First Foundation 10Q 2023 Q2 Quarterly report

First Foundation (FFWM) 10-Q2023 Q2 Quarterly report

Content analysis

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, 2023

☐	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, 2023, the registrant had 56,443,774 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, 2023

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	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 4.	Controls and Procedures	56

Part II. Other Information
Item 1A	Risk Factors	57
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 5	Other Information	57
Item 6	Exhibits	58

SIGNATURE		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,
	2023		2022
		(unaudited)
ASSETS
Cash and cash equivalents	$	926,081	$	656,494

Securities available-for-sale ("AFS")		209,298		237,597
Securities held-to-maturity ("HTM")		814,661		862,544
Allowance for credit losses - investments		(8,535)		(11,439)
Net securities		1,015,424		1,088,702

Loans held for investment		10,585,201		10,726,193
Allowance for credit losses - loans		(31,485)		(33,731)
Net loans		10,553,716		10,692,462

Investment in FHLB stock		19,485		25,358
Deferred taxes		23,187		24,198
Premises and equipment, net		36,584		36,141
Real estate owned ("REO")		6,210		6,210
Goodwill and intangibles		5,730		221,835
Other assets		254,137		262,779
Total Assets	$	12,840,554	$	13,014,179

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	10,806,986	$	10,362,612
Borrowings		975,541		1,369,936
Accounts payable and other liabilities		142,493		147,253
Total Liabilities		11,925,020		11,879,801

Shareholders’ Equity
Common Stock		56		56
Additional paid-in-capital		719,779		719,606
Retained earnings		215,540		426,659
Accumulated other comprehensive loss		(19,841)		(11,943)
Total Shareholders’ Equity		915,534		1,134,378
Total Liabilities and Shareholders’ Equity	$	12,840,554	$	13,014,179

(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,
	2023		2022		2023		2022
Interest income:
Loans	$	123,471	$	82,032	$	244,114	$	154,059
Securities		6,772		6,621		13,663		12,981
FHLB Stock, fed funds sold and interest-bearing deposits		15,085		1,318		24,551		2,075
Total interest income		145,328		89,971		282,328		169,115

Interest expense:
Deposits		72,932		6,340		135,072		9,698
Borrowings		23,412		1,826		39,517		3,118
Total interest expense		96,344		8,166		174,589		12,816

Net interest income		48,984		81,805		107,739		156,299

Provision (reversal) for credit losses		887		173		1,304		(619)

Net interest income after provision for credit losses		48,097		81,632		106,435		156,918

Noninterest income:
Asset management, consulting and other fees		9,016		9,893		17,812		20,090
Other income		3,063		3,507		5,965		8,737
Total noninterest income		12,079		13,400		23,777		28,827

Noninterest expense:
Compensation and benefits		21,026		27,634		46,312		57,455
Occupancy and depreciation		9,181		8,814		18,078		17,381
Professional services and marketing costs		3,642		3,030		7,937		6,447
Customer service costs		19,004		4,611		35,719		6,399
Goodwill impairment		215,252		—		215,252		—
Other expenses		4,659		4,716		8,806		8,741
Total noninterest expense		272,764		48,805		332,104		96,423

(Loss) income before income taxes		(212,588)		46,227		(201,892)		89,322
Income tax (benefit) expense		(300)		12,911		1,900		25,170
Net (loss) income	$	(212,288)	$	33,316	$	(203,792)	$	64,152

Net (loss) income per share:
Basic	$	(3.76)	$	0.59	$	(3.61)	$	1.14
Diluted	$	(3.76)	$	0.59	$	(3.61)	$	1.13
Shares used in computation:
Basic		56,430,813		56,471,470		56,403,891		56,468,678
Diluted		56,430,813		56,519,669		56,403,891		56,543,492

(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, 2022	56,325,242	$	56	$	719,606	$	426,659	$	(11,943)	$	1,134,378
Net loss	—		—		—		(203,792)		—		(203,792)
Other comprehensive loss	—		—		—		—		(7,898)		(7,898)
Stock based compensation	—		—		550		—		—		550
Cash dividend	—						(7,327)				(7,327)
Issuance of common stock:
Exercise of options	19,500		—		157		—		—		157
Stock grants – vesting of restricted stock units	133,386		—		—		—		—		—
Repurchase of shares from restricted shares vesting	(35,058)				(534)						(534)
Balance: June 30, 2023	56,443,070	$	56	$	719,779	$	215,540	$	(19,841)	$	915,534

Balance: March 31, 2023	56,424,276	$	56	$	719,261	$	428,956	$	(14,535)	$	1,133,738
Net loss	—		—		—		(212,288)		—		(212,288)
Other comprehensive loss	—		—		—		—		(5,306)		(5,306)
Stock based compensation	—		—		518		—		—		518
Cash dividend	—		—		—		(1,128)		—		(1,128)
Issuance of common stock:
Stock grants – vesting of restricted stock units	18,794		—		—		—		—		—
Balance: June 30, 2023	56,443,070	$	56	$	719,779	$	215,540	$	(19,841)	$	915,534

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:	—		—
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

(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,
	2023		2022		2023		2022
Net (loss) income	$	(212,288)	$	33,316	$	(203,792)	$	64,152
Other comprehensive loss:
Unrealized holding losses on securities arising during the period		(8,423)		(7,095)		(13,932)		(15,170)
Credit loss expense		504		483		1,477		827
Other comprehensive loss before tax		(7,919)		(6,612)		(12,455)		(14,343)
Income tax benefit related to items of other comprehensive loss		2,613		1,471		4,557		2,995
Other comprehensive loss		(5,306)		(5,141)		(7,898)		(11,348)
Total comprehensive (loss) income	$	(217,594)	$	28,175	$	(211,690)	$	52,804

(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,
	2023		2022
Cash Flows from Operating Activities:
Net (loss) income	$	(203,792)	$	64,152
Adjustments to reconcile net income to net cash provided by operating activities:
Goodwill impairment		215,252		—
Provision for credit losses - loans		237		(1,446)
Provision for credit losses - securities AFS		1,067		827
Stock–based compensation expense		550		2,037
Depreciation and amortization		2,157		2,019
Deferred tax expense		4,654		1,941
Amortization of premium (discount) on securities		(53)		1,677
Amortization of core deposit intangible		853		999
Amortization of mortgage servicing rights - net		1,155		1,070
Amortization of OCI - securities transfer to HTM		914		(591)
Valuation allowance on mortgage servicing rights - net		(979)		(319)
(Increase) decrease in other assets		9,485		(6,482)
Increase (decrease) in accounts payable and other liabilities		(6,092)		4,476
Net cash provided by operating activities		25,408		70,360
Cash Flows from Investing Activities:
Net decrease (increase) in loans		137,902		(2,016,119)
Purchase of premises and equipment		(2,603)		(3,523)
Disposals of premises and equipment		—		3,388
Recovery of allowance for credit losses		920		298
Purchases of securities AFS		—		(398)
Purchases of securities HTM		—		(171,852)
Maturities of securities AFS		11,488		18,524
Maturities of securities HTM		48,322		156,811
Sale of FHLB and FRB stock, net		5,873		999
Net cash provided by (used in) investing activities		201,902		(2,011,872)
Cash Flows from Financing Activities:
Increase in deposits		444,375		726,784
Net (decrease) increase in FHLB & other advances		(295,000)		149,000
Line of credit net change – borrowings, net		—		(18,500)
Net increase in subordinated debt		32		147,608
Net increase (decrease) in repurchase agreements		(99,426)		5,493
Gain on sale leaseback		—		(1,123)
Dividends paid		(7,327)		(12,424)
Proceeds from exercise of stock options		157		18
Repurchase of stock		(534)		(3,577)
Net cash provided by financing activities		42,277		993,279
Increase (decrease) in cash and cash equivalents		269,587		(948,233)
Cash and cash equivalents at beginning of year		656,494		1,121,757
Cash and cash equivalents at end of period	$	926,081	$	173,524
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes	$	—	$	22,500
Interest		142,628		10,563
Noncash transactions:
Transfer of securities from available-for-sale to held-to-maturity		—		916,777
Goodwill acquisition adjustment		—		1,623
Right of use lease assets and liabilities recognized		1,019		5,428
Chargeoffs against allowance for credit losses - loans		3,090		145
Chargeoffs against allowance for credit losses - securities		3,971		—

(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, 2023 - UNAUDITED

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation

First Foundation Inc. (“FFI”) is a financial services holding company whose operations are conducted through 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 Public Finance (“FFPF”), First Foundation Insurance Services (“FFIS”) and Blue Moon Management, LLC (collectively the “Company”). FFI also has two inactive wholly owned subsidiaries, First Foundation Consulting and First Foundation Advisors, LLC. In addition, FFA has set up a limited liability company, which is not included in these consolidated financial statements, as a private investment fund to provide an investment vehicle for its clients. FFI is incorporated in the state of Delaware. The corporate headquarters for FFI is located in Dallas, Texas. The Company provides a comprehensive platform of financial services to individuals, businesses and other organizations and has offices in California, Nevada, Florida, Texas, and Hawaii.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 the accounts of the Company as of June 30, 2023 and December 31, 2022, and for the six months ended June 30, 2023 and 2022, and include all information and footnotes required for interim financial reporting presentation. All intercompany accounts and transactions have been eliminated in consolidation. The results for the 2023 interim periods are not necessarily indicative of the results expected for the full year. These financial statements assume that readers have read the most recent Annual Report on Form 10-K filed with the SEC which contains the latest available audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2022.

Significant Accounting Policies

The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the banking industry. We have not made any changes in our significant accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

New Accounting Pronouncements

On January 1, 2023, the Company adopted 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. These disclosures are presented within Note 4: “Loans” in the accompanying unaudited financial statements. 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. This information is presented as part of the disclosure for risk categories of loans based on year of origination within Note 5: ‘‘Allowance for Credit Losses’’ in the accompanying unaudited financial statements.

In March 2020, the Financial Accounting Standards Board (“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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

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 Company has permanently ceased originating any new loans or entering into any transaction that would increase its LIBOR-based exposure. For all new variable-rate loans and transactions, the Company primarily offers Prime, SOFR, and other indices as the variable-rate index. All variable rate loans tied to LIBOR will index to Prime, SOFR, or other indices at the next loan reset date. This transition did not have a material impact on the consolidated financial statements.

NOTE 2: 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, 2023 - 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, 2023:
Investment securities available for sale:
Collateralized mortgage obligations	$	8,095	$	—	$	8,095	$	—
Agency mortgage-backed securities		6,571		—		6,571		—
Municipal bonds		46,295		—		46,295		—
SBA securities		15,715		—		15,715		—
Beneficial interests in FHLMC securitization		7,599		—		—		7,599
Corporate bonds		115,262		—		115,262		—
U.S. Treasury		1,226		1,226		—		—
Investment in equity securities		9,774		—		—		9,774
Total assets at fair value on a recurring basis	$	210,537	$	1,226	$	191,938	$	17,373


December 31, 2022:
Investment securities available for sale:
Collateralized mortgage obligations	$	8,615	$	—	$	8,615	$	—
Agency mortgage-backed securities		7,576		—		7,576		—
Municipal bonds		46,790		—		46,790		—
SBA securities		18,955		—		18,955		—
Beneficial interests in FHLMC securitization		7,981		—		—		7,981
Corporate bonds		135,013		—		135,013		—
U.S. Treasury		1,228		1,228		—		—
Investment in equity securities		9,767		—		—		9,767
Total assets at fair value on a recurring basis	$	235,925	$	1,228	$	216,949	$	17,748

The decrease in Level 3 assets from December 31, 2022 was primarily due to securitization paydowns and the write-off of several interest-only strip securities in the year to date period ended June 30, 2023.

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 discounted cash flow has been used to determine the fair value, we measure the impaired loan at nonrecurring Level 3. The total amortized cost basis of collateral dependent loans was $5.2 million and $6.5 million at June 30, 2023 and

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

December 31, 2022, respectively. Specific reserves related to these loans totaled $0 and $0.6 million at June 30, 2023 and December 31, 2022, respectively.

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, 2023 included prepayment rates ranging from 20% to 30% and a discount rate of 10%. Mortgage servicing rights net of valuation allowance totaled $5.7 million and $5.9 million at June 30, 2023 and December 31, 2022, respectively and is classified as a component of other assets in the accompanying balance sheets.

Fair Value of Financial Instruments

FASB Accounting Standards Codification (“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.

Interest-Bearing Deposits with Financial Institutions. The fair values of interest-bearing deposits maturing within ninety days approximate their carrying values.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

Investment Securities. Investment securities 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 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 external third party models, and management judgment and evaluation for valuation. Level 1 investment 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 investment securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Investment securities classified as Level 3 include beneficial interests in FHLMC securitizations. Significant assumptions in the valuation of these Level 3 securities as of June 30, 2023 and December 31, 2022 included prepayment rates ranging from 30% to 45% and discount rates ranging from 7.69% to 10.0%.

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.

Investment in 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 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 of borrowings is the carrying value of overnight FHLB advances and federal funds purchased that approximate fair value because of the short-term maturity of these instruments, resulting in a Level 1 classification. The fair value of term borrowings is 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, 2023 - 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, 2023:
Assets:
Cash and cash equivalents	$	926,081	$	926,081	$	—	$	—	$	926,081
Securities AFS, net		200,763		1,226		191,938		7,599		200,763
Securities HTM		814,661		—		724,108		—		724,108
Loans, net		10,553,716		—		—		10,225,043		10,225,043
Investment in FHLB stock		19,485		—		19,485		—		19,485
Investment in equity securities		9,774		—		—		9,774		9,774
Liabilities:
Deposits	$	10,806,986	$	8,037,546	$	2,758,363	$	—	$	10,795,909
Borrowings		975,541		730,000		—		131,407		861,407

December 31, 2022:
Assets:
Cash and cash equivalents	$	656,494	$	656,494	$	—	$	—	$	656,494
Securities AFS, net		226,158		1,228		216,949		7,981		226,158
Securities HTM		862,544				773,061				773,061
Loans, net		10,692,462		—		—		10,354,052		10,354,052
Investment in FHLB stock		25,358		—		25,358		—		25,358
Investment in equity securities		9,767		—		—		9,767		9,767
Liabilities:
Deposits	$	10,362,612	$	8,483,770	$	1,865,502	$	—	$	10,349,272
Borrowings		1,369,936		1,176,601		—		153,121		1,329,722

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

NOTE 3: 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, 2023:
Collateralized mortgage obligations	$	9,463	$	—	$	(1,368)	$	—	$	8,095
Agency mortgage-backed securities		7,107		—		(536)		—		6,571
Municipal bonds		49,684		—		(3,389)		—		46,295
SBA securities		15,833		3		(121)		—		15,715
Beneficial interests in FHLMC securitization		14,921		97		(361)		(7,058)		7,599
Corporate bonds		138,934		—		(22,195)		(1,477)		115,262
U.S. Treasury		1,298		—		(72)		—		1,226
Total	$	237,240	$	100	$	(28,042)	$	(8,535)	$	200,763

December 31, 2022:
Collateralized mortgage obligations	$	9,865	$	—	$	(1,250)	$	—	$	8,615
Agency mortgage-backed securities		8,161		—		(585)		—		7,576
Municipal bonds		50,232		—		(3,442)		—		46,790
SBA securities		19,090		3		(138)		—		18,955
Beneficial interests in FHLMC securitization		19,415		108		(103)		(11,439)		7,981
Corporate bonds		145,024		—		(10,011)		—		135,013
U.S. Treasury		1,298		1		(71)		—		1,228
Total	$	253,085	$	112	$	(15,600)	$	(11,439)	$	226,158

As of June 30, 2023, U.S. Treasury securities of $1.2 million included in the table above are pledged as collateral to the States of California and Florida to meet regulatory requirements related to the Bank’s trust operations, and $226.6 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. A total of $59.6 million in SBA and agency mortgage-backed securities are pledged as collateral for repurchase agreements. A total of $900.6 million in SBA and agency mortgage-backed securities, corporate and municipal bonds, and loans are pledged as collateral to the Federal Reserve’s discount window and bank term funding program from which the Bank may borrow.

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, 2023:
Agency mortgage-backed securities	$	814,661	$	—	$	(90,553)	$	—	$	724,108
Total	$	814,661	$	—	$	(90,553)	$	—	$	724,108

December 31, 2022:
Agency mortgage-backed securities	$	862,544	$	—	$	(89,483)	$	—	$	773,061
Total	$	862,544	$	—	$	(89,483)	$	—	$	773,061

In 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 gain (or loss) of $0.6 million included in other comprehensive income

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

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. The securities HTM portfolio consists solely of agency-backed MBS securities in which the Company has reason to believe the credit loss exposure is remote, as these securities are guaranteed by a U.S. government sponsored entity (“GSE”). As such, the ACL related to the securities HTM portfolio was zero at June 30, 2023 and December 31, 2022, respectively.

We monitor the credit quality of the securities in the investment portfolios 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, as defined by NRSROs, are generally considered by the rating agencies and market participants to be low credit risk. As of June 30, 2023, 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 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, 2023
	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	$	—	$	—	$	8,095	$	(1,368)	$	8,095	$	(1,368)
Agency mortgage-backed securities		—		—		6,569		(536)		6,569		(536)
Municipal bonds		3,561		(62)		40,924		(3,327)		44,485		(3,389)
SBA securities		13,842		(114)		738		(7)		14,580		(121)
Beneficial interests in FHLMC securitization		4,038		(361)		—		—		4,038		(361)
Corporate bonds		14,133		(867)		102,606		(21,328)		116,739		(22,195)
U.S. Treasury		396		(4)		831		(68)		1,227		(72)
Total temporarily impaired securities	$	35,970	$	(1,408)	$	159,763	$	(26,634)	$	195,733	$	(28,042)


	Securities with Unrealized Loss at December 31, 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	$	2	$	—	$	8,613	$	(1,250)	$	8,615	$	(1,250)
Agency mortgage-backed securities		6,882		(525)		696		(60)		7,578		(585)
Municipal bonds		44,971		(3,244)		1,819		(198)		46,790		(3,442)
SBA securities		17,237		(137)		121		(1)		17,358		(138)
Beneficial interests in FHLMC securitization		4,217		(103)		—		—		4,217		(103)
Corporate bonds		108,056		(6,476)		26,957		(3,535)		135,013		(10,011)
U.S. Treasury		376		(23)		451		(48)		827		(71)
Total temporarily impaired securities	$	181,741	$	(10,508)	$	38,657	$	(5,092)	$	220,398	$	(15,600)

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, 2023 - UNAUDITED

The tables below indicate the gross unrecognized losses and fair values of our securities HTM portfolio, aggregated by investment category and length of time that the individual securities have been in a continuous unrecognized loss position.


	Securities with Unrecognized Loss at June 30, 2023
	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	$	—	$	—	$	724,108	$	(90,553)	$	724,108	$	(90,553)
Total temporarily impaired securities	$	—	$	—	$	724,108	$	(90,553)	$	724,108	$	(90,553)


	Securities with Unrecognized Loss at December 31, 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	$	394,619	$	(37,418)	$	378,442	$	(52,065)	$	773,061	$	(89,483)
Total temporarily impaired securities	$	394,619	$	(37,418)	$	378,442	$	(52,065)	$	773,061	$	(89,483)

The following is a rollforward of the Company’s allowance for credit losses related to investments for the following periods:


		Beginning		Provision (Reversal)						Ending
(dollars in thousands)		Balance		for Credit Losses		Charge-offs		Recoveries		Balance

Three Months Ended June 30, 2023:
Municipal bonds	$	—	$	—	$	—	$	—	$	—
Beneficial interests in FHLMC securitization		11,315		(286)		(3,971)		—		7,058
Corporate bonds		973		504		—		—		1,477
Total	$	12,288	$	218	$	(3,971)	$	—	$	8,535

Six Months Ended June 30, 2023:
Municipal bonds	$	—	$	—	$	—	$	—	$	—
Beneficial interests in FHLMC securitization		11,439		(410)		(3,971)		—		7,058
Corporate bonds		—		1,477		—		—		1,477
Total	$	11,439	$	1,067	$	(3,971)	$	—	$	8,535

Year Ended December 31, 2022:
Municipal bonds	$	—	$	—	$	—	$	—	$	—
Beneficial interests in FHLMC securitization		10,399		1,040		—		—		11,439
Corporate bonds		—		—		—		—		—
Total	$	10,399	$	1,040	$	—	$	—	$	11,439

During the three and six months ended June 30, 2023, the Company recorded provision for credit losses of $0.2 million and $1.1 million, respectively. During the three and six months ended June 30, 2023, the Company recorded charge-offs of $4.0 million related to several interest-only strip securities.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

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. On a quarterly basis, the Company engages with an independent third party to perform an analysis of expected credit losses for its municipal and corporate bond securities in order to supplement our own internal review. The analysis for the quarter-ended June 30, 2023 concluded and the Company concurred that eighteen corporate bond securities were impacted by credit loss totaling $504 thousand which was added to the existing allowance at June 30, 2023.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - 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, 2023
Amortized Cost:
Collateralized mortgage obligations	$	—		$	—		$	567		$	8,896		$	9,463
Agency mortgage-backed securities		—			5,460			—			1,647			7,107
Municipal bonds		—			9,274			35,227			5,183			49,684
SBA securities		3			1,306			665			13,859			15,833
Beneficial interests in FHLMC securitization		—			9,225			—			5,696			14,921
Corporate bonds		5,039			45,437			82,929			5,529			138,934
U.S. Treasury		—			1,298			—			—			1,298
Total	$	5,042		$	72,000		$	119,388		$	40,810		$	237,240
Weighted average yield		4.72	%		5.25	%		3.30	%		2.49	%		3.78	%
Estimated Fair Value:
Collateralized mortgage obligations	$	—		$	—		$	509		$	7,586		$	8,095
Agency mortgage-backed securities		—			5,118			—			1,453			6,571
Municipal bonds		—			8,766			33,309			4,220			46,295
SBA securities		3			1,296			663			13,753			15,715
Beneficial interests in FHLMC securitization		—			9,225			—			5,432			14,657
Corporate bonds		4,789			44,004			63,707			4,239			116,739
U.S. Treasury		—			1,226			—			—			1,226
Total	$	4,792		$	69,635		$	98,188		$	36,683		$	209,298


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
December 31, 2022
Amortized Cost:
Collateralized mortgage obligations	$	—		$	—		$	686		$	9,179		$	9,865
Agency mortgage-backed securities		—			4,384			2,107			1,670			8,161
Municipal bonds		301			8,002			34,501			7,428			50,232
SBA securities		14			1,402			1,278			16,396			19,090
Beneficial interests in FHLMC securitization		—			9,860			—			9,555			19,415
Corporate bonds		6,006			28,993			104,494			5,531			145,024
U.S. Treasury		—			1,298			—			—			1,298
Total	$	6,321		$	53,939		$	143,066		$	49,759		$	253,085
Weighted average yield		4.36	%		3.96	%		3.38	%		1.91	%		3.24	%
Estimated Fair Value:
Collateralized mortgage obligations	$	—		$	—		$	623		$	7,992		$	8,615
Agency mortgage-backed securities	��	—			4,133			1,960			1,483			7,576
Municipal bonds		299			7,565			32,690			6,236			46,790
SBA securities		14			1,395			1,272			16,274			18,955
Beneficial interests in FHLMC securitization		—			9,860			—			9,560			19,420
Corporate bonds		6,001			28,022			96,734			4,256			135,013
U.S. Treasury		—			1,228			—			—			1,228
Total	$	6,314		$	52,203		$	133,279		$	45,801		$	237,597

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

The scheduled maturities of securities HTM 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, 2023
Amortized Cost:
Agency mortgage-backed securities	$	—		$	2,077		$	16,994		$	795,590		$	814,661
Total	$	—		$	2,077		$	16,994		$	795,590		$	814,661
Weighted average yield		—	%		0.71	%		1.25	%		2.00	%		1.98	%

Estimated Fair Value:
Agency mortgage-backed securities	$	—		$	1,911		$	15,346		$	706,851		$	724,108
Total	$	—		$	1,911		$	15,346		$	706,851		$	724,108


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
December 31, 2022
Amortized Cost:
Agency mortgage-backed securities	$	—		$	208		$	17,689		$	844,647		$	862,544
Total	$	—		$	208		$	17,689		$	844,647		$	862,544
Weighted average yield		—	%		0.36	%		1.12	%		2.31	%		2.28	%

Estimated Fair Value:
Agency mortgage-backed securities	$	—		$	192		$	16,148		$	756,721		$	773,061
Total	$	—		$	192		$	16,148		$	756,721		$	773,061

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

NOTE 4: LOANS

The following is a summary of our loans as of:


	June 30,		December 31,
(dollars in thousands)	2023		2022
Outstanding principal balance:
Loans secured by real estate:
Residential properties:
Multifamily	$	5,267,048	$	5,341,596
Single family		982,779		1,016,498
Total real estate loans secured by residential properties		6,249,827		6,358,094
Commercial properties		1,070,518		1,203,292
Land and construction		159,091		158,565
Total real estate loans		7,479,436		7,719,951
Commercial and industrial loans		3,085,242		2,984,748
Consumer loans		3,591		4,481
Total loans		10,568,269		10,709,180
Premiums, discounts and deferred fees and expenses		16,932		17,013
Total	$	10,585,201	$	10,726,193

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, 2023:
Real estate loans:
Residential properties	$	416		$	—		$	—		$	3,373		$	3,789		$	6,265,450	$	6,269,239
Commercial properties		2,538			—			92			2,822			5,452			1,064,201		1,069,653
Land and construction		—			—			—			—			—			158,326		158,326
Commercial and industrial loans		544			458			945			3,421			5,368			3,078,982		3,084,350
Consumer loans		162			—			—			10			172			3,461		3,633
Total	$	3,660		$	458		$	1,037		$	9,626		$	14,781		$	10,570,420	$	10,585,201

Percentage of total loans		0.03	%		0.00	%		0.01	%		0.09	%		0.14	%

December 31, 2022:
Real estate loans:
Residential properties	$	511		$	57		$	—		$	2,556		$	3,124		$	6,374,100	$	6,377,224
Commercial properties		15,000			946			1,213			4,547			21,706			1,180,357		1,202,063
Land and construction		—			—			—			—			—			157,630		157,630
Commercial and industrial loans		385			1,495			982			3,228			6,090			2,978,668		2,984,758
Consumer loans		—			167			—			—			167			4,351		4,518
Total	$	15,896		$	2,665		$	2,195		$	10,331		$	31,087		$	10,695,106	$	10,726,193
Percentage of total loans		0.15	%		0.02	%		0.02	%		0.10	%		0.29	%

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

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, 2023:
Real estate loans:
Residential properties	$	—	$	3,373
Commercial properties		—		2,822
Commercial and industrial loans		1,584		1,837
Consumer loans		—		10
Total	$	1,584	$	8,042

December 31, 2022:
Real estate loans:
Residential properties	$	—	$	2,556
Commercial properties		—		4,547
Commercial and industrial loans		2,016		1,212
Total	$	2,016	$	8,315

The Company adopted ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023. The amendments in this ASU eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The amendments in this ASU were applied prospectively, and therefore, loan modification and charge off information is provided for only those items occurring after the January 1, 2023 adoption date.

Based on the guidance in ASU 2022-02, a loan modification or refinancing results in a new loan if the terms of the new loan are at least as favorable to the lender as the terms with customers with similar collection risks that are not refinancing or restructuring their loans and the modification to the terms of the loan are more than minor. If a loan modification or refinancing does not result in a new loan, it is classified as a loan modification.

There are additional disclosures for modification of loans with borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows. The disclosures are applicable to situations where there is interest rate reduction, term extensions, principal forgiveness, other-than-insignificant payment delays, or a combination of any of these items.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

The following table presents our loan modifications made to borrowers experiencing financial difficulty by type of modification for the six months ended June 30, 2023 with related amortized cost balances, respective percentage share of the total class of loans, and the related financial effect:


	June 30, 2023:
	Payment Deferrals
		Amortized Cost Basis	% of Total Class of Loans		Financial Effect
Commercial and industrial loans	$	1,339	0.04	%	1 loan with payments deferred for 4 months
Total	$	1,339

	Combination
		Amortized Cost Basis	% of Total Class of Loans		Financial Effect
Commercial and industrial loans	$	950	0.03	%	1 loan with payments deferred for 4 months and term extended by 4 months
Total	$	950

	Total
		Amortized Cost Basis	% of Total Class of Loans
Commercial and industrial loans	$	2,289	0.07	%
Total	$	2,289

The following table presents the amortized cost basis of loans that had a payment default since modification during the six months ended June 30, 2023:


	June 30, 2023:
	Payment Deferrals
		# of Loans Defaulted		Amortized Cost Basis
Commercial and industrial loans		1	$	1,339
Total		1	$	1,339

	Combination
		# of Loans Defaulted		Amortized Cost Basis
Commercial and industrial loans		1	$	950
Total		1	$	950

	Total
		# of Loans Defaulted		Amortized Cost Basis
Commercial and industrial loans		2		2,289
Total	$	2	$	2,289

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

The following table presents the payment status of our loan modifications made during the six months ended June 30, 2023:


			30-89 Days		90+ Days
(dollars in thousands)		Current	Past Due		Past Due		Total
June 30, 2023:
Commercial and industrial loans	$	—	$	2,289	$	—	$	2,289
Total	$	—	$	2,289	$	—	$	2,289

FASB has provided transition guidance to assist with the implementation of ASU 2022-02. Per this guidance, FASB expects that for comparative periods presented before adoption, current TDR disclosures should continue to be provided. As such, the following table presents the loans classified as TDRs by accrual and nonaccrual status as of the comparative period ended December 31, 2022:


	December 31, 2022
(dollars in thousands)	Accrual		Nonaccrual		Total
Commercial real estate loans	$	929	$	1,066	$	1,995
Commercial and industrial loans		166		1,412		1,578
Total	$	1,095	$	2,478	$	3,573

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

NOTE 5: ALLOWANCE FOR CREDIT LOSSES

The following is a rollforward of the allowance for credit losses related to loans for the following periods:


			Provision
	Beginning		(Reversal) for						Ending
(dollars in thousands)	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Three Months Ended June 30, 2023:
Real estate loans:
Residential properties	$	8,263	$	(29)	$	—	$	—	$	8,234
Commercial properties		5,733		(480)		—		—		5,253
Land and construction		316		(29)		—		—		287
Commercial and industrial loans		16,760		1,404		(1,087)		613		17,690
Consumer loans		23		(3)		—		1		21
Total	$	31,095	$	863	$	(1,087)	$	614	$	31,485

Six Months Ended June 30, 2023:
Real estate loans:
Residential properties	$	8,306	$	(72)	$	—	$	—	$	8,234
Commercial properties		8,714		(3,212)		(249)		—		5,253
Land and construction		164		123		—		—		287
Commercial and industrial loans		16,521		3,089		(2,839)		919		17,690
Consumer loans		26		(4)		(2)		1		21
Total	$	33,731	$	(76)	$	(3,090)	$	920	$	31,485

Year Ended December 31, 2022:
Real estate loans:
Residential properties	$	2,637	$	5,674	$	(5)	$	—	$	8,306
Commercial properties		17,049		(8,335)		—		—		8,714
Land and construction		1,995		(1,831)		—		—		164
Commercial and industrial loans		11,992		4,804		(711)		436		16,521
Consumer loans		103		(73)		(4)		—		26
Total	$	33,776	$	239	$	(720)	$	436	$	33,731

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - 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, 2023:
Allowance for credit losses:
Real estate loans:
Residential properties	$	87	$	8,147	$	8,234
Commercial properties		1,003		4,250		5,253
Land and construction		—		287		287
Commercial and industrial loans		933		16,757		17,690
Consumer loans		—		21		21
Total	$	2,023	$	29,462	$	31,485
Loans:
Real estate loans:
Residential properties	$	4,027	$	6,265,212	$	6,269,239
Commercial properties		20,848		1,048,805		1,069,653
Land and construction		—		158,326		158,326
Commercial and industrial loans		4,405		3,079,945		3,084,350
Consumer loans		—		3,633		3,633
Total	$	29,280	$	10,555,921	$	10,585,201

December 31, 2022:
Allowance for credit losses:
Real estate loans:
Residential properties	$	87	$	8,219	$	8,306
Commercial properties		1,834		6,880		8,714
Land and construction		—		164		164
Commercial and industrial loans		3,122		13,399		16,521
Consumer loans		—		26		26
Total	$	5,043	$	28,688	$	33,731
Loans:
Real estate loans:
Residential properties	$	3,479	$	6,373,745	$	6,377,224
Commercial properties		34,278		1,167,785		1,202,063
Land and construction		—		157,630		157,630
Commercial and industrial loans		9,397		2,975,361		2,984,758
Consumer loans		—		4,518		4,518
Total	$	47,154	$	10,679,039	$	10,726,193

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as loans secured

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

by multifamily or commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:

Pass: Loans classified as pass are strong credits with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

A loan is considered impaired, when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions above and smaller, homogeneous loans not assessed on an individual basis.

The following tables present risk categories of loans based on year of origination, as of the periods shown. In accordance with the adoption of ASU 2022-02 in January 2023, gross charge-off information is disclosed by vintage year (year of origination) on a prospective basis beginning in 2023:

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED


													Revolving
(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Loans		Total
June 30, 2023:
Loans secured by real estate:
Residential
Multifamily
Pass	$	24,008	$	2,357,458	$	1,545,636	$	788,414	$	294,891	$	257,039	$	—	$	5,267,446
Special mention		—		—		—		—		5,607		9,664		—		15,271
Substandard		—		—		—		—		—		—		—		—
Total	$	24,008	$	2,357,458	$	1,545,636	$	788,414	$	300,498	$	266,703	$	—	$	5,282,717
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Single family
Pass	$	13,693	$	263,133	$	269,604	$	93,136	$	39,094	$	242,640	$	60,684	$	981,984
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		4,242		296		4,538
Total	$	13,693	$	263,133	$	269,604	$	93,136	$	39,094	$	246,882	$	60,980	$	986,522
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate
Pass	$	17,184	$	220,262	$	148,045	$	116,290	$	83,375	$	437,850	$	—	$	1,023,006
Special mention		—		—		—		2,308		—		11,544		—		13,852
Substandard		—		5,830		3,496		653		11,575		11,241		—		32,795
Total	$	17,184	$	226,092	$	151,541	$	119,251	$	94,950	$	460,635	$	—	$	1,069,653
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	249	$	—	$	249

Land and construction
Pass	$	11,425	$	39,551	$	55,505	$	43,832	$	829	$	7,184	$	—	$	158,326
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total	$	11,425	$	39,551	$	55,505	$	43,832	$	829	$	7,184	$	—	$	158,326
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial
Pass	$	136,783	$	1,163,930	$	286,993	$	142,264	$	34,892	$	29,192	$	1,244,751	$	3,038,805
Special mention		—		—		19,909		4,575		147		—		9,972		34,603
Substandard		—		—		1,071		575		1,400		921		6,975		10,942
Total	$	136,783	$	1,163,930	$	307,973	$	147,414	$	36,439	$	30,113	$	1,261,698	$	3,084,350
Gross charge-offs	$	—	$	668	$	599	$	473	$	54	$	—	$	1,045	$	2,839

Consumer
Pass	$	10	$	3	$	1,023	$	—	$	309	$	146	$	2,142	$	3,633
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total	$	10	$	3	$	1,023	$	—	$	309	$	146	$	2,142	$	3,633
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	2	$	2

Total loans
Pass	$	203,103	$	4,044,337	$	2,306,806	$	1,183,936	$	453,390	$	974,051	$	1,307,577	$	10,473,200
Special mention		—		—		19,909		6,883		5,754		21,208		9,972		63,726
Substandard		—		5,830		4,567		1,228		12,975		16,404		7,271		48,275
Total	$	203,103	$	4,050,167	$	2,331,282	$	1,192,047	$	472,119	$	1,011,663	$	1,324,820	$	10,585,201
Gross charge-offs	$	—	$	668	$	599	$	473	$	54	$	249	$	1,047	$	3,090

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED


													Revolving
(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Loans		Total
December 31, 2022:
Loans secured by real estate:
Residential
Multifamily
Pass	$	2,399,360	$	1,552,311	$	795,263	$	301,025	$	145,675	$	146,622	$	—	$	5,340,256
Special mention		—		—		—		5,666		9,767		1,545		—		16,978
Substandard		—		—		—		—		—		—		—		—
Total	$	2,399,360	$	1,552,311	$	795,263	$	306,691	$	155,442	$	148,167	$	—	$	5,357,234

Single family
Pass	$	270,589	$	276,244	$	96,183	$	40,010	$	49,676	$	215,209	$	68,575	$	1,016,486
Special mention		—		—		—		—		—		—		25		25
Substandard		—		—		—		—		—		3,434		45		3,479
Total	$	270,589	$	276,244	$	96,183	$	40,010	$	49,676	$	218,643	$	68,645	$	1,019,990

Commercial real estate
Pass	$	223,503	$	158,363	$	144,105	$	93,960	$	171,460	$	325,048	$	—	$	1,116,439
Special mention		—		13,425		2,340		7,088		11,734		7,905		—		42,492
Substandard		5,919		14,376		742		10,661		—		11,434		—		43,132
Total	$	229,422	$	186,164	$	147,187	$	111,709	$	183,194	$	344,387	$	—	$	1,202,063

Land and construction
Pass	$	43,846	$	58,268	$	47,212	$	854	$	5,044	$	2,406	$	—	$	157,630
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total	$	43,846	$	58,268	$	47,212	$	854	$	5,044	$	2,406	$	—	$	157,630

Commercial
Pass	$	1,176,851	$	369,775	$	182,889	$	62,767	$	16,306	$	17,558	$	1,133,998	$	2,960,144
Special mention		—		542		1,212		383		—		—		5,573		7,710
Substandard		—		380		2,125		1,810		—		2,736		9,853		16,904
Total	$	1,176,851	$	370,697	$	186,226	$	64,960	$	16,306	$	20,294	$	1,149,424	$	2,984,758

Consumer
Pass	$	456	$	1,092	$	—	$	471	$	133	$	69	$	2,297	$	4,518
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total	$	456	$	1,092	$	—	$	471	$	133	$	69	$	2,297	$	4,518

Total loans
Pass	$	4,114,605	$	2,416,053	$	1,265,652	$	499,087	$	388,294	$	706,912	$	1,204,870	$	10,595,473
Special mention		—		13,967		3,552		13,137		21,501		9,450		5,598		67,205
Substandard		5,919		14,756		2,867		12,471		—		17,604		9,898		63,515
Total	$	4,120,524	$	2,444,776	$	1,272,071	$	524,695	$	409,795	$	733,966	$	1,220,366	$	10,726,193

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans are evaluated individually to determine expected credit losses and any allowance for credit losses (“ACL”) allocation is determined based upon the amount by which amortized costs exceed the estimated fair value of the collateral, adjusted

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

for estimated selling costs (if applicable). The following table presents the amortized cost basis of collateral dependent loans and the related ACL allocated to these loans as of the dates indicated:


					Equipment/					ACL
(dollars in thousands)	Real Estate		Cash		Receivables		Total			Allocation
June 30, 2023:
Loans secured by real estate:
Residential properties
Single family	$	2,395	$	—	$	—	$	2,395	$	—
Commercial real estate loans		2,588		—		—		2,588		—
Commercial loans		—		250		—		250		—
Total	$	4,983	$	250	$	—	$	5,233	$	—

December 31, 2022:
Loans secured by real estate:
Residential properties
Single family	$	2,435	$	—	$	—	$	2,435	$	—
Commercial real estate loans		3,171		—		—		3,171		—
Commercial loans		—		250		638		888		630
Total	$	5,606	$	250	$	638	$	6,494	$	630

NOTE 6: GOODWILL AND INTANGIBLES

Goodwill is recorded upon completion of a business combination as the difference between the purchase price and the fair value of net identifiable assets acquired. Goodwill is deemed to have an indefinite useful life and as such is not subject to amortization and instead is tested for impairment annually unless a triggering event occurs thereby requiring an updated assessment. Our regular annual impairment assessment occurs in the fourth quarter. Impairment exists when the carrying value of the goodwill exceeds its fair value. An impairment loss would be recognized in an amount equal to that excess as a charge to noninterest expense in the consolidated income statements.

The closure of three large regional banks during the six months ended June 30, 2023, coupled with the drastic change in macroeconomic conditions and persistent Federal Reserve (“Fed”) rate hikes caused a significant decline in bank stock prices including our own. These triggering events required an updated assessment of our goodwill as of June 30, 2023, which concluded that our goodwill was impaired. As a result, we recorded a goodwill impairment charge equal to our entire goodwill balance of $215.3 million in the second quarter of 2023 as the estimated fair value of equity was less than book value. The updated assessment utilized three approaches, each receiving equal weighting: (1) the guideline public company (“GPC”) method which compares benchmarking data of the Company to a set of comparable GPCs; (2) the guideline transaction (“GT”) method utilizing financial results of the Company for the latest twelve months and comparing to publicly available transaction data, and (3) a discounted cash flow method, taking into consideration expectations of the Company’s growth and profitability going forward. The goodwill impairment is a non-cash charge and has no impact on our regulatory capital ratios, cash flows, or liquidity position.

Other intangible assets are deemed to have definite useful lives and as such are amortized over their estimated useful lives to their estimated residual values. Other intangible assets consist of core deposit intangible assets arising from whole bank acquisitions and are amortized on an accelerated method over their estimated useful lives, ranging from 7 to 10 years. At June 30, 2023 and December 31, 2022, core deposit intangible assets totaled $5.7 million and $6.6 million, respectively, and we recognized $0.9 million and $1.0 million in core deposit intangible amortization expense for the six month periods ended June 30, 2023 and June 30, 2022, respectively.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

NOTE 7: LOAN SALES AND MORTGAGE SERVICING RIGHTS

The Company retained servicing rights for the majority of the loans sold and recognized mortgage servicing rights in connection with multifamily loan sale transactions that occurred in 2021 and prior. As of June 30, 2023 and December 31, 2022, mortgage servicing rights were $5.7 million and $5.9 million respectively, net of valuation allowances of $0.5 million and $1.4 million, respectively. The amount of loans serviced for others totaled $1.0 billion and $1.1 billion at June 30, 2023 and December 31, 2022, respectively. Servicing fees collected for the first six months of 2023 and 2022 were $1.2 million and $1.6 million, respectively.

NOTE 8: DEPOSITS

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


	June 30, 2023				December 31, 2022
			Weighted				Weighted
(dollars in thousands)	Amount		Average Rate		Amount		Average Rate
Demand deposits:
Noninterest-bearing	$	2,660,249	—		$	2,736,691	—
Interest-bearing		2,280,932	3.668	%		2,568,850	3.109	%
Money market and savings		3,096,365	3.510	%		3,178,230	2.373	%
Certificates of deposit		2,769,440	4.473	%		1,878,841	3.741	%
Total	$	10,806,986	2.926	%	$	10,362,612	2.177	%

At June 30, 2023, of the $458 million of certificates of deposits of $250,000 or more, $446 million mature within one year and $12 million mature after one year. Of the $2.3 billion of certificates of deposit of less than $250,000, $1.5 billion mature within one year and $767 million mature after one year. At December 31, 2022, of the $436 million of certificates of deposits of $250,000 or more, $409 million mature within one year and $27 million mature after one year. Of the $1.4 billion of certificates of deposit of less than $250,000, $1.1 billion mature within one year and $345 million mature after one year.

NOTE 9: BORROWINGS

At June 30, 2023, our borrowings consisted of $610 million in overnight and $100 million in term FHLB advances at the Bank, $174 million in subordinated notes at FFI, $72 million in repurchase agreements at the Bank, and $20 million of borrowings under a holding company line of credit. The $100 million in term FHLB advances bears an interest rate of 4.21% and matures on June 28, 2028. At December 31, 2022 our borrowings consisted of $805 million in overnight FHLB advances at the Bank, $200 million in federal funds purchased at the Bank, $174 million in subordinated notes at FFI, $171 million in repurchase agreements at the Bank, and $20 million of borrowings under a holding company line of credit.

The overnight FHLB advance outstanding at June 30, 2023 was paid in full in early July and bore an interest rate of 5.35%. FHLB advances are collateralized primarily by loans secured by single family, multifamily, and commercial real estate properties with a carrying value of $5.6 billion as of June 30, 2023. The Bank’s total unused borrowing capacity from the FHLB as of June 30, 2023 was $2.3 billion. The Bank had in place $315 million of letters of credit from the FHLB as of June 30, 2023, which are used to meet collateral requirements for deposits from the State of California and local agencies.

The $174 million in subordinated notes consist of $150 million of fixed-to-floating rate notes that mature in February 2032. The notes 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,

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

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 the 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. The remaining $24 million in 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.

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 maturing in February 2024. The loan bears an interest rate of 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 the Bank. 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, 2023 and December 31, 2022, FFI was in compliance with the covenants contained in the loan agreement. As of June 30, 2023 and December 31, 2022, the balance outstanding under this line of credit agreement was $20 million. The weighted average interest rate paid on borrowings during the six months ended June 30, 2023 and December 31, 2022 was 8.3% and 8.0% respectively.

The Bank has a secured line of credit with the Federal Reserve Bank of San Francisco under which the Bank pledges collateral in the form of qualifying loans and securities. As of June 30, 2023, the Bank had secured unused borrowing capacity of $900.6 million under this agreement. As of June 30, 2023 and December 31, 2022, there were no balances outstanding.

The Bank has a total of $145.4 million in borrowing capacity through unsecured federal funds lines, ranging in size from $400 thousand to $100 million, with four other financial institutions. At June 30, 2023, there were no balances outstanding under these arrangements. At December 31, 2022, the Bank had outstanding borrowings with one of the five institutions under these arrangements totaling $100 million and an additional $100 million outstanding separate from these agreements with the same financial institution. The total $200 million outstanding at December 31, 2022 were in the form of federal funds purchased and were paid in full in early March, 2023.

The repurchase agreements are treated as overnight borrowings with the obligations to repurchase securities sold reflected as a liability. The investment securities underlying these agreements remain in the Company’s securities AFS portfolio. As of June 30, 2023 and December 31, 2022, the repurchase agreements are collateralized by investment securities with a fair value of approximately $59.6 million and $186.3 million, respectively.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

NOTE 10: EARNINGS PER SHARE

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income or loss available to common shareholders 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 Company has excluded the effect of potential common shares used in the computation of diluted EPS for the three and six months ended June 30, 2023 due to the net loss reported for such periods, as such losses are antidilutive by definition. The following table sets forth the Company’s unaudited earnings per share calculations for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended				Three Months Ended
	June 30, 2023				June 30, 2022
(dollars in thousands, except per share amounts)	Basic		Diluted		Basic		Diluted
Net (loss) income	$	(212,288)	$	(212,288)	$	33,316	$	33,316
Basic common shares outstanding		56,430,813		56,430,813		56,471,470		56,471,470
Effect of options, restricted stock and contingent shares issuable				—				48,199
Diluted common shares outstanding				56,430,813				56,519,669
Net (loss) income per share	$	(3.76)	$	(3.76)	$	0.59	$	0.59


	Six Months Ended				Six Months Ended
	June 30, 2023				June 30, 2022
(dollars in thousands, except share and per share amounts)	Basic		Diluted		Basic		Diluted
Net (loss) income	$	(203,792)	$	(203,792)	$	64,152	$	64,152
Basic common shares outstanding		56,403,891		56,403,891		56,468,678		56,468,678
Effect of options, restricted stock and contingent shares issuable				—				74,814
Diluted common shares outstanding				56,403,891				56,543,492
Net (loss) income per share	$	(3.61)	$	(3.61)	$	1.14	$	1.13

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED

NOTE 11: SEGMENT REPORTING

For the three and six months ended June 30, 2023 and 2022, the Company had two reportable business segments: Banking (FFB) and Wealth Management (FFA). The results of FFI and any elimination entries are included in the column labeled Other. The reportable segments are determined by products and services offered and the corporate structure. Business segment earnings before taxes are the primary measure of the segment’s performance as evaluated by management. Business segment earnings before taxes include direct revenue and expenses of the segment as well as corporate and inter-company cost allocations. Allocations of corporate expenses, such as finance and accounting, data processing and human resources are calculated based on estimated activity or usage levels. The management accounting process measures the performance of the operating segments based on the Company’s management structure and is not necessarily comparable with similar information for other financial services companies. If the management structures and/or the allocation process changes, allocations, transfers, and assignments may change. 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, 2023:
Interest income	$	145,328	$	—	$	—	$	145,328
Interest expense		94,539		—		1,805		96,344
Net interest income		50,789		—		(1,805)		48,984
Provision for credit losses		887		—		—		887
Noninterest income		5,067		7,415		(403)		12,079
Noninterest expense
Goodwill impairment		215,252		—		—		215,252
Operating		50,700		5,617		1,195		57,512
(Loss) income before income taxes		(210,983)		1,798		(3,403)		(212,588)
Income tax expense (benefit)		134		529		(963)		(300)
Net (loss) income	$	(211,117)	$	1,269	$	(2,440)	$	(212,288)

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 income taxes		47,147		1,791		(2,711)		46,227
Income tax expense (benefit)		12,893		529		(511)		12,911
Net income (loss)	$	34,254	$	1,262	$	(2,200)	$	33,316

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2023 - UNAUDITED


			Wealth
(dollars in thousands)	Banking		Management		Other		Total
Six Months Ended June 30, 2023:
Interest income	$	282,328	$	—	$	—	$	282,328
Interest expense		170,988		—		3,601		174,589
Net interest income		111,340		—		(3,601)		107,739
Provision for credit losses		1,304		—		—		1,304
Noninterest income		9,868		14,706		(797)		23,777
Noninterest expense
Goodwill impairment		215,252		—		—		215,252
Operating		102,345		11,682		2,825		116,852
(Loss) income before income taxes		(197,693)		3,024		(7,223)		(201,892)
Income tax expense (benefit)		3,081		893		(2,074)		1,900
Net (loss) income	$	(200,774)	$	2,131	$	(5,149)	$	(203,792)

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 (reversal) 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
Income tax expense (benefit)		25,608		1,022		(1,460)		25,170
Net income (loss)	$	65,492	$	2,470	$	(3,810)	$	64,152

NOTE 12: SUBSEQUENT EVENTS

Cash Dividend

On July 27, 2023, the Board of Directors of the Company declared a quarterly cash dividend of $0.02 per common share to be paid on August 17, 2023 to shareholders of record as of the close of business on August 7, 2023.

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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, 2023 as compared to our results of operations in the three and six months ended June 30, 2022; and our financial condition at June 30, 2023 as compared to our financial condition at December 31, 2022. 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, 2022, and the notes thereto, which are set forth in Item 8 of our Annual Report on Form 10-K (as amended “2022 10-K”) which we filed with the Securities and Exchange Commission (“SEC”) on February 28, 2023 and amended on May 1, 2023.

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. As a result of those risks and uncertainties, our actual financial results in the future could differ, possibly materially, from those expressed in or implied by the forward-looking statements contained in this report and could cause us to make changes to our future plans.

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 2022 10-K and Item 1A of Part II of this report. 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 2022 10-K and in Item 1A of Part II of this report, which qualify the forward-looking statements contained in this report.

Also, our actual results in the future may differ from those currently expected due to additional risks and uncertainties of which we are not currently aware or which we do not currently view as, but in the future may become, material to our business or operating results. 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 2022 10-K, except as may otherwise be required by applicable law or government regulations.

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

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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. Management has identified our most critical accounting policies and accounting estimates as: allowance for credit losses – investment securities, allowance for credit losses – loans, and deferred income taxes.

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 we deem a security to no longer possess shared risk characteristics. Under ASC 326-20, for investment securities where we have 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, we first evaluate whether we intend to sell, or whether it is more likely than not that we 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, we are 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, we consider 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, we record the decline in fair value through other comprehensive income, net of related income tax effects. We have 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. See Note 3, Securities, for additional information related to our allowance for credit losses on securities AFS.

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 in our loan portfolios.

Deferred Income Taxes. 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 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

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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 “Investment Management and Wealth Planning” (“Wealth Management”). Banking includes the operations of FFB, FFIS, FFPF, and Blue Moon Management LLC and 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

At June 30, 2023, the Company had total assets of $12.8 billion, including $10.6 billion of total loans, net of deferred fees and allowance for credit losses, $0.9 billion of cash and cash equivalents, $0.8 billion in investment securities held-to-maturity, and $0.2 billion in investment securities available-for-sale. This compares to total assets of $13.0 billion, including $10.7 billion of total loans, net of deferred fees and allowance for credit losses, $0.7 billion of cash and cash equivalents, $0.9 billion in investment securities held-to-maturity, and $0.2 billion in investment securities available-for-sale at December 31, 2022. The $0.2 billion decrease in total assets since year-end was due primarily to the $215.3 million goodwill impairment charge taken in the second quarter of 2023. See Note 6 “Goodwill and Intangibles” for discussion regarding the impairment charge.

At June 30, 2023, the Company had total liabilities of $11.9 billion, including $10.8 billion in deposits and $1.0 billion in borrowings. This compares to total liabilities of $11.9 billion, including $10.4 billion in deposits and $1.4 billion in borrowings at December 31, 2022. Total liabilities remained constant at $11.9 billion at June 30, 2023 compared to December 31, 2022. Deposits increased $0.4 billion as the negative impact on deposit levels due to several large regional bank closures peaked and deposit inflows and outflows normalized during the second quarter. Borrowings decreased $0.4 billion as the increase in deposits provided the opportunity to paydown borrowings.

At June 30, 2023, the Company had total shareholders’ equity of $0.9 billion, compared to $1.1 billion at December 31, 2022. The $0.2 billion decrease in shareholders’ equity since year-end is largely due to the $203.8 million net loss for the six months ended June 30, 2023, which includes the $215.3 million goodwill impairment charge noted previously. During the six months ended June 30, 2023, shareholder’s equity activity also included dividends paid to shareholders for the fourth quarter of 2022 and first quarter of 2023 of $6.2 million and $1.1 million, respectively and $7.9 million decrease in other comprehensive income (loss) due to net unrealized losses on investment securities arising during the period.

On July 27, 2023, the Board of Directors declared a quarterly cash dividend of $0.02 per common share to be paid on August 17, 2023 to shareholders of record as of the close of business on August 7, 2023.

Results of Operations

The primary sources of revenue for Banking are net interest income, fees from its deposits and trust services, 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”). The largest component of noninterest expense for the three months ended June 30, 2023 is goodwill impairment, which is a non-cash charge. Excluding this one-time impairment charge, operating noninterest expense totaled $57.5 million. Compensation and benefit costs and customer

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service costs constitute the largest components of operating noninterest expense accounting for 37% and 33% of total combined operating noninterest expense, respectively.

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
2023:
Interest income	$	145,328	$	—	$	—	$	145,328
Interest expense		94,539		—		1,805		96,344
Net interest income		50,789		—		(1,805)		48,984
Provision for credit losses		887		—		—		887
Noninterest income		5,067		7,415		(403)		12,079
Noninterest expense
Goodwill impairment		215,252		—		—		215,252
Operating		50,700		5,617		1,195		57,512
(Loss) income before income taxes		(210,983)		1,798		(3,403)		(212,588)
Income tax expense (benefit)		134		529		(963)		(300)
Net (loss) income	$	(211,117)	$	1,269	$	(2,440)	$	(212,288)

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 income taxes		47,147		1,791		(2,711)		46,227
Income tax expense (benefit)		12,893		529		(511)		12,911
Net income (loss)	$	34,254	$	1,262	$	(2,200)	$	33,316

2nd Quarter of 2023 Compared to 2^nd Quarter of 2022

Combined net loss for the second quarter of 2023 was $212.3 million, compared to net income of $33.3 million for the second quarter of 2022. Combined net loss before taxes for the second quarter of 2023 was $212.6 million, compared to net income of $46.2 million for the second quarter of 2022. The $258.8 million decrease in combined net income before taxes from the year-ago quarter was primarily due to a decrease in net income before taxes in the Banking segment of $258.1 million, resulting primarily from the $215.3 million goodwill impairment charge, a decrease in net interest income of $32.7 million, and an increase in operating noninterest expense of $8.7 million. Net interest income, noninterest income, and noninterest expense are discussed in more detail in the tables that follow. Wealth Management net income before taxes of $1.8 million for the second quarter of 2023 was unchanged from the second quarter of 2022.

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


			Wealth
(dollars in thousands)	Banking		Management		Other		Total
2023:
Interest income	$	282,328	$	—	$	—	$	282,328
Interest expense		170,988		—		3,601		174,589
Net interest income		111,340		—		(3,601)		107,739
Provision for credit losses		1,304		—		—		1,304
Noninterest income		9,868		14,706		(797)		23,777
Noninterest expense
Goodwill impairment		215,252		—		—		215,252
Operating		102,345		11,682		2,825		116,852
(Loss) income before income taxes		(197,693)		3,024		(7,223)		(201,892)
Income tax expense (benefit)		3,081		893		(2,074)		1,900
Net (loss) income	$	(200,774)	$	2,131	$	(5,149)	$	(203,792)

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 (gains)		(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
Income tax expense (benefit)		25,608		1,022		(1,460)		25,170
Net income (loss)	$	65,492	$	2,470	$	(3,810)	$	64,152

1^st half of 2023 Compared to 1^st half of 2022

Combined net loss for the first half of 2023 was $203.8 million, compared to net income of $64.2 million for the first half of 2022. Combined net loss before taxes for the first half of 2023 was $201.9 million, compared to net income of $89.3 million for the first half of 2022. The $291.2 million decrease in combined net income before taxes from the year-ago period was primarily due to a decrease in net income before taxes in the Banking segment of $288.8 million, resulting primarily from the $215.3 million goodwill impairment charge, a decrease in net interest income of $47.9 million, a decrease in noninterest income of $3.5 million, an increase in operating noninterest expense of $20.2 million, and an increase of $1.9 million in provision for credit losses. Net interest income, noninterest income, and noninterest expense are discussed in more detail in the tables that follow. The decrease in Wealth Management net income before taxes of $0.5 million was due to a $1.6 million decrease in asset management fee income, classified as part of noninterest income, offset by a $1.1 million decrease in operating noninterest expense.

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. For the six months ended June 30, 2023, we recorded provision for credit losses of $1.3 million, compared to a reversal of provision for credit losses in the amount of $0.6 million for the year-ago period. The increase in provision for credit losses for the six months ended June 30, 2023, was due to a net increase in investment and loan portfolio credit losses. The decrease in provision for credit losses in the year-ago period was a result of improvement in the economic outlook at that time.

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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:
	2023						2022
	Average				Average		Average				Average
(dollars in thousands)	Balances		Interest		Yield /Rate		Balances		Interest		Yield /Rate
Interest-earning assets:
Loans	$	10,542,522	$	123,472	4.69	%	$	8,497,504	$	82,032	3.86	%
Securities AFS		242,005		2,470	4.08	%		267,634		2,006	3.00	%
Securities HTM		829,540		4,302	2.07	%		949,893		4,615	1.94	%
Cash, FHLB stock, and fed funds		1,294,773		15,084	4.67	%		569,002		1,318	0.93	%
Total interest-earning assets		12,908,840		145,328	4.51	%		10,284,033		89,971	3.50	%
Noninterest-earning assets:
Nonperforming assets		22,593						10,459
Other		476,901						437,320
Total assets	$	13,408,334					$	10,731,812
Interest-bearing liabilities:
Demand deposits	$	2,233,709	$	18,867	3.39	%	$	2,461,369	$	2,870	0.47	%
Money market and savings		3,053,013		25,496	3.35	%		2,643,388		2,700	0.41	%
Certificates of deposit		2,578,516		28,569	4.44	%		646,527		770	0.48	%
Total interest-bearing deposits		7,865,238		72,932	3.72	%		5,751,284		6,340	0.44	%
Borrowings		1,866,086		23,412	5.03	%		327,212		1,826	2.27	%
Total interest-bearing liabilities		9,731,324		96,344	3.97	%		6,078,496		8,166	0.54	%
Noninterest-bearing liabilities:
Demand deposits		2,415,369						3,479,847
Other liabilities		133,028						85,649
Total liabilities		12,279,721						9,643,992
Shareholders’ equity		1,128,613						1,087,820
Total liabilities and equity	$	13,408,334					$	10,731,812
Net Interest Income			$	48,984					$	81,805
Net Interest Rate Spread					0.54	%					2.96	%
Net Interest Margin					1.51	%					3.18	%

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	Six Months Ended June 30:
	2023						2022
	Average				Average		Average				Average
(dollars in thousands)	Balances		Interest		Yield /Rate		Balances		Interest		Yield /Rate
Interest-earning assets:
Loans	$	10,616,657	$	244,114	4.61	%	$	8,015,946	$	154,059	3.85	%
Securities AFS		244,952		4,776	3.90	%		572,754		6,949	2.43	%
Securities HTM		840,937		8,887	2.11	%		634,994		6,032	1.90	%
FHLB stock, fed funds and deposits		1,126,156		24,551	4.40	%		889,110		2,075	0.47	%
Total interest-earning assets		12,828,702		282,328	4.42	%		10,112,804		169,115	3.35	%
Noninterest-earning assets:
Nonperforming assets		17,038						10,292
Other		480,157						443,265
Total assets	$	13,325,897					$	10,566,361
Interest-bearing liabilities:
Demand deposits	$	2,402,352	$	38,252	3.21	%	$	2,410,633	$	3,921	0.33	%
Money market and savings		3,129,427		47,048	3.03	%		2,627,287		4,572	0.35	%
Certificates of deposit		2,356,640		49,772	4.26	%		650,382		1,205	0.37	%
Total interest-bearing deposits		7,888,419		135,072	3.45	%		5,688,302		9,698	0.34	%
Borrowings		1,629,392		39,517	4.89	%		314,296		3,118	2.02	%
Total interest-bearing liabilities		9,517,811		174,589	3.70	%		6,002,598		12,816	0.43	%
Noninterest-bearing liabilities:
Demand deposits		2,543,179						3,397,948
Other liabilities		133,153						90,042
Total liabilities		12,194,143						9,490,588
Shareholders’ equity		1,131,754						1,075,773
Total liabilities and equity	$	13,325,897					$	10,566,361
Net Interest Income			$	107,739					$	156,299
Net Interest Rate Spread					0.72	%					2.92	%
Net Interest Margin					1.67	%					3.10	%

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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, 2023, as compared to the three and six months ended June 30, 2022:


	Quarter Ended							Six Months Ended
	June 30, 2023 vs. 2022						June 30, 2023 vs. 2022
	Increase (Decrease) due to						Increase (Decrease) due to
(dollars in thousands)	Volume		Rate		Total		Volume		Rate		Total
Interest earned on:
Loans	$	21,924	$	19,516	$	41,440	$	56,084	$	33,971	$	90,055
Securities AFS		(208)		672		464		(5,125)		2,952		(2,173)
Securities HTM		(610)		297		(313)		2,126		729		2,855
Cash, FHLB stock, and fed funds		3,285		10,481		13,766		699		21,777		22,476
Total interest-earning assets		24,391		30,966		55,357		53,784		59,429		113,213
Interest paid on:
Demand deposits		(333)		16,331		15,998		(15)		34,346		34,331
Money market and savings		420		22,376		22,796		1,039		41,437		42,476
Certificates of deposit		7,306		20,493		27,799		9,786		38,781		48,567
Borrowings		17,047		4,538		21,585		27,056		9,343		36,399
Total interest-bearing liabilities		24,440		63,738		88,178		37,866		123,907		161,773
Net interest (expense) income	$	(49)	$	(32,772)	$	(32,821)	$	15,918	$	(64,478)	$	(48,560)

Net interest income was $107.7 million for the six months ended June 30, 2023, compared to $156.3 million for the six months ended June 30, 2022. The overall decrease in net interest income from the year-ago period was primarily driven by rates on interest-bearing liabilities increasing faster than rates on interest-earning assets. Interest income increased to $282.3 million for the six months ended June 30, 2023 compared to $169.1 million for six months ended June 30, 2022. The increase in interest income was due to increases in both average interest-earning asset balances as well as average yields earned on such balances. Average interest-earning asset balances increased to $12.8 billion for the six months ended June 30, 2023, compared to $10.1 billion for the six months ended June 30, 2022. Yields on interest-earning assets averaged 4.42% for the six months ended June 30, 2023, compared to 3.35% for the six months ended June 30, 2022. Interest expense was $174.6 million for the six months ended June 30, 2023, compared to $12.8 million for the six months ended June 30, 2022. The increase in interest expense was due to increases in both average interest-bearing liability balances as well as average rates paid on such balances. Average interest-bearing liability balances, consisting of interest-bearing deposits and borrowings, increased to $9.5 billion for the six months ended June 30, 2023, compared to $6.0 billion for the six months ended June 30, 2022. Rates on interest-bearing liability balances averaged 3.70% for the six months ended June 30, 2023, compared to 0.43% for the six months ended June 30, 2022.

The 1.07% increase in average yield earned on interest-earning assets was offset by a 3.27% increase in average rate paid on interest-bearing liability balances, resulting in a contraction of net interest margin (“NIM”) for the six months ended June 30, 2023. NIM was 1.67% for the six months ended June 30, 2023 compared to 3.10% for the six months ended June 30, 2022. The contraction of NIM is reflective of the interest rate environment over the past year, which has seen the Federal Reserve increase the benchmark federal funds rate by 5.00% in the past year in efforts to cool inflation. This has negatively impacted NIM as short-term interest rate increases more immediately affect the rates we pay on both our interest-bearing deposit accounts and our borrowings. Average borrowings outstanding for the six months ended June 30, 2023 were $1.6 billion compared to $0.3 billion for the six months ended June 30, 2022. The additional borrowings were utilized to increase on-balance sheet liquidity, notably in the wake of banking industry events that followed the announced closures of three large regional banks in the first quarter and second quarters of 2023.

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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, 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, 2023 and 2022:


(dollars in thousands)	2023		2022
Three Months Ended June 30:
Trust fees	$	1,828	$	2,149
Loan related fees		1,812		2,071
Deposit charges		527		665
Consulting fees		93		100
Other		807		872
Total noninterest income	$	5,067	$	5,857

Six Months Ended June 30:
Trust fees	$	3,547	$	4,257
Loan related fees		3,673		4,633
Deposit charges		1,028		1,309
Gain on sale leaseback		—		1,123
Consulting fees		181		195
Other		1,439		1,871
Total noninterest income	$	9,868	$	13,388

Noninterest income in Banking was $5.1 million for the second quarter of 2023, compared to $5.9 million for the second quarter of 2022. Noninterest income in Banking was $9.9 million for the six months ended June 30, 2023, compared to $13.4 million for the six months ended June 30, 2022. The $3.5 million decrease in noninterest income for the six months ended June 30, 2023 compared to the year-ago period was due primarily to a $1.1 million gain on a sale leaseback transaction recorded in the year-ago period, a $0.7 million decrease in trust fees, a $1.0 million decrease in loan related fees, a $0.3 million decrease in deposit charges, and a $0.4 million decrease in other noninterest income.

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, 2023 and 2022:


(dollars in thousands)	2023		2022
Three Months Ended June 30:
Noninterest income	$	7,415	$	7,980

Six Months Ended June 30:
Noninterest income	$	14,706	$	16,325

Noninterest income for Wealth Management was $7.4 million for the second quarter of 2023, compared to $8.0 million for the second quarter of 2022. Noninterest income for Wealth Management was $14.7 million for the six months ended June 30, 2023, compared to $16.3 million for the six months ended June 30, 2022. The $1.6 million decrease in noninterest income for the six months ended June 30, 2023 compared to the year-ago period was due primarily to a decrease in average fees earned on AUM balances as the portfolio composition changed from equities which earn higher fees to fixed income funds which earn lower fees.

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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, 2023:
Fixed income	$	2,562,592	$	(74,731)	$	24,391	$	(33,775)	$	194,705	$	2,673,182
Equities		1,881,343		32,645		35,731		(47,641)		(9,624)		1,892,454
Cash and other		784,958		(65,574)		16,969		(3,922)		20,896		753,327
Total	$	5,228,893	$	(107,660)	$	77,091	$	(85,338)	$	205,977	$	5,318,963

Six Months Ended June 30, 2023:
Fixed income	$	1,699,554	$	579,003	$	43,732	$	(46,333)	$	397,226	$	2,673,182
Equities		2,383,268		(542,656)		64,415		(54,124)		41,551		1,892,454
Cash and other		902,455		(238,923)		55,302		(9,817)		44,310		753,327
Total	$	4,985,277	$	(202,576)	$	163,449	$	(110,274)	$	483,087	$	5,318,963

Year Ended December 31, 2022:
Fixed income	$	1,303,760	$	451,841	$	154,827	$	(30,428)	$	(180,446)	$	1,699,554
Equities		3,330,639		(87,881)		108,003		(78,785)		(888,708)		2,383,268
Cash and other		1,046,206		(422,405)		305,747		(58,248)		31,155		902,455
Total	$	5,680,605	$	(58,445)	$	568,577	$	(167,461)	$	(1,037,999)	$	4,985,277

The $0.3 billion increase in AUM during the six months ended June 30, 2023 was the net result of $163 million of new accounts and $483 million of portfolio gains, offset by terminations and net withdrawals of $313 million.

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)	2023		2022		2023		2022
Three Months Ended June 30:
Compensation and benefits	$	16,684	$	22,567	$	4,058	$	4,801
Occupancy and depreciation		8,700		8,356		481		458
Professional services and marketing		2,086		2,237		912		730
Customer service costs		19,004		4,611		—		—
Other		4,226		4,261		166		200
Total operating expense		50,700		42,032		5,617		6,189
Goodwill impairment		215,252		—		—		—
Total noninterest expense	$	265,952	$	42,032	$	5,617	$	6,189

Six Months Ended June 30:
Compensation and benefits	$	36,944	$	46,843	$	8,618	$	10,013
Occupancy and depreciation		17,103		16,469		975		912
Professional services and marketing		4,750		4,580		1,716		1,545
Customer service costs		35,719		6,399		—		—
Other		7,829		7,842		373		363
Total operating expense		102,345		82,133		11,682		12,833
Goodwill impairment		215,252		—		-		-
Total noninterest expense	$	317,597	$	82,133	$	11,682	$	12,833

Noninterest expense in Banking was $266 million for the second quarter of 2023, compared to $42 million for the second quarter of 2022. The $266 million in noninterest expense for the second quarter of 2023 included a non-cash goodwill impairment charge of $215.3 million. Excluding this one-time charge, operating noninterest expense totaled $50.7 million for the second quarter of 2023, compared to $42.0 million for the second quarter of 2022. The $8.7 million increase in operating noninterest expense in Banking was largely due to a $14.4 million increase in customer service cost,

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offset by a $5.9 million decrease in compensation and benefits. The increase in customer service costs was due to higher earnings credits paid on deposit balances earning such credits. The higher earnings credits paid are due to the increase in interest rates resulting from the Fed interest rate hikes over the past year. The decrease in compensation and benefit costs was primarily due to decreased staffing levels during the second quarter of 2023, compared to levels during the second quarter of 2022. Average quarterly Banking full-time equivalents (“FTEs”) were 543.3 for the second quarter of 2023, compared to 661.2 for the second quarter of 2022. Staffing levels were reduced in the first and second quarters of 2023, in efforts to maximize efficiency and optimize the workforce in the face of slowing loan growth.

Noninterest expense in Wealth Management was $5.6 million for the second quarter of 2023, compared to $6.2 million for the second quarter of 2022. The $0.6 million decrease in noninterest expense in Wealth Management was largely due to a $0.7 million decrease in compensation and benefits, offset by a $0.1 million increase in other noninterest expense. The decrease in compensation and benefit costs was primarily due to a decrease in commission expense resulting from a fewer number of new accounts compared to the year-ago quarter. Average quarterly Wealth Management FTEs remained relatively constant at 67.7 for the second quarter of 2023, compared to 64.7 for the second quarter of 2022.

Noninterest expense in Banking was $317.6 million for the six months ended June 30 2023, compared to $82.1 million for the six months ended June 30, 2022. The $317.6 million in noninterest expense for the six months ended June 30, 2023 included a non-cash goodwill impairment charge of $215.3 million. Excluding this one-time charge, operating noninterest expense totaled $102.3 million for the six months ended June 30, 2023, compared to $82.1 million for the six months ended June 30, 2022. The $20.2 million increase in operating noninterest expense in Banking was largely due to a $29.3 million increase in customer service cost, a $0.6 million increase in occupancy and depreciation expense, and a $0.2 million increase in professional services and marketing expense, offset by a $9.9 million decrease in compensation and benefits. The increase in customer service costs was due to higher earnings credits paid on deposit balances earning such credits. The higher earnings credits paid are due to the increase in interest rates resulting from the Fed interest rate hikes over the past year. The decrease in compensation and benefit costs was primarily due to decreased staffing levels during the six months ended June 30, 2023, compared to levels during the six months ended June 30, 2022. Average Banking FTEs were 572.6 for the six months ended June 30, 2023, compared to 642.4 for the six months ended June 30, 2022. Staffing levels were reduced in the first and second quarters of 2023, in efforts to maximize efficiency and optimize the workforce in the face of slowing loan growth.

Noninterest expense in Wealth Management was $11.7 million for the six months ended June 30, 2023, compared to $12.8 million for the six months ended June 30, 2022. The $1.1 million decrease in noninterest expense in Wealth Management was largely due to a $1.4 million decrease in compensation and benefits, offset by a $0.2 million increase in professional services and marketing expense. The decrease in compensation and benefit costs was primarily due to a decrease in commission expense resulting from a fewer number of new accounts compared to the year-ago period. Average Wealth Management FTEs were 67.1 for the six months ended June 30, 2023, compared to 65.3 for the six months ended June 30, 2022.

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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, 2023:
Cash and cash equivalents	$	925,726	$	1,978	$	(1,623)	$	926,081
Securities AFS, net		200,763		—		—		200,763
Securities HTM		814,661		—		—		814,661
Loans, net		10,553,716		—		—		10,553,716
Premises and equipment		36,251		197		136		36,584
Investment in FHLB stock		19,485		—		—		19,485
Deferred taxes		21,117		124		1,946		23,187
Real estate owned ("REO")		6,210		—		—		6,210
Goodwill and intangibles		5,730		—		—		5,730
Other assets		224,182		505		29,450		254,137
Total assets	$	12,807,841	$	2,804	$	29,909	$	12,840,554

Deposits	$	10,815,572	$	—	$	(8,586)	$	10,806,986
Borrowings		782,175		—		193,366		975,541
Intercompany balances		(974)		(9,163)		10,137		—
Accounts payable and other liabilities		131,117		2,602		8,774		142,493
Shareholders’ equity		1,079,951		9,365		(173,782)		915,534
Total liabilities and equity	$	12,807,841	$	2,804	$	29,909	$	12,840,554

December 31, 2022:
Cash and cash equivalents	$	656,247	$	16,757	$	(16,510)	$	656,494
Securities AFS, net		226,158		—		—		226,158
Securities HTM		862,544		—		—		862,544
Loans, net		10,692,462		—		—		10,692,462
Premises and equipment		35,788		216		136		36,140
Investment in FHLB stock		25,358		—		—		25,358
Deferred taxes		19,671		78		4,449		24,198
Real estate owned ("REO")		6,210		—		—		6,210
Goodwill and intangibles		221,835		—		—		221,835
Other assets		233,621		428		28,731		262,780
Total assets	$	12,979,894	$	17,479	$	16,806	$	13,014,179

Deposits	$	10,403,205	$	—	$	(40,593)	$	10,362,612
Borrowings		1,176,601		—		193,335		1,369,936
Intercompany balances		1,001		971		(1,972)		—
Accounts payable and other liabilities		125,254		4,392		17,607		147,253
Shareholders’ equity		1,273,833		12,116		(151,571)		1,134,378
Total liabilities and equity	$	12,979,894	$	17,479	$	16,806	$	13,014,179

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.

During the six months ended June 30, 2023, total assets decreased by $174 million primarily due to a $216 million decrease in goodwill and intangibles, a $139 million decrease in loans, and a $73 million decrease in AFS and HTM securities offset by a $270 million increase in cash and cash equivalents. The $216 million decrease in goodwill and

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intangibles was largely the result of a $215.3 million non-cash goodwill impairment charge recorded during the second quarter of 2023, after an updated assessment of our goodwill balances was performed in the second quarter. The updated assessment followed the closure of three large regional banks during the six months ended June 30, 2023, coupled with the drastic change in macroeconomic conditions, persistent Fed rate hikes and their combined impact on bank stock prices including our own. At June 30, 2023, the $5.7 million remaining balance consists solely of core deposit intangibles which are amortized on an accelerated method over their estimated useful lives, ranging from 7 to 10 years. Cash and cash equivalents represented approximately 7.2% of total assets as of June 30, 2023, and the increase in such balances is consistent with strategic efforts to increase on-balance sheet liquidity, notably in the wake of the banking industry events that followed the closures of three large regional banks during the first and second quarters of 2023. Loans, net decreased $139 million, the result of $955 million in loan fundings for the six months ended June 30, 2023 offset by loan payoffs and paydowns of $1.1 billion for the six months ended June 30, 2023. Combined investment securities (AFS and HTM) balances decreased by $73 million, largely the result of $64 million in principal collections received. Deposits increased by $444 million, the result of increases in wholesale, corporate, and digital bank deposits of $823 million, $519 million, and $124 million respectively, offset by decreases in retail, and specialty deposits of $750 million and $272 million respectively. Borrowings decreased by $394 million, as the increase in deposits provided the opportunity to paydown borrowings.

Cash and cash equivalents. Cash and cash equivalents, consist primarily of funds held at the Federal Reserve Bank or at correspondent banks, including fed funds. 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. Cash and cash equivalents increased by $270 million during the six months ended June 30, 2023, compared to December 31, 2022 due to strategic efforts to increase on-balance sheet liquidity.

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, 2023:
Collateralized mortgage obligations	$	9,463	$	—	$	(1,368)	$	—	$	8,095
Agency mortgage-backed securities		7,107		—		(536)		—		6,571
Municipal bonds		49,684		—		(3,389)		—		46,295
SBA securities		15,833		3		(121)		—		15,715
Beneficial interests in FHLMC securitization		14,921		97		(361)		(7,058)		7,599
Corporate bonds		138,934		—		(22,195)		(1,477)		115,262
U.S. Treasury		1,298		—		(72)		—		1,226
Total	$	237,240	$	100	$	(28,042)	$	(8,535)	$	200,763

December 31, 2022:
Collateralized mortgage obligations	$	9,865	$	—	$	(1,250)	$	—	$	8,615
Agency mortgage-backed securities		8,161		—		(585)		—		7,576
Municipal bonds		50,232		—		(3,442)		—		46,790
SBA securities		19,090		3		(138)		—		18,955
Beneficial interest in FHLMC securitization		19,415		108		(103)		(11,439)		7,981
Corporate bonds		145,024		—		(10,011)		—		135,013
U.S. Treasury		1,298		1		(71)		—		1,228
Total	$	253,085	$	112	$	(15,600)	$	(11,439)	$	226,158

As of June 30, 2023, U.S. Treasury securities of $1.2 million included in the table above are pledged as collateral to the States of California and Florida to meet regulatory requirements related to the Bank’s trust operations, $226.6 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. A total of $59.6 million in SBA and agency mortgage-backed securities are pledged as collateral for repurchase agreements. A total of $900.6 million in SBA and

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agency mortgage-backed securities, corporate and municipal bonds, and loans are pledged as collateral to the Federal Reserve’s discount window and bank term funding program from which the Bank may borrow.

Excluding allowance for credit losses, the decrease in AFS securities in the six months ended June 30, 2023 was due primarily to principal payments and increases in the gross unrealized losses on the securities. There were no purchases of investment securities or other additions to the portfolio during the six months ended June 30, 2023.

The following is a rollforward of the Company’s allowance for credit losses related to investments for the following periods:


		Beginning		Provision (Reversal)						Ending
(dollars in thousands)		Balance		for Credit Losses		Charge-offs		Recoveries		Balance

Three Months Ended June 30, 2023:
Municipal bonds	$	—	$	—	$	—	$	—	$	—
Beneficial interests in FHLMC securitization		11,315		(286)		(3,971)		—		7,058
Corporate bonds		973		504		—		—		1,477
Total	$	12,288	$	218	$	(3,971)	$	—	$	8,535

Six Months Ended June 30, 2023:
Municipal bonds	$	—	$	—	$	—	$	—	$	—
Beneficial interests in FHLMC securitization		11,439		(410)		(3,971)		—		7,058
Corporate bonds		—		1,477		—		—		1,477
Total	$	11,439	$	1,067	$	(3,971)	$	—	$	8,535

Year Ended December 31, 2022:
Municipal bonds	$	—	$	—	$	—	$	—	$	—
Beneficial interests in FHLMC securitization		10,399		1,040		—		—		11,439
Corporate bonds		—		—		—		—		—
Total	$	10,399	$	1,040	$	—	$	—	$	11,439

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, 2023:
Agency mortgage-backed securities	$	814,661	$	—	$	(90,553)	$	—	$	724,108
Total	$	814,661	$	—	$	(90,553)	$	—	$	724,108

December 31, 2022:
Agency mortgage-backed securities	$	862,544	$	—	$	(89,483)	$	—	$	773,061
Total	$	862,544	$	—	$	(89,483)	$	—	$	773,061

The decrease in HTM securities in the six months ended June 30, 2023 was due to principal payments received. There were no purchases of investment securities or other additions to the portfolio during the six months ended June 30, 2023.

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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, 2023:


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
Amortized Cost:
Collateralized mortgage obligations	$	—		$	—		$	567		$	8,896		$	9,463
Agency mortgage-backed securities		—			5,460			—			1,647			7,107
Municipal bonds		—			9,274			35,227			5,183			49,684
SBA securities		3			1,306			665			13,859			15,833
Beneficial interests in FHLMC securitization		—			9,225			—			5,696			14,921
Corporate bonds		5,039			45,437			82,929			5,529			138,934
U.S. Treasury		—			1,298			—			—			1,298
Total	$	5,042		$	72,000		$	119,388		$	40,810		$	237,240
Weighted average yield		4.72	%		5.25	%		3.30	%		2.49	%		3.78	%
Estimated Fair Value:
Collateralized mortgage obligations	$	—		$	—		$	509		$	7,586		$	8,095
Agency mortgage-backed securities		—			5,118			—			1,453			6,571
Municipal bonds		—			8,766			33,309			4,220			46,295
SBA securities		3			1,296			663			13,753			15,715
Beneficial interests in FHLMC securitization		—			9,225			—			5,432			14,657
Corporate bonds		4,789			44,004			63,707			4,239			116,739
U.S. Treasury		—			1,226			—			—			1,226
Total	$	4,792		$	69,635		$	98,188		$	36,683		$	209,298

The scheduled maturities of securities HTM, and the related weighted average yield is as follows, as of June 30, 2023:


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
June 30, 2023
Amortized Cost:
Agency mortgage-backed securities	$	—		$	2,077		$	16,994		$	795,590		$	814,661
Total	$	—		$	2,077		$	16,994		$	795,590		$	814,661
Weighted average yield		—	%		0.71	%		1.25	%		2.00	%		1.98	%

Estimated Fair Value:
Agency mortgage-backed securities	$	—		$	1,911		$	15,346		$	706,851		$	724,108
Total	$	—		$	1,911		$	15,346		$	706,851		$	724,108

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


	June 30,		December 31,
(dollars in thousands)	2023		2022
Outstanding principal balance:
Loans secured by real estate:
Residential properties:
Multifamily	$	5,267,048	$	5,341,596
Single family		982,779		1,016,498
Total real estate loans secured by residential properties		6,249,827		6,358,094
Commercial properties		1,070,518		1,203,292
Land and construction		159,091		158,565
Total real estate loans		7,479,436		7,719,951
Commercial and industrial loans		3,085,242		2,984,748
Consumer loans		3,591		4,481
Total loans		10,568,269		10,709,180
Premiums, discounts and deferred fees and expenses		16,932		17,013
Total	$	10,585,201	$	10,726,193

Loans decreased by $141 million, as a result of $955 million in loan fundings for the six months ended June 30, 2023 offset by loan payoffs/paydowns of $1.1 million for the six months ended June 30, 2023.

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


	June 30, 2023				December 31, 2022
			Weighted				Weighted
(dollars in thousands)	Amount		Average Rate		Amount		Average Rate
Demand deposits:
Noninterest-bearing	$	2,660,249	—		$	2,736,691	—
Interest-bearing		2,280,932	3.668	%		2,568,850	3.109	%
Money market and savings		3,096,365	3.510	%		3,178,230	2.373	%
Certificates of deposit		2,769,440	4.473	%		1,878,841	3.741	%
Total	$	10,806,986	2.926	%	$	10,362,612	2.177	%

During the six months ended June 30, 2023, our deposit rates have moved in a manner consistent with overall deposit market rates and market rates continue to rise as a result of the actions taken by the Federal Reserve. The weighted average rate of our interest-bearing deposits increased from 3.11% at December 31, 2022, to 3.67% at June 30, 2023 due to rising short-term interest rates during the period, while the weighted average interest rates of total deposits increased from 2.18% at December 31, 2022 to 2.93% at June 30, 2023.

From time to time, the Bank will utilize brokered deposits as a source of funding. As of June 30, 2023, the Bank held $2.2 billion of brokered deposits, consisting of $2.1 billion in certificates of deposit and $0.1 billion in money market accounts.

The deposits held by the Bank are insured by the FDIC’s Deposit Insurance Fund (the “DIF”), up to applicable limits. The Dodd-Frank Act permanently increased the maximum deposit insurance amount for banks, savings institutions and credit unions to $250,000 per depositor. Insured and collateralized deposits comprised approximately 88% of total deposits at June 30, 2023.

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The following table sets forth the estimated deposits exceeding the FDIC insurance limit:

The maturities of our certificates of deposit of greater than $250,000 was $457.5 million and $433.9 million at June 30, 2023, and December 31, 2022, respectively. The following table sets forth the maturity distribution of the estimated time deposits as of June 30, 2023:


(dollars in thousands)
3 months or less	$	135,340
Over 3 months through 12 months		310,800
1 to 3 years		11,373
Over 3 years		—
Total	$	457,513

Borrowings. At June 30, 2023, our borrowings consisted of $610 million in overnight and $100 million in term FHLB advances at the Bank, $174 million in subordinated notes at FFI, $72 million in repurchase agreements at the Bank, and $20 million of borrowings under a holding company line of credit. The $100 million in term FHLB advances bears an interest rate of 4.21% and matures on June 28, 2028. The overnight FHLB advance outstanding at June 30, 2023 was paid in full in early July and bore an interest rate of 5.35%. At December 31, 2022 our borrowings consisted of $805 million in overnight FHLB advances at the Bank, $200 million in federal funds purchased at the Bank, $174 million in subordinated notes at FFI, $171 million in repurchase agreements at the Bank, and $20 million of borrowings under a holding company line of credit.

The average balance of borrowings and the weighted average interest rate on such borrowings was $1.63 billion and 4.89%, respectively for the six months ended June 30, 2023. The average balance of borrowings and the weighted average interest rate on such borrowings was $314.3 million and 2.02%, respectively for the six months ended June 30,

2022. The average balance of borrowings and the weighted average interest rate on such borrowings was $1.87 billion and 5.03%, respectively for the quarter ended June 30, 2023. The average balance of borrowings and the weighted average interest rate on such borrowings was $1.54 billion and 3.79%, respectively for the quarter ended December 31, 2022.

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, 2023:
Real estate loans:
Residential properties	$	416	$	—	$	—	$	3,373	$	3,789	$	6,265,450	$	6,269,239
Commercial properties		2,538		—		92		2,822		5,452		1,064,201		1,069,653
Land and construction		—		—		—		—		—		158,326		158,326
Commercial and industrial loans		544		458		945		3,421		5,368		3,078,982		3,084,350
Consumer loans		162		—		—		10		172		3,461		3,633
Total	$	3,660	$	458	$	1,037	$	9,626	$	14,781	$	10,570,420	$	10,585,201

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Percentage of total loans		0.03	%		0.00	%		0.01	%		0.09	%		0.14	%

December 31, 2022:
Real estate loans:
Residential properties	$	511		$	57		$	—		$	2,556		$	3,124		$	6,374,100	$	6,377,224
Commercial properties		15,000			946			1,213			4,547			21,706			1,180,357		1,202,063
Land and construction		—			—			—			—			—			157,630		157,630
Commercial and industrial loans		385			1,495			982			3,228			6,090			2,978,668		2,984,758
Consumer loans		—			167			—			—			167			4,351		4,518
Total	$	15,896		$	2,665		$	2,195		$	10,331		$	31,087		$	10,695,106	$	10,726,193
Percentage of total loans		0.15	%		0.02	%		0.02	%		0.10	%		0.29	%

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, 2023
Real estate loans:
Residential properties	$	—	$	3,373
Commercial properties		—		2,822
Commercial and industrial loans		1,584		1,837
Consumer loans		—		10
Total	$	1,584	$	8,042

December 31, 2022
Real estate loans:
Residential properties	$	—	$	2,556
Commercial properties		—		4,547
Commercial and industrial loans		2,016		1,212
Total	$	2,016	$	8,315

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


			Provision
	Beginning		(Reversal) for						Ending
(dollars in thousands)	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Three months ended June 30, 2023:
Real estate loans:
Residential properties	$	8,263	$	(29)	$	—	$	—	$	8,234
Commercial properties		5,733		(480)		—		—		5,253
Land and construction		316		(29)		—		—		287
Commercial and industrial loans		16,760		1,404		(1,087)		613		17,690
Consumer loans		23		(3)		—		1		21
Total	$	31,095	$	863	$	(1,087)	$	614	$	31,485

Six months ended June 30, 2023:
Real estate loans:
Residential properties	$	8,306	$	(72)	$	—	$	—	$	8,234
Commercial properties		8,714		(3,212)		(249)		—		5,253
Land and construction		164		123		—		—		287
Commercial and industrial loans		16,521		3,089		(2,839)		919		17,690
Consumer loans		26		(4)		(2)		1		21
Total	$	33,731	$	(76)	$	(3,090)	$	920	$	31,485

Year ended December 31, 2022:
Real estate loans:
Residential properties	$	2,637	$	5,674	$	(5)	$	—	$	8,306
Commercial properties		17,049		(8,335)		—		—		8,714
Land and construction		1,995		(1,831)		—		—		164
Commercial and industrial loans		11,992		4,804		(711)		436		16,521
Consumer loans		103		(73)		(4)		—		26
Total	$	33,776	$	239	$	(720)	$	436	$	33,731

On January 1, 2020, we adopted a new accounting standard, commonly referred to as “CECL”, which replaces the “incurred loss” approach with an “expected loss” model over the life of the loan, as further described in Note 1 Summary of Significant Accounting Policies of the notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022. The allowance for credit losses for loans totaled $31.5 million as of June 30, 2023, compared to $33.7 million as of December 31, 2022. Our ACL for loans represented 0.30% of total loans outstanding as of June 30, 2023 compared to 0.31% of total loans outstanding as of December 31, 2022. The ACL for loans decreased $2.2 million as of June 30, 2023 compared to December 31, 2022. Activity for the six months ended June 30, 2023 included an increase in provision for credit losses of $0.1 million, charge-offs of $3.1 million, and recoveries of $0.9 million.

Under the CECL methodology, for which our ACL for loans is based, estimates of expected credit losses over the life of a loan are determined and utilized considering the effect of various major factors. The major factors considered in evaluating losses are historical charge-off experience, delinquency rates, local and national economic conditions, the borrower’s ability to repay the loan and timing of repayments, and the value of any related collateral. Management’s estimate of fair value of the collateral considers current and anticipated future real estate market conditions, thereby causing these estimates to be particularly susceptible to changes that could result in a material adjustment to results of operations in the future. Provisions to credit losses are charged to operations based on management’s evaluation of estimated losses in its loan portfolio.

In addition, the 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

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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, 2023:
Allowance for credit losses:
Real estate loans:
Residential properties	$	87	$	8,147	$	8,234
Commercial properties		1,003		4,250		5,253
Land and construction		—		287		287
Commercial and industrial loans		933		16,757		17,690
Consumer loans		—		21		21
Total	$	2,023	$	29,462	$	31,485
Loans:
Real estate loans:
Residential properties	$	4,027	$	6,265,212	$	6,269,239
Commercial properties		20,848		1,048,805		1,069,653
Land and construction		—		158,326		158,326
Commercial and industrial loans		4,405		3,079,945		3,084,350
Consumer loans		—		3,633		3,633
Total	$	29,280	$	10,555,921	$	10,585,201


	Allowance for Credit Losses
	Loans Evaluated
(dollars in thousands)	Individually		Collectively		Total
December 31, 2022:
Allowance for credit losses:
Real estate loans:
Residential properties	$	87	$	8,219	$	8,306
Commercial properties		1,834		6,880		8,714
Land and construction		—		164		164
Commercial and industrial loans		3,122		13,399		16,521
Consumer loans		—		26		26
Total	$	5,043	$	28,688	$	33,731
Loans:
Real estate loans:
Residential properties	$	3,479	$	6,373,745	$	6,377,224
Commercial properties		34,278		1,167,785		1,202,063
Land and construction		—		157,630		157,630
Commercial and industrial loans		9,397		2,975,361		2,984,758
Consumer loans		—		4,518		4,518
Total	$	47,154	$	10,679,039	$	10,726,193

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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 $3.4 billion at June 30, 2023.

Cash Flows Provided by Operating Activities. During the six months ended June 30, 2023, operating activities provided net cash of $25.4 million, primarily due to net income of $11.5 million and a decrease in other assets of $9.5 million. The net income of $11.5 million provided by operating activities consisted of the net loss of $203.8 million for the six months ended June 30, 2023 excluding the non-cash goodwill impairment charge of $215.3 million. During the six months ended June 30, 2022, operating activities provided net cash of $70.4 million, primarily due to net income of $64 million and a net increase of $5 million in accounts payable and other liabilities.

Cash Flows Used in Investing Activities. During the six months ended June 30, 2023, investing activities provided net cash of $201.9 million, primarily due to a $137.9 million net decrease in loans, $63.8 million in cash received in principal collection and maturities of securities, and $5.9 million received from the sale of FHLB and FRB stock, offset by $2.6 million in purchases of premises and equipment. During the six months ended June 30, 2022, investing activities used net cash of $2.0 billion, primarily due to a $2.0 billion net increase in loans, and $171.9 million in purchases of securities HTM, offset partially by $175.3 million in cash received in principal collection and maturities of securities.

Cash Flows Provided by Financing Activities. During the six months ended June 30, 2023, financing activities provided net cash of $42.2 million, consisting primarily of a net increase of $444.4 million in deposits, offset by a net decrease in FHLB and other advances of $295 million, a $99.4 million net decrease in repurchase agreements, and $7.3 million in dividends paid. During the six months ended June 30, 2022, financing activities provided net cash of $993.3 million, consisting primarily of a net increase of $726.8 million in deposits, $149 million net increase in FHLB and other advances and a $148 million net increase in subordinated debt, offset partially by $18.5 million net paydowns in our line of credit, and $12.4 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, 2023 and December 31, 2022, the loan-to-deposit ratios at FFB were 97.9% and 103.5%, respectively.

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Off-Balance Sheet Arrangements

The following table provides the off-balance sheet arrangements of the Company as of June 30, 2023:


(dollars in thousands)
Commitments to fund new loans	$	2,140
Commitments to fund under existing loans, lines of credit		1,177,264
Commitments under standby letters of credit		21,188

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 June 30, 2023, 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.

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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, 2023:
CET1 capital ratio	$	934,936	9.60	%	$	438,443	4.50	%
Tier 1 leverage ratio		934,936	6.97	%		536,845	4.00	%
Tier 1 risk-based capital ratio		934,936	9.60	%		584,590	6.00	%
Total risk-based capital ratio		1,146,058	11.76	%		779,453	8.00	%

December 31, 2022:
CET1 capital ratio	$	931,125	9.18	%	$	456,603	4.50	%
Tier 1 leverage ratio		931,125	7.44	%		500,327	4.00	%
Tier 1 risk-based capital ratio		931,125	9.18	%		608,804	6.00	%
Total risk-based capital ratio		1,145,765	11.29	%		811,739	8.00	%

FFB
June 30, 2023:
CET1 capital ratio	$	1,099,465	11.34	%	$	436,248	4.50	%	$	630,136	6.50	%
Tier 1 leverage ratio		1,099,465	8.21	%		535,637	4.00	%		669,547	5.00	%
Tier 1 risk-based capital ratio		1,099,465	11.34	%		581,664	6.00	%		775,552	8.00	%
Total risk-based capital ratio		1,137,220	11.73	%		775,552	8.00	%		969,441	10.00	%

December 31, 2022:
CET1 capital ratio	$	1,070,648	10.60	%	$	454,655	4.50	%	$	656,724	6.50	%
Tier 1 leverage ratio		1,070,648	8.59	%		498,725	4.00	%		623,400	5.00	%
Tier 1 risk-based capital ratio		1,070,648	10.60	%		606,207	6.00	%		808,276	8.00	%
Total risk-based capital ratio		1,111,952	11.01	%		808,276	8.00	%		1,010,345	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.

As of June 30, 2023, the amount of capital at FFB in excess of amounts required to be well capitalized for purposes of the prompt corrective action regulations was $469 million for the CET1 capital ratio, $430 million for the Tier 1 Leverage Ratio, $324 million for the Tier 1 risk-based capital ratio and $168 million for the Total risk-based capital ratio.

During the six months ended June 30, 2023, the Company paid a total of $7.3 million in dividends consisting of $6.2 million ($0.11 per common share) for the fourth quarter of 2022 which was declared and paid in the first quarter of 2023 and $1.1 million ($0.02 per common share) for the first quarter of 2023 which was declared in the first quarter of 2023 and paid in the second quarter of 2023. On July 27, 2023, the Board of Directors of the Company declared a quarterly cash dividend of $0.02 per common share, to be paid on August 17, 2023 to shareholders of record as of the close of business on August 7, 2023. The amount and declaration of future cash dividends 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 1 of our Annual Report on Form 10-K for the year ended December 31, 2022. Additionally, under the terms of the holding company line of credit agreement, FFI may only declare and pay a dividend

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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 $24.8 million in dividends ($0.44 per share) in 2022.

We had no material commitments for capital expenditures as of June 30, 2023. 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, 2023 and amended on May 1, 2023. There have been no material changes to our quantitative and qualitative disclosures about market risk since December 31, 2022.

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, 2023, 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, 2023, 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.

There was no change in our internal control over financial reporting that occurred during the three months ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1A.RISK FACTORS

We disclosed certain risks and uncertainties that we face under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2022, which we filed with the SEC on February 28, 2023 and amended on May 1, 2023. The information presented below provides an update to, and should be read in conjunction with, the risk factors and other information contained in our 2022 Form 10-K.

Adverse developments affecting the banking industry have eroded customer confidence in the banking system and could have a material effect on our operations and/or stock price.

The recent high-profile failures of several depository institutions have generated significant market volatility among publicly traded bank holding companies. These developments have negatively impacted customer confidence in the safety and soundness of some regional and community banks. As a result, we face the risk that customers may choose to maintain deposits or trust assets with larger financial institutions or invest in short-term fixed income securities instead of bank deposits, any of which could materially and adversely impact our liquidity, cost of funding, capital, and results of operations. Media reports about other depository institutions, the financial services industry generally or us could exacerbate liquidity concerns. In addition, concerns about the banking industry’s operating environment and the public trading prices of bank holding companies are often correlated, particularly during times of financial stress, which could adversely impact the trading price of our stock.

If we are required to sell securities to meet liquidity needs, we could realize significant losses.

As a result of increases in interest rates over the last year, the market values of previously issued government and other debt securities have declined significantly, resulting in unrealized losses in our securities portfolio. While we do not expect or intend to sell these securities, if we were required to sell these securities to meet liquidity needs, we may incur significant losses, which could impair our capital and financial condition and adversely affect our results of

operations. Further, while we have taken actions to maximize our sources of liquidity, there is no guarantee that such

sources will be available or sufficient in the event of sudden liquidity needs.

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

On April 26, 2022, the Company announced that its Board of Directors authorized a stock repurchase program, pursuant to which the Company may repurchase up to $75 million of its common stock. This plan has no stated expiration date. This stock repurchase program replaces and supersedes 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, and which no additional shares were repurchased during the three months ended June 30, 2023.

ITEM 5.OTHER INFORMATION

None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408© of Regulation S-K) during the second quarter of 2023.

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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 3.1 to the Company’s Current Report on Form 8-K, filed on June 29, 2023).

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

101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

(1)	Filed herewith.

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SIGNATURE

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. (Registrant)

Dated: August 8, 2023	By:	/s/ AMY DJOU
		Amy Djou
		Executive Vice President and Interim Chief Financial Officer

S-1

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. sophomore Avg

June 30, 2023

December 31, 2022

(dollars in thousands)

Amount

Amount

Uninsured deposits