First Foundation Inc. Announces Over $225 Million Equity Investment Anchored by Fortress Investment Group, Canyon Partners, Strategic Value Bank Partners, and North Reef Capital
First Foundation announced a $228 million equity investment from Fortress Investment Group, Canyon Partners, Strategic Value Bank Partners, and North Reef Capital. The investment will be used to strengthen the company's balance sheet and improve its financial performance. Fortress will invest $115 million, Canyon Partners $46 million, while Strategic Value Bank Partners and North Reef Capital each contribute $22 million. The company will issue common and preferred stock to these investors, with the transaction expected to close around July 8, 2024.
Four new directors, including Simone Lagomarsino who will also be the bank's President, will join the board at closing. The equity raise is anticipated to help refocus the company's balance sheet, grow its commercial and industrial platforms, and increase earnings. The investment will also provide financial strength to improve the net interest margin and deposit base.
Shareholders will need to approve amendments to the certificate of incorporation and the issuance of common stock exceeding 19.9% of the total voting power. A strategic update call is scheduled for July 2, 2024, to discuss these developments.
- Equity investment of $228 million to strengthen balance sheet.
- Fortress Investment Group leading with $115 million investment.
- Addition of experienced directors, including Simone Lagomarsino as President.
- Need for shareholder approval to amend the certificate of incorporation and issue additional shares.
- Potential dilution with the issuance of common and preferred stock.
Insights
The recent equity investment of
However, the issuance of preferred stock and the need for approval to increase authorized shares indicate some structural adjustments are needed. Preferred stocks, offering no voting rights, can be less attractive to certain investors but help manage equity dilution. The plan to convert preferred stock into common stock upon stockholder approval suggests a longer-term strategy to simplify the capital structure.
Investors should note the company’s strategic intent to refocus the balance sheet, grow C&I platforms and increase the allowance for credit losses (ACL). These moves are geared toward risk management and profitability enhancement, which is a strategic pivot worth monitoring closely.
This significant investment indicates a robust belief in the future growth prospects of First Foundation Inc., particularly in dynamic markets like Texas, California and Florida. With the addition of experienced professionals to the Board, the company is bolstering its leadership, potentially improving governance and strategic execution.
The strategic plan to reduce multi-family concentrations and expand commercial and industrial (C&I) platforms aligns with broader industry trends, where diversification is key to mitigating risks. The increased ACL reflects a cautious but proactive approach to potential credit losses, which is prudent in the current economic climate.
Given the competitive landscape of banking in these states, First Foundation’s ability to leverage this capital to enhance its deposit base and loan portfolio will be crucial. Retail investors should consider the potential of these markets and the company's improved competitive positioning when evaluating the long-term benefits of this investment.
The structure of this equity investment involves complex legal considerations, particularly with the issuance of Series A, B and C preferred stocks. These legal maneuvers are designed to comply with banking regulations and ensure the company remains within its authorized share limits. The necessity to seek stockholder approval for increasing authorized shares highlights the importance of regulatory compliance in such transactions.
The conversion terms of these preferred stocks into common stock upon meeting certain conditions ensure that the investors can eventually realize their equity positions without contravening existing regulations. This approach provides flexibility to the company and its investors while maintaining compliance with the NYSE rules and banking laws.
Retail investors should be aware of the potential voting implications and the timing of stockholder approvals, as these factors will influence the ultimate structure of the company's equity and governance.
Simone Lagomarsino (Former CEO of Luther Burbank, Former Chair of the Board of Directors of Federal Home Loan Bank of
First Foundation Bank (the “Bank”) will add four new directors to its Board at closing of the equity investment, with Fortress having a contractual right to add another Board member in the future. The new Board members at close to include Simone Lagomarsino, who will also join as President of the Bank; Henchy Enden; Sam Edelson; and Ben Mackovak. The Company anticipates that these individuals will also be appointed to its Board following receipt of regulatory approvals.
Scott F. Kavanaugh, President and CEO of the Company stated, "On behalf of the entire Board of Directors and all of our outstanding employee partners at the Company, I want to welcome the very experienced and talented people who will be joining the Board of Directors and investing in our valuable franchise. With this meaningful strategic equity raise, I am confident we will be able to refocus our balance sheet, reduce multi-family concentrations over time, grow C&I platforms, increase ACL and materially strengthen earnings.”
Simone Lagomarsino stated, “With more than three decades in bank leadership roles in
“We are pleased to anchor this over
Jesse Wiener, Managing Director at Canyon Partners stated, "We are excited to invest in an institution that we know and respect in the
Ben Mackovak, Co-Founder and Managing Member of Strategic Value Bank Partners stated, “I look forward to working with the Board and management team to productively deploy this new capital to make First Foundation a stronger institution that will create value for customers, employees, communities, and shareholders. As an existing shareholder, we are pleased to see such respected institutions taking a stake in First Foundation to support its future success.”
Transaction Details
In connection with the equity capital raise transaction, First Foundation will sell and issue, in the aggregate, to the investors (i) 11,308,676 shares of common stock, par value
In addition, investors will receive seven-year warrants to purchase a new series of preferred stock, par value
The preferred stock is being issued in connection with the equity capital raise in part due to the fact that the Company does not have a sufficient amount of authorized but unissued shares of common stock under its certificate of incorporation (the “Certificate of Incorporation”) to permit the Company to issue only common shares to the investors. Accordingly, the Company will need the approval of its stockholders, as described in further detail below, in order to amend the Certificate of Incorporation to increase our total authorized shares of common shares and to permit the issuance of an amount of common stock that is
Each share of Series A preferred stock will automatically convert into 1,000 shares of common stock in the event of a transfer by the holder thereof consistent with the rules and limitations of Regulation Y. Holders of shares of Series A preferred stock will not have the right to vote such shares on any matter submitted to a vote of the stockholders of the Company, other than certain matters expressly permitted by the associated Certificate of Designations, and all of which shares of Series A preferred stock represent the right (on an as converted basis) to receive approximately 29.8 million shares of common stock.
Upon receipt of the Requisite Stockholder Approvals (as defined below), each share of Series B preferred stock will automatically convert into 1,000 shares of common stock. In addition, if the Requisite Stockholder Approvals are not obtained within 210 days of the closing, the investors will receive cash-settled warrants that become exercisable 60 days after issuance (alternatively, these warrants will be cancelled if the Requisite Stockholder Approvals are obtained during such 60-day period). Holders of shares of Series B preferred stock will not have the right to vote such shares on any matter submitted to a vote of the stockholders of the Company, other than certain matters expressly permitted by the associated Certificate of Designations, and all of which shares of Series B preferred stock represent the right (on an as converted basis) to receive approximately 14.5 million shares of common stock.
Each share of Series C preferred stock will automatically convert into 1,000 shares of common stock in the event of a transfer by the holder thereof consistent with the rules and limitations of Regulation Y. The warrants will not be exercisable for 180 days after closing. Holders of shares of Series C preferred stock will not have the right to vote such shares on any matter submitted to a vote of the stockholders of the Company, other than certain matters expressly permitted by the associated Certificate of Designations, and all of which shares of Series C preferred stock represent the right (on an as converted basis) to receive approximately 22.2 million shares of common stock.
The Company will provide customary shelf and piggyback registration rights to each of the investors.
Timing and Approvals
The transaction is expected to close on or around July 8, 2024, subject to the satisfaction of certain closing conditions, including the filing of a supplemental listing application required to authorize for listing on the New York Stock Exchange the shares of common stock to be issued at closing under each investment agreement.
Matters to be Submitted to Stockholders of the Company
The Company plans to submit to its stockholders for their (a) adoption and approval amendments to the Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock to 200,000,000 (the “Authorized Share Amendment”) and (b) approval of the issuance of shares of common stock in excess of
Advisors
Jefferies LLC is acting as exclusive financial advisor and sole placement agent to First Foundation. Sheppard,
Conference Call Details
At 5.00 p.m. ET / 2.00 p.m. PT on July 2, 2024, President and Chief Executive Officer Scott F. Kavanaugh, Chief Financial Officer Jamie Britton, and Chief Operating Officer Chris Naghibi of First Foundation will host a First Foundation Strategic Update Call.
Analysts, investors, and the general public may listen to a discussion of First Foundation’s strategic update call by using the information below:
Via Internet:
The call will be broadcast live over the Internet and can be accessed using the following link: https://events.q4inc.com/attendee/171098569
Via Telephone (For those wishing to participate in the Q & A):
Participants call one of the allocated dial-in numbers (below) and advise the Operator of either the Conference ID 1589646 or Conference Name.
Webcast replay link after call is finished: First Foundation, Inc. - Events & Presentations (ff-inc.com)
The Investor Presentation regarding this transaction will be available on the company's website.
About First Foundation Inc.
Headquartered in
About Fortress Investment Group
Fortress Investment Group LLC is a leading, highly diversified global investment manager. Founded in 1998, Fortress manages
About Canyon Partners
Founded in 1990, Canyon employs a deep value, credit intensive approach across public and private corporate credit, structured credit, and direct real estate lending and investing. The firm seeks to capture excess returns available to those investors with specialized expertise, rigorous research capabilities, and the ability to underwrite complexity. Canyon invests on behalf of a broad range of institutions globally. For more information visit: www.canyonpartners.com.
About Strategic Value Bank Partners
Strategic Value Bank Partners is an investment manager focused on the community banking industry. Founded in 2015, Strategic Value combines industry operating experience with the rigorous analysis of an institutional investor. The firm invests across public and private banks throughout
Forward Looking Statements
This press release may include forward-looking statements by the Company pertaining to such matters as our goals, intentions, and expectations regarding, among other things, the convertibility of the shares of preferred stock and exercisability of the warrants issued in connection with this capital raise transaction; the Company’s seeking (and the Company’s ability to obtain) approval of its stockholders of any necessary amendments of the Company’s organizational documents or approvals of the issuance of shares of common stock or preferred stock in connection with this capital raise transaction; receipt of any required regulatory approvals or non-objections in connection with this capital raise transaction or the appointment of directors or senior management; revenues, earnings, loan production, asset quality, capital levels, and acquisitions, among other matters; our estimates of future costs and benefits of the actions we may take; our assessments of probable losses on loans; our assessments of interest rate and other market risks; and our ability to achieve our financial and other strategic goals.
Forward-looking statements are typically identified by such words as “believe,” “expect,” “anticipate”, “intend,” “outlook,” “estimate,” “forecast,” “project,” “should,” and other similar words and expressions, and are subject to numerous assumptions, risks, and uncertainties, which change over time. Additionally, forward-looking statements speak only as of the date they are made; the Company does not assume any duty, and does not undertake, to update our forward-looking statements. Furthermore, because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those anticipated in our statements, and our future performance could differ materially from our historical results.
The forward-looking statements in this release are based on current information and on assumptions that we make about future events and circumstances that are subject to a number of risks and uncertainties that are often difficult to predict and beyond our control. As a result of those risks and uncertainties, our actual financial results in the future could differ, possibly materially, from those expressed in or implied by the forward-looking statements contained in this release and could cause us to make changes to our future plans. Those risks and uncertainties include, but are not limited to, the risk of incurring credit losses, which is an inherent risk of the banking business; the quality and quantity of our deposits; adverse developments in the financial services industry generally such as bank failures and any related impact on depositor behavior or investor sentiment; risks related to the sufficiency of liquidity; risk that we will not be able to maintain growth at historic rates or at all; the risk that we will not be able to access the securitization market on favorable terms or at all; changes in general economic conditions, either nationally or locally in the areas in which we conduct or will conduct our business; 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 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; negative impacts of news or analyst reports about us or the financial services industry; the impacts of inflation on us and our customers; 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 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; risks associated with changes in income tax laws and regulations; and risks associated with seeking new client relationships and maintaining existing client relationships.
Additional information regarding these and other risks and uncertainties to which our business and future financial performance are subject is contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and other documents we file with the SEC from time to time. We urge readers of this report to review those reports and other documents we file with the SEC from time to time. Also, our actual financial results in the future may differ from those currently expected due to additional risks and uncertainties of which we are not currently aware or which we do not currently view as, but in the future may become, material to our business or operating results. Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this report, which speak only as of today's date, or to make predictions based solely on historical financial performance. We also disclaim any obligation to update forward-looking statements contained in this report or in the above-referenced reports, whether as a result of new information, future events or otherwise, except as may be required by law or NYSE rules.
Important Information and Where You Can Find It
This press release may be deemed to be solicitation material in respect of the Requisite Stockholder Approvals. In connection with the Requisite Stockholder Approval, First Foundation will file with the SEC a preliminary proxy statement and a definitive proxy statement, which will be sent to the stockholders of First Foundation, seeking certain approvals related to the issuances of shares of common stock issued under each investment agreement and to be issued upon the conversion of shares of the preferred stock issued under the investment agreements.
INVESTORS AND SECURITY HOLDERS OF FIRST FOUNDATION AND THEIR RESPECTIVE AFFILIATES ARE URGED TO READ, WHEN AVAILABLE, THE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION WITH THE TRANSACTION, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT FIRST FOUNDATION AND THE TRANSACTION.
investors and security holders will be able to obtain a free copy of the proxy statement, as well as other relevant documents filed with the SEC containing information about First Foundation, without charge, at the SEC's website (http://www.sec.gov). Copies of documents filed with the SEC by First Foundation can also be obtained, without charge, by directing a request to Investor Relations, First Foundation Inc., 18101 Von Karman Ave., Suite 750,
Participants in the Solicitation of Proxies in Connection with Proposed Transaction
First Foundation and certain of their respective directors, executive officers and employees may be deemed to be participants in the solicitation of proxies in respect of the Requisite Stockholder Approvals under the rules of the SEC. Information regarding First Foundation 's directors and executive officers is available in its definitive proxy statement for its 2023 annual stockholders meeting, which was filed with the SEC on April 18, 2024, and certain of its Current Reports on Form 8-K. Other information regarding the participants in the solicitation of proxies in respect of the proposed transaction and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the proxy statement and other relevant materials to be filed with the SEC. Free copies of these documents, when available, may be obtained as described in the preceding paragraph.
Not an Offer of Securities
The information in this communication is for informational purposes only and shall not constitute, or form a part of, an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities. The securities that are the subject of the private placement have not been registered under the Securities Act and may not be offered or sold in
View source version on businesswire.com: https://www.businesswire.com/news/home/20240702390183/en/
Investor Contact:
Jamie Britton, CFO
+1 (949) 476-0300
Source: First Foundation Inc.
FAQ
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