Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2025
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-36461
FIRST FOUNDATION INC.
(Exact name of Registrant as specified in its charter)
Delaware
20-8639702
(State or other jurisdictionof incorporation or organization)
(I.R.S. EmployerIdentification Number)
5221 N. O’Connor Blvd., Suite 1375 Irving, Texas
75039
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (469) 638-9636
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
FFWM
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 4, 2025, the registrant had 82,386,071 shares of common stock, $0.001 par value per share, outstanding.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2025
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1.
Financial Statements
1
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
38
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
67
Item 4.
Controls and Procedures
Part II. Other Information
Item 1
Legal Proceedings
69
Item 1A
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 5
Other Information
Item 6
Exhibits
70
SIGNATURES
S-1
(i)
PART I — FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
June 30,
December 31,
2025
2024
(unaudited)
ASSETS
Cash and cash equivalents
$
1,055,614
1,016,132
Securities available-for-sale ("AFS"), at fair value (amortized cost of $1,485,810 and $1,335,225 at June 30, 2025 and December 31, 2024 respectively; net of allowance for credit losses of $651 and $4,134 at June 30, 2025 and December 31, 2024 respectively)
1,469,122
1,313,885
Securities held-to-maturity ("HTM") (fair value of $604,367 and $636,840 at June 30, 2025 and December 31, 2024, respectively)
663,807
712,105
Loans held for sale ("LHFS")
476,727
1,285,819
Loans held for investment
7,548,323
7,941,393
Less: Allowance for credit losses
(37,560)
(32,302)
Total loans held for investment, net
7,510,763
7,909,091
Investment in Federal Home Loan Bank ("FHLB") stock
50,077
37,869
Accrued interest receivable
50,538
54,804
Deferred taxes
87,006
76,650
Premises and equipment, net
35,890
35,806
Real estate owned ("REO")
6,210
Bank owned life insurance
50,686
49,993
Core deposit intangibles
2,947
3,558
Derivative assets
—
5,086
Other assets
128,975
138,257
Total Assets
11,588,362
12,645,265
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits
8,593,693
9,870,279
Borrowings
1,669,315
1,425,369
Subordinated debt
173,490
173,459
Derivative liabilities
8,689
Accounts payable and other liabilities
92,549
122,795
Total Liabilities
10,537,736
11,591,902
Shareholders’ Equity
Preferred stock, $0.001 par value, 29,811 shares issued and outstanding at June 30, 2025 and December 31, 2024
87,649
Common stock, $0.001 par value; 200,000,000 shares authorized at June 30, 2025 and December 31, 2024; 82,386,071 shares and 82,365,388 shares issued and outstanding, respectively
82
Additional paid-in-capital
852,982
849,509
Retained earnings
124,244
125,038
Accumulated other comprehensive loss
(14,331)
(8,915)
Total Shareholders’ Equity
1,050,626
1,053,363
Total Liabilities and Shareholders’ Equity
(See accompanying notes to the consolidated financial statements)
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Quarter Ended
Six Months Ended
Interest income:
Loans
100,166
120,244
206,666
238,688
Securities
23,646
17,975
44,741
37,749
FHLB Stock, fed funds sold and interest-bearing deposits
13,313
12,695
27,460
24,930
Total interest income
137,125
150,914
278,867
301,367
Interest expense:
67,318
91,388
140,637
185,880
18,020
13,992
32,954
29,862
1,705
3,395
3,410
Total interest expense
87,043
107,085
176,986
219,152
Net interest income
50,082
43,829
101,881
82,215
Provision (reversal) for credit losses
2,366
(806)
5,783
(229)
Net interest income after provision for credit losses
47,716
44,635
96,098
82,444
Noninterest income:
Asset management, consulting and other fees
8,601
9,183
17,520
17,797
(Loss) gain on sale of loans
(10,405)
415
678
Gain on sale of securities available-for-sale
983
4,702
1,204
Capital market activities
(289)
836
2,542
1,673
Gain on sale of REO
679
Other income
3,431
2,241
6,581
4,310
Total noninterest income
1,338
13,658
20,940
26,341
Noninterest expense:
Compensation and benefits
22,890
19,095
47,998
38,502
Occupancy and depreciation
8,333
9,026
16,778
18,113
Professional services and marketing costs
7,238
3,667
13,145
7,057
Customer service costs
12,983
16,104
28,034
26,842
Other expenses
8,480
7,737
15,690
15,724
Total noninterest expense
59,924
55,629
121,645
106,238
(Loss) income before income taxes
(10,870)
2,664
(4,607)
2,547
Income tax benefit
(3,180)
(421)
(3,813)
(1,331)
Net (loss) income
(7,690)
3,085
(794)
3,878
Net income per share:
Basic
(0.09)
0.05
(0.01)
0.07
Diluted
Shares used in computation:
82,386,071
56,523,640
82,379,878
56,504,148
56,532,465
56,515,844
2
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY - UNAUDITED
(In thousands, except share amounts)
Preferred Stock
Convertible Warrants
Additional
Accumulated Other
Number
Paid-in
Retained
Comprehensive
of Shares
Amount
of Warrants
Capital
Earnings
Income (Loss)
Total
Balance: December 31, 2024
82,365,388
29,811
6
51,004
798,505
Net loss
Other comprehensive loss
(5,416)
Stock based compensation
3,473
Issuance of common stock:
Stock grants – vesting of restricted stock units
28,312
Repurchase of shares from restricted shares vesting
(7,629)
Balance: June 30, 2025
801,978
Balance: March 31, 2025
800,142
131,935
(10,201)
1,060,611
(4,130)
1,836
Other
(1)
Balance: December 31, 2023
56,467,623
56
720,899
218,575
(14,187)
925,343
Net income
Other comprehensive income
4,239
1,057
Cash dividend
(1,132)
93,780
(18,021)
(142)
Balance: June 30, 2024
56,543,382
57
721,814
221,321
(9,948)
933,244
Balance: March 31, 2024
56,511,864
721,362
218,802
(11,487)
928,734
1,539
452
(566)
31,518
3
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS) - UNAUDITED
(In thousands)
Quarter Ended June 30,
Six Months Ended June 30,
Other comprehensive (loss) income, net of tax:
Unrealized holding (losses) gains on securities arising during the period
(1,611)
1,282
4,154
(966)
Reclassification adjustment for gain included in net income
(695)
(3,327)
(852)
Total change in unrealized (loss) gain on available-for-sale securities
587
827
(1,818)
Unrealized (loss) gain on cash flow hedge arising during this period
(2,257)
1,068
(5,760)
6,267
Amortization of unrealized (loss) gain on securities transferred from available-for-sale to held-to-maturity
(262)
(116)
(483)
(210)
Total other comprehensive (loss) income
Total comprehensive (loss) income
(11,820)
4,624
(6,210)
8,117
4
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
For the Six Months Ended
Cash Flows from Operating Activities:
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Provision (reversal) for credit losses - loans
6,417
952
Provision (reversal) for credit losses - securities AFS
(66)
(878)
Stock–based compensation expense
Depreciation and amortization
2,217
2,384
Deferred tax benefit
(8,434)
(6,599)
Amortization of premium (discount) on securities
1,855
(11,112)
Amortization of core deposit intangible
611
726
Amortization of mortgage servicing rights - net
3,284
1,138
(679)
Loss (gain) on sale of loans
10,405
(678)
(4,702)
(1,204)
Loss (gain) from hedging activities
7,110
(1,673)
Change in fair value of LHFS
(15,403)
Amortization of OCI - securities transfer to HTM
Decrease in accrued interest receivable and other assets
6,633
10,259
(Decrease) increase in accounts payable and other liabilities
(28,931)
728
Net cash used in operating activities
(16,808)
(1,911)
Cash Flows from Investing Activities:
Net decrease in loans
399,346
81,580
Proceeds from sale of loans
806,919
8,770
Proceeds from sale of REO
2,850
Purchase of premises and equipment
(2,387)
(1,536)
Disposals of premises and equipment
86
Proceeds from sale of land
1,650
Loss on sale of land
391
Purchases of securities AFS
(703,278)
(1,564,389)
Proceeds from sale of securities available-for-sale
470,940
749,020
Maturities of securities AFS
85,519
423,979
Maturities of securities HTM
47,378
33,984
Impairment of securities AFS
(3,416)
Net increase in FHLB stock
(12,208)
(13,197)
Net cash provided by (used in) investing activities
1,088,899
(276,897)
Cash Flows from Financing Activities:
(Decrease) increase in deposits
(1,276,586)
67,412
Proceeds from FHLB & FRB advances
1,600,000
2,793,475
Repayments on FHLB & FRB advances
(1,350,000)
(2,465,402)
Net increase in subordinated debt
31
Net decrease in repurchase agreements
(6,054)
(20,577)
Dividends paid
Repurchase of stock
Net cash (used in) provided by financing activities
(1,032,609)
373,665
Increase in cash and cash equivalents
39,482
94,857
Cash and cash equivalents at beginning of year
1,326,629
Cash and cash equivalents at end of period
1,421,486
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes
270
Interest
158,710
181,281
Noncash transactions:
Right of use lease assets and liabilities recognized
3,608
Chargeoffs against allowance for credit losses - loans
895
862
Chargeoffs against allowance for credit losses - securities
3,361
Mortgage servicing rights from loan sales
2,574
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2025 - UNAUDITED
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation
First Foundation Inc. (“FFI”) is a financial services holding company whose operations are conducted through its wholly owned subsidiaries: First Foundation Advisors (“FFA”) and First Foundation Bank (“FFB” or the “Bank”) and the wholly owned subsidiaries of FFB, First Foundation Public Finance (“FFPF”), First Foundation Insurance Services (“FFIS”) and Blue Moon Management, LLC (collectively the “Company”). FFI also has two inactive wholly owned subsidiaries, First Foundation Consulting and First Foundation Advisors, LLC. FFI is incorporated in the state of Delaware. The corporate headquarters for FFI is located in Irving, Texas. The Company provides a comprehensive platform of financial services to individuals, businesses and other organizations and has offices in California, Nevada, Florida, Texas, and Hawaii.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and prevailing practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates.
The accompanying unaudited consolidated financial statements include the accounts of the Company as of June 30, 2025 and December 31, 2024, and for the six months ended June 30, 2025 and 2024, and include all information and footnotes required for interim financial reporting presentation. All intercompany accounts and transactions have been eliminated in consolidation. The results for the 2025 interim periods are not necessarily indicative of the results expected for the full year. These financial statements assume that readers have read the most recent Annual Report on Form 10-K filed with the SEC which contains the latest available audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2024.
Significant Accounting Policies
The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the banking industry. We have not made any changes in our significant accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC.
New Accounting Pronouncements
Recent Accounting Guidance Not Yet Effective
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740 – Improvements to Income Tax Disclosures. The FASB issued this Update to enhance the transparency and decision usefulness of income tax disclosures. The amendments to this Update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid. The amendments in this Update are effective for annual periods beginning after December 15, 2024, and are not expected to have a material impact on the Company’s consolidated financial statements.
NOTE 2: FAIR VALUE MEASUREMENTS
Assets Measured at Fair Value on a Recurring Basis
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s estimates for market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever possible.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Valuations may be determined using pricing models, discounted cash flow methodologies, or similar techniques.
7
The following tables show the recorded amounts of assets and liabilities measured at fair value on a recurring basis as of:
Fair Value Measurement Level
(dollars in thousands)
Level 1
Level 2
Level 3
June 30, 2025:
Investment securities available-for-sale:
Collateralized mortgage obligations
204,419
Agency mortgage-backed securities
1,089,071
Municipal bonds
46,209
SBA securities
7,889
Beneficial interests in FHLMC securitization
841
Corporate bonds
119,701
U.S. Treasury
992
Total investment securities available for sale at fair value on a recurring basis
1,467,289
Derivative liabilities:
Interest rate swap and cash flow hedge
December 31, 2024:
9,842
1,121,626
45,535
9,145
1,242
125,817
14,100
111,717
14,778
1,297,865
Derivatives assets:
Cash flow hedge
The decrease in Level 3 assets from December 31, 2024 was due to securitization paydowns in the FHLMC portfolio in the year-to-date period ended June 30, 2025.
Assets Measured at Fair Value on a Nonrecurring Basis
From time to time, we may be required to measure other assets at fair value on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
Loans. Loans measured at fair value on a nonrecurring basis include collateral dependent loans held for investment. The specific reserves for these loans are based on collateral value, net of estimated disposition costs and other identified quantitative inputs. Collateral value is determined based on independent third-party appraisals or internally-developed discounted cash flow analyses. Internal discounted cash flow analyses are also utilized to estimate the fair value of these loans, which considers internally-developed, unobservable inputs such as discount rates, default rates, and loss severity. When the fair value of the collateral is based on an observable market price or a current appraised value, we
8
measure the impaired loan at nonrecurring Level 2. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price or a discounted cash flow has been used to determine the fair value, we measure the collateral-dependent loan at nonrecurring Level 3. Loans for which an appraised value is not available include commercial loans which are secured by non-real estate assets such as accounts receivable and inventory. To establish fair value for these loans, we apply a recovery factor against eligible receivables and inventory. This recovery factor may be either increased or decreased subject to additional support and analysis of the quality of receivables and the companies owing the receivables. The total collateral-dependent loans were $26.2 million and $27.0 million at June 30, 2025 and December 31, 2024, respectively. Specific reserves related to these loans totaled $0.5 million and $0.7 million at June 30, 2025 and December 31, 2024, respectively.
Real Estate Owned (REO). The fair value of REO is based on external appraised values that include adjustments for estimated selling costs and assumptions of market conditions that are not directly observable, resulting in a Level 3 classification. Real estate owned classified as Level 3 totaled $6.2 million at June 30, 2025 and December 31, 2024, respectively.
Mortgage Servicing Rights. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income, resulting in a Level 3 classification. Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. At June 30, 2025, there was no valuation allowance on the mortgage servicing rights. Significant assumptions in the valuation of these Level 3 mortgage servicing rights as of June 30, 2025, included prepayment rates ranging from 20% to 30% and a discount rate of 10%.
Loans Held for Sale. Loans held for sale are accounted for at the lower of amortized cost or fair value. The fair value for loans held for sale is based upon a discounted cash flow model which involves estimating the future cash flows from the loans in the portfolio and discounting to a present value. Contractual cash flows associated with the loans are adjusted to reflect certain assumptions, such as prepayment, default, and loss severity assumptions, to form expected prepayment and credit-adjusted expected cash flows. The expected cash flows are then discounted to present value at a rate of return which considers other costs and risks, such as market risk and liquidity. The carrying amount and fair value of loans held for sale were $477 million and $1.3 billion, respectively at June 30, 2025 and December 31, 2024.
Significant assumptions in the valuation of these Level 3 loans held for sale as of June 30, 2025, included prepayment rates of 5% and 20% for fixed-rate and floating-rate loans, respectively; discount rates ranging from 2.50% to 5.85%; and an annual expected loss assumption rate of 0.05%. These assumptions applied to 89.8% of the total principal balance of the loan portfolio. The remaining 10.2% of the principal balance of the loan portfolio consisted of twenty loans that were rated as substandard, and for which separate assumptions were used to account for the lower credit quality of the loans. Significant assumptions in the valuation of these Level 3 loans held for sale as of December 31, 2024, included prepayment rates of 5% and 15% for fixed-rate and floating-rate loans, respectively; discount rates ranging from 2.10% to 6.25%; and annual expected loss assumption rate of 0.05%. These assumptions applied to 97.4% of the total principal balance of the loan portfolio. The remaining 2.6% of the principal balance of the loan portfolio consisted of seventeen loans that were rated as substandard, and for which separate assumptions were used to account for the lower credit quality of the loans.
9
Fair Value of Financial Instruments
FASB ASC 825-10, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. The methodologies for estimating the fair value of financial assets and financial liabilities measured at fair value on a recurring and non-recurring basis are discussed above. The estimated fair value amounts have been determined by management using available market information and appropriate valuation methodologies and are based on the exit price notion set forth by ASU 2016-01. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Company.
Fair value estimates are made at a discrete point in time based on relevant market information and other information about the financial instruments. Because no active market exists for a significant portion of our financial instruments, fair value estimates are based in large part on judgments we make primarily regarding current economic conditions, risk characteristics of various financial instruments, prepayment rates, and future expected loss experience. These estimates are subjective in nature and invariably involve some inherent uncertainties. Additionally, unexpected changes in events or circumstances can occur that could require us to make changes to our assumptions and which, in turn, could significantly affect and require us to make changes to our previous estimates of fair value.
In addition, the fair value estimates are based on existing on-and off-balance sheet financial instruments without attempting to estimate the value of existing and anticipated future customer relationships and the value of assets and liabilities that are not considered financial instruments, such as premises and equipment and other real estate owned.
The following methods and assumptions were used to estimate the fair value of financial instruments:
Cash and Cash Equivalents. The fair value of cash and cash equivalents approximates its carrying value.
Interest-Bearing Deposits with Financial Institutions. The fair value of interest-bearing deposits maturing within ninety days approximate their carrying values. These financial instruments are classified as a component of cash and cash equivalents in the accompanying consolidated balance sheets.
Investment Securities Available-for-Sale. Investment securities available for sale are measured at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. When a market is illiquid or there is a lack of transparency around the inputs to valuation, the securities are classified as Level 3 and reliance is placed upon external third-party models, and management judgment and evaluation for valuation. Level 1 investment securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 investment securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Investment securities classified as Level 3 include beneficial interests in FHLMC securitizations. Significant assumptions in the valuation of these Level 3 securities as of June 30, 2025 included a prepayment rate of 20% and a discount rate of 6.25%. Significant assumptions used in the valuation of these Level 3 investment securities as of December 31, 2024 included a prepayment rate of 20% and a discount rate of 6.87%.
10
Investment Securities Held-to-Maturity. Investment securities held-to-maturity are carried at amortized cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity. Investment securities held-to-maturity consist of agency mortgage-backed securities issued by government sponsored entities. Fair value is determined based upon the same independent pricing model utilized for valuation of Level 2 investment securities available-for-sale.
Investment in Equity Securities. The fair value on investment in equity securities is the carrying amount and is evaluated for impairment on an annual basis.
Loans Held for Investment. The fair value for loans with variable interest rates is the carrying amount. The fair value of fixed-rate loans is derived by calculating the discounted value of future cash flows expected to be received by the various homogeneous categories of loans or by reference to secondary market pricing. All loans have been adjusted to reflect changes in credit risk.
Accrued Interest Receivable. The fair value of accrued interest receivable on loans and investment securities approximates its carrying value.
Derivative Instruments (Cash Flow Hedge). The Bank entered into a pay-fixed, receive-variable interest rate swap agreement with a counterparty. This agreement was solely undertaken as a cash flow hedge of interest rate risk, specifically of the risk of changes in cash flows on interest payments associated with a stream of variable-rate, short-term borrowings for a corresponding amount that are attributable to changes in the future financing rates of each rolling maturity. We estimate the fair value of this agreement based on inputs from a third-party pricing model, which incorporates such factors as the Treasury curve, the secured overnight financial rate (“SOFR”), and the pay rate on the interest rate swaps. The fair value of this derivative instrument is based on a discounted cash flow approach. The observable nature of the inputs used in deriving its fair value results in a Level 2 classification.
At June 30, 2025, the fair value of the hedge was ($2.9) million and is classified as derivative liabilities on the accompanying balance sheet.
Derivative Instruments (Interest Rate Swap). On January 29, 2025, the Bank entered into an interest rate swap agreement with an institutional counterparty to hedge the interest rate risk to earnings associated with fair value changes in the valuation allowance of loans held for sale. The hedging instrument is a pay-fixed, receive-variable amortizing interest rate swap agreement with an original notional amount of $1.0 billion. In the second quarter of 2025, the Company partially terminated $625 million notional amount in conjunction with the sale of $858 million principal balance of multifamily loans held for sale, resulting in $375 million notional amount remaining. We estimate the fair value of this agreement based on inputs from a third-party pricing model, which incorporates such factors as the Treasury curve, the secured overnight financial rate (“SOFR”), and the pay rate on the interest rate swaps. The fair value of this derivative instrument is based on a discounted cash flow approach. The observable nature of the inputs used in deriving its fair value results in a Level 2 classification.
At June 30, 2025, the fair value of the hedge was ($5.8) million and is classified as derivative liabilities on the accompanying balance sheet.
Deposits. The fair value of demand deposits, savings deposits, and money market deposits is defined as the amounts payable on demand resulting in a Level 1 classification. The fair value of fixed maturity certificates of deposit is estimated based on the discounted value of the future cash flows expected to be paid on the deposits resulting in a Level 2 classification.
Borrowings. The fair value of borrowings is the carrying value of overnight FHLB advances and federal funds purchased that approximate fair value because of the short-term maturity of these instruments, resulting in a Level 2
11
classification. The fair value of borrowings in the form of FHLB putable advances also approximates carrying value and are classified as Level 2 instruments.
Subordinated debt. The fair value of term borrowings is derived by calculating the discounted value of future cash flows expected to be paid out by the Company resulting in a Level 3 classification.
Accrued Interest Payable. The fair value of accrued interest payable on deposits, borrowings, and subordinated debt approximates its carrying value.
The following table sets forth the estimated fair values and related carrying amounts of our financial instruments as of:
Carrying
Value
Assets:
Securities AFS, net
Securities HTM
604,367
Loans held for sale
Loans held for investment, net
44,196
7,335,483
7,379,679
Investment in equity securities
11,799
6,744,399
1,856,771
8,601,170
1,696,461
156,564
Accrued interest payable
18,273
636,840
16,663
7,595,925
7,612,588
11,798
7,476,826
2,389,896
9,866,722
1,430,337
142,631
27,701
12
NOTE 3: SECURITIES
The following table provides a summary of the Company’s securities AFS portfolio as of:
Amortized
Gross Unrealized
Allowance for
Estimated
Cost
Gains
Losses
Credit Losses
Fair Value
205,981
(1,562)
1,093,563
243
(4,735)
48,749
(2,540)
7,945
(60)
127,732
(7,380)
(651)
999
(13)
1,485,810
253
(16,290)
11,121
(1,279)
1,126,861
2,308
(7,543)
48,921
(3,386)
9,236
(93)
4,619
(3,377)
133,767
(7,193)
(757)
700
(22)
1,335,225
2,310
(19,516)
(4,134)
The following table provides a summary of the Company’s securities HTM portfolio as of:
Gross Unrecognized
(59,440)
(75,265)
As of June 30, 2025, the tables above include $392.0 million in agency mortgage-backed securities pledged as collateral to the state of Florida to meet regulatory requirements; $1.9 million in U.S. Treasury and agency mortgage-backed securities pledged as collateral to various states to meet regulatory requirements related to the Bank’s trust operations; $259.0 million of agency mortgage-backed securities pledged as collateral as support for the Bank’s obligations under loan sales and securitization agreements entered into from 2018 and 2021; and $73.6 million in securities consisting of SBA securities, collateralized mortgage obligations, and agency mortgage-backed securities pledged as collateral for repurchase agreements obtained from a prior bank acquisition. A total of $1.1 billion in SBA and agency mortgage-backed securities, collateralized mortgage obligations, corporate and municipal bonds are pledged as collateral to the Federal Reserve Bank’s discount window from which the Bank may borrow.
13
As of December 31, 2024, the tables above include $325.7 million in agency mortgage-backed securities pledged as collateral to the state of Florida to meet regulatory requirements; $1.3 million in U.S. Treasury securities pledged as collateral to various states to meet regulatory requirements related to the Bank’s trust operations; $256.5 million of agency mortgage-backed securities pledged as collateral as support for the Bank’s obligations under loan sales and securitization agreements entered into from 2018 and 2021; and $77.3 million in securities consisting of SBA securities, collateralized mortgage obligations, and agency mortgage-backed securities pledged as collateral for repurchase agreements obtained from a prior bank acquisition. A total of $916.8 million in SBA and agency mortgage-backed securities, collateralized mortgage obligations, corporate and municipal bonds are pledged as collateral to the Federal Reserve Bank’s discount window from which the Bank may borrow.
We monitor the credit quality of these securities by evaluating various quantitative attributes. The credit quality indicators the Company monitors include, but are not limited to, credit ratings of individual securities and the credit rating of United States government-sponsored enterprises that guarantee the securities. Credit ratings express opinions about the credit quality of a security. Securities rated investment grade, as defined by nationally recognized statistical rating organizations (“NRSROs”), are generally considered by the rating agencies and market participants to be low credit risk. As of June 30, 2025, all of the Company’s securities were either investment grade or were issued by a U.S. government agency or government-sponsored enterprise (“GSE”) with an investment grade rating, with the exception of two corporate bonds having a combined market value of $32.0 million and one agency commercial mortgage-backed security with a marked value of $841 thousand which were below investment grade.
The tables below indicate the gross unrealized losses and fair values of our securities AFS portfolio, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
Securities with Unrealized Loss at June 30, 2025
Less than 12 months
12 months or more
Fair
Unrealized
Loss
197,644
(459)
6,775
(1,103)
996,966
(4,476)
3,803
(259)
1,000,769
492
(8)
45,488
(2,532)
45,980
204
6,646
6,850
19,876
(124)
100,476
(7,256)
120,352
487
1,215,182
(5,067)
163,675
(11,223)
1,378,857
Securities with Unrealized Loss at December 31, 2024
2,874
(51)
6,968
(1,228)
719,329
(7,218)
4,280
(325)
723,609
2,129
(101)
43,405
(3,285)
45,534
614
7,739
(92)
8,353
14,242
(758)
112,333
(6,435)
126,575
739,188
(8,129)
175,403
(11,387)
914,591
14
Unrealized losses in the securities AFS portfolio have not been recognized into income because the securities are either of high credit quality, management does not intend to sell, it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, or the decline in fair value is largely due to changes in discount rates and assumptions regarding future interest rates. The fair value is expected to recover as the bonds approach maturity.
The tables below indicate the gross unrecognized losses and fair value of our securities HTM portfolio, aggregated by investment category and length of time that the individual securities have been in a continuous unrecognized loss position.
Securities with Unrecognized Loss at June 30, 2025
Unrecognized
Securities with Unrecognized Loss at December 31, 2024
15,440
(61)
621,400
(75,204)
During the six-month period ended June 30, 2025, $466 million par value of securities available-for-sale were sold, resulting in a gain on sale of securities available-for-sale of $4.7 million. During the six-month period ended June 30, 2024, $747.8 million par value of securities available-for-sale were sold, resulting in gross realized gains of $1.4 million and gross realized losses of $0.2 million.
15
The following is a rollforward of the Company’s allowance for credit losses related to investments for the following periods:
Beginning
Provision (Reversal)
Ending
Balance
for Credit Losses
Charge-offs
Recoveries
Three Months Ended June 30, 2025:
(3,361)
666
(15)
651
4,027
Six Months Ended June 30, 2025:
3,377
(16)
757
(106)
4,134
(122)
Three Months Ended June 30, 2024:
6,593
(91)
6,502
1,318
(478)
840
7,911
(569)
7,342
Six Months Ended June 30, 2024:
6,818
(316)
1,402
(562)
8,220
During the six-month periods ending June 30, 2025 and June 30, 2024, the Company recorded a provision (reversal) for credit losses of ($122) thousand and ($878) thousand, respectively. During the quarter ended June 30, 2025, an interest-only strip security was written down to its fair value resulting in a charge-off of $3.4 million to the provision. There were no charge-offs recorded for the year-ago quarter or six-month period ended June 30, 2024.
On a quarterly basis, the Company engages with an independent third party to perform an analysis of expected credit losses for its municipal and corporate bond securities in order to supplement our own internal review. As of June 30, 2025, the analysis concluded and the Company concurred that fourteen corporate bonds were impacted by credit loss, for which $106 thousand was recorded as reversal of provision to the allowance for credit losses (“ACL”) related to available-for-sale securities and that no municipal bond securities were impacted by credit loss. The ACL related to available-for-sale securities totaled $651 thousand and $4.1 million as of June 30, 2025 and December 31, 2024, respectively.
16
The amortized cost and fair value of investment securities AFS by contractual maturity were as follows for the periods indicated:
1 Year or
More than 1 Year
More than 5 Years
More than
Less
through 5 Years
through 10 Years
10 Years
June 30, 2025
Amortized Cost:
216
417
205,348
2,525
1,091,038
2,604
20,552
24,497
1,096
485
111
7,349
3,005
57,969
61,236
5,522
500
499
6,109
83,087
86,261
1,310,353
Weighted average yield
2.67
%
5.53
3.10
5.34
5.21
Estimated Fair Value:
205
394
203,820
2,463
1,086,608
2,602
19,881
22,872
854
484
7,294
2,932
56,452
56,578
4,390
505
6,021
80,831
79,955
1,302,966
1,469,773
December 31, 2024
276
154
10,691
48
2,992
1,123,821
2,594
14,874
29,218
2,235
418
388
8,430
61,961
66,282
5,524
200
2,842
85,640
96,042
1,150,701
1.99
5.83
3.01
5.50
256
150
9,436
47
2,882
1,118,697
2,573
14,120
27,065
1,777
416
8,341
60,318
61,889
4,367
126,574
478
2,820
83,089
89,492
1,142,618
1,318,019
17
The amortized cost and fair value of investment securities HTM by contractual maturity were as follows for the periods indicated:
5,752
9,027
649,028
1.08
1.77
2.22
2.21
5,476
8,329
590,562
4,542
8,900
698,663
0.99
1.58
2.24
4,287
8,128
624,425
NOTE 4: LOANS
The following is a summary of our loans held for investment as of:
Outstanding principal balance:
Loans secured by real estate:
Residential properties:
Multifamily
3,288,093
3,341,823
Single-family
822,508
873,491
Total real estate loans secured by residential properties
4,110,601
4,215,314
Commercial properties
818,738
904,167
Land and construction
43,361
69,246
Total real estate loans
4,972,700
5,188,727
Commercial and industrial loans
2,568,621
2,746,351
Consumer loans
1,544
1,137
Total loans
7,542,865
7,936,215
Premiums, discounts and deferred fees and expenses
5,458
5,178
The Company’s loans held for investment portfolio is segmented according to loans that share similar attributes and risk characteristics. In addition, the Company’s loans held for sale portfolio, which is not included in the table above, and consisting entirely of multifamily loans, totaled $0.5 billion at June 30, 2025 and $1.3 billion at December 31, 2024, respectively.
18
Loans secured by real estate include those secured by either residential or commercial real estate properties, such as multifamily and single-family residential loans; owner occupied and non-owner occupied commercial real estate loans; and land and construction loans.
Commercial and industrial loans are loans to businesses where the operating cash flow of the business is the primary source of payment. This segment includes commercial revolving lines of credit and term loans, municipal finance loans, equipment finance loans and SBA loans.
Consumer loans include personal installment loans and line of credit, and home equity lines of credit. These loan products are offered as an accommodation to clients of our primary business lines.
Loans with a collateral value totaling $170.6 million and $176.0 million were pledged as collateral to secure borrowings with the Federal Reserve Bank at June 30, 2025 and December 31, 2024, respectively. Loans with a market value of $3.1 billion and $4.1 billion were pledged as collateral to secure borrowings with the FHLB at June 30, 2025 and December 31, 2024, respectively.
During the six-month period ended June 30, 2025, loans totaling $858 million in unpaid principal balance were sold, resulting in a net loss on sale of loans of $10.4 million. During the six-month period ended June 30, 2024, loans totaling $8.1 million in unpaid principal balance were sold, resulting in a net gain on sale of loans of $678 thousand.
The following table summarizes our delinquent and nonaccrual loans as of:
Past Due and Still Accruing
Total Past
90 Days
Due and
30–59 Days
60-89 Days
or More
Nonaccrual
Current
Real estate loans:
Residential properties
10,858
18,779
29,637
4,090,114
4,119,751
3,180
355
6,006
9,541
808,801
818,342
43,317
637
168
10,647
2,554,717
2,565,364
1,549
14,675
34,627
49,825
7,498,498
Percentage of total loans
0.19
0.00
0.46
0.66
7,083
23,324
30,407
4,193,994
4,224,401
7,944
428
12,900
7,946
874,463
903,681
69,134
997
617
9,174
10,788
2,732,226
2,743,014
1,163
16,024
1,045
40,444
70,413
7,870,980
0.20
0.01
0.16
0.51
0.89
19
The following table summarizes our nonaccrual loans as of:
with Allowance
with no Allowance
1,363
17,416
585
5,421
9,834
11,782
22,845
1,420
21,904
3,449
4,497
14,043
26,401
The Company provides modifications to borrowers experiencing financial difficulty, which may include interest rate reduction, term extensions, principal forgiveness, other-than-insignificant payment delays, or a combination of any of these items. A loan modification or refinancing results in a new loan if the terms of the new loan are at least as favorable to the lender as the terms with customers with similar collection risks that are not refinancing or restructuring their loans and the modification to the terms of the loan are more than minor. If a loan modification or refinancing does not result in a new loan, it is classified as a loan modification.
20
The following table presents our loan modifications made to borrowers experiencing financial difficulty by type of modification for the six-month periods ended June 30, 2025 and 2024, respectively with related amortized cost balances, respective percentage share of the total class of loans, and the related financial effect:
Term Extension
Amortized Cost Basis
% of Total Class of Loans
Financial Effect
Residential loans
36
0.001
1 loan with 4 months of payment deferrals.
Commercial real estate loans
411
1 loan with 6 month term extension.
4,679
0.18
1 loan with payment deferral of 151 months with 50% payments until paid in full; 8 loans with payment deferrals of either 2 or 3 months with $100 monthly payments; 2 loans with payment deferrals of 2 months; 3 loans with term extensions and payment deferrals ranging from 12 to 52 months.
5,126
Combination
291
4 loans with extensions of loan maturity of 2 and 3 months and payment deferral.
4,970
5,417
June 30, 2024:
1.30
1 loan with term extension of 10 months.
1,269
0.04
4 loans with various extensions of loan maturity ranging from 3 to 62.5 months. 1 loan with 3-month extension and 3-month forbearance. 1 loan with $100 payments through 3 months.
14,169
7,183
4 loans with various extensions of loan maturity ranging from 6 to 19 months and payment deferral. 1 loan with 5 month forbearance followed by interest rate reduction. 1 loan with $100 payments through 3 months with payment deferral.
8,452
21,352
21
The following table presents the amortized cost basis of loans that had a payment default during the six-month period ended June 30, 2025 which were modified in the previous twelve-month period of July 1, 2024 to June 30, 2025:
# of Loans Defaulted
66
220
None of the loans modified during the twelve-month period of July 1, 2023 to June 30, 2024 subsequently had a payment default during the six-month period ended June 30, 2024.
The following table presents the payment status of our loan modifications made during the previous twelve-month periods ended July 1, 2024 to June 30, 2025 and July 1, 2023 to June 30, 2024, respectively:
30-89 Days
90+ Days
Past Due
39
2,069
8,284
10,353
2,108
8,695
10,803
247
13,515
13,635
8,055
21,690
27,397
35,452
22
NOTE 5: ALLOWANCE FOR CREDIT LOSSES
The Company accounts for ACL related to loans held for investment in accordance with ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the Company to record an estimate of current expected credit losses (“CECL”) for loans at the time of origination. The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheet.
The measurement of the ACL is performed by collectively pooling and evaluating loans with similar risk characteristics. The quantitative CECL model estimates credit losses by applying pool-specific probability of default (“PD”) and loss given default (“LGD”) rates to the expected exposure at default ("EAD") over the contractual life of the loans. A significant portion of the ACL is calculated and measured on a collective pool basis, representing $7.4 billion or approximately 98.1% of the total blended loans held for investment portfolio as of June 30, 2025. Pooled loan segments consisted of multifamily, commercial, single-family, non-owner occupied commercial real estate, and construction loans. The remaining portion of the loan portfolio, representing $121 million or approximately 1.6% of the total blended loan portfolio, consisted of small homogeneous loan portfolios which has its quantitative reserve calculated separately based on historical loss factors for the respective portfolios or, if no historical loss is available, based on peer group historical losses. These loan portfolios include equipment finance, land, consumer and commercial small balance loans. In addition, collateral dependent loans totaling $26.2 million or approximately 0.3% of the total blended portfolio are separately valued based on the fair value of the underlying collateral.
As of December 31, 2024, the ACL was calculated and measured on a collective pool basis, representing $7.8 billion or approximately 97.6% of the total blended loans held for investment portfolio. Pooled loan segments consisted of multifamily, commercial, single-family, non-owner occupied commercial real estate, and construction loans. The remaining portion of the loan portfolio, representing $164.7 million or 2.1% of the total blended loan portfolio, consisted of small homogeneous loan portfolios which has its quantitative reserve calculated separately based on historical loss factors for the respective portfolios or, if no historical loss is available, based upon peer group historical losses. These loan portfolios include equipment finance, land, consumer and commercial small balance loans. In addition, collateral dependent loans totaling $27.0 million or 0.3% of the total blended portfolio were separately valued based on the fair value of the underlying collateral.
The measurement also incorporates qualitative components such as internal and external risk factors that may not be adequately assessed in the quantitative model. Qualitative adjustments primarily relate to segments of the loan portfolio deemed by management to be of a higher-risk profile or other factors where management believes the quantitative component of the ACL model may not be fully reflective of levels deemed adequate in the judgment of management. Qualitative adjustments may also relate to uncertainty as to future macroeconomic conditions and the related impact on certain loan segments. Management reviews the need for an appropriate level of quantitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods. Management applies a two-year time horizon in its ACL model at which there is a gradual reversion back to historical loss experience over a two year period.
For purposes of calculating the ACL, the Company has elected to include deferred loan fees and expenses in the loan balance and exclude accrued interest from loan balances.
23
The following is a rollforward of the allowance for credit losses related to loans held for investment for the following periods:
Provision
(Reversal) for
6,544
236
6,780
5,861
529
6,390
46
93
22,739
1,680
(492)
357
24,284
35,200
2,495
37,560
7,216
(442)
6,683
(293)
61
32
18,333
6,284
(895)
562
32,302
5,585
568
8,374
639
9,013
4,597
1,489
6,086
77
16,251
(1,930)
(369)
152
14,104
29,295
217
9,921
(908)
4,148
1,938
332
(255)
14,796
(133)
(862)
303
29,205
648
304
The Company maintained an allowance for unfunded loan commitments totaling $1.7 million and $1.3 million at June 30, 2025 and December 31, 2024, respectively, which is included in accounts payable and other liabilities. The allowance is calculated based mostly on loss rates for the type of loan/collateral in which the loan commitment relates with a drawdown probability applied to the available credit balance based on utilization rates for the prior year.
24
The Company’s primary regulatory agencies periodically review the allowance for credit losses and such agencies may require the Company to recognize additions to the allowance based on information and factors available to them at the time of their examinations. Accordingly, no assurance can be given that the Company will not recognize additional provisions for credit losses with respect to the loan portfolio.
A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans are evaluated individually to determine expected credit losses and any ACL allocation is determined based upon the amount by which amortized costs exceed the estimated fair value of the collateral, adjusted for estimated selling costs (if applicable). The following table presents the amortized cost basis of collateral dependent loans and the related ACL allocated to these loans as of the dates indicated:
Equipment/
ACL
Real Estate
Cash
Receivables
Allocation
1,449
15,967
Commercial loans
3,339
3,347
509
26,184
2,802
15,856
3,935
697
23,155
27,090
25
Credit Risk Management
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as loans secured by multifamily or commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:
Pass: Loans classified as pass are strong credits with no existing or known potential weaknesses deserving of management’s close attention.
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions above and smaller, homogeneous loans not assessed on an individual basis.
26
The following tables present risk categories of loans held for investment based on year of origination, and includes gross charge-offs in accordance with ASU 2022-02 as of the dates presented:
Revolving
2023
2022
2021
Prior
Residential
Pass
60,610
87,402
534
1,679,791
731,151
488,825
3,048,313
Special mention
21,402
48,611
54,576
124,589
Substandard
5,998
14,601
100,410
121,009
1,707,191
794,363
643,811
3,293,911
Gross charge-offs
618
5,400
9,400
240,404
247,346
267,671
37,121
807,960
526
17,196
158
17,354
284,867
37,805
825,840
Commercial real estate
3,123
2,377
210,730
101,932
467,033
785,195
7,722
1,171
12,941
21,834
3,118
8,195
11,313
218,452
106,221
488,169
122
33,542
4,373
5,136
43,173
144
5,280
Commercial
3,334
63,857
106,996
907,490
169,743
99,280
1,083,838
2,434,538
627
4,465
9,719
52,670
657
9,713
77,851
1,575
2,438
40,037
296
2,226
6,380
52,975
4,909
66,922
151,498
917,232
222,709
102,163
1,099,931
352
290
210
Consumer
591
102
44
742
64,632
159,904
119,898
3,071,957
1,254,647
1,327,989
1,121,701
7,120,728
38,843
102,452
68,318
10,239
224,944
18,015
128,027
6,538
202,651
66,207
162,969
164,400
3,116,821
1,375,114
1,524,334
1,138,478
27
2020
101,311
539
1,701,974
749,864
369,887
241,935
3,165,510
47,090
18,572
8,623
74,285
13,231
18,234
76,185
107,650
1,715,205
796,954
406,693
326,743
3,347,445
5,410
9,441
247,252
255,096
90,422
203,116
44,580
855,317
510
21,104
21,129
224,220
45,115
876,956
3,784
2,398
217,827
115,582
136,414
378,101
854,106
1,637
1,299
7,966
4,795
15,697
845
20,133
33,878
15,298
219,464
116,881
145,225
403,029
964
125
24,970
32,877
4,444
1,035
5,683
66,699
151,580
972,111
234,062
88,657
27,220
1,147,464
2,687,793
690
3,400
9,430
24,087
605
7,602
45,814
2,593
28
422
2,218
4,103
9,407
69,982
155,011
981,569
258,571
88,669
30,043
1,159,169
572
622
1,310
795
3,437
4,530
5,504
16,770
89
107
49
913
177,418
188,933
3,172,041
1,359,155
686,415
856,104
1,192,957
7,633,023
11,067
72,476
26,538
14,023
8,112
136,306
12,931
13,259
19,091
119,640
4,128
172,064
180,701
205,264
3,196,367
1,432,053
732,044
989,767
1,205,197
6,151
5,527
18,414
NOTE 6: CORE DEPOSIT INTANGIBLES
Core deposit intangibles are intangible assets having definite useful lives arising from whole bank acquisitions. Core deposit intangibles are amortized on an accelerated method over their estimated useful lives, ranging from 7 to 10 years. At June 30, 2025 and December 31, 2024, core deposit intangible assets totaled $2.9 million and $3.6 million, respectively, and we recognized $611 thousand and $756 thousand in core deposit intangible amortization expense for the six-month periods ended June 30, 2025 and June 30, 2024, respectively.
NOTE 7: DERIVATIVE ASSETS AND LIABILITIES
On February 1, 2024, the Bank entered into an interest rate swap agreement with an institutional counterparty to hedge against our exposure to changes in interest rates as part of our overall interest rate risk management strategy. On the date the agreement was entered into, the derivative was designated as a cash flow hedge, as it was undertaken to manage the risk of changes in cash flows on interest payments associated with a stream of variable-rate, short-term borrowings for a corresponding amount that are attributable to changes in the future financing rates of each rolling maturity. At inception and on a quarterly basis thereafter, an assessment is performed to determine the effectiveness of the derivative at reducing the risk associated with the hedged exposure. A cash flow hedge designated as highly effective is carried at fair value on the balance sheet with the portion of change in fair value of the cash flow hedge considered highly effective recognized in accumulated other comprehensive income (“AOCI”). If the cash flow hedge becomes ineffective, the portion of the change in fair value of the cash flow hedge considered ineffective is reclassified from AOCI to earnings.
The hedging instrument is a pay-fixed, receive variable interest rate swap agreement having a beginning notional amount of $450 million. The Bank pays quarterly interest at a fixed-rate of 3.583% and receives quarterly interest payments calculated at the Daily Simple SOFR over the same period. The original term of the agreement is five years, expiring on February 1, 2029. On March 28, 2024, the original hedge position notional amount was reduced by $100 million, and a corresponding amount of the hedged item was simultaneously de-designated, resulting in the recording of a gain of $1.7 million, classified as capital markets activities on the accompanying statements of operations.
At June 30, 2025, the fair value of the cash flow hedge was ($2.9) million and is classified as derivative liabilities with a corresponding amount classified as a component of AOCI on the accompanying balance sheet. At December 31, 2024, the fair value of the cash flow hedge was $5.1 million and is classified as derivative assets with a corresponding amount classified as a component of AOCI on the accompanying balance sheet.
On January 29, 2025, the Bank entered into an interest rate swap agreement with an institutional counterparty to hedge the interest rate risk to earnings associated with the fair value changes in the valuation allowance of loans held for sale. The hedging instrument is a pay-fixed, receive-variable amortizing interest rate swap agreement with a notional amount of $1.0 billion. In the second quarter of 2025, the Company partially terminated $625 million notional amount in conjunction with the sale of $858 million principal balance of multifamily loans held for sale, resulting in $375 million notional amount remaining and recognition of a $7.1 million realized loss on partial termination, which is included as a component of capital markets activity on the consolidated statements of operations. The Bank pays quarterly interest at a fixed-rate of 4.03% and receives quarterly interest payments calculated at the Daily Simple SOFR over the same period. The term of the agreement is four years, expiring on January 29, 2029. Since the fair value changes of the valuation allowance for loans held for sale already flow through earnings, the Bank has elected to not designate the hedge for hedge accounting to ensure that changes in the derivative’s value are reported in current earnings each period.
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NOTE 8: LOAN SALES AND MORTGAGE SERVICING RIGHTS
The Company has retained servicing rights for the majority of the loans sold and recognized mortgage servicing rights in connection with multifamily loan sale transactions that have occurred in the current and prior years. As of June 30, 2025, mortgage servicing rights totaled $7.9 million with no valuation allowance. At December 31, 2024, mortgage servicing rights totaled $6.4 million with no valuation allowance. Mortgage servicing rights are classified as a component of other assets in the accompanying consolidated balance sheets. The amount of loans serviced for others totaled $2.1 billion and $1.3 billion at June 30, 2025 and December 31, 2024, respectively. Servicing fees collected for the six-month periods ended June 30, 2025 and 2024 totaled $2.1 million and $1.2 million, respectively.
There were no loan sale or purchase transactions that resulted in the recognition of mortgage servicing rights in the six-month period ended June 30, 2024.
NOTE 9: DEPOSITS
The following table summarizes the outstanding balance of deposits and average rates paid thereon as of:
Weighted
Average Rate
Demand deposits:
Noninterest-bearing
1,467,203
1,956,628
Interest-bearing
1,672,287
2.99
1,995,397
3.29
Money market and savings
3,604,909
3.55
3,524,801
3.60
Certificates of deposit
1,849,294
4.50
2,393,453
4.72
3.04
3.09
The following table provides the remaining maturities of certificate of deposit accounts of greater than $250,000 as of:
Large Denomination Certificates of Deposit Maturity Distribution
3 months or less
65,181
76,691
Over 3 months through 6 months
59,578
44,619
Over 6 months through 12 months
76,369
92,960
Over 12 months
541
13,417
201,669
227,687
Large depositor relationships, consisting of deposit relationships which exceed 2% of total deposits, accounted for, in the aggregate, 13.4% and 19.7% of our total deposits as of June 30, 2025 and December 31, 2024, respectively. The composition of our large depositor relationships includes mortgage servicing clients who have maintained long-term depository relationships with us. The balances in these depository accounts are subject to seasonal inflows and outflows, common in the mortgage servicing industry.
Accrued interest payable on deposits, which is included in accounts payable and other liabilities, was $18.3 million and $27.7 million at June 30, 2025 and December 31, 2024, respectively.
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NOTE 10: BORROWINGS
The Bank has established secured and unsecured lines of credit under which it may borrow funds from time to time on a term or overnight basis from the FHLB, Federal Reserve Bank of San Francisco (the “Federal Reserve Bank”), and other institutions. At June, 2025, our borrowings consisted of $1.0 billion in FHLB putable advances at the Bank, $650 million of FHLB term advances at the Bank, and $19 million in repurchase agreements at the Bank. At December 31, 2024, our borrowings consisted of $1.0 billion in FHLB putable advances at the Bank, $400 million of FHLB term advances at the Bank, and $25 million in repurchase agreements at the Bank.
FHLB Advances
The FHLB putable advances outstanding at June 30, 2025 had a weighted average remaining life of 5.75 years and a weighted average interest rate of 3.74%. The putable advances can be called quarterly until maturity at the option of the FHLB at various put dates. $300 million attained its first quarterly put date in March 2025 and $700 million attained its first quarterly put date in June 2025, for which none of the puts were exercised.
The FHLB term advances outstanding at June 30, 2025 consist of the following:
$250 million in a one-month fixed-rate advance maturing on July 7, 2025 at an interest rate of 4.55%.
$300 million in a three-year fixed-rate advance maturing on May 28, 2027 at an interest rate of 4.95%.
$100 million in a five-year fixed-rate advance maturing on June 28, 2028 at an interest rate of 4.21%.
FHLB advances are collateralized primarily by loans secured by single-family, multifamily, and commercial real estate properties with a market value of $3.1 billion as of June 30, 2025. The Bank’s total unused borrowing capacity from the FHLB as of June 30, 2025 was $612 million. As of June 30, 2025, the Bank had in place $126 million in letters of credit from the FHLB, $116 million of which is used as collateral for the 2025 and 2024 multifamily loan sale/securitizations, and $10 million of which is used as collateral for public fund deposits.
The FHLB putable advances outstanding at December 31, 2024 had a weighted average remaining life of 6.25 years and a weighted average interest rate of 3.74%. The FHLB term advances outstanding at December 31, 2024 consisted of: $300 million in a three-year fixed-rate advance maturing on May 28, 2027 at an interest rate of 4.95%, and $100 million in a five-year fixed-rate advance maturing on June 28, 2028 at an interest rate of 4.21%. FHLB advances outstanding at December 31, 2024 were collateralized primarily by loans secured by single-family, multifamily, and commercial real estate properties with a market value of $4.1 billion. The Bank’s total unused borrowing capacity from the FHLB at December 31, 2024 was $1.7 billion. The Bank had in place $69 million in letters of credit from the FHLB, $59 million of which is used as collateral for the 2024 multifamily loan sale/securitization, and $10 million of which is used as collateral for public fund deposits.
Federal Reserve Bank Borrowings
The Bank has a secured line of credit with the Federal Reserve Bank including the secured borrowing capacity through the Federal Reserve Bank’s Discount Window, and Borrower-in-Custody (“BIC”) programs. At June 30, 2025, and December 31, 2024, the Bank did not have any borrowings outstanding under any of the Federal Reserve Bank programs. The Bank had secured unused borrowing capacity under this agreement of $1.3 billion and $1.1 billion as of June 30, 2025 and December 31, 2024, respectively.
Uncommitted Credit Facilities:
The Bank has a total of $240 million in borrowing capacity through unsecured federal funds lines, ranging in size from $20 million to $100 million, with six correspondent financial institutions. At June 30, 2025 and December 31, 2024, there were no balances outstanding under these arrangements.
Holding Company Line of Credit:
FFI has entered into a loan agreement with an unaffiliated lender that provides for a revolving line of credit for up to $20 million maturing in June 2026. The loan bears an interest rate of Prime rate, plus 50 basis points (0.50%). FFI’s obligations under the loan agreement are secured by, among other things, a pledge of all of its equity in the Bank. As of June 30, 2025 and December 31, 2024, there were no balances outstanding under this agreement.
Repurchase Agreements:
The repurchase agreements are treated as overnight borrowings with the obligations to repurchase securities sold reflected as a liability. The investment securities underlying these agreements remain in the Company’s securities AFS portfolio. As of June 30, 2025 and December 31, 2024, the repurchase agreements are collateralized by investment securities with a fair value of approximately $73.6 million and $77.3 million, respectively.
NOTE 11: SUBORDINATED DEBT
At June 30, 2025 and December 31, 2024, FFI had two issuances of subordinated notes outstanding with an aggregate carrying value of $173 million. At June 30, 2025 and December 31, 2024, FFI was in compliance with all covenants under its subordinated debt agreements. The following table summarizes the outstanding subordinated notes as of the dates indicated:
Carrying Value
Stated
Principal
Maturity
Rate
Subordinated notes
Subordinated notes due 2032, 3.50% per annum until February 1, 2027, 3-month SOFR + 2.04% thereafter.
February 1, 2032
3.50
150,000
148,418
148,298
Subordinated notes due 2030, 6.0% per annum until June 30, 2025, 3-month SOFR + 5.90% thereafter.
June 30, 2030
6.00
24,165
25,072
25,161
174,165
NOTE 12: INCOME TAXES
For the six-month period ended June 30, 2025, the Company recorded an income tax benefit of $3.8 million which generated an effective tax rate of 82.8%. For the six-month period ended June 30, 2024, the Company recorded an income tax benefit of $1.3 million and had an effective tax rate of -52.3%. The changes in the effective tax rate were predominately due to the changes in pretax income, as well as the impact of tax-exempt interest income and tax benefits associated with low-income housing tax credit investments. The effective tax rates differ from the combined federal and state statutory rates for the Company of 27.8% and 28.2% for the six-month periods ended June 30, 2025 and June 30, 2024 respectively due primarily to various permanent tax differences, including tax-exempt income, tax credits from low-income housing tax credit investments, and other items that impact our effective tax rate.
The Company accounts for income taxes by recognizing deferred tax assets and liabilities based upon future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company has experienced cumulative losses over the past three years, primarily due to
the significant increase in market rates experienced since 2022 and the mark-to-market adjustment related to the transfer of approximately $1.9 billion of multifamily loans from loans held for investment to loans held for sale in the third quarter of 2024. However, the Company has not recorded a valuation allowance against its deferred tax assets, as it has implemented a tax planning strategy that is expected to generate sufficient taxable income to realize these assets. This strategy includes dispositioning the aforementioned multifamily loans transferred to loans held for sale. Removing these relatively low-yielding assets from the balance sheet will improve profitability, either through the reduction of high-cost funding or reinvestment of proceeds into higher-yielding assets. Management has evaluated the feasibility of this strategy under current tax laws and considers it both prudent and objectively verifiable. The Company will continue to monitor its performance and reassess the need for a valuation allowance if necessary.
Deferred tax assets totaled $87.0 million and $76.7 million at June 30, 2025 and December 31, 2024, respectively.
NOTE 13: SHAREHOLDERS’ EQUITY
FFI is a holding company and does not have any direct operating activities. Any future cash flow needs of FFI are expected to be met by its existing cash and cash equivalents and dividends from its subsidiaries. The Bank is subject to various laws and regulations that limit the amount of dividends that a bank can pay without obtaining prior approval from bank regulators. 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 does not exceed 50% of FFI’s earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for the current twelve-month period. FFI’s cash and cash equivalents totaled $7.7 million at June 30, 2025 and December 31, 2024.
On July 8, 2024, the Company raised approximately $228 million of gross proceeds in an equity capital raise (“July 2024 Capital Raise”) with certain investors. In the July 2024 Capital Raise, the Company sold and issued to the investors: (a) 11,308,676 shares of common stock at a purchase price per share of $4.10 (on July 1, 2024, the day before the announcement of the July 2024 Capital Raise, the closing price of the common stock was $6.47); (b) 29,811 shares of a new series of preferred stock, par value $0.001 per share, of the Company designated as Series A Noncumulative Convertible Preferred Stock (the “Series A Preferred Stock”), at a price per share of $4,100, and each share of which is convertible into 1,000 shares of common stock, and all of which shares of Series A Preferred Stock represent the right (on an as converted basis) to receive approximately 29,811,000 shares of common stock; (c) 14,490 shares of a new series of preferred stock, par value $0.001 per share, of the Company designated as Series B Noncumulative Preferred Stock (the “Series B Preferred Stock”), at a price per share of $4,100, each share of which is convertible into 1,000 shares of common stock, and all of which shares of Series B Preferred Stock represent the right (on an as converted basis) to receive approximately 14,490,000 shares of common stock; and (d) Issued Warrants, affording the holder thereof the right, until the seven-year anniversary of the issuance of such Issued Warrant, to purchase for $5,125 per share, 22,239 shares of Series C non-voting, common-equivalent preferred stock (the “Series C NVCE Stock”). Each share of Series C NVCE Stock is convertible into 1,000 shares of common stock, all of which shares of Series C NVCE Stock, upon issuance, will represent the right (on an as converted basis) to receive approximately 22,239,000 shares of common stock. The investors were subject to a 180-day lock-up period with respect to the securities purchased. Net proceeds from the July 2024 Capital Raise of $214.5 million, consisting of the $228 million gross proceeds less issuance costs of $13.5 million, were allocated amongst the newly issued equity instruments under the relative fair value method. Under the relative fair value method, each equity instrument was allocated a portion of the net proceeds based on the proportion of its fair value to the sum of the fair values of all of the equity instruments covered in the allocation.
On September 30, 2024, stockholders approved and adopted an amendment to the Company’s certificate of incorporation, as amended, to increase the number of authorized shares of common stock from 100,000,000 shares to 200,000,000 shares and also approved the issuance of shares of common stock in connection with the July 2024 Capital Raise pursuant to NYSE listing rules. As a result of these approvals, all of the issued and outstanding shares of the Series B Preferred Stock automatically converted into shares of common stock as of the close of business on October 2, 2024, in accordance with the terms of the Certificate of Designation for the Series B Preferred Stock. In addition, the quarterly non-
33
cumulative cash dividend (annual rate of 13%) and liquidation preference rights of the Series A Preferred Stock ceased to apply. Shares of Series A Preferred Stock (a) are now entitled to receive dividends at the same time and on the same terms as shares of common stock in accordance with the Certificate of Designation for the Series A Preferred Stock, and (b) rank as equal to shares of common stock in any liquidation of the Company. Furthermore, the Company will not be required to issue any cash-settled warrants to the investors who participated in the July 2024 Capital Raise. At June 30, 2025 and December 31, 2024, there were no declared dividends outstanding with respect to the Series A Preferred Stock.
NOTE 14: EARNINGS PER SHARE
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if contracts to issue common stock were exercised or converted into common stock that would then share in earnings. As part of the aforementioned July 2024 Capital Raise, the Company issued warrants (See Note 13: Shareholders’ Equity) which are considered for potential dilution. In addition to the warrants, other contingent shares issuable include restricted stock units issued by the Company under its equity incentive plans.
For the three-month period ended June 30, 2025, the average common share price was below the $5.125 per share exercise price (on an as-converted basis) of the warrants. For the six-month period ended June 30, 2025, the average common share price was above the $5.125 per share exercise price (on an as-converted basis) of the warrants. As the average common share price was above the $5.125 per share exercise price (on an as-converted basis) of the warrants for the six-month period June 30, 2025, the warrants would have been included in the dilutive share count and diluted earnings per share for the six-month period ended June 30, 2025, if the Company had positive earnings for the period. In addition, 8,825 and 11,696 in restricted stock units are included in diluted shares for the three-month and six-month periods ended of June 30, 2024, respectively.
There were no stock options outstanding as of June 30, 2025 and June 30, 2024, respectively.
The following table sets forth the Company’s unaudited earnings per share calculations for the three-month and six-month periods ended June 30:
Three Months Ended
June 30, 2024
(dollars in thousands, except per share amounts)
Weighted average basic common shares outstanding
Dilutive effect of options, restricted stock, warrants, and contingent shares issuable
8,825
Diluted common shares outstanding
Net (loss) income per share
(dollars in thousands, except share and per share amounts)
11,696
34
NOTE 15: SEGMENT REPORTING
For the three and six months ended June 30, 2025 and 2024, the Company had two reportable business segments: Banking (FFB) and Wealth Management (FFA). The results of FFI and any elimination entries are included in the column labeled Other. The reportable segments are determined by products and services offered and the corporate structure. Business segment earnings before taxes are the primary measure of the segment’s performance as evaluated by management. Business segment earnings before taxes include direct revenue and expenses of the segment as well as corporate and inter-company cost allocations. Allocations of corporate expenses, such as finance and accounting, data processing and human resources are calculated based on estimated activity or usage levels. The management accounting process measures the performance of the operating segments based on the Company’s management structure and is not necessarily comparable with similar information for other financial services companies. If the management structures and/or the allocation process changes, allocations, transfers, and assignments may change.
In accordance with ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, the significant expenses shown in the tables below are those that are regularly provided to the chief operating decision maker (“CODM”) who regularly uses them, along with other information in assessing the segments’ performance and in decisions regarding the allocation of resources. With respect to ASU 2023-07, the CODM for the Company is the
35
Chief Executive Officer. The following tables show key operating results for each of our business segments used to arrive at our consolidated totals for the following periods:
Wealth
Banking
Management
Interest income
Interest expense
85,338
51,787
(1,705)
Provision for credit losses
Noninterest income
(5,384)
7,077
(355)
Noninterest expense
17,517
5,124
249
5,844
928
466
15,446
654
713
16,813
(7,753)
371
(3,488)
Income tax (benefit) expense
(2,336)
(951)
(5,417)
264
(2,537)
105,380
6,241
7,790
(373)
14,821
4,079
195
2,656
926
85
15,720
364
16,763
Income (loss) before income taxes
3,280
2,106
(2,722)
594
(760)
Net income (loss)
3,535
1,512
(1,962)
173,591
105,276
(3,395)
7,026
14,626
(712)
38,343
10,846
(1,191)
10,339
2,037
769
30,200
1,278
990
32,468
(397)
465
(4,675)
Income tax expense (benefit)
(2,709)
146
(1,250)
2,312
319
(3,425)
215,742
85,625
(3,410)
11,924
15,139
(722)
29,993
8,174
335
5,188
1,827
42
31,818
1,359
660
33,837
3,937
3,779
(5,169)
1,081
(1,446)
4,903
2,698
(3,723)
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to facilitate the understanding and assessment of significant changes and trends in our businesses that accounted for the changes in our results of operations in the three and six months ended June 30, 2025 as compared to our results of operations in the three and six months ended June 30, 2024; and our financial condition at June 30, 2025 as compared to our financial condition at December 31, 2024. This discussion and analysis is based on and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto contained elsewhere in this report and our audited consolidated financial statements for the year ended December 31, 2024, and the notes thereto, which are set forth in Item 8 of our Annual Report on Form 10-K which we filed with the Securities and Exchange Commission (“SEC”) on March 17, 2025.
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,” “outlook” 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2024. 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2024, 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2024, except as may otherwise be required by applicable law or government regulations.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with 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 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, and deferred income taxes.
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 we deem a security to no longer possess shared risk characteristics. Under ASC 326-20, for investment securities where we have reason to believe the credit loss exposure is remote, such as those guaranteed by the U.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 available-for-sale (“AFS”) in an unrealized loss position, we first evaluate whether we intend to sell, or whether it is more likely than not that we 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 criterion is met, we are 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, we consider 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, we record the decline in fair value through other comprehensive income, net of related income tax effects. We have elected 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 criterion regarding intent or requirement to sell is met. See Note 3: Securities in the consolidated financial statements for additional information related to our allowance for credit losses on securities AFS.
Allowance for Credit Losses – Loans Held for Investment. Our ACL for loans held for investment 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 are charged against the ACL when management believes that collectability of the principal is unlikely. The ACL represents management’s estimate of current expected credit losses over the remaining expected life of the loans held for investment. The ACL involves significant judgment on a number of matters including assessment of key credit risk characteristics, assignment of credit ratings, valuation of collateral, the determination of remaining expected life, incorporation of historical default and loss experience, and a development and weighting of macroeconomic forecasts. The Company reviews baseline and alternative economic scenarios from Moody’s and quarterly projections of federal funds target rates from the FOMC for consideration as quantitative factors and applies a two-year time horizon prior to gradually reverting to our historical loss experience, which continues to be deemed reasonable and supportable. While we use the best information available to make this evaluation, future adjustments to our ACL may be necessary if there are significant changes in economic or other conditions that can affect the collectability in full of loans in our loan portfolios. See Note 5: Allowance for Credit Losses, in the consolidated financial statements for additional information related to the Company’s allowance for credit losses on loans held for investment.
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 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.
For complete discussion and disclosure of other accounting policies, see Note 1: Summary of Significant Accounting Policies of the Company’s consolidated financial statements in both this quarterly filing as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
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.
40
Overview
For the quarter ended June 30, 2025, the Company reported a net loss of $7.7 million, compared to net income of $6.9 million and $3.1 million for the prior and year-ago quarters, respectively. Net interest income after provision for credit losses totaled $47.7 million for the quarter ended June 30, 2025, compared to $48.4 million and $44.6 million for the prior and year-ago quarters, respectively. Net interest margin (“NIM”) was 1.68% for the quarter ended June 30, 2025, compared to 1.67% and 1.36% for the prior and year-ago quarters, respectively. Provision (reversal) for credit losses totaled $2.4 million for the quarter ended June 30, 2025, compared to $3.4 million and ($806) thousand for the prior and year-ago quarters, respectively. Noninterest income totaled $1.3 million for the quarter ended June 30, 2025, compared to $19.6 million and $13.7 million for the prior and year-ago quarters, respectively. Noninterest expense totaled $59.9 million for the quarter ended June 30, 2025, compared to $61.7 million and $55.6 million for the prior and year-ago quarters, respectively.
At June 30, 2025, the Company had total assets of $11.6 billion, including $8.0 billion of total loans, net of deferred fees and allowance for credit losses, $1.1 billion of cash and cash equivalents, $1.5 billion in investment securities available-for-sale, and $0.7 billion in investment securities held-to-maturity. This compares to total assets of $12.6 billion, including $9.2 billion of total loans, net of deferred fees and allowance for credit losses, $1.0 billion of cash and cash equivalents, $1.3 billion in investment securities available-for-sale, and $0.7 billion in investment securities held-to-maturity at December 31, 2024. Cash and cash equivalents represented approximately 9.1% of total assets at June 30, 2025, compared to 8.0% at December 31, 2024. Total assets decreased $1.1 billion or 8.4% at June 30, 2025 compared to December 31, 2024. The decrease in total assets was largely due to a $1.2 billion decrease in total loans, offset by a $0.1 billion increase in total investment securities. The decrease in total loans was largely due to the sale of $858 million in multifamily loans held for sale during the quarter as part of the Company’s continued strategy to reduce its exposure to low-coupon fixed rate loans and concentration in commercial real estate (“CRE”) loans and high-cost deposits. In addition, the decrease in total loans was due to loan payments and payoffs on the loans held for investment portfolio totaling $808 million, offset by new loan fundings of $436 million for the six-month period ended June 30, 2025.
At June 30, 2025, the Company had total liabilities of $10.5 billion, including $8.6 billion in deposits, $1.7 billion in borrowings, $173 million in subordinated debt, and $101.2 million in other liabilities. This compares to total liabilities of $11.6 billion, including $9.9 billion in deposits, $1.4 billion in borrowings, $173 million in subordinated debt, and $123 million in other liabilities at December 31, 2024. Total liabilities decreased $1.1 billion or 9.1% at June 30, 2025, compared to December 31, 2024. The decrease was largely due to a $1.3 billion decrease in deposits, offset by a $0.2 billion increase in borrowings. Proceeds from the aforementioned loan sales were used to pay down high-cost deposits during the quarter. Our loan to deposit ratio was 93.4% as of June 30, 2025 compared to 93.5% as of December 31, 2024.
At June 30, 2025, the Company had total shareholders’ equity of $1.05 billion, relatively unchanged from December 31, 2024. During the six-month period ended June 30, 2025, shareholder’s equity activity included $794 thousand net loss and a $5.4 million increase in accumulated other comprehensive loss, offset by a $3.5 million increase in additional paid-in-capital from recurring accruals for stock equivalent awards. The increase in accumulated other comprehensive loss was due to a $5.8 million loss associated with derivative assets, offset by $0.3 million in holding gains on the investment securities portfolio arising during the period.
Results of Operations
The primary sources of revenue for Banking are net interest income, fees from its deposits and trust services, gains on the sale of loans and investment securities available-for-sale, 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”).
41
The following table shows key operating results for each of our business segments for the quarter ended June 30:
2025:
51,790
6,706
1,428
2024:
49,301
5,684
644
Second Quarter of 2025 Compared to Second Quarter of 2024
Combined net loss for the second quarter of 2025 was $7.7 million, compared to net income of $3.1 million for the year-ago quarter. Combined net loss before income taxes for the second quarter of 2025 was $10.9 million, compared to combined net income before taxes of $2.7 million for the year-ago quarter. The $10.8 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 $11.0 million, resulting primarily from a decrease in noninterest income of $11.6 million. Noninterest income during the quarter was impacted by the recording of a $10.4 million loss on the sale of $858 million in multifamily loans held for sale, primarily due to the pricing received being at a discount when compared to the previous quarter’s market valuation and other one-time loan sale components. The $858 million in loans sold were part of the original $1.9 billion in multifamily CRE loans transferred in August 2024 from loans held for investment to loans held for sale, as part of the Company’s strategic plan to reduce its exposure to low-coupon fixed-rate loans and concentration in CRE loans. Net interest income increased $6.2 million from the year-ago quarter. Interest income decreased $13.8 million or 9.1% from the year-ago quarter but was offset by a decrease in interest expense of $20.0 million or 19.0% from the year-ago quarter. 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 $1.7 million was primarily due to a $0.7 million decrease in noninterest income and a $1.0 million increase in noninterest expense. The decrease in noninterest income was due to a reduction in investment advisory fees, as average quarterly AUM balances decreased to $5.2 billion for the second quarter of 2025 compared to $5.4 billion for the year-ago quarter. The increase in noninterest expense was due to an increase in compensation and benefits 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 expected lifetime credit losses 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 second quarter of 2025, we recorded total provision for credit losses of $2.4 million, compared to a reversal of $806 thousand for the year-ago quarter. The provision for credit losses for the second quarter of 2025 consisted of $2.4 million in provision expense for loans, net of $0.1 million in net charge-offs. The $2.4 million in provision expense for loans is reflective of higher reserves for the commercial loan portfolio and overall increase in model-calculated loss factors. At June 30, 2025, the allowance for credit losses on the loan portfolio was $37.6 million or 0.50% of total loans held for investment, compared to $32.3 million and 0.41% at December 31, 2024. For the second quarter of 2025, we recorded net charge-offs of $0.1 million or 0.003% of average loans on an annualized basis compared to $0.2 million or 0.01% of average loans on an annualized basis for the year-ago quarter.
In the second quarter of 2025, an interest-only strip security was written down to its fair value resulting in a charge-off of $3.4 million to the amount of allowance for credit losses pertaining to securities on the balance sheet. There was no income statement impact to this write-down as the amount was previously reserved within the allowance for credit losses.
43
The following table shows key operating results for each of our business segments for the six months ended June 30:
106,916
14,161
93,841
11,360
1,037
Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024
Combined net loss for the six-month period ended June 30, 2025 was $794 thousand, compared to net income of $3.9 million for the year-ago period. Combined net loss before income taxes for the six-month period ended June 30, 2025 was $4.6 million, compared to combined net income before taxes of $2.5 million for the year-ago period. The $7.1 million decrease in combined net income before taxes from the year-ago period was primarily due to a decrease in net income before taxes for the Banking segment of $4.3 million and a $3.3 million decrease in net income before taxes for the Wealth Management segment. The Banking segment decrease in net income before taxes was primarily due to a $13.1 million increase in noninterest expense, a $4.9 million decrease in noninterest income, and a $6.0 million increase in provision for credit losses, offset by a $19.7 million increase in net interest income. The increase in noninterest expense was due largely to a $8.4 million increase in compensation and benefits expense and a $5.2 million increase in professional services. The Wealth Management segment decrease in net income before taxes was primarily due to a $2.8 million increase in noninterest expense. Net interest income, noninterest income, and noninterest expense are discussed in more detail in the tables that follow.
Provision for credit losses. For the six-month period ended June 30, 2025, we recorded total provision for credit losses of $5.8 million, compared to a reversal of $229 thousand for the year-ago period. The provision for credit losses for the six-month period ended June 30, 2025 consisted of $5.3 million in provision expense for loans, (net of $0.3 million in net charge-offs) and $0.4 million in provision expense for unfunded commitments, offset by a $0.1 million reversal of provision for investment securities. The $5.3 million in provision expense for loans is reflective of higher reserves for the commercial loan portfolio and overall increase in model-calculated loss factors. For the six-month period ended June 30, 2025, we recorded net charge-offs of $0.3 million or 0.01% of average loans on an annualized basis compared to $0.6 million or 0.01% of average loans on an annualized basis for the year-ago period.
Net Interest Income. The principal component of the Company’s earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest rate spread is the yield on average interest-earning assets minus the cost of average interest-earning liabilities. Our net interest income, net interest rate spread, and net interest margin are sensitive to general business and economic conditions. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and the growth and maturity of earning assets. For further discussion on our interest rate risk management practices, see “Interest Rate Risk Management” within this Item 2.
The following tables set forth information regarding (i) the total dollar amount of interest income from interest-earning assets and the resultant average yields on those assets; (ii) the total dollar amount of interest expense and the average rate of interest on our interest-bearing liabilities; (iii) net interest income; (iv) net interest rate spread; and (v) net interest margin for the three and six months ended June 30:
Three Months Ended June 30:
Average
Balances
Yield /Rate
Interest-earning assets:
Loans, including LHFS
8,632,593
4.65
10,100,556
4.77
Securities AFS
1,507,718
19,596
5.20
1,032,930
13,637
5.28
673,390
4,050
2.41
765,208
4,338
2.27
Cash, FHLB stock, and fed funds
1,101,976
4.85
949,911
5.38
Total interest-earning assets
11,915,677
4.61
12,848,605
4.71
Noninterest-earning assets:
Nonperforming assets
38,126
18,250
294,797
270,167
Total assets
12,248,600
13,137,022
Interest-bearing liabilities:
Demand deposits
1,813,809
13,514
2,495,789
25,173
4.06
3,590,856
31,620
3.53
3,355,351
33,419
4.01
1,902,739
22,184
4.68
2,699,891
32,796
4.89
Total interest-bearing deposits
7,307,404
3.70
8,551,031
4.30
1,739,483
4.16
1,365,629
4.12
173,480
3.94
173,418
3.95
Total interest-bearing liabilities
9,220,367
3.79
10,090,078
4.27
Noninterest-bearing liabilities:
1,850,748
1,986,557
Other liabilities
130,047
134,279
Total liabilities
11,201,162
12,210,914
Shareholders’ equity
1,047,438
926,108
Total liabilities and equity
Net Interest Income
Net Interest Rate Spread
0.82
0.44
Net Interest Margin
1.68
1.36
45
Six Months Ended June 30:
8,879,573
4.67
10,098,491
4.74
1,386,455
36,335
5.24
1,100,559
28,988
5.27
686,067
8,406
2.45
772,363
8,761
FHLB stock, fed funds and deposits
1,159,343
4.78
953,983
5.26
12,111,438
4.62
12,925,396
41,258
16,859
268,342
266,940
12,421,038
13,209,195
1,881,892
28,503
3.05
2,666,374
53,940
4.07
3,587,507
63,858
3.59
3,267,160
64,156
2,057,596
48,276
4.73
2,786,193
67,784
7,526,995
3.77
8,719,727
4.29
1,611,784
1,465,730
4.10
173,472
173,410
9,312,251
3.83
10,358,867
4.25
1,938,314
1,791,071
119,276
135,248
11,369,841
12,285,186
1,051,197
924,009
0.79
0.42
1.67
1.26
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. The following table provides a breakdown of the changes in net interest income due to volume and rate changes for the three and six months ended June 30, 2025, as compared to the three and six months ended June 30, 2024:
June 30, 2025 vs. 2024
Increase (Decrease) due to
Volume
Interest earned on:
(17,212)
(2,866)
(20,078)
(28,658)
(3,364)
(32,022)
6,175
(216)
5,959
7,493
(146)
7,347
(541)
(288)
(1,019)
664
1,952
(1,334)
4,939
(2,409)
2,530
(9,626)
(4,163)
(13,789)
(17,245)
(5,255)
(22,500)
Interest paid on:
(5,888)
(5,771)
(11,659)
(13,735)
(11,702)
(25,437)
2,440
(4,239)
(1,799)
5,798
(6,096)
(298)
(9,254)
(1,358)
(10,612)
(17,348)
(2,160)
(19,508)
3,875
153
4,028
2,976
116
3,092
(5)
(17)
(8,822)
(11,220)
(20,042)
(22,326)
(19,840)
(42,166)
Net interest (expense) income
(804)
6,253
5,081
14,585
19,666
Net interest income was $50.1 million for the second quarter of 2025, compared to $43.8 million for the year-ago quarter. The overall increase in net interest income from the year-ago period was primarily driven by rates paid on interest-bearing liabilities decreasing faster than rates earned on interest-earning assets.
Interest income decreased to $137.1 million for the second quarter of 2025, compared to $150.9 million for the year-ago quarter. The decrease in interest income was due to a decrease in average yield earned on interest-earning assets, as well as a decrease in average interest-earning asset balances. Yields on interest-earning assets averaged 4.61% for the second quarter of 2025, compared to 4.71% for the year-ago quarter, a decrease of 0.10% or 10 basis points. Average interest-earning asset balances decreased $0.9 billion or 7.2% to $11.9 billion for the second quarter of 2025, compared to $12.8 billion for the year-ago quarter. The decrease in average interest-earning asset balances was due primarily to a $1.5 billion decrease in loans, offset by a $0.4 billion increase in securities AFS and HTM and a $0.2 billion increase in cash, FHLB stock, and fed funds balances. The decrease in loan balances was primarily due to the sale of $858 million in multifamily CRE loans during the second quarter of 2025 as part of the Company’s strategy to reduce its exposure to low-coupon fixed-rate loans and concentration in CRE loans. In August 2024, the Company transferred $1.9 billion in multifamily CRE loans from loans held for investment to loans held for sale and has sold $1.3 billion of the transferred amount to date, including the $858 million sold in the second quarter of 2025. The increase in securities AFS and HTM balances was primarily due to the purchase of $701 million in securities AFS, including agency mortgage-backed and collateralized mortgage obligation securities in the first quarter of 2025, which impacted overall second quarter average balances. The decrease in yields on interest-earning assets was primarily due to a decrease in yield on loans, which decreased to 4.65% for the second quarter of 2025, compared to 4.77% for the year-ago quarter. New loan fundings totaled $256 million at an average yield of 7.18% for the second quarter of 2025, compared to new loan fundings of $515.7 million at an average yield of 8.19% for the year-ago quarter. Yields on the combined AFS and HTM securities portfolio increased to 4.34% for the second quarter of 2025, compared to 4.00% for the year-ago quarter. The increase in combined yields was due to the acquisition of higher-yielding agency mortgage-backed and collateralized mortgage obligation securities AFS.
Interest expense decreased to $87.0 million for the second quarter of 2025, compared to $107.1 million for the year-ago quarter. The decrease in interest expense was due to decreases 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, borrowings, and subordinated debt, decreased 8.6% to $9.2 billion for the second quarter of 2025, compared to $10.1 billion for the year-ago quarter. Rates on interest-bearing liability balances averaged 3.79% for the second quarter of 2025, compared to 4.27% for the year-ago quarter, a decrease of 0.48% or 48 basis points. The decrease in average interest-bearing liability balances was primarily due to a $1.2 billion decrease in average interest-bearing deposits, offset by a $0.4 billion increase in average borrowings. The decrease in average interest-bearing deposits was primarily driven by a decrease in higher-cost brokered deposit balances, which were able to mature without being replaced, aided by the $1.3 billion in multifamily CRE loan sales since August 2024. Rates on interest-bearing liability balances decreased primarily due to the reduction in higher-cost brokered deposit balances. Average balances and rates paid on borrowings increased to $1.7 billion and 4.16%, respectively for the second quarter of 2025, compared to $1.4 billion and 4.12%, respectively for the year-ago quarter. Average borrowings increased as the Company locked-in lower-rate term borrowings in the second half of 2024 and utilized the borrowings primarily to purchase higher-yielding, high-quality securities to improve the balance sheet’s rate profile and more efficiently enhance recurring revenue.
The 0.48% decrease in average rate paid on interest-bearing liability balances, offset by the 0.10% decrease in average yield earned on interest-earning assets, resulted in an expansion of NIM for the second quarter of, 2025, compared to the year-ago quarter. NIM was 1.68% for the second quarter of 2025 compared to 1.36% for the year-ago quarter.
Net interest income was $101.9 million for the six-month period ended June 30, 2025, compared to $82.2 million for the year-ago period. The overall increase in net interest income from the year-ago period was primarily due to decreases in both the average interest-bearing liability balances and average rates paid on such balances, relative to the decreases in average interest earning asset balances and average rates earned on such balances.
Interest income decreased to $278.9 million for the six-month period ended June 30, 2025, compared to $301.4 million for the year-ago period. The decrease in interest income was due to a decrease in average yield earned on interest-earning assets, as well as a decrease in average interest-earning asset balances. Yields on interest-earning assets averaged 4.62% for the six-month period ended June 30, 2025, compared to 4.67% for the year-ago period, a decrease of 0.05% or 5 basis points. Average interest-earning asset balances decreased $0.8 billion or 6.3% to $12.1 billion for the six-month period ended June 30, 2025, compared to $12.9 billion for the year-ago period. The decrease in average interest-earning asset balances was due primarily to a $1.2 billion decrease in loans, offset by a $0.3 billion increase in securities AFS and HTM and a $0.2 billion increase in cash, FHLB stock, and fed funds balances. The decrease in loan balances was primarily due to the sale of $858 million in multifamily CRE loans during the second quarter of 2025 as part of the Company’s strategy to reduce its exposure to low-coupon fixed-rate loans and concentration in CRE loans. In addition, loan payoffs and payments totaling $839 million outpaced new loan fundings totaling $436 million for a net decrease in loan balances of $403 million for the six-month period ended June 30, 2025. The increase in securities AFS and HTM balances was primarily due to the purchase of $701 million in securities AFS, including agency mortgage-backed and collateralized mortgage obligation securities in the first quarter of 2025. The decrease in yields on interest-earning assets was primarily due to a decrease in yield on loans, which decreased to 4.67% for the six-month period ended June 30, 2025, compared to 4.74% for the year-ago period. New loan fundings totaled $436 million at an average yield of 7.14% for the six-month period ended June 30, 2025, compared to new loan fundings of $817 million at an average yield of 8.26% for the year-ago period.
Interest expense decreased to $177.0 million for the six-month period ended June 30, 2025, compared to $219.2 million for the year-ago period. The decrease in interest expense was due to decreases 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, borrowings, and subordinated debt, decreased 10.1% to $9.3 billion for the six-month period ended June 30, 2025, compared to $10.4 billion for the year-ago period. Rates on interest-bearing liability balances averaged 3.83% for the six-months ended June 30, 2025, compared to 4.25% for the year-ago period, a decrease of 0.42% or 42 basis points. The decrease in average interest-bearing liability balances was primarily due to a $1.2 billion decrease in average interest-bearing deposits, offset by a $0.1 billion increase in average borrowings. The decrease in average interest-bearing deposits was primarily driven by a decrease in higher-cost brokered deposit balances, which were able to mature without being replaced, aided by the $1.3 billion in multifamily CRE loan sales that have taken place since the loans were reclassified from loans held for investment to loans held for sale in August 2024. Rates on interest-bearing liability balances decreased primarily due to the reduction in higher-cost brokered deposit balances. Average balances and rates paid on borrowings increased to $1.6 billion and 4.12%, respectively for the six-months ended June 30, 2025, compared to $1.5 billion and 4.10%, respectively for the year-ago period.
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 (loss) on sale of loans, securities, and REO, and gains and losses from capital market activities, including those associated with changes in the valuation of the loans held for sale portfolio. The following table provides a breakdown of noninterest income for Banking for the three and six months ended June 30, 2025 and 2024:
Trust and consulting fees
1,802
1,671
Loan related fees
2,257
1,537
Deposit charges
460
Gain (loss) on sale of loans
837
Loss on sale of assets
(391)
725
729
3,442
3,199
3,912
2,470
1,000
930
1,833
1,482
Noninterest income in Banking was ($5.4) million for the second quarter of 2025, compared to $6.2 million for the year-ago quarter. Noninterest income for the second quarter includes a $10.4 million loss on the sale of $858 million principal balance of multifamily CRE loans during the quarter as part of the Company’s continued strategy to reduce its exposure to low-coupon fixed-rate loans and concentration in CRE loans. The $10.4 million loss on sale of loans was primarily due to the pricing received being at a discount when compared to the previous quarter’s market valuation as well as $1.7 million in one-time loan sale components. Capital markets activities generated a loss of $0.3 million for the second quarter of 2025 and consist of $2.1 million in unrealized gains on the valuation of our loans held for sale portfolio, net of corresponding net realized and unrealized derivative losses of $2.4 million. The fair value of the loans held for sale portfolio at June 30, 2025 was 94.6%, compared to 94.5% at March 31, 2025, resulting in the $2.1 million in unrealized gains. During the quarter, the Bank partially terminated $625 million notional amount of the original $1.0 billion notional amortizing interest rate swap derivative which was entered into in the first quarter of 2025. This partial termination resulted in $7.1 million in realized derivative losses and was offset by $4.7 million in unrealized gains on the remaining $375 million notional balance of the amortizing interest rate swap derivative, resulting in the net realized and unrealized derivative losses of $2.4 million. Noninterest income in Banking was $7.0 million for the six-month period ended June 30, 2025, compared to $11.9 million for the year-ago period. In addition to the aforementioned loss on the sale of loans, noninterest income for the six-month period ended June 30, 2025 also includes $4.7 million in gains on the sale of securities available-for-sale, which occurred in the first quarter of 2025. Excluding the current period’s loss on the sale of loans and gain on sale of securities available-for-sale, noninterest income would have been $12.7 million for the six-month period ended June 30, 2025, compared to $10.7 million (excluding $1.2 million in gain on sale of securities available-for-sale) for the year-ago period, an increase of $2.0 million. The $2.0 million increase in adjusted noninterest income was due primarily to increases in trust and consulting fees, loan related fees, deposit charges, capital market activities, and other noninterest income, offset by prior period one-time noninterest income components which included gain on sale of REO and loss on sale of assets.
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 and six months ended June 30, 2025 and 2024:
Noninterest income for Wealth Management was $7.1 million for the second quarter of 2025, compared to $7.8 million for the year-ago quarter. The $0.7 million decrease in noninterest income was due primarily to a $0.7 million decrease in fees earned on AUM balances as average AUM balances earning fees decreased slightly from $5.4 billion per month for the second quarter of 2024 to $5.2 billion per month for the second quarter of 2025. Noninterest income for Wealth Management was $14.6 million for the six-month period ended June 30, 2025, compared to $15.1 million for the year-ago period. The $0.5 million decrease in noninterest income was due primarily to a $0.5 million decrease in fees earned on AUM balances as average AUM balances earning fees decreased from $5.4 billion per month for the six-month period ended June 30, 2024 to $5.2 billion per month for the six-month period ended June 30, 2025.
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The following table summarizes the activity in our AUM for the periods indicated:
Existing account
Additions/
New
Withdrawals
Accounts
Terminations
Performance
Ending balance
Fixed income
1,579,573
(37,092)
33,455
(29,025)
(13,566)
1,533,345
Equities
2,675,895
1,721
11,795
(71,242)
333,839
2,952,008
Cash and other
803,536
(10,246)
37,487
(37,983)
14,848
807,642
5,059,004
(45,617)
82,737
(138,250)
335,121
5,292,995
1,650,723
46,128
44,736
(50,741)
(157,501)
2,932,526
(308,476)
17,296
(27,140)
337,802
862,631
(100,155)
47,455
(46,666)
44,377
5,445,880
(362,503)
109,487
(124,547)
224,678
1,810,358
(35,397)
12,032
(18,142)
(10,761)
1,758,090
2,864,273
39,564
10,748
(19,872)
52,920
2,947,633
791,545
(33,553)
12,250
(6,389)
19,143
782,996
5,466,176
(29,386)
35,030
(44,403)
61,302
5,488,719
1,849,056
(56,474)
29,884
(19,867)
(44,509)
2,609,033
43,646
47,337
(29,260)
276,877
791,859
(60,735)
26,413
(12,273)
37,732
5,249,948
(73,563)
103,634
(61,400)
270,100
AUM balances were $5.3 billion at June 30, 2025, compared to $5.5 billion at June 30, 2024. The $153 million decrease in AUM during the six-month period ended June 30, 2025 was the net result of $109 million of new accounts, $225 million of performance gains, and terminations and net withdrawals of $487 million.
Noninterest Expense. The following table provides a breakdown of noninterest expense for Banking and Wealth Management for the periods indicated:
Wealth Management
7,872
8,526
461
Professional services and marketing
7,574
7,194
193
179
15,897
17,112
881
14,303
14,706
397
376
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Noninterest expense in Banking was $51.8 million for the second quarter of 2025, compared to $49.3 million for the second quarter of 2024. The $2.5 million increase in noninterest expense was largely due to the $2.7 million increase in compensation and benefits expense and a $3.2 million increase in professional services and marketing expense, offset by a $3.1 million decrease in customer service costs. The $2.7 million increase in compensation and benefits expense was largely due to an increase in staffing levels as well as investments made to bring in and retain institutional knowledge needed to organize around the Company’s strategic initiatives and strengthen the Company going forward. Average Banking FTEs were 507.0 for the second quarter of 2025, compared to 490.2 for the year-ago quarter. The increase in professional services and marketing expense was largely due to consulting expense related to internal strategic initiatives. The decrease in customer service costs was due to a decrease in the average balances of depository accounts receiving earnings credits as well as a decrease in the average rates paid on such accounts.
Noninterest expense in Wealth Management was $6.7 million for the second quarter of 2025, compared to $5.7 million for the year-ago quarter. The increase was due primarily to a $1.0 million increase in compensation and benefits expense, primarily due to higher commission expense.
Noninterest expense in Banking was $106.9 million for the six-month period ended June 30, 2025, compared to $93.8 million for the year-ago period. The $13.1 million increase in noninterest expense was largely due to a $8.4 million increase in compensation and benefits expense and a $5.1 million increase in professional services and marketing expense. The $8.4 million increase in compensation and benefit costs was largely due to an increase in staffing levels as well as investments made to bring in and retain institutional knowledge needed to organize around the Company’s strategic initiatives and strengthen the Company going forward. Average Banking FTEs were 505.2 for the six-month period ended June 30, 2025, compared to 491.3 for the year-ago period. Staffing levels had been maintained at reduced levels throughout 2024, prior to additions to the headcount being made in the first half of 2025 to help facilitate the Company’s strategic initiatives. The increase in professional services and marketing was largely attributable to increases in external accounting and information technology and infrastructure expenses.
Noninterest expense in Wealth Management was $14.2 million for the six-month period ended June 30, 2025, compared to $11.4 million for the year-ago period. The $2.8 million increase in noninterest expense in Wealth Management was largely due to an increase in compensation and benefits expense due to investments made to retain institutional knowledge in the competitive wealth management industry. Average Wealth Management FTEs were 57.4 for the six-month period ended June 30, 2025, compared to 62.6 for the year-ago period.
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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:
Other and
Eliminations
1,055,183
18,119
(17,688)
Investment in FHLB stock
79,123
(3,141)
11,024
Premises and equipment
35,627
127
136
106,875
578
21,522
11,557,685
15,683
14,994
8,619,040
(25,347)
Intercompany balances
(1,030)
(2,096)
3,126
72,837
3,051
16,661
1,188,834
14,728
(152,936)
1,015,832
20,668
(20,368)
69,669
(3,004)
9,985
35,492
178
112,485
524
25,248
12,611,898
18,366
15,001
9,898,339
(28,060)
(1,031)
(2,046)
3,077
100,549
2,406
19,840
1,188,672
18,006
(153,315)
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 or liabilities.
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During the six-month period ended June 30, 2025, total assets decreased by $1.1 billion primarily due to decreases in total loans, offset by an increase in total investment securities. The decrease in total loans was largely due to the sale of $858 million in multifamily loans held for sale during the period. During the six-month period ended June 30, 2025, total liabilities decreased by $1.1 billion, primarily due to a decrease in deposits, offset by an increase in borrowings. Proceeds from the aforementioned loan sales were used to paydown high-cost deposits during the period. During the six-month period ended June 30, 2025, total shareholders’ equity remained relatively unchanged.
For additional information on the changes in total assets, liabilities, and shareholders’ equity, see “Overview” within this Item 2.
Cash and cash equivalents. Cash and cash equivalents, which primarily consist of funds held at the Federal Reserve Bank or at correspondent banks, including fed funds, increased by $39.5 million at June 30, 2025, compared to December 31, 2024. Changes in cash and cash equivalents are primarily affected by the funding of loans, investments in securities, and changes in our sources of funding including deposits and borrowings.
Securities available for sale. The following table provides a summary of the Company’s AFS securities portfolio as of:
Beneficial interest in FHLMC securitization
Excluding allowance for credit losses, the increase in AFS securities in the six-month period ended June 30, 2025, was due primarily to the purchase of $701 million in securities, offset by $466 million in sales and $129 million in principal paydowns and maturities. The $701 million in securities purchased consisted of agency mortgage-backed securities and collateralized mortgage obligations. The $466 million in sales consisted solely of agency mortgage-backed securities. During the six-month period ended June 30, 2025, the net unrealized loss position of the portfolio improved from $17.2 million in net unrealized losses as of December 31, 2024, to $16.0 million in net unrealized losses as of June 30, 2025.
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Securities held to maturity. The following table provides a summary of the Company’s HTM securities portfolio as of:
The decrease in HTM securities in the six-month period ended June 30, 2025, was due to principal payments received. There were no purchases of investment securities or other additions to the portfolio during the six-month period ended June 30, 2025. During the six-month period ended June 30, 2025, the net unrealized loss position of the portfolio improved from $75.3 million in net unrealized losses as of December 31, 2024, to $59.4 million in net unrealized losses as of June 30, 2025. The decrease in net unrealized loss position of the portfolio was largely driven by the fall in the 10-year Treasury yield which is the benchmark that agency mortgage-backed securities follow. The 10-year Treasury yield fell 33 basis points to 4.30% as of June 30, 2025, from 4.63% as of December 31, 2024.
The scheduled maturities of securities AFS, and the related weighted average yields, were as follows, as of June 30, 2025:
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The scheduled maturities of securities HTM, and the related weighted average yields were as follows, as of June 30, 2025:
See Note 3: Securities of the notes to the consolidated financial statements for additional information on our investment securities portfolio.
Loans. The following table sets forth our loans held for investment, by loan category, as of:
Percentage of
Total Loans
43.6
42.1
Single family
10.9
11.0
54.5
53.1
10.8
11.4
0.6
0.9
65.9
65.4
34.1
34.6
0.0
100.0
The table above excludes loans held for sale which totaled $0.5 billion at June 30, 2025 and $1.3 billion at December 31, 2024, and consisted entirely of multifamily loans which were reclassified from loans held for investment in August, 2024. Loans held for sale, net of deferred fees, are accounted for at the lower of amortized cost or fair value. During the six-month period ended June 30, 2025, $858 million principal balance in loans held for sale were sold.
Loans held for investment decreased by $393 million, as a result of loan fundings totaling $436 million, offset by loan payments and payoffs of $808 million, and reclassifications to loans held for sale of $20.5 million during the six-month period ended June 30, 2025.
At June 30, 2025, $3.3 billion of the loan portfolio consisted of multifamily loans. Adjustable-rate and variable-rate loans comprised 85% of the portfolio and fixed-rate loans comprised 15% of the portfolio at June 30, 2025. The portfolio consists principally of small-balance (average loan size of $3.9 million) loans on non-luxury essential housing apartment stock, with the average property consisting of 22 units.
At June 30, 2025, $819 million of the loan portfolio consisted of loans secured by commercial real estate properties, consisting of non-owner occupied and owner-occupied loans, respectively. Non-owner occupied CRE loans totaled approximately $528 million and consisted of a diversified mix of retail, office, hospitality, industrial, medical, and other real estate loans.
At June 30, 2025, $2.6 billion of the loan portfolio consisted of C&I loans consisting of commercial business lines of credit ($1.1 billion), municipal financing loans ($986 million), commercial business term loans ($367 million) and equipment finance loans ($110 million).
As of June 30, 2025, the combined loan portfolio (including those included in loans held for sale) is largely concentrated in the geographic markets in which we operate. As of June 30, 2025, approximately 85.0% of the loans in the portfolio were made to borrowers who live and/or conduct business in California (70.2%), Florida (8.3%), Texas (5.1%), and Nevada (1.4%).
The following table presents contractual maturity information for loans held for investment, net of premiums, discounts and deferred fees and expenses as of June 30, 2025:
Loans With a Scheduled
Scheduled Maturity
Maturity After One Year
Due in One Year
Due After One Year
Due After Five
Due After
Loans With
or Less
Through Five Years
to 15 Years
15 Years
Fixed Rates
Adjustable Rates
6,699
9,953
488,139
2,789,123
474,643
2,812,572
957
5,298
6,898
812,684
60,421
764,459
7,656
15,251
495,037
3,601,807
535,064
3,577,031
111,080
345,884
251,233
110,145
407,695
299,566
33,896
5,227
4,194
5,053
4,369
152,632
366,362
746,270
3,716,146
947,812
3,880,966
207,642
1,339,831
318,174
699,717
1,316,682
1,041,040
76
63
58
361,702
1,706,237
1,064,445
4,415,939
2,264,557
4,922,064
See Note 4: Loans of the notes to the consolidated financial statements for additional information on our loan portfolio.
Deposits. The following table sets forth information with respect to our deposits and the average rates paid on deposits, as of:
Total deposits decreased by approximately $1.3 billion to $8.6 billion at June 30, 2025, compared to $9.9 billion at December 31, 2024. During the six-month period ended June 30, 2025, higher-cost specialty deposits, largely consisting of MSR and servicing deposit accounts, decreased by approximately $826 million, with $540 million of the decrease occurring in the month of June, 2025. In addition, during the six-month period ended June 30, 2025, high-cost brokered deposits decreased by approximately $591 million. Finally, during the six-month period ended June 30, 2025, retail branch, digital banking, and corporate deposits increased by approximately $141 million.
At June 30, 2025, the deposit mix consisted of the following: noninterest-bearing (17%), interest-bearing (19%), money market and savings (42%), certificates of deposit (22%). At December 31, 2024, the deposit mix consisted of the following: noninterest-bearing (20%), interest-bearing (20%), money market and savings (36%), certificates of deposit (24%). The weighted average rates of all interest-bearing deposits decreased compared to December 31, 2024. Combined weighted average rate for all deposit account categories decreased to 3.04% at June 30, 2025, compared to 3.09% at December 31, 2024.
At June 30, 2025, deposits by channel consisted of the following: retail branches (29%), specialty banking (27%), digital banking (12%), and wholesale (22%). At December 31, 2024, deposits by channel consisted of the following: retail branches (26%), specialty banking (32%), digital banking (9%), and wholesale (33%).
The Bank may utilize brokered deposits (included in wholesale channel) as a source of funding and as a component of its overall liquidity management process. The Bank held brokered deposits totaling $2.6 billion and $3.2 billion at June 30, 2025 and December 31, 2024, respectively including insured cash sweep (“ICS”) accounts totaling $1.0 billion at June 30, 2025 and December 31, 2024, which are classified as brokered deposit accounts for regulatory reporting purposes. The weighted average rates paid on non-ICS and ICS brokered deposit balances were 4.38% and 2.74%, respectively for accounts held at June 30, 2025. The weighted average rates paid on non-ICS and ICS brokered deposit balances were 4.15% and 3.10%, respectively for accounts held at December 31, 2024.
The deposits held by the Bank are insured by the FDIC Deposit Insurance Fund 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. Insured and collateralized deposits comprised approximately 85% of total deposits at June 30, 2025.
The following table sets forth the estimated deposits exceeding the FDIC insurance limit:
Uninsured deposits
1,930,692
2,401,646
The following table sets forth the maturity distribution of certificates of deposit as of June 30, 2025:
Over Three
Over Six
Large Denomination Certificates of Deposit
Three Months
Months Through
Over
Maturity Distribution
Six Months
Twelve Months
Certificates of deposit of $250,000 or less
223,599
177,755
476,420
769,851
1,647,625
Certificates of deposit of more than $250,000
288,780
237,333
552,789
770,392
Borrowings. At June 30, 2025, our borrowings consisted of $1.0 billion in FHLB putable advances at the Bank, $650 million of FHLB term advances at the Bank, and $19 million in repurchase agreements at the Bank. At December 31, 2024, our borrowings consisted of $1.0 billion in FHLB putable advances at the Bank, $400 million of FHLB term advances at the Bank, and $25 million in repurchase agreements at the Bank.
The average balance of borrowings and the weighted average interest rate on such borrowings were $1.6 billion and 4.12%, respectively for six-month period ended June 30, 2025. The average balance of borrowings and the weighted average interest rate on such borrowings were $1.5 billion and 4.09%, respectively for the year ended December 31, 2024. At June 30, 2025, total borrowings represented 14.4% of total assets, compared to 11.3% at December 31, 2024.
As of June 30, 2025, our unused borrowing capacity was $2.1 billion, which consisted of $1.9 billion in available lines of credit with the FHLB and the Federal Reserve Bank’s discount window, $240 million in borrowing capacity through unsecured federal funds lines with six correspondent financial institutions, and $20 million in available borrowing capacity through a line of credit arrangement that our holding company maintains with an unaffiliated lender. For additional information about borrowings, see Note 10: Borrowings to the consolidated financial statements.
Subordinated debt. At June 30, 2025 and December 31, 2024, FFI had two issuances of subordinated notes with an aggregate carrying value of $173 million. For additional information about subordinated debt, see Note 11: Subordinated Debt to the consolidated financial statements.
Delinquent Loans, Nonperforming Assets and Provision for Credit Losses
Loans are considered past due following the date when either interest or principal is contractually due and unpaid. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued when reasonable doubt exists as to the full, timely collection of interest or principal and, generally, when a loan becomes contractually past due for 90 days or more with respect to principal or interest. However, the accrual of interest may be continued on a well-secured loan contractually past due 90 days or more with respect to principal or interest if the loan is in the process of collection or collection of the principal and interest is deemed probable. The following tables provide a summary of past due and nonaccrual loans as of:
Total Past Due
and Nonaccrual
59
Nonaccrual loans totaled $34.6 million as of June 30, 2025, compared to $40.4 million as of December 31, 2024. The ratio of nonaccrual loans to total loans outstanding (including LHFS) was 0.43% at June 30, 2025 and December 31, 2024, respectively.
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Allowance for Credit Losses. The following table summarizes the activity in our ACL related to loans held for investment for the periods indicated:
Three months ended June 30, 2025:
Net (charge-offs) recoveries
(135)
Net (charge-offs) recoveries to average loans
0.006
Six Months Ended June 30, 2025
(327)
Three months ended June 30, 2024:
(217)
(558)
The allowance for credit losses for loans held for investment totaled $37.6 million as of June 30, 2025, compared to $29.3 million at June 30, 2024 and $32.3 million as of December 31, 2024. Our ACL for loans held for investment represented 0.50% of total loans held for investment outstanding at June 30, 2025, compared to 0.29% of total loans held for investment outstanding at June 30, 2024 and 0.41% of total loans held for investment outstanding at December 31, 2024. Our ACL for loans held for investment represented 108% of total nonaccrual loans outstanding at June 30, 2025, compared to 155% of total nonaccrual loans outstanding at June 30, 2024 and 80% of total nonaccrual loans outstanding at December 31, 2024, respectively. Activity for the six-month period ended June 30, 2025 included provision for credit losses of $5.6 million, charge-offs of $895 thousand, and recoveries of $568 thousand. The $5.3 million in provision recorded (net of charge-offs and recoveries) primarily reflects higher reserves for the commercial loan portfolio due to increased model-calculated loss factors.
Under the CECL methodology, on 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 charge-off experience, delinquency rates, local and national economic conditions including macroeconomic forecasts, 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 for credit losses are charged to operations based on management’s evaluation of estimated losses in its loan portfolio.
In addition, the FDIC and the California Department of Financial Protection and Innovation, as integral parts of their examination processes, periodically review the adequacy of our ACL. These agencies may require us to make 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.
Liquidity
Liquidity management focuses on our ability to generate, on a timely and cost-effective basis, cash sufficient to meet the funding needs of current loan demand, deposit withdrawals, principal and interest payments with respect to outstanding borrowings and to pay operating expenses. Liquidity management also includes the ability to manage unplanned decreases or changes in funding sources, as well as abnormal and unexpected needs. To meet such abnormal and unexpected needs, lines of credit are maintained with the FHLB, the Federal Reserve Bank, and correspondent banks. Liquidity management is both a daily and long-term function of funds management. Liquidity management takes into consideration liquid assets, which includes: cash and cash equivalents; unencumbered eligible investment securities; and investment securities pledged under the Federal Reserve Bank’s discount window program which can be drawn at-will. Liquidity management also takes into consideration available liquidity sources such as available unused funds from both the FHLB and Federal Reserve Bank credit lines. The Bank’s Federal Reserve Bank credit line is secured by pledged collateral in the form of qualifying loans and investment securities. As of June 30, 2025, the Bank had secured unused borrowing capacity of $1.3 billion under this agreement. The Bank’s unused borrowing capacity with the FHLB as of June 30, 2025 was $0.6 billion. The Bank had a total of $240 million in unused borrowing capacity available through its correspondent bank lines of credit as of June 30, 2025.
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, proceeds from borrowings, and sales of FFI common stock. The remaining balances of the Bank’s lines of credit available to draw down totaled $2.1 billion at June 30, 2025.
We believe our liquid assets and available liquidity sources are sufficient to meet current funding needs and that we have the ability to manage unplanned decreases or changes in funding sources, as well as abnormal and unexpected needs. We regularly monitor liquidity to ensure levels are in compliance with minimum requirements established by our Board of Directors. As of June 30, 2025, our available liquidity ratio was 42.0%, which is above our minimum policy requirement of 25%. We regularly model liquidity stress scenarios to ensure that adequate liquidity is available, and have contingency funding plans in place, which are reviewed and tested on a regular, recurring basis.
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Cash Flows from Operating Activities. During the six-month period ended June 30, 2025, operating activities used net cash of $20.2 million. Changes in accrued interest receivable and other assets as well as changes in accounts payable and other liabilities accounted for most of the cash flows used in operating activities.
Cash Flows from Investing Activities. During the six-month period ended June 30, 2025, investing activities provided net cash of $1.1 billion, primarily due to $807 million in net proceeds from the sale of loans held for sale and $399 million in reduced loan balances, offset by $0.1 billion in proceeds on sale of securities and maturities of securities, net of purchases.
Cash Flows from Financing Activities. During the six-month period ended June 30, 2025, financing activities used net cash of $1.0 billion, consisting primarily of a net decrease of $1.3 billion in deposits, offset by a net increase of $0.3 billion in FHLB and FRB advances.
Ratio of Loans to Deposits. The relationship between gross loans and total deposits can provide a useful measure of a bank’s liquidity. Since repayment of loans tends to be less predictable than the maturity of investments and other liquid resources, the higher the loan-to-deposit ratio the less liquid are our assets. On the other hand, since we realize greater yields on loans than we do on other interest-earning assets, a lower loan-to-deposit ratio can adversely affect interest income and earnings. As a result, our goal is to achieve a loan-to-deposit ratio that appropriately balances the requirements of liquidity and the need to generate a fair return on our assets. At June 30, 2025 and December 31, 2024, the loan-to-deposit ratios at FFB were 93.4%, and 93.5%, respectively.
Off-Balance Sheet Arrangements
The following table provides the off-balance sheet arrangements of the Company as of June 30, 2025:
Commitments to fund new loans
15,995
Commitments to fund under existing loans, lines of credit
970,296
Commitments under standby letters of credit
25,364
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 June 30, 2025, FFB was obligated on $126 million of letters of credit, consisting of a $116 million letter of credit to Freddie Mac as collateral for the 2024 and 2025 multifamily loan sale/securitization, and a $10 million letter of credit to the FHLB used as collateral for public fund deposits.
Interest Rate Risk Management
Interest rate risk (“IRR”) refers to the vulnerability of an institution’s financial condition to movements in interest rates. Excessive IRR poses a significant threat to an institution’s earnings and capital. Changes in interest rates affect an institution’s earnings by altering interest-sensitive income and expenses. Changes in interest rates also affect the underlying value of an institutions’ assets, liabilities, and off-balance sheet instruments because the present value of future cash flows (and in some cases, the cash flows themselves) change when interest rates change. The Board of Directors of the Bank has adopted a policy to govern the management of the Bank’s exposure to IRR. This policy is an integral part of the Bank’s overall asset/liability management. The goals of this policy are to (1) optimize profits through the management of IRR; (2) limit the exposure of the Bank’s earnings and capital to fluctuations in interest rates; and (3) ensure that the Bank’s management of IRR meets applicable regulatory guidelines.
We assess our interest rate exposure within our major balance sheet categories individually, as well as in our balance sheet holistically, focusing on the interest rate sensitivity of our assets and liabilities. Our processes identify potential areas of vulnerability, particularly those influenced by fluctuations in market interest rates. Our IRR assessment process considers the repricing and liquidity characteristics of various financial instruments, including loans, investment securities, deposits, and borrowings. We establish a desired risk profile that aligns with our strategic goals and the prevailing interest rate environment. This profile considers factors such as the mix of fixed and floating rate assets and
liabilities, taking into account our outlook on interest rates. We set clear policy limits and guidelines that guide our IRR management strategies, consistent with regulatory guidance. We employ various strategies to mitigate IRR by managing our asset and liability mix, including adjusting the duration of our assets to align with our liabilities. Our IRR management process is dynamic and includes regular monitoring and review. Our management team conducts ongoing assessments of asset and liability maturities and repricing characteristics, ensuring they remain consistent with our desired risk profile. By proactively identifying, assessing, and managing IRR, we aim to maintain stability of our financial performance, protect interests of our stakeholders, and ensure our continued ability to meet the financial needs of our customers.
The following table sets forth the interest-earning assets and interest-bearing liabilities on the basis of when they reprice or mature as of June 30, 2025:
Less than
From 1 to
From 3 to
1 year
3 Years
5 Years
Over 5 Years
Interest-earnings assets:
Cash equivalents
1,053,128
Securities, FHLB stock
690,494
350,392
269,754
829,475
2,140,115
3,659,284
2,629,082
910,177
735,596
7,934,139
Deposits:
Interest-bearing checking
(2,204,916)
(261,592)
(37,736)
(6,583)
(2,510,827)
(2,505,382)
(938,210)
(133,970)
(26,712)
(3,604,274)
(1,085,044)
(739,114)
(113,450)
(4)
(1,937,612)
(269,315)
(400,000)
(1,000,000)
(1,669,315)
Net: Current Period
(661,751)
640,558
(105,225)
1,531,772
1,405,354
Net: Cumulative
(21,193)
(126,418)
As of June 30, 2025, the Company is considered liability sensitive as exhibited by the table above. However, the extent to which our net interest margin will be impacted by changes in prevailing interest rates will depend on a number of factors, including how quickly interest-earning assets and interest-bearing liabilities react to interest rate changes. It is not uncommon for rates on certain assets or liabilities to lag behind changes in the market rates of interest. Additionally, prepayments of loans and early withdrawals of certificates of deposit could cause interest sensitivities to vary. As a result, the relationship or “gap” between interest-earning assets and interest-bearing liabilities, as shown in the above table, is only a general indicator of interest rate sensitivity and the effect of changing rates of interest on our net interest income is likely to be different from that predicted solely on the basis of the interest rate sensitivity analysis set forth in the above table.
Our IRR position is regularly measured using two methods: (i) Net Interest Income (“NII”) and (ii) Economic Value of Equity (“EVE”). Consistent with regulatory requirements, the Bank has established Board of Directors-approved IRR limits for NII simulations and EVE calculations. These analyses are reviewed quarterly by the Asset/Liability Committee and the Board of Directors. If the analyses project changes which are outside our pre-established IRR limits, we may: (i) revise existing limits to address the changes in the Bank’s IRR, with the recommended limits being prudent and consistent with the Board’s risk tolerance; or (ii) retain the existing limits and implement a plan for an orderly return to compliance with these limits, where corrective actions may include, but are not limited to, restructuring the maturity profile of the Bank’s investment portfolio, changing deposit pricing, initiating off-balance sheet hedging actions, or adjusting the repricing characteristics of the loan portfolios.
The NII simulation is used to measure and evaluate potential changes in our net interest income resulting from changes in interest rates. The model measures the impact over a range of instantaneous shocks in 100 basis points increments to our net interest income over a 12-month forecast period. The Board-approved limits on NII sensitivity and the actual computed changes to our NII based on the +/- 100 and +/- 200 basis points hypothetical interest rate scenarios as of June 30, 2025 are shown below:
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Estimated Increase
(Decrease) in Net
Assumed Instantaneous Change in Interest Rates
Interest Income
Board Limits
+ 100 basis points
(9.16)
(20.00)
+ 200 basis points
(16.31)
(25.00)
- 100 basis points
(0.36)
(10.00)
- 200 basis points
(1.39)
The modeled one-year NII results indicate that the Bank is more earnings sensitive in the rising rate shock scenarios of 100 through 200 basis points. The NII modeled results above are in compliance with the IRR limits.
The EVE measures the sensitivity of our market value equity to simultaneous changes in interest rates. EVE is derived by subtracting the economic value of the Bank’s liabilities from the economic value of its assets, assuming current and hypothetical interest rate environments. EVE is based on all of the future cash flows expected to be generated by the Bank’s current balance sheet, discounted to derive the economic value of the Bank’s assets and liabilities. These cash flows may change depending on the assumed interest rate environment and the resulting changes in other assumptions, such as prepayment speeds. The Bank has established IRR limits which specify the maximum EVE sensitivity allowed under current interest rates and for a range of hypothetical interest rate scenarios each in 100 basis point increments. The hypothetical scenarios are represented by immediate, permanent, parallel movements in the term structure of interest rates. The Board-approved limits on EVE sensitivity and the actual computed changes to our EVE based on the +/- 100 and +/- 200 basis points hypothetical interest rate scenarios as of June 30, 2025 are shown below:
(Decrease)
in Economic
Value of Equity
(3.99)
(15.00)
(10.92)
(0.62)
(3.12)
The results of the EVE are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. These could include, but are not limited to, non-parallel yield curve shifts, changes in market interest rate spreads and the actual reaction to changes in interest rate levels of interest-earning assets and interest-bearing liabilities. It is not uncommon for rates on certain assets or liabilities to lag behind changes in the market rates of interest. Additionally, prepayments of loans and early withdrawals of certificates of deposit could cause interest sensitivities to vary.
The EVE modeled results above are in compliance with the EVE limits. The EVE is an interest rate risk management tool, and the results are not necessarily an indication of our actual future results. Actual results may vary significantly from the results suggested by the table above. Loan prepayments and deposit attrition, changes in our mix of earning assets or funding sources, and future asset/liability management decisions, among others, may vary significantly from our assumptions.
The results of these analyses and simulations do not contemplate all of the actions that we may undertake in response to changes in interest rates. In response to actual or anticipated changes in interest rates, we have various alternatives for managing and reducing the Bank’s exposure to interest rate risk, such as entering into hedges and obtaining long-term fixed-rate FHLB advances.
Capital Resources and Dividend Policy
The capital rules applicable to United 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
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practices. For additional information regarding these Capital Rules, see Item 1 “Business Capital Requirements Applicable to Banks and Bank Holding Companies” included in our Annual Report on Form 10-K for the year ended December 31, 2024.
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
Ratio
FFI
Common equity tier 1 ratio
923,967
11.08
375,354
Tier 1 Leverage ratio
1,011,616
8.29
488,248
4.00
Tier 1 risk-based capital ratio
12.13
500,472
Total risk-based capital ratio
1,226,565
14.70
667,296
8.00
919,044
10.09
410,043
1,006,693
7.59
530,338
11.05
546,724
1,215,691
13.34
728,966
FFB
1,156,088
13.91
373,891
540,065
6.50
9.49
487,266
609,082
5.00
498,522
664,696
1,197,547
14.41
830,870
10.00
1,147,475
12.64
408,553
590,132
8.67
529,373
661,717
544,737
726,316
1,183,015
13.03
907,895
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.
As of June 30, 2025, the amount of capital at FFB in excess of amounts required to be well capitalized for purposes of the prompt corrective action regulations was $616 million for the common equity tier 1 ratio, $547 million for the leverage ratio, $491 million for the tier 1 risk-based capital ratio and $367 million for the total risk-based capital ratio.
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 ended December 31, 2024. During the quarter and six-month periods ended June 30, 2025 there were no dividends declared or paid.
We had no material commitments for capital expenditures as of June 30, 2025. 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 or other securities 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. See Item 1A, “Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2024 for information regarding the impact that future sales of our common stock may have on the share ownership of our existing stockholders.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative and qualitative disclosures regarding market risk in the Company’s portfolio, please see Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate Risk Management above.
ITEM 4.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information, is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
In accordance with SEC rules, an evaluation was performed under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness, as of June 30, 2025, of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2025, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure, as a result of the material weakness in our internal control over financial reporting described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
We are actively implementing corrective measures, including hiring additional personnel and enhancing our financial oversight processes to address the material weakness in our internal control over financial reporting described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. These measures include engaging with a professional services firm during the second quarter of 2025 to assist management with the material weakness pertaining to the allowance for credit loss (“ACL”) as noted in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. The scope of the engagement included: (1) assessment of the current state ACL process, documentation, control activities, and estimation risk factors; (2) identification of gaps, associated recommendations, and a plan to address such gaps; (3) documenting the existing ACL process documentation; and (4) identifying, implementing, and documenting enhancements to the ACL process during the second half of 2025. Management expects the scope of the work to address the ACL deficiencies.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2025, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
In the ordinary course of business, we are subject to claims, counter claims, suits and other litigation of the type that generally arise from the conduct of financial services businesses. We are not aware of any threatened or pending litigation that we expect will have a material adverse effect on our business operations, financial condition or results of operations.
ITEM 1A.RISK FACTORS
We disclosed certain risks and uncertainties that we face under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2024, which we filed with the SEC on March 17, 2025. There have been no material changes in these risk factors from those disclosed in such Annual Report on Form 10-K.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 26, 2022, the Company announced that its Board of Directors authorized a stock repurchase program, pursuant to which the Company may repurchase up to $75 million of its common stock. This plan has no stated expiration date. This stock repurchase program replaces and supersedes the stock repurchase program approved by the Board of Directors on October 30, 2018, which had authorized the Company to repurchase up to 2,200,000 shares of its common stock. No shares were repurchased by the Company during the three months ended June 30, 2025.
ITEM 5.OTHER INFORMATION
None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the second quarter of 2025.
ITEM 6.EXHIBITS
Exhibit No.
Description of Exhibit
3.1
Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on October 29, 2015).
3.2
Certificate of Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on October 3, 2024).
3.3
Certificate of Designations for Series A Noncumulative Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on July 9, 2024).
3.4
Certificate of Designations for Series B Noncumulative Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on July 9, 2024).
3.5
Certificate of Designations for Series C NVCE Stock (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed on July 9, 2024).
3.6
Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on February 27, 2024).
31.1(1)
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2(1)
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
32.1(1)
Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002
32.2(1)
Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
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Inline XBRL Taxonomy Extension Schema
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Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB
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Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments have been omitted. The registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Dated: August 11, 2025
By:
/s/ JAMES BRITTON
James Britton
Executive Vice President andChief Financial Officer
(Principal Financial Officer)