Start Time: 11:00 January 1, 0000 11:36 AM ET First Foundation Inc. (NYSE:FFWM) Q3 2020 Earnings Conference Call October 27, 2020, 11:00 AM ET Company Participants Scott Kavanaugh - CEO Kevin Thompson - EVP and CFO David DePillo - President John Hakopian - President, First Foundation Advisors Conference Call Participants Matthew Clark - Piper Sandler David Feaster - Raymond James Steve Moss - B. Riley FBR Gary Tenner - D.A. Davidson Operator Greetings, and welcome to First Foundation's Third Quarter 2020 Ea ...

[PART I — FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20Financial%20Information) Presents the unaudited consolidated financial information for First Foundation Inc., including financial statements, notes, and management's discussion and analysis [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements for Q1 2020, including balance sheets, income statements, cash flows, and detailed notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Details the unaudited consolidated balance sheets for First Foundation Inc. as of March 31, 2020, and December 31, 2019 | ASSETS (In thousands) | March 31, 2020 (unaudited) | December 31, 2019 | | :-------------------- | :------------------------- | :---------------- | | Cash and cash equivalents | $40,359 | $65,387 | | Securities available-for-sale ("AFS") | 961,477 | 1,014,966 | | Loans held for sale | 520,721 | 503,036 | | Loans, net of deferred fees | 4,805,513 | 4,547,633 | | Allowance for credit losses ("ACL") | (23,000) | (20,800) | | Net loans | 4,782,513 | 4,526,833 | | Total Assets | $6,513,708 | $6,314,436 | | | | | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Deposits | $5,030,827 | $4,891,144 | | Borrowings | 794,000 | 743,000 | | Total Liabilities | 5,890,625 | 5,700,567 | | Total Shareholders' Equity | 623,083 | 613,869 | | Total Liabilities and Shareholders' Equity | $6,513,708 | $6,314,436 | [Consolidated Income Statements - Unaudited](index=4&type=section&id=Consolidated%20Income%20Statements) Presents unaudited consolidated income statements for the quarters ended March 31, 2020, and March 31, 2019 | (In thousands, except share and per share amounts) | For the Quarter Ended March 31, 2020 | For the Quarter Ended March 31, 2019 | | :------------------------------------------------- | :----------------------------------- | :----------------------------------- | | Total interest income | $62,338 | $60,544 | | Total interest expense | 17,470 | 19,497 | | Net interest income | 44,868 | 41,047 | | Provision for credit losses | 4,079 | 540 | | Net interest income after provision for credit losses | 40,789 | 40,507 | | Total noninterest income | 10,675 | 8,465 | | Total noninterest expense | 32,857 | 32,945 | | Income before taxes on income | 18,607 | 16,027 | | Taxes on income | 5,396 | 4,768 | | Net income | $13,211 | $11,259 | | Net income per share: | | | | Basic | $0.30 | $0.25 | | Diluted | $0.29 | $0.25 | [Consolidated Statement of Changes in Shareholders' Equity - Unaudited](index=5&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Shareholders'%20Equity) Outlines the unaudited consolidated statement of changes in shareholders' equity for the quarter ended March 31, 2020 | (In thousands, except share amounts) | Balance: December 31, 2019 | Net income | Other comprehensive income | Stock based compensation | Cash dividend | Stock Repurchase | Balance: March 31, 2020 | | :----------------------------------- | :------------------------- | :--------- | :------------------------- | :----------------------- | :------------ | :--------------- | :---------------------- | | Total Shareholders' Equity | $613,869 | $13,211 | $547 | $767 | $(3,132) | $(2,824) | $623,083 | [Consolidated Statements of Comprehensive Income - Unaudited](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Provides unaudited consolidated statements of comprehensive income for the quarters ended March 31, 2020, and March 31, 2019 | (In thousands) | For the Quarter Ended March 31, 2020 | For the Quarter Ended March 31, 2019 | | :------------- | :----------------------------------- | :----------------------------------- | | Net income | $13,211 | $11,259 | | Other comprehensive income (loss) | 547 | (759) | | Total comprehensive income | $13,758 | $10,500 | [Consolidated Statements of Cash Flows - Unaudited](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Presents unaudited consolidated statements of cash flows for the three months ended March 31, 2020, and March 31, 2019 | (In thousands) | For the Three Months Ended March 31, 2020 | For the Three Months Ended March 31, 2019 | | :------------- | :---------------------------------------- | :---------------------------------------- | | Net cash provided by operating activities | $884 | $11,192 | | Net cash used in investing activities | (211,284) | (123,412) | | Net cash provided by financing activities | 185,372 | 125,601 | | Increase (decrease) in cash and cash equivalents | (25,028) | 13,381 | | Cash and cash equivalents at end of period | $40,359 | $80,693 | [Notes to the Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) Provides detailed notes on accounting policies, fair value, securities, loans, credit losses, deposits, borrowings, and segment reporting [NOTE 1: BASIS OF PRESENTATION](index=8&type=section&id=NOTE%201%3A%20BASIS%20OF%20PRESENTATION) Explains the basis of presentation, including consolidated entities, CECL adoption, and credit loss provisions - The consolidated financial statements include First Foundation Inc. (FFI) and its wholly-owned subsidiaries: First Foundation Advisors (FFA), First Foundation Bank (FFB), and FFB's subsidiaries First Foundation Insurance Services (FFIS) and Blue Moon Management, LLC[23](index=23&type=chunk) - The Company adopted ASU 2016-13, the Current Expected Credit Losses (CECL) model, on January 1, 2020, using the modified retrospective method for financial assets measured at amortized cost and off-balance sheet credit exposures, requiring credit loss estimation over an exposure's life upon initial recognition[26](index=26&type=chunk)[27](index=27&type=chunk) - For the quarter ending March 31, 2020, the total provision for credit losses was **$4.1 million**, comprising **$2.3 million** for loans and **$1.8 million** for securities AFS[33](index=33&type=chunk) [NOTE 2: FAIR VALUE MEASUREMENTS](index=9&type=section&id=NOTE%202%3A%20FAIR%20VALUE%20MEASUREMENTS) Describes fair value measurement categorization and provides a breakdown of assets and derivatives by fair value level - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (significant unobservable inputs)[37](index=37&type=chunk)[38](index=38&type=chunk) | (dollars in thousands) | March 31, 2020 Total | Level 1 | Level 2 | Level 3 | | :--------------------- | :------------------- | :------ | :------ | :------ | | Investment securities available for sale: | | | | | | Agency mortgage-backed securities | $862,811 | $— | $862,811| $— | | Beneficial interest – FHLMC securitizations | 38,415 | — | — | 38,415 | | Corporate bonds | 58,786 | — | 58,786 | — | | Other | 1,465 | 409 | 1,056 | — | | Investment in equity securities | 293 | 293 | — | — | | Total assets at fair value on a recurring basis | $961,770 | $702 | $922,653| $38,415 | | Derivatives: | | | | | | Interest rate swaps | $8,333 | $— | $8,333 | $— | - The decrease in Level 3 assets from December 31, 2019, was primarily due to paydowns of Beneficial interest – FHLMC securitizations[42](index=42&type=chunk) - A **$1.8 million** reduction in the value of an interest-only strip security was required due to higher than expected prepayments on an underlying 2016 securitization, leading to impairment[43](index=43&type=chunk) [NOTE 3: SECURITIES](index=13&type=section&id=NOTE%203%3A%20SECURITIES) Details amortized cost and fair value of securities, explaining unrealized losses and impairment charges | (dollars in thousands) | Amortized Cost (March 31, 2020) | Estimated Fair Value (March 31, 2020) | Amortized Cost (December 31, 2019) | Estimated Fair Value (December 31, 2019) | | :--------------------- | :------------------------------ | :------------------------------------ | :--------------------------------- | :--------------------------------------- | | Agency mortgage-backed securities | $855,835 | $862,811 | $905,949 | $914,977 | | Beneficial interests in FHLMC securitization | 40,433 | 38,415 | 47,586 | 42,706 | | Corporate bonds | 57,000 | 58,786 | 54,000 | 55,834 | | Other | 1,392 | 1,465 | 1,386 | 1,449 | | Total | $954,660 | $961,477 | $1,008,921 | $1,014,966 | - Unrealized losses on agency mortgage-backed securities, beneficial interests in FHLMC securitizations, and other securities have not been recognized into income due to high credit quality, management's intent not to sell, and the expectation of fair value recovery as bonds approach maturity[68](index=68&type=chunk) - A **$1.8 million** impairment charge related to an interest-only strip security, due to higher than expected prepayments, was included in the provision for credit losses on the consolidated income statement[73](index=73&type=chunk) [NOTE 4: LOANS](index=15&type=section&id=NOTE%204%3A%20LOANS) Provides a breakdown of loan categories, past due and nonaccrual loans, and troubled debt restructurings | (dollars in thousands) | March 31, 2020 | December 31, 2019 | | :--------------------- | :------------- | :---------------- | | Loans secured by real estate: | | | | Multifamily | $2,369,081 | $2,143,919 | | Single family | 851,443 | 871,181 | | Commercial properties | 793,182 | 834,042 | | Land | 68,101 | 70,257 | | Commercial and industrial loans | 696,596 | 600,213 | | Consumer loans | 17,476 | 16,273 | | Total loans | $4,795,879 | $4,535,885 | | (dollars in thousands) | March 31, 2020 | December 31, 2019 | | :--------------------- | :------------- | :---------------- | | Total Past Due and Nonaccrual Loans | $11,407 | $23,685 | | Percentage of total loans | 0.24% | 0.52% | | (dollars in thousands) | March 31, 2020 Total TDR | December 31, 2019 Total TDR | | :--------------------- | :----------------------- | :-------------------------- | | Residential loans | $1,200 | $1,200 | | Commercial real estate loans | 2,573 | 3,354 | | Commercial and industrial loans | 4,149 | 3,529 | | Total | $7,922 | $8,083 | [NOTE 5: ALLOWANCE FOR CREDIT LOSSES](index=18&type=section&id=NOTE%205%3A%20ALLOWANCE%20FOR%20CREDIT%20LOSSES) Presents changes in allowance for credit losses by loan category and details loan risk categorization | (dollars in thousands) | Beginning Balance (Dec 31, 2019) | Provision for Credit Losses | Charge-offs | Recoveries | Ending Balance (Mar 31, 2020) | | :--------------------- | :------------------------------- | :-------------------------- | :---------- | :--------- | :---------------------------- | | Real estate loans: | | | | | | | Residential properties | $8,423 | $(2,034) | $— | $— | $6,389 | | Commercial properties | 4,166 | 772 | — | — | 4,938 | | Land | 573 | 771 | — | — | 1,344 | | Commercial and industrial loans | 7,448 | 2,756 | (530) | 451 | 10,125 | | Consumer loans | 190 | 14 | — | — | 204 | | Total | $20,800 | $2,279 | $(530) | $451 | $23,000 | - The Bank categorizes loans into risk categories (Pass, Special Mention, Substandard) based on borrower ability to service debt, financial information, collateral adequacy, and economic trends[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) | (dollars in thousands) | March 31, 2020 Total Loans | December 31, 2019 Total Loans | | :--------------------- | :------------------------- | :-------------------------- | | Pass | $4,775,576 | $4,498,530 | | Special Mention | 8,873 | 8,881 | | Substandard Loans | 3,107 | 9,572 | | Individually Evaluated | 17,957 | 18,902 | | Total | $4,805,513 | $4,535,885 | [NOTE 6: LOAN SALES AND MORTGAGE SERVICING RIGHTS](index=23&type=section&id=NOTE%206%3A%20LOAN%20SALES%20AND%20MORTGAGE%20SERVICING%20RIGHTS) Discusses gains from loan sales and provides metrics for mortgage servicing rights and loans serviced for others - FFB recognized **$4.2 million** in gains from selling **$549 million** of multifamily loans in 2019, retaining servicing rights for most[105](index=105&type=chunk) | Metric | March 31, 2020 | December 31, 2019 | | :----- | :------------- | :---------------- | | Mortgage servicing rights | $6.6 million | $7 million | | Loans serviced for others | $1.4 billion | $1.7 billion | | Servicing fees (3 months ended March 31) | $0.4 million | $1.7 million | [NOTE 7: DEPOSITS](index=23&type=section&id=NOTE%207%3A%20DEPOSITS) Details deposit composition by type, including noninterest-bearing and interest-bearing accounts with weighted average rates | (dollars in thousands) | March 31, 2020 Amount | March 31, 2020 Weighted Average Rate | December 31, 2019 Amount | December 31, 2019 Weighted Average Rate | | :--------------------- | :-------------------- | :----------------------------------- | :----------------------- | :-------------------------------------- | | Noninterest-bearing demand deposits | $1,315,114 | — | $1,192,481 | — | | Interest-bearing demand deposits | 384,215 | 0.436% | 386,276 | 0.635% | | Money market and savings | 1,380,903 | 0.849% | 1,334,736 | 1.355% | | Certificates of deposits | 1,950,595 | 1.732% | 1,977,651 | 1.971% | | Total | $5,030,827 | 0.938% | $4,891,144 | 1.217% | [NOTE 8: BORROWINGS](index=23&type=section&id=NOTE%208%3A%20BORROWINGS) Outlines types and amounts of borrowings, including FHLB advances and lines of credit, and their collateralization | (dollars in thousands) | March 31, 2020 | December 31, 2019 | | :--------------------- | :------------- | :---------------- | | Overnight FHLB advances | $34,000 | $233,000 | | FHLB term advances | 750,000 | 500,000 | | Holding company line of credit | 10,000 | 10,000 | | Total borrowings | $794,000 | $743,000 | - FHLB advances are primarily collateralized by multifamily and commercial real estate loans with a carrying value of **$3.6 billion** as of March 31, 2020, with the Bank's total borrowing capacity from the FHLB at **$1.6 billion**[108](index=108&type=chunk) - The Bank had **$120 million** available through unsecured fed funds lines and a **$184 million** secured line with the Federal Reserve Bank, with total unused lines of credit at **$1.8 billion** as of March 31, 2020[110](index=110&type=chunk)[112](index=112&type=chunk) [NOTE 9: LEASES](index=24&type=section&id=NOTE%209%3A%20LEASES) Explains accounting for operating leases under Topic 842 and provides key metrics for lease assets and liabilities - With the adoption of Topic 842, operating lease agreements are recognized on the consolidated balance sheet as a right-of-use (ROU) asset and a corresponding lease liability[113](index=113&type=chunk) | (dollars in thousands) | March 31, 2020 | | :--------------------- | :------------- | | Operating lease asset classified as other assets | $15,240 | | Operating lease liability classified as other liabilities | 16,648 | | Weighted average lease term, in years | 4.85 | | Weighted average discount rate | 3.62% | | Total future minimum lease payments | $21,168 | | Total lease liability | $16,648 | [NOTE 10: EARNINGS PER SHARE](index=25&type=section&id=NOTE%2010%3A%20EARNINGS%20PER%20SHARE) Presents the calculation of basic and diluted earnings per share, including net income and common shares outstanding | (dollars in thousands, except per share amounts) | Basic 2020 | Diluted 2020 | Basic 2019 | Diluted 2019 | | :----------------------------------------------- | :--------- | :----------- | :--------- | :----------- | | Net income | $13,211 | $13,211 | $11,259 | $11,259 | | Basic common shares outstanding | 44,669,661 | 44,669,661 | 44,540,865 | 44,540,865 | | Diluted common shares outstanding | | 44,952,669 | | 44,798,306 | | Earnings per share | $0.30 | $0.29 | $0.25 | $0.25 | [NOTE 11: SEGMENT REPORTING](index=26&type=section&id=NOTE%2011%3A%20SEGMENT%20REPORTING) Provides financial information by reportable business segment, Banking and Wealth Management, for Q1 2020 - The Company operates two reportable business segments: Banking (FFB and FFIS) and Wealth Management (FFA)[122](index=122&type=chunk) | (dollars in thousands) Quarter ended March 31, 2020 | Banking | Wealth Management | Other | Total | | :-------------------------------------------------- | :------ | :---------------- | :---- | :---- | | Net interest income | $44,898 | $— | $(30) | $44,868 | | Provision for loan losses | 4,079 | — | — | 4,079 | | Noninterest income | 4,659 | 6,488 | (472) | 10,675 | | Noninterest expense | 26,229 | 6,165 | 463 | 32,857 | | Income (loss) before taxes on income | $19,249 | $323 | $(965)| $18,607 | [NOTE 12: SUBSEQUENT EVENTS](index=26&type=section&id=NOTE%2012%3A%20SUBSEQUENT%20EVENTS) Discloses significant events after the balance sheet date, specifically a declared quarterly cash dividend - On April 28, 2020, the Board of Directors declared a quarterly cash dividend of **$0.07** per common share, payable on June 15, 2020[123](index=123&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes financial condition and results for Q1 2020, addressing COVID-19 impact, accounting policies, and segment performance [Overview and Recent Developments](index=28&type=section&id=Overview%20and%20Recent%20Developments) Discusses COVID-19 impact, operational adjustments, funding costs, AUM changes, and key financial movements - The COVID-19 pandemic and related government actions have caused significant economic uncertainty, adversely affecting the Company and its customers, employees, and third-party service providers[135](index=135&type=chunk)[139](index=139&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk) - The Company implemented its Pandemic Response Business Continuity Plan, transitioning approximately **85%** of corporate employees to remote work without significant additional costs[138](index=138&type=chunk) - Funding costs are expected to decline due to the persistent low interest rate environment, however, assets under management decreased by **12%** in Q1 2020, which will reduce future Wealth Management revenues[139](index=139&type=chunk)[148](index=148&type=chunk) - Total loans, including loans held for sale, increased by **$276 million** in Q1 2020, driven by **$664 million** in originations and an **$8 million** positive mark-to-market valuation, partially offset by **$396 million** in payoffs[149](index=149&type=chunk) - Total deposits increased by **$140 million**, and total revenues (net interest income and noninterest income) increased by **12%** compared to Q1 2019[150](index=150&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Analyzes financial performance, including net income, net interest income, credit loss provision, and noninterest items | (dollars in thousands) | Q1 2020 | Q1 2019 | Change (QoQ) | | :--------------------- | :------ | :------ | :----------- | | Net income | $13,211 | $11,259 | +$1,952 | | Income before taxes | $18,607 | $16,027 | +$2,580 | | Net interest income | $44,868 | $41,047 | +$3,821 | | Provision for credit losses | $4,079 | $540 | +$3,539 | | Noninterest income | $10,675 | $8,465 | +$2,210 | | Noninterest expense | $32,857 | $32,945 | -$88 | - Net interest income for Banking increased by **$3.8 million**, driven by an **8%** increase in interest-earning assets and an increase in net yield on interest-earning assets from **2.88%** to **2.92%**[156](index=156&type=chunk) - The provision for credit losses significantly increased to **$4.1 million** in Q1 2020 (from **$0.5 million** in Q1 2019) due to adverse economic conditions under CECL and a **$1.8 million** impairment charge on an interest-only strip security[157](index=157&type=chunk) - Noninterest income in Banking increased by **$1.7 million**, primarily due to higher loan fees (**$1.4 million**) and trust fees (**$0.3 million**), while Wealth Management noninterest income increased by **$0.8 million** due to higher investment management fees[159](index=159&type=chunk)[160](index=160&type=chunk) - Noninterest expense in Banking decreased by **$0.4 million**, mainly from lower customer service costs and FDIC costs, partially offset by higher compensation and benefits and occupancy costs, while Wealth Management noninterest expenses increased by **$0.6 million** due to higher compensation and professional services[161](index=161&type=chunk) [Financial Condition](index=34&type=section&id=Financial%20Condition) Examines the balance sheet, including total assets, loans, securities, deposits, borrowings, and allowance for credit losses | (dollars in thousands) | March 31, 2020 | December 31, 2019 | Change (QoQ) | | :--------------------- | :------------- | :---------------- | :----------- | | Total assets | $6,513,708 | $6,314,436 | +$199,272 | | Loans, net | 4,782,513 | 4,526,833 | +$255,680 | | Loans held for sale | 520,721 | 503,036 | +$17,685 | | Securities AFS | 961,477 | 1,014,966 | -$53,489 | | Deposits | 5,030,827 | 4,891,144 | +$139,683 | | Borrowings | 794,000 | 743,000 | +$51,000 | - Total assets increased by **$199.3 million** in Q1 2020, primarily due to a **$276 million** increase in loans (including held for sale), partially offset by a **$53.5 million** decrease in securities[164](index=164&type=chunk) - Deposit growth of **$139.7 million** was driven by increases in branch deposits (**$171 million**) and specialty deposits (**$53 million**), partially offset by an **$84 million** decrease in wholesale deposits[164](index=164&type=chunk) - The weighted average rate of interest-bearing deposits decreased from **1.61%** at December 31, 2019, to **1.27%** at March 31, 2020, reflecting decreased market rates[172](index=172&type=chunk) - Total past due and nonaccrual loans decreased from **$23.7 million** (**0.52%** of total loans) at December 31, 2019, to **$11.4 million** (**0.24%** of total loans) at March 31, 2020[176](index=176&type=chunk) - The Allowance for Credit Losses (ACL) increased from **$20.8 million** at December 31, 2019, to **$23.0 million** at March 31, 2020, with the provision for credit losses being **$2.3 million** for the quarter[178](index=178&type=chunk) [Liquidity](index=40&type=section&id=Liquidity) Assesses cash flow from operating, investing, and financing activities, and the loan-to-deposit ratio - Operating activities provided **$884 thousand** in net cash in Q1 2020, a decrease from **$11.2 million** in Q1 2019, primarily due to net income and provisions for credit losses, offset by changes in other assets and liabilities[187](index=187&type=chunk) - Investing activities used **$211.3 million** in net cash in Q1 2020, mainly for a **$264 million** net increase in loans and **$3 million** in securities purchases, partially offset by **$55 million** from securities maturities[188](index=188&type=chunk) - Financing activities provided **$185.4 million** in net cash in Q1 2020, driven by a **$140 million** increase in deposits and a **$51 million** increase in FHLB advances, partially offset by dividends paid and stock repurchases[189](index=189&type=chunk) - The loan-to-deposit ratio at FFB increased from **103%** at December 31, 2019, to **106%** at March 31, 2020[190](index=190&type=chunk) [Off-Balance Sheet Arrangements](index=40&type=section&id=Off-Balance%20Sheet%20Arrangements) Details off-balance sheet commitments, including loan funding commitments and standby letters of credit | (dollars in thousands) | March 31, 2020 | | :--------------------- | :------------- | | Commitments to fund new loans | $40,567 | | Commitments to fund under existing loans, lines of credit | 430,195 | | Commitments under standby letters of credit | 13,465 | - FFB was obligated on **$281 million** of letters of credit to the FHLB, used as collateral for public fund deposits, including **$263 million** from the State of California[192](index=192&type=chunk) [Capital Resources and Dividend Policy](index=40&type=section&id=Capital%20Resources%20and%20Dividend%20Policy) Reviews capital ratios, available capital, and dividend policy, confirming well-capitalized status - Both FFI (consolidated) and FFB (stand-alone) exceeded all minimum required capital ratios and qualified as a well-capitalized depository institution as of March 31, 2020[197](index=197&type=chunk) | (dollars in thousands) FFI Capital Ratios | March 31, 2020 Actual Ratio | December 31, 2019 Actual Ratio | | :---------------------------------------- | :-------------------------- | :----------------------------- | | CET1 capital ratio | 10.47% | 10.65% | | Tier 1 leverage ratio | 8.36% | 8.25% | | Tier 1 risk-based capital ratio | 10.47% | 10.65% | | Total risk-based capital ratio | 10.99% | 11.15% | | (dollars in thousands) FFB Capital Ratios | March 31, 2020 Actual Ratio | December 31, 2019 Actual Ratio | | :---------------------------------------- | :-------------------------- | :----------------------------- | | CET1 capital ratio | 10.56% | 10.62% | | Tier 1 leverage ratio | 8.43% | 8.22% | | Tier 1 risk-based capital ratio | 10.56% | 10.62% | | Total risk-based capital ratio | 11.08% | 11.12% | - FFI had **$11.7 million** of available capital as of March 31, 2020, providing the ability to contribute additional capital to FFB if needed[198](index=198&type=chunk) - The Company paid a quarterly cash dividend of **$0.07** per common share in Q1 2020 and intends to continue quarterly dividends, subject to Board approval and regulatory restrictions[200](index=200&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Refers to the 2019 Annual Report for market risk disclosures, noting no material changes since then - No material changes to quantitative and qualitative disclosures about market risk have occurred since December 31, 2019[204](index=204&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms effectiveness of disclosure controls and procedures and reports no material changes to internal control - The Company's disclosure controls and procedures were effective as of March 31, 2020, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[206](index=206&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2020[207](index=207&type=chunk) [PART II — OTHER INFORMATION](index=43&type=section&id=Part%20II.%20Other%20Information) Presents other required information, including risk factors, equity sales, and exhibits [ITEM 1A. RISK FACTORS](index=43&type=section&id=Item%201A.%20Risk%20Factors) Supplements risk factors from the 10-K, addressing adverse impacts and uncertainties of the COVID-19 pandemic - The COVID-19 pandemic and related government actions have created significant economic uncertainty, adversely affecting the Company and its customers, employees, and third-party service providers[209](index=209&type=chunk)[210](index=210&type=chunk) - Potential adverse effects include increased delinquencies, defaults, foreclosures, reduced loan demand, lower collateral values, and impacts on interest and noninterest income[211](index=211&type=chunk) - The ultimate extent of the pandemic's impact is highly uncertain and difficult to predict, potentially leading to materially adverse effects on the Company's business and financial results[214](index=214&type=chunk)[215](index=215&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details stock repurchase activities during Q1 2020 under the existing stock repurchase plan - The Company has a stock repurchase plan adopted on October 30, 2018, authorizing the repurchase of up to **2.2 million shares** of common stock[217](index=217&type=chunk) | Purchase Dates | Total Number of Shares Purchased | Average Price Paid Per Share | Maximum Number of Shares That May Yet Be Purchased Under the Program | | :---------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------- | | January 1 to January 31, 2020 | — | — | 2,162,900 | | February 1 to February 29, 2020 | — | — | 2,162,900 | | March 1 to March 31, 2020 | 224,300 | 12.59 | 1,938,600 | [ITEM 6. EXHIBITS](index=46&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including organizational documents, agreements, and certifications - The exhibits include the Certificate of Incorporation, Bylaws, Fifth Amendments to Employment Agreements for key executives (Scott F. Kavanaugh, Ulrich E. Keller, Jr.), Second Amendments to Employment Agreements (David DePillo, Lindsay Lawrence), and certifications under the Sarbanes-Oxley Act[219](index=219&type=chunk) [SIGNATURES](index=47&type=section&id=SIGNATURES) Confirms the official signing of the report by the Executive Vice President and Chief Financial Officer - The report was signed on May 8, 2020, by John M. Michel, Executive Vice President and Chief Financial Officer of First Foundation Inc[224](index=224&type=chunk)

[FORWARD-LOOKING STATEMENTS](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines the inherent uncertainties and risks associated with forward-looking statements, emphasizing that actual results may differ materially [Forward-Looking Statements Disclaimer](index=3&type=section&id=Forward-Looking%20Statements%20Disclaimer) This section contains forward-looking statements that predict future events or trends, which are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. The company disclaims any obligation to publicly release revisions or updates to these statements, except as required by law - Forward-looking statements predict or describe future events or trends and are subject to various known and currently unknown risks, uncertainties, and other factors that may cause actual results to differ materially[8](index=8&type=chunk) - The company expressly disclaims any obligation to publicly release revisions or updates to any forward-looking statements to reflect events or circumstances after the report date, except as required by applicable law[9](index=9&type=chunk) [Item 1. Business](index=4&type=section&id=Item%201.%20Business) This section provides an overview of the company's financial services, including banking, investment advisory, and wealth management, highlighting its integrated platform and competitive strategy [Overview](index=4&type=section&id=Overview) First Foundation Inc. (FFI) is a financial services company operating in California, Nevada, and Hawaii, providing banking, investment advisory, wealth management, and trust services through its consolidated subsidiaries. The company emphasizes an integrated platform and client-focused strategy, generating substantial fee-based recurring revenues - First Foundation Inc. (FFI) and its consolidated subsidiaries (First Foundation Advisors (FFA) and First Foundation Bank (FFB)) provide a comprehensive platform of financial services to individuals, businesses, and other organizations in California, Nevada, and Hawaii[11](index=11&type=chunk)[12](index=12&type=chunk) Key Financial Metrics (as of December 31, 2019) | Metric | Amount ($B) | | :----------------------- | :---------- | | Total Assets | 6.3 | | Loans | 4.5 | | Loans Held for Sale | 0.5 | | Deposits | 4.9 | | Assets Under Management | 4.4 | - Non-interest income constituted **20% of total revenues in 2019**, primarily from investment advisory, wealth management, and trust services, providing substantial, fee-based, recurring revenues[12](index=12&type=chunk) [Overview of Our Banking Business](index=4&type=section&id=Overview%20of%20Our%20Banking%20Business) First Foundation Bank (FFB) offers a broad range of loan, deposit, and trust services. Its primary revenues are driven by yields on interest-earning assets and interest rates on deposits. Trust services complement investment and wealth management, contributing to noninterest income - FFB offers a wide range of loan products, deposit products, business and personal banking services, and trust services[17](index=17&type=chunk) - Trust services, primarily asset management, complement FFA's investment and wealth management services and provide additional noninterest income[20](index=20&type=chunk) FFB Key Financial Metrics (as of December 31, 2019) | Metric | Amount ($B) | | :---------------------------- | :---------- | | Total Assets | 6.3 | | Loans | 4.5 | | Loans Held for Sale | 0.5 | | Deposits | 4.9 | | Trust Assets Under Management | 0.888 | [Overview of Our Investment Advisory and Wealth Management Business](index=5&type=section&id=Overview%20of%20Our%20Investment%20Advisory%20and%20Wealth%20Management%20Business) First Foundation Advisors (FFA) is a fee-based investment advisor specializing in investment advisory and wealth management services for high net-worth individuals, families, and affiliated organizations - FFA is a fee-based investment advisor providing investment advisory and wealth management services primarily to high net-worth individuals, their families, family businesses, and other affiliated organizations[22](index=22&type=chunk) FFA Assets Under Management (as of December 31, 2019) | Metric | Amount ($B) | | :----------------------- | :---------- | | Assets Under Management | 4.4 | [Banking Products and Services](index=5&type=section&id=Banking%20Products%20and%20Services) First Foundation Bank offers a comprehensive suite of loan and deposit products, delivered through a client-focused approach and specialized channels. The loan portfolio is heavily concentrated in real estate, while deposit services include treasury management and digital banking [Loan Products](index=5&type=section&id=Loan%20Products) FFB offers a diverse range of loan products, with a significant portion secured by real estate. Lending activities are structured into Commercial Real Estate (CRE), Commercial & Industrial (C&I), and Consumer channels, each with specific underwriting criteria - FFB's lending products are the primary drivers of revenues and earnings, designed to meet client credit needs while managing credit and interest rate risks[23](index=23&type=chunk) Loan Portfolio by Principal Amount (as of December 31) | Loan Type | 2019 Balance ($K) | % of Total (2019) | 2018 Balance ($K) | % of Total (2018) | | :-------------------------------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Multifamily | 2,143,919 | 47.3% | 1,956,935 | 45.7% | | Single family | 871,181 | 19.2% | 904,828 | 21.1% | | **Total secured by residential properties** | **3,015,100** | **66.5%** | **2,861,763** | **66.8%** | | Commercial properties | 834,042 | 18.4% | 869,169 | 20.3% | | Land | 70,257 | 1.5% | 80,187 | 1.9% | | **Total real estate loans** | **3,919,399** | **86.4%** | **3,811,119** | **89.0%** | | Commercial and industrial loans | 600,213 | 13.2% | 449,805 | 10.5% | | Consumer loans | 16,273 | 0.4% | 22,699 | 0.5% | | **Total loans** | **4,535,885** | **100.0%** | **4,283,623** | **100.0%** | - The lending platform is focused on three primary channels: Commercial Real Estate (CRE), Commercial and Industrial (C&I), and Consumer loans[26](index=26&type=chunk) - Underwriting process is comprehensive, focusing on primary, secondary, and tertiary sources of repayment, including collateral cash flow and borrower's ability to repay[45](index=45&type=chunk) [Deposit Products and Services](index=8&type=section&id=Deposit%20Products%20and%20Services) FFB offers a wide array of deposit products, including checking, savings, money market, and certificates of deposit, with a pricing strategy aimed at client retention. Services include treasury management and digital banking, delivered through retail banking offices and a specialized team for complex commercial and fiduciary clients Deposit Products and Average Interest Rates (as of December 31) | Deposit Type | 2019 Amount ($K) | % of Total (2019) | 2019 Avg Rate | 2018 Amount ($K) | % of Total (2018) | 2018 Avg Rate | | :----------------------- | :--------------- | :---------------- | :------------ | :--------------- | :---------------- | :------------ | | Noninterest-bearing | 1,192,481 | 24.4% | — | 1,074,661 | 23.7% | — | | Interest-bearing | 386,276 | 7.9% | 0.635% | 317,380 | 7.0% | 0.798% | | Money market and savings | 1,334,736 | 27.3% | 1.355% | 1,190,717 | 26.3% | 1.115% | | Certificates of deposits | 1,977,651 | 40.4% | 1.971% | 1,950,210 | 43.0% | 2.142% | | **Total** | **4,891,144** | **100.0%** | **1.217%** | **4,532,968** | **100.0%** | **1.270%** | - The four largest bank depositors accounted for **18% of total deposits** as of December 31, 2019[47](index=47&type=chunk) - Deposit services include Treasury Management (bill pay, wire transfers, remote deposit capture) and Digital Banking (online and mobile access)[48](index=48&type=chunk)[49](index=49&type=chunk) - Deposit delivery channels include **20 retail banking offices** and a specialty deposits team focused on large complex commercial customers and fiduciaries[51](index=51&type=chunk)[52](index=52&type=chunk) [Trust Services](index=9&type=section&id=Trust%20Services) FFB provides trust services in California, Nevada, and Hawaii, primarily managing trust assets. These services complement FFA's wealth management offerings and create cross-selling opportunities Trust Assets Under Management (as of December 31, 2019) | Metric | Amount ($M) | | :---------------------------- | :---------- | | Trust Assets Under Management | 888 | [Wealth Management Products and Services](index=9&type=section&id=Wealth%20Management%20Products%20and%20Services) First Foundation Advisors (FFA) delivers personalized investment advisory and wealth management services, focusing on diversified portfolios and coordinating with external providers for comprehensive financial planning. FFA's Assets Under Management (AUM) have shown consistent growth - FFA provides personalized investment advisory and wealth management services, coordinating with outside service providers for risk management, estate, and tax planning[54](index=54&type=chunk) - FFA focuses on creating diversified investment portfolios tailored to client objectives, risk tolerance, and time horizon, using traditional investments[55](index=55&type=chunk) - AUM at FFA grew at a compound annual growth rate of **6%** over the four-year period ending December 31, 2019[56](index=56&type=chunk) [Competition](index=10&type=section&id=Competition) The company operates in a highly competitive financial services market, competing with larger national and regional banks, as well as specialized wealth management firms. Its competitive advantage lies in offering an integrated platform of comprehensive financial services combined with personalized, responsive service, differentiating it from many competitors - The banking and investment advisory and wealth management businesses in California, Nevada, and Hawaii are highly competitive, dominated by major national and regional banks (e.g., Wells Fargo, JP Morgan Chase, US Bank)[59](index=59&type=chunk) - The company differentiates itself by providing personal and 'one-on-one' service through an integrated platform of comprehensive financial services, which is typically reserved for the wealthiest clients by larger institutions[60](index=60&type=chunk) - Competition is not primarily based on pricing, but the company attempts to maintain pricing in line with principal competitors to attract and grow its client base[61](index=61&type=chunk) [Supervision and Regulation](index=10&type=section&id=Supervision%20and%20Regulation) First Foundation Inc. and its subsidiaries are subject to extensive federal and state regulation, primarily aimed at protecting depositors and the financial system. This regulatory framework covers various aspects of operations, including capital requirements, permissible activities, acquisitions, consumer protection, and executive compensation - The banking industry is extensively regulated by federal and state laws, primarily for the protection of depositors, customers, and the FDIC's deposit insurance fund, not for the benefit of stockholders[62](index=62&type=chunk)[194](index=194&type=chunk) - FFI is a registered bank holding company regulated by the Federal Reserve, and FFB is a California state-chartered bank regulated by the FDIC and the California Department of Business Oversight (DBO)[16](index=16&type=chunk)[63](index=63&type=chunk)[69](index=69&type=chunk) - First Foundation Advisors (FFA) is a fee-based registered investment advisor regulated by the Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940[16](index=16&type=chunk)[123](index=123&type=chunk) [Bank Holding Company Regulation](index=10&type=section&id=Bank%20Holding%20Company%20Regulation) As a bank holding company, FFI is supervised by the Federal Reserve and must act as a source of financial and managerial strength to its subsidiary banks, maintaining adequate capital and engaging only in banking-related activities. It has not elected to be a financial holding company - FFI is regulated under the Bank Holding Company Act of 1956 and is subject to supervision and examination by the Federal Reserve[63](index=63&type=chunk) - A bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and must maintain capital at or above prescribed levels[65](index=65&type=chunk) - FFI has not elected to qualify as a 'financial holding company,' which would allow for a broader range of financial activities[64](index=64&type=chunk) [Capital Requirements Applicable to Banks and Bank Holding Companies](index=11&type=section&id=Capital%20Requirements%20Applicable%20to%20Banks%20and%20Bank%20Holding%20Companies) FFI and FFB are subject to the Capital Rules (based on Basel III and Dodd-Frank Act), which revised risk-based capital requirements and introduced Common Equity Tier 1 (CET-1). These rules include a capital conservation buffer and specify deductions from capital - The Capital Rules, based on Basel III and Dodd-Frank Act, became effective for the Company and FFB on January 1, 2015, revising risk-based capital requirements and redefining capital components[71](index=71&type=chunk) Minimum Capital Ratios (including 2.5% capital conservation buffer) as of January 1, 2019 | Capital Ratio | Minimum Requirement | | :------------------------------------------------ | :------------------ | | CET-1 to risk-weighted assets | 7.000% | | Tier 1 capital to risk-weighted assets | 8.500% | | Total capital to risk-weighted assets | 10.500% | | Tier 1 capital-to-average consolidated assets (leverage ratio) | 4.000% | - The company elected to continue excluding Accumulated Other Comprehensive Income (AOCI) items from capital for regulatory capital ratio calculations[78](index=78&type=chunk) [Prompt Corrective Action](index=12&type=section&id=Prompt%20Corrective%20Action) FDICIA established a framework for federal regulators to take 'prompt corrective action' based on a depository institution's capital adequacy, classifying institutions into five categories. Undercapitalized institutions face increasing restrictions and potential liability for their holding companies - FDICIA requires federal banking regulators to take 'prompt corrective action' if a depository institution does not meet certain capital adequacy standards[80](index=80&type=chunk) - Institutions are classified into five capital categories: 'well capitalized,' 'adequately capitalized,' 'undercapitalized,' 'significantly undercapitalized,' and 'critically undercapitalized,' based on Tier 1 leverage, Tier 1 capital, and total capital ratios[81](index=81&type=chunk)[82](index=82&type=chunk) - Undercapitalized banks face restrictions on dividends and management fees, and their parent holding companies may be required to guarantee capital restoration plans, incurring potential liability[88](index=88&type=chunk) [Dividends and Stock Repurchases](index=14&type=section&id=Dividends%20and%20Stock%20Repurchases) Dividend payments by bank holding companies are subject to Federal Reserve policy, requiring payments from available income and consistency with capital/liquidity needs. FFB's ability to pay dividends to FFI is further restricted by California law and FDIC regulations, which can prohibit payments deemed unsafe or unsound - Federal Reserve policy generally requires bank holding companies to pay common stock dividends only out of income available over the past year and consistent with future capital and liquidity needs[95](index=95&type=chunk) - FFB's ability to pay cash dividends to FFI is limited by California law (lesser of retained earnings or last three fiscal years' income less distributions) and FDIC regulations (prohibiting payments that would cause FFB to become undercapitalized or be deemed unsafe/unsound)[96](index=96&type=chunk) [Deposit Insurance](index=14&type=section&id=Deposit%20Insurance) FFB's deposits are insured by the FDIC's Deposit Insurance Fund (DIF) up to $250,000 per depositor. The FDIC uses a risk-based assessment system, and deposit insurance can be terminated for unsafe practices - FFB's deposits are insured by the FDIC's Deposit Insurance Fund (DIF) up to **$250,000 per depositor**, a limit permanently increased by the Dodd-Frank Act[99](index=99&type=chunk) - The FDIC uses a risk-based assessment system, with rates calculated based on an institution's CAMELS supervisory rating and consolidated average assets less average tangible equity[100](index=100&type=chunk) [Executive Compensation Restrictions](index=15&type=section&id=Executive%20Compensation%20Restrictions) Federal guidelines and the Dodd-Frank Act aim to prevent incentive compensation policies that encourage excessive risk-taking. The company has adopted a clawback policy for incentive compensation in cases of financial statement restatements due to material noncompliance - Federal guidelines prohibit incentive compensation that encourages risk-taking beyond the organization's ability to effectively identify and manage risks, or is inconsistent with effective internal controls[103](index=103&type=chunk) - The company has an incentive compensation clawback policy to recover excess incentive compensation paid in the previous three years if financial statements are restated due to material noncompliance[105](index=105&type=chunk) [Restrictions on Transactions between FFB and the Company and its other Affiliates](index=15&type=section&id=Restrictions%20on%20Transactions%20between%20FFB%20and%20the%20Company%20and%20its%20other%20Affiliates) Sections 23A and 23B of the Federal Reserve Act impose quantitative and qualitative limits on transactions between FFB and its affiliates to prevent the transfer of benefits from the bank's access to insured deposits and the Federal Reserve System - Sections 23A and 23B of the Federal Reserve Act restrict extensions of credit, stock purchases, and asset purchases between FFB and its affiliates[107](index=107&type=chunk) - These transactions are limited, individually, to **10% of FFB's capital and surplus**, and in the aggregate, to **20% of FFB's capital and surplus**[107](index=107&type=chunk) [Regulatory Guidelines for Commercial Real Estate Loan Concentrations](index=16&type=section&id=Regulatory%20Guidelines%20for%20Commercial%20Real%20Estate%20Loan%20Concentrations) Federal regulators have issued guidelines requiring heightened risk mitigation for banks with significant concentrations of commercial real estate (CRE) loans in their portfolios, including enhanced risk assessment, stringent underwriting, and stress testing - A bank is deemed to have a CRE loan concentration if construction/land loans are **100% or more of total capital**, or if multifamily/non-farm residential + construction/land loans are **300% or more of total capital** and the portfolio grew by **50%+ in 36 months**[111](index=111&type=chunk) - If a concentration exists, the bank must implement heightened risk assessment, stringent underwriting, market analyses, and stress testing, potentially requiring increased allowance for loan losses and capital[111](index=111&type=chunk) [Technology Risk Management and Consumer Privacy](index=16&type=section&id=Technology%20Risk%20Management%20and%20Consumer%20Privacy) Banking regulators emphasize managing technology-related risks, and the Gramm-Leach-Bliley Act (GLBA) mandates safeguards for customer information security and privacy, including comprehensive security programs and privacy policy disclosures - Banking organizations are exposed to operational, compliance, security, privacy, and reputational risks from technology use, requiring prudent risk management[112](index=112&type=chunk) - GLBA requires safeguards for customer records and information, including a comprehensive written information security program and privacy policy notices with opt-out provisions for nonpublic personal information disclosure[113](index=113&type=chunk) [Consumer Financial Protection Bureau](index=17&type=section&id=Consumer%20Financial%20Protection%20Bureau) The Dodd-Frank Act established the Consumer Financial Protection Bureau (CFPB) with broad powers to regulate and enforce federal consumer financial protection laws. While the FDIC retains primary examination authority for institutions of the company's size, the CFPB can participate in examinations and set mortgage origination standards - The CFPB has broad rulemaking, supervisory, and enforcement powers under various federal consumer financial protection laws[120](index=120&type=chunk) - For institutions of the company's size (**$10 billion or less in assets**), the FDIC retains primary examination authority for consumer compliance, but the CFPB may participate on a 'sampling basis'[120](index=120&type=chunk) [Volcker Rule](index=18&type=section&id=Volcker%20Rule) The Volcker Rule, implemented by federal bank regulatory agencies, restricts banking entities from proprietary trading and investing in certain 'covered funds.' Community banks with $10 billion or less in assets are excluded from this rule, and the company held no investments subject to it as of December 31, 2019 - The Volcker Rule restricts banking entities from proprietary trading and sponsoring or investing in certain 'covered funds'[122](index=122&type=chunk) - Community banks with **$10 billion or less in assets** and total trading assets and liabilities of **five percent or less of total consolidated assets** are excluded from the Volcker Rule[122](index=122&type=chunk) - The Company held no investment positions subject to the Volcker Rule as of December 31, 2019[122](index=122&type=chunk) [Employees](index=18&type=section&id=Employees) As of December 31, 2019, the company had approximately 485 full-time employees - As of December 31, 2019, the Company had approximately **485 full-time employees**[125](index=125&type=chunk) [Mergers and Acquisitions](index=18&type=section&id=Mergers%20and%20Acquisitions) The company has completed five acquisitions since 2012, including PBB Bancorp in 2018 and Community 1st Bancorp in 2017, as part of its growth strategy - The Company has completed **five acquisitions since 2012**, including PBB Bancorp in June 2018 and Community 1st Bancorp in November 2017[126](index=126&type=chunk) [Item 1A. Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) This section details the significant risks impacting the company's business, regulatory environment, and common stock ownership, including credit, market, operational, and compliance risks [Risks Related to Our Business](index=19&type=section&id=Risks%20Related%20to%20Our%20Business) The company faces numerous business-specific risks, including potential loan losses, the adequacy of its allowance for loan and lease losses (ALLL), adverse economic conditions, geographic concentration in its markets, and sensitivity to interest rate changes. Other risks involve its acquisition and growth strategies, ability to attract capital, competition, reliance on key personnel, and operational vulnerabilities such as technology, fraud, and natural disasters - Loan defaults and losses are inherent risks, exacerbated by economic downturns, and the Allowance for Loan and Lease Losses (ALLL) may not be adequate to cover actual losses[130](index=130&type=chunk)[131](index=131&type=chunk) - The implementation of the Current Expected Credit Loss (CECL) model on January 1, 2020, is estimated to result in additional costs of up to **$1 million** and introduce volatility into reported earnings[132](index=132&type=chunk) - The company's operations are geographically concentrated in California, Nevada, and Hawaii, with approximately **96% of loans** to borrowers in these states, leading to significant exposure to regional economic conditions[137](index=137&type=chunk) - Changes in interest rates could reduce net interest margins if rates on liabilities increase faster than assets, or increase operating expenses due to higher customer service costs[138](index=138&type=chunk)[139](index=139&type=chunk) - Real estate loans constitute approximately **66% of outstanding loans** as of December 31, 2019, making the company vulnerable to downturns in the real estate market[143](index=143&type=chunk) - The four largest deposit clients accounted for **18% of total deposits** as of December 31, 2019, posing a liquidity risk if these deposits decrease materially[146](index=146&type=chunk) - Acquisition and growth strategies involve risks such as integration difficulties, diversion of management time, and potential dilution of existing stockholders' investments[148](index=148&type=chunk)[153](index=153&type=chunk) - The company faces intense competition from larger banks and financial institutions, which have greater financial and marketing resources[161](index=161&type=chunk) - Reliance on key personnel and the inability to attract additional qualified staff could adversely affect client retention and business growth[163](index=163&type=chunk) - Fraudulent activity, information security breaches, and cybersecurity attacks pose significant risks, potentially leading to financial losses, reputational damage, and increased operating costs[173](index=173&type=chunk)[174](index=174&type=chunk) [Risks Related to Our Regulatory Environment](index=27&type=section&id=Risks%20Related%20to%20Our%20Regulatory%20Environment) The company operates in a highly regulated environment, facing risks from extensive federal and state banking laws, potential changes in regulations, and supervisory actions. Compliance with stringent capital requirements, consumer protection laws, anti-money laundering statutes, and privacy regulations is critical, with non-compliance potentially leading to significant sanctions and business restrictions - The banking industry is extensively regulated, and legislative or regulatory actions, including changes to existing laws or their interpretation, may significantly and adversely affect operations and increase compliance costs[194](index=194&type=chunk)[195](index=195&type=chunk) - Federal and state banking agencies conduct periodic examinations, and failure to comply with supervisory actions can result in sanctions, business restrictions, civil money penalties, or damage to reputation[197](index=197&type=chunk) - The company is subject to stringent capital requirements, and failure to meet these standards could limit growth, dividend payments, and access to funding, potentially diluting existing stockholders[198](index=198&type=chunk)[200](index=200&type=chunk) - Noncompliance with consumer protection laws (e.g., CRA, fair lending laws) and anti-money laundering statutes (Bank Secrecy Act, USA PATRIOT Act) could lead to sanctions, fines, and reputational damage[204](index=204&type=chunk)[206](index=206&type=chunk) - Regulations related to privacy, information security, and data protection (e.g., Gramm-Leach-Bliley Act) could increase costs, limit data use, and adversely affect business opportunities[208](index=208&type=chunk)[211](index=211&type=chunk) - First Foundation Advisors (FFA) is highly regulated by the SEC and other agencies, with potential for fines, suspensions, or revocation of registration for non-compliance[213](index=213&type=chunk) [Risks Related to Ownership of Our Common Stock](index=29&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Ownership of the company's common stock carries risks including potential reductions or discontinuations of dividends due to regulatory restrictions, volatility in market prices influenced by various factors, and the possibility of dilution from future equity issuances. Additionally, significant ownership by officers and directors, along with corporate governance documents, could make a change of control more difficult - The company may reduce or discontinue dividend payments on common stock due to restrictions from Delaware and federal law, Federal Reserve policies, and subsidiary dividend limitations[214](index=214&type=chunk) - Market prices and trading volume of common stock may be volatile due to factors such as operating results, market conditions, regulatory changes, and performance of comparable companies[215](index=215&type=chunk)[216](index=216&type=chunk) - Officer and director ownership (approximately **12%** as of February 7, 2020) and corporate governance documents could make it more difficult for third parties to acquire the company or effectuate a change of control[218](index=218&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - Future issuances of additional equity securities, including for acquisitions, could dilute the holdings and reduce the market price of existing common stockholders[224](index=224&type=chunk) - An investment in the company's common stock is not an insured deposit and is not guaranteed by the FDIC, meaning investors could lose some or all of their investment[229](index=229&type=chunk) [Item 1B. Unresolved Staff Comments.](index=31&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) This section confirms that there are no unresolved comments from the SEC staff regarding the company's filings [Unresolved Staff Comments](index=31&type=section&id=Unresolved%20Staff%20Comments) There are no unresolved staff comments to report - This item is not applicable, indicating no unresolved staff comments[232](index=232&type=chunk) [Item 2. Properties.](index=31&type=section&id=Item%202.%20Properties.) This section describes the company's corporate headquarters and branch network across California, Nevada, and Hawaii, detailing the ownership and lease arrangements of its facilities [Company Properties](index=31&type=section&id=Company%20Properties) The company's corporate headquarters is in Irvine, California. It operates 20 banking offices and 2 loan production offices across California, Nevada, and Hawaii. Most of these offices are leased under non-cancelable operating leases expiring between 2020 and 2026, while a few buildings and land are owned - The corporate headquarters for FFI and its subsidiaries is located in Irvine, California[233](index=233&type=chunk) - The Company has offices in California (Irvine, Indian Wells, Pasadena, El Centro, West Los Angeles, El Segundo, Laguna Hills, Seal Beach, Auburn, Oakland, Sacramento, Roseville, Burlingame, Big Bear, Running Springs, Palos Verdes, Rolling Hills, Lucerne, San Diego), Las Vegas, Nevada, and Honolulu, Hawaii[233](index=233&type=chunk) - Most offices are leased under non-cancelable operating leases expiring between 2020 and 2026, with some buildings and land being owned[233](index=233&type=chunk)[235](index=235&type=chunk) [Item 3. Legal Proceedings.](index=32&type=section&id=Item%203.%20Legal%20Proceedings.) This section addresses the company's involvement in routine legal claims and litigation, stating that no current proceedings are expected to have a material adverse effect [Legal Proceedings Overview](index=32&type=section&id=Legal%20Proceedings%20Overview) The company is subject to routine legal claims and litigation arising from its financial services business. Management does not anticipate any threatened or pending litigation to have a material adverse effect on its operations, financial condition, or results - The company is subject to claims, counter claims, suits, and other litigation typical of financial services businesses in the ordinary course[236](index=236&type=chunk) - Management is not aware of any threatened or pending litigation expected to have a material adverse effect on business operations, financial condition, or results of operations[236](index=236&type=chunk) [Item 4. Mine Safety Disclosures.](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This section confirms that the company has no operations subject to mine safety disclosure requirements [Mine Safety Disclosures](index=32&type=section&id=Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[237](index=237&type=chunk) [PART II](index=33&type=section&id=PART%20II) This part covers market information for common equity, related stockholder matters, issuer purchases of equity securities, selected financial data, and management's discussion and analysis [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.](index=33&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) This section details the company's common stock market, dividend policy, stock repurchase program, and historical stock performance [Market Information](index=33&type=section&id=Market%20Information) The company's common stock has been listed and traded on the NASDAQ Global Stock Market under the symbol "FFWM" since November 3, 2014. As of February 27, 2020, there were 44,759,800 shares outstanding held by approximately 3,600 shareholders - The company's common stock (FFWM) has been listed and trading on the NASDAQ Global Stock Market since November 3, 2014[241](index=241&type=chunk) Common Stock Outstanding (as of February 27, 2020) | Metric | Amount | | :--------------------- | :----------- | | Shares Outstanding | 44,759,800 | | Shareholders of Record | ~3,600 | [Dividend Policy and Restrictions on the Payment of Dividends](index=33&type=section&id=Dividend%20Policy%20and%20Restrictions%20on%20the%20Payment%20of%20Dividends) The company intends to continue paying quarterly dividends, having done so since the first quarter of 2019. However, its ability to pay dividends is subject to restrictions under Delaware and federal law, Federal Reserve regulations, California law for its subsidiaries (FFB and FFA), and covenants from its holding company line of credit agreement - The company has paid quarterly dividends since the first quarter of 2019 and intends to continue doing so[242](index=242&type=chunk) - Dividend payments are restricted by Delaware General Corporation Law (DGCL) and the regulatory authority of the Federal Reserve[243](index=243&type=chunk) - Cash dividends from FFB and FFA are the principal source of funds for FFI's dividends, and are subject to California General Corporation Law (CGCL) and stricter California state banking laws for FFB[244](index=244&type=chunk)[245](index=245&type=chunk) - Under the holding company line of credit agreement, FFI can only declare and pay a dividend if total dividends and stock repurchases during the current twelve months do not exceed **50% of FFI's net income** for the same period[246](index=246&type=chunk) [Repurchases of Common Stock](index=33&type=section&id=Repurchases%20of%20Common%20Stock) The company adopted a stock repurchase plan on October 30, 2018, authorizing the repurchase of up to 2,200,000 shares of common stock. As of December 31, 2019, 2,162,900 shares remained available under the program, with no repurchases made during the fourth quarter of 2019 - A stock repurchase plan was adopted on October 30, 2018, authorizing the repurchase of up to **2,200,000 shares of common stock**[247](index=247&type=chunk) - As of December 31, 2019, the maximum number of shares that could be purchased under the program was **2,162,900**[247](index=247&type=chunk) - The company did not repurchase any shares during the quarter ended December 31, 2019[247](index=247&type=chunk) [Stock Performance Graph](index=34&type=section&id=Stock%20Performance%20Graph) This section presents a comparison of the cumulative total return of the company's common stock against the Russell 2000 Index, Russell 3000 Index, and the SNL Western Bank Index for the period from December 31, 2015, through December 31, 2019, assuming a $100 initial investment with reinvested dividends Cumulative Total Return (December 31, 2015 = $100) | | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | | :----------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | | First Foundation Inc. (FFWM) | 100.00 | 120.81 | 157.19 | 109.03 | 147.52 | | Russell 2000 Index | 100.00 | 119.48 | 135.18 | 118.72 | 146.89 | | Russell 3000 Index | 100.00 | 110.42 | 131.23 | 122.06 | 156.89 | | SNL Western Bank Index | 100.00 | 107.62 | 117.66 | 90.84 | 107.77 | - The graph assumes a **$100 investment** on December 31, 2015, with all dividends reinvested[250](index=250&type=chunk) [Item 6. Selected Financial Data](index=35&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents a five-year summary of key consolidated financial and operating data, including income statement, balance sheet, performance, and capital ratios [Selected Consolidated Financial Information](index=35&type=section&id=Selected%20Consolidated%20Financial%20Information) This section provides a five-year summary of selected consolidated financial and operating data, including key income statement figures, balance sheet items, performance ratios, and capital ratios, derived from the company's audited financial statements Selected Income Statement Data (in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :-------------------------- | :-------- | :-------- | :-------- | :------- | :------- | | Net interest income | $169,954 | $155,610 | $113,618 | $89,449 | $64,471 | | Provision for loan losses | 2,637 | 4,220 | 2,762 | 4,681 | 2,673 | | Noninterest Income | 41,776 | 35,771 | 38,719 | 34,560 | 28,773 | | Noninterest expense | 129,594 | 127,075 | 98,976 | 80,994 | 61,458 | | Income before taxes | 79,499 | 60,086 | 50,599 | 38,334 | 22,832 | | Net income | 56,239 | 42,958 | 27,582 | 23,303 | 13,378 | | Basic EPS | $1.26 | $1.02 | $0.80 | $0.72 | $0.60 | | Diluted EPS | $1.25 | $1.01 | $0.78 | $0.70 | $0.58 | Selected Balance Sheet Data (in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :-------------------------- | :---------- | :---------- | :---------- | :---------- | :---------- | | Cash and cash equivalents | $65,387 | $67,312 | $120,394 | $597,946 | $215,748 | | Loans, net of deferred fees | 5,029,869 | 4,782,312 | 3,799,707 | 2,791,251 | 1,754,883 | | ALLL | 20,800 | 19,000 | 18,400 | 15,400 | 10,600 | | Total assets | 6,314,436 | 5,840,412 | 4,541,185 | 3,975,403 | 2,592,579 | | Noninterest-bearing deposits| 1,192,481 | 1,074,661 | 1,097,196 | 661,781 | 299,794 | | Interest-bearing deposits | 3,698,663 | 3,458,307 | 2,346,331 | 1,765,014 | 1,222,382 | | Borrowings | 743,000 | 708,000 | 678,000 | 1,250,000 | 796,000 | | Shareholders' equity | 613,869 | 559,184 | 394,951 | 284,264 | 259,736 | Selected Performance and Capital Ratios | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :-------------------------------------- | :------ | :------ | :------ | :------ | :------ | | Return on average assets | 0.91% | 0.81% | 0.70% | 0.80% | 0.76% | | Return on average equity | 9.6% | 9.1% | 8.5% | 8.4% | 8.1% | | Return on average tangible equity | 11.5% | 10.6% | 8.6% | 8.5% | 8.1% | | Net yield on interest-earning assets | 2.87% | 2.99% | 2.93% | 3.13% | 3.39% | | Efficiency ratio | 61.9% | 64.4% | 63.3% | 65.3% | 70.7% | | Noninterest income as a % of total revenues | 19.7% | 18.7% | 25.4% | 27.9% | 33.1% | | Tangible common equity to tangible assets | 8.31% | 8.01% | 8.02% | 7.10% | 9.93% | | Tier 1 leverage ratio | 8.25% | 8.39% | 8.44% | 8.76% | 11.81% | | Tier 1 risk-based capital ratio | 10.65% | 10.67% | 11.99% | 12.80% | 17.44% | | Total risk-based capital ratio | 11.15% | 11.16% | 12.61% | 13.52% | 18.19% | Other Information | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :-------------------------------------- | :---------- | :---------- | :---------- | :---------- | :---------- | | Assets under management (end of period) | $4,438,252 | $3,934,700 | $4,296,077 | $3,586,672 | $3,471,237 | | NPAs to total assets | 0.20% | 0.21% | 0.31% | 0.25% | 0.32% | | Charge-offs to average loans | 0.02% | 0.08% | 0.00% | 0.00% | 0.15% | | Ratio of ALLL to loans | 0.49% | 0.51% | 0.54% | 0.60% | 0.61% | | Number of banking offices | 20 | 20 | 14 | 11 | 9 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, results of operations, critical accounting policies, and key financial trends [Critical Accounting Policies](index=38&type=section&id=Critical%20Accounting%20Policies) The company's critical accounting policies, including the Allowance for Loan and Lease Losses (ALLL) and the Utilization and Valuation of Deferred Income Tax Benefits, require significant management estimates and assumptions. These estimates are based on current economic conditions and trends, and changes could materially affect financial statements - The Allowance for Loan and Lease Losses (ALLL) is a critical accounting policy, established through a provision for loan losses, based on management's evaluation of estimated losses, prior experience, and current economic conditions[263](index=263&type=chunk) - The Utilization and Valuation of Deferred Income Tax Benefits is another critical policy, requiring annual estimates of future taxable income to determine the likelihood of fully utilizing tax benefits before expiration[264](index=264&type=chunk) [Overview and Recent Developments](index=38&type=section&id=Overview%20and%20Recent%20Developments) The company experienced strong growth in 2019, with significant increases in loan originations, deposits, and total revenues. This growth positively impacted the Banking segment's income before taxes. A quarterly cash dividend of $0.07 per common share was declared for Q1 2020 - The company achieved strong growth in 2019 with **$1.9 billion in loan originations** and **$358 million in deposit growth**[266](index=266&type=chunk) - Total revenues (net interest income and noninterest income) increased by **11% in 2019**[266](index=266&type=chunk) - Income before taxes for the Banking segment increased by **$18.5 million**, from **$63.7 million in 2018 to $82.2 million in 2019**[268](index=268&type=chunk) - A quarterly cash dividend of **$0.07 per common share** was declared on January 28, 2020, to be paid on March 16, 2020[268](index=268&type=chunk) [Results of Operations](index=39&type=section&id=Results%20of%20Operations) The company's results of operations for 2019 and 2018 show increased net income and income before taxes, primarily driven by the Banking segment's performance. Key drivers include changes in net interest income, provision for loan losses, and noninterest income and expense, with varying impacts across the Banking and Wealth Management segments [Years Ended December 31, 2019 and 2018](index=39&type=section&id=Years%20Ended%20December%2031%2C%202019%20and%202018) Consolidated income before taxes increased by $19.4 million in 2019, primarily due to an $18.5 million increase in Banking's income before taxes, driven by higher net interest income, lower loan loss provision, and increased noninterest income. Wealth Management's income before taxes decreased by $1.4 million Consolidated Income Before Taxes and Net Income (2019 vs. 2018) | Metric | 2019 ($M) | 2018 ($M) | Change ($M) | | :-------------------- | :-------- | :-------- | :---------- | | Income before taxes | 79.5 | 60.1 | +19.4 | | Net income | 56.2 | 43.0 | +13.2 | - The increase in consolidated income before taxes was primarily due to an **$18.5 million increase in Banking's income before taxes**, offset by a **$1.4 million decrease in Wealth Management's income before taxes** and a **$2.4 million decrease in corporate expenses**[271](index=271&type=chunk) Net Interest Income and Yields (2019 vs. 2018) | Metric | 2019 | 2018 | Change | | :----------------------------------- | :------ | :------ | :----- | | Net Interest Income ($K) | 169,954 | 155,610 | +14,344 | | Net Yield on Interest-earning Assets | 2.87% | 2.99% | -0.12% | | Net Interest Rate Spread | 2.31% | 2.51% | -0.20% | - Provision for loan losses decreased from **$4.2 million in 2018 to $2.6 million in 2019**[278](index=278&type=chunk) - Noninterest income in Banking increased by **$7.5 million in 2019**, driven by higher gains on loan sales, loan fees, and trust fees[279](index=279&type=chunk) - Noninterest income for Wealth Management decreased by **$1.1 million in 2019** due to lower average billable AUM[280](index=280&type=chunk) - Noninterest expense in Banking increased by **$3.6 million**, primarily due to staffing and expansion costs (PBB acquisition) and customer service costs, partially offset by a **$3.4 million decrease in merger-related costs**[282](index=282&type=chunk)[283](index=283&type=chunk) [Years Ended December 31, 2018 and 2017](index=42&type=section&id=Years%20Ended%20December%2031%2C%202018%20and%202017) Consolidated income before taxes increased by $9.5 million in 2018, mainly from a $10.2 million increase in Banking's income before taxes. This was driven by higher net interest income, despite increased loan loss provisions and noninterest expenses. Wealth Management also saw increased noninterest income Consolidated Income Before Taxes and Net Income (2018 vs. 2017) | Metric | 2018 ($M) | 2017 ($M) | Change ($M) | | :-------------------- | :-------- | :-------- | :---------- | | Income before taxes | 60.1 | 50.6 | +9.5 | | Net income | 43.0 | 27.6 | +15.4 | - The effective tax rate decreased from **45.5% in 2017 to 28.5% in 2018**, primarily due to reduced federal tax rates under the Tax Cuts and Job Act[288](index=288&type=chunk) - Net interest income for Banking increased **38% from $114.3 million in 2017 to $157.4 million in 2018**, driven by a **34% increase in interest-earning assets** and an increase in net yield[292](index=292&type=chunk) - Provision for loan losses increased from **$2.8 million in 2017 to $4.2 million in 2018**, reflecting growth in loan balances and higher net charge-offs[294](index=294&type=chunk) - Noninterest income in Banking decreased by **$4.7 million in 2018**, primarily due to lower gains on loan sales, partially offset by higher loan, deposit, and trust fees[295](index=295&type=chunk) - Noninterest income for Wealth Management increased by **$1.7 million in 2018** due to higher Assets Under Management (AUM)[296](index=296&type=chunk) - Noninterest expense in Banking increased from **$74.0 million in 2017 to $100.8 million in 2018**, driven by staffing and costs associated with the C1B and PBB acquisitions and growth in loans and deposits[298](index=298&type=chunk) [Financial Condition](index=46&type=section&id=Financial%20Condition) The company's consolidated balance sheet primarily reflects changes in its Banking operations, which experienced significant asset growth in 2019. This growth was driven by increases in securities and loans, funded by a rise in deposits and borrowings - Total assets increased by **$474 million in 2019**, primarily due to increases in securities and loans[304](index=304&type=chunk) - Securities available for sale (AFS) increased by **$205 million in 2019**, driven by **$576 million in purchases** from loan securitization, partially offset by **$284 million in sales** of lower-yielding securities[304](index=304&type=chunk)[307](index=307&type=chunk) - Loans and loans held for sale increased by **$249 million in 2019**, resulting from **$1.9 billion in originations**, partially offset by **$551 million in loan sales** and **$1.1 billion in payoffs/scheduled payments**[304](index=304&type=chunk)[313](index=313&type=chunk) - Deposits grew by **$358 million in 2019**, with increases in branch deposits (**$138 million**) and specialty deposits (**$222 million**)[304](index=304&type=chunk)[315](index=315&type=chunk) Deposits and Weighted Average Rates (as of December 31) | Deposit Type | 2019 Amount ($K) | 2019 Wtd Avg Rate | 2018 Amount ($K) | 2018 Wtd Avg Rate | | :----------------------- | :--------------- | :---------------- | :--------------- | :---------------- | | Noninterest-bearing | 1,192,481 | — | 1,074,661 | — | | Interest-bearing | 386,276 | 0.635% | 317,380 | 0.798% | | Money market and savings | 1,334,736 | 1.355% | 1,190,717 | 1.115% | | Certificates of deposits | 1,977,651 | 1.971% | 1,950,210 | 2.142% | | **Total** | **4,891,144** | **1.217%** | **4,532,968** | **1.270%** | - Borrowings increased by **$35 million in 2019**, primarily to support asset growth, consisting of **$233 million in overnight FHLB advances**, a **$500 million FHLB term advance**, and **$10 million under a company line of credit**[304](index=304&type=chunk)[318](index=318&type=chunk) - The Bank held **$1.4 billion of brokered deposits** as of December 31, 2019[317](index=317&type=chunk) [Delinquent Loans, Nonperforming Assets and Provision for Credit Losses](index=50&type=section&id=Delinquent%20Loans%2C%20Nonperforming%20Assets%20and%20Provision%20for%20Credit%20Losses) The company's loan portfolio quality is assessed through monitoring past due and nonaccrual loans, troubled debt restructurings (TDRs), and risk categories. The Allowance for Loan and Lease Losses (ALLL) is adjusted periodically based on estimated losses, loan volume changes, and economic conditions Past Due and Nonaccrual Loans (as of December 31, 2019, in thousands) | Category | 30–59 Days Past Due | 60-89 Days Past Due | 90+ Days Still Accruing | Nonaccrual | Total Past Due and Nonaccrual | | :---------------------------- | :------------------ | :------------------ | :---------------------- | :--------- | :---------------------------- | | Real estate loans: | | | | | | | Residential properties | $89 | $13 | $— | $1,743 | $1,845 | | Commercial properties | 7,586 | — | 403 | 2,410 | 10,399 | | Land | — | — | — | — | — | | Commercial and industrial loans | 695 | 2,007 | — | 8,714 | 11,416 | | Consumer loans | 22 | 3 | — | — | 25 | | **Total** | **$8,392** | **$2,023** | **$403** | **$12,867** | **$23,685** | | **Percentage of total loans** | **0.19%** | **0.04%** | **0.01%** | **0.28%** | **0.52%** | Troubled Debt Restructurings (TDRs) by Accrual Status (as of December 31, 2019, in thousands) | Loan Type | Accrual | Nonaccrual | Total | | :---------------------------- | :------ | :--------- | :---- | | Residential real estate loans | $1,200 | $— | $1,200 | | Commercial real estate loans | 1,188 | 2,166 | 3,354 | | Commercial and industrial loans | 557 | 2,972 | 3,529 | | **Total** | **$2,945** | **$5,138** | **$8,083** | Loan Portfolio by Risk Category (as of December 31, 2019, in thousands) | Loan Type | Pass | Special Mention | Substandard | Impaired | Total | | :---------------------------- | :---------- | :-------------- | :---------- | :---------- | :---------- | | Residential properties | $3,012,203 | $— | $— | $2,897 | $3,015,100 | | Commercial properties | 821,425 | 679 | 5,249 | 6,689 | 834,042 | | Land | 69,476 | — | 781 | — | 70,257 | | Commercial and industrial loans | 579,153 | 8,202 | 3,542 | 9,316 | 600,213 | | Consumer loans | 16,273 | — | — | — | 16,273 | | **Total** | **$4,498,530** | **$8,881** | **$9,572** | **$18,902** | **$4,535,885** | Allowance for Loan and Lease Losses (ALLL) Activity (Year Ended December 31, 2019, in thousands) | Metric | Amount ($K) | | :---------------- | :---------- | | Beginning Balance | 19,000 | | Provision for Losses | 2,637 | | Charge-offs | (2,692) | | Recoveries | 1,855 | | **Ending Balance** | **20,800** | - Excluding acquired loans, the ALLL as a percentage of total loans was **0.49%** as of December 31, 2019, a slight decrease from **0.51% in 2018**[325](index=325&type=chunk) [Liquidity](index=55&type=section&id=Liquidity) Liquidity management focuses on generating sufficient cash to meet funding needs. The company's primary liquidity sources include deposits, loan payments, investment management fees, FHLB advances, and proceeds from borrowings/stock sales. Cash flows from operating activities provided $60 million in 2019, while investing activities used $427 million, and financing activities provided $365 million - The company's principal sources of liquidity include earnings, deposits, FHLB borrowings, sales of loans or investment securities, loan repayments, and proceeds from equity sales or borrowings[334](index=334&type=chunk) - The remaining balances of the company's lines of credit available to draw down totaled **$1.4 billion** at December 31, 2019[334](index=334&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | 2019 | 2018 | | :-------------------------------- | :-------- | :-------- | | Net cash provided by operating activities | $60,437 | $50,981 | | Net cash used in investing activities | (427,039) | (679,550) | | Net cash provided by financing activities | 364,677 | 575,487 | - The loan-to-deposit ratio at FFB was **103%** at December 31, 2019, down from **106% in 2018**, balancing liquidity and return generation[338](index=338&type=chunk) [Contractual Obligations](index=56&type=section&id=Contractual%20Obligations) As of December 31, 2019, the company's contractual obligations primarily consisted of FHLB advances, a holding company line of credit loan, and operating lease obligations, with the majority due within one year Contractual Obligations (as of December 31, 2019, in thousands) | Obligation | Total | Less Than 1 Year | 1 – 3 Years | 3 – 5 Years | More Than 5 Years | | :---------------------- | :-------- | :--------------- | :---------- | :---------- | :---------------- | | FHLB Advances | $733,000 | $733,000 | $— | $— | $— | | FFI line of credit loan | 10,000 | — | 10,000 | — | — | | Operating lease obligations | 20,052 | 6,054 | 11,854 | 2,062 | 82 | | **Total** | **$763,052** | **$739,054** | **$21,854** | **$2,062** | **$82** | [Off-Balance Sheet Arrangements](index=56&type=section&id=Off-Balance%20Sheet%20Arrangements) The company's off-balance sheet arrangements as of December 31, 2019, included commitments to fund new loans, existing loans/lines of credit, and standby letters of credit. A significant portion of these commitments may expire without being drawn upon Off-Balance Sheet Arrangements (as of December 31, 2019, in thousands) | Arrangement | Amount ($K) | | :-------------------------------------------- | :---------- | | Commitments to fund new loans | $54,687 | | Commitments to fund under existing loans, lines of credit | 473,646 | | Commitments under standby letters of credit | 10,769 | - FFB was obligated on **$231 million of letters of credit** from the FHLB, used as collateral for public fund deposits, including **$213 million from the State of California**[342](index=342&type=chunk) [Asset and Liability Management: Interest Rate Risk](index=56&type=section&id=Asset%20and%20Liability%20Management%3A%20Interest%20Rate%20Risk) The company manages interest rate risk through gap analysis, net interest income (NII) simulations, and economic value of equity (EVE) calculations. As of December 31, 2019, analyses indicated potential adverse impacts from short-term interest rate increases on net interest income and economic value of equity, while declining rates could be beneficial for NII but also adverse for EVE due to loan interest rate floors - Interest rate risk is managed using gap analysis, net interest income (NII) simulations, and economic value of equity (EVE) calculations[343](index=343&type=chunk) - As of December 31, 2019, the company had a **$1.3 billion net negative position** for the repricing period of less than one year, indicating an adverse impact from a short-term increase in interest rates[346](index=346&type=chunk) Estimated Increase (Decrease) in Net Interest Income from Instantaneous Rate Changes (as of December 31, 2019) | Assumed Instantaneous Change in Interest Rates | Estimated Increase (Decrease) in Net Interest Income | | :--------------------------------------------- | :--------------------------------------------------- | | +100 basis points | (5.7)% | | +200 basis points | (11.4)% | | +300 basis points | (17.4)% | | +400 basis points | (23.6)% | | -100 basis points | 6.1% | | -200 basis points | 11.1% | Estimated Increase (Decrease) in Economic Value of Equity from Simultaneous Rate Changes (as of December 31, 2019) | Assumed Simultaneous Change in Interest Rates | Estimated Increase (Decrease) in Economic Value of Equity | | :-------------------------------------------- | :-------------------------------------------------------- | | +100 basis points | (3.7)% | | +200 basis points | (7.1)% | | +300 basis points | (10.9)% | | +400 basis points | (15.1)% | | -100 basis points | 3.9% | | -200 basis points | 3.4% | - EVE results indicate adverse impact from both short-term increases and decreases in interest rates, with assumed interest rate floors for loans eliminating the normal benefit in a declining rate environment[352](index=352&type=chunk) [Capital Resources and Dividends](index=58&type=section&id=Capital%20Resources%20and%20Dividends) Both FFI and FFB consistently exceeded minimum regulatory capital requirements and qualified as 'well-capitalized' as of December 31, 2019. FFI made a $10 million capital contribution to FFB in 2019 and paid $8.9 million in dividends. The company plans to pursue future growth opportunities, potentially requiring additional capital - As of December 31, 2019, both FFI (consolidated) and FFB (stand-alone) exceeded all minimum required capital ratios and qualified as 'well-capitalized' under prompt corrective action regulations[357](index=357&type=chunk)[358](index=358&type=chunk)[619](index=619&type=chunk)[620](index=620&type=chunk) FFB Capital in Excess of Well Capitalized Amounts (as of December 31, 2019, in millions) | Capital Ratio | Excess Amount ($M) | | :------------------------------ | :----------------- | | CET1 capital ratio | 198 | | Tier 1 leverage ratio | 200 | | Tier 1 risk-based capital ratio | 126 | | Total risk-based capital ratio | 54 | - FFI made a capital contribution of **$10 million to FFB** during 2019 and had **$15.2 million of available capital** as of December 31, 2019[359](index=359&type=chunk) - The company paid **$8.9 million in dividends ($0.20 per share)** in 2019, but no dividends were paid in 2018 or 2017[362](index=362&type=chunk) - The company intends to pursue future growth opportunities, including additional offices or acquisitions, which may require obtaining additional borrowings or selling common stock[363](index=363&type=chunk) [At-the-Market Offering](index=60&type=section&id=At-the-Market%20Offering) The company has an 'at-the-market' (ATM) equity offering program, established in February 2017, to sell up to $80 million in common stock. It sold shares in 2017 and 2018, realizing net proceeds of $22.8 million and $11.3 million, respectively. As of December 31, 2019, $45.2 million remained available under the program, but sales are suspended during stock repurchase periods - The company established an 'at-the-market' (ATM) equity offering program in February 2017 to sell up to **$80 million in common stock**[364](index=364&type=chunk) ATM Program Sales and Proceeds | Year | Shares Sold | Net Proceeds ($M) | | :--- | :---------- | :---------------- | | 201

| --- | --- | |-------|-------| | | | | | | | | | | | | Safe Harbor Statement 1 This presentation and the accompanying oral commentary contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements express our current assumptions, beliefs, plans and expectations about our future financial performance and achievements and are necessarily based on current information available to us. Forward-looking statements include all statements that are not statements of ...

[Part I. Financial Information](index=3&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The report presents unaudited consolidated financial statements and accompanying notes for the period [Consolidated Balance Sheets](index=3&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) Consolidated Balance Sheet Highlights (In thousands) | Metric | September 30, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $268,446 | $67,312 | | Securities available-for-sale ("AFS") | $1,042,940 | $809,569 | | Net loans | $4,353,708 | $4,274,669 | | Total Assets | $6,358,346 | $5,840,412 | | Deposits | $5,170,566 | $4,532,968 | | Borrowings | $520,000 | $708,000 | | Total Shareholders' Equity | $604,360 | $559,184 | [Consolidated Income Statements - Unaudited](index=4&type=section&id=CONSOLIDATED%20INCOME%20STATEMENTS%20-%20UNAUDITED) Consolidated Income Statement Highlights (In thousands, except per share amounts) | Metric | Quarter Ended Sep 30, 2019 | Quarter Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total interest income | $62,614 | $58,047 | $186,466 | $149,864 | | Total interest expense | $19,482 | $14,321 | $60,400 | $35,619 | | Net interest income | $43,132 | $43,726 | $126,066 | $114,245 | | Provision for loan losses | $172 | $9 | $1,943 | $4,147 | | Total noninterest income | $13,982 | $11,104 | $31,578 | $27,070 | | Total noninterest expense | $32,694 | $33,967 | $97,921 | $96,937 | | Net income | $17,356 | $14,707 | $41,025 | $28,829 | | Basic Net income per share | $0.39 | $0.33 | $0.92 | $0.70 | | Diluted Net income per share | $0.39 | $0.33 | $0.91 | $0.69 | [Consolidated Statement of Changes in Shareholders' Equity - Unaudited](index=5&type=section&id=CONSOLIDATED%20STATEMENT%20OF%20CHANGES%20IN%20SHAREHOLDERS'%20EQUITY%20-%20UNAUDITED) Shareholders' Equity Changes (In thousands) | Metric | Balance: December 31, 2018 | Net income (9M 2019) | Other comprehensive income (9M 2019) | Cash dividend (9M 2019) | Balance: September 30, 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | | Common Stock | $44 | — | — | — | $45 | | Additional paid-in-capital | $431,832 | — | — | — | $433,426 | | Retained earnings | $128,461 | $41,025 | — | $(6,694) | $162,792 | | Accumulated other comprehensive income (loss), net of tax | $(1,153) | — | $9,250 | — | $8,097 | | Total Shareholders' Equity | $559,184 | $41,025 | $9,250 | $(6,694) | $604,360 | [Consolidated Statements of Comprehensive Income - Unaudited](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20-%20UNAUDITED) Consolidated Comprehensive Income (In thousands) | Metric | Quarter Ended Sep 30, 2019 | Quarter Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income | $17,356 | $14,707 | $41,025 | $28,829 | | Other comprehensive income (loss), net of tax | $2,038 | $(2,397) | $9,250 | $(9,485) | | Total comprehensive income | $19,394 | $12,310 | $50,275 | $19,344 | [Consolidated Statements of Cash Flows - Unaudited](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS%20-%20UNAUDITED) Consolidated Cash Flow Highlights (In thousands) | Metric | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $47,146 | $42,387 | | Net cash used in investing activities | $(269,292) | $(342,894) | | Net cash provided by financing activities | $423,280 | $235,048 | | Increase (decrease) in cash and cash equivalents | $201,134 | $(65,459) | | Cash and cash equivalents at end of period | $268,446 | $54,935 | [NOTE 1: BASIS OF PRESENTATION](index=8&type=section&id=NOTE%201%3A%20BASIS%20OF%20PRESENTATION) The note details the basis of presentation, confirms GAAP adherence, and discusses the impact of new accounting standards - The consolidated financial statements include First Foundation Inc (FFI) and its wholly owned subsidiaries: First Foundation Advisors (FFA), First Foundation Bank (FFB), First Foundation Insurance Services (FFIS), and Blue Moon Management, LLC[24](index=24&type=chunk) - The adoption of **ASU 2016-13 (CECL model)** is expected to have a significant impact on the Company's recording of its allowance for loan losses, effective for annual periods beginning after December 15, 2019[38](index=38&type=chunk) [NOTE 2: ACQUISITIONS](index=9&type=section&id=NOTE%202%3A%20ACQUISITIONS) The note details the 2018 acquisition of PBB Bancorp, its accounting treatment, and financial impact - On June 1, 2018, the Company acquired PBB Bancorp and its subsidiary Premier Business Bank to **expand operations in Southern California**[39](index=39&type=chunk) - The acquisition resulted in the recognition of **$61 million in goodwill**[40](index=40&type=chunk) PBB Acquisition Pro Forma Net Income (In thousands) | Metric | Nine Months Ended September 30, 2018 (Pro Forma) | | :--- | :--- | | Net income | $35,150 | - For the period from June 1, 2018, to September 30, 2018, PBB operations contributed approximately **$10.5 million in revenues** and **$7.3 million in net income** to the Company's results[51](index=51&type=chunk) [NOTE 3: FAIR VALUE MEASUREMENTS](index=11&type=section&id=NOTE%203%3A%20FAIR%20VALUE%20MEASUREMENTS) The note describes the company's fair value measurement framework and provides detailed tables of recurring and nonrecurring measurements - Fair value measurements are categorized into **Level 1** (quoted prices in active markets), **Level 2** (significant other observable inputs), and **Level 3** (significant unobservable inputs)[52](index=52&type=chunk)[53](index=53&type=chunk) Total Assets at Fair Value on a Recurring Basis (In thousands) | Metric | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total assets at fair value on a recurring basis | $1,043,297 | $809,921 | | - Level 1 | $760 | $849 | | - Level 2 | $992,499 | $443,844 | | - Level 3 | $50,038 | $365,228 | - The decrease in **Level 3 assets** from December 31, 2018, was primarily due to a change in the pricing methodology of agency mortgage-backed securities[57](index=57&type=chunk) - Collateral dependent impaired **Level 3 loans increased to $25.5 million** at September 30, 2019, from $12.8 million at December 31, 2018[61](index=61&type=chunk) [NOTE 4: SECURITIES](index=15&type=section&id=NOTE%204%3A%20SECURITIES) The note provides a detailed summary of the Company's available-for-sale (AFS) securities portfolio and treatment of unrealized losses Securities AFS Portfolio Summary (In thousands) | Metric | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Amortized Cost | $1,031,495 | $811,198 | | Gross Gains | $14,407 | $14,292 | | Unrealized Losses | $(2,962) | $(15,921) | | Estimated Fair Value | $1,042,940 | $809,569 | - **Unrealized losses** on agency mortgage-backed securities and beneficial interests in FHLMC securitizations were not recognized into income due to high credit quality and management's intent not to sell[84](index=84&type=chunk) - As of September 30, 2019, **$151 million of agency mortgage-backed securities** are pledged as collateral for the Bank's obligations under loan sales and securitization agreements[82](index=82&type=chunk) [NOTE 5: LOANS](index=17&type=section&id=NOTE%205%3A%20LOANS) The note details the composition of the loan portfolio, including information on credit-impaired, delinquent, and restructured loans Loan Portfolio Composition (Outstanding principal balance, In thousands) | Loan Category | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total real estate loans | $3,780,566 | $3,811,119 | | Commercial and industrial loans | $566,390 | $449,805 | | Consumer loans | $16,505 | $22,699 | | Total loans | $4,363,461 | $4,283,623 | Purchased Credit Impaired Loans (Carrying amount, In thousands) | Metric | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total purchased credit impaired loans | $4,791 | $7,081 | Delinquent and Nonaccrual Loans (In thousands) | Metric | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Past Due and Nonaccrual | $29,697 | $28,030 | | Percentage of total loans | 0.68% | 0.65% | Troubled Debt Restructurings (TDRs) (In thousands) | Metric | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total TDRs | $6,296 | $4,851 | [NOTE 6: ALLOWANCE FOR LOAN LOSSES](index=20&type=section&id=NOTE%206%3A%20ALLOWANCE%20FOR%20LOAN%20LOSSES) The note provides a roll-forward of the allowance for loan losses (ALLL) and details the risk categorization of loans Allowance for Loan Losses (ALLL) Roll Forward (In thousands) | Metric | Quarter Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 | Year Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | | Beginning Balance | $20,200 | $19,000 | $18,400 | | Provision for Loan Losses | $172 | $1,943 | $4,220 | | Charge-offs | $(1,279) | $(2,213) | $(4,189) | | Recoveries | $1,407 | $1,770 | $569 | | Ending Balance | $20,500 | $20,500 | $19,000 | Loan Risk Categories (In thousands) | Risk Category | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Pass | $4,320,593 | $4,236,469 | | Special Mention | $2,532 | $24,193 | | Substandard | $14,803 | $10,183 | | Impaired | $25,533 | $12,778 | | Total Loans | $4,363,461 | $4,283,623 | - The **ALLL represented 0.52%** of total loans outstanding (excluding acquired loans) as of September 30, 2019, compared to 0.51% at December 31, 2018[188](index=188&type=chunk) [NOTE 7: LOAN SALES AND MORTGAGE SERVICING RIGHTS](index=23&type=section&id=NOTE%207%3A%20LOAN%20SALES%20AND%20MORTGAGE%20SERVICING%20RIGHTS) The note details the Company's loan sales activities, gains recognized, and the creation of mortgage servicing rights (MSRs) - For the first nine months of 2019, FFB recognized a **$4.2 million gain** on the sale of **$551 million of multifamily loans**[111](index=111&type=chunk) - **Mortgage servicing rights of $1.9 million** were recorded in the first nine months of 2019 from loan sales[111](index=111&type=chunk) - Swap agreements entered into to reduce interest rate risk were closed out in September 2019 at a **cost of $19.9 million**, which reduced the gain on sale[112](index=112&type=chunk) - Mortgage servicing rights totaled **$7.4 million** at September 30, 2019, up from $6.4 million at December 31, 2018[113](index=113&type=chunk) [NOTE 8: DEPOSITS](index=24&type=section&id=NOTE%208%3A%20DEPOSITS) The note summarizes the Company's deposit balances by type and their weighted average rates Deposit Balances and Rates (In thousands) | Deposit Type | September 30, 2019 Amount | September 30, 2019 Weighted Average Rate | December 31, 2018 Amount | December 31, 2018 Weighted Average Rate | | :--- | :--- | :--- | :--- | :--- | | Noninterest-bearing demand deposits | $1,532,105 | — | $1,074,661 | — | | Interest-bearing demand deposits | $350,344 | 0.670% | $317,380 | 0.798% | | Money market and savings | $1,316,899 | 1.367% | $1,190,717 | 1.115% | | Certificates of deposits | $1,971,218 | 2.221% | $1,950,210 | 2.142% | | Total | $5,170,566 | 1.240% | $4,532,968 | 1.270% | - The weighted average rate of interest-bearing deposits **increased from 1.67%** at December 31, 2018, **to 1.76%** at September 30, 2019[178](index=178&type=chunk) - As of September 30, 2019, the Bank held **$1.2 billion in brokered deposits**[179](index=179&type=chunk) [NOTE 9: BORROWINGS](index=24&type=section&id=NOTE%209%3A%20BORROWINGS) The note outlines the Company's borrowing structure, including outstanding balances, interest rates, and collateral arrangements Borrowings Summary (In thousands) | Metric | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | FHLB term advance | $500,000 | $703,000 (overnight) | | Holding company line of credit | $20,000 | $5,000 | | Total Borrowings | $520,000 | $708,000 | - The FHLB term advance outstanding at September 30, 2019, matures in September 2020 and bears an **interest rate of 1.77%**[117](index=117&type=chunk) - FHLB advances are primarily collateralized by loans secured by multifamily and commercial real estate properties with a **carrying value of $3.7 billion**[118](index=118&type=chunk) - The Bank's total borrowing capacity from the FHLB was **$2.5 billion** at September 30, 2019[118](index=118&type=chunk) [NOTE 10: LEASES](index=25&type=section&id=NOTE%2010%3A%20LEASES) The note details the adoption of ASU 2016-02 (Topic 842) and its impact on the consolidated balance sheet - The Company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019, recognizing a **right-of-use (ROU) asset of $21.1 million** and a corresponding **lease liability of $22.7 million**[123](index=123&type=chunk)[125](index=125&type=chunk) Supplemental Lease Information (In thousands) | Metric | September 30, 2019 | | :--- | :--- | | Operating lease asset | $17,644 | | Operating lease liability | $19,191 | | Operating lease cost | $4,437 | | Weighted average lease term | 4.72 years | | Weighted average discount rate | 5.76% | [NOTE 11: EARNINGS PER SHARE](index=26&type=section&id=NOTE%2011%3A%20EARNINGS%20PER%20SHARE) The note provides calculations for basic and diluted earnings per share (EPS) for the reported periods Earnings Per Share (In thousands, except per share amounts) | Metric | Quarter Ended Sep 30, 2019 | Quarter Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income | $17,356 | $14,707 | $41,025 | $28,829 | | Basic common shares outstanding | 44,639,481 | 44,405,094 | 44,602,368 | 41,288,804 | | Diluted common shares outstanding | 44,935,308 | 44,852,107 | 44,876,614 | 41,790,656 | | Basic Earnings per share | $0.39 | $0.33 | $0.92 | $0.70 | | Diluted Earnings per share | $0.39 | $0.33 | $0.91 | $0.69 | [NOTE 12: SEGMENT REPORTING](index=27&type=section&id=NOTE%2012%3A%20SEGMENT%20REPORTING) The note presents key operating results for the Company's two reportable business segments: Banking and Wealth Management - The Company operates in two reportable business segments: **Banking** (First Foundation Bank and First Foundation Insurance Services) and **Wealth Management** (First Foundation Advisors)[134](index=134&type=chunk) Income (Loss) Before Taxes on Income by Segment (In thousands) | Segment | Quarter Ended Sep 30, 2019 | Quarter Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Banking | $24,890 | $21,801 | $60,244 | $43,358 | | Wealth Management | $738 | $1,071 | $1,366 | $2,587 | | Other | $(1,380) | $(2,018) | $(3,830) | $(5,714) | | Total | $24,248 | $20,854 | $57,780 | $40,231 | [NOTE 13: SUBSEQUENT EVENTS](index=27&type=section&id=NOTE%2013%3A%20SUBSEQUENT%20EVENTS) The note reports a quarterly cash dividend declared by the Board of Directors subsequent to the reporting period - On October 29, 2019, the Board of Directors declared a **quarterly cash dividend of $0.05 per common share**, payable on December 16, 2019[135](index=135&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial condition and operational results, covering key metrics, segments, and risk management [Overview and Recent Developments](index=29&type=section&id=Overview%20and%20Recent%20Developments) - During Q3 2019, the Company sold **$551 million of multifamily loans** through securitization, sold **$284 million of lower yielding securities**, and purchased **$576 million of securities**[147](index=147&type=chunk) - For the first nine months of 2019, loan originations totaled **$1.4 billion**, total deposits increased by **$638 million**, and total revenues **grew by 12% year-over-year**[147](index=147&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Net Income and Income Before Taxes (In thousands) | Metric | Quarter Ended Sep 30, 2019 | Quarter Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income | $17,356 | $14,707 | $41,025 | $28,829 | | Income before taxes | $24,248 | $20,854 | $57,780 | $40,231 | - The **effective tax rate** for the nine months ended September 30, 2019, was **29.0%**, compared to 28.3% for the corresponding period in 2018[149](index=149&type=chunk) - **Banking segment's income before taxes increased by $16.9 million** for the first nine months of 2019, driven by higher net interest income, lower provision for loan losses, and higher noninterest income[153](index=153&type=chunk) - **Wealth Management segment's income before taxes decreased by $1.2 million** for the first nine months of 2019, due to lower noninterest income and higher noninterest expenses[153](index=153&type=chunk) [Net Interest Income](index=30&type=section&id=Net%20Interest%20Income) This section analyzes the components of net interest income, average balances, yields, and resulting interest rate spreads Net Interest Income and Spreads | Metric | Quarter Ended Sep 30, 2019 | Quarter Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $43,132 | $43,726 | $126,066 | $114,245 | | Net Interest Rate Spread | 2.27% | 2.60% | 2.31% | 2.50% | | Net Yield on Interest-earning Assets | 2.89% | 3.12% | 2.87% | 2.97% | - The **decrease in net interest rate spread** was primarily due to an increase in the cost of interest-bearing liabilities, partially offset by an increase in the yield on interest-earning assets[158](index=158&type=chunk)[159](index=159&type=chunk) - The **yield on interest-earning assets increased** due to higher yields on securities and new loans bearing higher interest rates[158](index=158&type=chunk)[159](index=159&type=chunk) [Provision for Loan Losses](index=33&type=section&id=Provision%20for%20Loan%20Losses) This section discusses the provision for loan losses and reports net charge-offs and recoveries Provision for Loan Losses and Net Charge-offs (In thousands) | Metric | Quarter Ended Sep 30, 2019 | Quarter Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Provision for loan losses | $172 | $9 | $1,943 | $4,147 | | Net recoveries (charge-offs) | $128 (net recoveries) | Negligible (net charge-offs) | $(443) (net charge-offs) | $(3,500) (net charge-offs) | [Noninterest Income](index=33&type=section&id=Noninterest%20Income) This section provides a breakdown of noninterest income for both the Banking and Wealth Management segments Noninterest Income by Segment (In thousands) | Metric | Banking Q3 2019 | Banking Q3 2018 | Banking 9M 2019 | Banking 9M 2018 | Wealth Management 9M 2019 | Wealth Management 9M 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total noninterest income | $8,173 | $5,079 | $14,638 | $8,586 | $17,886 | $18,932 | | Gain (loss) on sale of loans | $4,218 | $1,364 | $4,218 | $419 | N/A | N/A | | Trust fees | $1,305 | $1,054 | $3,790 | $2,808 | N/A | N/A | | Asset management fees | N/A | N/A | N/A | N/A | $17,886 | $18,932 | - **Banking's noninterest income increased by $6.0 million** for the first nine months of 2019, primarily due to a $3.8 million higher gain on sale of loans and a $1.0 million increase in trust fees[164](index=164&type=chunk) - **Wealth Management's noninterest income decreased by $1.0 million** for the first nine months of 2019, mainly due to lower levels of assets under management (AUM)[165](index=165&type=chunk) [Noninterest Expense](index=34&type=section&id=Noninterest%20Expense) This section details noninterest expenses for both Banking and Wealth Management segments Noninterest Expense by Segment (In thousands) | Metric | Banking Q3 2019 | Banking Q3 2018 | Banking 9M 2019 | Banking 9M 2018 | Wealth Management 9M 2019 | Wealth Management 9M 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total noninterest expense | $26,397 | $27,530 | $78,785 | $76,896 | $16,508 | $16,333 | | Compensation and benefits | $12,613 | $13,215 | $39,774 | $38,028 | $12,549 | $12,283 | | Customer service costs | $5,920 | $4,854 | $13,592 | $11,449 | — | — | - Banking's noninterest expense decreased in Q3 2019 due to lower compensation costs and a **$1.2 million FDIC deposit insurance fee refund**, partially offset by increased customer service costs[166](index=166&type=chunk) - For the first nine months of 2019, Banking's noninterest expense increased due to staffing and expansion costs, partially offset by a **$4.1 million decrease in merger-related costs** and the FDIC refund[168](index=168&type=chunk) [Financial Condition](index=36&type=section&id=Financial%20Condition) - **Total assets increased by $518 million** during the first nine months of 2019, primarily driven by increases in cash, securities, and loans[171](index=171&type=chunk) - **Total deposits grew by $638 million** in the first nine months of 2019, including increases in branch, specialty, and wholesale deposits[171](index=171&type=chunk) - **Borrowings decreased by $188 million** during the first nine months of 2019, as deposit growth exceeded asset growth, allowing for debt reduction[171](index=171&type=chunk) [Cash and Cash Equivalents, Certificates of Deposit and Securities](index=37&type=section&id=Cash%20and%20Cash%20Equivalents%2C%20Certificates%20of%20Deposit%20and%20Securities) This section discusses changes in cash, cash equivalents, and the available-for-sale (AFS) securities portfolio - **Cash and cash equivalents increased by $201 million** during the first nine months of 2019[173](index=173&type=chunk) - **Securities AFS increased by $233 million** year-to-date, following a securitization of multifamily loans and subsequent securities purchases[171](index=171&type=chunk) - As of September 30, 2019, **$151 million of agency mortgage-backed securities** were pledged as collateral[174](index=174&type=chunk) [Loans](index=38&type=section&id=Loans) This section provides an overview of the loan portfolio composition and changes, including originations, sales, and payoffs - **Total loans**, including loans held for sale, **increased by $75 million** during the first nine months of 2019[177](index=177&type=chunk) - Loan originations totaled **$1.4 billion** in the first nine months of 2019, partially offset by **$551 million in loan sales** and **$749 million in payoffs/scheduled payments**[177](index=177&type=chunk) [Deposits](index=38&type=section&id=Deposits) This section details deposit balances by type and their weighted average rates Deposit Balances and Weighted Average Rates (In thousands) | Metric | September 30, 2019 Amount | December 31, 2018 Amount | September 30, 2019 Weighted Average Rate | December 31, 2018 Weighted Average Rate | | :--- | :--- | :--- | :--- | :--- | | Total Deposits | $5,170,566 | $4,532,968 | 1.240% | 1.270% | - The weighted average rate of interest-bearing deposits **increased from 1.67%** at December 31, 2018, **to 1.76%** at September 30, 2019[178](index=178&type=chunk) - As of September 30, 2019, **brokered deposits amounted to $1.2 billion**[179](index=179&type=chunk) [Borrowings](index=38&type=section&id=Borrowings) This section describes the Company's borrowing structure, including FHLB advances and lines of credit - **Total borrowings decreased from $708 million** at December 31, 2018, **to $520 million** at September 30, 2019[180](index=180&type=chunk) - The average balance of FHLB advances and other borrowings outstanding was **$640 million** for the first nine months of 2019, with a weighted average interest rate of **2.50%**[180](index=180&type=chunk) [Delinquent Loans, Nonperforming Assets and Provision for Credit Losses](index=39&type=section&id=Delinquent%20Loans%2C%20Nonperforming%20Assets%20and%20Provision%20for%20Credit%20Losses) This section provides detailed information on past due loans, nonperforming assets, and the allowance for loan losses (ALLL) Delinquent and Nonaccrual Loans (In thousands) | Metric | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Past Due and Nonaccrual | $29,697 | $28,030 | | Percentage of total loans | 0.68% | 0.65% | Troubled Debt Restructurings (TDRs) (In thousands) | Metric | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total TDRs | $6,296 | $4,851 | Loan Risk Categories (In thousands) | Risk Category | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Impaired Loans | $25,533 | $12,778 | - The **Allowance for Loan Losses (ALLL) increased to $20.5 million** at September 30, 2019, from $19.0 million at December 31, 2018[188](index=188&type=chunk) [Liquidity](index=42&type=section&id=Liquidity) This section outlines the Company's liquidity management strategy and identifies primary sources of liquidity - The Bank's unused lines of credit available to draw down totaled **$1.9 billion** at September 30, 2019[196](index=196&type=chunk) - The **loan-to-deposit ratio** at the Bank was **94%** at September 30, 2019, a decrease from 106% at December 31, 2018[200](index=200&type=chunk) [Off-Balance Sheet Arrangements](index=43&type=section&id=Off-Balance%20Sheet%20Arrangements) This section details the Company's off-balance sheet commitments, including commitments to fund loans and standby letters of credit Off-Balance Sheet Commitments (In thousands, as of September 30, 2019) | Commitment Type | Amount | | :--- | :--- | | Commitments to fund new loans | $69,640 | | Commitments to fund under existing loans, lines of credit | $464,458 | | Commitments under standby letters of credit | $10,737 | - The Bank was obligated on **$231 million of letters of credit to the FHLB**, used as collateral for public fund deposits[201](index=201&type=chunk) [Capital Resources and Dividend Policy](index=43&type=section&id=Capital%20Resources%20and%20Dividend%20Policy) This section reviews the Company's capital adequacy ratios against regulatory requirements and outlines the dividend policy - As of September 30, 2019, both the Company (FFI) and First Foundation Bank (FFB) **exceeded all minimum required capital ratios** and qualified as a well-capitalized depository institution[205](index=205&type=chunk) FFB Capital Ratios vs. Well Capitalized Requirements (In thousands, as of September 30, 2019) | Capital Ratio | FFB Actual Amount | FFB Actual Ratio | To Be Well Capitalized Amount | To Be Well Capitalized Ratio | | :--- | :--- | :--- | :--- | :--- | | CET1 capital ratio | $508,516 | 10.65% | $310,354 | 6.50% | | Tier 1 leverage ratio | $508,516 | 8.33% | $305,390 | 5.00% | | Tier 1 risk-based capital ratio | $508,516 | 10.65% | $381,974 | 8.00% | | Total risk-based capital ratio | $531,881 | 11.14% | $477,468 | 10.00% | - The Company paid a **quarterly cash dividend of $0.05 per common share** in the first three quarters of 2019, with the intention to continue quarterly dividends[208](index=208&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Disclosures regarding market risk remain materially unchanged from the previous annual report - There have been **no material changes** to the Company's quantitative and qualitative disclosures about market risk since December 31, 2018[213](index=213&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) The company confirms the effectiveness of its disclosure controls and procedures with no material changes reported - The Company's disclosure controls and procedures were **effective as of September 30, 2019**, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[215](index=215&type=chunk) - There was **no change in internal control over financial reporting** during the quarter ended September 30, 2019, that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting[216](index=216&type=chunk) [Part II. Other Information](index=46&type=section&id=Part%20II.%20Other%20Information) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) Risk factors remain materially unchanged from those disclosed in the company's latest Annual Report - There have been **no material changes** in the risk factors disclosed in Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2018[218](index=218&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company provides an update on its stock repurchase plan, reporting no activity during the quarter - The Company adopted a stock repurchase plan on October 30, 2018, authorizing the repurchase of up to **2,200,000 shares** of common stock[219](index=219&type=chunk) - **No shares were repurchased** during the quarter ended September 30, 2019[219](index=219&type=chunk) - As of September 30, 2019, **2,162,900 shares remained available for repurchase** under the plan[219](index=219&type=chunk) [Item 6. Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including required officer certifications - The exhibits include Certifications of the Chief Executive Officer and Chief Financial Officer under **Sections 302 and 906 of the Sarbanes-Oxley Act of 2002**[221](index=221&type=chunk) - **Inline XBRL Instance Document** and Taxonomy Extension Schema are also included as exhibits[221](index=221&type=chunk) [SIGNATURES](index=48&type=section&id=SIGNATURES) The report is formally concluded with the signature of an authorized company officer - The report was signed by **John M. Michel, Executive Vice President and Chief Financial Officer**, on November 7, 2019[227](index=227&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-36461 FIRST FOUNDATION INC. (Exact name of Registrant as specified in its charter) Delaware 20-8639702 (State or other jurisdicti ...

[PART I — FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20Financial%20Information) This section presents the unaudited consolidated financial statements of First Foundation Inc. for the quarter ended March 31, 2019, along with management's discussion and analysis of financial condition and results of operations, market risk disclosures, and controls and procedures. [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements of First Foundation Inc. for the quarter ended March 31, 2019, including balance sheets, income statements, statements of changes in shareholders' equity, comprehensive income, and cash flows, along with detailed notes explaining accounting policies, acquisitions, fair value measurements, and specific financial instrument details [Consolidated Balance Sheets](index=3&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) This section provides a snapshot of the company's financial position at March 31, 2019, and December 31, 2018, detailing assets, liabilities, and shareholders' equity | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---| | **ASSETS** ||| | Cash and cash equivalents | $80,693 | $67,312 | | Securities available-for-sale | $788,160 | $809,569 | | Loans held for sale | $613,528 | $507,643 | | Net loans | $4,316,865 | $4,274,669 | | Total Assets | $6,001,204 | $5,840,412 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** ||| | Deposits | $4,568,702 | $4,532,968 | | Borrowings | $800,000 | $708,000 | | Total Liabilities | $5,432,961 | $5,281,228 | | Total Shareholders' Equity | $568,243 | $559,184 | | Total Liabilities and Shareholders' Equity | $6,001,204 | $5,840,412 | - Total Assets increased by **$160.8 million (2.75%)** from December 31, 2018, to March 31, 2019, driven by increases in loans held for sale and net loans[9](index=9&type=chunk) - Total Liabilities increased by **$151.7 million (2.87%)** from December 31, 2018, to March 31, 2019, primarily due to increases in deposits and borrowings[9](index=9&type=chunk) [Consolidated Income Statements](index=4&type=section&id=CONSOLIDATED%20INCOME%20STATEMENTS%20-%20UNAUDITED) This section presents the company's financial performance for the quarters ended March 31, 2019, and March 31, 2018, detailing revenues, expenses, and net income | Metric | For the Quarter Ended March 31, 2019 (in thousands) | For the Quarter Ended March 31, 2018 (in thousands) | YoY Change (in thousands) | YoY Change (%) | |:---|:---|:---|:---|:---|\n| Total interest income | $60,544 | $43,319 | $17,225 | 39.76% | | Total interest expense | $19,497 | $9,051 | $10,446 | 115.41% | | Net interest income | $41,047 | $34,268 | $6,779 | 19.78% | | Provision for loan losses | $540 | $1,688 | $(1,148) | -67.90% | | Net interest income after provision for loan losses | $40,507 | $32,580 | $7,927 | 24.33% | | Total noninterest income | $8,465 | $8,982 | $(517) | -5.76% | | Total noninterest expense | $32,945 | $28,988 | $3,957 | 13.65% | | Income before taxes on income | $16,027 | $12,574 | $3,453 | 27.46% | | Taxes on income | $4,768 | $3,598 | $1,170 | 32.52% | | Net income | $11,259 | $8,976 | $2,283 | 25.44% | | Basic Net income per share | $0.25 | $0.23 | $0.02 | 8.70% | | Diluted Net income per share | $0.25 | $0.23 | $0.02 | 8.70% | - Net income increased by **25.44% year-over-year**, reaching **$11.3 million** in Q1 2019, primarily driven by higher net interest income and a significantly lower provision for loan losses[12](index=12&type=chunk) - Total interest expense more than doubled (**115.41% increase**) due to higher deposit and borrowing costs, partially offsetting the strong growth in total interest income[12](index=12&type=chunk) [Consolidated Statement of Changes in Shareholders' Equity](index=5&type=section&id=CONSOLIDATED%20STATEMENT%20OF%20CHANGES%20IN%20SHAREHOLDERS'%20EQUITY%20-%20UNAUDITED) This section outlines the changes in the company's shareholders' equity from December 31, 2018, to March 31, 2019, reflecting net income, dividends, and other comprehensive income | Metric | December 31, 2018 (in thousands) | March 31, 2019 (in thousands) | |:---|:---|:---|\n| Total Shareholders' Equity (Beginning Balance) | $559,184 | $559,184 | | Net income | $11,259 | $11,259 | | Other comprehensive income | $(759) | $(759) | | Stock based compensation | $692 | $692 | | Cash dividend | $(2,230) | $(2,230) | | Issuance of common stock (Exercise of options) | $97 | $97 | | Issuance of common stock (Stock grants) | $0 | $0 | | Total Shareholders' Equity (Ending Balance) | $568,243 | $568,243 | - Shareholders' equity increased by **$9.059 million** from December 31, 2018, to March 31, 2019, primarily due to net income, partially offset by cash dividends and other comprehensive loss[15](index=15&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20-%20UNAUDITED) This section presents the total comprehensive income for the quarters ended March 31, 2019, and March 31, 2018, combining net income with other comprehensive income or loss | Metric | For the Quarter Ended March 31, 2019 (in thousands) | For the Quarter Ended March 31, 2018 (in thousands) | |:---|:---|:---|\n| Net income | $11,259 | $8,976 | | Other comprehensive income (loss) | $(759) | $(5,264) | | Total comprehensive income | $10,500 | $3,712 | - Total comprehensive income significantly increased to **$10.5 million** in Q1 2019 from **$3.7 million** in Q1 2018, driven by higher net income and a reduced other comprehensive loss[18](index=18&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS%20-%20UNAUDITED) This section details the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2019, and March 31, 2018 | Cash Flow Activity | For the Three Months Ended March 31, 2019 (in thousands) | For the Three Months Ended March 31, 2018 (in thousands) | |:---|:---|:---|\n| Net cash provided by operating activities | $11,192 | $10,076 | | Net cash used in investing activities | $(123,412) | $(249,065) | | Net cash provided by financing activities | $125,601 | $295,951 | | Increase in cash and cash equivalents | $13,381 | $56,962 | | Cash and cash equivalents at end of period | $80,693 | $177,356 | - Net cash provided by operating activities increased slightly to **$11.2 million** in Q1 2019 from **$10.1 million** in Q1 2018[22](index=22&type=chunk) - Net cash used in investing activities decreased significantly from **$(249.1) million** in Q1 2018 to **$(123.4) million** in Q1 2019, primarily due to a lower net increase in loans and no purchases of AFS securities in 2019[22](index=22&type=chunk) - Net cash provided by financing activities decreased from **$296.0 million** in Q1 2018 to **$125.6 million** in Q1 2019, mainly due to a smaller increase in deposits and no proceeds from stock sales in 2019[22](index=22&type=chunk) [Note 1: Basis of Presentation](index=8&type=section&id=NOTE%201%3A%20BASIS%20OF%20PRESENTATION) This note describes the entities included in the consolidated financial statements and the accounting standards adopted or pending adoption - The consolidated financial statements include First Foundation Inc. (FFI) and its wholly-owned subsidiaries: First Foundation Advisors (FFA), First Foundation Bank (FFB), First Foundation Insurance Services (FFIS), and Blue Moon Management, LLC[25](index=25&type=chunk) - The Company adopted ASU 2019-01 (Leases) and ASU 2018-13 (Fair Value Measurement) which are not expected to have a significant impact on consolidated financial statements[29](index=29&type=chunk)[30](index=30&type=chunk) - ASU 2018-19 (Credit Losses) is expected to impact credit loss accounting, and ASU 2016-13 (CECL model) may have a significant but currently undeterminable impact on the allowance for loan losses, both effective after December 15, 2019[31](index=31&type=chunk)[33](index=33&type=chunk)[35](index=35&type=chunk) [Note 2: Acquisitions](index=9&type=section&id=NOTE%202%3A%20ACQUISITIONS) This note details the acquisition of PBB Bancorp in June 2018, including the consideration paid, assets acquired, liabilities assumed, and the resulting goodwill and intangible assets - On June 1, 2018, the Company acquired PBB Bancorp and its subsidiary Premier Business Bank (PBB) to expand operations in Southern California, issuing **5,234,593 shares of common stock** with a fair value of **$19.39 per share**[36](index=36&type=chunk) - The acquisition resulted in **$61 million of goodwill** and a core deposit intangible of **$6.7 million**, which will be amortized over 10 years[37](index=37&type=chunk)[44](index=44&type=chunk) PBB Acquisition: Assets Acquired and Liabilities Assumed (June 1, 2018) | Item | PBB Book Value (in thousands) | Fair Value Adjustments (in thousands) | Fair Value (in thousands) | |:---|:---|:---|:---|\n| Total assets acquired | $609,221 | $54,737 | $663,958 | | Total liabilities assumed | $562,481 | $(22) | $562,459 | | Excess of assets acquired over liabilities assumed | $46,740 | $54,759 | $101,499 | | Consideration: Stock issued | | | $101,499 | - Pro forma net income for the three months ended March 31, 2018, would have increased by **$0.4 million** to **$11.407 million** if the PBB acquisition had occurred on January 1, 2018[45](index=45&type=chunk)[47](index=47&type=chunk) [Note 3: Fair Value Measurements](index=10&type=section&id=NOTE%203%3A%20FAIR%20VALUE%20MEASUREMENTS) This note explains the methodologies and categorization of assets and liabilities measured at fair value, distinguishing between recurring and nonrecurring measurements across Level 1, 2, and 3 inputs - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (significant unobservable inputs)[51](index=51&type=chunk)[52](index=52&type=chunk) Assets Measured at Fair Value on a Recurring Basis (March 31, 2019) | Asset Category | Total (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | |:---|:---|:---|:---|:---|\n| Investment securities available for sale | $788,160 | $499 | $757,045 | $30,616 | | Investment in equity securities | $399 | $399 | $0 | $0 | | Derivatives: Interest rate swaps | $10,196 | $0 | $10,196 | $0 | | Total assets at fair value on a recurring basis | $798,755 | $898 | $767,241 | $30,616 | - The decrease in Level 3 assets from December 31, 2018, was due to a change in pricing methodology for agency mortgage-backed securities, reclassifying some from Level 3 to Level 2[53](index=53&type=chunk) - Impaired loans and Real Estate Owned (REO) are measured at fair value on a nonrecurring basis, primarily classified as Level 3 due to unobservable inputs[57](index=57&type=chunk)[58](index=58&type=chunk) [Note 4: Securities](index=14&type=section&id=NOTE%204%3A%20SECURITIES) This note provides a summary of the company's securities available-for-sale (AFS) portfolio, including amortized cost, fair value, and unrealized gains and losses Securities AFS Portfolio Summary (March 31, 2019 vs. December 31, 2018) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---|\n| Amortized Cost | $790,863 | $811,198 | | Gross Gains | $6,184 | $14,292 | | Unrealized Losses | $(8,887) | $(15,921) | | Estimated Fair Value | $788,160 | $809,569 | - Total estimated fair value of AFS securities decreased by **$21.409 million (2.64%)** from December 31, 2018, to March 31, 2019[74](index=74&type=chunk) - Unrealized losses in agency mortgage-backed securities and FHLMC securitizations are not recognized into income due to high credit quality, management's intent not to sell, and expected recovery as bonds approach maturity[78](index=78&type=chunk) [Note 5: Loans](index=16&type=section&id=NOTE%205%3A%20LOANS) This note details the composition of the loan portfolio by category and provides an analysis of delinquent and nonaccrual loans, highlighting changes in credit quality Loan Portfolio Summary (March 31, 2019 vs. December 31, 2018) | Loan Category | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---|\n| Multifamily | $1,987,690 | $1,956,935 | | Single family | $903,992 | $904,828 | | Commercial properties | $902,060 | $869,169 | | Land | $59,917 | $80,187 | | Commercial and industrial loans | $454,849 | $449,805 | | Consumer loans | $17,693 | $22,699 | | Total loans | $4,326,201 | $4,283,623 | | Premiums, discounts and deferred fees and expenses | $9,864 | $10,046 | | Total | $4,336,065 | $4,293,669 | - Total loans increased by **$42.396 million (0.99%)** from December 31, 2018, to March 31, 2019, primarily driven by growth in multifamily and commercial property loans[83](index=83&type=chunk) Delinquent and Nonaccrual Loans (March 31, 2019 vs. December 31, 2018) | Status | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---|\n| 30–59 Days Past Due | $4,526 | $15,055 | | 60-89 Days Past Due | $1,278 | $424 | | 90 Days or More Past Due | $0 | $1,035 | | Nonaccrual | $15,537 | $11,516 | | Total Past Due and Nonaccrual | $21,341 | $28,030 | | Percentage of total loans | 0.49% | 0.65% | - Total past due and nonaccrual loans decreased by **$6.689 million (23.86%)** from December 31, 2018, to March 31, 2019, improving the overall credit quality[87](index=87&type=chunk) [Note 6: Allowance for Loan Losses](index=18&type=section&id=NOTE%206%3A%20ALLOWANCE%20FOR%20LOAN%20LOSSES) This note provides a roll-forward of the allowance for loan losses (ALLL) and categorizes loans by risk, offering insights into the company's credit risk management Allowance for Loan Losses Roll Forward (Q1 2019 vs. Q1 2018) | Metric | Q1 2019 (in thousands) | Q1 2018 (in thousands) | |:---|:---|:---|\n| Beginning Balance | $19,000 | $18,400 | | Provision for Loan Losses | $540 | $1,688 | | Charge-offs | $(548) | $(88) | | Recoveries | $208 | $0 | | Ending Balance | $19,200 | $20,000 | - The provision for loan losses decreased significantly to **$0.54 million** in Q1 2019 from **$1.688 million** in Q1 2018, reflecting lower estimated losses[91](index=91&type=chunk) - The Allowance for Loan Losses (ALLL) increased slightly to **$19.2 million** at March 31, 2019, from **$19.0 million** at December 31, 2018[91](index=91&type=chunk) Loans by Risk Category (March 31, 2019) | Loan Category | Pass (in thousands) | Special Mention (in thousands) | Substandard (in thousands) | Impaired (in thousands) | Total (in thousands) | |:---|:---|:---|:---|:---|:---|\n| Real estate loans: Residential properties | $2,886,943 | $2,928 | $0 | $1,811 | $2,891,682 | | Real estate loans: Commercial properties | $880,599 | $6,696 | $5,821 | $8,944 | $902,060 | | Real estate loans: Land | $58,418 | $0 | $802 | $697 | $59,917 | | Commercial and industrial loans | $440,126 | $918 | $3,309 | $10,496 | $454,849 | | Consumer loans | $17,693 | $0 | $0 | $0 | $17,693 | | Total | $4,283,779 | $10,542 | $9,932 | $21,948 | $4,326,201 | [Note 7: Loan Sales and Mortgage Servicing Rights](index=21&type=section&id=NOTE%207%3A%20LOAN%20SALES%20AND%20MORTGAGE%20SERVICING%20RIGHTS) This note discusses the company's loan sales activities and the valuation of mortgage servicing rights (MSRs), including related servicing fees - FFB had no loan sales during the first three months of 2019, compared to **$674 million** in multifamily loan sales in 2018, which generated a gain of **$0.4 million**[107](index=107&type=chunk) - Mortgage servicing rights (MSRs) were **$6.1 million** at March 31, 2019, down from **$6.4 million** at December 31, 2018, while loans serviced for others remained stable at **$1.3 billion**[107](index=107&type=chunk) - Servicing fees decreased to **$0.4 million** for Q1 2019 from **$1.1 million** in Q1 2018[107](index=107&type=chunk) [Note 8: Deposits](index=22&type=section&id=NOTE%208%3A%20DEPOSITS) This note provides a breakdown of deposits by type and their weighted average interest rates, illustrating changes in funding composition and cost Deposits Summary (March 31, 2019 vs. December 31, 2018) | Deposit Type | March 31, 2019 Amount (in thousands) | March 31, 2019 Weighted Average Rate | December 31, 2018 Amount (in thousands) | December 31, 2018 Weighted Average Rate | |:---|:---|:---|:---|:---|\n| Noninterest-bearing demand | $1,114,596 | — | $1,074,661 | — | | Interest-bearing demand | $307,854 | 0.790% | $317,380 | 0.798% | | Money market and savings | $1,175,986 | 1.180% | $1,190,717 | 1.115% | | Certificates of deposits | $1,970,266 | 2.276% | $1,950,210 | 2.142% | | Total | $4,568,702 | 1.338% | $4,532,968 | 1.270% | - Total deposits increased by **$35.734 million (0.79%)** from December 31, 2018, to March 31, 2019, with noninterest-bearing demand deposits showing notable growth[110](index=110&type=chunk) - The weighted average rate on total deposits increased from **1.270% to 1.338%**, reflecting rising interest rates[110](index=110&type=chunk) [Note 9: Borrowings](index=22&type=section&id=NOTE%209%3A%20BORROWINGS) This note outlines the company's borrowing activities, including the types of borrowings, their balances, and associated interest rates, as well as available borrowing capacity - Borrowings increased to **$800 million** at March 31, 2019, from **$708 million** at December 31, 2018, primarily due to an increase in overnight FHLB advances[111](index=111&type=chunk) - The average balance of overnight FHLB advances during Q1 2019 was **$636 million**, with a weighted average interest rate of **2.57%**, up from **1.55%** in Q1 2018[111](index=111&type=chunk) - The Bank's total borrowing capacity from the FHLB was **$2.3 billion** at March 31, 2019, with **$1.5 billion** in unused lines of credit[111](index=111&type=chunk) [Note 10: Leases](index=22&type=section&id=NOTE%2010%3A%20LEASES) This note describes the adoption of new lease accounting standards and its impact on the financial statements, including the recognition of right-of-use assets and lease liabilities - The Company adopted ASU 2016-02 (Topic 842, Leases) on January 1, 2019, recognizing a right-of-use (ROU) asset of **$21.1 million** and a corresponding lease liability of **$22.7 million**, eliminating a **$1.6 million** deferred rent liability[112](index=112&type=chunk)[115](index=115&type=chunk) Supplemental Lease Information (March 31, 2019) | Metric | Amount (in thousands) | |:---|:---|\n| Operating lease asset (classified as other assets) | $20,015 | | Operating lease liability (classified as other liabilities) | $21,644 | | Operating lease cost (classified as occupancy and equipment expense) | $1,188 | | Weighted average lease term | 3.12 years | | Weighted average discount rate | 5.53% | | Operating cash flows | $1,497 | [Note 11: Earnings Per Share](index=24&type=section&id=NOTE%2011%3A%20EARNINGS%20PER%20SHARE) This note provides a calculation of basic and diluted earnings per share for the quarters ended March 31, 2019, and March 31, 2018, based on net income and outstanding shares Earnings Per Share (Q1 2019 vs. Q1 2018) | Metric | Q1 2019 | Q1 2018 | |:---|:---|:---|\n| Net income (in thousands) | $11,259 | $8,976 | | Basic common shares outstanding | 44,540,865 | 38,577,271 | | Diluted common shares outstanding | 44,798,306 | 39,124,732 | | Basic Earnings per share | $0.25 | $0.23 | | Diluted Earnings per share | $0.25 | $0.23 | - Basic and diluted EPS increased by **$0.02** to **$0.25** in Q1 2019, reflecting the **25.44% increase** in net income[120](index=120&type=chunk) [Note 12: Segment Reporting](index=25&type=section&id=NOTE%2012%3A%20SEGMENT%20REPORTING) This note presents the financial results for the company's two reportable segments, Banking and Wealth Management, for the quarters ended March 31, 2019, and March 31, 2018 - The Company operates with two reportable segments: Banking (FFB and FFIS) and Wealth Management (FFA)[123](index=123&type=chunk) Segment Operating Results (Q1 2019 vs. Q1 2018) | Metric (in thousands) | Banking 2019 | Banking 2018 | Wealth Management 2019 | Wealth Management 2018 | |:---|:---|:---|:---|:---|\n| Net interest income | $41,062 | $34,799 | $0 | $0 | | Noninterest income | $2,994 | $2,557 | $5,731 | $6,414 | | Noninterest expense | $26,587 | $21,811 | $5,518 | $5,817 | | Income (loss) before taxes on income | $16,929 | $13,857 | $213 | $597 | - Banking segment's income before taxes increased by **$3.072 million (22.17%)** in Q1 2019, driven by higher net interest income and lower loan loss provision[123](index=123&type=chunk) - Wealth Management's income before taxes decreased by **$0.384 million (64.32%)** due to lower noninterest income[123](index=123&type=chunk) [Note 13: Subsequent Events](index=25&type=section&id=NOTE%2013%3A%20SUBSEQUENT%20EVENTS) This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On May 2, 2019, the Board of Directors declared an initial quarterly cash dividend of **$0.05 per common share**, payable on June 17, 2019[124](index=124&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=26&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides a detailed discussion and analysis of the Company's financial condition at March 31, 2019, compared to December 31, 2018, and results of operations for the quarter ended March 31, 2019, compared to the same period in 2018, covering critical accounting policies, recent developments, and a breakdown of performance by business segment [Overview and Recent Developments](index=27&type=section&id=Overview%20and%20Recent%20Developments) This section provides a high-level summary of the company's performance and key strategic actions during the quarter - The Company declared and paid its first quarterly cash dividend of **$0.05 per common share** in Q1 2019[136](index=136&type=chunk) - Total loans, including loans held for sale, increased by **$148 million** in Q1 2019 due to **$400 million** in originations, partially offset by **$256 million** in payoffs/scheduled payments[137](index=137&type=chunk) - Total revenues (net interest income and noninterest income) increased by **14%** in Q1 2019 compared to Q1 2018[137](index=137&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including net interest income, provision for loan losses, noninterest income, and noninterest expense, for the quarter ended March 31, 2019, compared to the prior year - Consolidated net income for Q1 2019 was **$11.3 million**, up from **$9.0 million** in Q1 2018, with income before taxes increasing to **$16.0 million** from **$12.6 million**[138](index=138&type=chunk) - The effective tax rate for Q1 2019 was **29.7%**, compared to **28.6%** for Q1 2018[138](index=138&type=chunk) - Banking's income before taxes increased by **$3.1 million**, while Wealth Management's decreased by **$0.4 million**[141](index=141&type=chunk) [Net Interest Income](index=28&type=section&id=Net%20Interest%20Income) This subsection analyzes the components of net interest income, including interest-earning assets, interest-bearing liabilities, and net interest rate spread Net Interest Income Analysis (Q1 2019 vs. Q1 2018) | Metric | Q1 2019 | Q1 2018 | Change | |:---|:---|:---|:---|\n| Net Interest Income (in thousands) | $41,047 | $34,268 | $6,779 | | Net Interest Rate Spread | 2.36% | 2.56% | -0.20% | | Net Yield on Interest-earning Assets | 2.88% | 2.96% | -0.08% | | Average Interest-earning Assets (in thousands) | $5,687,224 | $4,620,086 | $1,067,138 | | Average Interest-bearing Liabilities (in thousands) | $4,142,227 | $3,057,075 | $1,085,152 | - Net interest income increased by **$6.8 million (19.78%)** for Banking, driven by a **23% increase** in interest-earning assets, despite a decrease in net interest rate spread[144](index=144&type=chunk) - The net interest rate spread decreased from **2.56% to 2.36%** due to a higher increase in the cost of interest-bearing liabilities (**1.20% to 1.91%**) compared to the yield on interest-earning assets (**3.76% to 4.27%**)[144](index=144&type=chunk) [Provision for loan losses](index=30&type=section&id=Provision%20for%20loan%20losses) This subsection discusses the provision for loan losses, reflecting changes in loan growth and credit quality - The provision for loan losses decreased to **$0.5 million** in Q1 2019 from **$1.7 million** in Q1 2018, reflecting slower growth in loans subject to ALLL (**65% lower growth** in Q1 2019)[147](index=147&type=chunk) [Noninterest income](index=30&type=section&id=Noninterest%20income) This subsection analyzes the various components of noninterest income for both the Banking and Wealth Management segments Noninterest Income Breakdown (Q1 2019 vs. Q1 2018) | Category (in thousands) | Banking 2019 | Banking 2018 | Wealth Management 2019 | Wealth Management 2018 | |:---|:---|:---|:---|:---|\n| Trust fees | $1,185 | $822 | N/A | N/A | | Loan related fees | $1,145 | $564 | N/A | N/A | | Deposit charges | $202 | $120 | N/A | N/A | | Gain on sale of loans | $0 | $545 | N/A | N/A | | Asset management fees | N/A | N/A | $5,731 | $6,414 | | Total Noninterest Income | $2,994 | $2,557 | $5,731 | $6,414 | - Banking's noninterest income increased by **$0.4 million**, driven by higher trust and loan fees, offsetting the absence of loan sale gains in Q1 2019[148](index=148&type=chunk) - Wealth Management's noninterest income decreased by **$0.7 million**, primarily due to lower billable Assets Under Management (AUM)[149](index=149&type=chunk) [Noninterest Expense](index=30&type=section&id=Noninterest%20Expense) This subsection examines the trends in noninterest expenses, including compensation, occupancy, and other operating costs, for both segments Noninterest Expense Breakdown (Q1 2019 vs. Q1 2018) | Category (in thousands) | Banking 2019 | Banking 2018 | Wealth Management 2019 | Wealth Management 2018 | |:---|:---|:---|:---|:---|\n| Compensation and benefits | $14,309 | $12,539 | $4,234 | $4,267 | | Occupancy and depreciation | $4,241 | $3,577 | $587 | $548 | | Customer service costs | $3,389 | $2,771 | $0 | $0 | | Other expenses | $3,408 | $1,698 | $169 | $187 | | Total Noninterest Expense | $26,587 | $21,811 | $5,518 | $5,817 | - Banking's noninterest expense increased by **$4.8 million (22.01%)**, driven by higher compensation and benefits (**14% increase** due to PBB acquisition and growth), occupancy and depreciation, customer service costs, and other expenses (including FDIC insurance and core deposit intangible amortization)[152](index=152&type=chunk) - Wealth Management's noninterest expense decreased by **$0.3 million**, mainly due to lower legal costs related to 2018 litigation[152](index=152&type=chunk) [Financial Condition](index=31&type=section&id=Financial%20Condition) This section provides an in-depth analysis of the company's balance sheet, including assets, liabilities, and capital resources, as of March 31, 2019 - Total assets increased by **$161 million** in Q1 2019, primarily due to a **$148 million increase** in loans and loans held for sale[155](index=155&type=chunk) - Deposits grew by **$36 million**, with increases in specialty and wholesale deposits partially offset by a decrease in branch deposits[155](index=155&type=chunk) - Borrowings increased by **$92 million** to support loan growth[155](index=155&type=chunk) [Cash and cash equivalents, certificates of deposit and securities](index=32&type=section&id=Cash%20and%20cash%20equivalents%2C%20certificates%20of%20deposit%20and%20securities) This subsection discusses the changes in cash and cash equivalents, certificates of deposit, and securities, and their impact on liquidity - Cash and cash equivalents increased by **$13 million** during Q1 2019, influenced by loan funding, securities investments, and changes in funding sources[156](index=156&type=chunk) [Securities available for sale](index=32&type=section&id=Securities%20available%20for%20sale) This subsection provides an overview of the securities available for sale portfolio, including changes in amortized cost and fair value Securities AFS Portfolio Summary (March 31, 2019 vs. December 31, 2018) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---|\n| Amortized Cost | $790,863 | $811,198 | | Estimated Fair Value | $788,160 | $809,569 | - The fair value of AFS securities decreased by **$21.409 million (2.64%)** from December 31, 2018, to March 31, 2019[157](index=157&type=chunk) [Loans](index=33&type=section&id=Loans) This subsection details the composition and growth of the loan portfolio, including loans held for sale Loan Portfolio Summary (March 31, 2019 vs. December 31, 2018) | Loan Category | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---|\n| Total loans | $4,326,201 | $4,283,623 | | Total (including premiums, discounts, etc.) | $4,336,065 | $4,293,669 | - Total loans, including loans held for sale, increased by **$148 million** in Q1 2019, driven by **$400 million** in originations[160](index=160&type=chunk) [Deposits](index=33&type=section&id=Deposits) This subsection analyzes the changes in total deposits and their weighted average interest rates, including the volume of brokered deposits Deposits and Average Rates (March 31, 2019 vs. December 31, 2018) | Deposit Type | March 31, 2019 Amount (in thousands) | March 31, 2019 Weighted Average Rate | December 31, 2018 Amount (in thousands) | December 31, 2018 Weighted Average Rate | |:---|:---|:---|:---|:---|\n| Total Deposits | $4,568,702 | 1.338% | $4,532,968 | 1.270% | - Total deposits increased by **$35.734 million (0.79%)** in Q1 2019, with the weighted average interest rate on interest-bearing deposits rising from **1.67% to 1.77%**[161](index=161&type=chunk) - As of March 31, 2019, the Bank held **$1.3 billion** in brokered deposits[162](index=162&type=chunk) [Borrowings](index=33&type=section&id=Borrowings) This subsection details the company's borrowing activities, including FHLB advances, their average balances, and weighted average interest rates - Borrowings increased to **$800 million** at March 31, 2019, from **$708 million** at December 31, 2018, primarily due to FHLB advances[163](index=163&type=chunk) - The average balance of FHLB advances was **$636 million** in Q1 2019 (weighted average rate **2.57%**), compared to **$693 million** in Q1 2018 (weighted average rate **1.55%**)[163](index=163&type=chunk) [Delinquent Loans, Nonperforming Assets and Provision for Credit Losses](index=34&type=section&id=Delinquent%20Loans%2C%20Nonperforming%20Assets%20and%20Provision%20for%20Credit%20Losses) This subsection provides an analysis of delinquent loans, nonperforming assets, and troubled debt restructurings, indicating the overall credit quality Past Due and Nonaccrual Loans (March 31, 2019 vs. December 31, 2018) | Status | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---|\n| Total Past Due and Nonaccrual | $21,341 | $28,030 | | Percentage of total loans | 0.49% | 0.65% | - Total past due and nonaccrual loans decreased by **$6.689 million (23.86%)** from December 31, 2018, to March 31, 2019[165](index=165&type=chunk) Troubled Debt Restructurings (TDRs) (March 31, 2019 vs. December 31, 2018) | Loan Type (in thousands) | March 31, 2019 Total | December 31, 2018 Total | |:---|:---|:---|\n| Commercial real estate loans | $2,709 | $2,755 | | Commercial and industrial loans | $2,018 | $2,096 | | Total TDRs | $4,727 | $4,851 | [Allowance for Loan Losses](index=36&type=section&id=Allowance%20for%20Loan%20Losses) This subsection details the activity in the allowance for loan losses (ALLL) and discusses the methodology for determining the provision for loan losses Allowance for Loan Losses Activity (Q1 2019 vs. Q1 2018) | Metric (in thousands) | Q1 2019 | Q1 2018 | |:---|:---|:---|\n| Beginning Balance | $19,000 | $18,400 | | Provision for Loan Losses | $540 | $1,688 | | Charge-offs | $(548) | $(88) | | Recoveries | $208 | $0 | | Ending Balance | $19,200 | $20,000 | - The ALLL represented **0.51%** of total loans outstanding as of both March 31, 2019, and December 31, 2018, excluding acquired loans[171](index=171&type=chunk) - The provision for loan losses is based on management's estimates, economic models, historical experience, and current conditions, subject to potential adjustments by regulatory agencies[172](index=172&type=chunk)[173](index=173&type=chunk) [Liquidity](index=37&type=section&id=Liquidity) This subsection assesses the company's liquidity position, including available lines of credit, the loan-to-deposit ratio, and cash flows from operating, investing, and financing activities - The Bank's remaining lines of credit available to draw down totaled **$1.5 billion** at March 31, 2019[179](index=179&type=chunk) - The loan-to-deposit ratio at the Bank was **108%** at March 31, 2019, up from **106%** at December 31, 2018, indicating slightly lower liquidity but potentially higher yields[183](index=183&type=chunk) - Operating activities provided **$11 million** in net cash in Q1 2019, while investing activities used **$123 million**, and financing activities provided **$126 million**[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) [Off-Balance Sheet Arrangements](index=38&type=section&id=Off-Balance%20Sheet%20Arrangements) This subsection discloses the company's off-balance sheet commitments, such as loan commitments and standby letters of credit Off-Balance Sheet Arrangements (March 31, 2019) | Commitment Type (in thousands) | Amount | |:---|:---|\n| Commitments to fund new loans | $45,950 | | Commitments to fund under existing loans, lines of credit | $380,230 | | Commitments under standby letters of credit | $11,695 | - The Bank was obligated on **$231 million** of letters of credit to the FHLB, used as collateral for public fund deposits, including **$213 million** from the State of California[185](index=185&type=chunk) [Capital Resources and Dividend Policy](index=38&type=section&id=Capital%20Resources%20and%20Dividend%20Policy) This subsection provides an overview of the company's capital ratios, compliance with regulatory requirements, and its dividend policy FFI Capital Ratios (March 31, 2019) | Capital Ratio | Actual Amount (in thousands) | Actual Ratio | Regulatory Requirement Ratio | |:---|:---|:---|:---|\n| CET1 capital ratio | $471,912 | 10.92% | 4.50% | | Tier 1 leverage ratio | $471,912 | 8.15% | 4.00% | | Tier 1 risk-based capital ratio | $471,912 | 10.92% | 6.00% | | Total risk-based capital ratio | $493,038 | 11.41% | 8.00% | - Both FFI and FFB exceeded all minimum required capital ratios and qualified as 'well-capitalized' depository institutions as of March 31, 2019[188](index=188&type=chunk) - FFI made capital contributions of **$5 million** to FFB in Q1 2019 and had **$11.6 million** of available capital remaining[189](index=189&type=chunk) - The Company intends to continue paying quarterly dividends, subject to Board approval and regulatory restrictions, including a limit of **50% of net income** for dividends and stock repurchases over a twelve-month period[191](index=191&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=40&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section states that there have been no material changes to the Company's quantitative and qualitative disclosures about market risk since December 31, 2018, as detailed in its Annual Report on Form 10-K - No material changes in market risk disclosures since December 31, 2018[194](index=194&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=40&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section confirms the effectiveness of the Company's disclosure controls and procedures as of March 31, 2019, and reports no material changes in internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were effective as of March 31, 2019, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[196](index=196&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2019[197](index=197&type=chunk) [PART II — OTHER INFORMATION](index=40&type=section&id=Part%20II.%20Other%20Information) This section includes disclosures on risk factors, unregistered sales of equity securities, and a list of exhibits filed with the Form 10-Q, along with required signatures. [ITEM 1A. RISK FACTORS](index=40&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section states that there have been no material changes in the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes in risk factors since the December 31, 2018 Annual Report on Form 10-K[199](index=199&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=40&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section reports that the Company did not repurchase any shares under its stock repurchase plan during the first quarter of 2019, with 2,164,700 shares remaining authorized for repurchase - The Company did not repurchase any shares under its stock repurchase plan during Q1 2019[200](index=200&type=chunk) - As of March 31, 2019, **2,164,700 shares** remained available for repurchase under the plan adopted on October 30, 2018[200](index=200&type=chunk) [ITEM 6. EXHIBITS](index=41&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including organizational documents, certifications from the CEO and CFO, and XBRL financial materials - Exhibits include Certificate of Incorporation, Bylaws, CEO/CFO certifications under Sarbanes-Oxley Act Sections 302 and 906, and XBRL financial materials[202](index=202&type=chunk) [SIGNATURES](index=42&type=section&id=SIGNATURES) This section contains the required signatures for the Form 10-Q, confirming its submission by an authorized officer of First Foundation Inc - The report is signed by John M. Michel, Executive Vice President and Chief Financial Officer, on behalf of First Foundation Inc. on May 8, 2019[207](index=207&type=chunk)

INVESTOR PRESENTATION FIRST FOUNDATION Trust. Strength. Experience. MAY 2019 Safe Harbor Statement 1 This presentation and the accompanying oral commentary contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements express our current assumptions, beliefs, plans and expectations about our future financial performance and achievements and are necessarily based on current information available to us. Forward-looking statements include all statements that a ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 Commission file number: 001-36461 FIRST FOUNDATION INC. (Exact name of registrant as specified in its charter) Delaware 20-8639702 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 18101 Von Karman Avenue, Suite 700 Irvine, CA 92612 92612 (Address of ...