DEFA14A: First Foundation Completes $228 Million Equity Infusion, Bolstering Capital Position

First Foundation Inc. finalizes a $228 million equity investment from Fortress Investment Group, Canyon Partners, Strategic Value Bank Partners, and other investors to enhance its capital structure.

Summary

• First Foundation Inc. has closed a $228 million equity investment.
• The investment comes from affiliates of Fortress Investment Group, Canyon Partners, Strategic Value Bank Partners, North Reef Capital, and other investors.
• The company issued 11,308,676 shares of common stock at $4.10 per share.
• Additionally, 29,811 shares of Series A Noncumulative Convertible Preferred Stock and 14,490 shares of Series B Noncumulative Convertible Preferred Stock were issued.
• Investors also received warrants to purchase Series C Non-Voting Common Equivalent Stock.
• The company will seek stockholder approval to amend its Certificate of Incorporation to increase the number of authorized shares of Common Stock to 200,000,000.
• The company will also seek stockholder approval for the issuance of shares of Common Stock (including shares of Common Stock issuable upon conversion of the Preferred Stock) that is 20% or more of the total voting power of the company's securities.
• Simone Lagomarsino has been appointed as President of First Foundation Bank, effective immediately following completion of the Investment.
• Ulrich E. Keller, Jr. resigned from the Board of Directors of the Company and the Bank, effective as of July 8, 2024.
• John A. Hakopian, David G. Lake, Diane M. Rubin, CPA, and Gabriel V. Vazquez gave notice of their intent to resign from the Company Board, subject to the acceptance of such resignations by the Company, which is anticipated to occur concurrently with the appointment of their successors following receipt of all necessary regulatory approvals, and resigned from the Bank Board, effective as of July 8, 2024.
• Sam Edelson, Henchy R. Enden, Simone Lagomarsino, and Benjamin Mackovak were appointed to the Bank Board, effective as of July 8, 2024.

Sentiment

Score: 7

Explanation: The document conveys a positive sentiment due to the successful completion of a significant capital raise, which strengthens the company's financial position. However, there are also risks and uncertainties associated with the company's future performance, which tempers the overall sentiment.

Positives

• The $228 million equity investment significantly strengthens First Foundation's capital position.
• The appointment of Simone Lagomarsino as President of First Foundation Bank brings experienced leadership to the subsidiary.
• The investment demonstrates confidence in First Foundation's business model and future prospects from reputable firms like Fortress, Canyon, and Strategic Value Bank Partners.

Negatives

• The company will need to seek stockholder approval to increase the number of authorized shares of Common Stock to 200,000,000.
• The company will need to seek stockholder approval for the issuance of shares of Common Stock (including shares of Common Stock issuable upon conversion of the Preferred Stock) that is 20% or more of the total voting power of the company's securities.
• The resignations of several directors from the Company Board may create a temporary disruption in corporate governance.

Risks

• The company faces the risk of not obtaining the Requisite Stockholder Vote.
• The company faces the risk of incurring credit losses, which is an inherent risk of the banking business.
• The company faces the risk of adverse developments in the financial services industry generally such as bank failures and any related impact on depositor behavior or investor sentiment.
• The company faces risks related to the sufficiency of liquidity.
• The company faces the risk that it will not be able to maintain growth at historic rates or at all.
• The company faces the risk that it will not be able to access the securitization market on favorable terms or at all.
• The company faces risks associated with changes in interest rates, which could adversely affect our interest income, interest rate margin, and the value of our interest-earning assets, and therefore, our future operating results.
• The company faces the risk that the performance of our investment management business or of the equity and bond markets could lead clients to move their funds from or close their investment accounts with us, which would reduce our assets under management and adversely affect our operating results.
• The company faces negative impacts of news or analyst reports about us or the financial services industry.
• The company faces the impacts of inflation on us and our customers.
• The company faces results of examinations by regulatory authorities and the possibility that such regulatory authorities may, among other things, limit our business activities or our ability to pay dividends, or impose fines, penalties or sanctions.
• The company faces the risk that we may be unable or that our board of directors may determine that it is inadvisable to pay future dividends at historic levels or at all.
• The company faces risks associated with changes in income tax laws and regulations.
• The company faces risks associated with seeking new client relationships and maintaining existing client relationships.

Future Outlook

The company intends to use the proceeds from the equity investment to support future growth and strategic initiatives. The company is seeking stockholder approval for certain amendments to its organizational documents and approvals of the issuance of shares of common stock or preferred stock in connection with this capital raise transaction.

Management Comments

• Scott F. Kavanaugh, President and CEO of the Company stated, 'We want to thank all of our new investor partners for their effort and significant confidence in First Foundation and our talented employees.
• We very much look forward to building a top tier regional bank and creating long term shareholder value.'

Industry Context

The capital raise reflects a broader trend of financial institutions seeking to bolster their balance sheets amid economic uncertainty and regulatory changes. The involvement of well-known investment firms like Fortress and Canyon suggests confidence in the long-term prospects of First Foundation within the regional banking sector.

Comparison to Industry Standards

• Luther Burbank Savings, where Simone Lagomarsino previously served as CEO, was acquired, indicating a trend of consolidation in the banking sector.
• Pacific Premier Bancorp (Nasdaq: PPBI), where Simone Lagomarsino served as a director, is a comparable institution in terms of market capitalization and business model.
• Atlantic Capital Bancshares Inc., where Henchy R. Enden served as a director, was purchased by SouthState Bank, indicating a trend of consolidation in the banking sector.
• Bridgeview Bancorp, a bank in Chicago, Illinois, where Henchy R. Enden served as a director, was acquired by First Midwest Bancorp, indicating a trend of consolidation in the banking sector.
• West Coast Bancorp, a bank in Lake Oswego, Oregon, where Henchy R. Enden served as a director, was acquired by Columbia Banking System, Inc., indicating a trend of consolidation in the banking sector.

Management Changes

Corporate Governance

Related Party Transactions

• A trust affiliated with Simone Lagomarsino invested $500,000 in the Company, acquiring 121,951 shares of Common Stock and Issued Warrants to purchase 48 shares of Series C NVCE Stock on the same financial terms as the other Investors, and is party to the Registration Rights Agreement.

Stakeholder Impact

• Shareholders: Potential dilution due to the issuance of new shares, but also potential for increased value through strategic growth.
• Employees: Increased job security and potential for career advancement due to the company's strengthened financial position.
• Customers: Continued access to financial services and potential for improved offerings due to the company's enhanced resources.
• Suppliers: Increased business opportunities due to the company's growth and stability.
• Creditors: Reduced risk of default due to the company's improved financial health.

Next Steps

• The Company will submit to its stockholders for their (a) adoption and approval an amendment to its Certificate of Incorporation (as amended, the Certificate of Incorporation) to increase the number of authorized shares of Common Stock to 200,000,000 (the Authorized Share Amendment); and (b) approval the issuance of shares of Common Stock (including shares of Common Stock issuable upon conversion of the Preferred Stock) that is 20% or more of the total voting power of the Company's securities (the Share Issuance) in accordance with the rules of the New York Stock Exchange (the NYSE).

Key Dates

Keywords

capital raise, equity investment, preferred stock, common stock, First Foundation, Fortress Investment Group, Canyon Partners, Strategic Value Bank Partners, Simone Lagomarsino, directors, regulatory approvals, stockholder approval, warrants, banking