||||||||||||||||||||||
Basic | 16,134,869 | 8,070,386 | 16,068,979 | 7,963,515 | ||||||||||||||||||||
Diluted | 16,572,567 | 8,449,703 | 16,520,150 | 8,330,632 | ||||||||||||||||||||
FIRST FOUNDATION INC. | ||||||||||||||||||||||||
SELECTED FINANCIAL INFORMATION - Unaudited | ||||||||||||||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||||||||||
For the Quarter | For the Six Months | |||||||||||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||
Selected Income Statement Data: | ||||||||||||||||||||||||
Net interest income | $ | 21,921 | $ | 13,424 | $ | 41,282 | $ | 25,295 | ||||||||||||||||
Provision for loan losses | 1,250 | 753 | 1,650 | 903 | ||||||||||||||||||||
Noninterest Income: | ||||||||||||||||||||||||
Asset management, consulting and other fees | 5,985 | 5,922 | 11,986 | 11,772 | ||||||||||||||||||||
Gain (loss) on capital markets activities | (2,358 | ) | (15 | ) | (2,048 | ) | (26 | ) | ||||||||||||||||
Other | 1,283 | 513 | 1,957 | 878 | ||||||||||||||||||||
Noninterest expense | 19,850 | 13,974 | 39,267 | 27,332 | ||||||||||||||||||||
Income before taxes | 5,731 | 5,117 | 12,260 | 9,684 | ||||||||||||||||||||
Net income | 3,324 | 2,942 | 7,111 | 5,568 | ||||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||
Basic | $ | 0.21 | $ | 0.36 | $ | 0.44 | $ | 0.70 | ||||||||||||||||
Diluted | 0.20 | 0.35 | 0.43 | 0.67 | ||||||||||||||||||||
Selected Performance Ratios: | ||||||||||||||||||||||||
Return on average assets - annualized | 0.46 | % | 0.74 | % | 0.53 | % | 0.74 | % | ||||||||||||||||
Return on average equity - annualized | 4.9 | % | 10.8 | % | 5.3 | % | 10.6 | % | ||||||||||||||||
Net yield on interest-earning assets | 3.13 | % | 3.47 | % | 3.15 | % | 3.47 | % | ||||||||||||||||
Efficiency ratio (2) | 68.0 | % | 70.4 | % | 70.7 | % | 72.1 | % | ||||||||||||||||
Noninterest income as a % of total revenues | 18.3 | % | 32.4 | % | 22.4 | % | 33.3 | % | ||||||||||||||||
Other Information: | ||||||||||||||||||||||||
Loan originations | $ | 519.537 | $ | 249,968 | $ | 898,709 | $ | 412,639 | ||||||||||||||||
Charge-offs to average loans - annualized | 0.01 | % | 0.08 | % | 0.00 | % | 0.04 | % | ||||||||||||||||
June 30, | December 31, | |||||||||||
2016 | 2015 | |||||||||||
Selected Balance Sheet Data: | ||||||||||||
Cash and cash equivalents | $ | 444,518 | $ | 215,748 | ||||||||
Loans held for sale | 468,277 | - | ||||||||||
Loans, net of deferred fees | 2,003,821 | 1,765,483 | ||||||||||
Allowance for loan and lease losses (“ALLL”) | (12,200 | ) | (10,600 | ) | ||||||||
Total assets | 3,492,940 | 2,592,579 | ||||||||||
Noninterest-bearing deposits | 750,661 | 299,794 | ||||||||||
Interest-bearing deposits | 1,514,935 | 1,222,382 | ||||||||||
Borrowings - FHLB Advances | 938,000 | 796,000 | ||||||||||
Shareholders’ equity | 277,508 | 259,736 | ||||||||||
Selected Capital Data: | ||||||||||||
Tangible common equity to tangible assets(1) | 7.88 | % | 9.93 | % | ||||||||
Tangible book value per share(1) | $ | 16.98 | $ | 16.10 | ||||||||
Shares outstanding at end of period | 16,207,160 | 15,980,526 | ||||||||||
Other Information: | ||||||||||||
Assets under management (end of period) | $ | 3,528,429 | $ | 3,471,237 | ||||||||
Number of employees | 328 | 295 | ||||||||||
Loan to deposit ratio | 109.1 | % | 116.0 | % | ||||||||
Nonperforming assets to total assets | 0.21 | % | 0.32 | % | ||||||||
Ratio of ALLL to loans(3) | 0.62 | % | 0.61 | % | ||||||||
(1) | Tangible common equity, (also referred to as tangible book value) and tangible assets, are equal to common equity and assets, respectively, less $2.3 million and $2.4 million of intangible assets as of March 31, 2016 and December 31, 2015, respectively. | |
(2) | The efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income. For the quarter and six months ended June 30, 2016, the computation excludes $2.4 million of swap costs included in noninterest income. | |
(3) | This ratio excludes loans acquired in an acquisition as GAAP requires estimated credit losses for acquired loans to be recorded as discounts to those loans. | |
FIRST FOUNDATION INC. | ||||||||||||||||||||||||
SEGMENT REPORTING - Unaudited | ||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
For the Quarter | For the Six Months | |||||||||||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||
Banking: | ||||||||||||||||||||||||
Interest income | $ | 24,573 | $ | 14,993 | $ | 46,271 | $ | 28,151 | ||||||||||||||||
Interest expense | 2,652 | 1,273 | 4,989 | 2,320 | ||||||||||||||||||||
Net interest income | 21,921 | 13,720 | 41,282 | 25,831 | ||||||||||||||||||||
Provision for loan losses | 1,250 | 753 | 1,650 | 903 | ||||||||||||||||||||
Noninterest income | (170 | ) | 1,384 | 1,582 | 2,662 | |||||||||||||||||||
Noninterest expense | 14,268 | 8,566 | 27,612 | 16,485 | ||||||||||||||||||||
Income before taxes on income | $ | 6,233 | $ | 5,785 | $ | 13,602 | $ | 11,105 | ||||||||||||||||
Wealth Management: | ||||||||||||||||||||||||
Noninterest income | $ | 5,222 | $ | 5,188 | $ | 10,598 | $ | 10,255 | ||||||||||||||||
Noninterest expense | 4,616 | 4,550 | 9,839 | 9,265 | ||||||||||||||||||||
Income before taxes on income | $ | 606 | $ | 638 | $ | 759 | $ | 990 | ||||||||||||||||
Other and Eliminations: | ||||||||||||||||||||||||
Interest income | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Interest expense | - | 296 | - | 536 | ||||||||||||||||||||
Net interest income | - | (296 | ) | - | (536 | ) | ||||||||||||||||||
Provision for loan losses | - | - | - | - | ||||||||||||||||||||
Noninterest income | (142 | ) | (152 | ) | (285 | ) | (293 | ) | ||||||||||||||||
Noninterest expense | 966 | 858 | 1,816 | 1,582 | ||||||||||||||||||||
Income before taxes on income | $ | (1,108 | ) | $ | (1,306 | ) | $ | (2,101 | ) | $ | (2,411 | ) | ||||||||||||
FIRST FOUNDATION INC. | ||||||||||||||||||||||||||
ROLLING INCOME STATEMENTS - Unaudited | ||||||||||||||||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||||||||||||
For the Quarter Ended | ||||||||||||||||||||||||||
June 30, | September 30, | December 31, | March 31, | June 30, | ||||||||||||||||||||||
2015 | 2015 | 2015 | 2016 | 2016 | ||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||||
Loans | $ | 13,362 | $ | 15,634 | $ | 16,384 | $ | 18,170 | $ | 20,961 | ||||||||||||||||
Securities | 822 | 1,107 | 2,483 | 3,121 | 3,100 | |||||||||||||||||||||
FHLB Stock, fed funds sold and deposits | 809 | 367 | 345 | 407 | 512 | |||||||||||||||||||||
Total interest income | 14,993 | 17,108 | 19,212 | 21,698 | 24,573 | |||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||
Deposits | 1,115 | 1,328 | 1,520 | 1,795 | 1,973 | |||||||||||||||||||||
Borrowings | 454 | 319 | 258 | 542 | 679 | |||||||||||||||||||||
Total interest expense | 1,569 | 1,647 | 1,778 | 2,337 | 2,652 | |||||||||||||||||||||
Net interest income | 13,424 | 15,461 | 17,434 | 19,361 | 21,921 | |||||||||||||||||||||
Provision for loan losses | 753 | 570 | 1,200 | 400 | 1,250 | |||||||||||||||||||||
Net interest income after provision for loan losses | 12,671 | 14,891 | 16,234 | 18,961 | 20,671 | |||||||||||||||||||||
Noninterest income: | ||||||||||||||||||||||||||
Asset management, consulting and other fees | 5,922 | 5,870 | 5,844 | 6,001 | 5,985 | |||||||||||||||||||||
Gain on sale of loans | - | 205 | 2,730 | - | - | |||||||||||||||||||||
Gain (loss) on capital markets activities | 310 | (2,358 | ) | |||||||||||||||||||||||
Other income | 498 | 793 | 707 | 674 | 1,283 | |||||||||||||||||||||
Total noninterest income | 6,420 | 6,868 | 9,281 | 6,985 | 4,910 | |||||||||||||||||||||
Noninterest expense: | ||||||||||||||||||||||||||
Compensation and benefits | 9,390 | 10,870 | 11,016 | 12,724 | 11,924 | |||||||||||||||||||||
Occupancy and depreciation | 1,968 | 2,561 | 2,774 | 2,815 | 2,896 | |||||||||||||||||||||
Professional services and marketing costs | 1,512 | 1,481 | 1,439 | 1,723 | 2,560 | |||||||||||||||||||||
Other expenses | 1,104 | 2,044 | 1,941 | 2,155 | 2,470 | |||||||||||||||||||||
Total noninterest expense | 13,974 | 16,956 | 17,170 | 19,417 | 19,850 | |||||||||||||||||||||
Income before taxes on income | 5,117 | 4,803 | 8,345 | 6,529 | 5,731 | |||||||||||||||||||||
Taxes on income | 2,175 | 2,041 | 3,297 | 2,742 | 2,407 | |||||||||||||||||||||
Net income | $ | 2,942 | $ | 2,762 | $ | 5,048 | $ | 3,787 | $ | 3,324 | ||||||||||||||||
Net income per share: | ||||||||||||||||||||||||||
Basic | $ | 0.36 | $ | 0.22 | $ | 0.32 | $ | 0.24 | $ | 0.21 | ||||||||||||||||
Diluted | $ | 0.35 | $ | 0.21 | $ | 0.31 | $ | 0.23 | $ | 0.20 | ||||||||||||||||
Shares used in computation: | ||||||||||||||||||||||||||
Basic | 8,070,386 | 12,623,924 | 15,965,004 | 16,003,088 | 16,134,869 | |||||||||||||||||||||
Diluted | 8,449,703 | 13,074,935 | 16,461,398 | 16,467,732 | 16,572,567 | |||||||||||||||||||||
FIRST FOUNDATION INC. | ||||||||||||||||||||||||||||||
ROLLING SEGMENT REPORTING - Unaudited | ||||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||
For the Quarter Ended | ||||||||||||||||||||||||||||||
June 30, | September 30, | December 31, | March 31, |
June 30, |
||||||||||||||||||||||||||
2015 | 2015 | 2015 | 2016 | 2016 | ||||||||||||||||||||||||||
Banking: | ||||||||||||||||||||||||||||||
Interest income | $ | 14,993 | $ | 17,108 | $ | 19,212 | $ | 21,698 | $ | 24,573 | ||||||||||||||||||||
Interest expense | 1,273 | 1,509 | 1,778 | 2,337 | 2,652 | |||||||||||||||||||||||||
Net interest income | 13,720 | 15,599 | 17,434 | 19,361 | 21,921 | |||||||||||||||||||||||||
Provision for loan losses | 753 | 570 | 1,200 | 400 | 1,250 | |||||||||||||||||||||||||
Noninterest income | 1,384 | 1,839 | 4,332 | 1,752 | (170 | ) | ||||||||||||||||||||||||
Noninterest expense | 8,566 | 11,653 | 11,844 | 13,344 | 14,268 | |||||||||||||||||||||||||
Income before taxes on income | $ | 5,785 | $ | 5,215 | $ | 8,722 | 7,369 | $ | 6,233 | |||||||||||||||||||||
Wealth Management: | ||||||||||||||||||||||||||||||
Noninterest income | $ | 5,188 | $ | 5,171 | $ | 5,104 | 5,376 | $ | 5,222 | |||||||||||||||||||||
Noninterest expense | 4,550 | 4,685 | 4,402 | 5,223 | 4,616 | |||||||||||||||||||||||||
Income before taxes on income | $ | 638 | $ | 486 | $ | 702 | 153 | $ | 606 | |||||||||||||||||||||
Other and Eliminations: | ||||||||||||||||||||||||||||||
Interest income | $ | - | $ | - | $ | - | - | $ | - | |||||||||||||||||||||
Interest expense | 296 | 138 | - | - | - | |||||||||||||||||||||||||
Net interest income | (296 | ) | (138 | ) | - | - | - | |||||||||||||||||||||||
Provision for loan losses | - | - | - | - | - | |||||||||||||||||||||||||
Noninterest income | (152 | ) | (142 | ) | (155 | ) | (143 | ) | (142 | ) | ||||||||||||||||||||
Noninterest expense | 858 | 618 | 924 | 850 | 966 | |||||||||||||||||||||||||
Income before taxes on income | $ | (1,306 | ) | $ | (898 | ) | $ | (1,079 | ) | (993 | ) | $ | (1,108 | ) | ||||||||||||||||
FIRST FOUNDATION INC. | ||||||||||||||||||||||||
SELECTED INFORMATION: INTEREST MARGIN - Unaudited | ||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
For the Quarter | For the Six Months | |||||||||||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||
Average Balances: | ||||||||||||||||||||||||
Loans | $ | 2,208,793 | $ | 1,365,682 | $ | 2,034,816 | $ | 1,284,276 | ||||||||||||||||
Securities | 533,435 | 137,382 | 533,629 | 136,460 | ||||||||||||||||||||
Deposits: interest-bearing | 1,325,994 | 828,843 | 1,293,519 | 776,054 | ||||||||||||||||||||
Deposits: noninterest-bearing | 598,150 | 262,557 | 518,090 | 254,436 | ||||||||||||||||||||
Borrowings | 631,297 | 362,544 | 568,249 | 334,381 | ||||||||||||||||||||
Average Yield / Rate | ||||||||||||||||||||||||
Loans | 3.80 | % | 3.92 | % | 3.85 | % | 3.97 | % | ||||||||||||||||
Securities | 2.32 | % | 2.39 | % | 2.33 | % | 2.40 | % | ||||||||||||||||
Total interest-earnings assets | 3.51 | % | 3.87 | % | 3.53 | % | 3.87 | % | ||||||||||||||||
Deposits (interest-bearing only) | 0.60 | % | 0.54 | % | 0.59 | % | 0.53 | % | ||||||||||||||||
Deposits (noninterest and interest-bearing) | 0.41 | % | 0.41 | % | 0.42 | % | 0.41 | % | ||||||||||||||||
Borrowings | 0.43 | % | 0.50 | % | 0.43 | % | 0.49 | % | ||||||||||||||||
Total interest-bearing liabilities | 0.54 | % | 0.53 | % | 0.54 | % | 0.53 | % | ||||||||||||||||
Net Interest Rate Spread | 2.97 | % | 3.34 | % | 2.99 | % | 3.35 | % | ||||||||||||||||
Net Yield on Interest-earning Assets | 3.13 | % | 3.47 | % | 3.15 | % | 3.47 | % | ||||||||||||||||
For the Quarter Ended | ||||||||||||||||||||||||||||||
June 30, | September 30, | December 31, | March 31, | June 30, | ||||||||||||||||||||||||||
2015 | 2015 | 2015 | 2016 | 2016 | ||||||||||||||||||||||||||
Average Balances: | ||||||||||||||||||||||||||||||
Loans | $ | 1,365,682 | $ | 1,562,960 | $ | 1,663,406 | $ | 1,860,838 | $ | 2,208,793 | ||||||||||||||||||||
Securities | 137,382 | 190,107 | 433,713 | 533,823 | 533,435 | |||||||||||||||||||||||||
Deposits: interest-bearing | 828,843 | 997,854 | 1,105,059 | 1,261,044 | 1,325,994 | |||||||||||||||||||||||||
Deposits: noninterest-bearing | 262,557 | 300,414 | 321,075 | 438,029 | 598,150 | |||||||||||||||||||||||||
Borrowings | 362,544 | 334,022 | 472,978 | 505,201 | 631,297 | |||||||||||||||||||||||||
Average Yield / Rate: | ||||||||||||||||||||||||||||||
Loans | 3.92 | % | 4.00 | % | 3.93 | % | 3.91 | % | 3.80 | % | ||||||||||||||||||||
Securities | 2.39 | % | 2.33 | % | 2.29 | % | 2.34 | % | 2.32 | % | ||||||||||||||||||||
Total interest-earnings assets | 3.87 | % | 3.79 | % | 3.59 | % | 3.55 | % | 3.51 | % | ||||||||||||||||||||
Deposits (interest-bearing only) | 0.54 | % | 0.53 | % | 0.55 | % | 0.57 | % | 0.60 | % | ||||||||||||||||||||
Deposits (noninterest and interest-bearing) | 0.41 | % | 0.41 | % | 0.42 | % | 0.43 | % | 0.41 | % | ||||||||||||||||||||
Borrowings | 0.50 | % | 0.38 | % | 0.22 | % | 0.43 | % | 0.43 | % | ||||||||||||||||||||
Total interest-bearing liabilities | 0.53 | % | 0.49 | % | 0.45 | % | 0.53 | % | 0.54 | % | ||||||||||||||||||||
Net Interest Rate Spread | 3.34 | % | 3.30 | % | 3.14 | % | 3.02 | % | 2.97 | % | ||||||||||||||||||||
Net Yield on Interest-earning Assets | 3.47 | % | 3.43 | % | 3.26 | % | 3.17 | % | 3.13 | % | ||||||||||||||||||||
Discussion of Changes in Results of Operations and Financial Position
Quarter Ended June 30, 2016 as Compared to Quarter Ended June 30, 2015
Our net income and income before taxes in the second quarter of 2016 were $3.3 million and $5.7 million, respectively, as compared to $2.9 million and $5.1 million, respectively, in the second quarter of 2015. The increase in income before taxes was primarily the result of a $0.4 million increase in income before taxes for Banking and a $0.2 million decrease in corporate expenses. The increase in Banking was due to higher net interest income which was partially offset by a higher provision for loan losses, lower noninterest income and higher noninterest expenses. Income before taxes for Wealth Management for the second quarter of 2016 was consistent with the second quarter of 2015 with no significant differences in either noninterest income or noninterest expenses. Corporate interest expense decreased by $0.3 million due to the payoff of a term note in 2015, while corporate noninterest expenses increased by $0.1 million.
Net interest income for Banking increased 60% from $13.7 million in the second quarter of 2015, to $21.9 million in the second quarter of 2016 due to an 81% increase in interest-earning assets, which was partially offset by a decrease in our net interest rate spread. The decrease in the net interest rate spread from 3.34% in the second quarter of 2015 to 2.97% in the second quarter of 2016 was primarily due to a decrease in yield on total interest-earning assets. The yield on interest-earning assets decreased from 3.87% to 3.51% due to an increase in the proportion of lower yielding securities to total interest-earning assets and a decrease in the yield on loans. The decrease in yield on loans was due to prepayments of higher yielding loans and the addition of loans at current market rates which are lower than the current yield on our loan portfolio.
We entered into an agreement to sell $265 million of loans secured by multifamily loans which provided for changes in pricing based upon changes in rates on certain treasury swap indices. In an effort to reduce the interest rate risk associated with this agreement, the Bank entered into a swap agreement. In conjunction with the finalization of pricing under the agreement to sell loans, the Bank closed out its swap position. As a result of changes in interest rates, the Bank paid $2.4 million, including fees, to counterparties under the swap agreement, and the pricing to be received by the Bank on the loan sale increased by $2.2 million. The Bank included this $2.4 million cost in noninterest income during the second quarter of 2016, and, as a result, noninterest income for Banking was a negative $0.2 million in the second quarter of 2016 as compared to $1.4 million in the second quarter of 2015. Partially offsetting the impact of this cost was a $0.6 million increase in revenues in the second quarter of 2016 from our insurance agency operations when compared to the corresponding period in 2015.
Noninterest expense in Banking increased from $8.6 million in the second quarter of 2015 to $14.3 million in the second quarter of 2016 due primarily to increases in staffing and costs associated with the Bank’s expansion, the growth of its balances of loans and deposits and costs associated with our property and casualty insurance agency operations which started during the second quarter of 2015. Compensation and benefits for Banking increased $2.7 million or 48% during the second quarter of 2016 as compared to the second quarter of 2015 as the number of full time equivalent employees (“FTE”) in Banking increased to 261.0 from 174.7 as a result of the acquisition of PRB and increased staffing to support the growth in loans and deposits. A $3.0 million increase in occupancy and depreciation, professional services and marketing and other expenses were related to increased costs related to the acquisition of PRB, higher legal costs related to ongoing litigation matters, costs associated with our expansion into additional corporate space and opening of new offices, and costs related to the higher levels of loans and deposits, including FDIC insurance and customer service costs. Included in noninterest expense in the second quarter of 2016 are $0.7 million of costs related to our insurance agency operations.
Six Months Ended June 30, 2016 as Compared to Six Months Ended June 30, 2015
Our net income and income before taxes in the first six months of 2016 were $7.1 million and $12.3 million, respectively, as compared to $5.6 million and $9.7 million, respectively, in the first six months of 2015. The increase in income before taxes was the result of a $2.5 million increase in income before taxes for Banking and a $0.3 million decrease in corporate expenses, which were partially offset by a $0.2 million decrease in earnings before taxes for Wealth Management. The increase in Banking was due to higher net interest income which was partially offset by a higher provision for loan losses, lower noninterest income and higher noninterest expenses. The decrease in Wealth Management was due higher noninterest expenses which were partially offset by higher noninterest income. Corporate interest expense decreased $0.5 million due to the payoff of a term note in 2015, while corporate noninterest expenses increased by $0.2 million.
Net interest income for Banking increased 60% from $25.8 million in the first six months of 2015, to $41.3 million in the first six months of 2016 due to an 80% increase in interest-earning assets, which was partially offset by a decrease in our net interest rate spread. The decrease in the net interest rate spread from 3.35% in the first six months of 2015 to 2.99% in the first six months of 2016 was primarily due to a decrease in yield on total interest-earning assets. The yield on interest-earning assets decreased from 3.87% to 3.53% due to an increase in the proportion of lower yielding securities to total interest-earning assets and a decrease in the yield on loans. The decrease in yield on loans was due to prepayments of higher yielding loans and the addition of loans at current market rates which are lower than the current yield on our loan portfolio.
Noninterest income for Banking was $1.6 million in the first six months of 2016 as compared to $2.7 million in the first six months of 2015. This decrease was due to the $2.4 million of costs incurred to close out the swap in the second quarter of 2016, which was partially offset by $0.7 million increase in revenues from our insurance agency operations and a $0.3 million gain on sale of securities realized in the first quarter of 2016. Noninterest revenue for Wealth Management increased by $0.3 million to $10.6 million in the first six months of 2016 when compared to the corresponding period in 2015 due to higher levels of AUM.
Noninterest expense in Banking increased from $16.5 million in the first six months of 2015 to $27.6 million in the first six months of 2016 due primarily to increases in staffing and costs associated with the Bank’s expansion, the growth of its balances of loans and deposits and costs associated with our property and casualty insurance agency operations which started during the second quarter of 2015. Compensation and benefits for Banking increased $5.9 million or 55% during the first six months of 2016 as compared to the first six months of 2015 as the number of FTE in Banking increased to 251.2 from 166.3 as a result of the acquisition of PRB and increased staffing to support the growth in loans and deposits. A $5.2 million increase in occupancy and depreciation, professional services and marketing and other expenses were related to increased costs related to the acquisition of PRB, higher legal costs related to ongoing litigation matters, costs associated with our expansion into additional corporate space and opening of new offices, and costs related to the higher levels of loans and deposits, including FDIC insurance and customer service costs. Included in noninterest expense in the second quarter of 2016 are $1.2 million of costs related to our insurance agency operations.
Quarter Ended June 30, 2016 as Compared to Quarter Ended March 31, 2016
Our net income and income before taxes in the second quarter of 2016 were $3.3 million and $5.7 million, respectively, as compared to $3.8 million and $6.5 million, respectively, in the first quarter of 2016. The decrease in income before taxes was the result of a $1.1 million decrease in income before taxes for Banking and a $0.1 million increase in corporate expenses, which were partially offset by a $0.4 million increase in income before taxes for Wealth Management. The decrease in Banking was due to a higher provision for loans losses, lower noninterest income and higher noninterest expense which was partially offset by higher net interest income. The increase for Wealth Management was due primarily to lower noninterest expenses.
Net interest income for Banking increased 13% from $19.4 million in the first quarter of 2016, to $21.9 million in the second quarter of 2016 due to a 14% increase in interest-earning assets, which was partially offset by a decrease in our net interest rate spread. The decrease in the net interest rate spread from 3.02% in the first quarter of 2016 to 2.97% in the second quarter of 2016 was due to a decrease in yield on total interest-earning assets, primarily a decrease in yield on loans from 3.91% in the first quarter of 2016 to 3.80% in the second quarter of 2016. The decrease in yield on loans was due to prepayments of higher yielding loans and the addition of loans at current market rates which are lower than the current yield on our loan portfolio.
As a result of the $2.4 million cost to close out a swap noted earlier, noninterest income for Banking was a negative $0.2 million in the second quarter of 2016 as compared to $1.8 million in the first quarter of 2016. Partially offsetting the impact of this cost was a $0.6 million increase in revenues in the second quarter of 2016 from our insurance agency operations when compared to the first quarter of 2016. Noninterest income for Wealth Management for the second quarter of 2016 decreased by $0.2 million when compared to the first quarter of 2016, due primarily to billing fee refunds related to terminated and new accounts.
Noninterest expense in Banking increased from $13.3 million in the first quarter of 2015 to $14.3 million in the second quarter of 2016 due primarily to higher legal costs related to ongoing litigation matters and higher customer service costs related to our increased levels of noninterest-bearing demand deposits. Noninterest expense in Wealth Management was $0.6 million lower in the second quarter of 2016 as compared to the first quarter of 2016 due to lower compensation and benefit costs resulting from the higher proportion of employer taxes and employer retirement plan contributions incurred in the first quarter of a year and reduced levels of staffing.
Changes in Financial Position
During the first six months of 2016, total assets increased by $900 million as loans and loans held for sale increased by $707 million, deposits increased by $743 million, securities decreased by $33 million, cash and cash equivalents increased by $229 million and FHLB advances increased by $142 million. The $707 million increase in loans during the first six months of 2016 was the result of loan originations and funding of existing credit commitments of $898 million which was partially offset by $192 million of payoffs and scheduled principal payments. The growth in deposits was due to the organic growth in deposits from our specialty deposit group and our branch offices.
Our credit quality remains strong as our ratio of non-performing assets to total assets decreased from 0.32% at December 31, 2015 to 0.21% at June 30, 2016. Less than $0.1 million of charge-offs were recorded in the first six months of 2016 and the ratio of the allowance for loan and lease losses to loans, excluding loans acquired in acquisitions, increased from 0.61% at December 31, 2015 to 0.62% at June 30, 2016.