First Foundation (FFWM) 10-Q 2022 Q2 Quarterly report

F

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

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          

Commission File Number 001-36461

FIRST FOUNDATION INC.

(Exact name of Registrant as specified in its charter)

Delaware	20-8639702
(State or other 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.

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)

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)

1

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)

2

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)

3

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)

4

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)

5

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 2 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.

6

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. NaN 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

7

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.

8

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.

9

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

10

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 0 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

11

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.

12

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

13

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 0 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.  

14

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 0 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.

15

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.

16

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

17

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 0 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

18

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

19

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.

20

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

21

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

22

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

23

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

24

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

25

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 5 other financial institutions, and a $133 million secured line with the Federal Reserve Bank, secured by single family loans. NaN 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.

26

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.

27

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 2 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)