First Foundation Inc. - Quarter Report: 2022 June (Form 10-Q)

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, 2022

☐	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 jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

200 Crescent Court, Suite 1400 Dallas, Texas		75201
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (469) 638-9636

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	FFWM	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 3, 2022, the registrant had 56,387,671 shares of common stock, $0.001 par value per share, outstanding.

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FIRST FOUNDATION INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

TABLE OF CONTENTS


		Page No.
Part I. Financial Information
Item 1.	Financial Statements	1
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	51

Part II. Other Information
Item 1A	Risk Factors	52
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 6	Exhibits	53

SIGNATURES		S-1

(i)

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PART I — FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

FIRST FOUNDATION INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	June 30,		December 31,
	2022		2021
		(unaudited)
ASSETS
Cash and cash equivalents	$	173,524	$	1,121,757

Securities available-for-sale ("AFS")		251,496		1,201,777
Securities held-to-maturity ("HTM")		930,562		—
Allowance for credit losses - investments		(11,226)		(10,399)
Net securities		1,170,832		1,191,378

Loans held for sale		485,296		501,436

Loans held for investment		8,938,841		6,906,728
Allowance for credit losses - loans		(33,165)		(33,776)
Net loans		8,905,676		6,872,952

Investment in FHLB stock		17,250		18,249
Deferred taxes		21,471		20,835
Premises and equipment, net		37,160		37,920
Real estate owned ("REO")		6,210		6,210
Goodwill and intangibles		222,749		222,125
Other assets		209,072		203,342
Total Assets	$	11,249,240	$	10,196,204

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	9,538,744	$	8,811,960
Borrowings		493,728		210,127
Accounts payable and other liabilities		113,859		110,066
Total Liabilities		10,146,331		9,132,153

Shareholders’ Equity
Common Stock		56		56
Additional paid-in-capital		719,222		720,744
Retained earnings		392,704		340,976
Accumulated other comprehensive (loss) income		(9,073)		2,275
Total Shareholders’ Equity		1,102,909		1,064,051
Total Liabilities and Shareholders’ Equity	$	11,249,240	$	10,196,204

(See accompanying notes to the consolidated financial statements)

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FIRST FOUNDATION INC.

CONSOLIDATED INCOME STATEMENTS - UNAUDITED

(In thousands, except share and per share amounts)


	Quarter Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Interest income:
Loans	$	82,032	$	55,979	$	154,059	$	109,510
Securities		6,621		4,927		12,981		10,133
FHLB Stock, fed funds sold and interest-bearing deposits		1,318		497		2,075		898
Total interest income		89,971		61,403		169,115		120,541

Interest expense:
Deposits		6,340		3,387		9,698		8,010
Borrowings		1,826		106		3,118		392
Total interest expense		8,166		3,493		12,816		8,402

Net interest income		81,805		57,910		156,299		112,139

Provision for credit losses		173		44		(619)		404

Net interest income after provision for credit losses		81,632		57,866		156,918		111,735

Noninterest income:
Asset management, consulting and other fees		9,893		8,748		20,090		17,097
Gain on sale of loans		—		3,324		—		3,324
Other income		3,507		1,963		8,737		5,522
Total noninterest income		13,400		14,035		28,827		25,943

Noninterest expense:
Compensation and benefits		27,634		20,203		57,455		41,729
Occupancy and depreciation		8,814		5,710		17,381		11,870
Professional services and marketing costs		3,030		3,907		6,447		6,029
Customer service costs		4,611		2,353		6,399		4,123
Other expenses		4,716		3,444		8,741		6,377
Total noninterest expense		48,805		35,617		96,423		70,128

Income before taxes on income		46,227		36,284		89,322		67,550
Taxes on income		12,911		10,230		25,170		19,141
Net income	$	33,316	$	26,054	$	64,152	$	48,409

Net income per share:
Basic	$	0.59	$	0.58	$	1.14	$	1.08
Diluted	$	0.59	$	0.58	$	1.13	$	1.07
Shares used in computation:
Basic		56,471,470		44,792,358		56,468,678		44,750,272
Diluted		56,519,669		45,101,958		56,543,492		45,057,330

(See accompanying notes to the consolidated financial statements)

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FIRST FOUNDATION INC.

CONSOLIDATED STATEMENT OF CHANGES

IN SHAREHOLDERS’ EQUITY - UNAUDITED

(In thousands, except share amounts)


	Common Stock			Additional				Accumulated Other
	Number			Paid-in		Retained		Comprehensive
	of Shares	Amount		Capital		Earnings		Income (Loss)		Total
Balance: December 31, 2021	56,432,070	$	56	$	720,744	$	340,976	$	2,275	$	1,064,051
Net income	—		—		—		64,152		—		64,152
Other comprehensive loss	—		—		—		—		(11,348)		(11,348)
Stock based compensation	—		—		2,037		—		—		2,037
Cash dividend	—		—		—		(12,424)		—		(12,424)
Issuance of common stock:
Exercise of options	2,000		—		18		—		—		18
Stock grants – vesting of restricted stock units	133,374		—		—		—		—		—
Repurchase of shares from restricted shares vesting	(42,947)		—		(1,120)		—		—		(1,120)
Stock repurchase	(137,583)		—		(2,457)		—		—		(2,457)
Balance: June 30, 2022	56,386,914	$	56	$	719,222	$	392,704	$	(9,073)	$	1,102,909

Balance: March 31, 2022	56,514,168	$	57	$	720,846	$	365,604	$	(3,932)	$	1,082,575
Net income	—		—		—		33,316		—		33,316
Other comprehensive loss	—		—		—		—		(5,141)		(5,141)
Stock based compensation	—		—		833		—		—		833
Cash dividend	—		—		—		(6,216)		—		(6,216)
Issuance of common stock:
Exercise of options	—		—		—		—		—		—
Stock grants – vesting of restricted stock units	10,674		(1)		—		—		—		(1)
Repurchase of shares from restricted shares vesting	(345)		—		—		—		—		—
Stock repurchase	(137,583)		—		(2,457)		—		—		(2,457)
Balance: June 30, 2022	56,386,914	$	56	$	719,222	$	392,704	$	(9,073)	$	1,102,909

Balance: December 31, 2020	44,667,650	$	45	$	433,941	$	247,638	$	14,087	$	695,711
Net income	—		—		—		48,409		—		48,409
Other comprehensive loss	—		—		—		—		(3,312)		(3,312)
Stock based compensation	—		—		1,629		—		—		1,629
Cash dividend	—		—		—		(8,050)		—		(8,050)
Issuance of common stock:
Exercise of options	75,807		—		819		—		—		819
Stock grants – vesting of restricted stock units	117,223		—		—		—		—		—
Repurchase of shares from restricted shares vesting	(40,937)		—		(1,188)		—		—		(1,188)
Balance: June 30, 2021	44,819,743	$	45	$	435,201	$	287,997	$	10,775	$	734,018

Balance: March 31, 2021	44,782,155	$	45	$	434,346	$	265,970	$	14,069	$	714,430
Net income	—		—		—		26,054		—		26,054
Other comprehensive loss	—		—		—		—		(3,294)		(3,294)
Stock based compensation	—		—		634		—		—		634
Cash dividend	—		—		—		(4,027)		—		(4,027)
Issuance of common stock:
Exercise of options	28,807		—		465		—		—		465
Stock grants – vesting of restricted stock units	9,138		—		—		—		—		—
Repurchase of shares from restricted shares vesting	(357)		—		(244)		—		—		(244)
Balance: June 30, 2021	44,819,743	$	45	$	435,201	$	287,997	$	10,775	$	734,018

(See accompanying notes to the consolidated financial statements)

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FIRST FOUNDATION INC.

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME - UNAUDITED

(In thousands)


	Quarter Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	33,316	$	26,054	$	64,152	$	48,409
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities arising during the period		(6,612)		(4,657)		(14,343)		(4,682)
Other comprehensive income (loss) before tax		(6,612)		(4,657)		(14,343)		(4,682)
Income tax benefit (expense) related to items of other comprehensive income		1,471		1,363		2,995		1,370
Other comprehensive income (loss)		(5,141)		(3,294)		(11,348)		(3,312)
Total comprehensive income	$	28,175	$	22,760	$	52,804	$	45,097

(See accompanying notes to the consolidated financial statements)

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FIRST FOUNDATION INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In thousands)


	For the Six Months Ended
	June 30,
	2022		2021
Cash Flows from Operating Activities:
Net income	$	64,152	$	48,409
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses - loans		(1,446)		(1,467)
Provision for credit losses - securities AFS		827		1,871
Stock–based compensation expense		2,037		1,629
Depreciation and amortization		2,019		1,655
Deferred tax expense		1,941		355
Amortization of premium (discount) on securities		1,677		399
Amortization of core deposit intangible		999		842
Amortization of mortgage servicing rights - net		1,070		935
Gain on sale of loans		—		(3,324)
Amortization of OCI - securities transfer to HTM		(591)		—
Valuation allowance on mortgage servicing rights - net		(319)		1,309
Increase in other assets		(6,482)		(10,695)
Increase (decrease) in accounts payable and other liabilities		4,476		(1,264)
Net cash provided by operating activities		70,360		40,654
Cash Flows from Investing Activities:
Net increase in loans		(2,016,119)		(841,088)
Proceeds from sale of loans		—		142,000
Purchase of premises and equipment		(3,523)		(1,826)
Disposals of premises and equipment		3,388		—
Recovery of allowance for credit losses		298		509
Purchases of securities AFS		(398)		(83,372)
Purchases of securities HTM		(171,852)		—
Proceeds from sale of securities		—		3,400
Maturities of securities AFS		18,524		143,712
Maturities of securities HTM		156,811		—
Sale of FHLB and FRB stock, net		999		—
Net cash used in investing activities		(2,011,872)		(636,665)
Cash Flows from Financing Activities:
Increase in deposits		726,784		1,193,369
Net increase (decrease) in FHLB advances		149,000		(255,000)
Line of credit net change – borrowings, net		(18,500)		6,000
Net increase in subordinated debt		147,608		—
Net increase in repurchase agreements		5,493		—
Gain on sale leaseback		(1,123)		—
Dividends paid		(12,424)		(8,050)
Proceeds from exercise of stock options		18		819
Repurchase of stock		(3,577)		(1,188)
Net cash provided by financing activities		993,279		935,950
Increase (decrease) in cash and cash equivalents		(948,233)		339,939
Cash and cash equivalents at beginning of year		1,121,757		629,707
Cash and cash equivalents at end of period	$	173,524	$	969,646
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes	$	22,500	$	17,424
Interest		10,563		10,019
Noncash transactions:
Transfer of loans to loans held for sale	$	—	$	132,521
Transfer of securities from available-for-sale to held-to-maturity		916,777		—
Goodwill acquisition adjustment		1,623		—
Operating lease liabilities recognized		5,428		—

(See accompanying notes to the consolidated financial statements)

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

NOTE 1: BASIS OF PRESENTATION

The consolidated financial statements include First Foundation Inc. (“FFI”) and its wholly owned subsidiaries: First Foundation Advisors (“FFA”) and First Foundation Bank (“FFB” or the “Bank”) and the wholly owned subsidiaries of FFB, First Foundation Insurance Services (“FFIS”), Blue Moon Management, LLC, and First Foundation Public Finance (“FFPF”) (collectively referred to as the “Company”). FFI also has two inactive wholly owned subsidiaries, First Foundation Consulting and First Foundation Advisors, LLC. All intercompany balances and transactions have been eliminated in consolidation. The results of operations reflect any interim adjustments, all of which are of a normal recurring nature and which, in the opinion of management, are necessary for a fair presentation of the results for the interim period presented. The results for the 2022 interim periods are not necessarily indicative of the results expected for the full year.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates.

The accompanying unaudited consolidated financial statements include all information and footnotes required for interim financial statement presentation. These financial statements assume that readers have read the most recent Annual Report on Form 10-K which contains the latest available audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2021.

Certain reclassifications have been made to the prior year consolidated financial statements to conform to the 2022 presentation.

New Accounting Pronouncements

In March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures”. ASU 2022-02 eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors and provides amendments to ASU 2016-13, Financial Instruments – Credit Losses on Financial Instruments by enhancing existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU 2022-02 also requires that entities disclose current-period gross write-offs by year of origination for financing receivables within the scope of Subtopic 326-20. For entities that have adopted the amendments in Update 2016-13, the amendments in this ASU are effective for fiscal years beginning after December 15, 2022. The adoption of ASU 2022-02 is not expected to have a significant impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. ASU 2020-04 provides optional guidance for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04 is not expected to have a significant impact on the Company’s consolidated financial statements.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

NOTE 2: ACQUISITIONS

On December 17, 2021, the Company completed the acquisition of TGR Financial, Inc. (“TGRF”) and its wholly owned subsidiary, First Florida Integrity Bank, through a merger of TGRF with and into FFI followed immediately by the merger of First Florida Integrity Bank with and into FFB, in exchange for 11,352,232 shares of FFI common stock with a fair value of $24.93 per share.

The acquisition was accounted for under the purchase method of accounting. The acquired assets, assumed liabilities and identifiable intangible assets are recorded at their respective acquisition date fair values. Goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining TGRF into FFI. None of the goodwill recognized is expected to be deductible for income tax purposes.

The following table represents the assets acquired and liabilities assumed of TGRF as of December 17, 2021 and the fair value adjustments and amounts recorded by the Company in 2021 under the acquisition method of accounting:


	TGRF Book		Fair Value
(dollars in thousands)	Value		Adjustments		Fair Value
Assets Acquired:
Cash and cash equivalents	$	1,145,335	$	5	$	1,145,340
Securities AFS		147,739		109		147,848
Securities held-to-maturity		71,790		2,115		73,905
Loans, net of deferred fees		1,045,193		(5,387)		1,039,806
Investment in FHLB stock		4,510		—		4,510
Premises and equipment, net		34,199		(4,180)		30,019
Goodwill and intangibles		181		129,850		130,031
Bank owned life insurance		46,163		—		46,163
Deferred taxes		3,414		738		4,152
Other assets		13,562		(298)		13,264
Total assets acquired	$	2,512,086	$	122,952	$	2,635,038

Liabilities Assumed:
Deposits	$	2,170,676	$	313	$	2,170,989
Borrowings		177,114		1,929		179,043
Accounts payable and other liabilities		7,386		182		7,568
Total liabilities assumed		2,355,176		2,424		2,357,600
Excess of assets acquired over liabilities assumed		156,910		120,528		277,438
Total	$	2,512,086	$	122,952	$	2,635,038

Consideration:
Stock issued					$	283,011
Cash paid						10
Total consideration ⁽¹⁾					$	283,021

(1)The difference between total consideration and the excess of assets acquired over liabilities assumed relates to the recognition of a credit loss reserve for non-PCD loans of $5.6 million, which is recognized as an expense in the consolidated income statement on the acquisition date.

In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the cash flows expected to result from those assets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used was that of acquired loans. The excess of expected cash

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

flows above the fair value (Level 3 inputs) of the majority of loans will be accreted to interest income over the remaining lives of the loans in accordance with Accounting Standards Codification (“ASC”) 310-20. The fair values are estimates and are subject to adjustment for up to one year after the merger date.

Certain loans, for which specific credit-related deterioration since origination was identified, are recorded at fair value reflecting the present value of the amounts expected to be collected. Income recognition on these purchased credit deteriorated (“PCD”) loans is based on a reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on nonaccrual status and have no accretable yield. All PCD loans were classified as accruing loans as of and subsequent to the acquisition date.

In accordance with generally accepted accounting principles there was no carryover of the allowance for credit losses that had been previously recorded by TGRF.

The Company recorded a deferred income tax asset of $4.2 million related to the acquisition of TGRF, including operating loss carry-forwards of $0.1 million that are subject to limitation under Section 382 of the Internal Revenue Code.

The fair value of savings and transaction deposit accounts acquired from TGRF were assumed to approximate their carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit accounts were valued by comparing the contractual cost of the portfolio to an identical portfolio bearing current market rates (Level 2 inputs). The portfolio was segregated into pools based on remaining maturity. For each pool, the projected cash flows from maturing certificates were then calculated based on contractual rates and prevailing market rates. The valuation adjustment for each pool is equal to the present value of the difference of these two cash flows, discounted at the assumed market rate for a certificate with a corresponding maturity. This valuation adjustment will be accreted to reduce interest expense over the remaining maturities of the respective pools. The Company also recorded a core deposit intangible, which represents the value of the deposit relationships acquired from TGRF, of $3.3 million. The core deposit intangible will be amortized over a period of 10 years.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

Pro Forma Information (unaudited)

The following table presents unaudited pro forma information for the six months ended June 30, 2021, as if the acquisition of TGRF had occurred on January 1, 2021, after giving effect to certain adjustments. The unaudited pro forma information for this period includes adjustments for interest income on loans acquired, amortization of intangibles arising from the transaction, adjustments for interest expense on deposits acquired, and the related income tax effects of all these items and the income tax costs or benefits derived from the income or loss before taxes of TGRF. The net effect of these pro forma adjustments was an increase of $1.0 million in net income for the six months ended June 30, 2021. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed dates.


	Six Months Ended
(dollars in thousands)	June 30, 2021
Net interest income	$	140,686
Provision for credit losses		11,572
Noninterest income		28,474
Noninterest expenses		117,319
Income before taxes		40,269
Taxes on income		16,451
Net income	$	23,818

Net income per share:
Basic	$	0.43
Diluted	$	0.42

NOTE 3: FAIR VALUE MEASUREMENTS

Assets Measured at Fair Value on a Recurring Basis

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

The following tables show the recorded amounts of assets and liabilities measured at fair value on a recurring basis as of:


			Fair Value Measurement Level
(dollars in thousands)	Total		Level 1		Level 2		Level 3
June 30, 2022:
Investment securities available for sale:
Collateralized mortgage obligations	$	10,005	$	—	$	10,005	$	—
Agency mortgage-backed securities		9,000		—		9,000		—
Municipal bonds		46,834		—		46,834		—
SBA securities		23,105		—		23,105		—
Beneficial interests in FHLMC securitization		8,990		—		—		8,990
Corporate bonds		141,499		—		141,499		—
U.S. Treasury		837		837		—		—
Investment in equity securities		16,025		—		—		16,025
Total assets at fair value on a recurring basis	$	256,295	$	837	$	230,443	$	25,015


December 31, 2021:
Investment securities available for sale:
Collateralized mortgage obligations	$	13,825	$	—	$	13,825	$	—
Agency mortgage-backed securities		928,989		—		928,989		—
Municipal bonds		52,146		—		52,146		—
SBA securities		27,972		—		27,972		—
Beneficial interests in FHLMC securitization		11,580		—		—		11,580
Corporate bonds		156,376		—		156,376		—
U.S. Treasury		490		490		—		—
Investment in equity securities		16,025		16,025		—		—
Total assets at fair value on a recurring basis	$	1,207,403	$	16,515	$	1,179,308	$	11,580

The increase in Level 3 assets from December 31, 2021, was due to securitization paydowns, a reclassification of investment in equity securities, and to $0.8 million in provisions for credit losses in the first six months of 2022. The reclassification was due to additional factors and assumptions that management utilized to determine the Investment in equity securities amount should presented as Level 3 assets at June 30, 2022. This reclassification did not change the fair value amounts assigned to these securities.

Assets Measured at Fair Value on a Nonrecurring Basis

From time to time, we may be required to measure other assets at fair value on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Loans. Loans measured at fair value on a nonrecurring basis include collateral dependent loans held for investment. The specific reserves for these loans are based on collateral value, net of estimated disposition costs and other identified quantitative inputs. Collateral value is determined based on independent third-party appraisals or internally-developed discounted cash flow analyses. Internal discounted cash flow analyses are also utilized to estimate the fair value of these loans, which considers internally-developed, unobservable inputs such as discount rates, default rates, and loss severity. When the fair value of the collateral is based on an observable market price or a current appraised value, we measure the impaired loan at nonrecurring Level 2. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price or a

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

discounted cash flow has been used to determine the fair value, we measure the impaired loan at nonrecurring Level 3. The total collateral dependent impaired Level 3 loans were $6.2 million and $2.8 million at June 30, 2022, and December 31, 2021, respectively. There were $0.7 million in specific reserves related to these loans at June 30, 2022 and no specific reserves at December 31, 2021.

Real Estate Owned. The fair value of real estate owned is based on external appraised values that include adjustments for estimated selling costs and assumptions of market conditions that are not directly observable, resulting in a Level 3 classification.

Mortgage Servicing Rights. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income, resulting in a Level 3 classification. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Significant assumptions in the valuation of these Level 3 mortgage servicing rights as of June 30, 2022 included prepayment rates ranging from 20% to 30% and a discount rate ranging from 2.56% to 10%.

Fair Value of Financial Instruments

FASB ASC 825-10, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. The methodologies for estimating the fair value of financial assets and financial liabilities measured at fair value on a recurring and non-recurring basis are discussed above. The estimated fair value amounts have been determined by management using available market information and appropriate valuation methodologies and are based on the exit price notion set forth by ASU 2016-01. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Company.

Fair value estimates are made at a discrete point in time based on relevant market information and other information about the financial instruments. Because no active market exists for a significant portion of our financial instruments, fair value estimates are based in large part on judgments we make primarily regarding current economic conditions, risk characteristics of various financial instruments, prepayment rates, and future expected loss experience. These estimates are subjective in nature and invariably involve some inherent uncertainties. Additionally, unexpected changes in events or circumstances can occur that could require us to make changes to our assumptions and which, in turn, could significantly affect and require us to make changes to our previous estimates of fair value.

In addition, the fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of existing and anticipated future customer relationships and the value of assets and liabilities that are not considered financial instruments, such as premises and equipment and other real estate owned.

The following methods and assumptions were used to estimate the fair value of financial instruments:

Cash and Cash Equivalents. The fair value of cash and cash equivalents approximates its carrying value.

Investment Securities Available for Sale. Investment securities available-for-sale are measured at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. When a market is illiquid or there is a lack of transparency around the inputs to valuation, the securities are classified as Level 3 and reliance is placed upon internally developed models, and management judgment and evaluation for valuation. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include beneficial interests in FHLMC securitizations and investment in equity securities. Significant assumptions in the valuation of these Level 3 securities as of June 30, 2022, and December 31, 2021 included prepayment rates ranging from 30% to 45% and discount rates ranging from 7.11% to 12.20%.

Investment in Equity Securities. The fair value on investment in equity securities is the carrying amount and is evaluated for impairment on an annual basis.

Federal Home Loan Bank Stock. The Bank is a member of the Federal Home Loan Bank (the “FHLB”). As a member, we are required to own stock of the FHLB, the amount of which is based primarily on the level of our borrowings from this institution. The fair value of the stock is equal to the carrying amount, is classified as restricted securities and is periodically evaluated for impairment based on our assessment of the ultimate recoverability of our investments in that stock. Any cash or stock dividends paid to us on such stock are reported as income.

Loans Held For Sale. The fair value of loans held for sale is determined using secondary market pricing.

Loans Held for Investment. The fair value for loans with variable interest rates is the carrying amount. The fair value of fixed rate loans is derived by calculating the discounted value of future cash flows expected to be received by the various homogeneous categories of loans or by reference to secondary market pricing. All loans have been adjusted to reflect changes in credit risk.

Deposits. The fair value of demand deposits, savings deposits, and money market deposits is defined as the amounts payable on demand. The fair value of fixed maturity certificates of deposit is estimated based on the discounted value of the future cash flows expected to be paid on the deposits.

Borrowings. The fair value on repurchase agreements is the carrying amount. The fair value of overnight FHLB advances is the carrying value that approximates fair value because of the short-term maturity of this instrument, resulting in a Level 2 classification. The fair value of term borrowings and subordinated debt are derived by calculating the discounted value of future cash flows expected to be paid out by the Company, resulting in a Level 3 classification.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

The carrying amounts and estimated fair values of financial instruments are as follows as of:


	Carrying		Fair Value Measurement Level
(dollars in thousands)	Value		1		2		3		Total
June 30, 2022:
Assets:
Cash and cash equivalents	$	173,524	$	173,524	$	—	$	—	$	173,524
Securities AFS, net		240,270		837		230,443		8,990		240,270
Securities HTM		930,562		—		859,636		—		859,636
Loans held for sale		485,296		—		485,053		—		485,053
Loans, net		8,905,676		—		—		8,901,213		8,901,213
Investment in FHLB stock		17,250		—		17,250		—		17,250
Investment in equity securities		16,025		—		—		16,025		16,025
Liabilities:
Deposits	$	9,538,744	$	8,882,941	$	652,524	$	—	$	9,535,465
Borrowings		493,728		320,423		—		161,446		481,869

December 31, 2021:
Assets:
Cash and cash equivalents	$	1,121,757	$	1,121,757	$	—	$	—	$	1,121,757
Securities AFS, net		1,191,378		490		1,179,308		11,580		1,191,378
Loans held for sale		501,436		—		515,978		—		515,978
Loans, net		6,872,952		—		—		7,072,878		7,072,878
Investment in FHLB stock		18,249		—		18,249		—		18,249
Investment in equity securities		16,025		16,025		—		—		16,025
Liabilities:
Deposits	$	8,811,960	$	8,143,473	$	668,487	$	—	$	8,811,960
Borrowings		210,127		165,930		—		44,197		210,127

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

NOTE 4: SECURITIES

The following table provides a summary of the Company’s securities AFS portfolio as of:


	Amortized		Gross Unrealized				Allowance for		Estimated
(dollars in thousands)	Cost		Gains		Losses		Credit Losses		Fair Value
June 30, 2022:
Collateralized mortgage obligations	$	10,941	$	—	$	(936)	$	—	$	10,005
Agency mortgage-backed securities		9,530		—		(530)		—		9,000
Municipal bonds		50,567		—		(3,733)		—		46,834
SBA securities		23,039		69		(3)		—		23,105
Beneficial interests in FHLMC securitization		20,015		201		—		(11,226)		8,990
Corporate bonds		147,635		191		(6,327)		—		141,499
U.S. Treasury		897		—		(60)		—		837
Total	$	262,624	$	461	$	(11,589)	$	(11,226)	$	240,270

December 31, 2021:
Collateralized mortgage obligations	$	13,862	$	—	$	(37)	$	—	$	13,825
Agency mortgage-backed securities		928,546		6,563		(6,120)		—		928,989
Municipal bonds		52,052		94		—		—		52,146
SBA securities		27,970		2		—		—		27,972
Beneficial interests in FHLMC securitization		21,606		373		—		(10,399)		11,580
Corporate bonds		154,027		2,441		(92)		—		156,376
U.S. Treasury		499		—		(9)		—		490
Total	$	1,198,562	$	9,473	$	(6,258)	$	(10,399)	$	1,191,378

As of June 30, 2022, US Treasury securities of $0.9 million included in the table above are pledged as collateral to the State of California to meet regulatory requirements related to the Bank’s trust operations, $239.8 million of agency mortgage-backed securities are pledged as collateral as support for the Bank’s obligations under loan sales and securitizations agreements entered into from 2018 and 2021, and $179.7 million of SBA securities are pledged as collateral for repurchase agreements obtained from the TGRF acquisition.

The following table provides a summary of the Company’s securities HTM portfolio as of:


	Amortized		Gross Unrecognized				Allowance for		Estimated
(dollars in thousands)	Cost		Gains		Losses		Credit Losses		Fair Value
June 30, 2022:
Agency mortgage-backed securities	$	930,562	$	—	$	(70,926)	$	—	$	859,636
Total	$	930,562	$	—	$	(70,926)	$	—	$	859,636

There were no securities HTM as of December 31, 2021.

The Company reassessed classification of certain securities AFS and effective January 1, 2022, the Company transferred $917 million in securities AFS to securities HTM. The securities were transferred at their amortized cost basis, net of any remaining unrealized gain or loss reported in accumulated other comprehensive income. The related unrealized loss of $0.6 million included in other comprehensive income remained in other comprehensive income to be amortized, with an offsetting entry to interest income as a yield adjustment through earnings over the remaining term of the securities. Subsequent to transfer, the ACL on these securities was evaluated under the accounting policy for securities HTM.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

We monitor the credit quality of these securities by evaluating various quantitative attributes. The credit quality indicators the Company monitors include, but are not limited to, credit ratings of individual securities and the credit rating of government sponsored enterprises that guarantee the securities. Credit ratings express opinions about the credit quality of a security. Securities rated investment grade, that is, those with ratings similar to BBB-/Baa3 or above, as defined by NRSROs, are generally considered by the rating agencies and market participants to be low credit risk. As of June 30, 2022, all of the Company’s securities were either investment grade or were issued by a U.S. government agency or a U.S. government sponsored enterprise with an investment grade rating.

The tables below indicate, as of June 30, 2022 and December 31, 2021, the gross unrealized losses and fair values of our investments AFS, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.


	Securities with Unrealized Loss at June 30, 2022
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
Collateralized mortgage obligations	$	9,979	$	(936)	$	—	$	—	$	9,979	$	(936)
Agency mortgage-backed securities		9,000		(530)		—		—		9,000		(530)
Municipal bonds		46,835		(3,733)		—		—		46,835		(3,733)
SBA securities		2,016		(3)		—		—		2,016		(3)
Corporate bonds		126,308		(6,327)		—		—		126,308		(6,327)
U.S. Treasury		838		(60)		—		—		838		(60)
Total temporarily impaired securities	$	194,976	$	(11,589)	$	—	$	—	$	194,976	$	(11,589)


	Securities with Unrealized Loss at December 31, 2021
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
Collateralized mortgage obligations	$	12,971	$	(37)	$	—	$	—	$	12,971	$	(37)
Agency mortgage-backed securities		434,973		(5,051)		36,136		(1,069)		471,109		(6,120)
Corporate bonds		47,880		(92)		—		—		47,880		(92)
U.S. Treasury		491		(9)		—		—		491		(9)
Total temporarily impaired securities	$	496,315	$	(5,189)	$	36,136	$	(1,069)	$	532,451	$	(6,258)

The table below indicates, as of June 30, 2022, the gross unrealized losses and fair values of our investments HTM, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.


	Securities with Unrecognized Loss at June 30, 2022
	Less than 12 months				12 months or more				Total
	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
Agency mortgage-backed securities	$	827,772	$	(68,544)	$	31,864	$	(2,382)	$	859,636	$	(70,926)
Total temporarily impaired securities	$	827,772	$	(68,544)	$	31,864	$	(2,382)	$	859,636	$	(70,926)

There were no securities HTM as of December 31, 2021.

Unrealized losses in agency mortgage backed securities, beneficial interests in FHLMC securitizations, and other securities have not been recognized into income because the issuer bonds are of high credit quality, management does not intend to sell, it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in discount rates and assumptions regarding future interest rates. The fair value is expected to recover as the bonds approach maturity.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

The following is a roll forward of our allowance for credit losses related to securities for the following periods:


(dollars in thousands)		Total

Three Months Ended June 30, 2022:
Beginning balance	$	10,743
Provision for credit losses		483
Balance: June 30, 2022	$	11,226

Six Months Ended June 30, 2022:
Beginning balance	$	10,399
Provision for credit losses		827
Balance: June 30, 2022	$	11,226

Year Ended December 31, 2021:
Beginning balance	$	7,245
Provision for credit losses		3,154
Balance: December 31, 2021	$	10,399

Due to a change in expected cash flows of interest only strip securities, $0.5 million and $0.8 million in allowances were taken in the three and six months ended June 30, 2022, respectively, and $0.2 million and $1.9 million in allowances were taken in the three and six months ended June 30, 2021, respectively. The allowances were included as a charge in provision for credit losses on the consolidated income statement.

The ACL on investment securities is determined for both held-to-maturity and available-for-sale classifications of the investment portfolio in accordance with ASC 326, and is evaluated on a quarterly basis. The ACL for held-to-maturity investment securities is determined on a collective basis, based on shared risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. Under ASC 326-20, for investment securities where the Company has reason to believe the credit loss exposure is remote, such as those guaranteed by the U.S. government or government sponsored entities, a zero loss expectation is applied and a company is not required to estimate and recognize an ACL.

For securities AFS in an unrealized loss position, the Company first evaluates whether it intends to sell, or whether it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of these criteria regarding intent or requirement to sell is met, the security amortized cost basis is written down to fair value through income. If neither criteria is met, the Company is required to assess whether the decline in fair value has resulted from credit losses or noncredit-related factors. In determining whether a security’s decline in fair value is credit related, the Company considers a number of factors including, but not limited to: (i) the extent to which the fair value of the investment is less than its amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) downgrades in credit ratings; (iv) payment structure of the security, and (v) the ability of the issuer of the security to make scheduled principal and interest payments. If, after considering these factors, the present value of expected cash flows to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit loss is recorded through income as a component of provision for credit loss expense. If the assessment indicates that a credit loss does not exist, the Company records the decline in fair value through other comprehensive income, net of related income tax effects. The Company has made the election to exclude accrued interest receivable on securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

The scheduled maturities of securities AFS and the related weighted average yields were as follows for the periods indicated:


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
June 30, 2022
Amortized Cost:
Collateralized mortgage obligations	$	—		$	—		$	740		$	10,201		$	10,941
Agency mortgage-backed securities		—			4,120			3,714			1,696			9,530
Municipal bonds		304			5,176			35,374			9,713			50,567
SBA securities		55			1,836			1,507			19,641			23,039
Beneficial interests in FHLMC securitization		—			10,546			—			9,469			20,015
Corporate bonds		6,018			10,412			125,671			5,534			147,635
U.S. Treasury		—			897			—			—			897
Total	$	6,377		$	32,987		$	167,006		$	56,254		$	262,624
Weighted average yield		1.97	%		1.98	%		3.48	%		2.00	%		2.94	%
Estimated Fair Value:
Collateralized mortgage obligations	$	—		$	—		$	687		$	9,318		$	10,005
Agency mortgage-backed securities		—			3,969			3,460			1,571			9,000
Municipal bonds		301			4,839			33,370			8,324			46,834
SBA securities		55			1,833			1,510			19,707			23,105
Beneficial interests in FHLMC securitization		—			10,546			—			9,670			20,216
Corporate bonds		5,985			9,877			120,654			4,983			141,499
U.S. Treasury		—			837			—			—			837
Total	$	6,341		$	31,901		$	159,681		$	53,573		$	251,496


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
December 31, 2021
Amortized Cost:
Collateralized mortgage obligations	$	—		$	710		$	802		$	12,350		$	13,862
Agency mortgage-backed securities		—			4,990			24,568			898,988			928,546
Municipal bonds		—			1,625			38,853			11,574			52,052
SBA securities		70			1,613			2,952			23,335			27,970
Beneficial interests in FHLMC securitization		—			11,902			—			9,704			21,606
Corporate bonds		9,534			10,519			128,438			5,536			154,027
U.S. Treasury		—			499			—			—			499
Total	$	9,604		$	31,858		$	195,613		$	961,487		$	1,198,562
Weighted average yield		(2.28)	%		2.06	%		3.03	%		1.63	%		1.84	%
Estimated Fair Value:
Collateralized mortgage obligations	$	—		$	710		$	799		$	12,316		$	13,825
Agency mortgage-backed securities		—			5,082			25,056			898,851			928,989
Municipal bonds		—			1,704			38,865			11,577			52,146
SBA securities		70			1,613			2,953			23,336			27,972
Beneficial interests in FHLMC securitization		—			11,902			—			10,077			21,979
Corporate bonds		9,529			10,499			130,754			5,594			156,376
U.S. Treasury		—			490			—			—			490
Total	$	9,599		$	32,000		$	198,427		$	961,751		$	1,201,777

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

The following is a summary of scheduled maturities of securities HTM and the related weighted average yields as of:


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
June 30, 2022
Amortized Cost:
Agency mortgage-backed securities	$	—		$	131		$	19,227		$	911,204		$	930,562
Total	$	—		$	131		$	19,227		$	911,204		$	930,562
Weighted average yield		—	%		0.28	%		1.05	%		1.72	%		1.70	%

Estimated Fair Value:
Agency mortgage-backed securities	$	—		$	123		$	17,937		$	841,576		$	859,636
Total	$	—		$	123		$	17,937		$	841,576		$	859,636

There were no securities HTM as of December 31, 2021.

NOTE 5: LOANS

The following is a summary of our loans as of:


	June 30,		December 31,
(dollars in thousands)	2022		2021
Outstanding principal balance:
Loans secured by real estate:
Residential properties:
Multifamily	$	3,953,717	$	2,886,055
Single family		958,348		933,445
Total real estate loans secured by residential properties		4,912,065		3,819,500
Commercial properties		1,237,664		1,309,200
Land and construction		170,887		156,028
Total real estate loans		6,320,616		5,284,728
Commercial and industrial loans		2,593,948		1,598,422
Consumer loans		10,845		10,834
Total loans		8,925,409		6,893,984
Premiums, discounts and deferred fees and expenses		13,432		12,744
Total	$	8,938,841	$	6,906,728

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

The following table summarizes our delinquent and nonaccrual loans as of:


	Past Due and Still Accruing												Total Past
							90 Days						Due and
(dollars in thousands)	30–59 Days			60-89 Days			or More			Nonaccrual			Nonaccrual			Current		Total
June 30, 2022:
Real estate loans:
Residential properties	$	480		$	—		$	—		$	3,154		$	3,634		$	4,924,740	$	4,928,374
Commercial properties		1,932			343			2,877			4,246			9,398			1,226,767		1,236,165
Land and construction		—			—			—			—			—			169,722		169,722
Commercial and industrial loans		823			2,064			—			3,684			6,571			2,587,155		2,593,726
Consumer loans		170			—			—			—			170			10,684		10,854
Total	$	3,405		$	2,407		$	2,877		$	11,084		$	19,773		$	8,919,068	$	8,938,841

Percentage of total loans		0.04	%		0.03	%		0.03	%		0.12	%		0.22	%

December 31, 2021:
Real estate loans:
Residential properties	$	1,519		$	310		$	—		$	3,281		$	5,110		$	3,827,385	$	3,832,495
Commercial properties		2,934			—			—			1,529			4,463			1,305,112		1,309,575
Land and construction		—			—			—			—			—			155,926		155,926
Commercial and industrial loans		303			260			—			3,520			4,083			1,593,782		1,597,865
Consumer loans		—			—			—			—			—			10,867		10,867
Total	$	4,756		$	570		$	—		$	8,330		$	13,656		$	6,893,072	$	6,906,728

Percentage of total loans		0.07	%		0.01	%		—	%		0.12	%		0.20	%

The following table summarizes our nonaccrual loans as of:


	Nonaccrual		Nonaccrual
	with Allowance		with no Allowance
(dollars in thousands)	for Credit Losses		for Credit Losses
June 30, 2022:
Real estate loans:
Residential properties	$	—	$	3,154
Commercial properties		—		4,246
Commercial and industrial loans		1,835		1,849
Total	$	1,835	$	9,249

December 31, 2021:
Real estate loans:
Residential properties	$	—	$	3,281
Commercial properties		—		1,529
Commercial and industrial loans		1,733		1,787
Total	$	1,733	$	6,597

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

The following table presents the loans classified as troubled debt restructurings (“TDR”) by accrual and nonaccrual status as of:


	June 30, 2022						December 31, 2021
(dollars in thousands)	Accrual		Nonaccrual		Total		Accrual		Nonaccrual		Total
Residential loans	$	—	$	—	$	—	$	1,200	$	—	$	1,200
Commercial real estate loans		976		1,121		2,097		1,021		1,174		2,195
Commercial and industrial loans		102		1,630		1,732		493		2,030		2,523
Total	$	1,078	$	2,751	$	3,829	$	2,714	$	3,204	$	5,918

The following table provides information on loans that were modified as TDRs for the following periods:


		Outstanding Recorded Investment
(dollars in thousands)	Number of loans	Pre-Modification		Post-Modification		Financial Impact
Six Months Ended June 30, 2022:
Commercial and industrial loans	1	$	236	$	236	$	—
Total	1	$	236	$	236	$	—

		Outstanding Recorded Investment
(dollars in thousands)	Number of loans	Pre-Modification		Post-Modification		Financial Impact
Year Ended December 31, 2021
Commercial and industrial loans	1	$	346	$	346	$	—
Total	1	$	346	$	346	$	—

All of these loans were classified as a TDR as a result of a reduction in required principal payments and an extension of the maturity date of the loans. These loans have been paying in accordance with the terms of their restructure.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

NOTE 6: ALLOWANCE FOR CREDIT LOSSES

The following is a roll forward of the Bank’s allowance for credit losses related to loans for the following periods:


					Initial Allowance
	Beginning		Provision for		on Acquired						Ending
(dollars in thousands)	Balance		Credit Losses		PCD Loans		Charge-offs		Recoveries		Balance
Three Months Ended June 30, 2022:
Real estate loans:
Residential properties	$	3,198	$	1,248	$	—	$	—	$	—	$	4,446
Commercial properties		15,636		(2,922)		—		—		—		12,714
Land and construction		1,768		(308)		—		—		—		1,460
Commercial and industrial loans		12,130		2,187		—		—		164		14,481
Consumer loans		90		(26)		—		—		—		64
Total	$	32,822	$	179	$		$	—	$	164	$	33,165

Six Months Ended June 30, 2022:
Real estate loans:
Residential properties	$	2,637	$	1,809	$	—	$	—	$	—	$	4,446
Commercial properties		17,049		(4,335)		—		—		—		12,714
Land and construction		1,995		(535)		—		—		—		1,460
Commercial and industrial loans		11,992		2,336		—		(145)		298		14,481
Consumer loans		103		(39)		—		—		—		64
Total	$	33,776	$	(764)	$	—	$	(145)	$	298	$	33,165

Year Ended December 31, 2021:
Real estate loans:
Residential properties	$	5,115	$	(1,453)	$	93	$	(1,118)	$	—	$	2,637
Commercial properties		8,711		774		7,564		—		—		17,049
Land and construction		892		1,051		52		—		—		1,995
Commercial and industrial loans		9,249		614		1,836		(706)		999		11,992
Consumer loans		233		(130)		—		—		—		103
Total	$	24,200	$	856	$	9,545	$	(1,824)	$	999	$	33,776

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

The following table presents the balance in the allowance for credit losses and the recorded investment in loans by impairment method as of:


	Allowance for Credit Losses
	Loans Evaluated
(dollars in thousands)	Individually		Collectively		Total
June 30, 2022:
Allowance for credit losses:
Real estate loans:
Residential properties	$	79	$	4,367	$	4,446
Commercial properties		5,170		7,544		12,714
Land and construction		—		1,460		1,460
Commercial and industrial loans		2,225		12,256		14,481
Consumer loans		—		64		64
Total	$	7,474	$	25,691	$	33,165
Loans:
Real estate loans:
Residential properties	$	8,376	$	4,919,998	$	4,928,374
Commercial properties		40,646		1,195,519		1,236,165
Land and construction		—		169,722		169,722
Commercial and industrial loans		8,108		2,585,618		2,593,726
Consumer loans		—		10,854		10,854
Total	$	57,130	$	8,881,711	$	8,938,841

December 31, 2021:
Allowance for credit losses:
Real estate loans:
Residential properties	$	111	$	2,526	$	2,637
Commercial properties		7,967		9,082		17,049
Land and construction		52		1,943		1,995
Commercial and industrial loans		2,386		9,606		11,992
Consumer loans		—		103		103
Total	$	10,516	$	23,260	$	33,776
Loans:
Real estate loans:
Residential properties	$	9,593	$	3,822,902	$	3,832,495
Commercial properties		41,313		1,268,262		1,309,575
Land and construction		694		155,232		155,926
Commercial and industrial loans		9,963		1,587,902		1,597,865
Consumer loans		—		10,867		10,867
Total	$	61,563	$	6,845,165	$	6,906,728

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

The following tables present risk categories of loans based on year of origination, as of:


													Revolving
(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Loans		Total
June 30, 2022:
Loans secured by real estate:
Residential
Multifamily
Pass	$	1,364,976	$	1,081,884	$	817,796	$	320,841	$	179,739	$	202,422	$	—	$	3,967,658
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total	$	1,364,976	$	1,081,884	$	817,796	$	320,841	$	179,739	$	202,422	$	—	$	3,967,658

Single family
Pass	$	130,550	$	292,826	$	100,637	$	44,070	$	52,904	$	261,117	$	70,211	$	952,315
Special mention		—		—		—		—		—		—		26		26
Substandard		—		—		—		—		—		8,238		137		8,375
Total	$	130,550	$	292,826	$	100,637	$	44,070	$	52,904	$	269,355	$	70,374	$	960,716

Commercial real estate
Pass	$	143,795	$	226,528	$	142,764	$	119,380	$	171,603	$	351,594	$	—	$	1,155,664
Special mention		—		13,715		46		16,243		5,772		7,990		—		43,766
Substandard		5,963		9,200		829		10,279		—		10,464		—		36,735
Total	$	149,758	$	249,443	$	143,639	$	145,902	$	177,375	$	370,048	$	—	$	1,236,165

Land and construction
Pass	$	32,273	$	54,823	$	48,199	$	12,272	$	5,145	$	2,678	$	—	$	155,390
Special mention		—		—		—		—		14,332		—		—		14,332
Substandard		—		—		—		—		—		—		—		—
Total	$	32,273	$	54,823	$	48,199	$	12,272	$	19,477	$	2,678	$	—	$	169,722

Commercial
Pass	$	855,797	$	439,281	$	224,157	$	91,489	$	41,946	$	41,136	$	881,333	$	2,575,139
Special mention		—		—		1,441		419		—		—		7,025		8,885
Substandard		—		331		2,563		1,902		518		2,502		1,886		9,702
Total	$	855,797	$	439,612	$	228,161	$	93,810	$	42,464	$	43,638	$	890,244	$	2,593,726

Consumer
Pass	$	522	$	2,285	$	4	$	356	$	284	$	74	$	7,195	$	10,720
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		134		—		—		—		134
Total	$	522	$	2,285	$	4	$	490	$	284	$	74	$	7,195	$	10,854

Total loans
Pass	$	2,527,913	$	2,097,627	$	1,333,557	$	588,408	$	451,621	$	859,021	$	958,739	$	8,816,886
Special mention		—		13,715		1,487		16,662		20,104		7,990		7,051		67,009
Substandard		5,963		9,531		3,392		12,315		518		21,204		2,023		54,946
Total	$	2,533,876	$	2,120,873	$	1,338,436	$	617,385	$	472,243	$	888,215	$	967,813	$	8,938,841

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED


													Revolving
(dollars in thousands)	2021		2020		2019		2018		2017		Prior		Loans		Total
December 31, 2021:
Loans secured by real estate:
Residential
Multifamily
Pass	$	1,092,903	$	868,483	$	418,346	$	265,872	$	141,433	$	108,529	$	—	$	2,895,566
Special mention		—		—		1,177		—		—		—		—		1,177
Substandard		—		—		—		—		—		—		—		—
Total	$	1,092,903	$	868,483	$	419,523	$	265,872	$	141,433	$	108,529	$	—	$	2,896,743

Single family
Pass	$	278,337	$	122,530	$	52,995	$	60,559	$	57,174	$	280,216	$	74,934	$	926,745
Special mention		—		—		—		—		—		—		26		26
Substandard		—		—		—		—		1,873		6,830		278		8,981
Total	$	278,337	$	122,530	$	52,995	$	60,559	$	59,047	$	287,046	$	75,238	$	935,752

Commercial real estate
Pass	$	114,678	$	39,135	$	59,426	$	94,930	$	115,614	$	804,295	$	—	$	1,228,078
Special mention		—		—		23,495		—		—		30,389		—		53,884
Substandard		—		—		2,934		—		2,217		22,462		—		27,613
Total	$	114,678	$	39,135	$	85,855	$	94,930	$	117,831	$	857,146	$	—	$	1,309,575

Land and construction
Pass	$	14,738	$	—	$	17,692	$	31,952	$	2,529	$	88,321	$	—	$	155,232
Special mention		—		—		—		—		—		694		—		694
Substandard		—		—		—		—		—		—		—		—
Total	$	14,738	$	—	$	17,692	$	31,952	$	2,529	$	89,015	$	—	$	155,926

Commercial
Pass	$	471,431	$	191,405	$	88,050	$	20,709	$	5,531	$	167,201	$	636,507	$	1,580,834
Special mention		883		1,101		833		—		—		1,370		2,790		6,977
Substandard		—		1,535		1,765		982		192		2,688		2,892		10,054
Total	$	472,314	$	194,041	$	90,648	$	21,691	$	5,723	$	171,259	$	642,189	$	1,597,865

Consumer
Pass	$	54	$	—	$	—	$	1,174	$	—	$	2,617	$	7,022	$	10,867
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total	$	54	$	—	$	—	$	1,174	$	—	$	2,617	$	7,022	$	10,867

Total loans
Pass	$	1,972,141	$	1,221,553	$	636,509	$	475,196	$	322,281	$	1,451,179	$	718,463	$	6,797,322
Special mention		883		1,101		25,505		—		—		32,453		2,816		62,758
Substandard		—		1,535		4,699		982		4,282		31,980		3,170		46,648
Total	$	1,973,024	$	1,224,189	$	666,713	$	476,178	$	326,563	$	1,515,612	$	724,449	$	6,906,728

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses and the related allowance for credit losses (“ACL”) allocated to these loans:


					Equipment/					ACL
(dollars in thousands)	Real Estate		Cash		Receivables		Total			Allocation
June 30, 2022:
Loans secured by real estate:
Residential properties
Single family	$	2,475	$	—	$	—	$	2,475	$	—
Commercial real estate loans		2,803		—		—		2,803		—
Commercial loans		—		250		700		950		700
Total	$	5,278	$	250	$	700	$	6,228	$	700

December 31, 2021:
Loans secured by real estate:
Residential properties
Single family	$	2,568	$	—	$	—	$	2,568	$	—
Commercial loans		—		250		—		250		—
Consumer loans		—		—		—		—		—
Total	$	2,568	$	250	$	—	$	2,818	$	—

NOTE 7: LOAN SALES AND MORTGAGE SERVICING RIGHTS

In 2021, FFB sold $559 million of multifamily loans and recognized a gain of $21.5 million. For sales of multifamily loans, FFB retained servicing rights for the majority of these loans and recognized mortgage servicing rights as part of the transactions. As of June 30, 2022, and December 31, 2021, mortgage servicing rights were $9.0 million and $6.8 million, respectively. The mortgage servicing rights as of June 30, 2022, and December 31, 2021, are net of $3.0 million and $1.9 million valuation allowances, respectively. The amount of loans serviced for others totaled $1.1 billion and $1.7 billion as of June 30, 2022, and December 31, 2021, respectively. Servicing fees were $0.9 million for both the six months ended June 30, 2022, and the six months ended June 30, 2021.

NOTE 8: DEPOSITS

The following table summarizes the outstanding balance of deposits and average rates paid thereon as of:


	June 30, 2022				December 31, 2021
			Weighted				Weighted
(dollars in thousands)	Amount		Average Rate		Amount		Average Rate
Demand deposits:
Noninterest-bearing	$	3,587,375	—		$	3,280,455	—
Interest-bearing		2,425,847	0.930	%		2,242,684	0.070	%
Money market and savings		2,869,719	0.643	%		2,620,336	0.275	%
Certificates of deposits		655,803	0.581	%		668,485	0.145	%
Total	$	9,538,744	0.470	%	$	8,811,960	0.111	%

At June 30, 2022, of the $391 million of certificates of deposits over $250,000, $383 million mature within one year and $8 million mature after one year. Of the $264 million of certificates of deposit of $250,000 or less, $209 million mature within one year and $55 million mature after one year. At December 31, 2021, of the $367 million of certificates of deposits over $250,000, $361 million mature within one year and $6 million mature after one year. Of the

Table of Contents

FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

$301 million of certificates of deposit of $250,000 or less, $229 million mature within one year and $72 million mature after one year.

NOTE 9: BORROWINGS

At June 30, 2022, our borrowings consisted of $149 million in an overnight FHLB advance at the Bank, $174 million in subordinated notes at the holding company, and $171 million of repurchase agreements at the Bank. At December 31, 2021, our borrowings consisted of $26 million in subordinated notes at FFI, $166 million of repurchase agreements at the Bank, and $18.5 million of borrowings under a holding company line of credit. The FHLB overnight advance was paid in full in the early part of July 2022 and bore an interest rate of 1.66%. As of June 30, 2022, $150 million of the subordinated notes are fixed-to-floating rate notes that mature in February 2032. The notes will initially bear a rate of 3.50% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2022, until February 1, 2027. From and including February 1, 2027 to, but excluding February 1, 2032, or the date of earlier redemption, the notes will bear interest at a floating rate per annum equal to the Benchmark rate (which is expected to be Three-Month Term Secured Overnight Financing Rate, or “SOFR”), each as defined in and subject to the provisions of the indenture under which the notes were issued, plus 204 basis points (2.04%), payable quarterly in arrears on February 1, May 1, August 1, and November 1 of each year, commencing on May 1, 2027. $24 million of the subordinated notes mature in June 2030 and bear a fixed interest rate of 6.0%, until June 30, 2025, at which time they will convert to a floating rate based on three month SOFR, plus 590 basis points (5.90%), until maturity.

As a matter of practice, the Bank provides substantially all of its qualifying loans as collateral to the FHLB or the Federal Reserve Bank. FHLB advances are collateralized primarily by loans secured by single family, multifamily, and commercial real estate properties with a carrying value of $5.0 billion as of June 30, 2022. The Bank’s total borrowing capacity from the FHLB at June 30, 2022 was $2.9 billion. The Bank had in place $315 million of letters of credit from the FHLB, as of June 30, 2022 which are used to meet collateral requirements for borrowings from the State of California and local agencies.

During 2017, FFI entered into a loan agreement with an unaffiliated lender that provides for a revolving line of credit for up to $20 million. The loan agreement matures in February 2023, with an option to extend the maturity date subject to certain conditions, and bears interest at Prime rate, plus 50 basis points (0.50%). FFI’s obligations under the loan agreement are secured by, among other things, a pledge of all of its equity in FFB. We are required to meet certain financial covenants during the term of the loan, including minimum capital levels and limits on classified assets. As of June 30, 2022, and December 31, 2021, FFI was in compliance with the covenants on this loan agreement.

The Bank also has $245 million available borrowing capacity through unsecured fed funds lines, ranging in size from $20 million to $100 million, with five other financial institutions, and a $133 million secured line with the Federal Reserve Bank, secured by single family loans. None of these lines had outstanding borrowings as June 30, 2022. Combined, the Bank’s unused lines of credit as of June 30, 2022, and December 31, 2021, were $3.2 billion and $3.1 billion, respectively. The average balance of overnight borrowings during the first six months of 2022 was $3.4 million, as compared to $1 million during all of 2021.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

NOTE 10: EARNINGS PER SHARE

Basic earnings per share excludes dilution and is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if contracts to issue common stock were exercised or converted into common stock that would then share in earnings. The following table sets forth the Company’s unaudited earnings per share calculations for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended				Three Months Ended
	June 30, 2022				June 30, 2021
(dollars in thousands, except per share amounts)	Basic		Diluted		Basic		Diluted
Net income	$	33,316	$	33,316	$	26,054	$	26,054
Basic common shares outstanding		56,471,470		56,471,470		44,792,358		44,792,358
Effect of options, restricted stock and contingent shares issuable				48,199				309,600
Diluted common shares outstanding				56,519,669				45,101,958
Earnings per share	$	0.59	$	0.59	$	0.58	$	0.58

Based on a weighted average basis, restricted stock units to purchase 6,820 shares of common stock were excluded for the three months ended June 30, 2021, because their effect would have been anti-dilutive.


	Six Months Ended				Six Months Ended
	June 30, 2022				June 30, 2021
(dollars in thousands, except share and per share amounts)	Basic		Diluted		Basic		Diluted
Net income	$	64,152	$	64,152	$	48,409	$	48,409
Basic common shares outstanding		56,468,678		56,468,678		44,750,272		44,750,272
Effect of options, restricted stock and contingent shares issuable				74,814				307,058
Diluted common shares outstanding				56,543,492				45,057,330
Earnings per share	$	1.14	$	1.13	$	1.08	$	1.07

Based on a weighted average basis, restricted stock units to purchase 62,267 shares of common stock were excluded for the six months ended June 30, 2021, because their effect would have been anti-dilutive.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

NOTE 11: SEGMENT REPORTING

For the three and six months ended June 30, 2022 and 2021, the Company had two reportable business segments: Banking (FFB and FFIS, Blue Moon, and FFPF) and Wealth Management (FFA). The results of FFI and any elimination entries are included in the column labeled “Other”. The following tables show key operating results for each of our business segments used to arrive at our consolidated totals for the following periods:


			Wealth
(dollars in thousands)	Banking		Management		Other		Total
Three Months Ended June 30, 2022:
Interest income	$	89,971	$	—	$	—	$	89,971
Interest expense		6,476		—		1,690		8,166
Net interest income		83,495		—		(1,690)		81,805
Provision for credit losses		173		—		—		173
Noninterest income		5,857		7,980		(437)		13,400
Noninterest expense		42,032		6,189		584		48,805
Income (loss) before taxes on income	$	47,147	$	1,791	$	(2,711)	$	46,227

Three Months Ended June 30, 2021:
Interest income	$	61,403	$	—	$	—	$	61,403
Interest expense		3,387		—		106		3,493
Net interest income		58,016		—		(106)		57,910
Provision for credit losses		44		—		—		44
Noninterest income		7,199		7,240		(404)		14,035
Noninterest expense		28,868		5,372		1,377		35,617
Income (loss) before taxes on income	$	36,303	$	1,868	$	(1,887)	$	36,284


			Wealth
(dollars in thousands)	Banking		Management		Other		Total
Six Months Ended June 30, 2022:
Interest income	$	169,115	$	—	$	—	$	169,115
Interest expense		9,889		—		2,927		12,816
Net interest income		159,226		—		(2,927)		156,299
Provision for credit losses		(619)		—		—		(619)
Noninterest income		13,388		16,325		(886)		28,827
Noninterest expense		82,133		12,833		1,457		96,423
Income (loss) before taxes on income	$	91,100	$	3,492	$	(5,270)	$	89,322

Six Months Ended June 30, 2021:
Interest income	$	120,541	$	—	$	—	$	120,541
Interest expense		8,235		—		167		8,402
Net interest income		112,306		—		(167)		112,139
Provision for credit losses		404		—		—		404
Noninterest income		12,508		14,163		(728)		25,943
Noninterest expense		57,447		11,103		1,578		70,128
Income (loss) before taxes on income	$	66,963	$	3,060	$	(2,473)	$	67,550

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 - UNAUDITED

NOTE 12: SUBSEQUENT EVENTS

Cash Dividend

On July 25, 2022, the Board of Directors of the Company declared a quarterly cash dividend of $0.11 per common share to be paid on August 16, 2022 to stockholders of record as of the close of business on August 6, 2022.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to facilitate the understanding and assessment of significant changes and trends in our businesses that accounted for the changes in our results of operations in the three and six months ended June 30, 2022 as compared to our results of operations in the three and six months ended June 30, 2021; and our financial condition at June 30, 2022 as compared to our financial condition at December 31, 2021. This discussion and analysis is based on and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto contained elsewhere in this report and our audited consolidated financial statements for the year ended December 31, 2021, and the notes thereto, which are set forth in Item 8 of our Annual Report on Form 10-K (our “2021 10-K”) which we filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022.

Forward-Looking Statements

Statements contained in this report that are not historical facts or that discuss our expectations, beliefs or views regarding our future financial performance or future financial condition, or financial or other trends in our business or in the markets in which we operate, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project,” “forecast” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” Such forward-looking statements are based on current information that is available to us, and on assumptions that we make, about future events or economic or financial conditions or trends over which we do not have control. In addition, our businesses and the markets in which we operate are subject to a number of risks and uncertainties. Those risks and uncertainties, and unexpected future events, could cause our financial condition or actual operating results in the future to differ, possibly significantly, from our expected financial condition and operating results that are set forth in the forward-looking statements contained in this report.

The principal risks and uncertainties to which our businesses are subject are discussed in this Item 2 and under the heading “Risk Factors” in our 2021 10-K. Therefore, you are urged to read not only the information contained in this Item 2, but also the risk factors and other cautionary information contained under the heading “Risk Factors” in our 2021 10-K, which qualify the forward-looking statements contained in this report.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and may continue to adversely affect, our business, operations, financial performance and prospects. Even after the COVID-19 pandemic subsides, it is possible that the U.S. and other major economies experience or continue to experience a prolonged recession, which could materially and adversely affect our business, operations, financial performance and prospects. Statements about the effects of the COVID-19 pandemic on our business, operations, financial performance and prospects may constitute forward-looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us.

Due to these risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements contained in this report and not to make predictions about our future financial performance based solely on our historical financial performance. We also disclaim any obligation to update forward-looking statements contained in this report or in our 2021 10-K, except as may otherwise be required by applicable law or government regulations.

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Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and accounting practices in the banking industry. Certain of those accounting policies are considered critical accounting policies, because they require us to make estimates and assumptions regarding circumstances or trends that could materially affect the value of those assets, such as economic conditions or trends that could impact our ability to fully collect our loans or ultimately realize the carrying value of certain of our other assets. Those estimates and assumptions are made based on current information available to us regarding those economic conditions or trends or other circumstances. If changes were to occur in the events, trends or other circumstances on which our estimates or assumptions were based, or other unanticipated events were to occur that might affect our operations, we may be required under GAAP to adjust our earlier estimates and to reduce the carrying values of the affected assets on our balance sheet, generally by means of charges against income, which could also affect our results of operations in the fiscal periods when those charges are recognized.

Allowance for Credit Losses – Investment Securities – The ACL on investment securities is determined for both held-to-maturity and available-for-sale classifications of the investment portfolio in accordance with ASC 326, and is evaluated on a quarterly basis. The ACL for held-to-maturity investment securities is determined on a collective basis, based on shared risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. Under ASC 326-20, for investment securities where the Company has reason to believe the credit loss exposure is remote, such as those guaranteed by the U.S. government or government sponsored entities, a zero loss expectation is applied and a company is not required to estimate and recognize an ACL.

Allowance for Credit Losses - Loans. Our ACL for loans is established through a provision for credit losses charged to expense and may be reduced by a recapture of previously established loss reserves, which are also reflected in the statement of income. Loans are charged against the ACL when management believes that collectability of the principal is unlikely. The ACL for loans is an amount that management believes will be adequate to absorb estimated losses on existing loans that may become uncollectible based on an evaluation of the collectability of loans and prior loan loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions and certain other subjective factors that may affect the borrower’s ability to pay. While we use the best information available to make this evaluation, future adjustments to our ACL may be necessary if there are significant changes in economic or other conditions that can affect the collectability in full of loans and investments in our loan or investment portfolios.

Utilization and Valuation of Deferred Income Tax Benefits. We record as a “deferred tax asset” on our balance sheet an amount equal to the tax credit and tax loss carryforwards and tax deductions (collectively “tax benefits”) that we believe will be available to us to offset or reduce income taxes in future periods. Under applicable federal and state income

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tax laws and regulations, tax benefits related to tax loss carryforwards will expire if they cannot be used within specified periods of time. Accordingly, the ability to fully use our deferred tax asset related to tax loss carryforwards to reduce income taxes in the future depends on the amount of taxable income that we generate during those time periods. At least once each year, or more frequently, if warranted, we make estimates of future taxable income that we believe we are likely to generate during those future periods. If we conclude, on the basis of those estimates and the amount of the tax benefits available to us, that it is more likely than not that we will be able to fully utilize those tax benefits prior to their expiration, we recognize the deferred tax asset in full on our balance sheet. On the other hand, if we conclude on the basis of those estimates and the amount of the tax benefits available to us that it has become more likely than not that we will be unable to utilize those tax benefits in full prior to their expiration, then we would establish a valuation allowance to reduce the deferred tax asset on our balance sheet to the amount with respect to which we believe it is still more likely than not that we will be able to use to offset or reduce taxes in the future. The establishment of such a valuation allowance, or any increase in an existing valuation allowance, would be effectuated through a charge to the provision for income taxes or a reduction in any income tax credit for the period in which such valuation allowance is established or increased.

We have two business segments, “Banking” and “Wealth Management.” Banking includes the operations of FFB, FFIS, Blue Moon, and FFPF, while Wealth Management includes the operations of FFA. The financial position and operating results of the stand-alone holding company, FFI, are included under the caption “Other” in certain of the tables that follow, along with any consolidation elimination entries.

Overview and Recent Developments

Our results of operations for the first six months of 2022 include:

●

Total loans, including loans held for sale, increased $2 billion in the six months ended June 30, 2022 as a result of $3.4 billion of originations, which was partially offset by payoffs or scheduled payments of $1.4 billion.

●

During the six months ended June 30, 2022, total deposits increased by $727 million and total revenues (net interest income and noninterest income) increased by 34% when compared to the six months ended June 30, 2021.

Results of Operations

The primary sources of revenue for Banking are net interest income, fees from its deposits and trust services, gains on sales of loans, certain loan fees, and consulting fees. The primary sources of revenue for Wealth Management are asset management fees assessed on the balance of assets under management (“AUM”). Compensation and benefit costs, which represent the largest component of noninterest expense, accounted for 57% and 78%, respectively, of the total noninterest expense for Banking and Wealth Management in the six months ended June 30, 2022.

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The following table shows key operating results for each of our business segments for the three months ended June 30:


			Wealth
(dollars in thousands)	Banking		Management		Other		Total
2022:
Interest income	$	89,971	$	—	$	—	$	89,971
Interest expense		6,476		—		1,690		8,166
Net interest income		83,495		—		(1,690)		81,805
Provision for credit losses		173		—		—		173
Noninterest income		5,857		7,980		(437)		13,400
Noninterest expense		42,032		6,189		584		48,805
Income (loss) before taxes on income	$	47,147	$	1,791	$	(2,711)	$	46,227

2021:
Interest income	$	61,403	$	—	$	—	$	61,403
Interest expense		3,387		—		106		3,493
Net interest income		58,016		—		(106)		57,910
Provision for credit losses		44		—		—		44
Noninterest income		7,199		7,240		(404)		14,035
Noninterest expense		28,868		5,372		1,377		35,617
Income (loss) before taxes on income	$	36,303	$	1,868	$	(1,887)	$	36,284

General. Our net income and income before taxes in the three months ended June 30, 2022 were $33.3 million and $46.2 million, respectively, as compared to $26.1 million and $36.3 million, respectively, in the three months ended June 30, 2021. The $9.9 million increase in income before taxes was the result of a $10.8 million increase in income before taxes for Banking, which was partially offset by a $0.1 million decrease in Wealth Management and a $0.8 million increase in corporate expenses. The increase in Banking was due to higher net interest income, which was partially offset by an increase in noninterest expenses. The decrease in Wealth Management was due to higher noninterest expenses, which was partially offset by an increase in noninterest income. The increase in corporate expenses was due primarily to an increase in interest expense from subordinated debt acquired in the TGRF acquisition and the $150 million of subordinated notes issued by the Company in the first quarter of 2022.

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The following table shows key operating results for each of our business segments for the six months ended June 30:


			Wealth
(dollars in thousands)	Banking		Management		Other		Total
2022:
Interest income	$	169,115	$	—	$	—	$	169,115
Interest expense		9,889		—		2,927		12,816
Net interest income		159,226		—		(2,927)		156,299
Provision for credit losses		(619)		—		—		(619)
Noninterest income		13,388		16,325		(886)		28,827
Noninterest expense		82,133		12,833		1,457		96,423
Income (loss) before taxes on income	$	91,100	$	3,492	$	(5,270)	$	89,322

2021:
Interest income	$	120,541	$	—	$	—	$	120,541
Interest expense		8,235		—		167		8,402
Net interest income		112,306		—		(167)		112,139
Provision for credit losses		404		—		—		404
Noninterest income		12,508		14,163		(728)		25,943
Noninterest expense		57,447		11,103		1,578		70,128
Income (loss) before taxes on income	$	66,963	$	3,060	$	(2,473)	$	67,550

General. Our net income and income before taxes in the six months ended June 30, 2022 were $64.2 million and $89.3 million, respectively, as compared to $48.4 million and $67.6 million, respectively, in the six months ended June 30, 2021. The $21.7 million increase in income before taxes was the result of a $24.1 million increase in income before taxes for Banking and a $0.4 million increase in income before taxes for Wealth Management, which was partially offset by a $2.8 million increase in corporate expenses. The increase in Banking was due to higher net interest income, higher noninterest income, and lower provision for credit losses. The increase in Wealth Management was due to higher noninterest income. The increase in corporate expenses was due primarily to an increase in interest expense from subordinated debt acquired in the TGRF acquisition and the $150 million of subordinated notes issued by the Company in the first quarter of 2022.

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Net Interest Income. The following tables set forth, for the periods indicated, information regarding (i) the total dollar amount of interest income from interest-earning assets and the resultant average yields on those assets; (ii) the total dollar amount of interest expense and the average rate of interest on our interest-bearing liabilities; (iii) net interest income; (iv) net interest rate spread; and (v) net interest margin:


	Three Months Ended June 30:
	2022						2021
	Average				Average		Average				Average
(dollars in thousands)	Balances		Interest		Yield /Rate		Balances		Interest		Yield /Rate
Interest-earning assets:
Loans	$	8,497,504	$	82,032	3.86	%	$	5,780,494	$	55,979	3.88	%
Securities AFS		267,634		2,006	3.00	%		741,967		4,927	2.66	%
Securities HTM		949,893		4,615	1.94	%		—		—	—	%
FHLB stock, fed funds, and deposits		569,002		1,318	0.93	%		727,053		497	0.27	%
Total interest-earning assets		10,284,033		89,971	3.50	%		7,249,514		61,403	3.39	%
Noninterest-earning assets:
Nonperforming assets		10,459						16,500
Other		437,320						193,334
Total assets	$	10,731,812					$	7,459,348
Interest-bearing liabilities:
Demand deposits	$	2,461,369	$	2,870	0.47	%	$	940,133	$	556	0.24	%
Money market and savings		2,643,388		2,700	0.41	%		2,271,899		2,137	0.38	%
Certificates of deposit		646,527		770	0.48	%		720,326		694	0.39	%
Total interest-bearing deposits		5,751,284		6,340	0.44	%		3,932,358		3,387	0.35	%
Borrowings		327,212		1,826	2.27	%		12,980		106	3.26	%
Total interest-bearing liabilities		6,078,496		8,166	0.54	%		3,945,338		3,493	0.35	%
Noninterest-bearing liabilities:
Demand deposits		3,479,847						2,751,013
Other liabilities		85,649						42,761
Total liabilities		9,643,992						6,739,112
Shareholders’ equity		1,087,820						720,236
Total liabilities and equity	$	10,731,812					$	7,459,348
Net Interest Income			$	81,805					$	57,910
Net Interest Rate Spread					2.96	%					3.04	%
Net Interest Margin					3.18	%					3.20	%

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	Six Months Ended June 30:
	2022						2021
	Average				Average		Average				Average
(dollars in thousands)	Balances		Interest		Yield /Rate		Balances		Interest		Yield /Rate
Interest-earning assets:
Loans	$	8,015,946	$	154,059	3.85	%	$	5,583,216	$	109,510	3.93	%
Securities AFS		572,754		6,949	2.43	%		757,002		10,133	2.68	%
Securities HTM		634,994		6,032	1.90	%		—		—	—	%
FHLB stock, fed funds and deposits		889,110		2,075	0.47	%		720,750		898	0.25	%
Total interest-earning assets		10,112,804		169,115	3.35	%		7,060,968		120,541	3.42	%
Noninterest-earning assets:
Nonperforming assets		10,292						17,322
Other		443,265						191,498
Total assets	$	10,566,361					$	7,269,788
Interest-bearing liabilities:
Demand deposits	$	2,410,633	$	3,921	0.33	%	$	955,198	$	1,430	0.30	%
Money market and savings		2,627,287		4,572	0.35	%		2,307,010		4,719	0.41	%
Certificates of deposit		650,382		1,205	0.37	%		790,298		1,861	0.47	%
Total interest-bearing deposits		5,688,302		9,698	0.34	%		4,052,506		8,010	0.40	%
Borrowings		314,296		3,118	2.02	%		108,999		392	0.73	%
Total interest-bearing liabilities		6,002,598		12,816	0.43	%		4,161,505		8,402	0.41	%
Noninterest-bearing liabilities:
Demand deposits		3,397,948						2,343,141
Other liabilities		90,042						54,742
Total liabilities		9,490,588						6,559,388
Stockholders’ equity		1,075,773						710,400
Total liabilities and equity	$	10,566,361					$	7,269,788
Net Interest Income			$	156,299					$	112,139
Net Interest Rate Spread					2.92	%					3.01	%
Net Interest Margin					3.10	%					3.18	%

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Net interest income is impacted by the volume (changes in volume multiplied by prior rate), interest rate (changes in rate multiplied by prior volume) and mix of interest-earning assets and interest-bearing liabilities. Variances attributable to both rate and volume changes, calculated by multiplying the change in rates by the change in average balances, have been allocated to the rate variance. The following table provides a breakdown of the changes in net interest income due to volume and rate changes for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021:


	Quarter Ended							Six Months Ended
	June 30, 2022 vs. 2021						June 30, 2022 vs. 2021
	Increase (Decrease) due to						Increase (Decrease) due to
(dollars in thousands)	Volume		Rate		Total		Volume		Rate		Total
Interest earned on:
Loans	$	26,217	$	(164)	$	26,053	$	46,711	$	(2,162)	$	44,549
Securities AFS		(3,484)		563		(2,921)		(2,306)		(878)		(3,184)
Securities HTM		2,307		2,308		4,615		3,041		2,991		6,032
Cash, FHLB stock, fed funds and deposits		(135)		956		821		246		931		1,177
Total interest-earning assets		24,905		3,663		28,568		47,692		882		48,574
Interest paid on:
Demand deposits		1,439		875		2,314		2,357		134		2,491
Money market and savings		370		193		563		607		(754)		(147)
Certificates of deposit		(77)		153		76		(298)		(358)		(656)
Borrowings		1,762		(42)		1,720		1,389		1,337		2,726
Total interest-bearing liabilities		3,494		1,179		4,673		4,055		359		4,414
Net interest income	$	21,411	$	2,484	$	23,895	$	43,637	$	523	$	44,160

Net interest income increased 41%, from $57.9 million in the three months ended June 30, 2021, to $81.8 million in the three months ended June 30, 2022, due to a 42% increase in interest-earning assets. On a consolidated basis our net interest margin decreased from 3.20% in the three months ended June 30, 2021, to 3.18% in the three months ended June 30, 2022, due to an increase in the cost of interest-bearing liabilities, from 0.35% in the three months ended June 30, 2021, to 0.54% in the three months ended June 30, 2022, which was partially offset by an increase in yield on interest-earning assets, from 3.39% in the three months ended June 30, 2021, to 3.50% in the three months ended June 30, 2022. The increase in interest-earning assets was due to a 47% increase in average loans, from $5.8 billion in the three months ended June 30, 2021, to $8.5 billion in the three months ended June 30, 2022. The increase in the cost of interest-bearing liabilities was due to increased costs of interest-bearing deposits, resulting from increases in deposit market rates, and an increase in borrowings. The average rate on interest-bearing deposits increased from 0.35% in the three months ended June 30, 2021, to 0.44% in the three months ended June 30, 2022, and the average balance increased from $3.9 billion in the three months ended June 30, 2021, to $5.8 billion in the three months ended June 30, 2022. The average balance outstanding on borrowings increased from $13 million in the three months ended June 30, 2021, to $327.2 million in the three months ended June 30, 2022. The increase in borrowings was due to the issuance of $150 million in subordinated notes in the first quarter of 2022, and the assumption of $165 million in repurchase agreements and $23 million in subordinated notes acquired from the TGRF acquisition in the fourth quarter of 2021. The average balance outstanding under the holding company subordinated debt was $173.3 million in the three months ended June 30, 2022.

Net interest income increased 39%, from $112.1 million in the six months ended June 30, 2021, to $156.3 million in the six months ended June 30, 2022, due primarily to a 43% increase in interest-earning assets. On a consolidated basis our net interest margin was 3.10% for the six months ended June 30, 2022, as compared to 3.18% in the six months ended June 30, 2021. This decrease was due to a decrease in the net interest rate spread, from 3.01% in the six months ended June 30, 2021, to 2.92% in the six months ended June 30, 2022. The decrease in the net interest rate spread was due to an increase in the cost of interest-bearing liabilities, from 0.41% in the six months ended June 30, 2021, to 0.43% in the six months ended June 30, 2022, and a decrease in yield on total interest-earning assets, from 3.42% in the six months ended June 30, 2021, to 3.35% in the six months ended June 30, 2022, which was offset partially by a 43.6% increase in average loans, from $5.6 billion in the six months ended June 30, 2021, to $8.0 billion in the six months ended June 30, 2022. The increase in the cost of interest-bearing liabilities was due to increased costs of interest-bearing deposits, resulting from increases in deposit market rates, and an increase in borrowings. The average balance outstanding on borrowings increased

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from $109 million in the six months ended June 30, 2021, to $314.3 million in the six months ended June 30, 2022. The average balance outstanding under the holding company subordinated debt was $154.5 million in the six months ended June 30, 2022. The average balance outstanding under the holding company line of credit decreased from $9.1 million in the six months ended June 30, 2021, to $0.2 million in the six months ended June 30, 2022.

Provision for credit losses. The provision for credit losses represents our estimate of the amount necessary to be charged against the current period’s earnings to maintain the ACL for loans and investments at a level that we consider adequate in relation to the estimated losses inherent in the loan and investment portfolios. The provision for credit losses for loans is impacted by changes in loan balances as well as changes in estimated loss assumptions and charge-offs and recoveries. The amount of the provision for loans also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions and certain other subjective factors that may affect the ability of borrowers to meet their repayment obligations to us. The provision for credit losses for the three months ended June 30, 2022 was $0.2 million and net chargeoffs of $0.6 million for the six months ended June 30, 2022, compared to provisions of $44,000 and $0.4 million, for the three and six months ended June 30, 2021, respectively. Net recoveries were $0.2 million for the three and six months ended June 30, 2022, as compared to net chargeoffs of $0.1 million and net recoveries of $0.1 million for the three and six months ended June 30, 2021, respectively. The decrease in the provision for credit losses for the six months ended June 30, 2022 was a result of the release of specific reserves related to purchase credit deteriorated (“PCD”) loans from prior acquisitions.

Noninterest income. Noninterest income for Banking includes fees charged to clients for trust services and deposit services, consulting fees, prepayment and late fees charged on loans, gain on sale of loans, and gains and losses from capital market activities and insurance commissions. The following table provides a breakdown of noninterest income for Banking for the three and six months ended June 30, 2022 and 2021:


(dollars in thousands)	2022		2021
Three Months Ended June 30:
Trust fees	$	2,149	$	1,763
Loan related fees		2,071		1,324
Deposit charges		665		397
Gain on sale of loans		—		3,324
Consulting fees		100		100
Other		872		291
Total noninterest income	$	5,857	$	7,199

Six Months Ended June 30:
Trust fees	$	4,257	$	3,431
Loan related fees		4,633		4,268
Deposit charges		1,309		776
Gain on sale leaseback		1,123		—
Gain on sale of loans		—		3,324
Consulting fees		195		201
Other		1,871		508
Total noninterest income	$	13,388	$	12,508

Noninterest income for Banking decreased in the three months ended June 30, 2022, by $1.3 million due to a $3.3 million gain on sale of loans in the three months ended June 30, 2021, offset partially by increases in trust and loan related fees. Noninterest income for Banking increased by $0.9 million in the six months ended June 30, 2022, due to a $1.1 million gain on a sale leaseback transaction, a $0.4 million increase in loan related fees, $0.8 million increase in trust fees, and a $0.5 million increase in deposit charges, offset partially by the gain on sale of loans in the six months ended June 30, 3021. The increase in trust fees was due primarily to higher levels of billable assets under advisement (“AUA”). The increase in loan fees was primarily due to higher prepayment fees and higher servicing fees. The increase in deposit charges was due to higher levels of deposits.

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Noninterest income for Wealth Management includes fees charged to high net-worth clients for managing their assets and for providing financial planning consulting services. The following table provides the amounts of noninterest income for Wealth Management for the three and six months ended June 30, 2022 and 2021:


(dollars in thousands)	2022		2021
Three Months Ended June 30:
Noninterest income	$	7,980	$	7,240

Six Months Ended June 30:
Noninterest income	$	16,325	$	14,163

Noninterest income for Wealth Management increased by $0.7 million and $2.2 million in the three and six months ended June 30, 2022 when compared to the corresponding periods in 2021, due primarily to higher levels of billable AUM in the quarter and six months ended June 30, 2022.

The following table summarizes the activity in our AUM for the periods indicated:


			Existing account
	Beginning		Additions/		New
(dollars in thousands)	Balance		Withdrawals		Accounts		Terminations		Performance		Ending balance
Three Months Ended June 30, 2022:
Fixed income	$	1,275,399	$	13,546	$	47,149	$	(6,503)	$	(73,712)	$	1,255,879
Equities		3,097,277		(76,582)		32,949		(23,635)		(555,498)		2,474,511
Cash and other		1,083,066		33,496		19,543		(19,101)		(25,615)		1,091,389
Total	$	5,455,742	$	(29,540)	$	99,641	$	(49,239)	$	(654,825)	$	4,821,779

Six Months Ended June 30, 2022:
Fixed income	$	1,303,760	$	35,549	$	91,189	$	(18,128)	$	(156,491)	$	1,255,879
Equities		3,330,639		(41,446)		79,135		(53,086)		(840,731)		2,474,511
Cash and other		1,046,206		20,353		52,518		(34,639)		6,951		1,091,389
Total	$	5,680,605	$	14,456	$	222,842	$	(105,853)	$	(990,271)	$	4,821,779

Year Ended December 31, 2021:
Fixed income	$	1,474,479	$	(195,117)	$	71,181	$	(45,818)	$	(965)	$	1,303,760
Equities		2,451,056		448,338		200,073		(156,809)		387,981		3,330,639
Cash and other		1,001,256		(209,727)		146,701		(84,213)		192,189		1,046,206
Total	$	4,926,791	$	43,494	$	417,955	$	(286,840)	$	579,205	$	5,680,605

The $859 million decrease in AUM during the six months ended June 30, 2022, was the net result of $223 million of new accounts, $990 million of portfolio losses, and terminations and net withdrawals of $91 million.

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Noninterest Expense. The following table provides a breakdown of noninterest expense for Banking and Wealth Management for the periods indicated:


	Banking				Wealth Management
(dollars in thousands)	2022		2021		2022		2021
Three Months Ended June 30:
Compensation and benefits	$	22,567	$	15,835	$	4,801	$	4,130
Occupancy and depreciation		8,356		5,268		458		442
Professional services and marketing		2,237		2,296		730		677
Customer service costs		4,611		2,353		—		—
Other expenses		4,261		3,116		200		123
Total noninterest expense	$	42,032	$	28,868	$	6,189	$	5,372

Six Months Ended June 30:
Compensation and benefits	$	46,843	$	32,658	$	10,013	$	8,577
Occupancy and depreciation		16,469		10,907		912		963
Professional services and marketing		4,580		4,067		1,545		1,316
Customer service costs		6,399		4,123		—		—
Other expenses		7,842		5,692		363		247
Total noninterest expense	$	82,133	$	57,447	$	12,833	$	11,103

Noninterest expense for Banking increased from $28.9 million in the three months ended June 30, 2021, to $42.0 million in the three months ended June 30, 2022, primarily due to higher compensation and benefits, occupancy and depreciation, customer service costs, and other expenses. Compensation and benefits were $6.7 million higher in the three months ended June 30, 2022, due to increases in FTE. The FTE for Banking increased to 661.2 in the three months ended June 30, 2022, from 458.3 in the three months ended June 30, 2021, due to increased staffing related to additional personnel from the TGRF acquisition, and to support the growth in loans and deposits. The $3.1 million increase in occupancy and depreciation expenses for Banking in the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, was due to the TGRF acquisition and increases in higher core processing costs related to higher volumes and services. The $2.3 million increase in customer service costs for Banking in the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, was due to higher earnings credits paid on increases in deposit balances. The $1.1 million increase in other expenses for Banking in the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, were due to additional activities related to the acquisitions, primarily amortization of core deposit intangibles and FDIC insurance. Noninterest expenses for Wealth Management increased by $0.8 million in the second quarter of 2022 when compared to the second quarter of 2021 due to higher compensation and benefits expenses.

Noninterest expense for Banking increased from $57.4 million in the six months ended June 30, 2021, to $82.1 million in the six months ended June 30, 2022, primarily due to higher compensation and benefits, occupancy and depreciation, and customer service costs. Compensation and benefits for Banking increased from $32.7 million in the six months ended June 30, 2021, to $46.8 million in the six months ended June 30, 2022, due to increases in FTE. The FTE for Banking increased to 642.4 in the six months ended June 30, 2022, from 450.2 in the six months ended June 30, 2021, due to increased staffing related to additional personnel from the TGRF acquisition, and to support the growth in loans and deposits. The $5.6 million increase in occupancy and depreciation expenses for Banking in the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was due to the TGRF acquisition and increases in higher core processing costs related to higher volumes and services. The $2.3 million increase in customer service costs for Banking in the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was due to higher earnings credits paid on increases in deposit balances. The $2.2 million increase in other expenses for Banking in the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, were due to additional activities related to the acquisitions, primarily amortization of core deposit intangibles and FDIC insurance. Noninterest expenses for Wealth Management increased by $1.7 million in the six months ended June 30, 2022, when compared to the six months ended June 30, 2021, primarily due to an increase in compensation and benefits expenses.

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Financial Condition

The following table shows the financial position for each of our business segments, and of FFI and elimination entries used to arrive at our consolidated totals which are included in the column labeled Other and Eliminations, as of:


			Wealth		Other and
(dollars in thousands)	Banking		Management		Eliminations		Total
June 30, 2022:
Cash and cash equivalents	$	173,026	$	14,089	$	(13,591)	$	173,524
Securities AFS, net		240,270		—		—		240,270
Securities HTM		930,562		—		—		930,562
Loans held for sale		485,296		—		—		485,296
Loans, net		8,905,676		—		—		8,905,676
Premises and equipment		36,724		300		136		37,160
Investment in FHLB stock		17,250		—		—		17,250
Deferred taxes		19,410		87		1,974		21,471
REO		6,210		—		—		6,210
Goodwill and intangibles		222,749		—		—		222,749
Other assets		186,585		432		22,055		209,072
Total assets	$	11,223,758	$	14,908	$	10,574	$	11,249,240

Deposits	$	9,597,680	$	—	$	(58,936)	$	9,538,744
Borrowings		320,423		—		173,305		493,728
Intercompany balances		5,472		647		(6,119)		—
Other liabilities		98,690		3,749		11,420		113,859
Shareholders’ equity		1,201,493		10,512		(109,096)		1,102,909
Total liabilities and equity	$	11,223,758	$	14,908	$	10,574	$	11,249,240

December 31, 2021:
Cash and cash equivalents	$	1,121,089	$	3,195	$	(2,527)	$	1,121,757
Securities AFS, net		1,191,378		—		—		1,191,378
Loans held for sale		501,436		—		—		501,436
Loans, net		6,872,952		—		—		6,872,952
Premises and equipment		37,373		411		136		37,920
Investment in FHLB stock		18,249		—		—		18,249
Deferred taxes		20,745		138		(48)		20,835
REO		6,210		—		—		6,210
Goodwill and intangibles		222,125		—		—		222,125
Other assets		179,385		365		23,592		203,342
Total assets	$	10,170,942	$	4,109	$	21,153	$	10,196,204

Deposits	$	8,836,250	$	—	$	(24,290)	$	8,811,960
Borrowings		165,930		—		44,197		210,127
Intercompany balances		4,605		(8,204)		3,599		—
Other liabilities		92,500		4,381		13,185		110,066
Shareholders’ equity		1,071,657		7,932		(15,538)		1,064,051
Total liabilities and equity	$	10,170,942	$	4,109	$	21,153	$	10,196,204

Our consolidated balance sheet is primarily affected by changes occurring in our Banking operations, as our Wealth Management operations do not maintain significant levels of assets. Banking has experienced and is expected to continue to experience increases in its total assets as a result of our growth strategy.

During the six months ended June 30, 2022, total assets increased by $1.1 billion, primarily due to an increase in loans. During the six months ended June 30, 2022, securities decreased by $20 million primarily due to paydowns of

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mortgage backed securities and corporate bonds. Loans and loans held for sale increased $2.0 billion in the six months ended June 30, 2022, primarily as a result of $3.4 billion of originations, which was partially offset by payoffs or scheduled payments of $1.4 billion. The $727 million growth in deposits during the six months ended June 30, 2022, included increases in commercial deposits of $787 million, $297 million in corporate deposits, and $94 million in digital channel deposits, offset by a decrease in branch deposits of $451 million. Borrowings increased by $284 million during the six months ended June 30, 2022, primarily due an increase of $148 million in subordinated debt, $149 million increase in overnight borrowings due to increased loan volume, and an increase of $6 million in repurchase agreements, offset partially by the $18.5 million paydown on FFI’s credit line.

Cash and cash equivalents, certificates of deposit and securities. Cash and cash equivalents, which primarily consist of funds held at the Federal Reserve Bank or at correspondent banks, including fed funds, decreased by $948 million during the six months ended June 30, 2022. Changes in cash and cash equivalents are primarily affected by the funding of loans, investments in securities, and changes in our sources of funding: deposits, FHLB advances and FFI borrowings.

Securities available for sale. The following table provides a summary of the Company’s AFS securities portfolio as of:


	Amortized		Gross Unrealized				Allowance for		Estimated
(dollars in thousands)	Cost		Gains		Losses		Credit Losses		Fair Value
June 30, 2022:
Collateralized mortgage obligations	$	10,941	$	—	$	(936)	$	—	$	10,005
Agency mortgage-backed securities		9,530		—		(530)		—		9,000
Municipal bonds		50,567		—		(3,733)		—		46,834
SBA securities		23,039		69		(3)		—		23,105
Beneficial interests in FHLMC securitization		20,015		201		—		(11,226)		8,990
Corporate bonds		147,635		191		(6,327)		—		141,499
U.S. Treasury		897		—		(60)		—		837
Total	$	262,624	$	461	$	(11,589)	$	(11,226)	$	240,270

December 31, 2021:
Collateralized mortgage obligations	$	13,862	$	—	$	(37)	$	—	$	13,825
Agency mortgage-backed securities		928,546		6,563		(6,120)		—		928,989
Municipal bonds		52,052		94		—		—		52,146
SBA securities		27,970		2		—		—		27,972
Beneficial interest in FHLMC securitization		21,606		373		—		(10,399)		11,580
Corporate bonds		154,027		2,441		(92)		—		156,376
U.S. Treasury		499		—		(9)		—		490
Total	$	1,198,562	$	9,473	$	(6,258)	$	(10,399)	$	1,191,378

US Treasury securities that are included in the table above are pledged as collateral to the State of California to meet regulatory requirements related to FFB’s trust operations. Agency mortgage-backed securities are pledged as collateral as support for the Bank’s obligations under loan sales and securitization agreements entered into from 2018 through 2021. SBA securities are pledged as collateral for repurchase agreements.

Excluding allowance for credit losses, the decrease in AFS securities in the first six months of 2022 was due primarily to the $917 million transfer of agency mortgage-backed securities to held-to-maturity.

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Securities held to maturity. The following table provides a summary of the Company’s HTM securities portfolio as of:


	Amortized		Gross Unrecognized				Allowance for		Estimated
(dollars in thousands)	Cost		Gains		Losses		Credit Losses		Fair Value
June 30, 2022:
Agency mortgage-backed securities	$	930,562	$	—	$	(70,926)	$	—	$	859,636
Total	$	930,562	$	—	$	(70,926)	$	—	$	859,636

There were no securities HTM as of December 31, 2021.

The scheduled maturities of securities AFS, other than agency mortgage-backed securities, and the related weighted average yield is as follows, as of June 30, 2022:


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
Amortized Cost:
Collateralized mortgage obligations	$	—		$	—		$	740		$	10,201		$	10,941
Agency mortgage-backed securities		—			4,120			3,714			1,696			9,530
Municipal bonds		304			5,176			35,374			9,713			50,567
SBA securities		55			1,836			1,507			19,641			23,039
Beneficial interests in FHLMC securitization		—			10,546			—			9,469			20,015
Corporate bonds		6,018			10,412			125,671			5,534			147,635
U.S. Treasury		—			897			—			—			897
Total	$	6,377		$	32,987		$	167,006		$	56,254		$	262,624
Weighted average yield		1.97	%		1.98	%		3.48	%		2.00	%		2.94	%
Estimated Fair Value:
Collateralized mortgage obligations	$	—		$	—		$	687		$	9,318		$	10,005
Agency mortgage-backed securities		—			3,969			3,460			1,571			9,000
Municipal bonds		301			4,839			33,370			8,324			46,834
SBA securities		55			1,833			1,510			19,707			23,105
Beneficial interests in FHLMC securitization		—			10,546			—			9,670			20,216
Corporate bonds		5,985			9,877			120,654			4,983			141,499
U.S. Treasury		—			837			—			—			837
Total	$	6,341		$	31,901		$	159,681		$	53,573		$	251,496

The scheduled maturities of securities HTM, and the related weighted average yield is as follows, as of June 30, 2022:


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
June 30, 2022
Amortized Cost:
Agency mortgage-backed securities	$	—		$	131		$	19,227		$	911,204		$	930,562
Total	$	—		$	131		$	19,227		$	911,204		$	930,562
Weighted average yield		—	%		0.28	%		1.05	%		1.72	%		1.70	%

Estimated Fair Value:
Agency mortgage-backed securities	$	—		$	123		$	17,937		$	841,576		$	859,636
Total	$	—		$	123		$	17,937		$	841,576		$	859,636

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Loans. The following table sets forth our loans, by loan category, as of:


	June 30,		December 31,
(dollars in thousands)	2022		2021
Outstanding principal balance:
Loans secured by real estate:
Residential properties:
Multifamily	$	3,953,717	$	2,886,055
Single family		958,348		933,445
Total real estate loans secured by residential properties		4,912,065		3,819,500
Commercial properties		1,237,664		1,309,200
Land and construction		170,887		156,028
Total real estate loans		6,320,616		5,284,728
Commercial and industrial loans		2,593,948		1,598,422
Consumer loans		10,845		10,834
Total loans		8,925,409		6,893,984
Premiums, discounts and deferred fees and expenses		13,432		12,744
Total	$	8,938,841	$	6,906,728

Loans and loans held for sale increased by $2.0 billion during six months ended June 30, 2022 primarily as a result of $3.4 billion of originations, which was partially offset by payoffs or scheduled payments of $1.4 billion.

Deposits. The following table sets forth information with respect to our deposits and the average rates paid on deposits, as of:


	June 30, 2022				December 31, 2021
			Weighted				Weighted
(dollars in thousands)	Amount		Average Rate		Amount		Average Rate
Demand deposits:
Noninterest-bearing	$	3,587,375	—		$	3,280,455	—
Interest-bearing		2,425,847	0.930	%		2,242,684	0.070	%
Money market and savings		2,869,719	0.643	%		2,620,336	0.275	%
Certificates of deposits		655,803	0.581	%		668,485	0.145	%
Total	$	9,538,744	0.470	%	$	8,811,960	0.111	%

During the six months ended June 30, 2022, our deposit rates moved in a manner consistent with overall deposit market rates. The weighted average rate of our interest-bearing deposits increased from 0.18% at December 31, 2021, to 0.75% at June 30, 2022 due to increased costs of interest-bearing deposits, while the weighted average interest rates of both interest-bearing and noninterest-bearing deposits increased from 0.15% at December 31, 2021 to 0.47% at June 30, 2022. The financial impact of the increase in noninterest-bearing deposits is reflected in customer service costs, which are included in noninterest expenses.

The maturities of our certificates of deposit of $100,000 or more were as follows as of June 30, 2022:


(dollars in thousands)
3 months or less	$	379,579
Over 3 months through 6 months		72,863
Over 6 months through 12 months		80,279
Over 12 months		55,509
Total	$	588,230

From time to time, the Bank will utilize brokered deposits as a source of funding. As of June 30, 2022, the Bank held $90 million of deposits, which are classified as brokered deposits.

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Borrowings. As of June 30, 2022, our borrowings consisted of $149 million in an overnight FHLB advance at the Bank, $174 million in subordinated notes at the holding company, and $171 million of repurchase agreements at the Bank. As of December 31, 2021, our borrowings consisted of $26 million in subordinated notes at the holding company, $166 million of repurchase agreements at the Bank, and $18.5 million of borrowings under a holding company line of credit. The FHLB overnight advance outstanding as of June 30, 2022, was paid in full in the early part of July 2022 and bore an interest rate of 1.66%. As of June 30, 2022, $150 million of the subordinated notes are fixed-to-floating rate notes that mature in February 2032. The notes will initially bear a rate of 3.50% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2022 until February 1, 2027. From and including February 1, 2027 to, but excluding February 1, 2032, or the date of earlier redemption, the notes will bear interest at a floating rate per annum equal to the Benchmark rate (which is expected to be Three-Month Term Secured Overnight Financing Rate, or “SOFR”), each as defined in and subject to the provisions of the indenture under which the notes were issued, plus 204 basis points (2.04%), payable quarterly in arrears on February 1, May 1, August 1, and November 1 of each year, commencing on May 1, 2027. $24 million of the subordinated notes mature in June 2030 and bear a fixed interest rate of 6.0%, until June 30, 2025, at which time they will convert to a floating rate based on three month SOFR, plus 590 basis points (5.90%), until maturity. The maximum amount of borrowings at the Bank outstanding at any month-end during the six months ended June 30, 2022, and during all of 2021, were $320 million and $255 million, respectively.

Delinquent Loans, Nonperforming Assets and Provision for Credit Losses

Loans are considered past due following the date when either interest or principal is contractually due and unpaid. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued when reasonable doubt exists as to the full, timely collection of interest or principal and, generally, when a loan becomes contractually past due for 90 days or more with respect to principal or interest. However, the accrual of interest may be continued on a well-secured loan contractually past due 90 days or more with respect to principal or interest if the loan is in the process of collection or collection of the principal and interest is deemed probable. The following tables provide a summary of past due and nonaccrual loans as of:


							90 Days						Total Past Due
(dollars in thousands)	30–59 Days			60-89 Days			or More			Nonaccrual			and Nonaccrual			Current		Total
June 30, 2022:
Real estate loans:
Residential properties	$	480		$	—		$	—		$	3,154		$	3,634		$	4,924,740	$	4,928,374
Commercial properties		1,932			343			2,877			4,246			9,398			1,226,767		1,236,165
Land and construction		—			—			—			—			—			169,722		169,722
Commercial and industrial loans		823			2,064			—			3,684			6,571			2,587,155		2,593,726
Consumer loans		170			—			—			—			170			10,684		10,854
Total	$	3,405		$	2,407		$	2,877		$	11,084		$	19,773		$	8,919,068	$	8,938,841
Percentage of total loans		0.04	%		0.03	%		0.03	%		0.12	%		0.22	%

December 31, 2021:
Real estate loans:
Residential properties	$	1,519		$	310		$	—		$	3,281		$	5,110		$	3,827,385	$	3,832,495
Commercial properties		2,934			—			—			1,529			4,463			1,305,112		1,309,575
Land and construction		—			—			—			—			—			155,926		155,926
Commercial and industrial loans		303			260			—			3,520			4,083			1,593,782		1,597,865
Consumer loans		—			—			—			—			—			10,867		10,867
Total	$	4,756		$	570		$	—		$	8,330		$	13,656		$	6,893,072	$	6,906,728
Percentage of total loans		0.07	%		0.01	%		—	%		0.12	%		0.20	%

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The following table summarizes our nonaccrual loans as of:


	Nonaccrual		Nonaccrual
	with Allowance		with no Allowance
(dollars in thousands)	for Credit Losses		for Credit Losses
June 30, 2022
Real estate loans:
Residential properties	$	—	$	3,154
Commercial properties		—		4,246
Commercial and industrial loans		1,835		1,849
Total	$	1,835	$	9,249

December 31, 2021
Real estate loans:
Residential properties	$	—	$	3,281
Commercial properties		—		1,529
Commercial and industrial loans		1,733		1,787
Total	$	1,733	$	6,597

The following table presents the composition of TDRs by accrual and nonaccrual status as of:


	June 30, 2022						December 31, 2021
(dollars in thousands)	Accrual		Nonaccrual		Total		Accrual		Nonaccrual		Total
Residential loans	$	—	$	—	$	—	$	1,200	$	—	$	1,200
Commercial real estate loans		976		1,121		2,097		1,021		1,174		2,195
Commercial and industrial loans		102		1,630		1,732		493		2,030		2,523
Total	$	1,078	$	2,751	$	3,829	$	2,714	$	3,204	$	5,918

These loans were classified as a TDR as a result of a reduction in required principal payments, reductions in rates and/or an extension of the maturity date of the loans.

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Allowance for Credit Losses. The following table summarizes the activity in our ACL related to loans for the periods indicated:


					Allowance
	Beginning		Provision for		on Acquired						Ending
(dollars in thousands)	Balance		Credit Losses		PCD Loans		Charge-offs		Recoveries		Balance
Three months ended June 30, 2022:
Real estate loans:
Residential properties	$	3,198	$	1,248	$	—	$	—	$	—	$	4,446
Commercial properties		15,636		(2,922)		—		—		—		12,714
Land and construction		1,768		(308)		—		—		—		1,460
Commercial and industrial loans		12,130		2,187		—		—		164		14,481
Consumer loans		90		(26)		—		—		—		64
Total	$	32,822	$	179	$	—	$	—	$	164	$	33,165

Six months ended June 30, 2022:
Real estate loans:
Residential properties	$	2,637	$	1,809	$	—	$	—	$	—	$	4,446
Commercial properties		17,049		(4,335)		—		—		—		12,714
Land and construction		1,995		(535)		—		—		—		1,460
Commercial and industrial loans		11,992		2,336		—		(145)		298		14,481
Consumer loans		103		(39)		—		—		—		64
Total	$	33,776	$	(764)	$	—	$	(145)	$	298	$	33,165

Year ended December 31, 2021:
Real estate loans:
Residential properties	$	5,115	$	(1,453)	$	93	$	(1,118)	$	—	$	2,637
Commercial properties		8,711		774		7,564		—		—		17,049
Land and construction		892		1,051		52		—		—		1,995
Commercial and industrial loans		9,249		614		1,836		(706)		999		11,992
Consumer loans		233		(130)		—		—		—		103
Total	$	24,200	$	856	$	9,545	$	(1,824)	$	999	$	33,776

Our ACL related to loans represented 0.37% and 0.49% of total loans outstanding as of June 30, 2022, and December 31, 2021, respectively. The decrease in the ACL is primarily due to adjustments in impairment assumptions.

The amount of the ACL for loans is adjusted periodically by charges to operations (referred to in our income statement as the “provision for credit losses”) (i) to replenish the ACL after it has been reduced due to loan write-downs or charge-offs, (ii) to reflect increases in the volume of outstanding loans, and (iii) to take account of changes in the risk of potential loan losses due to a deterioration in the condition of borrowers, or in the value of property securing non–performing loans, or adverse changes in economic conditions. The amounts of the provisions we make for loan losses are based on our estimate of losses in our loan portfolio. In estimating such losses, we use economic and loss migration models that are based on bank regulatory guidelines and industry standards, and our historical charge-off experience and loan delinquency rates, local and national economic conditions, a borrower’s ability to repay its borrowings, and the value of any property collateralizing the loan, as well as a number of subjective factors. However, these determinations involve judgments about changes and trends in current economic conditions and other events that can affect the ability of borrowers to meet their loan obligations to us, and a weighting among the quantitative and qualitative factors we consider in determining the sufficiency of the ACL. Moreover, the duration and anticipated effects of prevailing economic conditions or trends can be uncertain and can be affected by a number of risks and circumstances that are outside of our control. If changes in economic or market conditions or unexpected subsequent events were to occur, or if changes were made to bank regulatory guidelines or industry standards that are used to assess the sufficiency of the ACL, it could become necessary for us to incur additional, and possibly significant, charges to increase the ACL, which would have the effect of reducing our income.

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In addition, the Federal Deposit Insurance Corporation (“FDIC”) and the California Department of Financial Protection and Innovation, as an integral part of their examination processes, periodically review the adequacy of our ACL. These agencies may require us to make additional provisions for credit losses, over and above the provisions that we have already made, the effect of which would be to reduce our income.

The following table presents the balance in the ACL and the recorded investment in loans by impairment method as of:


	Allowance for Credit Losses
	Loans Evaluated
(dollars in thousands)	Individually		Collectively		Total

June 30, 2022:
Allowance for credit losses:
Real estate loans:
Residential properties	$	79	$	4,367	$	4,446
Commercial properties		5,170		7,544		12,714
Land and construction		—		1,460		1,460
Commercial and industrial loans		2,225		12,256		14,481
Consumer loans		—		64		64
Total	$	7,474	$	25,691	$	33,165
Loans:
Real estate loans:
Residential properties	$	8,376	$	4,919,998	$	4,928,374
Commercial properties		40,646		1,195,519		1,236,165
Land and construction		—		169,722		169,722
Commercial and industrial loans		8,108		2,585,618		2,593,726
Consumer loans		—		10,854		10,854
Total	$	57,130	$	8,881,711	$	8,938,841


	Allowance for Credit Losses
	Loans Evaluated
(dollars in thousands)	Individually		Collectively		Total
December 31, 2021:
Allowance for credit losses:
Real estate loans:
Residential properties	$	111	$	2,526	$	2,637
Commercial properties		7,967		9,082		17,049
Land and construction		52		1,943		1,995
Commercial and industrial loans		2,386		9,606		11,992
Consumer loans		—		103		103
Total	$	10,516	$	23,260	$	33,776
Loans:
Real estate loans:
Residential properties	$	9,593	$	3,822,902	$	3,832,495
Commercial properties		41,313		1,268,262		1,309,575
Land and construction		694		155,232		155,926
Commercial and industrial loans		9,963		1,587,902		1,597,865
Consumer loans		—		10,867		10,867
Total	$	61,563	$	6,845,165	$	6,906,728

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Liquidity

Liquidity management focuses on our ability to generate, on a timely and cost-effective basis, cash sufficient to meet the funding needs of current loan demand, deposit withdrawals, principal and interest payments with respect to outstanding borrowings and to pay operating expenses. Our liquidity management is both a daily and long-term function of funds management. Liquid assets are generally invested in marketable securities or held as cash at the Federal Reserve Bank of San Francisco or other financial institutions.

We monitor our liquidity in accordance with guidelines established by our Board of Directors and applicable regulatory requirements. Our need for liquidity is affected by our loan activity, net changes in deposit levels and the maturities of our borrowings. The principal sources of our liquidity consist of deposits, loan interest and principal payments and prepayments, investment management and consulting fees, FHLB advances and proceeds from borrowings and sales of FFI common stock. The remaining balances of the Company’s lines of credit available to draw down totaled $3.2 billion at June 30, 2022.

Cash Flows Provided by Operating Activities. During the six months ended June 30, 2022, operating activities provided net cash of $70 million, primarily due to net income of $64 million and a $5 million increase in accounts payable and other liabilities. During the six months ended June 30, 2021, operating activities provided net cash of $41 million, primarily due to net income of $48 million, offset partially by $3 million in gains on sales of loans.

Cash Flows Used in Investing Activities. During the six months ended June 30, 2022, investing activities used net cash of $2 billion, primarily due to a $2 billion net increase in loans and $172 million of securities purchases, offset partially by $175 million in cash received in principal collection and maturities of securities. During the six months ended June 30, 2021, investing activities used net cash of $637 million, primarily due to an $841 million net increase in loans and $83 million of securities purchases, offset partially by $144 million in cash received in principal collection and maturities of securities, and $142 million in proceeds from sales of loans.

Cash Flows Provided by Financing Activities. During the six months ended June 30, 2022, financing activities provided net cash of $993 million, consisting primarily of a net increase of $727 million in deposits, a $149 million increase in FHLB advances, and a $148 million increase in subordinated debt, offset partially by $12 million in dividends paid and a $19 million decrease in other borrowings. During the six months ended June 30, 2021, financing activities provided net cash of $936 million, consisting primarily of a net increase of $1.19 billion in deposits and $6 million in proceeds from a holding company line of credit, offset partially by a $255 million decrease in FHLB advances and $8 million in dividends paid.

Ratio of Loans to Deposits. The relationship between gross loans and total deposits can provide a useful measure of a bank’s liquidity. Since repayment of loans tends to be less predictable than the maturity of investments and other liquid resources, the higher the loan-to-deposit ratio the less liquid are our assets. On the other hand, since we realize greater yields on loans than we do on other interest-earning assets, a lower loan-to-deposit ratio can adversely affect interest income and earnings. As a result, our goal is to achieve a loan-to-deposit ratio that appropriately balances the requirements of liquidity and the need to generate a fair return on our assets. At June 30, 2022 and December 31, 2021, the loan-to-deposit ratios at FFB were 99% and 84%, respectively.

Off-Balance Sheet Arrangements

The following table provides the off-balance sheet arrangements of the Company as of June 30, 2022:


(dollars in thousands)
Commitments to fund new loans	$	144,273
Commitments to fund under existing loans, lines of credit		1,281,157
Commitments under standby letters of credit		24,780

Some of the commitments to fund existing loans, lines of credit and letters of credit are expected to expire without being drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. As of

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June 30, 2022, FFB was obligated on $315 million of letters of credit to the FHLB which were being used as collateral for public fund deposits, including $300 million of deposits from the State of California.

Capital Resources and Dividend Policy

The capital rules applicable to United States based bank holding companies and federally insured depository institutions (“Capital Rules”) require the Company (on a consolidated basis) and FFB (on a stand-alone basis) to meet specific capital adequacy requirements that, for the most part, involve quantitative measures, primarily in terms of the ratios of their capital to their assets, liabilities, and certain off-balance sheet items, calculated under regulatory accounting practices. In addition, prompt corrective action regulations place a federally insured depository institution, such as FFB, into one of five capital categories on the basis of its capital ratios: (i) well capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv) significantly undercapitalized; or (v) critically undercapitalized. A depository institution’s primary federal regulatory agency may determine that, based on certain qualitative assessments, the depository institution should be assigned to a lower capital category than the one indicated by its capital ratios. At each successive lower capital category, a depository institution is subject to greater operating restrictions and increased regulatory supervision by its federal bank regulatory agency.

The following table sets forth the capital and capital ratios of FFI (on a consolidated basis) and FFB as of the respective dates indicated below, as compared to the respective regulatory requirements applicable to them:


									To Be Well Capitalized
					For Capital				Under Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
FFI
June 30, 2022:
CET1 capital ratio	$	896,004	9.92	%	$	406,358	4.50	%
Tier 1 leverage ratio		896,004	8.50	%		421,597	4.00	%
Tier 1 risk-based capital ratio		896,004	9.92	%		541,811	6.00	%
Total risk-based capital ratio		1,110,094	12.29	%		722,414	8.00	%

December 31, 2021:
CET1 capital ratio	$	846,515	11.34	%	$	335,801	4.50	%
Tier 1 leverage ratio		846,515	8.43	%		401,645	4.00	%
Tier 1 risk-based capital ratio		846,515	11.34	%		447,735	6.00	%
Total risk-based capital ratio		887,821	11.90	%		596,980	8.00	%

FFB
June 30, 2022:
CET1 capital ratio	$	994,563	11.05	%	$	405,065	4.50	%	$	585,093	6.50	%
Tier 1 leverage ratio		994,563	8.81	%		451,478	4.00	%		564,348	5.00	%
Tier 1 risk-based capital ratio		994,563	11.05	%		540,086	6.00	%		720,115	8.00	%
Total risk-based capital ratio		1,035,348	11.50	%		720,115	8.00	%		900,144	10.00	%

December 31, 2021:
CET1 capital ratio	$	854,075	11.49	%	$	334,608	4.50	%	$	483,323	6.50	%
Tier 1 leverage ratio		854,075	8.53	%		400,616	4.00	%		500,770	5.00	%
Tier 1 risk-based capital ratio		854,075	11.49	%		446,144	6.00	%		594,859	8.00	%
Total risk-based capital ratio		895,381	12.04	%		594,859	8.00	%		743,574	10.00	%

As of each of the dates set forth in the above table, the Company exceeded the minimum required capital ratios applicable to it and FFB’s capital ratios exceeded the minimums necessary to qualify as a well-capitalized depository institution under the prompt corrective action regulations. The required ratios for capital adequacy set forth in the above table do not include the Capital Rules’ additional capital conservation buffer, though each of the Company and FFB maintained capital ratios necessary to satisfy the capital conservation buffer requirements as of the dates indicated.

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As of June 30, 2022, FFI had $65.6 million of available liquidity as well as a revolving line of credit and, therefore, has the ability and financial resources to contribute additional capital to FFB, if needed.

As of June 30, 2022, the amount of capital at FFB in excess of amounts required to be well capitalized for purposes of the prompt corrective action regulations was $409 million for the CET1 capital ratio, $430 million for the Tier 1 Leverage Ratio, $274 million for the Tier 1 risk-based capital ratio and $135 million for the Total risk-based capital ratio.

The Company paid $12.4 million in cash dividends ($0.11 per common share) and purchased $2.5 million of our common stock in the first six months of 2022. It is our current intention to continue to pay quarterly dividends. The amount and declaration of future cash dividends and stock repurchases are subject to approval by our Board of Directors and certain regulatory restrictions which are discussed in Item 1 “Business—Supervision and Regulation—Dividends and Stock Repurchases” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021. Additionally, under the terms of the holding company line of credit agreement, FFI may only declare and pay a dividend if the total amount of dividends and stock repurchases during the current twelve months does not exceed 50% of FFI’s net income for the same twelve month period. We paid $16.1 million in dividends ($0.36 per share) in 2021.

We had no material commitments for capital expenditures as of June 30, 2022. However, we intend to take advantage of opportunities that may arise in the future to grow our businesses, which may include opening additional offices or acquiring complementary businesses that we believe will provide us with attractive risk-adjusted returns. As a result, we may seek to obtain additional borrowings and to sell additional shares of our common stock to raise funds which we might need for these purposes. There is no assurance, however, that, if required, we will succeed in obtaining additional borrowings or selling additional shares of our common stock on terms that are acceptable to us, if at all, as this will depend on market conditions and other factors outside of our control, as well as our future results of operations.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain financial risks, which are discussed in detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the section titled Asset and Liability Management: Interest Rate Risk in our Annual Report on Form 10-K which we filed with the Securities and Exchange Commission on February 28, 2022. There have been no material changes to our quantitative and qualitative disclosures about market risk since December 31, 2021.

ITEM 4.CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In accordance with SEC rules, an evaluation was performed under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness, as of June 30, 2022, of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

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There was no change in our internal control over financial reporting that occurred during the three months ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1A.RISK FACTORS

There have been no material changes in the risk factors that were disclosed in Item 1A, under the caption “Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, which we filed with the SEC on February 28, 2022.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company adopted a stock repurchase program on April 26, 2022, pursuant to which the Company may repurchase up to $75 million of its common stock. This stock repurchase program, which has no stated expiration date, replaced and superseded the stock repurchase program approved by the Board of Directors on October 30, 2018, which had authorized the Company to repurchase up to 2,200,000 shares of its common stock. The following table provides information relating to the Company’s purchases of shares of its common stock during the second quarter of 2022:


					Total Number of		Approximate Dollar
	Total Number		Average		Shares Purchased		Value of Shares That
	of Shares		Price Paid Per		as Part of Publicly		May Yet Be Purchased
Purchase Dates	Purchased		Share		Announced Program		Under the Program
April 1 to April 30, 2022		-	$	-		-	$	75,000,000
May 1 to May 31, 2022		54,742		21.19		54,742		73,839,900
June 1 to June 30, 2022		62,256		20.83		62,256		72,542,900
Total		116,998				116,998

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ITEM 6.EXHIBITS


Exhibit No.		Description of Exhibit

3.1		Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on October 29, 2015).

3.2		Certificate of Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on June 10, 2022).

3.3		Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on October 29, 2015).

31.1(1)		Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002

31.2(1)		Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002

32.1(1)		Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002

32.2(1)		Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002

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(1)	Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	FIRST FOUNDATION INC.

Dated: August 8, 2022	By:	/s/ KEVIN L. THOMPSON
		Kevin L. Thompson
		Executive Vice President and Chief Financial Officer

S-1