First Foundation (FFWM) - 2025 Q2 - Quarterly Report

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