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 September 30, 2022

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

For the transition period from to

Commission File Number 001-36461

FIRST FOUNDATION INC.

(Exact name of Registrant as specified in its charter)


Delaware		20-8639702
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

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

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

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


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

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

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

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



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

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

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

As of November 2, 2022, the registrant had 56,387,671 shares of common stock, $0.001 par value per share, outstanding.

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FIRST FOUNDATION INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS


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

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

SIGNATURES		S-1

(i)

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PART I — FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

FIRST FOUNDATION INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	September 30,		December 31,
	2022		2021
		(unaudited)
ASSETS
Cash and cash equivalents	$	317,818	$	1,121,757

Securities available-for-sale ("AFS")		238,982		1,201,777
Securities held-to-maturity ("HTM")		884,061		—
Allowance for credit losses - investments		(11,519)		(10,399)
Net securities		1,111,524		1,191,378

Loans held for sale		—		501,436

Loans held for investment		10,355,420		6,906,728
Allowance for credit losses - loans		(32,900)		(33,776)
Net loans		10,322,520		6,872,952

Investment in FHLB stock		31,203		18,249
Deferred taxes		24,210		20,835
Premises and equipment, net		36,607		37,920
Real estate owned ("REO")		6,210		6,210
Goodwill and intangibles		222,290		222,125
Other assets		256,481		203,342
Total Assets	$	12,328,863	$	10,196,204

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	9,549,856	$	8,811,960
Borrowings		1,496,456		210,127
Accounts payable and other liabilities		160,586		110,066
Total Liabilities		11,206,898		9,132,153

Shareholders’ Equity
Common Stock		56		56
Additional paid-in-capital		719,955		720,744
Retained earnings		415,507		340,976
Accumulated other comprehensive (loss) income		(13,553)		2,275
Total Shareholders’ Equity		1,121,965		1,064,051
Total Liabilities and Shareholders’ Equity	$	12,328,863	$	10,196,204

(See accompanying notes to the consolidated financial statements)

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FIRST FOUNDATION INC.

CONSOLIDATED INCOME STATEMENTS - UNAUDITED

(In thousands, except share and per share amounts)


	Quarter Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Interest income:
Loans	$	100,978	$	56,781	$	255,037	$	166,291
Securities		6,752		4,606		19,733		14,739
FHLB Stock, fed funds sold and interest-bearing deposits		1,016		602		3,091		1,500
Total interest income		108,746		61,989		277,861		182,530

Interest expense:
Deposits		15,595		2,753		25,293		10,763
Borrowings		5,479		49		8,597		441
Total interest expense		21,074		2,802		33,890		11,204

Net interest income		87,672		59,187		243,971		171,326

Provision for credit losses		(22)		(417)		(641)		(13)

Net interest income after provision for credit losses		87,694		59,604		244,612		171,339

Noninterest income:
Asset management, consulting and other fees		8,975		9,313		29,065		26,410
Gain on sale of loans		—		18,135		—		21,459
Other income		3,209		3,232		11,946		8,754
Total noninterest income		12,184		30,680		41,011		56,623

Noninterest expense:
Compensation and benefits		29,531		23,241		86,986		64,970
Occupancy and depreciation		9,594		6,427		26,975		18,297
Professional services and marketing costs		3,039		2,700		9,486		8,729
Customer service costs		13,560		2,512		19,959		6,635
Other expenses		4,618		3,514		13,359		9,891
Total noninterest expense		60,342		38,394		156,765		108,522

Income before taxes on income		39,536		51,890		128,858		119,440
Taxes on income		10,530		14,664		35,700		33,805
Net income	$	29,006	$	37,226	$	93,158	$	85,635

Net income per share:
Basic	$	0.51	$	0.83	$	1.65	$	1.91
Diluted	$	0.51	$	0.83	$	1.65	$	1.90
Shares used in computation:
Basic		56,387,451		44,819,743		56,441,305		44,773,683
Diluted		56,447,901		45,002,937		56,510,883		44,977,863

(See accompanying notes to the consolidated financial statements)

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FIRST FOUNDATION INC.

CONSOLIDATED STATEMENT OF CHANGES

IN SHAREHOLDERS’ EQUITY - UNAUDITED

(In thousands, except share amounts)


	Common Stock			Additional				Accumulated Other
	Number			Paid-in		Retained		Comprehensive
	of Shares	Amount		Capital		Earnings		Income (Loss)		Total
Balance: December 31, 2021	56,432,070	$	56	$	720,744	$	340,976	$	2,275	$	1,064,051
Net income	—		—		—		93,158		—		93,158
Other comprehensive loss	—		—		—		—		(15,828)		(15,828)
Stock based compensation	—		—		2,770		—		—		2,770
Cash dividend	—		—		—		(18,627)		—		(18,627)
Issuance of common stock:
Exercise of options	2,000		—		18		—		—		18
Stock grants – vesting of restricted stock units	134,374		—		—		—		—		—
Repurchase of shares from restricted shares vesting	(43,190)		—		(1,120)		—		—		(1,120)
Stock repurchase	(137,583)		—		(2,457)		—		—		(2,457)
Balance: September 30, 2022	56,387,671	$	56	$	719,955	$	415,507	$	(13,553)	$	1,121,965

Balance: June 30, 2022	56,386,914	$	56	$	719,222	$	392,704	$	(9,073)	$	1,102,909
Net income	—		—		—		29,006		—		29,006
Other comprehensive loss	—		—		—		—		(4,480)		(4,480)
Stock based compensation	—		—		733		—		—		733
Cash dividend	—		—		—		(6,203)		—		(6,203)
Issuance of common stock:
Stock grants – vesting of restricted stock units	1,000		—		—		—		—		—
Repurchase of shares from restricted shares vesting	(243)		—		—		—		—		—
Balance: September 30, 2022	56,387,671	$	56	$	719,955	$	415,507	$	(13,553)	$	1,121,965

Balance: December 31, 2020	44,667,650	$	45	$	433,941	$	247,638	$	14,087	$	695,711
Net income	—		—		—		85,635		—		85,635
Other comprehensive loss	—		—		—		—		(5,320)		(5,320)
Stock based compensation	—		—		2,202		—		—		2,202
Cash dividend	—		—		—		(12,089)		—		(12,089)
Issuance of common stock:
Exercise of options	211,203		—		1,880		—		—		1,880
Stock grants – vesting of restricted stock units	117,223		—		—		—		—		—
Repurchase of shares from restricted shares vesting	(40,937)		—		(1,188)		—		—		(1,188)
Balance: September 30, 2021	44,955,139	$	45	$	436,835	$	321,184	$	8,767	$	766,831

Balance: June 30, 2021	44,819,743	$	45	$	435,201	$	287,997	$	10,775	$	734,018
Net income	—		—		—		37,226		—		37,226
Other comprehensive loss	—		—		—		—		(2,008)		(2,008)
Stock based compensation	—		—		573		—		—		573
Cash dividend	—		—		—		(4,039)		—		(4,039)
Issuance of common stock:
Exercise of options	135,396		—		1,061		—		—		1,061
Balance: September 30, 2021	44,955,139	$	45	$	436,835	$	321,184	$	8,767	$	766,831

(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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	29,006	$	37,226	$	93,158	$	85,635
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities arising during the period		(12,576)		(2,837)		(20,307)		(7,519)
Other comprehensive income (loss) before tax		(12,576)		(2,837)		(20,307)		(7,519)
Income tax benefit (expense) related to items of other comprehensive income		8,096		829		4,479		2,199
Other comprehensive income (loss)		(4,480)		(2,008)		(15,828)		(5,320)
Total comprehensive income	$	24,526	$	35,218	$	77,330	$	80,315

(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 Nine Months Ended
	September 30,
	2022		2021
Cash Flows from Operating Activities:
Net income	$	93,158	$	85,635
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses - loans		(1,761)		(2,865)
Provision for credit losses - securities AFS		1,120		2,853
Stock–based compensation expense		2,770		2,202
Depreciation and amortization		3,056		2,477
Deferred tax expense (benefit)		944		(445)
Amortization of premium on securities		2,392		750
Amortization of core deposit intangible		1,458		1,213
Amortization of mortgage servicing rights - net		1,566		1,370
Gain on sale of loans		—		(21,459)
Amortization of OCI - securities transfer to HTM		(851)		—
Valuation allowance on mortgage servicing rights - net		(747)		2,134
Increase in other assets		(32,636)		(34,876)
Increase in accounts payable and other liabilities		29,772		31,151
Net cash provided by operating activities		100,241		70,140
Cash Flows from Investing Activities:
Net increase in loans		(2,947,628)		(1,063,500)
Proceeds from sale of loans		—		580,417
Purchase of premises and equipment		(4,007)		(2,556)
Disposals of premises and equipment		3,388		—
Recovery of allowance for credit losses		355		864
Purchases of securities AFS		(398)		(306,267)
Purchases of securities HTM		(171,852)		—
Proceeds from sale of securities		—		3,500
Maturities of securities AFS		24,775		207,423
Maturities of securities HTM		202,899		—
Net increase in FHLB stock		(12,954)		—
Proceeds from BOLI policy		326		—
Net cash used in investing activities		(2,905,096)		(580,119)
Cash Flows from Financing Activities:
Increase in deposits		737,896		931,545
Net increase (decrease) in FHLB advances		1,144,000		(255,000)
Line of credit net change – borrowings, net		(18,500)		(1,500)
Net increase in subordinated debt		147,623		—
Net increase in repurchase agreements		13,206		—
Gain on sale leaseback		(1,123)		—
Dividends paid		(18,627)		(12,089)
Proceeds from exercise of stock options		18		1,880
Repurchase of stock		(3,577)		(1,188)
Net cash provided by financing activities		2,000,916		663,648
Increase (decrease) in cash and cash equivalents		(803,939)		153,669
Cash and cash equivalents at beginning of year		1,121,757		629,707
Cash and cash equivalents at end of period	$	317,818	$	783,376
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes	$	31,016	$	27,683
Interest		32,078		12,873
Noncash transactions:
Transfer of loans to loans held for sale	$	—	$	555,085
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		21,649		—
Mortgage servicing rights from loan sales		—		2,726

(See accompanying notes to the consolidated financial statements)

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

NOTE 1: BASIS OF PRESENTATION

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

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

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

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

New Accounting Pronouncements

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

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

NOTE 2: ACQUISITIONS

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

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

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


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

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

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

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

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

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

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

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

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

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

Pro Forma Information (unaudited)

The following table presents unaudited pro forma information for the nine months ended September 30, 2021, as if the acquisition of TGRF had occurred on January 1, 2021, after giving effect to certain adjustments. The unaudited pro forma information for this period includes adjustments for interest income on loans acquired, amortization of intangibles arising from the transaction, adjustments for interest expense on deposits acquired, and the related income tax effects of all these items and the income tax costs or benefits derived from the income or loss before taxes of TGRF. The net effect of these pro forma adjustments was an increase of $0.5 million and $1.5 million in net income for the three and nine months ended September 30, 2021, respectively. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed dates.


	Three Months Ended		Nine Months Ended
(dollars in thousands)	September 30, 2021		September 30, 2021
Net interest income	$	73,154	$	213,840
Provision for credit losses		5,170		16,742
Noninterest income		32,171		60,645
Noninterest expenses		61,263		178,582
Income before taxes		38,892		79,161
Taxes on income		10,614		21,345
Net income	$	28,278	$	57,816

Net income per share:
Basic	$	0.51	$	1.03
Diluted	$	0.50	$	1.03

NOTE 3: FAIR VALUE MEASUREMENTS

Assets Measured at Fair Value on a Recurring Basis

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

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

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

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

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


			Fair Value Measurement Level
(dollars in thousands)	Total		Level 1		Level 2		Level 3
September 30, 2022:
Investment securities available for sale:
Collateralized mortgage obligations	$	9,275	$	—	$	9,275	$	—
Agency mortgage-backed securities		8,164		—		8,164		—
Municipal bonds		45,200		—		45,200		—
SBA securities		20,622		—		20,622		—
Beneficial interests in FHLMC securitization		8,289		—		—		8,289
Corporate bonds		135,096		—		135,096		—
U.S. Treasury		817		817		—		—
Investment in equity securities		16,029		—		—		16,029
Total assets at fair value on a recurring basis	$	243,492	$	817	$	218,357	$	24,318


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

The increase in Level 3 assets from December 31, 2021, was due to a reclassification of investment in equity securities, which was partially offset by securitization paydowns and $1.1 million in provisions for credit losses in the first nine months of 2022.

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 collateral dependent impaired Level 3 loans were $6.1 million and $2.8 million at September 30, 2022 and

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

December 31, 2021, respectively. There were $0.7 million in specific reserves related to these loans at September 30, 2022 and no specific reserves at December 31, 2021.

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

Mortgage Servicing Rights. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income, resulting in a Level 3 classification. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Significant assumptions in the valuation of these Level 3 mortgage servicing rights as of September 30, 2022 included prepayment rates ranging from 20% to 30% and a discount rate ranging from 3.44% to 10%.

Fair Value of Financial Instruments

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

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

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

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

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

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

classified as Level 3 and reliance is placed upon internally developed models, and management judgment and evaluation for valuation. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include beneficial interests in FHLMC securitizations and investment in equity securities. Significant assumptions in the valuation of these Level 3 securities as of September 30, 2022 and December 31, 2021 included prepayment rates ranging from 35% to 45% and discount rates ranging from 8.07% to 10.00%.

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

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

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

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

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

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

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


	Carrying		Fair Value Measurement Level
(dollars in thousands)	Value		1		2		3		Total
September 30, 2022:
Assets:
Cash and cash equivalents	$	317,818	$	317,818	$	—	$	—	$	317,818
Securities AFS, net		227,463		817		218,357		8,289		227,463
Securities HTM		884,061		—		784,807		—		784,807
Loans, net		10,322,520		—		—		10,139,514		10,139,514
Investment in FHLB stock		31,203		—		31,203		—		31,203
Investment in equity securities		16,029		—		—		16,029		16,029
Liabilities:
Deposits	$	9,549,856	$	8,716,345	$	826,176	$	—	$	9,542,521
Borrowings		1,496,456		1,323,136		—		156,531		1,479,667

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

NOTE 4: SECURITIES

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


	Amortized		Gross Unrealized				Allowance for		Estimated
(dollars in thousands)	Cost		Gains		Losses		Credit Losses		Fair Value
September 30, 2022:
Collateralized mortgage obligations	$	10,500	$	—	$	(1,225)	$	—	$	9,275
Agency mortgage-backed securities		8,798		—		(634)		—		8,164
Municipal bonds		50,397		—		(5,197)		—		45,200
SBA securities		20,725		8		(111)		—		20,622
Beneficial interests in FHLMC securitization		19,677		138		(7)		(11,519)		8,289
Corporate bonds		145,079		—		(9,983)		—		135,096
U.S. Treasury		898		—		(81)		—		817
Total	$	256,074	$	146	$	(17,238)	$	(11,519)	$	227,463

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

As of September 30, 2022, U.S. Treasury securities of $0.9 million included in the table above are pledged as collateral to the State of California to meet regulatory requirements related to the Bank’s trust operations, $222.1 million of agency mortgage-backed securities are pledged as collateral as support for the Bank’s obligations under loan sales and securitizations agreements entered into from 2018 and 2021, and $187.6 million of securities are pledged as collateral for repurchase agreements obtained from the TGRF acquisition.

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


	Amortized		Gross Unrecognized				Allowance for		Estimated
(dollars in thousands)	Cost		Gains		Losses		Credit Losses		Fair Value
September 30, 2022:
Agency mortgage-backed securities	$	884,061		—		(99,254)	$	—	$	784,807
Total	$	884,061	$	—	$	(99,254)	$	—	$	784,807

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

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

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

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


	Securities with Unrealized Loss at September 30, 2022
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
Collateralized mortgage obligations	$	9,275	$	(1,225)	$	—	$	—	$	9,275	$	(1,225)
Agency mortgage-backed securities		8,164		(634)		—		—		8,164		(634)
Municipal bonds		45,200		(5,197)		—		—		45,200		(5,197)
SBA securities		17,353		(111)		—		—		17,353		(111)
Beneficial interests in FHLMC securitization		4,240		(7)		—		—		4,240		(7)
Corporate bonds		117,180		(7,899)		17,916		(2,084)		135,096		(9,983)
U.S. Treasury		373		(26)		444		(55)		817		(81)
Total temporarily impaired securities	$	201,785	$	(15,099)	$	18,360	$	(2,139)	$	220,145	$	(17,238)


	Securities with Unrealized Loss at December 31, 2021
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
Collateralized mortgage obligations	$	12,971	$	(37)	$	—	$	—	$	12,971	$	(37)
Agency mortgage-backed securities		434,973		(5,051)		36,136		(1,069)		471,109		(6,120)
Municipal bonds		2,025		—		—		—		2,025		—
SBA securities		501		—		—		—		501		—
Corporate bonds		47,880		(92)		—		—		47,880		(92)
U.S. Treasury		491		(9)		—		—		491		(9)
Total temporarily impaired securities	$	498,841	$	(5,189)	$	36,136	$	(1,069)	$	534,977	$	(6,258)

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 Nine Months Ended September 30, 2022 - UNAUDITED

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


(dollars in thousands)	Total

Three Months Ended September 30, 2022:
Beginning balance	$	11,226
Provision for credit losses		293
Balance: September 30, 2022	$	11,519

Nine Months Ended September 30, 2022:
Beginning balance	$	10,399
Provision for credit losses		1,120
Balance: September 30, 2022	$	11,519

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

Due to a change in expected cash flows of interest only strip securities, $0.3 million and $1.1 million in provisions were taken in the three and nine months ended September 30, 2022, respectively, and $1.0 million and $2.9 million in provisions were taken in the three and nine months ended September 30, 2021, respectively. The allowances were included as a charge in provision for credit losses on the consolidated income statement.

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

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

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


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
September 30, 2022
Amortized Cost:
Collateralized mortgage obligations	$	—		$	—		$	688		$	9,812		$	10,500
Agency mortgage-backed securities		—			3,737			3,378			1,683			8,798
Municipal bonds		303			5,379			35,553			9,162			50,397
SBA securities		15			1,575			1,431			17,704			20,725
Beneficial interests in FHLMC securitization		—			10,185			—			9,492			19,677
Corporate bonds		6,013			10,002			123,531			5,533			145,079
U.S. Treasury		—			898			—			—			898
Total	$	6,331		$	31,776		$	164,581		$	53,386		$	256,074
Weighted average yield		2.77	%		2.05	%		3.52	%		2.23	%		3.05	%
Estimated Fair Value:
Collateralized mortgage obligations	$	—		$	—		$	616		$	8,659		$	9,275
Agency mortgage-backed securities		—			3,531			3,137			1,496			8,164
Municipal bonds		298			4,877			32,616			7,409			45,200
SBA securities		15			1,571			1,427			17,609			20,622
Beneficial interests in FHLMC securitization		—			10,185			—			9,623			19,808
Corporate bonds		5,995			9,102			115,694			4,305			135,096
U.S. Treasury		—			817			—			—			817
Total	$	6,308		$	30,083		$	153,490		$	49,101		$	238,982


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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

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


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
September 30, 2022
Amortized Cost:
Agency mortgage-backed securities	$	—		$	119		$	18,841		$	865,101		$	884,061
Total	$	—		$	119		$	18,841		$	865,101		$	884,061
Weighted average yield		—	%		0.27	%		1.03	%		2.09	%		2.07	%

Estimated Fair Value:
Agency mortgage-backed securities	$	—		$	110		$	16,892		$	767,805		$	784,807
Total	$	—		$	110		$	16,892		$	767,805		$	784,807

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

NOTE 5: LOANS

The following is a summary of our loans as of:


	September 30,		December 31,
(dollars in thousands)	2022		2021
Outstanding principal balance:
Loans secured by real estate:
Residential properties:
Multifamily	$	5,088,695	$	2,886,055
Single family		989,258		933,445
Total real estate loans secured by residential properties		6,077,953		3,819,500
Commercial properties		1,236,577		1,309,200
Land and construction		144,787		156,028
Total real estate loans		7,459,317		5,284,728
Commercial and industrial loans		2,874,827		1,598,422
Consumer loans		5,155		10,834
Total loans		10,339,299		6,893,984
Premiums, discounts and deferred fees and expenses		16,121		12,744
Total	$	10,355,420	$	6,906,728

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

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


	Past Due and Still Accruing												Total Past
							90 Days						Due and
(dollars in thousands)	30–59 Days			60-89 Days			or More			Nonaccrual			Nonaccrual			Current		Total
September 30, 2022:
Real estate loans:
Residential properties	$	247		$	—		$	30		$	2,586		$	2,863		$	6,093,610	$	6,096,473
Commercial properties		2,182			—			1,028			4,162			7,372			1,227,962		1,235,334
Land and construction		1,478			—			—			—			1,478			142,293		143,771
Commercial and industrial loans		590			211			80			4,488			5,369			2,869,287		2,874,656
Consumer loans		—			—			—			4			4			5,182		5,186
Total	$	4,497		$	211		$	1,138		$	11,240		$	17,086		$	10,338,334	$	10,355,420

Percentage of total loans		0.04	%		0.00	%		0.01	%		0.11	%		0.16	%

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

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

The following table summarizes our nonaccrual loans as of:


	Nonaccrual		Nonaccrual
	with Allowance		with no Allowance
(dollars in thousands)	for Credit Losses		for Credit Losses
September 30, 2022:
Real estate loans:
Residential properties	$	—	$	2,586
Commercial properties		—		4,162
Commercial and industrial loans		2,140		2,348
Consumer loans		—		4
Total	$	2,140	$	9,100

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

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


	September 30, 2022						December 31, 2021
(dollars in thousands)	Accrual		Nonaccrual		Total		Accrual		Nonaccrual		Total
Residential loans	$	—	$	—	$	—	$	1,200	$	—	$	1,200
Commercial real estate loans		953		1,093		2,046		1,021		1,174		2,195
Commercial and industrial loans		95		1,470		1,565		493		2,030		2,523
Total	$	1,048	$	2,563	$	3,611	$	2,714	$	3,204	$	5,918

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


		Outstanding Recorded Investment
(dollars in thousands)	Number of loans	Pre-Modification		Post-Modification		Financial Impact
Nine Months Ended September 30, 2022:
Commercial and industrial loans	2	$	606	$	606	$	—
Total	2	$	606	$	606	$	—

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

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

NOTE 6: ALLOWANCE FOR CREDIT LOSSES

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


					Initial Allowance
	Beginning		Provision for		on Acquired						Ending
(dollars in thousands)	Balance		Credit Losses		PCD Loans		Charge-offs		Recoveries		Balance
Three Months Ended September 30, 2022:
Real estate loans:
Residential properties	$	4,446	$	2,598	$	—	$	—	$	—	$	7,044
Commercial properties		12,714		(2,223)		—		—		—		10,491
Land and construction		1,460		(1,305)		—		—		—		155
Commercial and industrial loans		14,481		868		—		(226)		57		15,180
Consumer loans		64		(34)		—		—		—		30
Total	$	33,165	$	(96)	$		$	(226)	$	57	$	32,900

Nine Months Ended September 30, 2022:
Real estate loans:
Residential properties	$	2,637	$	4,407	$	—	$	—	$	—	$	7,044
Commercial properties		17,049		(6,558)		—		—		—		10,491
Land and construction		1,995		(1,840)		—		—		—		155
Commercial and industrial loans		11,992		3,205		—		(372)		355		15,180
Consumer loans		103		(73)		—		—		—		30
Total	$	33,776	$	(859)	$	—	$	(372)	$	355	$	32,900

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

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


	Allowance for Credit Losses
	Loans Evaluated
(dollars in thousands)	Individually		Collectively		Total
September 30, 2022:
Allowance for credit losses:
Real estate loans:
Residential properties	$	76	$	6,968	$	7,044
Commercial properties		2,107		8,384		10,491
Land and construction		—		155		155
Commercial and industrial loans		3,365		11,815		15,180
Consumer loans		—		30		30
Total	$	5,548	$	27,352	$	32,900
Loans:
Real estate loans:
Residential properties	$	3,508	$	6,092,965	$	6,096,473
Commercial properties		34,012		1,201,322		1,235,334
Land and construction		—		143,771		143,771
Commercial and industrial loans		7,570		2,867,086		2,874,656
Consumer loans		—		5,186		5,186
Total	$	45,090	$	10,310,330	$	10,355,420

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

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

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


													Revolving
(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Loans		Total
September 30, 2022:
Loans secured by real estate:
Residential
Multifamily
Pass	$	2,106,172	$	1,563,718	$	800,339	$	310,696	$	153,626	$	152,542	$	—	$	5,087,093
Special mention		—		—		—		5,696		9,818		1,555		—		17,069
Substandard		—		—		—		—		—		—		—		—
Total	$	2,106,172	$	1,563,718	$	800,339	$	316,392	$	163,444	$	154,097	$	—	$	5,104,162

Single family
Pass	$	218,836	$	286,916	$	97,470	$	40,195	$	49,925	$	226,159	$	69,277	$	988,778
Special mention		—		—		—		—		—		—		25		25
Substandard		—		—		—		—		—		3,456		52		3,508
Total	$	218,836	$	286,916	$	97,470	$	40,195	$	49,925	$	229,615	$	69,354	$	992,311

Commercial real estate
Pass	$	184,037	$	189,401	$	142,839	$	104,549	$	185,067	$	346,001	$	—	$	1,151,894
Special mention		—		13,867		1		15,665		3,107		7,911		—		40,551
Substandard		5,951		13,915		786		10,696		—		11,541		—		42,889
Total	$	189,988	$	217,183	$	143,626	$	130,910	$	188,174	$	365,453	$	—	$	1,235,334

Land and construction
Pass	$	38,279	$	57,630	$	39,254	$	866	$	5,090	$	2,652	$	—	$	143,771
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total	$	38,279	$	57,630	$	39,254	$	866	$	5,090	$	2,652	$	—	$	143,771

Commercial
Pass	$	1,148,123	$	402,554	$	214,826	$	75,737	$	19,233	$	20,121	$	968,797	$	2,849,391
Special mention		—		985		1,337		372		—		—		10,619		13,313
Substandard		—		317		2,481		1,941		5		2,808		4,400		11,952
Total	$	1,148,123	$	403,856	$	218,644	$	78,050	$	19,238	$	22,929	$	983,816	$	2,874,656

Consumer
Pass	$	513	$	1,118	$	3	$	479	$	211	$	71	$	2,787	$	5,182
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		4		4
Total	$	513	$	1,118	$	3	$	479	$	211	$	71	$	2,791	$	5,186

Total loans
Pass	$	3,695,960	$	2,501,337	$	1,294,731	$	532,522	$	413,152	$	747,546	$	1,040,861	$	10,226,109
Special mention		—		14,852		1,338		21,733		12,925		9,466		10,644		70,958
Substandard		5,951		14,232		3,267		12,637		5		17,805		4,456		58,353
Total	$	3,701,911	$	2,530,421	$	1,299,336	$	566,892	$	426,082	$	774,817	$	1,055,961	$	10,355,420

Table of Contents

FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED


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

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

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

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

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

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

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

Table of Contents

FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

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


					Equipment/					ACL
(dollars in thousands)	Real Estate		Cash		Receivables		Total			Allocation
September 30, 2022:
Loans secured by real estate:
Residential properties
Single family	$	2,455	$	—	$	—	$	2,455	$	—
Commercial real estate loans		2,751		—		—		2,751		—
Commercial loans		—		250		682		932		674
Total	$	5,206	$	250	$	682	$	6,138	$	674

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

NOTE 7: LOAN SALES AND MORTGAGE SERVICING RIGHTS

In 2021, FFB sold $559 million of multifamily loans and recognized a gain of $21.5 million. For sales of multifamily loans, FFB retained servicing rights for the majority of these loans and recognized mortgage servicing rights as part of the transactions. As of September 30, 2022, and December 31, 2021, mortgage servicing rights were $8.5 million and $6.8 million, respectively. The mortgage servicing rights as of September 30, 2022, and December 31, 2021, are net of $2.6 million and $1.9 million in valuation allowances, respectively. The amount of loans serviced for others totaled $1.1 billion and $1.7 billion as of September 30, 2022 and December 31, 2021, respectively. Servicing fees were $1.5 million for the nine months ended September 30, 2022, and $2.3 million for the nine months ended September 30, 2021.

NOTE 8: DEPOSITS

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


	September 30, 2022				December 31, 2021
			Weighted				Weighted
(dollars in thousands)	Amount		Average Rate		Amount		Average Rate
Demand deposits:
Noninterest-bearing	$	3,550,637	—		$	3,280,455	—
Interest-bearing		2,253,799	1.771	%		2,242,684	0.070	%
Money market and savings		2,911,909	1.239	%		2,620,336	0.275	%
Certificates of deposits		833,511	1.724	%		668,485	0.145	%
Total	$	9,549,856	0.946	%	$	8,811,960	0.111	%

At September 30, 2022, of the $394 million of certificates of deposits over $250,000, $369 million mature within one year and $25 million mature after one year. Of the $440 million of certificates of deposit of $250,000 or less, $375 million mature within one year and $65 million mature after one year. At December 31, 2021, of the $367 million of certificates of deposits over $250,000, $361 million mature within one year and $6 million mature after one year. Of the $301 million of certificates of deposit of $250,000 or less, $229 million mature within one year and $72 million mature after one year.

Table of Contents

FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

NOTE 9: BORROWINGS

At September 30, 2022, our borrowings consisted of $1.1 billion in overnight FHLB advances at the Bank, $174 million in subordinated notes at the holding company, and $179 million of repurchase agreements at the Bank. At December 31, 2021, our borrowings consisted of $26 million in subordinated notes at FFI, $166 million of repurchase agreements at the Bank, and $18.5 million of borrowings under a holding company line of credit. The FHLB overnight advances were paid in full in the early part of October 2022 and bore an interest rate of 3.22%. As of September 30, 2022, $150 million of the subordinated notes are fixed-to-floating rate notes that mature in February 2032. The notes will initially bear a rate of 3.50% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2022, until February 1, 2027. From and including February 1, 2027 to, but excluding February 1, 2032, or the date of earlier redemption, the notes will bear interest at a floating rate per annum equal to the Benchmark rate (which is expected to be Three-Month Term Secured Overnight Financing Rate, or “SOFR”), each as defined in and subject to the provisions of the indenture under which the notes were issued, plus 204 basis points (2.04%), payable quarterly in arrears on February 1, May 1, August 1, and November 1 of each year, commencing on May 1, 2027. $24 million of the subordinated notes mature in June 2030 and bear a fixed interest rate of 6.0%, until June 30, 2025, at which time they will convert to a floating rate based on three month SOFR, plus 590 basis points (5.90%), until maturity.

As a matter of practice, the Bank provides substantially all of its qualifying loans as collateral to the FHLB or the Federal Reserve Bank. FHLB advances are collateralized primarily by loans secured by single family, multifamily, and commercial real estate properties with a carrying value of $5.0 billion as of September 30, 2022. The Bank’s total remaining borrowing capacity from the FHLB at September 30, 2022 was $1.8 billion. The Bank had in place $315 million of letters of credit from the FHLB, as of September 30, 2022 which are used to meet collateral requirements for borrowings from the State of California and local agencies.

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

The Bank also has $245 million available borrowing capacity through unsecured fed funds lines, ranging in size from $20 million to $100 million, with five other financial institutions, and a $345 million secured line with the Federal Reserve Bank, secured by single family loans. None of these lines had outstanding borrowings as September 30, 2022. Combined, the Bank’s unused lines of credit as of September 30, 2022, and December 31, 2021, were $2.4 billion and $3.1 billion, respectively. The average balance of overnight borrowings during the first nine months of 2022 was $165.1 million, as compared to $1.0 million during all of 2021.

Table of Contents

FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

NOTE 10: EARNINGS PER SHARE

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


	Three Months Ended				Three Months Ended
	September 30, 2022				September 30, 2021
(dollars in thousands, except per share amounts)	Basic		Diluted		Basic		Diluted
Net income	$	29,006	$	29,006	$	37,226	$	37,226
Basic common shares outstanding		56,387,451		56,387,451		44,819,743		44,819,743
Effect of options, restricted stock and contingent shares issuable				60,450				183,194
Diluted common shares outstanding				56,447,901				45,002,937
Earnings per share	$	0.51	$	0.51	$	0.83	$	0.83


	Nine Months Ended				Nine Months Ended
	September 30, 2022				September 30, 2021
(dollars in thousands, except share and per share amounts)	Basic		Diluted		Basic		Diluted
Net income	$	93,158	$	93,158	$	85,635	$	85,635
Basic common shares outstanding		56,441,305		56,441,305		44,773,683		44,773,683
Effect of options, restricted stock and contingent shares issuable				69,578				204,180
Diluted common shares outstanding				56,510,883				44,977,863
Earnings per share	$	1.65	$	1.65	$	1.91	$	1.90

Based on a weighted average basis, options to purchase 102,433 shares of common stock were excluded for the three months ended September 30, 2022 because their effect would have been anti-dilutive.

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

NOTE 11: SEGMENT REPORTING

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


			Wealth
(dollars in thousands)	Banking		Management		Other		Total
Three Months Ended September 30, 2022:
Interest income	$	108,746	$	—	$	—	$	108,746
Interest expense		19,281		—		1,793		21,074
Net interest income		89,465		—		(1,793)		87,672
Provision for credit losses		(22)		—		—		(22)
Noninterest income		5,730		6,865		(411)		12,184
Noninterest expense		53,571		6,380		391		60,342
Income (loss) before taxes on income	$	41,646	$	485	$	(2,595)	$	39,536

Three Months Ended September 30, 2021:
Interest income	$	61,989	$	—	$	—	$	61,989
Interest expense		2,753		—		49		2,802
Net interest income		59,236		—		(49)		59,187
Provision for credit losses		(417)		—		—		(417)
Noninterest income		23,202		7,857		(379)		30,680
Noninterest expense		31,488		6,338		568		38,394
Income (loss) before taxes on income	$	51,367	$	1,519	$	(996)	$	51,890


			Wealth
(dollars in thousands)	Banking		Management		Other		Total
Nine Months Ended September 30, 2022:
Interest income	$	277,861	$	—	$	—	$	277,861
Interest expense		29,170		—		4,720		33,890
Net interest income		248,691		—		(4,720)		243,971
Provision for credit losses		(641)		—		—		(641)
Noninterest income		19,118		23,190		(1,297)		41,011
Noninterest expense		135,704		19,213		1,848		156,765
Income (loss) before taxes on income	$	132,746	$	3,977	$	(7,865)	$	128,858

Nine Months Ended September 30, 2021:
Interest income	$	182,530	$	—	$	—	$	182,530
Interest expense		10,988		—		216		11,204
Net interest income		171,542		—		(216)		171,326
Provision for credit losses		(13)		—		—		(13)
Noninterest income		35,710		22,020		(1,107)		56,623
Noninterest expense		88,935		17,441		2,146		108,522
Income (loss) before taxes on income	$	118,330	$	4,579	$	(3,469)	$	119,440

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FIRST FOUNDATION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2022 - UNAUDITED

NOTE 12: SUBSEQUENT EVENTS

Cash Dividend

On October 25, 2022, the Board of Directors of the Company declared a quarterly cash dividend of $0.11 per common share to be paid on November 17, 2022 to stockholders of record as of the close of business on November 7, 2022.

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

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

Forward-Looking Statements

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

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

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

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

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Critical Accounting Policies

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

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

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

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

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

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

Overview and Recent Developments

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

●

Total loans, including loans held for sale, increased $2.9 billion in the nine months ended September 30, 2022, as a result of $5.0 billion of originations, which was partially offset by payoffs or scheduled payments of $2 billion.

●

During the nine months ended September 30, 2022, total deposits increased by $738 million and total revenues (net interest income and noninterest income) increased by 25% when compared to the nine months ended September 30, 2021.

Results of Operations

The primary sources of revenue for Banking are net interest income, fees from its deposits and trust services, gains on sales of loans, certain loan fees, and consulting fees. The primary sources of revenue for Wealth Management are asset management fees assessed on the balance of assets under management (“AUM”). Compensation and benefit costs, which represent the largest component of noninterest expense, accounted for 52% and 78%, respectively, of the total noninterest expense for Banking and Wealth Management in the nine months ended September 30, 2022.

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


			Wealth
(dollars in thousands)	Banking		Management		Other		Total
2022:
Interest income	$	108,746	$	—	$	—	$	108,746
Interest expense		19,281		—		1,793		21,074
Net interest income		89,465		—		(1,793)		87,672
Provision for credit losses		(22)		—		—		(22)
Noninterest income		5,730		6,865		(411)		12,184
Noninterest expense		53,571		6,380		391		60,342
Income (loss) before taxes on income	$	41,646	$	485	$	(2,595)	$	39,536

2021:
Interest income	$	61,989	$	—	$	—	$	61,989
Interest expense		2,753		—		49		2,802
Net interest income		59,236		—		(49)		59,187
Provision for credit losses		(417)		—		—		(417)
Noninterest income		23,202		7,857		(379)		30,680
Noninterest expense		31,488		6,338		568		38,394
Income (loss) before taxes on income	$	51,367	$	1,519	$	(996)	$	51,890

General. Our net income and income before taxes in the three months ended September 30, 2022, were $29.0 million and $39.5 million, respectively, as compared to $37.2 million and $51.9 million, respectively, in the three months ended September 30, 2021. The $12.4 million decrease in income before taxes was the result of a $9.8 million decrease in income before taxes for Banking, a $1.0 million decrease in Wealth Management, and a $1.6 million increase in corporate expenses. The decrease in Banking was due to higher noninterest expenses and decrease in noninterest income, which was partially offset by an increase in net interest income. The decrease in noninterest income was due primarily to a $18.1 million gain on sale of loans in the third quarter of 2021. The decrease in Wealth Management was due to a decrease in noninterest income. The decrease in noninterest income was due to a decrease in billable AUM. The increase in corporate expenses was due primarily to an increase in interest expense from subordinated debt acquired in the TGRF acquisition and the $150 million of subordinated notes issued by the Company in the first quarter of 2022.

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


			Wealth
(dollars in thousands)	Banking		Management		Other		Total
2022:
Interest income	$	277,861	$	—	$	—	$	277,861
Interest expense		29,170		—		4,720		33,890
Net interest income		248,691		—		(4,720)		243,971
Provision for credit losses		(641)		—		—		(641)
Noninterest income		19,118		23,190		(1,297)		41,011
Noninterest expense		135,704		19,213		1,848		156,765
Income (loss) before taxes on income	$	132,746	$	3,977	$	(7,865)	$	128,858

2021:
Interest income	$	182,530	$	—	$	—	$	182,530
Interest expense		10,988		—		216		11,204
Net interest income		171,542		—		(216)		171,326
Provision for credit losses		(13)		—		—		(13)
Noninterest income		35,710		22,020		(1,107)		56,623
Noninterest expense		88,935		17,441		2,146		108,522
Income (loss) before taxes on income	$	118,330	$	4,579	$	(3,469)	$	119,440

General. Our net income and income before taxes in the nine months ended September 30, 2022, were $93.2 million and $128.9 million, respectively, as compared to $85.6 million and $119.4 million, respectively, in the nine months ended September 30, 2021. The $9.5 million increase in income before taxes was the result of a $14.4 million increase in income before taxes for Banking, which was partially offset by and a $0.6 million decrease in income before taxes for Wealth Management, and a $4.4 million increase in corporate expenses. The increase in Banking was due to higher net interest income and lower provision for credit losses, offset partially by a decrease in noninterest income and increase in noninterest expenses. The decrease in Wealth Management was due to higher noninterest expenses, offset partially by an increase in noninterest income. The increase in corporate expenses was due primarily to an increase in interest expense from subordinated debt acquired in the TGRF acquisition and the $150 million of subordinated notes issued by the Company in the first quarter of 2022.

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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 September 30:
	2022						2021
	Average				Average		Average				Average
(dollars in thousands)	Balances		Interest		Yield /Rate		Balances		Interest		Yield /Rate
Interest-earning assets:
Loans	$	9,910,051	$	100,978	4.07	%	$	6,060,153	$	56,781	3.74	%
Securities AFS		258,654		2,066	3.19	%		715,505		4,606	2.58	%
Securities HTM		898,932		4,687	2.09	%		—		—	—	%
FHLB stock, fed funds, and deposits		229,798		1,015	1.75	%		924,232		602	0.26	%
Total interest-earning assets		11,297,435		108,746	3.84	%		7,699,890		61,989	3.22	%
Noninterest-earning assets:
Nonperforming assets		11,119						16,105
Other		457,965						219,179
Total assets	$	11,766,519					$	7,935,174
Interest-bearing liabilities:
Demand deposits	$	2,336,215	$	6,904	1.17	%	$	1,036,278	$	463	0.18	%
Money market and savings		2,928,102		6,652	0.90	%		2,286,585		1,817	0.32	%
Certificates of deposit		690,699		2,039	1.17	%		653,194		473	0.29	%
Total interest-bearing deposits		5,955,016		15,595	1.04	%		3,976,057		2,753	0.27	%
Borrowings		833,171		5,479	2.61	%		5,393		49	3.38	%
Total interest-bearing liabilities		6,788,187		21,074	1.23	%		3,981,450		2,802	0.28	%
Noninterest-bearing liabilities:
Demand deposits		3,742,460						3,127,562
Other liabilities		125,943						84,227
Total liabilities		10,656,590						7,193,239
Shareholders’ equity		1,109,929						741,935
Total liabilities and equity	$	11,766,519					$	7,935,174
Net Interest Income			$	87,672					$	59,187
Net Interest Rate Spread					2.61	%					2.94	%
Net Interest Margin					3.10	%					3.07	%

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	Nine Months Ended September 30:
	2022						2021
	Average				Average		Average				Average
(dollars in thousands)	Balances		Interest		Yield /Rate		Balances		Interest		Yield /Rate
Interest-earning assets:
Loans	$	8,654,252	$	255,037	3.93	%	$	5,743,942	$	166,291	3.86	%
Securities AFS		466,903		9,015	2.57	%		743,018		14,739	2.64	%
Securities HTM		723,941		10,719	1.97	%		—		—	—	%
FHLB stock, fed funds and deposits		666,925		3,090	0.62	%		789,323		1,500	0.25	%
Total interest-earning assets		10,512,021		277,861	3.53	%		7,276,283		182,530	3.35	%
Noninterest-earning assets:
Nonperforming assets		10,571						16,912
Other		448,218						200,825
Total assets	$	10,970,810					$	7,494,020
Interest-bearing liabilities:
Demand deposits	$	2,385,554	$	10,824	0.61	%	$	982,521	$	1,893	0.26	%
Money market and savings		2,728,660		11,225	0.55	%		2,300,127		6,536	0.38	%
Certificates of deposit		663,969		3,244	0.65	%		744,095		2,334	0.42	%
Total interest-bearing deposits		5,778,183		25,293	0.59	%		4,026,743		10,763	0.36	%
Borrowings		489,155		8,597	2.35	%		74,084		441	0.79	%
Total interest-bearing liabilities		6,267,338		33,890	0.72	%		4,100,827		11,204	0.37	%
Noninterest-bearing liabilities:
Demand deposits		3,514,047						2,607,488
Other liabilities		102,142						64,678
Total liabilities		9,883,527						6,772,993
Stockholders’ equity		1,087,283						721,027
Total liabilities and equity	$	10,970,810					$	7,494,020
Net Interest Income			$	243,971					$	171,326
Net Interest Rate Spread					2.81	%					2.98	%
Net Interest Margin					3.10	%					3.14	%

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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 nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021:


	Quarter Ended							Nine Months Ended
	September 30, 2022 vs. 2021						September 30, 2022 vs. 2021
	Increase (Decrease) due to						Increase (Decrease) due to
(dollars in thousands)	Volume		Rate		Total		Volume		Rate		Total
Interest earned on:
Loans	$	38,928	$	5,269	$	44,197	$	85,673	$	3,073	$	88,746
Securities AFS		(3,455)		915		(2,540)		(5,340)		(384)		(5,724)
Securities HTM		2,342		2,344		4,686		5,374		5,344		10,718
Cash, FHLB stock, fed funds and deposits		(744)		1,158		414		(268)		1,859		1,591
Total interest-earning assets		37,071		9,686		46,757		85,439		9,892		95,331
Interest paid on:
Demand deposits		1,222		5,219		6,441		4,584		4,347		8,931
Money market and savings		667		4,168		4,835		1,376		3,313		4,689
Certificates of deposit		42		1,524		1,566		(274)		1,184		910
Borrowings		5,442		(12)		5,430		6,031		2,125		8,156
Total interest-bearing liabilities		7,373		10,899		18,272		11,717		10,969		22,686
Net interest income	$	29,698	$	(1,213)	$	28,485	$	73,722	$	(1,077)	$	72,645

Net interest income increased 48%, from $59.2 million in the three months ended September 30, 2021, to $87.7 million in the three months ended September 30, 2022, due to a 47% increase in interest-earning assets. On a consolidated basis our net interest margin increased from 3.07% in the three months ended September 30, 2021 to 3.10% in the three months ended September 30, 2022 due to an increase in yield on interest-earning assets, from 3.22% in the three months ended September 30, 2021, to 3.84% in the three months ended September 30, 2022, which was partially offset by an increase in the cost of interest-bearing liabilities, from 0.28% in the three months ended September 30, 2021, to 1.23% in the three months ended September 30, 2022. The increase in interest-earning assets was due to a 47% increase in average loans, from $6.1 billion in the three months ended September 30, 2021, to $9.9 billion in the three months ended September 30, 2022. The increase in the cost of interest-bearing liabilities was due to increased costs of interest-bearing deposits, resulting from increases in deposit market rates, and an increase in borrowings. The average rate on interest-bearing deposits increased from 0.27% in the three months ended September 30, 2021, to 1.04% in the three months ended September 30, 2022, and the average balance of interest-bearing deposits increased from $4.0 billion in the three months ended September 30, 2021, to $6.0 billion in the three months ended September 30, 2022. The average balance outstanding on borrowings increased from $5.4 million in the three months ended September 30, 2021, to $833.2 million in the three months ended September 30, 2022. The increase in borrowings was due to the issuance of $150 million in subordinated notes in the first quarter of 2022, the assumption of $165 million in repurchase agreements, $23 million in subordinated notes acquired from the TGRF acquisition in the fourth quarter of 2021, and an increase in overnight FHLB advances. The average balance outstanding on overnight advances increased from $2,000 in the three months ended September 30, 2021, to $483.3 million in the three months ended September 30, 2022, primarily due to fund the increase in new loan volume. The average balance outstanding under the holding company subordinated debt was $173.3 million in the three months ended September 30, 2022. The average balance outstanding under the holding company line of credit was $5.4 million in the three months ended September 30, 2021.

Net interest income increased 42%, from $171.3 million in the nine months ended September 30, 2021, to $244.0 million in the nine months ended September 30, 2022, due primarily to a 44% increase in interest-earning assets. On a consolidated basis our net interest margin was 3.10% for the nine months ended September 30, 2022, as compared to 3.14% in the nine months ended September 30, 2021. This decrease was due to a decrease in the net interest rate spread, from 2.98% in the nine months ended September 30, 2021, to 2.81% in the nine months ended September 30, 2022. The decrease in the net interest rate spread was due to an increase in the cost of interest-bearing liabilities, from 0.37% in the

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nine months ended September 30, 2021, to 0.72% in the nine months ended September 30, 2022, which was offset partially by an increase in yield on total interest-earning assets, from 3.35% in the nine months ended September 30, 2021, to 3.53% in the nine months ended September 30, 2022. The increase in the cost of interest-bearing liabilities was due to increased costs of interest-bearing deposits, resulting from increases in deposit market rates, and an increase in borrowings. The average balance outstanding on borrowings increased from $74 million in the nine months ended September 30, 2021, to $489.2 million in the nine months ended September 30, 2022, primarily due to fund the increase in new loan volume. The average balance outstanding under the holding company subordinated debt was $160.9 million in the nine months ended September 30, 2022. The average balance outstanding under the holding company line of credit decreased from $7.8 million in the nine months ended September 30, 2021, to $0.1 million in the nine months ended September 30, 2022.

Provision for credit losses. The provision for credit losses represents our estimate of the amount necessary to be charged against the current period’s earnings to maintain the ACL for loans and investments at a level that we consider adequate in relation to the estimated losses inherent in the loan and investment portfolios. The provision for credit losses for loans is impacted by changes in loan balances as well as changes in estimated loss assumptions and charge-offs and recoveries. The amount of the provision for loans also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions and certain other subjective factors that may affect the ability of borrowers to meet their repayment obligations to us. The net chargeoffs in the three and nine months ended September 30, 2022, were $22,000 and $0.6 million, respectively, as compared to net chargeoffs of $0.4 million and $13,000 in the three and nine months ended September 30, 2021, respectively. Net chargeoffs for loans were $0.2 million and $17,000 for the three and nine months ended September 30, 2022, respectively, as compared to net recoveries of loans of $0.1 million and $0.2 million for the three and nine months ended September 30, 2021, respectively. The net chargeoffs for the three and nine months ended September 30, 2022, were a result of the release of specific reserves related to purchase credit deteriorated (“PCD”) loans from prior acquisitions.

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


(dollars in thousands)	2022		2021
Three Months Ended September 30:
Trust fees	$	2,034	$	1,737
Loan related fees		2,071		2,661
Deposit charges		564		440
Gain on sale of loans		—		18,135
Consulting fees		100		102
Other		961		127
Total noninterest income	$	5,730	$	23,202

Nine Months Ended September 30:
Trust fees	$	6,291	$	5,168
Loan related fees		6,704		6,929
Deposit charges		1,873		1,216
Gain on sale leaseback		1,123		—
Gain on sale of loans		—		21,459
Consulting fees		295		303
Other		2,832		635
Total noninterest income	$	19,118	$	35,710

Noninterest income for Banking decreased by $17.5 million in the three months ended September 30, 2022, due to a decrease of $0.6 million in loan related fees, and a $18.1 million gain on sale of loans in the three months ended September 30, 2021, offset partially by a $0.3 million increase in trust fees and $0.8 million increase in other income. The

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increase in trust fees was due primarily to higher levels of billable assets under advisement (“AUA”). The increase in other income was primarily due to a $0.6 million increase in bank owned life insurance (“BOLI”) income.

Noninterest income for Banking decreased by $16.6 million in the nine months ended September 30, 2022. The decrease was due to $21.5 million in gains on sale of loans in the nine months ended September 30, 2021, offset partially by a $1.1 million increase in trust fees, a $1.1 million gain on a sale leaseback transaction, a $0.7 million increase in deposit charges, and a $2.2 million increase in other income. The increase in trust fees was due primarily to higher levels of billable AUA. The increase in deposit charges was due to higher levels of deposits. The increase in other income was primarily due to a $1.2 million increase in BOLI income and $0.6 million increase in ATM/EFT network fee 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 nine months ended September 30, 2022 and 2021:


(dollars in thousands)	2022		2021
Three Months Ended September 30:
Noninterest income	$	6,865	$	7,857

Nine Months Ended September 30:
Noninterest income	$	23,190	$	22,020

Noninterest income for Wealth Management decreased by $1.0 million in the three months ended September 30, 2022, when compared to the corresponding period in 2021, due primarily to lower levels of billable AUM. Noninterest income for Wealth Management increased by $1.2 million in the nine months ended September 30, 2022, when compared to the corresponding period in 2021, due primarily to higher levels of billable AUM.

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 September 30, 2022:
Fixed income	$	1,255,879	$	172,066	$	16,225	$	(5,659)	$	(31,541)	$	1,406,970
Equities		2,474,511		6,079		14,537		(10,976)		(185,553)		2,298,598
Cash and other		1,091,389		(177,017)		37,958		(15,185)		(16,873)		920,272
Total	$	4,821,779	$	1,128	$	68,720	$	(31,820)	$	(233,967)	$	4,625,840

Nine Months Ended September 30, 2022:
Fixed income	$	1,303,760	$	207,615	$	107,414	$	(23,787)	$	(188,032)	$	1,406,970
Equities		3,330,639		(35,367)		93,672		(64,062)		(1,026,284)		2,298,598
Cash and other		1,046,206		(156,664)		90,476		(49,824)		(9,922)		920,272
Total	$	5,680,605	$	15,584	$	291,562	$	(137,673)	$	(1,224,238)	$	4,625,840

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

The $1.1 billion decrease in AUM during the nine months ended September 30, 2022, was the net result of $292 million of new accounts, offset by $1.2 billion of portfolio losses, and terminations and net withdrawals of $122 million.

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


	Banking				Wealth Management
(dollars in thousands)	2022		2021		2022		2021
Three Months Ended September 30:
Compensation and benefits	$	24,208	$	18,078	$	5,003	$	4,946
Occupancy and depreciation		9,158		5,896		436		531
Professional services and marketing		2,418		1,849		774		724
Customer service costs		13,560		2,512		—		—
Other expenses		4,227		3,153		167		137
Total noninterest expense	$	53,571	$	31,488	$	6,380	$	6,338

Nine Months Ended September 30:
Compensation and benefits	$	71,051	$	50,736	$	15,016	$	13,523
Occupancy and depreciation		25,627		16,803		1,348		1,494
Professional services and marketing		6,998		5,916		2,319		2,040
Customer service costs		19,959		6,635		—		—
Other expenses		12,069		8,845		530		384
Total noninterest expense	$	135,704	$	88,935	$	19,213	$	17,441

Noninterest expense for Banking increased from $31.5 million in the three months ended September 30, 2021, to $53.6 million in the three months ended September 30, 2022, primarily due to higher compensation and benefits, occupancy and depreciation, customer service costs, and other expenses. Compensation and benefits were $6.1 million higher in the three months ended September 30, 2022, due to increases in FTE. The FTE for Banking increased to 648.7 in the three months ended September 30, 2022, from 482.0 in the three months ended September 30, 2021, due to increased staffing related to additional personnel from the TGRF acquisition, and to support the growth in loans and deposits. The $3.3 million increase in occupancy and depreciation expenses for Banking in the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, was due to the TGRF acquisition and increases in higher core processing costs related to higher volumes and services. The $11.0 million increase in customer service costs for Banking in the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, was due to higher earnings credits paid on increases in deposit balances. The $1.1 million increase in other expenses for Banking in the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, were due to additional activities related to the acquisitions, primarily amortization of core deposit intangibles and FDIC insurance. Noninterest expenses for Wealth Management increased by $0.1 million in the three months ended September 30, 2022, compared to the three months ended September 30, 2021.

Noninterest expense for Banking increased from $88.9 million in the nine months ended September 30, 2021, to $135.7 million in the nine months ended September 30, 2022, primarily due to higher compensation and benefits, occupancy and depreciation, and customer service costs. Compensation and benefits for Banking increased from $50.7 million in the nine months ended September 30, 2021, to $71.0 million in the nine months ended September 30, 2022, due to increases in FTE. The FTE for Banking increased to 644.5 in the nine months ended September 30, 2022, from 460.8 in the nine months ended September 30, 2021, due to increased staffing related to additional personnel from the TGRF acquisition, and to support the growth in loans and deposits. The $8.8 million increase in occupancy and depreciation expenses for Banking in the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021 was due to the TGRF acquisition and increases in higher core processing costs related to higher volumes and services. The $13.3 million increase in customer service costs for Banking in the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was due to higher earnings credits paid on increases in deposit balances. The $3.2 million increase in other expenses for Banking in the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, were due to additional activities related to the acquisitions, primarily amortization of core deposit intangibles and FDIC insurance. Noninterest expenses for Wealth Management increased by $1.8 million in the nine months ended September 30, 2022, when compared to the nine months ended September 30, 2021, primarily due to an increase in compensation and benefits expenses.

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Financial Condition

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


			Wealth		Other and
(dollars in thousands)	Banking		Management		Eliminations		Total
September 30, 2022:
Cash and cash equivalents	$	317,520	$	15,329	$	(15,031)	$	317,818
Securities AFS, net		227,463		—		—		227,463
Securities HTM		884,061		—		—		884,061
Loans held for sale		—		—		—		—
Loans, net		10,322,520		—		—		10,322,520
Premises and equipment		36,234		237		136		36,607
Investment in FHLB stock		31,203		—		—		31,203
Deferred taxes		21,341		101		2,768		24,210
REO		6,210		—		—		6,210
Goodwill and intangibles		222,290		—		—		222,290
Other assets		220,057		367		36,057		256,481
Total assets	$	12,288,899	$	16,034	$	23,930	$	12,328,863

Deposits	$	9,600,893	$	—	$	(51,037)	$	9,549,856
Borrowings		1,323,136		—		173,320		1,496,456
Intercompany balances		6,533		459		(6,992)		—
Other liabilities		130,217		4,684		25,685		160,586
Shareholders’ equity		1,228,120		10,891		(117,046)		1,121,965
Total liabilities and equity	$	12,288,899	$	16,034	$	23,930	$	12,328,863

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

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

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

During the nine months ended September 30, 2022, total assets increased by $2.1 billion, primarily due to an $2.9 billion increase in loans. Securities decreased by $79 million primarily due to paydowns of mortgage backed securities

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and corporate bonds. Loans and loans held for sale increased $2.9 billion in the nine months ended September 30, 2022, primarily as a result of $5.0 billion of originations, which was partially offset by payoffs or scheduled payments of $2.0 billion. The $738 million growth in deposits during the nine months ended September 30, 2022 included increases in commercial deposits of $1.3 billion, $240 million in corporate deposits, $189 million in digital channel deposits, and $186 million in wholesale deposits, offset by a decrease in branch deposits of $1.1 billion. These changes included a $481 million reclassification of deposits out of the retail branches and into our commercial services division, following the conversion of TGR Financial. Borrowings increased by $1.3 billion during the nine months ended September 30, 2022 primarily due an increase of $148 million in subordinated debt, $1.1 billion increase in overnight borrowings due to increased loan volume, and an increase of $13 million in repurchase agreements, offset partially by the $18.5 million paydown on FFI’s credit line.

Cash and cash equivalents, certificates of deposit and securities. Cash and cash equivalents, which primarily consist of funds held at the Federal Reserve Bank or at correspondent banks, including fed funds, decreased by $804 million during the nine months ended September 30, 2022. Changes in cash and cash equivalents are primarily affected by the funding of loans, investments in securities, and changes in our sources of funding: deposits, FHLB advances and FFI borrowings.

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


	Amortized		Gross Unrealized				Allowance for		Estimated
(dollars in thousands)	Cost		Gains		Losses		Credit Losses		Fair Value
September 30, 2022:
Collateralized mortgage obligations	$	10,500	$	—	$	(1,225)	$	—	$	9,275
Agency mortgage-backed securities		8,798		—		(634)		—		8,164
Municipal bonds		50,397		—		(5,197)		—		45,200
SBA securities		20,725		8		(111)		—		20,622
Beneficial interests in FHLMC securitization		19,677		138		(7)		(11,519)		8,289
Corporate bonds		145,079		—		(9,983)		—		135,096
U.S. Treasury		898		—		(81)		—		817
Total	$	256,074	$	146	$	(17,238)	$	(11,519)	$	227,463

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

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

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

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


	Amortized		Gross Unrecognized				Allowance for		Estimated
(dollars in thousands)	Cost		Gains		Losses		Credit Losses		Fair Value
September 30, 2022:
Agency mortgage-backed securities	$	884,061	$	—	$	(99,254)	$	—	$	784,807
Total	$	884,061	$	—	$	(99,254)	$	—	$	784,807

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

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


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
Amortized Cost:
Collateralized mortgage obligations	$	—		$	—		$	688		$	9,812		$	10,500
Agency mortgage-backed securities		—			3,737			3,378			1,683			8,798
Municipal bonds		303			5,379			35,553			9,162			50,397
SBA securities		15			1,575			1,431			17,704			20,725
Beneficial interests in FHLMC securitization		—			10,185			—			9,492			19,677
Corporate bonds		6,013			10,002			123,531			5,533			145,079
U.S. Treasury		—			898			—			—			898
Total	$	6,331		$	31,776		$	164,581		$	53,386		$	256,074
Weighted average yield		2.77	%		2.05	%		3.52	%		2.23	%		3.05	%
Estimated Fair Value:
Collateralized mortgage obligations	$	—		$	—		$	616		$	8,659		$	9,275
Agency mortgage-backed securities		—			3,531			3,137			1,496			8,164
Municipal bonds		298			4,877			32,616			7,409			45,200
SBA securities		15			1,571			1,427			17,609			20,622
Beneficial interests in FHLMC securitization		—			10,185			—			9,623			19,808
Corporate bonds		5,995			9,102			115,694			4,305			135,096
U.S. Treasury		—			817			—			—			817
Total	$	6,308		$	30,083		$	153,490		$	49,101		$	238,982

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


	Less than			1 Through			5 Through			After
(dollars in thousands)	1 Year			5 years			10 Years			10 Years			Total
September 30, 2022
Amortized Cost:
Agency mortgage-backed securities	$	—		$	119		$	18,841		$	865,101		$	884,061
Total	$	—		$	119		$	18,841		$	865,101		$	884,061
Weighted average yield		—	%		0.27	%		1.03	%		2.09	%		2.07	%

Estimated Fair Value:
Agency mortgage-backed securities	$	—		$	110		$	16,892		$	767,805		$	784,807
Total	$	—		$	110		$	16,892		$	767,805		$	784,807

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


	September 30,		December 31,
(dollars in thousands)	2022		2021
Outstanding principal balance:
Loans secured by real estate:
Residential properties:
Multifamily	$	5,088,695	$	2,886,055
Single family		989,258		933,445
Total real estate loans secured by residential properties		6,077,953		3,819,500
Commercial properties		1,236,577		1,309,200
Land and construction		144,787		156,028
Total real estate loans		7,459,317		5,284,728
Commercial and industrial loans		2,874,827		1,598,422
Consumer loans		5,155		10,834
Total loans		10,339,299		6,893,984
Premiums, discounts and deferred fees and expenses		16,121		12,744
Total	$	10,355,420	$	6,906,728

Loans and loans held for sale increased by $2.9 billion during the nine months ended September 30, 2022, primarily as a result of $4.9 billion of originations, which was partially offset by payoffs or scheduled payments of $2.0 billion.

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


	September 30, 2022				December 31, 2021
			Weighted				Weighted
(dollars in thousands)	Amount		Average Rate		Amount		Average Rate
Demand deposits:
Noninterest-bearing	$	3,550,637	—		$	3,280,455	—
Interest-bearing		2,253,799	1.771	%		2,242,684	0.070	%
Money market and savings		2,911,909	1.239	%		2,620,336	0.275	%
Certificates of deposits		833,511	1.724	%		668,485	0.145	%
Total	$	9,549,856	0.946	%	$	8,811,960	0.111	%

During the nine months ended September 30, 2022, our deposit rates moved in a manner consistent with overall deposit market rates. The weighted average rate of our interest-bearing deposits increased from 0.18% at December 31, 2021, to 1.50% at September 30, 2022 due to increased costs of interest-bearing deposits, while the weighted average interest rates of both interest-bearing and noninterest-bearing deposits increased from 0.11% at December 31, 2021 to 0.95% at September 30, 2022. The financial impact of the increase in noninterest-bearing deposits is reflected in customer service costs, which are included in noninterest expenses.

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


(dollars in thousands)
3 months or less	$	529,027
Over 3 months through 6 months		89,814
Over 6 months through 12 months		69,321
Over 12 months		80,826
Total	$	768,988

From time to time, the Bank will utilize brokered deposits as a source of funding. As of September 30, 2022, the Bank held $276 million of deposits, which are classified as brokered deposits.

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Borrowings. As of September 30, 2022, our borrowings consisted of $1.1 billion in an overnight FHLB advance at the Bank, $174 million in subordinated notes at the holding company, and $179 million of repurchase agreements at the Bank. As of December 31, 2021, our borrowings consisted of $26 million in subordinated notes at the holding company, $166 million of repurchase agreements at the Bank, and $18.5 million of borrowings under a holding company line of credit. The FHLB overnight advance outstanding as of September 30, 2022, was paid in full in the early part of October 2022, and bore an interest rate of 3.22%. As of September 30, 2022, $150 million of the subordinated notes are fixed-to-floating rate notes that mature in February 2032. The notes will initially bear a rate of 3.50% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2022 until February 1, 2027. From and including February 1, 2027 to, but excluding February 1, 2032, or the date of earlier redemption, the notes will bear interest at a floating rate per annum equal to the Benchmark rate (which is expected to be Three-Month Term Secured Overnight Financing Rate, or “SOFR”), each as defined in and subject to the provisions of the indenture under which the notes were issued, plus 204 basis points (2.04%), payable quarterly in arrears on February 1, May 1, August 1, and November 1 of each year, commencing on May 1, 2027. $24 million of the subordinated notes mature in June 2030 and bear a fixed interest rate of 6.0%, until June 30, 2025, at which time they will convert to a floating rate based on three month SOFR, plus 590 basis points (5.90%), until maturity. The maximum amount of borrowings at the Bank outstanding at any month-end during nine months ended September 30, and during all of 2021, were $1.5 billion and $255 million, respectively.

Delinquent Loans, Nonperforming Assets and Provision for Credit Losses

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


							90 Days						Total Past Due
(dollars in thousands)	30–59 Days			60-89 Days			or More			Nonaccrual			and Nonaccrual			Current		Total
September 30, 2022:
Real estate loans:
Residential properties	$	247		$	—		$	30		$	2,586		$	2,863		$	6,093,610	$	6,096,473
Commercial properties		2,182			—			1,028			4,162			7,372			1,227,962		1,235,334
Land and construction		1,478			—			—			—			1,478			142,293		143,771
Commercial and industrial loans		590			211			80			4,488			5,369			2,869,287		2,874,656
Consumer loans		—			—			—			4			4			5,182		5,186
Total	$	4,497		$	211		$	1,138		$	11,240		$	17,086		$	10,338,334	$	10,355,420
Percentage of total loans		0.04	%		0.00	%		0.01	%		0.11	%		0.16	%

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

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The following table summarizes our nonaccrual loans as of:


	Nonaccrual		Nonaccrual
	with Allowance		with no Allowance
(dollars in thousands)	for Credit Losses		for Credit Losses
September 30, 2022
Real estate loans:
Residential properties	$	—	$	2,586
Commercial properties		—		4,162
Commercial and industrial loans		2,140		2,348
Consumer loans		—		4
Total	$	2,140	$	9,100

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

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


	September 30, 2022						December 31, 2021
(dollars in thousands)	Accrual		Nonaccrual		Total		Accrual		Nonaccrual		Total
Residential loans	$	—	$	—	$	—	$	1,200	$	—	$	1,200
Commercial real estate loans		953		1,093		2,046		1,021		1,174		2,195
Commercial and industrial loans		95		1,470		1,565		493		2,030		2,523
Total	$	1,048	$	2,563	$	3,611	$	2,714	$	3,204	$	5,918

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

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


					Allowance
	Beginning		Provision for		on Acquired						Ending
(dollars in thousands)	Balance		Credit Losses		PCD Loans		Charge-offs		Recoveries		Balance
Three months ended September 30, 2022:
Real estate loans:
Residential properties	$	4,446	$	2,598	$	—	$	—	$	—	$	7,044
Commercial properties		12,714		(2,223)		—		—		—		10,491
Land and construction		1,460		(1,305)		—		—		—		155
Commercial and industrial loans		14,481		868		—		(226)		57		15,180
Consumer loans		64		(34)		—		—		—		30
Total	$	33,165	$	(96)	$	—	$	(226)	$	57	$	32,900

Nine months ended September 30, 2022:
Real estate loans:
Residential properties	$	2,637	$	4,407	$	—	$	—	$	—	$	7,044
Commercial properties		17,049		(6,558)		—		—		—		10,491
Land and construction		1,995		(1,840)		—		—		—		155
Commercial and industrial loans		11,992		3,205		—		(372)		355		15,180
Consumer loans		103		(73)		—		—		—		30
Total	$	33,776	$	(859)	$	—	$	(372)	$	355	$	32,900

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

Our ACL related to loans represented 0.32% and 0.49% of total loans outstanding as of September 30, 2022, and December 31, 2021, respectively. The decrease in the ACL is primarily due to adjustments in impairment assumptions.

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

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necessary for us to incur additional, and possibly significant, charges to increase the ACL, which would have the effect of reducing our income.

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

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


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

September 30, 2022:
Allowance for credit losses:
Real estate loans:
Residential properties	$	76	$	6,968	$	7,044
Commercial properties		2,107		8,384		10,491
Land and construction		—		155		155
Commercial and industrial loans		3,365		11,815		15,180
Consumer loans		—		30		30
Total	$	5,548	$	27,352	$	32,900
Loans:
Real estate loans:
Residential properties	$	3,508	$	6,092,965	$	6,096,473
Commercial properties		34,012		1,201,322		1,235,334
Land and construction		—		143,771		143,771
Commercial and industrial loans		7,570		2,867,086		2,874,656
Consumer loans		—		5,186		5,186
Total	$	45,090	$	10,310,330	$	10,355,420


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

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Liquidity

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

We monitor our liquidity in accordance with guidelines established by our Board of Directors and applicable regulatory requirements. Our need for liquidity is affected by our loan activity, net changes in deposit levels and the maturities of our borrowings. The principal sources of our liquidity consist of deposits, loan interest and principal payments and prepayments, investment management and consulting fees, FHLB advances and proceeds from borrowings and sales of FFI common stock. The remaining balances of the Company’s lines of credit available to draw down totaled $2.4 billion at September 30, 2022.

Cash Flows Provided by Operating Activities. During the nine months ended September 30, 2022, operating activities provided net cash of $100 million, primarily due to net income of $93 million and a $30 million increase in accounts payable and other liabilities, offset partially by a $33 million increase in other assets. During the nine months ended September 30, 2021, operating activities provided net cash of $70 million, primarily due to net income of $86 million, offset partially by $21 million in gains on sales of loans.

Cash Flows Used in Investing Activities. During the nine months ended September 30, 2022, investing activities used net cash of $2.9 billion, primarily due to a $2.9 billion net increase in loans. During the nine months ended September 30, 2021 investing activities used net cash of $580 million, primarily due to a $1.1 billion net increase in loans and $306 million of securities purchases, offset partially by $207 million in cash received in principal collection and maturities of securities, and $580 million in proceeds from sales of loans.

Cash Flows Provided by Financing Activities. During the nine months ended September 30, 2022, financing activities provided net cash of $2.0 billion, consisting primarily of a net increase of $738 million in deposits, a $1.1 billion increase in FHLB advances, and a $148 million increase in subordinated debt, offset partially by $19 million in dividends paid and a $19 million decrease in other borrowings. During the nine months ended September 30, 2021, financing activities provided net cash of $664 million, consisting primarily of a net increase of $932 million in deposits, offset partially by a $255 million decrease in FHLB advances and $12 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 September 30, 2022 and December 31, 2021, the loan-to-deposit ratios at FFB were 108% and 84%, respectively.

Off-Balance Sheet Arrangements

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


(dollars in thousands)
Commitments to fund new loans	$	43,777
Commitments to fund under existing loans, lines of credit		1,380,043
Commitments under standby letters of credit		17,455

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

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

Capital Resources and Dividend Policy

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

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


									To Be Well Capitalized
					For Capital				Under Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
FFI
September 30, 2022:
CET1 capital ratio	$	919,856	9.17	%	$	451,256	4.50	%
Tier 1 leverage ratio		919,856	7.95	%		462,870	4.00	%
Tier 1 risk-based capital ratio		919,856	9.17	%		601,675	6.00	%
Total risk-based capital ratio		1,133,770	11.31	%		802,233	8.00	%

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

FFB
September 30, 2022:
CET1 capital ratio	$	1,025,997	10.27	%	$	449,398	4.50	%	$	649,130	6.50	%
Tier 1 leverage ratio		1,025,997	8.14	%		504,261	4.00	%		630,326	5.00	%
Tier 1 risk-based capital ratio		1,025,997	10.27	%		599,197	6.00	%		798,929	8.00	%
Total risk-based capital ratio		1,066,583	10.68	%		798,929	8.00	%		998,662	10.00	%

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

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

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As of September 30, 2022, FFI had $58.3 million of available liquidity as well as a revolving line of credit and, therefore, has the ability and financial resources to contribute additional capital to FFB, if needed.

As of September 30, 2022, the amount of capital at FFB in excess of amounts required to be well capitalized for purposes of the prompt corrective action regulations was $377 million for the CET1 capital ratio, $396 million for the Tier 1 Leverage Ratio, $227 million for the Tier 1 risk-based capital ratio and $68 million for the Total risk-based capital ratio.

The Company paid $18.6 million in cash dividends ($0.33 per common share) and purchased $2.5 million of our common stock in the first nine months of 2022. It is our current intention to continue to pay quarterly dividends. The amount and declaration of future cash dividends and stock repurchases are subject to approval by our Board of Directors and certain regulatory restrictions which are discussed in Item 1 “Business—Supervision and Regulation—Dividends and Stock Repurchases” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021. Additionally, under the terms of the holding company line of credit agreement, FFI may only declare and pay a dividend if the total amount of dividends and stock repurchases during the current twelve months does not exceed 50% of FFI’s net income for the same twelve month period. We paid $16.1 million in dividends ($0.36 per share) in 2021.

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

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4.CONTROLS AND PROCEDURES

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

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

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

PART II — OTHER INFORMATION

ITEM 1A.RISK FACTORS

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

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

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


					Total Number of		Approximate Dollar
	Total Number		Average		Shares Purchased		Value of Shares That
	of Shares		Price Paid Per		as Part of Publicly		May Yet Be Purchased
Purchase Dates	Purchased		Share		Announced Program		Under the Program
July 1 to July 31, 2022		-	$	-		-	$	72,542,900
August 1 to August 31, 2022		-		-		-		72,542,900
September 1 to September 30, 2022		-		-		-		72,542,900
Total		-				-

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ITEM 6.EXHIBITS


Exhibit No.		Description of Exhibit

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

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

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

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

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

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

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

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(1)	Filed herewith.

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SIGNATURES

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


	FIRST FOUNDATION INC.

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

S-1