First Foundation (FFWM) - 2019 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION 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 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 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] - 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] Consolidated Income Statements 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] - 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] Consolidated Statement of Changes in Shareholders' Equity 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] Consolidated Statements of Comprehensive Income 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] Consolidated Statements of Cash Flows 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] - 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] - 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] Note 1: Basis of Presentation 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] - 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][30] - 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][33][35] Note 2: Acquisitions 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] - 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][44] 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][47] Note 3: Fair Value Measurements 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][52] 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] - 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][58] Note 4: Securities 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] - 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] Note 5: Loans 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] 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] Note 6: Allowance for Loan Losses 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] - 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] 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 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] - 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] - Servicing fees decreased to $0.4 million for Q1 2019 from $1.1 million in Q1 2018[107] Note 8: Deposits 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] - The weighted average rate on total deposits increased from 1.270% to 1.338%, reflecting rising interest rates[110] Note 9: Borrowings 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] - 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] - 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] Note 10: Leases 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][115] 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 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] Note 12: Segment Reporting 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] 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] - Wealth Management's income before taxes decreased by $0.384 million (64.32%) due to lower noninterest income[123] Note 13: Subsequent Events 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] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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] - 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] - Total revenues (net interest income and noninterest income) increased by 14% in Q1 2019 compared to Q1 2018[137] Results of Operations 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] - The effective tax rate for Q1 2019 was 29.7%, compared to 28.6% for Q1 2018[138] - Banking's income before taxes increased by $3.1 million, while Wealth Management's decreased by $0.4 million[141] Net Interest Income 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] - 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] Provision for loan losses 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] Noninterest income 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] - Wealth Management's noninterest income decreased by $0.7 million, primarily due to lower billable Assets Under Management (AUM)[149] Noninterest Expense 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] - Wealth Management's noninterest expense decreased by $0.3 million, mainly due to lower legal costs related to 2018 litigation[152] Financial Condition 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] - Deposits grew by $36 million, with increases in specialty and wholesale deposits partially offset by a decrease in branch deposits[155] - Borrowings increased by $92 million to support loan growth[155] Cash and cash equivalents, certificates of deposit and securities 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] Securities available for sale 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] 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] 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] - As of March 31, 2019, the Bank held $1.3 billion in brokered deposits[162] 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] - 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] Delinquent Loans, Nonperforming Assets and Provision for Credit Losses 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] 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 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] - 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][173] 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] - 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] - Operating activities provided $11 million in net cash in Q1 2019, while investing activities used $123 million, and financing activities provided $126 million[180][181][182] Off-Balance Sheet Arrangements 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] Capital Resources and Dividend Policy 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] - FFI made capital contributions of $5 million to FFB in Q1 2019 and had $11.6 million of available capital remaining[189] - 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] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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] ITEM 4. CONTROLS AND PROCEDURES 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] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2019[197] PART II — OTHER INFORMATION 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 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] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 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] - As of March 31, 2019, 2,164,700 shares remained available for repurchase under the plan adopted on October 30, 2018[200] ITEM 6. EXHIBITS 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] 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]