FIRST FOUNDATION INC. 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 three months endedMarch 31, 2023 as compared to our results of operations in the three months endedMarch 31, 2022 ; and our financial condition atMarch 31, 2023 as compared to our financial condition atDecember 31, 2022 . 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 endedDecember 31, 2022 , and the notes thereto, which are set forth in Item 8 of our Annual Report on Form 10-K (as amended "2022 10-K") which we filed with theSecurities and Exchange Commission ("SEC") onFebruary 28, 2023 and amended
onMay 1, 2023 . 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. 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 report and could cause us to make changes to our future plans. The principal risks and uncertainties to which our businesses are subject are discussed in this Item 2 and under the heading "Risk Factors" in our 2022 10-K and Item 1A of Part II of this 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 our 2022 10-K and in Item 1A of Part II of this report, which qualify the forward-looking statements contained in this report. Also, our actual 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 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 2022 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 inthe United States ("GAAP") and accounting practices in the banking industry. Certain of those accounting policies are 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 28
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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. Management has identified our most critical accounting policies and accounting estimates as: allowance for credit losses - investment securities, allowance for credit losses - loans, deferred income taxes, and business combinations. Allowance for Credit Losses -Investment Securities - The ACL on investment securities is determined for both held-to-maturity and available-for-sale classifications of the investment portfolio in accordance with ASC 326, and is evaluated on a quarterly basis. The ACL for held-to-maturity investment securities is determined on a collective basis, based on shared risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. Under ASC 326-20, for investment securities where the Company has reason to believe the credit loss exposure is remote, such as those guaranteed by theU.S. government or government sponsored entities, a zero loss expectation is applied and a company is not required to estimate and recognize an ACL. For securities AFS in an unrealized loss position, the Company first evaluates whether it intends to sell, or whether it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of these criteria regarding intent or requirement to sell is met, the security amortized cost basis is written down to fair value through income. If neither criteria is met, the Company is required to assess whether the decline in fair value has resulted from credit losses or noncredit-related factors. In determining whether a security's decline in fair value is credit related, the Company considers a number of factors including, but not limited to: (i) the extent to which the fair value of the investment is less than its amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) downgrades in credit ratings; (iv) payment structure of the security; and (v) the ability of the issuer of the security to make scheduled principal and interest payments. If, after considering these factors, the present value of expected cash flows to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit loss is recorded through income as a component of provision for credit loss expense. If the assessment indicates that a credit loss does not exist, the Company records the decline in fair value through other comprehensive income, net of related income tax effects. The Company has made the election to exclude accrued interest receivable on securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met. See Note 3, Securities, for additional information related to the Company's allowance for credit losses on securities AFS. Allowance for Credit Losses - Loans. Our ACL for loans and investments 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 statement of income. Loans and investments are charged against the ACL when management believes that collectability of the principal is unlikely. The ACL for loans 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 ACL may be necessary if there are significant changes in economic or other conditions that can affect the collectability in full of loans and investments in our loan or investment portfolios. Deferred Income Taxes. 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
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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.
Business Combinations. We account for business combinations under the
acquisition method of accounting, as required by Accounting Standards
Codification ("ASC") 805, Business Combinations. The acquired assets, assumed
liabilities and identifiable intangible assets are recorded at their respective
acquisition date fair values. Goodwill is recorded based on the excess of the
purchase price over the fair value of the net assets and other identifiable
intangible assets acquired. Goodwill generated from business combinations are
not subject to amortization and instead are tested for impairment annually,
unless a triggering event occurs, which would require an updated assessment.
Certain costs associated with business combinations are expensed as incurred.
We have two business segments, "Banking" and "Investment Management and Wealth
Planning" ("Wealth Management"). Banking includes the operations of FFB, FFIS,
FFPF, and Blue Moon Management LLC 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
AtMarch 31, 2023 , the Company had total assets of$13.6 billion , including$10.6 billion of total loans, net of deferred fees and allowance for credit losses,$1.3 billion of cash and cash equivalents,$0.8 billion in investment securities held-to-maturity, and$0.2 billion in investment securities available-for-sale. This compares to total assets of$13.0 billion , including$10.7 billion of total loans, net of deferred fees and allowance for credit losses,$0.7 billion of cash and cash equivalents,$0.9 billion in investment securities held-to-maturity, and$0.2 billion in investment securities available-for-sale atDecember 31, 2022 . Cash and cash equivalents, representing approximately 10% of total assets atMarch 31, 2023 , largely accounted for the overall increase in total assets as the Company further increased its on-balance sheet liquidity. AtMarch 31, 2023 , the Company had total liabilities of$12.5 billion , including$10.1 billion in deposits and$2.3 billion in borrowings. This compares to total liabilities of$11.9 billion , including$10.4 billion in deposits and$1.4 billion in borrowings atDecember 31, 2022 . The$0.6 billion increase in total liabilities is due to a$0.9 billion increase in borrowings offset by a$0.3 billion decrease in deposits. The increase in borrowings was primarily due to the addition of$1.2 billion in FHLB advances offset by a$200 million paydown of fed funds balances outstanding. Funds were utilized to increase on-balance sheet liquidity. The decrease in deposits was the result of deposit outflows largely occurring after the announced closures ofSilicon Valley Bank and Signature Bank in mid-March, 2023. Deposit inflows and outflows normalized at the end of March, 2023, and the Bank is back to a normalized deposit pattern. AtMarch 31, 2023 , the Company had total shareholders' equity of$1.1 billion , unchanged from the amount atDecember 31, 2022 . During the three months endedMarch 31, 2023 , shareholder's equity activity included$8.5 million in net income offset by$6.2 million in fourth quarter 2022 dividends paid to shareholders, and$2.6 million decrease in other comprehensive income (loss) due to net unrealized losses on investment securities arising during the period. OnApril 27, 2023 , the Board of Directors declared a quarterly cash dividend of$0.02 per common share to be paid onMay 19, 2023 to shareholders of record as of the close of business onMay 8, 2023 .
Results of Operations
The primary sources of revenue for Banking are net interest income, fees from
its deposits and trust services, gains on sales of loans, certain loan fees, and
consulting fees. The primary sources of revenue for Wealth Management are asset
management fees assessed on the balance of assets under management ("AUM"). The
largest component of noninterest expense is compensation and benefit costs,
which accounted for 43% of the total combined noninterest expense for Banking
and Wealth Management in the three months ended March 31, 2023 .
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The following table shows key operating results for each of our business
segments for the quarter ended
Wealth
(dollars in thousands) Banking Management Other Total
2023:
Interest income $ 137,000 $ - $ - $ 137,000
Interest expense 76,449 - 1,796 78,245
Net interest income 60,551 - (1,796) 58,755
Provision for credit losses 417 - - 417
Noninterest income 4,801 7,291 (394) 11,698
Noninterest expense 51,645 6,065 1,630 59,340
Income (loss) before taxes on income 13,290 1,226 (3,820) 10,696
Taxes on income 2,947 364 (1,111) 2,200
Net income (loss) $ 10,343 $ 862 $ (2,709) $ 8,496
2022:
Interest income $ 79,144 $ - $ - $ 79,144
Interest expense 3,413 - 1,237 4,650
Net interest income 75,731 - (1,237) 74,494
Provision for credit losses (792) - - (792)
Noninterest income 7,531 8,345 (449) 15,427
Noninterest expense 40,101 6,644 873 47,618
Income (loss) before taxes on income 43,953 1,701 (2,559) 43,095
Taxes on income 12,715 493 (949) 12,259
Net income (loss) $ 31,238 $ 1,208 $ (1,610) $ 30,836 First Quarter of 2023 Compared to First Quarter of 2022
Combined net income for the first quarter of 2023 was$8.5 million , compared to$30.8 million for the first quarter of 2022. Combined net income before taxes for the first quarter of 2023 was$10.7 million , compared to$43.1 million for the first quarter of 2022. The$32.4 million decrease in combined net income before taxes from the year-ago quarter was primarily due to a decrease in net income before taxes in the Banking segment of$30.7 million , resulting primarily from a decrease in net interest income of$15.2 million , a decrease in noninterest income of$2.7 million , and an increase in noninterest expense of$11.5 million . Net interest income, noninterest income, and noninterest expense are discussed in more detail in the tables that follow. The decrease in Wealth Management net income before taxes of$0.5 million was due to a$1.1 million decrease in asset management fee income, classified as part of noninterest income, offset by a$0.6 million decrease in noninterest expense. Provision for credit losses. The provision for credit losses represents our estimate of the amount necessary to be charged against the current period's earnings to maintain the ACL for loans and investments at a level that we consider adequate in relation to the estimated losses inherent in the loan and investment portfolios. The provision for credit losses for loans 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 for loans 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 quarter endedMarch 31, 2023 , we recorded provision for credit losses of$0.4 million , compared to a reversal of provision for credit losses in the amount of$0.8 million for the year-ago quarter. The provision for credit losses for the quarter endedMarch 31, 2023 , was due to a net increase in investment portfolio credit losses which were offset by decreases in loan portfolio credit losses. The decrease in provision for credit losses in the year-ago quarter was a result of improvement in the economic outlook at that time. For the quarter endedMarch 31, 2023 , we recorded net charge-offs of$1.7 million , compared to$11,000 in the year-ago quarter.
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
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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 interest margin:
Three Months Ended March 31:
2023 2022
Average Average Average Average
(dollars in thousands) Balances Interest Yield /Rate Balances Interest Yield /Rate
Interest-earning assets:
Loans $ 10,691,615 $ 120,643 4.54 % $ 7,529,037 $ 72,027 3.84 %
Securities AFS 247,931 2,307 3.72 % 1,197,859 6,360 2.12 %
Securities HTM 852,459 4,584 2.15 % - - - %
Cash, FHLB stock, and fed
funds 955,668 9,466 4.02 % 1,212,777 757 0.25 %
Total interest-earning
assets 12,747,673 137,000 4.32 % 9,939,673 79,144 3.19 %
Noninterest-earning assets:
Nonperforming assets 11,420 10,124
Other 483,452 449,275
Total assets $ 13,242,545 $ 10,399,072
Interest-bearing
liabilities:
Demand deposits $ 2,572,870 $ 19,386 3.06 % $ 2,359,334 $ 1,051 0.18 %
Money market and savings 3,206,690 21,551 2.73 % 2,611,007 1,872 0.29 %
Certificates of deposit 2,132,298 21,203 4.03 % 654,279 435 0.27 %
Total interest-bearing
deposits 7,911,858 62,140 3.19 % 5,624,620 3,358 0.24 %
Borrowings 1,390,068 16,105 4.70 % 301,236 1,292 1.74 %
Total interest-bearing
liabilities 9,301,926 78,245 3.41 % 5,925,856 4,650 0.32 %
Noninterest-bearing
liabilities:
Demand deposits 2,672,409 3,315,139
Other liabilities 133,280 94,484
Total liabilities 12,107,615 9,335,479
Shareholders' equity 1,134,930 1,063,593
Total liabilities and equity $ 13,242,545 $ 10,399,072
Net Interest Income $ 58,755 $ 74,494
Net Interest Rate Spread 0.91 % 2.87 %
Net Interest Margin 1.83 % 3.00 %
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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 three months endedMarch 31, 2023 , as compared to the three months endedMarch 31, 2022 : Three Months Ended March 31, 2023 vs. 2022 Increase (Decrease) due to (dollars in thousands) Volume Rate Total Interest earned on: Loans$ 34,019 $ 14,597 $ 48,616 Securities AFS (4,743) 2,107 (2,636) Securities HTM 2,834 333 3,167
Cash, FHLB stock, and fed funds (196) 8,904 8,708
Total interest-earning assets 31,914 25,941 57,855 Interest paid on: Demand deposits 104 18,231 18,335 Money market and savings 523 19,155 19,678 Certificates of deposit 2,892 17,876 20,768 Borrowings 10,070 4,744 14,814
Total interest-bearing liabilities 13,589 60,006 73,595 Net interest income
$ 18,325 $ (34,065) $ (15,740) Net interest income was$58.8 million for the first quarter of 2023, compared to$74.5 million for the first quarter of 2022. Interest income increased to$137 million for the first quarter of 2023 compared to$79.1 million for first quarter of 2022. The increase in interest income was due to increases in both average interest-earning asset balances as well as average yields earned on such balances. Average interest-earning asset balances increased to$12.7 billion for the quarter endedMarch 31, 2023 , compared to$9.9 billion for the quarter endedMarch 31, 2022 . Yields on interest-earning assets averaged 4.32% for the first quarter of 2023, compared to 3.19% for the first quarter of 2022. Interest expense was$78.2 million for the first quarter of 2023, compared to$4.7 million for the first quarter of 2022. The increase in interest expense was due to increases in both average interest-bearing liability balances as well as average rates paid on such balances. Average interest-bearing liability balances, consisting of interest-bearing deposits and borrowings, increased to$9.3 billion for the quarter endedMarch 31, 2023 , compared to$5.9 billion for the quarter endedMarch 31, 2022 . Rates on interest-bearing liability balances averaged 3.41% for the first quarter of 2023, compared to 0.32% for the first quarter of 2022. The 1.13% increase in average yield earned on interest-earning assets was offset by a 3.09% increase in average rate paid on interest-bearing liability balances, resulting in a contraction of net interest margin ("NIM") for the quarter endedMarch 31, 2023 . NIM was 1.83% for the first quarter of 2023 compared to 3.0% for the first quarter of 2022. The contraction of NIM is reflective of the interest rate environment over the past year, which has seen theFederal Reserve increase the benchmark federal funds rate by 4.75% in the past year in efforts to cool inflation. This has negatively impacted NIM as short-term interest rate increases more immediately affect the rates we pay on both our interest-bearing deposit accounts and our borrowings. Average borrowings outstanding for the quarter endedMarch 31, 2023 were$1.4 billion compared to$0.3 billion for the quarter endedMarch 31, 2022 . The additional borrowings were utilized to increase on-balance sheet liquidity, notably in the wake of banking industry events that followed the announced closure ofSilicon Valley Bank and Signature Bank inmid-March 2023 . 33 Table of Contents
Noninterest income. Noninterest income for Banking includes fees charged to clients for trust services and deposit services, consulting fees, prepayment and late fees charged on loans, gain on sale of loans, and gains and losses from capital market activities and insurance commissions. The following table provides a breakdown of noninterest income for Banking for the three months endedMarch 31, 2023 and 2022:
(dollars in thousands) 2023 2022
Three Months EndedMarch 31 : Trust fees$ 1,719 $ 2,108 Loan related fees 1,861 2,562 Deposit charges 501 644 Gain on sale leaseback - 1,123 Consulting fees 88 95 Other 632 999 Total noninterest income$ 4,801 $ 7,531 Noninterest income in Banking was$4.8 million for the first quarter of 2023, compared to$7.5 million for the first quarter of 2022. The$2.7 million decrease in noninterest income was due primarily to a$1.1 million gain on a sale leaseback transaction recorded in the year-ago quarter, a$0.4 million decrease in trust fees, a$0.8 million decrease in deposit charges and loan related fees, and a$0.4 million decrease in other noninterest income. Noninterest income for Wealth Management includes fees charged to high net-worth clients for managing their assets and for providing financial planning consulting services. The following table provides the amounts of noninterest income for Wealth Management for the three months endedMarch 31, 2023 and
2022: (dollars in thousands) 2023 2022 Noninterest income$ 7,291 $ 8,345 Noninterest income for Wealth Management was$7.3 million for the first quarter of 2023, compared to$8.3 million for the first quarter of 2022. The$1.1 million decrease in noninterest income was due primarily to lower levels of billable AUM in the quarter as total AUM decreased to$5.2 billion atMarch 31, 2023 from$5.5 billion in the year-ago quarter. The following table summarizes the activity in our AUM for the periods indicated: Existing account Beginning Additions/ New (dollars in thousands) Balance Withdrawals Accounts Terminations Performance Ending balance Three Months EndedMarch 31, 2023 : Fixed income$ 1,699,554 $ 653,734$ 19,341 $ (12,558) $ 202,521 $ 2,562,592 Equities 2,383,268 (575,301) 28,684 (6,483) 51,175 1,881,343 Cash and other 902,455 (173,349) 38,333 (5,895) 23,414 784,958 Total$ 4,985,277 $ (94,916)$ 86,358 $ (24,936) $ 277,110 $ 5,228,893 Year EndedDecember 31, 2022 : Fixed income$ 1,303,760 $ 451,841$ 154,827 $ (30,428) $ (180,446) $ 1,699,554 Equities 3,330,639 (87,881) 108,003 (78,785) (888,708) 2,383,268 Cash and other 1,046,206 (422,405) 305,747 (58,248) 31,155 902,455 Total$ 5,680,605 $ (58,445)$ 568,577 $ (167,461) $ (1,037,999) $ 4,985,277
The$243.6 million increase in AUM during the first quarter of 2023 was the net result of$86.4 million of new accounts,$277.1 million of portfolio gains, and terminations and net withdrawals of$119.9 million . 34
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Noninterest Expense. The following table provides a breakdown of noninterest expense for Banking and Wealth Management for the periods indicated:
Banking Wealth Management
(dollars in thousands) 2023 2022 2023 2022
Three Months Ended March 31 :
Compensation and benefits $ 20,260 $ 24,276 $ 4,560 $ 5,212
Occupancy and depreciation 8,403 8,113 494 454Professional services and marketing 2,664 2,343 804
815
Customer service costs 16,715 1,788 - -
Other expenses 3,603 3,581 207 163
Total noninterest expense $ 51,645 $ 40,101 $ 6,065 $ 6,644
Noninterest expense in Banking was $51.6 million for the first quarter of 2023,
compared to $40.1 million for the first quarter of 2022. The $11.5 million
increase in noninterest expense in Banking was largely due to a $14.9 million
increase in customer service cost, offset by a $4.0 million decrease in
compensation and benefits. The increase in customer service costs was due to
higher earnings credits paid on deposit balances earning such credits. The
decrease in compensation and benefit costs was primarily due to decreased
staffing levels during the first quarter of 2023, compared to levels during the
first quarter of 2022. Average quarterly Banking full-time equivalents ("FTEs")
were 601.8 for the first quarter of 2023, compared to 623.6 for the first
quarter of 2022. The reduction in staffing occurred in two rounds within the
first quarter and largely impacted those employees in the lending and credit
areas, as efforts continued to optimize the workforce in the face of slowing
loan growth.
Noninterest expense in Wealth Management was $6.1 million for the first quarter
of 2023, compared to $6.6 million for the first quarter of 2022. The $0.5
million decrease in noninterest expense in Wealth Management was largely due to
a $0.6 million decrease in compensation and benefits. The decrease in
compensation and benefit costs was primarily due to a decrease in commission
expense resulting from a fewer number of new accounts compared to the year-ago
quarter. Average quarterly Wealth Management FTEs remained relatively constant
at 66.4 for the first quarter of 2023, compared to 65.8 for the first quarter of
2022.
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Financial Condition
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 Management Eliminations Total
March 31, 2023 :
Cash and cash equivalents $ 1,316,877 $ 15,345 $ (15,093) $ 1,317,129 Securities AFS, net 211,324 - - 211,324 Securities HTM 847,036 - - 847,036 Loans, net 10,638,708 - - 10,638,708
Premises and equipment 37,155 239 136 37,530
Investment in FHLB stock 58,716 - - 58,716
Deferred taxes 20,777 61 1,925 22,763
Real estate owned ("REO") 6,210 - - 6,210
Goodwill and intangibles 221,401 -
- 221,401
Other assets 227,706 470 27,191 255,367
Total assets $ 13,585,910 $ 16,115 $ 14,159 $ 13,616,184
Deposits $ 10,079,753 $ - $ (28,047) $ 10,051,706
Borrowings 2,101,249 - 193,351 2,294,600Intercompany balances 2,356 586 (2,942) - Accounts payable and other liabilities 121,598 2,481 12,061 136,140 Shareholders' equity 1,280,954 13,048 (160,264) 1,133,738 Total liabilities and equity$ 13,585,910 $ 16,115
December 31, 2022 : Cash and cash equivalents$ 656,247 $ 16,757
$ (16,510) $ 656,494 Securities AFS, net 226,158 - - 226,158 Securities HTM 862,544 - - 862,544 Loans, net 10,692,462 - - 10,692,462
Premises and equipment 35,788 216 136 36,140
Investment in FHLB stock 25,358 - - 25,358
Deferred taxes 19,671 78 4,449 24,198
Real estate owned ("REO") 6,210 - - 6,210
Goodwill and intangibles 221,835 -
- 221,835
Other assets 233,621 428 28,731 262,780
Total assets $ 12,979,894 $ 17,479 $ 16,806 $ 13,014,179
Deposits $ 10,403,205 $ - $ (40,593) $ 10,362,612
Borrowings 1,176,601 - 193,335 1,369,936Intercompany balances 1,001 971 (1,972) - Accounts payable and other liabilities 125,254 4,392 17,607 147,253 Shareholders' equity 1,273,833 12,116 (151,571) 1,134,378 Total liabilities and equity$ 12,979,894 $ 17,479
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.
During the three months ended
Cash and cash equivalents represented approximately 10% of total assets for the quarter endedMarch 31, 2023 , and the increase in such balances is consistent with strategic efforts to increase on-balance sheet liquidity, notably in the wake of banking industry events that followed the announced closure of Silicon 36 Table of Contents
Valley Bank and Signature Bank inmid-March 2023 . Loans, net decreased$54 million , the result of$481 million in loan fundings for the quarter offset by loan payoffs of$535 million in the quarter. Combined investment securities (AFS and HTM) balance of$1.1 billion was unchanged compared toDecember 31, 2022 . Deposits decreased$311 million , the result of outflows experienced after themid-March 2023 closures ofSilicon Valley Bank and Signature Bank.
Borrowings increased
Cash and cash equivalents. Cash and cash equivalents, consist primarily of funds held at theFederal Reserve Bank or at correspondent banks, including fed funds. 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. Cash and cash equivalents increased by$660 million during the three months endedMarch 31, 2023 , compared toDecember 31, 2022 due to strategic efforts to increase on-balance sheet liquidity, notably in the wake of banking industry events that followed the announced closure ofSilicon Valley Bank and Signature Bank inmid-March 2023 .
Securities available for sale. The following table provides a summary of the Company's AFS securities portfolio as of:
Amortized Gross Unrealized Allowance for Estimated
(dollars in thousands) Cost Gains Losses Credit Losses Fair Value
March 31, 2023 :
Collateralized mortgage obligations $ 9,585 $ - $ (1,074) $ - $ 8,511
Agency mortgage-backed securities 7,627 - (470) - 7,157
Municipal bonds 50,093 1 (2,574) - 47,520
SBA securities 16,947 2 (130) - 16,819
Beneficial interests in FHLMC
securitization 19,113 110 (105) (11,315) 7,803
Corporate bonds 138,972 - (15,729) (973) 122,270
U.S. Treasury 1,298 3 (57) - 1,244
Total $ 243,635 $ 116 $ (20,139) $ (12,288) $ 211,324
- $ 8,615
Agency mortgage-backed securities 8,161 - (585) - 7,576
Municipal bonds 50,232 - (3,442) - 46,790
SBA securities 19,090 3 (138) - 18,955
Beneficial interest in FHLMC
securitization 19,415 108 (103) (11,439) 7,981
Corporate bonds 145,024 - (10,011) - 135,013
U.S. Treasury 1,298 1 (71) - 1,228
Total $ 253,085 $ 112 $ (15,600) $ (11,439) $ 226,158 As ofMarch 31, 2023 ,U.S. Treasury securities of$1.2 million included in the table above are pledged as collateral to the States ofCalifornia andFlorida to meet regulatory requirements related to the Bank's trust operations,$231.9 million of agency mortgage-backed securities are pledged as collateral as support for the Bank's obligations under loan sales and securitizations agreements entered into from 2018 and 2021. A total of$184.2 million in securities consisting of SBA securities, collateralized mortgage obligations, agency mortgage-backed securities, and municipal bonds are pledged as collateral for repurchase agreements. A total of$841.6 million in agency mortgage-backed securities, corporate bonds, and loans are pledged as collateral to theFederal Reserve's discount window from which the Bank may borrow. Excluding allowance for credit losses, the decrease in AFS securities in the first three months of 2023 was due primarily to principal payments and increases in the gross unrealized losses on the securities. There were no purchases of investment securities or other additions to the portfolio during the quarter endedMarch 31, 2023 . 37 Table of Contents
Securities held to maturity. The following table provides a summary of the Company's HTM securities portfolio as of:
Amortized Gross Unrecognized Allowance for Estimated
(dollars in thousands) Cost Gains Losses Credit Losses Fair Value
March 31, 2023 :
Agency mortgage-backed securities $ 847,036 $ - $ (80,129) $ -$ 766,907 Total$ 847,036 $ -$ (80,129) $ -$ 766,907 December 31, 2022:
Agency mortgage-backed securities$ 862,544 $ - $
(89,483) $ -$ 773,061 Total$ 862,544 $ -$ (89,483) $ -$ 773,061
The decrease in HTM securities in the first three months of 2023 was due to
principal payments received. There were no purchases of investment securities
or other additions to the portfolio during the quarter ended
The scheduled maturities of securities AFS, as well as the related weighted
average yield, are as follows, as of
Less than 1 Through 5 Through After
(dollars in thousands) 1 Year 5 years 10 Years 10 Years Total
Amortized Cost:
Collateralized mortgage obligations $ - $ - $ 569 $ 9,016 $ 9,585
Agency mortgage-backed securities - 5,969
- 1,658 7,627
Municipal bonds 300 9,280 35,064 5,449 50,093
SBA securities 5 1,101 1,108 14,733 16,947
Beneficial interests in FHLMC
securitization - 9,537 - 9,576 19,113
Corporate bonds - 28,985 104,456 5,531 138,972
U.S. Treasury - 1,298 - - 1,298
Total $ 305 $ 56,170 $ 141,197 $ 45,963 $ 243,635
Weighted average yield 0.29 % 4.11 % 3.43 % 4.17 % 3.72 %
Estimated Fair Value:
Collateralized mortgage obligations $ - $ - $ 521 $ 7,990 $ 8,511
Agency mortgage-backed securities - 5,665
- 1,492 7,157
Municipal bonds 300 8,944 33,682 4,594 47,520
SBA securities 5 1,094 1,103 14,617 16,819
Beneficial interests in FHLMC
securitization - 9,537 - 9,581 19,118
Corporate bonds - 27,970 90,758 4,515 123,243
U.S. Treasury - 1,244 - - 1,244
Total $ 305 $ 54,454 $ 126,064 $ 42,789 $ 223,612
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The scheduled maturities of securities HTM, and the related weighted average
yield is as follows, as of
Less than 1 Through 5 Through After
(dollars in thousands) 1 Year 5 years 10 Years 10 Years Total
March 31, 2023
Amortized Cost:
Agency mortgage-backed securities $ - $ 574 $ 18,925 $ 827,537 $ 847,036
Total $ - $ 574 $ 18,925 $ 827,537 $ 847,036
Weighted average yield - % 0.60 % 1.22 % 2.47 % 2.44 %
Estimated Fair Value: Agency mortgage-backed securities $ -$ 537 $ 17,451 $ 748,919 $ 766,907 Total $ -$ 537 $ 17,451 $ 748,919 $ 766,907
Loans. The following table sets forth our loans, by loan category, as of:
March 31 ,
(dollars in thousands) 2023 2022
Outstanding principal balance: Loans secured by real estate: Residential properties: Multifamily$ 5,332,815 $ 5,341,596 Single family 1,008,657 1,016,498
Total real estate loans secured by residential properties 6,341,472
6,358,094
Commercial properties 1,155,624 1,203,292
Land and construction 166,166 158,565
Total real estate loans 7,663,262 7,719,951Commercial and industrial loans 2,985,984
2,984,748
Consumer loans 3,862 4,481
Total loans 10,653,108 10,709,180Premiums, discounts and deferred fees and expenses 16,695
17,013
Total $ 10,669,803 $ 10,726,193 Loans decreased
Deposits. The following table sets forth information with respect to our deposits and the average rates paid on deposits, as of:
March 31, 2023 December 31, 2022
Weighted Weighted
(dollars in thousands) Amount Average Rate Amount Average Rate
Demand deposits:
Noninterest-bearing $ 2,263,412 - $ 2,736,691 -
Interest-bearing 2,364,213 3.380 % 2,568,850 3.109 %
Money market and savings 2,997,666 3.098 % 3,178,230 2.373 %
Certificates of deposit 2,426,415 4.170 % 1,878,841 3.741 % Total$ 10,051,706 2.726 %$ 10,362,612 2.177 % 39 Table of Contents During the first three months of 2023, our deposit rates have moved in a manner consistent with overall deposit market rates and market rates continue to rise as a result of the actions taken by theFederal Reserve . The weighted average rate of our interest-bearing deposits increased from 2.96% atDecember 31, 2022 , to 3.52% atMarch 31, 2023 due to rising short-term interest rates during the period, while the weighted average interest rates of total deposits increased from 2.18% atDecember 31, 2022 to 2.73% atMarch 31, 2023 .
From time to time, the Bank will utilize brokered deposits as a source of
funding. As of
The deposits held by the Bank are insured by theFDIC's Deposit Insurance Fund (the "DIF"), up to applicable limits. The Dodd-Frank Act permanently increased the maximum deposit insurance amount for banks, savings institutions and credit unions to$250,000 per depositor. As ofMarch 31, 2023 , approximately 85% of the Bank's deposit accounts were insured.
The maturities of our certificates of deposit of
(dollars in thousands)
3 months or less $ 741,600
Over 3 months through 6 months 347,861
Over 6 months through 12 months 776,938
Over 12 months 491,956
Total $ 2,358,355
Borrowings. At March 31, 2023 , our borrowings consisted of $1.0 billion in
overnight and $1.0 billion in short-term FHLB advances at the Bank, $174 million
in subordinated notes at FFI, $101 million in repurchase agreements at the Bank,
and $20 million of borrowings under a holding company line of credit. At
December 31, 2022 our borrowings consisted of $805 million in overnight FHLB
advances at the Bank, $200 million in federal funds purchased at the Bank, $174
million in subordinated notes at FFI, $171 million in repurchase agreements at
the Bank, and $20 million of borrowings under a holding company line of credit.
The average balance of borrowings and the weighted average interest rate on such
borrowings was $1.39 billion and 4.70%, respectively for the quarter ended March
31, 2023 . The average balance of borrowings and the weighted average interest
rate on such borrowings was $1.54 billion and 3.79%, respectively for the
quarter ended December 31, 2022 .
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
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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:
90 Days Total Past Due
(dollars in thousands) 30-59 Days 60-89 Days or More
Nonaccrual and Nonaccrual Current Total
March 31, 2023 :
Real estate loans:
Residential properties $ 20,272 $ - $ - $ 2,518 $ 22,790 $ 6,338,021 $ 6,360,811
Commercial properties 5,561 - 217 3,969 9,747 1,144,772 1,154,519
Land and construction 521 6,835 - - 7,356 157,860 165,216Commercial and industrial loans 1,200 233 2,227
4,694 8,354 2,977,013 2,985,367
Consumer loans 10 - - - 10 3,880 3,890
Total $ 27,564 $ 7,068 $ 2,444 $ 11,181 $ 48,257 $ 10,621,546 $ 10,669,803
Percentage of total loans 0.26 % 0.07 % 0.02 % 0.10 % 0.45 %
December 31, 2022:
Real estate loans:
Residential properties $ 511 $ 57 $ - $ 2,556 $ 3,124 $ 6,374,100 $ 6,377,224
Commercial properties 15,000 946 1,213 4,547 21,706 1,180,357 1,202,063
Land and construction - - - - - 157,630 157,630Commercial and industrial loans 385 1,495 982
3,228 6,090 2,978,668 2,984,758
Consumer loans - 167 - - 167 4,351 4,518
Total $ 15,896 $ 2,665 $ 2,195 $ 10,331 $ 31,087 $ 10,695,106 $ 10,726,193
Percentage of total loans 0.15 % 0.02 % 0.02 % 0.10 % 0.29 %
The following table summarizes our nonaccrual loans as of:
Nonaccrual Nonaccrual
with Allowance with no Allowance
(dollars in thousands) for Credit Losses for Credit Losses
March 31, 2023
Real estate loans:
Residential properties $ - $ 2,518
Commercial properties - 3,969
Commercial and industrial loans 3,672 1,022
Total $ 3,672 $ 7,509
December 31, 2022
Real estate loans:
Residential properties $ - $ 2,556
Commercial properties - 4,547
Commercial and industrial loans 2,016 1,212
Total $ 2,016 $ 8,315
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Allowance for Credit Losses. The following table summarizes the activity in our ACL related to loans for the periods indicated:
Provision for
Beginning (Reduction of) Ending
(dollars in thousands) Balance Credit Losses Charge-offs Recoveries Balance
Three months ended
March 31, 2023:
Real estate loans:
Residential properties $ 8,306 $ (43) $ - $ - $ 8,263
Commercial properties 8,714 (2,732) (249) - 5,733
Land and construction 164 152 - - 316
Commercial and industrial
loans 16,521 1,685 (1,752) 306 16,760
Consumer loans 26 (1) (2) - 23
Total $ 33,731 $ (939) $ (2,003) $ 306 $ 31,095
Three months ended
March 31, 2022:
Real estate loans:
Residential properties $ 2,637 $ 561 $ - $ - $ 3,198
Commercial properties 17,049 (1,413) - - 15,636
Land and construction 1,995 (227) - - 1,768
Commercial and industrial
loans 11,992 149 (145) 134 12,130
Consumer loans 103 (13) - - 90
Total $ 33,776 $ (943) $ (145) $ 134 $ 32,822
Year ended
December 31, 2022:
Real estate loans:
Residential properties $ 2,637 $ 5,674 $ (5) $ - $ 8,306
Commercial properties 17,049 (8,335) - - 8,714
Land and construction 1,995 (1,831) - - 164
Commercial and industrial
loans 11,992 4,804 (711) 436 16,521
Consumer loans 103 (73) (4) - 26
Total $ 33,776 $ 239 $ (720) $ 436 $ 33,731 OnJanuary 1, 2020 , we adopted a new accounting standard, commonly referred to as "CECL", which replaces the "incurred loss" approach with an "expected loss" model over the life of the loan, as further described in Note 1 Summary of Significant Accounting Policies of the notes contained in our Annual Report on Form 10-K for the year endedDecember 31, 2022 . The allowance for credit losses for loans totaled$31.1 million as ofMarch 31, 2023 , compared to$32.8 million as ofMarch 31, 2022 , and$33.7 million as ofDecember 31, 2022 . Our ACL for loans represented 0.29% of total loans outstanding as ofMarch 31, 2023 compared to 0.31% of total loans outstanding as ofDecember 31, 2022 . The ACL for loans decreased$2.6 million as ofMarch 31, 2023 compared toDecember 31, 2022 . Activity for the three months endedMarch 31, 2023 included a reduction in provision for credit losses of$0.9 million , charge-offs of$2.0 million , and recoveries of$0.3 million . The reduction in provision for credit losses was due to a decrease in the aggregate reserve for purchased credit deteriorated ("PCD") loans due to updated valuations. Under the CECL methodology, for which our ACL for loans is based, estimates of expected credit losses over the life of a loan are determined and utilized considering the effect of various major factors. The major factors considered in evaluating losses are historical chargeoff experience, delinquency rates, local and national economic conditions, the borrower's ability to repay the loan and timing of repayments, and the value of any related collateral. Management's estimate of fair value of the collateral considers current and anticipated future real estate market conditions, thereby causing these estimates to be particularly susceptible to changes that could result in a material adjustment to results of operations in the future. Provisions to credit losses are charged to operations based on management's evaluation of estimated losses in its loan portfolio. In addition, theFDIC and theCalifornia Department of Financial Protection and Innovation , as an integral part of their examination processes, periodically review the adequacy of our ACL. These agencies may require us to make 42
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additional provisions for credit 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 ACL and the recorded investment in loans by impairment method as of:
Allowance for Credit Losses
Loans Evaluated
(dollars in thousands) Individually Collectively Total
March 31, 2023:
Allowance for credit losses:
Real estate loans:
Residential properties $ 62 $ 8,201 $ 8,263
Commercial properties 1,044 4,689 5,733
Land and construction - 316 316Commercial and industrial loans 1,144 15,616
16,760 Consumer loans - 23 23 Total$ 2,250 $ 28,845 $ 31,095 Loans: Real estate loans: Residential properties$ 3,428 $ 6,357,383 $ 6,360,811 Commercial properties 28,197 1,126,322 1,154,519 Land and construction - 165,216 165,216 Commercial and industrial loans 5,875 2,979,492 2,985,367 Consumer loans - 3,890 3,890 Total$ 37,500 $ 10,632,303 $ 10,669,803 Allowance for Credit Losses Loans Evaluated (dollars in thousands) Individually Collectively Total December 31, 2022: Allowance for credit losses: Real estate loans: Residential properties $ 87$ 8,219 $ 8,306 Commercial properties 1,834 6,880 8,714 Land and construction - 164 164
Commercial and industrial loans 3,122 13,399
16,521 Consumer loans - 26 26 Total$ 5,043 $ 28,688 $ 33,731 Loans: Real estate loans: Residential properties$ 3,479 $ 6,373,745 $ 6,377,224 Commercial properties 34,278 1,167,785 1,202,063 Land and construction - 157,630 157,630 Commercial and industrial loans 9,397 2,975,361 2,984,758 Consumer loans - 4,518 4,518 Total$ 47,154 $ 10,679,039 $ 10,726,193 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
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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, federal funds purchased, and proceeds from
borrowings and sales of FFI common stock. The remaining balances of the
Company's lines of credit available to draw down totaled $2.0 billion at
March 31, 2023 .
Cash Flows Provided by Operating Activities. During the quarter ended
Cash Flows Used in Investing Activities. During the quarter endedMarch 31, 2023 , investing activities provided net cash of$44 million , primarily due to a$54 million net decrease in loans,$25 million in cash received in principal collection and maturities of securities, offset by$33 million in purchases of FHLB stock. During the quarter endedMarch 31, 2022 , investing activities used net cash of$483 million , primarily due to a$491 million net increase in loans, and$83 million in purchases of securities AFS, offset partially by$88 million in cash received in principal collection and maturities of securities. Cash Flows Provided by Financing Activities. During the quarter endedMarch 31, 2023 , financing activities provided net cash of$607 million , consisting primarily of a net increase of$995 million in FHLB and other advances offset by a decrease of$311 million in deposits, a$70 million net decrease in repurchase agreements, and$6 million in dividends paid. During the quarter endedMarch 31, 2022 , financing activities provided net cash of$253 million , consisting primarily of a net increase of$146 million in deposits and a$148 million net increase in subordinated debt, offset partially by$19 million net paydowns in our line of credit,$6 million in dividends paid, and a$13 million net decrease in repurchase agreements. 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. AtMarch 31, 2023 andDecember 31, 2022 , the loan-to-deposit ratios at FFB were 106.1% and 103.5%, respectively. The loan to deposit ratio measured 100.3% for the first quarter 2023 when calculated based on the average balances of loans and deposits for the quarter opposed to measuring such balances as of the last day of the quarter. This is more reflective of the actual management of the portfolios during the entire quarter, particularly in the wake of the banking industry events that followed the announced closure ofSilicon Valley Bank and Signature Bank in mid-March, 2023.
Off-Balance Sheet Arrangements
The following table provides the off-balance sheet arrangements of the Company
as of
(dollars in thousands)
Commitments to fund new loans $ 2,140 Commitments to fund under existing loans, lines of credit 1,369,440 Commitments under standby letters of credit
25,321
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
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March 31, 2023 , FFB was obligated on$315 million of letters of credit to the FHLB which were being used as collateral for public fund deposits, including$300 million of deposits from theState of California .
Capital Resources and Dividend Policy
The capital rules applicable toUnited States based bank holding companies and federally insured depository institutions ("Capital Rules") require the Company (on a consolidated basis) and FFB (on a stand-alone basis) to 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. In addition, prompt corrective action regulations place a federally insured depository institution, such as FFB, into one of five capital categories on the basis of its capital ratios: (i) well capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv) significantly undercapitalized; or (v) critically undercapitalized. A depository institution's primary federal regulatory agency may determine that, based on certain qualitative assessments, the depository institution should be assigned to a lower capital category than the one indicated by its capital ratios. At each successive lower capital category, a depository institution is subject to greater operating restrictions and increased regulatory supervision by its federal bank regulatory agency.
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:
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
FFI
March 31, 2023 :
CET1 capital ratio $ 933,163 9.31 % $ 451,263 4.50 %
Tier 1 leverage ratio 933,163 7.16 % 521,678 4.00 %Tier 1 risk-based capital ratio 933,163 9.31 % 601,683 6.00 % Total risk-based capital ratio 1,146,984 11.44 % 802,245
8.00 %December 31, 2022 : CET1 capital ratio$ 931,125 9.18 %$ 456,603 4.50 % Tier 1 leverage ratio 931,125 7.44 % 500,327 4.00 %
Tier 1 risk-based capital ratio 931,125 9.18 % 608,804 6.00 % Total risk-based capital ratio 1,145,765 11.29 % 811,739
8.00 %
FFB
March 31, 2023 :
CET1 capital ratio $ 1,080,468 10.82 % $ 449,370 4.50 % $ 649,089 6.50 %
Tier 1 leverage ratio 1,080,468 8.31 % 520,330 4.00 % 650,413 5.00 %Tier 1 risk-based capital ratio 1,080,468 10.82 % 599,159 6.00 %
798,879 8.00 %
Total risk-based capital ratio 1,120,938 11.23 % 798,879 8.00 % 998,599 10.00 %
December 31, 2022:
CET1 capital ratio $ 1,070,648 10.60 % $ 454,655 4.50 % $ 656,724 6.50 %
Tier 1 leverage ratio 1,070,648 8.59 % 498,725 4.00 % 623,400 5.00 %Tier 1 risk-based capital ratio 1,070,648 10.60 % 606,207 6.00 %
808,276 8.00 %
Total risk-based capital ratio 1,111,952 11.01 % 808,276 8.00 % 1,010,345 10.00 %
As of each of the dates set forth in the above table, the Company exceeded the
minimum required capital ratios applicable to it and FFB'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 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.
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As ofMarch 31, 2023 , FFI had$31 million of available liquidity as well as a revolving line of credit and, therefore, has the ability and financial resources to contribute additional capital to FFB, if needed. As ofMarch 31, 2023 , the amount of capital at FFB in excess of amounts required to be well capitalized for purposes of the prompt corrective action regulations was$431 million for the CET1 capital ratio,$430 million for the Tier 1 Leverage Ratio,$282 million for the Tier 1 risk-based capital ratio and$122 million for the Total risk-based capital ratio. OnApril 27, 2023 , the Board of Directors declared a quarterly cash dividend of$0.02 per common share to be paid onMay 19, 2023 , to shareholders of record as of the close of business onMay 8, 2023 . The amount and declaration of future cash dividends are 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 year endedDecember 31, 2022 . Additionally, under the terms of the holding company line of credit agreement, FFI may only declare and pay a dividend if the total amount of dividends 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$24.8 million in dividends ($0.44 per share) in 2022. We had no material commitments for capital expenditures as ofMarch 31, 2023 . 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.
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