Part I [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) For the first quarter of 2023, First Foundation Inc. reported a significant decrease in net income to $8.5 million from $30.8 million year-over-year, driven by substantial net interest margin compression as interest expenses surged Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2023 (In thousands) | December 31, 2022 (In thousands) | | :--- | :--- | :--- | | **Total Assets** | **$13,616,184** | **$13,014,179** | | Cash and cash equivalents | $1,317,129 | $656,494 | | Net loans | $10,638,708 | $10,692,462 | | **Total Liabilities** | **$12,482,446** | **$11,879,801** | | Deposits | $10,051,706 | $10,362,612 | | Borrowings | $2,294,600 | $1,369,936 | | **Total Shareholders' Equity** | **$1,133,738** | **$1,134,378** | Consolidated Income Statement Highlights (Unaudited) | Account | Three Months Ended March 31, 2023 (In thousands) | Three Months Ended March 31, 2022 (In thousands) | | :--- | :--- | :--- | | Net interest income | $58,755 | $74,494 | | Provision for credit losses | $417 | $(792) | | Noninterest income | $11,698 | $15,427 | | Noninterest expense | $59,340 | $47,618 | | **Net income** | **$8,496** | **$30,836** | | **Diluted EPS** | **$0.15** | **$0.55** | [Note 3: Securities](index=17&type=section&id=Note%203%3A%20Securities) As of March 31, 2023, the company held $223.6 million in available-for-sale (AFS) securities and $847.0 million in held-to-maturity (HTM) securities, with significant unrealized losses and pledges as collateral Securities Portfolio Summary (March 31, 2023) | Portfolio | Amortized Cost (in thousands) | Estimated Fair Value (in thousands) | Gross Unrealized/Unrecognized Losses (in thousands) | | :--- | :--- | :--- | :--- | | Available-for-Sale (AFS) | $243,635 | $211,324 | $(20,139) | | Held-to-Maturity (HTM) | $847,036 | $766,907 | $(80,129) | - The allowance for credit losses on investments increased to **$12.3 million** at the end of Q1 2023 from **$11.4 million** at year-end 2022, with a provision of **$0.8 million** recorded during the quarter[56](index=56&type=chunk) - As of March 31, 2023, a total of **$841.6 million** in securities and loans are pledged as collateral to the Federal Reserve's discount window, and **$184.2 million** in securities are pledged for repurchase agreements[47](index=47&type=chunk) [Note 4: Loans](index=26&type=section&id=Note%204%3A%20Loans) The total loan portfolio was $10.7 billion as of March 31, 2023, slightly decreasing from year-end 2022, with multifamily loans comprising the largest segment and an increase in delinquent loans Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Multifamily | $5,332,815 | $5,341,596 | | Single family | $1,008,657 | $1,016,498 | | Commercial properties | $1,155,624 | $1,203,292 | | Commercial and industrial | $2,985,984 | $2,984,748 | | **Total Loans** | **$10,653,108** | **$10,709,180** | - Total past due and nonaccrual loans were **$48.3 million** (**0.45%** of total loans) at March 31, 2023, an increase from **$31.1 million** (**0.29%** of total loans) at December 31, 2022[63](index=63&type=chunk) [Note 5: Allowance for Credit Losses](index=29&type=section&id=Note%205%3A%20Allowance%20for%20Credit%20Losses) The Allowance for Credit Losses (ACL) on loans decreased to $31.1 million as of March 31, 2023, resulting in a net reduction of provision for credit losses despite net charge-offs ACL Rollforward for Loans (Q1 2023, in thousands) | Description | Amount | | :--- | :--- | | Beginning Balance (Dec 31, 2022) | $33,731 | | Provision for (Reduction of) Credit Losses | $(939) | | Charge-offs | $(2,003) | | Recoveries | $306 | | **Ending Balance (Mar 31, 2023)** | **$31,095** | - The ACL for loans as a percentage of total loans was **0.29%** at March 31, 2023, compared to **0.31%** at December 31, 2022[149](index=149&type=chunk) [Note 8: Deposits](index=36&type=section&id=Note%208%3A%20Deposits) Total deposits decreased by $311 million during the first quarter to $10.1 billion, primarily due to a decline in noninterest-bearing demand deposits, while the weighted average rate on total deposits increased Deposit Composition (in thousands) | Deposit Type | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Noninterest-bearing | $2,263,412 | $2,736,691 | | Interest-bearing Demand | $2,364,213 | $2,568,850 | | Money market and savings | $2,997,666 | $3,178,230 | | Certificates of deposit | $2,426,415 | $1,878,841 | | **Total Deposits** | **$10,051,706** | **$10,362,612** | - The weighted average rate paid on total deposits rose to **2.726%** at March 31, 2023, from **2.177%** at December 31, 2022[83](index=83&type=chunk) [Note 9: Borrowings](index=36&type=section&id=Note%209%3A%20Borrowings) Total borrowings significantly increased to $2.3 billion at March 31, 2023, from $1.4 billion at year-end 2022, primarily driven by an increase in FHLB advances to bolster liquidity Borrowings Composition (in thousands) | Borrowing Type | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | FHLB advances | $2,000,000 | $805,000 | | Subordinated notes | $174,000 | $174,000 | | Repurchase agreements | $101,000 | $171,000 | | Holding company line of credit | $20,000 | $20,000 | | Federal funds purchased | $0 | $200,000 | | **Total Borrowings** | **$2,295,000** | **$1,370,000** | [Note 11: Segment Reporting](index=39&type=section&id=Note%2011%3A%20Segment%20Reporting) In Q1 2023, the Banking segment's income before taxes fell sharply to $13.3 million from $44.0 million year-over-year, while the Wealth Management segment's income also decreased to $1.2 million from $1.7 million Segment Income Before Taxes (in thousands) | Segment | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Banking | $13,290 | $43,953 | | Wealth Management | $1,226 | $1,701 | [Note 12: Subsequent Events](index=39&type=section&id=Note%2012%3A%20Subsequent%20Events) Subsequent to the quarter's end, on April 27, 2023, the Board of Directors declared a quarterly cash dividend of $0.02 per common share, a significant reduction from the previous dividend of $0.11 per share - On April 27, 2023, the Board of Directors declared a quarterly cash dividend of **$0.02** per common share, payable on May 19, 2023[93](index=93&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the significant decline in profitability to severe net interest margin (NIM) compression, which fell to 1.83% from 3.00% a year prior, as funding costs rose faster than asset yields - Management directly links the **$0.3 billion** decrease in deposits and the corresponding increase in borrowings to deposit outflows following the closures of Silicon Valley Bank and Signature Bank in mid-March 2023[110](index=110&type=chunk) - Net interest margin (NIM) contracted to **1.83%** for Q1 2023, compared to **3.00%** for Q1 2022, as the average rate on interest-bearing liabilities increased by **3.09%** while the average yield on interest-earning assets increased by only **1.13%**[122](index=122&type=chunk) - The loan-to-deposit ratio was **106.1%** at quarter-end, which management notes was elevated due to end-of-period deposit outflows, stating the average ratio for the quarter was a more normalized **100.3%**[160](index=160&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=71&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states that there have been no material changes to its quantitative and qualitative disclosures about market risk since the end of the previous fiscal year, December 31, 2022 - There have been no material changes to the company's market risk disclosures since December 31, 2022[171](index=171&type=chunk) [Item 4. Controls and Procedures](index=72&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation as of March 31, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[174](index=174&type=chunk) - No changes in internal control over financial reporting occurred during the first quarter of 2023 that materially affected, or are reasonably likely to materially affect, internal controls[175](index=175&type=chunk) Part II [Item 1A. Risk Factors](index=72&type=section&id=Item%201A.%20Risk%20Factors) The company updated its risk factors to address recent banking industry turmoil, including the potential for eroded customer confidence leading to further deposit outflows and the risk of realizing significant losses on its securities portfolio if forced to sell to meet liquidity needs - A new risk factor highlights that adverse developments, such as the recent failures of other banks, have eroded customer confidence and could materially impact liquidity, funding costs, and operations[178](index=178&type=chunk) - The company explicitly notes the risk that if it were required to sell securities from its portfolio to meet liquidity needs, it could incur significant losses due to the large unrealized loss position caused by rising interest rates[179](index=179&type=chunk)[180](index=180&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has a stock repurchase program authorized by the Board of Directors on April 26, 2022, allowing for the repurchase of up to $75 million of its common stock, with no shares repurchased under the prior plan during the first quarter of 2023 - A stock repurchase program authorizing up to **$75 million** in common stock repurchases was approved in April 2022 and remains active[182](index=182&type=chunk) [Item 6. Exhibits](index=75&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act

First Foundation Inc. (NYSE:FFWM) Q1 2023 Earnings Conference Call April 27, 2023 11:00 AM ET Company Participants Scott Kavanaugh - President and CEO Chris Naghibi - COO Amy Djou - Interim CFO Conference Call Participants David Feaster - Raymond James Gary Tenner - D.A. Davidson Andrew Terrell - Stephens Adam Butler - Piper Sandler Operator Greetings, and welcome to the First Foundation's First Quarter 2023 Earnings Conference Call. Today's call is being recorded. Speaking today will be Scott Kavanaugh, Fi ...

Financial Overview - As of December 31, 2022, First Foundation Inc. had total assets of $13.0 billion, loans of $10.7 billion, deposits of $10.4 billion, assets under management of $5.0 billion, and trust assets under advisement of $1.3 billion[17]. - As of December 31, 2022, total deposits amounted to $10.36 billion, with a weighted average interest rate of 2.177%[52]. - The five largest bank depositors accounted for 20% of total deposits as of December 31, 2022, increasing liquidity risk if any large depositor withdraws funds[162]. - As of December 31, 2022, the bank's trust assets under administration (AUA) totaled $1.3 billion[55]. - The bank's investment advisory and wealth management services have seen assets under management (AUM) grow at a compound annual growth rate of 8% over the four years ending December 31, 2022[60]. Loan Portfolio - The total loans outstanding as of December 31, 2022, were $10.7 billion, with multifamily loans making up 49.9% and commercial and industrial loans accounting for 27.9%[30]. - As of December 31, 2022, the recorded investment balance for loans secured by real estate was $7.7 billion, representing 72.1% of total loans[30]. - Loans secured by multifamily and commercial real estate represented approximately 61% of outstanding loans as of December 31, 2022, making the company vulnerable to downturns in the real estate market[158]. - Approximately 88% of the loans in the loan portfolio were made to borrowers in California (73%), Florida (10%), Texas (4%), and Nevada (1%) indicating significant geographic concentration risk[148]. - The bank offers a small balance portfolio loan program with a maximum loan amount of $250,000 to support small business clients[46]. Revenue Sources - Investment advisory and wealth management services accounted for approximately 11% of total revenue in 2022, providing a stable source of diversified, fee-based, recurring revenues[17]. - Trust service fees provide additional sources of noninterest income, complementing the investment and wealth management services offered[25]. Competitive Landscape - The banking and investment advisory market is highly competitive, dominated by major banks such as Wells Fargo, JP Morgan Chase, and Bank of America, which have greater financial resources and higher lending limits[62]. - The company competes primarily on the basis of personal service, offering a "one-on-one" approach that larger competitors often do not provide[63]. - The company believes its competitive advantage lies in offering services through an integrated platform, which is rare among local and regional banks[65]. - The company maintains pricing in line with principal competitors while focusing on high levels of personal service rather than competing solely on price[66]. Regulatory Environment - FFB is subject to primary supervision and regulation by the FDIC and the DFPI, affecting its operations and compliance requirements[74]. - The company must obtain prior approval from the Federal Reserve for significant acquisitions, including more than 5% of voting securities of any bank[76]. - The Capital Rules require banks to maintain a capital conservation buffer of an additional 2.5% of Common Equity Tier 1 (CET-1) on top of minimum risk-weighted asset ratios[80]. - The company is required to maintain capital at or above certain prescribed levels to avoid regulatory restrictions and ensure financial stability[70]. - The FDIC has established guidelines for maintaining appropriate capital levels, which could limit the amount of dividends FFB may pay[102]. Risk Factors - Economic conditions and government policy responses could have a material adverse effect on the company's business, financial condition, and results of operations[147]. - Changes in interest rates could reduce net interest margins and net interest income, impacting overall earnings[149]. - The company may incur significant losses due to ineffective hedging of interest rate risk, which requires sophisticated models and continual monitoring[157]. - The company faces intense competition from larger banks and financial institutions, which may affect its ability to attract and retain clients[178]. - Cybersecurity breaches and fraudulent activities could lead to significant financial losses and damage to the company's reputation[187]. Operational Challenges - The company is subject to significant estimates and assumptions in financial reporting, which if inaccurate, could materially affect its financial condition[181]. - Technology and marketing costs may increase operating expenses without a corresponding increase in revenues, adversely affecting financial results[186]. - The company must maintain effective anti-money laundering programs, with deficiencies potentially leading to fines and reputational damage[213]. - Compliance with privacy and data protection laws could increase operational costs and restrict business opportunities, impacting financial performance[214]. Employee and Management - As of December 31, 2022, the Company had approximately 713 full-time employees, with no employees covered by a collective bargaining agreement[130]. - The Company emphasizes customer relationships and personalized service as a key part of its business strategy, which relies on the quality of service provided by its employees[131]. - Loss of key personnel or inability to attract qualified staff could adversely impact the company's future financial performance[180]. Future Outlook - The company plans to grow through acquisitions, but there is no assurance of success, and such strategies may involve significant risks[164]. - Future legislation may impact the regulatory structure and operational costs for the Company, potentially altering its business strategy and competitive balance[127]. - New lines of business or products may involve significant risks and uncertainties, potentially impacting profitability and operational effectiveness[172].

Company Overview - First Foundation manages \$5.0 billion in assets, advises on \$13.0 billion in bank assets, and has \$1.3 billion in trust assets under advisement[5] - The company operates in five states: California, Texas, Nevada, Hawaii, and Florida, with 31 branch/office locations and 713 employees[18] - The company focuses on commercial banking, wealth management, and trust solutions, targeting business owners, real estate investors, and high-net-worth individuals[6, 8] Loan Portfolio and Growth - The company's loan portfolio is diversified, with 50% in multifamily, 32% in commercial business, 9% in single-family, and 7% in CRE investment loans as of 4Q22[8, 95] - Commercial business originations accounted for 49% of total originations in 2022, representing a 78% increase year-over-year[8, 130] - The company has a strong presence in California, with 71% of total loans concentrated in the state as of 4Q22[9] Deposit Base and Funding - Core deposits account for 87% of the company's total deposits, with 72% of the core deposit base made up of commercial business deposits as of 4Q22[8] - Non-interest-bearing accounts represent 26% of the company's deposit base as of 4Q22[8] - The company's digital deposit channel has \$789 million in balances as of December 31, 2022, reaching a new, younger client audience[185] Financial Performance - The company reported a return on average assets (ROAA) of 0.96% and a return on average tangible common equity (ROATCE) of 13.0% in 2022[8] - The company's efficiency ratio was 58.6% in 2022[8] - In 2022, 14% of total revenue was derived from recurring noninterest income[8, 212]

Financial Performance - Total loans increased by $2.9 billion in the nine months ended September 30, 2022, due to $5.0 billion in originations, partially offset by $2 billion in payoffs or scheduled payments [118]. - Total deposits increased by $738 million, and total revenues rose by 25% compared to the nine months ended September 30, 2021 [119]. - Net interest income for Banking was $89.5 million, while noninterest income totaled $5.7 million for Banking and $6.9 million for Wealth Management [122]. - Income before taxes for the three months ended September 30, 2022, was $39.5 million, down from $51.9 million in the same period in 2021, reflecting a $12.4 million decrease [123]. - Net income for the nine months ended September 30, 2022, was $93.2 million, an increase from $85.6 million in the same period of 2021 [125]. - Income before taxes for the nine months ended September 30, 2022, was $128.9 million, compared to $119.4 million in 2021, reflecting a $9.5 million increase [125]. - Net interest income for 2022 was $243.971 million, up from $171.326 million in 2021, indicating a significant growth in interest income [127]. - Noninterest income for the nine months ended September 30, 2022, was $41.011 million, down from $56.623 million in 2021, showing a decline in this segment [125]. Expenses and Costs - Compensation and benefit costs accounted for 52% of total noninterest expense for Banking and 78% for Wealth Management in the nine months ended September 30, 2022 [120]. - The decrease in income before taxes was attributed to a $9.8 million decrease in Banking income, a $1.0 million decrease in Wealth Management, and a $1.6 million increase in corporate expenses [123]. - The increase in corporate expenses was mainly due to higher interest expenses from subordinated debt acquired in the TGRF acquisition and $150 million of subordinated notes issued in Q1 2022 [123]. - Noninterest expense for Banking increased from $31.5 million in the three months ended September 30, 2021, to $53.6 million in the same period of 2022, primarily due to higher compensation and benefits, occupancy and depreciation, and customer service costs [142]. - Total noninterest expense for the company reached $135.7 million in the nine months ended September 30, 2022, compared to $88.9 million in the same period of 2021 [143]. Credit Quality and Losses - The provision for credit losses for loans was $(22,000) in the three months ended September 30, 2022, compared to $(417,000) in the same period in 2021 [122]. - Provision for credit losses decreased to $(641,000) in 2022 from $(13,000) in 2021, indicating better credit quality [125]. - The provision for credit losses for the three months ended September 30, 2022, was $32,900, reflecting a decrease from the previous period due to adjustments in impairment assumptions [169]. - The allowance for credit losses (ACL) related to loans represented 0.32% of total loans outstanding as of September 30, 2022, down from 0.49% as of December 31, 2021 [170]. - The total amount of troubled debt restructurings (TDRs) as of September 30, 2022, was $3,611, with $2,563 classified as nonaccrual [166]. Asset and Liability Management - Total assets as of September 30, 2022, were $11.766 billion, compared to $7.935 billion in 2021, indicating substantial growth in asset base [127]. - Total assets increased by $2.1 billion during the nine months ended September 30, 2022, primarily due to a $2.9 billion increase in loans [147]. - The average balance of borrowings increased from $74 million in the nine months ended September 30, 2021, to $489.2 million in the same period of 2022 [133]. - The company issued $150 million of subordinated notes in the first quarter of 2022, impacting interest expenses and overall financial strategy [125]. - The loan-to-deposit ratio was 108% as of September 30, 2022, compared to 84% on December 31, 2021, indicating a significant increase in loan activity relative to deposits [183]. Deposits and Funding - Deposits grew by $738 million, with commercial deposits increasing by $1.3 billion and a decrease in branch deposits of $1.1 billion [148]. - The average balance of interest-bearing deposits increased from $4.0 billion in Q3 2021 to $6.0 billion in Q3 2022 [130]. - The weighted average rate of interest-bearing deposits increased from 0.18% at December 31, 2021, to 1.50% at September 30, 2022 [158]. - The bank held $276 million in brokered deposits as of September 30, 2022 [160]. - The FHLB overnight advance outstanding as of September 30, 2022, was $1.1 billion, with an interest rate of 3.22% [162]. Strategic Initiatives and Future Outlook - The company expects continued increases in total assets as a result of its growth strategy in banking operations [146]. - The Company intends to continue paying quarterly dividends, subject to Board approval and regulatory restrictions, with a limit that dividends and stock repurchases do not exceed 50% of net income for the same twelve-month period [193]. - There are no material commitments for capital expenditures as of September 30, 2022, but the Company plans to explore opportunities for growth, including opening additional offices or acquiring complementary businesses [194]. - The Company may seek additional borrowings and sell shares of common stock to raise funds for growth initiatives, although success in these efforts is uncertain and dependent on market conditions [194]. - The Company is exposed to financial risks, particularly interest rate risk, as detailed in the Management's Discussion and Analysis of Financial Condition and Results of Operations [195].

Financial Data and Key Metrics Changes - Earnings for Q3 2022 were reported at $29 million or $0.51 per share, with total revenues of $99.9 million, reflecting a 5% increase from Q2 2022 and an 11% increase year-over-year [5][18] - Tangible book value per share increased to $15.96, and the net interest margin (NIM) for the quarter was 3.10% [5][20] - Return on assets was 98 basis points, and return on tangible common equity was 13.2% [18] Business Line Data and Key Metrics Changes - Loan originations for the quarter totaled $1.6 billion, with a breakdown of 43% commercial, 46% multifamily, 6% single-family, and 1% land and construction [25] - Wealth management revenues decreased by $900,000 due to lower assets under management, ending the quarter at $4.6 billion [21][66] - Noninterest income for the quarter was $12.2 million, primarily driven by wealth management revenues [21] Market Data and Key Metrics Changes - Deposits remained stable at $9.5 billion, despite outflows in the overall banking sector [10][29] - The loan-to-deposit ratio increased to 108%, aligning with pre-COVID levels but indicating a need for active management going forward [30] Company Strategy and Development Direction - The company is focused on protecting the balance sheet, building liquidity, and competitively pursuing deposits while retaining valuable clients [7] - A strategic decision was made to slow loan growth in response to the macroeconomic cycle, with an emphasis on maintaining high credit standards [8][30] - The company anticipates a shift towards more commercial loan growth, with a focus on variable rate loans [41] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of the Federal Reserve's actions on the banking sector and expressed confidence in the company's ability to navigate the current environment [4][16] - The leadership team emphasized the importance of client relationships and proactive communication during volatile market conditions [11][66] - Management expects loan growth to slow in the coming quarters but remains optimistic about the company's positioning and client retention [8][66] Other Important Information - The company activated its business continuity and disaster recovery plans in response to Hurricane Ian, with minimal expected impact on the loan portfolio [12][14] - The effective tax rate decreased to 26.6% compared to 27.9% in the prior quarter, with anticipated benefits from tax strategies [24] Q&A Session Summary Question: Outlook for loan-to-deposit ratio - Management indicated a cautious approach to lending, aiming to bring the loan-to-deposit ratio back under 100% over the next several quarters [33][34] Question: Mix of loan growth - The focus will be on commercial loan growth, with an expected 60% from commercial and 40% from other channels [41] Question: Customer service charge expense - Management noted that customer service costs are expected to rise in line with Fed rate hikes, with a close to 100% beta on larger clients [43][45] Question: Margin expectations - Management anticipates the net interest margin to dip below 3% in Q4 2022, with a recovery expected as the market stabilizes [48] Question: Capital growth targets - The company is evaluating whether to grow capital organically or through market means, with a reasonable chance of capital growth without external funding [88]

Financial Performance - Total loans increased by $2 billion in the six months ended June 30, 2022, due to $3.4 billion in originations, partially offset by $1.4 billion in payoffs or scheduled payments [125]. - Total deposits rose by $727 million, and total revenues increased by 34% compared to the six months ended June 30, 2021 [126]. - Net interest income for Banking was $83.5 million for the three months ended June 30, 2022, compared to $58.0 million in the same period of 2021, reflecting a significant increase [129]. - Income before taxes for the three months ended June 30, 2022, was $46.2 million, up from $36.3 million in the same period of 2021, indicating strong growth [129]. - Net income for the six months ended June 30, 2022, was $64.2 million, up from $48.4 million in the same period of 2021, representing a 32% increase [131]. - Income before taxes increased by $21.7 million to $89.3 million, driven by a $24.1 million increase in Banking and a $0.4 million increase in Wealth Management [131]. - Net interest income for the first half of 2022 was $156.3 million, compared to $112.1 million in the same period of 2021, reflecting a 39.4% increase [133]. - Noninterest income totaled $28.8 million, with $16.3 million from Wealth Management, indicating a strong performance in this segment [131]. Credit Quality - The provision for credit losses for Banking was $173,000 for the three months ended June 30, 2022, compared to $44,000 in the same period of 2021 [129]. - The provision for credit losses decreased to $(619,000) in 2022, compared to $(404,000) in 2021, indicating improved asset quality [131]. - Nonperforming assets decreased to $10.5 million, down from $17.3 million in the previous year, reflecting improved credit quality [135]. - The provision for credit losses for the three months ended June 30, 2022, was $179 million, with charge-offs of $164 million [173]. - The allowance for credit losses (ACL) related to loans was $33,165 million as of June 30, 2022, down from $33,776 million as of December 31, 2021 [174]. - The ACL represented 0.37% of total loans outstanding as of June 30, 2022, compared to 0.49% as of December 31, 2021 [175]. Business Segments - The company operates two business segments: Banking and Wealth Management, with distinct revenue sources and operational focuses [124]. - Noninterest income for Wealth Management was $7.98 million for the three months ended June 30, 2022, compared to $7.24 million in the same period of 2021 [129]. - Noninterest income for Banking for the six months ended June 30, 2022, was $13.388 million, an increase from $12.508 million in the same period of 2021 [142]. - Noninterest income for Wealth Management increased by $0.7 million in Q2 2022 compared to Q2 2021, driven by higher levels of billable assets under management [144]. Expenses - Compensation and benefit costs accounted for 57% of total noninterest expense in Banking and 78% in Wealth Management for the six months ended June 30, 2022 [127]. - Corporate expenses increased due to higher interest expense from subordinated debt acquired in the TGRF acquisition and $150 million of subordinated notes issued in Q1 2022 [129]. - Noninterest expenses for Banking increased from $28.9 million in Q2 2021 to $42.0 million in Q2 2022, primarily due to higher compensation and benefits, occupancy and depreciation, and customer service costs [148]. - Total noninterest expense for Wealth Management was $12.8 million in the six months ended June 30, 2022, compared to $11.1 million in the same period of 2021, indicating an increase of $1.7 million [149]. - Noninterest expenses for Banking in the six months ended June 30, 2022, were $82.1 million, up from $57.4 million in the same period of 2021, primarily due to increased staffing and operational costs [149]. Assets and Liabilities - Total interest-earning assets increased to $10.3 billion, with loans contributing $8.5 billion, yielding an average interest rate of 3.86% [133]. - Total interest-bearing liabilities were $6.1 billion, with a net interest margin of 3.18% for the first half of 2022 [133]. - Total assets increased by $1.1 billion during the six months ended June 30, 2022, primarily due to an increase in loans [152]. - Loans and loans held for sale increased by $2.0 billion, driven by $3.4 billion in originations, partially offset by $1.4 billion in payoffs or scheduled payments [153]. - Deposits grew by $727 million, including increases of $787 million in commercial deposits and $297 million in corporate deposits, while branch deposits decreased by $451 million [153]. - Borrowings increased by $284 million, primarily due to a $148 million increase in subordinated debt and a $149 million increase in overnight borrowings [153]. - Cash and cash equivalents decreased by $948 million, primarily affected by funding of loans and investments in securities [154]. Capital and Liquidity - As of June 30, 2022, the CET1 capital ratio was 9.92%, exceeding the required 4.50% for capital adequacy [194]. - The total risk-based capital ratio was 12.29% as of June 30, 2022, above the minimum requirement of 8.00% [194]. - FFB had $3.2 billion in available lines of credit as of June 30, 2022, indicating strong liquidity management [185]. - The company had $65.6 million of available liquidity as of June 30, 2022, along with a revolving line of credit [197]. - As of June 30, 2022, FFB's capital in excess of well-capitalized requirements was $409 million for the CET1 capital ratio [198]. Shareholder Returns - The Company paid $12.4 million in cash dividends ($0.11 per common share) in the first six months of 2022, with a total of $16.1 million in dividends ($0.36 per share) paid in 2021 [199]. - The Company purchased $2.5 million of its common stock in the first six months of 2022 [199]. - Future cash dividends and stock repurchases are subject to Board approval and regulatory restrictions, with a limit of 50% of net income for the previous twelve months [199]. Future Outlook - There are no material commitments for capital expenditures as of June 30, 2022, but the Company intends to explore growth opportunities, including opening additional offices or acquiring complementary businesses [200]. - The Company may seek additional borrowings and sell shares of common stock to raise funds for growth initiatives, depending on market conditions [200]. - There have been no material changes to the Company's disclosures about market risk since December 31, 2021 [201].

| --- | --- | |-------|-------| | | | | | | | | | | | | Safe Harbor Statement This presentation and the accompanying oral commentary contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statement s often include words such a s "believe," "expect," "anticipate," "intend," "plan," "estimate," "project," "outlook," or words of similar meaning, or future or conditional verbs such a s " will," "would," "should," "could," or "ma y." The forward-l ...

Financial Data and Key Metrics Changes - Earnings for Q2 2022 were $33.3 million or $0.59 per share, a 7% increase over Q1 2022 [5] - Total revenues reached $95.2 million, a 6% increase from Q1 2022 and a 32% increase year-over-year [5] - Tangible book value per share increased to $15.61 [5] - Return on assets was strong at 1.24% with a return on tangible common equity of 15.5% [20] - Net interest margin expanded by 18 basis points to 3.18% [21] - Non-interest income for the quarter was $13.4 million, primarily driven by wealth management revenues [23] Business Line Data and Key Metrics Changes - Loan originations totaled a record $2.2 billion, a 96% increase from Q1 2022 and a 98% increase year-over-year [27] - Wealth Management and Trust business contributed significantly, with assets under management ending at $4.8 billion [12] - Non-interest expense was $48.8 million, a slight increase of 2.5% from Q1 2022 [24] Market Data and Key Metrics Changes - Deposits increased by $581 million for the quarter, a 6.5% increase from Q1 2022 and a 34.2% increase year-over-year [34] - Non-interest-bearing deposits accounted for 38% of total deposit balances [36] - The loan-to-deposit ratio was 98.8% as of June 30, compared to 88.2% as of March 31 [36] Company Strategy and Development Direction - The company is focusing on organic growth opportunities while capitalizing on recent M&A activities [7] - Expansion efforts include entering the Florida market and opening a new branch in Texas [16][14] - The company aims to maintain a strong balance sheet and excellent credit quality in a rising rate environment [18] Management's Comments on Operating Environment and Future Outlook - Management acknowledged headwinds facing the industry but expressed confidence in the company's performance across all business lines [6] - The outlook remains positive with robust demand for services and a strong pipeline across business lines [18] - Management is optimistic about opportunities in the second half of 2022 [107] Other Important Information - The company repurchased $2.5 million of stock at a weighted average price of $21 per share [16] - The effective tax rate for Q2 was 27.9%, down from 28.4% in the prior quarter [26] - The company is investing in technology to enhance operational efficiency [16] Q&A Session Summary Question: Inquiry about interest-bearing deposit rates and deposit beta expectations - Management noted that the spot rate on total deposits dipped into the mid-30 basis point area near the end of the quarter and highlighted the unprecedented increase in the rate environment [38][40] Question: Update on loan yields and multifamily pricing - Loan yields increased, with multifamily rates averaging mid-4s, and management expects to see benefits in the latter half of the year [44][45] Question: Competitive landscape in Texas and Florida - Management discussed strong demand for multifamily products in Florida and Texas, with significant pipeline growth [67][70] Question: Expectations for organic growth and loan growth rates - Management expects low to mid-20s loan growth rate for next year, emphasizing the strength of the lending team [77] Question: Update on the Nidec partnership and rollout - The integration is on track, with an internal employee pilot currently underway [78] Question: Impact of hiring plans on expansion in Texas and Florida - Management confirmed that hiring will continue as needed to support expansion efforts [85]

[Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements for Q1 2022 present the company's financial position, performance, and cash flows, with notes detailing key accounting policies and the TGR Financial acquisition [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) First Foundation Inc. reported **$10.47 billion** in total assets and **$30.8 million** net income for Q1 2022, driven by loan growth, despite a **$190.0 million** net cash outflow from increased lending Consolidated Balance Sheet Highlights (unaudited) | Account | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | **Total Assets** | **$10,474,796** | **$10,196,204** | | Net Loans | $7,364,642 | $6,872,952 | | Total Deposits | $8,957,518 | $8,811,960 | | Total Liabilities | $9,392,221 | $9,132,153 | | **Total Shareholders' Equity** | **$1,082,575** | **$1,064,051** | Consolidated Income Statement Highlights (unaudited) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net Interest Income | $74,494 | $54,229 | | Provision for Credit Losses | ($792) | $360 | | Noninterest Income | $15,427 | $11,908 | | Noninterest Expense | $47,618 | $34,511 | | **Net Income** | **$30,836** | **$22,355** | | **Diluted EPS** | **$0.55** | **$0.50** | Consolidated Cash Flow Summary (unaudited) | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $40,339 | $32,619 | | Net Cash used in Investing Activities | ($483,366) | ($265,075) | | Net Cash from Financing Activities | $252,980 | $70,775 | | **Decrease in Cash** | **($190,047)** | **($161,681)** | [Notes to the Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) These notes detail significant accounting policies, the TGRF acquisition, the **$917 million** securities transfer, **$7.4 billion** loan portfolio growth, and subsequent events like the **$0.11** dividend and **$75 million** stock repurchase program - The **TGR Financial, Inc. acquisition** was completed on December 17, 2021, for **$283 million**, primarily in stock, and accounted for under the purchase method, recognizing goodwill[35](index=35&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - Effective January 1, 2022, **$917 million** in securities were transferred from available-for-sale (AFS) to held-to-maturity (HTM) at amortized cost[73](index=73&type=chunk) Loan Portfolio Composition | Loan Category | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Real Estate Loans | $5,619,195 | $5,284,728 | | Commercial and Industrial Loans | $1,754,279 | $1,598,422 | | Consumer Loans | $9,760 | $10,834 | | **Total Loans (Principal Balance)** | **$7,383,234** | **$6,893,984** | - Post-quarter, on April 26, 2022, a **$0.11 per share quarterly cash dividend** was declared, and a new **$75 million stock repurchase program** was authorized[118](index=118&type=chunk)[119](index=119&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes Q1 2022 financial performance, highlighting a **37% increase in net interest income** from loan growth, a provision reversal, and robust capital ratios well above regulatory requirements [Results of Operations](index=43&type=section&id=Results%20of%20Operations) Q1 2022 net income rose to **$30.8 million**, driven by a **$20.3 million** increase in net interest income and a **$0.8 million** provision reversal, despite higher noninterest expenses post-TGRF acquisition Net Interest Income Analysis (Q1 2022 vs Q1 2021) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Interest Income | $74,494 thousand | $54,229 thousand | | Net Interest Margin | 3.00% | 3.16% | | Avg. Interest-Earning Assets | $9,939,673 thousand | $6,870,328 thousand | | Cost of Interest-Bearing Liabilities | 0.32% | 0.45% | - The **reversal of provision for credit losses** in Q1 2022 stemmed from an improved economic scenario outlook[146](index=146&type=chunk) - Wealth Management noninterest income increased by **$1.4 million** year-over-year due to higher billable AUM, though total AUM decreased by **$225 million** to **$5.46 billion** due to market performance[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) [Financial Condition](index=51&type=section&id=Financial%20Condition) Total assets grew to **$10.47 billion** by March 31, 2022, driven by a **$491 million** increase in loans, funded by deposits and borrowings, while the loan-to-deposit ratio rose to **88%** - Total loans and loans held for sale increased by **$491 million** in Q1 2022, driven by **$1.1 billion** in originations, partially offset by **$657 million** in payoffs and payments[157](index=157&type=chunk)[167](index=167&type=chunk) - Total deposits grew by **$146 million** in Q1 2022, primarily due to an increase in corporate deposits[157](index=157&type=chunk) - Borrowings increased by **$116 million** in Q1 2022, mainly from the issuance of **$150 million** in subordinated debt[157](index=157&type=chunk) [Credit Quality and Allowance for Credit Losses](index=59&type=section&id=Delinquent%20Loans,%20Nonperforming%20Assets%20and%20Provision%20for%20Credit%20Losses) Credit quality remained stable, with past due and nonaccrual loans at **0.24%** of total loans, and the Allowance for Credit Losses (ACL) decreasing to **$32.8 million** or **0.44%** of total loans Credit Quality Metrics | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Past Due & Nonaccrual Loans | $17,501 thousand | $13,656 thousand | | % of Total Loans | 0.24% | 0.20% | | Allowance for Credit Losses (ACL) | $32,822 thousand | $33,776 thousand | | ACL as % of Total Loans | 0.44% | 0.49% | [Liquidity and Capital Resources](index=65&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity with **$3.2 billion** in credit lines and robust capital, with both FFI and FFB exceeding all regulatory requirements and FFB being well-capitalized Key Capital Ratios (FFI Consolidated) | Ratio | March 31, 2022 | Regulatory Minimum for Adequacy | | :--- | :--- | :--- | | CET1 Capital Ratio | 10.98% | 4.50% | | Tier 1 Leverage Ratio | 8.52% | 4.00% | | Tier 1 Risk-Based Capital Ratio | 10.98% | 6.00% | | Total Risk-Based Capital Ratio | 13.68% | 8.00% | - As of March 31, 2022, FFB's capital ratios **exceeded minimums** to qualify as a **well-capitalized** depository institution[199](index=199&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=69&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes occurred in the company's quantitative and qualitative disclosures about market risk since the December 31, 2021 Annual Report on Form 10-K - No material changes occurred in the company's quantitative and qualitative disclosures about market risk since December 31, 2021[205](index=205&type=chunk) [Controls and Procedures](index=70&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's **disclosure controls and procedures were effective** as of March 31, 2022[208](index=208&type=chunk) - No material changes were made to the **internal control over financial reporting** during Q1 2022[209](index=209&type=chunk) [Part II. Other Information](index=70&type=section&id=Part%20II.%20Other%20Information) [Risk Factors](index=70&type=section&id=Item%201A.%20Risk%20Factors) No material changes occurred in the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes occurred in the **risk factors** disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[211](index=211&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=70&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) A new **$75 million stock repurchase program** was authorized on April 26, 2022, replacing a prior authorization, with no shares repurchased during Q1 2022 - A new **$75 million stock repurchase program** was authorized on April 26, 2022, replacing the prior 2018 program[212](index=212&type=chunk) [Exhibits](index=71&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with or incorporated by reference into the Form 10-Q, including corporate governance documents and CEO/CFO certifications - The report lists filed exhibits, including **CEO and CFO certifications** under Sarbanes-Oxley Act Sections 302 and 906, and Inline XBRL data files[216](index=216&type=chunk)