Core Insights - First Foundation reported a loss of $0.09 per share for Q2 2025, contrasting with expectations of a profit of $0.02 per share [1] Financial Performance - The financial results indicate a significant deviation from market expectations, highlighting potential challenges faced by the company during the quarter [1]

Part I. Financial Information [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements for Q2 2025, including balance sheets, operations, cash flows, and notes on accounting policies and key items | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$11,588,362** | **$12,645,265** | | Total loans held for investment, net | $7,510,763 | $7,909,091 | | Loans held for sale | $476,727 | $1,285,819 | | **Total Liabilities** | **$10,537,736** | **$11,591,902** | | Deposits | $8,593,693 | $9,870,279 | | Borrowings | $1,669,315 | $1,425,369 | | **Total Shareholders' Equity** | **$1,050,626** | **$1,053,363** | | (In thousands, except per share amounts) | Quarter Ended June 30, 2025 | Quarter Ended June 30, 2024 | | :--- | :--- | :--- | | Net interest income | $50,082 | $43,829 | | Provision for credit losses | $2,366 | $(806) | | Total noninterest income | $1,338 | $13,658 | | Total noninterest expense | $59,924 | $55,629 | | **Net (loss) income** | **$(7,690)** | **$3,085** | | **Diluted EPS** | **$(0.09)** | **$0.05** | [Note 2: Fair Value Measurements](index=10&type=section&id=NOTE%202%3A%20FAIR%20VALUE%20MEASUREMENTS) Details fair value measurements using a three-level hierarchy, with tables for recurring and non-recurring assets and liabilities, mostly Level 2 Fair Value of Financial Instruments (June 30, 2025) | (In thousands) | Carrying Value | Fair Value | | :--- | :--- | :--- | | **Assets** | | | | Securities AFS, net | $1,469,122 | $1,469,122 | | Securities HTM | $663,807 | $604,367 | | Loans held for sale | $476,727 | $476,727 | | Loans held for investment, net | $7,510,763 | $7,379,679 | | **Liabilities** | | | | Deposits | $8,593,693 | $8,601,170 | | Borrowings | $1,669,315 | $1,696,461 | | Subordinated debt | $173,490 | $156,564 | [Note 3: Securities](index=19&type=section&id=NOTE%203%3A%20SECURITIES) Details AFS and HTM securities portfolios, including cost, fair value, and credit loss allowance, with AFS at $1.47B and HTM at $664M Securities Portfolio Summary (June 30, 2025) | (In thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Estimated Fair Value | | :--- | :--- | :--- | :--- | :--- | :--- | | **AFS Total** | **$1,485,810** | **$253** | **$(16,290)** | **$(651)** | **$1,469,122** | | **HTM Total** | **$663,807** | **$—** | **$(59,440)** | **$—** | **$604,367** | - During the six months ended June 30, 2025, the company sold **$466 million** par value of AFS securities, resulting in a gain of **$4.7 million**[58](index=58&type=chunk) - The allowance for credit losses on investments decreased from **$4.1 million** at year-end 2024 to **$651 thousand** at June 30, 2025, primarily due to a **$3.4 million** charge-off of an interest-only strip security that was previously reserved for[60](index=60&type=chunk)[61](index=61&type=chunk) [Note 4: Loans](index=27&type=section&id=NOTE%204%3A%20LOANS) Details the $7.5B loan portfolio by type, credit quality, and troubled debt restructurings, with real estate loans as the largest portion Loans Held for Investment Composition | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Multifamily | $3,288,093 | $3,341,823 | | Single-family | $822,508 | $873,491 | | Commercial properties | $818,738 | $904,167 | | Commercial and industrial loans | $2,568,621 | $2,746,351 | | **Total** | **$7,548,323** | **$7,941,393** | - Total past due and nonaccrual loans decreased to **$49.8 million** (**0.66%** of total loans) at June 30, 2025, from **$70.4 million** (**0.89%** of total loans) at December 31, 2024[70](index=70&type=chunk) - During the first six months of 2025, the company sold loans with an unpaid principal balance of **$858 million**, resulting in a net loss on sale of **$10.4 million**[69](index=69&type=chunk) [Note 5: Allowance for Credit Losses](index=34&type=section&id=NOTE%205%3A%20ALLOWANCE%20FOR%20CREDIT%20LOSSES) Explains CECL methodology for ACL for loans, detailing its rollforward, with ACL increasing to $37.6M due to a $5.6M provision Rollforward of Allowance for Credit Losses - Loans (Six Months Ended June 30, 2025) | (In thousands) | Amount | | :--- | :--- | | **Beginning Balance (Dec 31, 2024)** | **$32,302** | | Provision for Credit Losses | $5,585 | | Charge-offs | $(895) | | Recoveries | $568 | | **Ending Balance (June 30, 2025)** | **$37,560** | [Note 9: Deposits](index=42&type=section&id=NOTE%209%3A%20DEPOSITS) Breaks down the Company's deposit base by type, showing total deposits decreased to $8.6B from $9.9B, with a slight rate decrease Deposit Composition | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Noninterest-bearing | $1,467,203 | $1,956,628 | | Interest-bearing Demand | $1,672,287 | $1,995,397 | | Money market and savings | $3,604,909 | $3,524,801 | | Certificates of deposit | $1,849,294 | $2,393,453 | | **Total Deposits** | **$8,593,693** | **$9,870,279** | [Note 15: Segment Reporting](index=51&type=section&id=NOTE%2015%3A%20SEGMENT%20REPORTING) Summarizes key operating results for Banking and Wealth Management segments, with Banking reporting a $7.8M pre-tax loss and Wealth Management a $0.4M pre-tax income Segment (Loss) Income Before Income Taxes (Q2 2025 vs Q2 2024) | (In thousands) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Banking | $(7,753) | $3,280 | | Wealth Management | $371 | $2,106 | | Other | $(3,488) | $(2,722) | | **Total** | **$(10,870)** | **$2,664** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=54&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's narrative on financial performance and condition, detailing Q2 2025 net loss drivers, strategic reductions, NIM, credit quality, liquidity, and capital [Overview](index=57&type=section&id=Overview) Reports a $7.7M net loss for Q2 2025, a shift from Q2 2024 income, with total assets decreasing by $1.1B due to loan sales, reducing liabilities - The company reported a net loss of **$7.7 million** in Q2 2025, compared to net income of **$3.1 million** in Q2 2024[138](index=138&type=chunk) - Total assets decreased by **$1.1 billion** (**8.4%**) since year-end 2024, largely due to a **$1.2 billion** decrease in total loans, driven by the sale of **$858 million** in multifamily loans held for sale[139](index=139&type=chunk) - Total liabilities decreased by **$1.1 billion** (**9.1%**), mainly from a **$1.3 billion** reduction in deposits, as proceeds from loan sales were used to pay down high-cost deposits[140](index=140&type=chunk) [Results of Operations](index=57&type=section&id=Results%20of%20Operations) Q2 2025 net loss driven by a $10.4M loss on loan sales, with net interest income growing and NIM expanding to 1.68%, despite increased noninterest expense - The Q2 2025 net loss was primarily caused by a **$10.4 million** loss on the sale of **$858 million** in multifamily loans held for sale, as part of a strategy to reduce exposure to low-coupon fixed-rate loans[144](index=144&type=chunk) Net Interest Margin Analysis | | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Interest Income | $50,082 | $43,829 | | Net Interest Rate Spread | 0.82% | 0.44% | | Net Interest Margin | 1.68% | 1.36% | [Financial Condition](index=74&type=section&id=Financial%20Condition) The balance sheet contracted in H1 2025, with assets and liabilities decreasing by $1.1B from loan sales and deposit reductions, maintaining a stable loan-to-deposit ratio - Total assets decreased by **$1.1 billion** in the first six months of 2025, mainly from the sale of **$858 million** in multifamily loans[173](index=173&type=chunk) - Total deposits decreased by **$1.3 billion**, with significant reductions in higher-cost specialty deposits (**$826 million**) and brokered deposits (**$591 million**)[191](index=191&type=chunk) - The loan-to-deposit ratio was **93.4%** at June 30, 2025, nearly unchanged from **93.5%** at December 31, 2024[217](index=217&type=chunk) [Delinquent Loans, Nonperforming Assets and Provision for Credit Losses](index=85&type=section&id=Delinquent%20Loans%2C%20Nonperforming%20Assets%20and%20Provision%20for%20Credit%20Losses) Credit quality improved with nonaccrual loans decreasing to $34.6M, while ACL for loans increased to $37.6M, or 0.50% of loans, reflecting a $5.6M provision - Nonaccrual loans decreased from **$40.4 million** at year-end 2024 to **$34.6 million** at June 30, 2025[204](index=204&type=chunk) Allowance for Credit Losses (ACL) Ratios | | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | ACL for Loans (in thousands) | $37,560 | $32,302 | | ACL as % of Loans Held for Investment | 0.50% | 0.41% | | ACL as % of Nonaccrual Loans | 108% | 80% | [Liquidity and Capital Resources](index=88&type=section&id=Liquidity%20and%20Capital%20Resources) Maintains strong liquidity and capital, with $2.1B in unused borrowing capacity, and both holding company and bank exceeding all regulatory capital requirements - The company had **$2.1 billion** in unused borrowing capacity as of June 30, 2025, including lines with the FHLB, Federal Reserve, and correspondent banks[201](index=201&type=chunk)[210](index=210&type=chunk) Regulatory Capital Ratios (June 30, 2025) | Ratio | FFI (Consolidated) | FFB (Bank) | Well-Capitalized Minimum (Bank) | | :--- | :--- | :--- | :--- | | Common equity tier 1 ratio | 11.08% | 13.91% | 6.50% | | Tier 1 Leverage ratio | 8.29% | 9.49% | 5.00% | | Tier 1 risk-based capital ratio | 12.13% | 13.91% | 8.00% | | Total risk-based capital ratio | 14.70% | 14.41% | 10.00% | [Quantitative and Qualitative Disclosures About Market Risk](index=98&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Directs readers to the 'Interest Rate Risk Management' section in Item 2 for detailed disclosures on market risk - The report refers to the 'Interest Rate Risk Management' section in Item 2 for its quantitative and qualitative disclosures about market risk[238](index=238&type=chunk) [Controls and Procedures](index=98&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were not effective due to a material weakness in ACL internal control, with remediation measures underway - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to a material weakness in internal control over financial reporting[240](index=240&type=chunk) - The company is implementing corrective measures, including engaging a professional services firm to address deficiencies in the allowance for credit loss (ACL) process[241](index=241&type=chunk) Part II. Other Information [Legal Proceedings](index=101&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not aware of any legal proceedings expected to have a material adverse effect on its operations or financial condition[246](index=246&type=chunk) [Risk Factors](index=101&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the 2024 Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K[247](index=247&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=101&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Notes the $75M authorized stock repurchase program, with no shares repurchased during Q2 2025 - The company has a **$75 million** stock repurchase program authorized, but no shares were repurchased in the second quarter of 2025[248](index=248&type=chunk) [Other Information](index=101&type=section&id=Item%205.%20Other%20Information) No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement during Q2 2025 - No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement during Q2 2025[249](index=249&type=chunk) [Exhibits](index=102&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including corporate governance documents and CEO/CFO certifications - This section lists all exhibits filed with the report, such as the Certificate of Incorporation, Bylaws, and CEO/CFO certifications[251](index=251&type=chunk)

Financial Data and Key Metrics Changes - The company reported a net loss of $7.7 million for the second quarter, compared to a net income of $6.9 million in the first quarter [5][6] - Adjusted pre-provision net revenue was $3.6 million, representing a 12 basis point return on assets [6][21] - The net interest margin (NIM) for the second quarter was 1.68%, a slight increase from the previous quarter [17][21] Business Line Data and Key Metrics Changes - The company reduced its commercial real estate (CRE) held for sale loans by a total of $858 million during the second quarter [6][10] - New loan balances funded in the quarter amounted to $256 million, with an average yield of 7.18%, primarily in commercial and industrial (C&I) loans [8][10] - Non-performing loans remained stable at 35 basis points, and net charge-offs were low at $135,000 [8][24] Market Data and Key Metrics Changes - Assets under management at the end of the quarter were $5.3 billion, slightly up from the previous quarter [10] - Trust assets under advisement were stable at $1.2 billion [10] - Digital banking deposits surpassed $1 billion for the first time, representing 12% of total deposits as of June 30 [12] Company Strategy and Development Direction - The company is focused on reducing its CRE concentration and growing C&I loans, which is expected to result in a higher allowance for credit losses (ACL) over time [10][24] - The strategic initiatives include improving core funding and accelerating growth in private banking and wealth management [10][11] - The company aims to be fully exited from the held for sale CRE portfolio by the end of 2025 [7][17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future performance despite the current net loss, citing strong core financial performance [6][27] - The company remains well-capitalized with a common equity Tier 1 ratio of 11.1% and a leverage ratio of 8.3% [12][25] - Management anticipates continued margin expansion and expects the NIM to exit 2025 between 1.8% and 2.2% [26] Other Important Information - The company experienced a modest gain from the June securitization of $481 million of CRE loans, which was more favorable than the earlier loan sale [15][17] - Customer service costs decreased to $12.9 million from $15.1 million in the prior quarter, primarily due to a reduction in MSR deposits [23][24] - The company is undergoing management changes, with searches for key executive positions ongoing [13][46] Q&A Session Summary Question: Optimization of the balance sheet and future sales - Management indicated a focus on reducing CRE concentration and stabilizing the balance sheet, with no immediate plans for further asset sales [31][33] Question: Private banking initiative and talent acquisition - Management expressed optimism about the private banking initiative, highlighting ongoing recruitment efforts and early successes in client acquisition [36][38] Question: Balance sheet contraction and future asset levels - Management expects the balance sheet to reach a trough by the end of the year, with potential for growth into 2026 [40][42] Question: Management turnover and filling key roles - Management acknowledged turnover as part of the transition and emphasized the need for new leadership to align with the company's strategic direction [45][46] Question: Plans for reducing high-cost deposits - Management plans to continue reducing high-cost deposits, with expectations for further reductions in the coming months [49][52] Question: Loan yields and cash position - Total loan yields exited the quarter just under 4.70%, and management is comfortable with the current cash position, anticipating stability moving forward [58][62]

Financial Performance & Strategic Transformation - First Foundation reported a net loss in Q2 2025, largely due to $12.1 million pre-tax impacts from loan sales[13] - Adjusting for loan transactions, the company's "core" EPS was $0.01[13] - Core PPNR was $3.6 million in Q2 2025, compared to $9.7 million in Q1 2025[13] - The company successfully sold $858 million of CRE loans during Q2 2025[8, 12] Asset Quality & Capital Management - Net charge-offs were less than 1 bps (0.00%) in Q2 2025, indicating strong credit performance[13] - Total nonperforming assets decreased by 9.1% compared to Q1 2025, reaching $40.8 million, or 0.35% of total assets[22] - CET1 ratio improved to 11.08% in Q2 2025, compared to 10.63% in Q1 2025 and 9.68% in Q3 2024[13] Deposit & Funding Strategy - Higher-cost MSR deposits were reduced by $0.5 billion, a 50% decrease, and wholesale deposits decreased by $0.2 billion, a 9% decrease[13] - The company exited $540 million of higher-cost MSR deposits (~4.60%) following loan transactions[32] - 60% of the $1.4 billion brokered CD portfolio is scheduled to mature over the next 18 months, with a weighted average interest rate of ~4.9%[32]

Financial Performance - First Foundation (FFWM) reported a quarterly loss of $0.09 per share, missing the Zacks Consensus Estimate of $0.02, compared to earnings of $0.06 per share a year ago, representing an earnings surprise of -550.00% [1] - The company posted revenues of $51.42 million for the quarter ended June 2025, missing the Zacks Consensus Estimate by 20.28%, and down from year-ago revenues of $57.49 million [2] - Over the last four quarters, First Foundation has surpassed consensus EPS estimates two times and topped consensus revenue estimates two times [2] Stock Performance - First Foundation shares have lost about 21.6% since the beginning of the year, while the S&P 500 has gained 8.2% [3] - The current status translates into a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the coming quarter is $0.03 on $65.9 million in revenues, and $0.15 on $265.3 million in revenues for the current fiscal year [7] - The estimate revisions trend for First Foundation was mixed ahead of the earnings release, which could change following the company's report [6] Industry Context - The Zacks Industry Rank for Banks - Southwest is currently in the top 15% of over 250 Zacks industries, indicating that the industry outlook can materially impact stock performance [8]

[Second Quarter 2025 Financial Highlights](index=1&type=section&id=First%20Foundation%20Inc.%20Reports%20Second%20Quarter%202025%20Results) [Key Financial Data and Highlights](index=1&type=section&id=2Q25%20Key%20Financial%20Data%20and%20Highlights) First Foundation Inc. reported a net loss of $7.7 million for Q2 2025, driven by a strategic sale of $858 million in Commercial Real Estate (CRE) loans, while improving Net Interest Margin to 1.68% and strengthening capital to 14.70% Q2 2025 Key Financial Metrics | Metric | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | **Net (Loss) Income** | ($7.7M) | $6.9M | $3.1M | | **(Loss) Earnings Per Share** | ($0.09) | $0.08 | $0.05 | | **Net Interest Margin (%)** | 1.68 | 1.67 | 1.36 | | **Total Loans** | $8.03B | $9.00B | $10.09B | | **Total Deposits** | $8.59B | $9.56B | $10.76B | | **Total Risk-Based Capital Ratio (%)** | 14.70 | 14.04 | 12.60 | - The company executed a significant strategic move by selling approximately **$858 million in CRE loans** held for sale at an average price of 94.0%, resulting in a pre-tax revenue impact of **($12.1) million** and an after-tax net income impact of **($8.7) million**[2](index=2&type=chunk)[7](index=7&type=chunk) - Proceeds from the loan sales were used to reduce high-cost deposits by approximately **$865 million**, leading to a **9 basis point sequential decrease** in the cost of deposits to **2.95%**[4](index=4&type=chunk)[7](index=7&type=chunk) - Maintained strong liquidity with **$3.5 billion in total liquidity** and a ratio of liquidity to uninsured/uncollateralized deposits of **2.70x**[2](index=2&type=chunk)[5](index=5&type=chunk) [Executive Commentary](index=1&type=section&id=Executive%20Commentary) Management emphasized significant progress in its strategic plan during Q2 2025, highlighting material reductions in CRE concentration and high-cost deposits, with projected NIM expansion to 1.80-1.90% by Q4 2025 - CEO Thomas C. Shafer stated the company is on track to completely exit its held-for-sale CRE portfolio by the end of 2025 and has materially improved its CRE concentration from a high of over **600%**[3](index=3&type=chunk) - CFO Jamie Britton conveyed that the full benefit of the quarter's actions on Net Interest Margin (NIM) has not yet been realized and expressed confidence that NIM will improve to a range of **1.80-1.90% by Q4 2025**[3](index=3&type=chunk) [Detailed Financial Analysis](index=5&type=section&id=Detailed%20Financial%20Analysis) [Loans](index=5&type=section&id=Loans) Total loan balances decreased to $8.0 billion due to the sale of $858 million in multifamily CRE loans, while new loan fundings increased to $256 million at an average yield of 7.18% Loan Portfolio Composition (in billions) | Category | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Total Loans | $8.0 | $9.0 | $10.1 | | Loans Held for Investment | $7.5 | $7.7 | - | | Loans Held for Sale | $0.5 | $1.3 | - | - Sold **$858 million of multifamily loans** with a weighted average interest rate of **3.92%**, resulting in a **$10.4 million loss on sale**, as part of a larger strategy to sell **$1.9 billion in CRE loans** reclassified in August 2024[17](index=17&type=chunk) - Loan fundings for the quarter totaled **$256 million** at an average yield of **7.18%**, an increase from **$180 million at 7.09%** in the prior quarter, with C&I loans accounting for **80% of total fundings**[16](index=16&type=chunk)[18](index=18&type=chunk) [Investment Securities](index=6&type=section&id=Investment%20Securities) The investment securities portfolio stood at $2.1 billion, with combined unrealized and unrecognized losses decreasing to $53.9 million, and the average yield improving to 4.34% - Investment securities totaled **$2.1 billion** as of June 30, 2025, with the balance decreasing due to **$75 million in principal paydowns** and no new purchases or sales during the quarter[19](index=19&type=chunk) - Combined tax-effected unrealized/unrecognized losses on the AFS and HTM portfolios improved to **$53.9 million (2.52% of the portfolio)** from **$57.5 million** in the prior quarter, mainly due to lower treasury rates[20](index=20&type=chunk)[21](index=21&type=chunk) - The average yield on the investment securities portfolio increased to **4.34%** in Q2 2025, up from **4.30%** in Q1 2025 and **4.00%** in Q2 2024[21](index=21&type=chunk) [Deposits and Borrowings](index=6&type=section&id=Deposits%20and%20Borrowings) Total deposits decreased by nearly $1 billion to $8.6 billion due to a strategic reduction of higher-cost deposits, leading to a lower cost of deposits at 2.95%, while borrowings remained stable at $1.7 billion Deposit Balances (in billions) | Date | Total Deposits | | :--- | :--- | | June 30, 2025 | $8.6 | | March 31, 2025 | $9.6 | | June 30, 2024 | $10.8 | - The decrease in deposits was primarily due to a **$975 million reduction in higher-cost deposits**, including a **$784 million decline in specialty deposits** and a **$191 million decrease in brokered deposits**[22](index=22&type=chunk) - Cost of deposits declined to **2.95%** for the quarter, compared to **3.04%** in Q1 2025 and **3.49%** in Q2 2024[24](index=24&type=chunk) - Borrowings remained stable at **$1.7 billion**, and the company maintained total unused borrowing capacity of **$2.1 billion** from various sources[25](index=25&type=chunk)[27](index=27&type=chunk) [Private Wealth Management and Trust Assets](index=8&type=section&id=Private%20Wealth%20Management%20and%20Trust%20Assets) Assets Under Management (AUM) increased to $5.3 billion, driven by performance gains and new accounts, while Trust Assets Under Advisement (AUA) remained stable at $1.2 billion AUM and AUA Balances (in billions) | Metric | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Assets Under Management (AUM) | $5.3 | $5.1 | $5.5 | | Assets Under Advisement (AUA) | $1.2 | $1.2 | $1.1 | - The quarterly change in AUM consisted of **$83 million in new accounts**, **$184 million in net withdrawals**, and **$335 million in performance gains**[28](index=28&type=chunk) [Net Interest Income and Net Interest Margin](index=8&type=section&id=Net%20Interest%20Income%20and%20Net%20Interest%20Margin) Net interest income (NII) slightly decreased to $50.1 million due to lower average interest-earning assets, but Net Interest Margin (NIM) expanded to 1.68% for the sixth consecutive quarter NII and NIM Performance | Metric | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Net Interest Income | $50.1M | $51.8M | $43.8M | | Net Interest Margin (NIM) | 1.68% | 1.67% | 1.36% | - The decrease in NII was caused by a drop in average interest-earning assets to **$11.9 billion** from **$12.3 billion** in the prior quarter[29](index=29&type=chunk) - NIM expansion was driven by a **9 basis point decrease** in the average rate paid on interest-bearing liabilities, which outpaced the **2 basis point decrease** in the yield earned on interest-earning assets[30](index=30&type=chunk)[31](index=31&type=chunk) [Noninterest Income](index=8&type=section&id=Noninterest%20Income) Noninterest income fell sharply to $1.3 million, primarily due to a $10.4 million loss on the sale of $858 million in multifamily loans, despite stable asset management fees Noninterest Income Breakdown (in millions) | Category | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | **Total Noninterest Income** | **$1.3** | **$19.6** | **$13.7** | | Loss on sale of loans | ($10.4) | - | $0.4 | | Asset management & other fees | $8.6 | $8.9 | $9.2 | | Capital market activities | ($0.3) | $2.8 | $0.8 | - The primary driver for the decrease in noninterest income was the **$10.4 million loss** recorded from the sale of multifamily loans held for sale[32](index=32&type=chunk) [Noninterest Expense](index=10&type=section&id=Noninterest%20Expense) Noninterest expense decreased to $59.9 million, mainly due to lower customer service costs reflecting the exit of high-cost deposits, though the efficiency ratio rose to 116% due to reduced revenue Noninterest Expense Breakdown (in millions) | Category | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | **Total Noninterest Expense** | **$59.9** | **$61.7** | **$55.6** | | Compensation and benefits | $22.9 | $25.1 | $19.1 | | Customer service costs | $13.0 | $15.1 | $16.1 | | Professional services & marketing | $7.2 | $5.9 | $3.7 | - Customer service costs decreased due to lower average balances and rates paid on depository accounts, linked to the reduction in high-cost specialty deposits[38](index=38&type=chunk) - The efficiency ratio increased to **116.0%** from **86.0%** in the prior quarter, heavily impacted by the **$12.1 million reduction** in total revenue from the loan sale transactions[39](index=39&type=chunk)[2](index=2&type=chunk) [Income Tax Expense](index=10&type=section&id=Income%20Tax%20Expense) The company recorded an income tax benefit of $3.2 million in Q2 2025, with an effective tax rate of 29.3%, primarily driven by the pre-tax loss and tax benefits from investments Income Tax (Benefit) | Period | Income Tax (Benefit) | Effective Tax Rate | | :--- | :--- | :--- | | 2Q25 | ($3.2M) | 29.3% | | 1Q25 | ($0.6M) | (10.1%) | | 2Q24 | ($0.4M) | (15.8%) | - The effective tax rate and benefit were predominantly driven by the pretax loss and benefits from low-income housing tax credits and tax-exempt income[41](index=41&type=chunk) [Asset Quality](index=12&type=section&id=Asset%20Quality) Asset quality remained strong and improved slightly, with nonperforming assets to total assets decreasing to 0.35% and the allowance for credit losses increasing to 0.50% of total loans held for investment Key Asset Quality Ratios | Metric | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Nonperforming assets to total assets | 0.35% | 0.36% | 0.18% | | Allowance for credit losses to total loans HFI | 0.50% | 0.46% | 0.29% | | Net charge-offs to average loans (annualized) | 0.003% | 0.01% | 0.01% | - Total nonperforming assets decreased to **$40.8 million** from **$44.9 million** at the end of the prior quarter[42](index=42&type=chunk) [Capital](index=12&type=section&id=Capital) The company's capital ratios strengthened, with the Total risk-based capital ratio increasing to 14.70%, while tangible book value per common share saw a slight decrease to $11.65 due to the net loss First Foundation Inc. Regulatory Capital Ratios | Ratio | 2Q25 (preliminary) | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Common equity tier 1 | 11.08% | 10.63% | 10.30% | | Tier 1 leverage | 8.29% | 8.12% | 7.08% | | Total risk-based capital | 14.70% | 14.04% | 12.60% | - Shareholders' equity totaled **$1.05 billion**, a decrease from **$1.06 billion** in the prior quarter, primarily due to the **$7.7 million net loss**[46](index=46&type=chunk) - Tangible book value per common share (non-GAAP) was **$11.65** as of June 30, 2025, compared to **$11.77** as of March 31, 2025[46](index=46&type=chunk) [Consolidated Financial Statements](index=18&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Balance Sheets](index=18&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets decreased to $11.6 billion, driven by reductions in loans held for sale and total deposits, while total liabilities also decreased and shareholders' equity slightly declined Selected Balance Sheet Items (in billions) | Item | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | **Total Assets** | **$11.59** | **$12.59** | **$13.71** | | Cash and cash equivalents | $1.06 | $1.01 | $1.42 | | Total loans, net | $7.99 | $8.96 | $10.06 | | **Total Liabilities** | **$10.54** | **$11.53** | **$12.78** | | Deposits | $8.59 | $9.56 | $10.76 | | **Total Shareholders' Equity** | **$1.05** | **$1.06** | **$0.93** | [Consolidated Statements of Operations](index=20&type=section&id=Consolidated%20Statements%20of%20Operations) For Q2 2025, the company reported a net loss of $7.7 million, a significant shift from the prior quarter, primarily due to a sharp drop in noninterest income from a $10.4 million loss on loan sales Quarterly Statement of Operations (in millions) | Item | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Net interest income | $50.1 | $51.8 | $43.8 | | Provision for credit losses | $2.4 | $3.4 | ($0.8) | | Noninterest income | $1.3 | $19.6 | $13.7 | | Noninterest expense | $59.9 | $61.7 | $55.6 | | **Net (Loss) Income** | **($7.7)** | **$6.9** | **$3.1** | [Supplemental Information](index=15&type=section&id=Supplemental%20Information) [Segment Reporting](index=24&type=section&id=Segment%20Reporting) The Banking segment reported a net loss of $5.4 million for Q2 2025, heavily impacted by loan sales, while the Wealth Management segment generated a net income of $0.3 million Net (Loss) Income by Segment (in millions) | Segment | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Banking | ($5.4) | $7.7 | $3.5 | | Wealth Management | $0.3 | $0.1 | $1.5 | | Other and Eliminations | ($2.5) | ($0.9) | ($2.0) | [Non-GAAP Financial Measures Reconciliation](index=28&type=section&id=Non-GAAP%20Financial%20Measures%20Reconciliation) The report provides reconciliations for non-GAAP measures, highlighting an adjusted net loss of $7.5 million, an efficiency ratio of 116.0%, and tangible book value per common share of $11.65 Key Non-GAAP Reconciliations for Q2 2025 | Metric | GAAP Value | Non-GAAP Value | | :--- | :--- | :--- | | Net (Loss) Income | ($7.7M) | ($7.5M) (Adjusted) | | Return on Average Assets | (0.25)% | (0.24)% (Adjusted) | | Book Value Per Share | $12.75 | $11.65 (Tangible) | | Efficiency Ratio | N/A | 116.0% | - Adjusted net income (loss) is calculated by adding back non-cash expenses like the amortization of intangible assets and their associated tax effects[67](index=67&type=chunk) - Tangible common equity and tangible book value per share are calculated by excluding intangible assets and preferred stock from shareholders' equity, which management believes provides a better measure of the company's capital adequacy[71](index=71&type=chunk)

Core Viewpoint - The market anticipates First Foundation (FFWM) will report a year-over-year decline in earnings despite an increase in revenues for the quarter ended June 2025 [1][3]. Earnings Expectations - First Foundation is expected to report quarterly earnings of $0.02 per share, reflecting a year-over-year decrease of 66.7% [3]. - Revenues are projected to be $64.5 million, which is an increase of 12.2% compared to the same quarter last year [3]. Estimate Revisions - The consensus EPS estimate has remained unchanged over the last 30 days, indicating that analysts have not significantly altered their initial projections [4]. - The Most Accurate Estimate for First Foundation is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -100.00%, suggesting a bearish outlook from analysts [11]. Earnings Surprise History - In the last reported quarter, First Foundation was expected to post earnings of $0.02 per share but actually delivered $0.09, resulting in a surprise of +350.00% [12]. - Over the past four quarters, the company has exceeded consensus EPS estimates three times [13]. Predictive Indicators - A positive Earnings ESP is a strong predictor of an earnings beat, especially when combined with a Zacks Rank of 1 (Strong Buy), 2 (Buy), or 3 (Hold) [9]. - The current Zacks Rank for First Foundation is 3, which complicates the prediction of an earnings beat given the negative Earnings ESP [11]. Market Reaction - The upcoming earnings report on July 31 could lead to a stock price increase if the results exceed expectations, while a miss could result in a decline [2]. - Other factors beyond earnings results may also influence stock movement, as stocks can decline despite an earnings beat or rise despite a miss [14].

Core Perspective - Dr. Anosh Ahmed's foundation is launching a relief initiative to assist families affected by recent floods in Texas, focusing on financial assistance, support for grieving families, and home reconstruction for uninsured residents [1][3]. Group 1: Relief Initiative Details - The relief initiative includes direct financial assistance to families who have lost loved ones, shelter and essential supplies for displaced residents, and home rebuilding assistance for uninsured families [5][6]. - The foundation will collaborate with churches, community organizations, and first responders to ensure effective outreach [6]. - A special "Texas Strong: America First Gala" will be hosted in Dallas to raise additional funds and awareness for the relief efforts [7]. Group 2: Focus on Specific Groups - The relief plan prioritizes veterans, police officers, and military families in housing and aid programs, reflecting a commitment to support those who serve [8]. - The initiative also includes providing mental health and grief counseling resources for affected individuals [9]. Group 3: Foundation Background - The Anosh Supports America First Foundation was established to uphold American values and support military, law enforcement, first responders, and patriotic communities [3][4]. - Dr. Anosh Ahmed emphasizes that the foundation's mission extends into disaster relief, reinforcing the belief that helping those in need is a fundamental American act [3].

Financial Performance - For the quarter ended March 31, 2025, the Company reported net income of $6.9 million, compared to a net loss of $14.1 million for the quarter ended December 31, 2024[144]. - Combined net income for Q1 2025 was $6.9 million, a significant increase from $793 thousand in Q1 2024[150]. - The company experienced a $6.4 million increase in combined net income before taxes, primarily due to a $6.7 million increase in net income in the Banking segment[150]. - The provision for credit losses totaled $3.4 million for the quarter ended March 31, 2025, significantly lower than $20.6 million for the quarter ended December 31, 2024[144]. - The provision for credit losses for Q1 2025 was $3.4 million, significantly higher than $577 thousand in the same quarter last year, reflecting increased reserves for the commercial loan portfolio[160]. Income and Expenses - Net interest income after provision for credit losses totaled $48.4 million for the quarter ended March 31, 2025, an increase from $30.7 million and $37.8 million for the quarters ended December 31, 2024 and March 31, 2024, respectively[144]. - Noninterest income totaled $19.6 million for the quarter ended March 31, 2025, compared to $13.4 million and $12.7 million for the quarters ended December 31, 2024 and March 31, 2024, respectively[144]. - Noninterest expense in Banking was $55.1 million for Q1 2025, compared to $44.5 million in the prior year, largely due to a $5.7 million increase in compensation and benefits[165]. - Noninterest expense in Wealth Management increased to $7.5 million in Q1 2025 from $5.7 million in Q1 2024, primarily driven by a $1.6 million rise in compensation and benefits[168]. Assets and Liabilities - Total assets remained essentially unchanged at $12.6 billion as of March 31, 2025, with a $0.2 billion increase in total investment securities offset by a $0.2 billion decrease in total loans[145]. - At March 31, 2025, total liabilities were $11.5 billion, a decrease from $11.6 billion at December 31, 2024, primarily due to a $0.3 billion decrease in deposits[146]. - Total shareholders' equity increased to $1.06 billion at March 31, 2025, from $1.05 billion at December 31, 2024[147]. - The company reported a total of $9.561 billion in deposits as of March 31, 2025, reflecting a decrease from the previous quarter[171]. - The company’s total loans held for investment amounted to $7.649 billion as of March 31, 2025[170]. Loan and Deposit Metrics - The loan to deposit ratio was 94.1% as of March 31, 2025, compared to 93.5% as of December 31, 2024[146]. - The allowance for credit losses on the loan portfolio was $35.2 million, or 0.46% of total loans held for investment, up from $32.3 million and 0.41% at the end of 2024[160]. - Total deposits decreased by approximately $309 million to $9.56 billion at March 31, 2025, largely due to a $400 million decrease in higher-cost brokered deposits[186]. - The weighted average rate for all interest-bearing deposits decreased to 2.93% at March 31, 2025, down from 3.09% at December 31, 2024[187]. Capital and Ratios - As of March 31, 2025, FFI's Common Equity Tier 1 ratio was 10.63%, exceeding the required 4.50%[225]. - FFB's Common Equity Tier 1 ratio was 13.29% as of March 31, 2025, significantly above the 4.50% minimum requirement[225]. - FFB had $594 million in excess capital above the well-capitalized requirement for the Common Equity Tier 1 ratio as of March 31, 2025[226]. - The Total Risk-Based Capital Ratio for FFB was 13.74% as of March 31, 2025, exceeding the 8.00% requirement[225]. - FFB's Tier 1 Leverage Ratio was 9.28% as of March 31, 2025, above the required 4.00%[225]. Strategic Initiatives - The company intends to explore opportunities for growth, including opening additional offices or acquiring complementary businesses[229]. - The company may seek additional borrowings or sell shares to raise funds for future growth opportunities[229].

Financial Data and Key Metrics Changes - Net income for the first quarter was $6.9 million or $0.08 per share, a recovery from a net loss of $14.1 million in the previous quarter [4] - Net interest margin expanded by nine basis points to 1.67%, with a significant reduction in provision expense and a $5 million decrease in non-interest expense compared to the fourth quarter [5][12] - Pre-provision net revenue increased to $9.7 million or $0.11 per share, up from a loss of $2.3 million in the fourth quarter [12] Business Line Data and Key Metrics Changes - Funded $180 million in new loan balances at an average yield of 7.09%, with approximately 78% being commercial and industrial (C and I) loans [5] - Loans held for investment decreased primarily due to $354 million in payoffs, while loans held for sale remained stable at $1.3 billion [5] - Total non-interest income for the quarter was $19.6 million, including a $4.7 million gain on the sale of securities [15] Market Data and Key Metrics Changes - Assets under management decreased to $5.1 billion from $5.4 billion at the end of the previous year, while trust assets under advisement increased to $1.2 billion from $1.1 billion [9] - Overall deposits declined slightly to $9.6 billion, primarily due to a $400 million decrease in high-cost brokered deposits [9] Company Strategy and Development Direction - The company is focused on reducing its commercial real estate concentration and selectively exiting lower-yielding multifamily loans [5] - A five-point strategic plan is in place, emphasizing remixing the loan portfolio, improving interest rate risk management, and enhancing non-interest income through various services [8] - The company aims to build long-term value through a renewed focus on private banking and attractive demographic markets [9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the financial future over the next 12 to 36 months, anticipating modest asset reductions and continued margin expansion [19] - The company expects to see a net interest margin exit run rate between 1.8% and 1.9% by the fourth quarter of 2025, with further improvements anticipated by the end of 2026 [19][20] - Management remains cautious about the economic backdrop but believes in the strength of the credit portfolio [57] Other Important Information - The company remains well-capitalized with a common equity Tier 1 ratio of 10.6% and a Tier 1 leverage ratio of 8.1% [10][18] - The tangible book value per share increased to $9.42 from $9.36 in the prior quarter [18] Q&A Session Summary Question: How have utilization rates trended thus far in 2025? - Management noted some hesitancy among clients regarding capital expenditures, but some clients have accelerated inventory purchases due to trade uncertainties [27] Question: Did you invest in any particular markets in 1Q? - The company added personnel in the Florida market and remains optimistic about that area, with most production expected from California [30] Question: Is the decline in AUM due to fluctuations in customer account balances? - Management acknowledged some terminations and turnover but remains optimistic about the pipeline going forward [31] Question: What rate environment does the NIM outlook assume? - The company is assuming two rate cuts in 2025, with a total of six cuts anticipated through the end of 2027 [36] Question: Any expense impact from internal control remediation? - Management indicated there would be some professional service expenses but nothing significant, as they aim to improve internal controls [43] Question: How do you expect overall loan balances to trend going forward? - The company expects modest growth in loan balances over time, focusing on reducing CRE concentration and increasing higher-yielding loans [72]