Business Wire | Oct 27, 2020 09:00AM EDT

First Foundation Announces 2020 Third Quarter Financial Results

Oct. 27, 2020

IRVINE, Calif.--(BUSINESS WIRE)--Oct. 27, 2020--First Foundation Inc. (NASDAQ: FFWM), a financial services company with two wholly-owned operating subsidiaries, First Foundation Advisors ("FFA") and First Foundation Bank ("FFB"), announced today its financial results for the three and nine months ended September 30, 2020. As we present certain non-GAAP measures in this release, the reader should refer to the non-GAAP reconciliations set forth below under the section "Use of Non-GAAP Financial Measures."

"We delivered another quarter of strong results, including double digit growth of revenue and earnings, and tangible book value increased to $13.05 per share," said Scott F. Kavanaugh, CEO. "Our lending, deposit, wealth management, and trust businesses continue to perform very well and are the cornerstones of our robust business model. Loan originations were again solid and our core deposits reached record levels. The credit quality of our loan portfolio positions us well heading into the fourth quarter. Our employees have done a remarkable job delivering on our value proposition to help our clients wherever they are in their financial journey. I am so grateful for their tireless work especially over the past several months."

Additionally, First Foundation announced today that its Board of Directors has approved the payment of a quarterly cash dividend of $0.07 per common share, payable on November 17, 2020 to common stockholders of record as of November 9, 2020.

Highlights

Financial Results:

* 2020 third quarter compared to 2020 second quarter: Total revenues were $75.3 million, an increase of 31% Net interest income was $51.6 million, an increase of 7% Income before taxes was $43.1 million, an increase of 72% Earnings were $30.9 million, an increase of 73% Earnings per fully diluted share were $0.69, compared to $0.40 Nonperforming assets ("NPAs") to total assets remained low at 0.32% * 2020 third quarter compared to 2019 third quarter: Total revenues were $75.3 million, an increase of 32% Net interest income was $51.6 million, an increase of 20% Income before taxes was $43.1 million, an increase of 78% Earnings were $30.9 million, an increase of 78% Earnings per fully diluted share were $0.69, compared to $0.39 * 2020 third quarter financial ratios: Return on average tangible equity of 22.2% Return on average assets of 1.79% Efficiency ratio of 40% for the quarter and 49% year to date Total tangible shareholders' equity of $582 million, tangible book value of $13.05 per share, and tangible common equity to tangible assets of 9.12%

Other Activity:

* Completed securitization of $553 million of loans, recognizing a $15.1 million gain, inclusive of associated mortgage servicing rights of $3.9 million. * Forbearances and deferrals decreased to 1.07% of loans, to a total of $55 million, from 2.3% and $132 million in the prior quarter. * Net interest margin ("NIM") was 3.03% for the third quarter. * Loan originations totaled $414 million for the quarter. * The allowance for credit losses for loans decreased by $3.9 million in the quarter. This change was a result of the decrease in loans held for investment as well as a slight improvement in the economic scenario we utilize for the CECL calculation. * Core funding increased to 90% of total deposits from 76% the prior year. Cost of deposits decreased to 0.57% from 0.84% in the prior quarter. * Recognized a $1.3 million valuation allowance on mortgage servicing rights as a result of changes in the interest rate environment and prepayment speeds. * Increased the allowance for credit losses related to interest-only strip securities by $5.7 million in the quarter, as a result of changes in the interest rate environment and prepayment speeds. * Declared and paid cash dividend of $0.07 per share in the quarter. * Assets under management ("AUM") at FFA increased to $4.5 billion.

"In a quarter characterized by uncertainty in the U.S. economy, we produced positive results across our business," said David DePillo, President. "Our already strong credit quality remains solid, as evidenced by NPAs of 32 bps. And our investments in both retail and digital banking have translated to 25% growth year over year in our core deposits while our efficiency ratio improved to 40.1%."

Details

* Total loans, including loans held for sale, increased $77 million in the first nine months of 2020, including $1.8 billion of originations. * The $573 million growth in deposits during the first nine months of 2020 included increases in specialty deposits of $564 million, and branch deposits of $353 million, and digital channel deposits of $329 million, which were partially offset by a $674 million decrease in wholesale deposits. FHLB advances decreased by $473 million in the first nine months of the year. * The $232 million increase in AUM during the third quarter of 2020 was the net result of $25 million of new accounts, $258 million of portfolio gains, and terminations and net withdrawals of $51 million.

About First Foundation

First Foundation, (NASDAQ: FFWM), a financial institution founded in 1990, provides personal banking, business banking and private wealth management. The Company has offices in California, Nevada and Hawaii with headquarters in Irvine, California. For more information, please visit www.firstfoundationinc.com.

We have two business segments, "Banking" and "Investment Management and Wealth Planning" ("Wealth Management"). Banking includes the operations of FFB and First Foundation Insurance Services, and Wealth Management includes the operations of FFA. The financial position and operating results of the stand-alone holding company, FFI, are included under the caption "Other" in certain of the tables that follow, along with any consolidation elimination entries.

Forward-Looking Statements

Statements in this news release, including statements in the Discussion of Changes in Results of Operations and Financial Position below, regarding our expectations and beliefs about our future financial performance and financial condition, dividends, as well as trends in our business and markets are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "project," "outlook," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may." The forward-looking statements in this news release are based on current information and on assumptions that we make about future events and circumstances that are subject to a number of risks and uncertainties that are often difficult to predict and beyond our control. As a result of those risks and uncertainties, our actual financial results in the future could differ, possibly materially, from those expressed in or implied by the forward-looking statements contained in this news release and could cause us to make changes to our future plans. Those risks and uncertainties include, but are not limited to the risk of incurring loan losses, which is an inherent risk of the banking business; the negative impacts and disruptions resulting from the COVID-19 pandemic on our colleagues, clients, the communities we serve and the domestic and global economy, which may have an adverse effect on our business, financial position and results of operations; the risk that we will not be able to continue our internal growth rate; the risk that we will not be able to access the securitization market on favorable terms or at all; changes in general economic conditions, either nationally or locally in the areas in which we conduct or will conduct our business; risks associated with the Federal Reserve Board taking actions with respect to interest rates, which could adversely affect our interest income and interest rate margins and, therefore, our future operating results; the risk that the performance of our investment management business or of the equity and bond markets could lead clients to move their funds from or close their investment accounts with us, which would reduce our assets under management and adversely affect our operating results; the risk that we may be unable or that our board of directors may determine that it is inadvisable to pay future dividends; risks associated with changes in income tax laws and regulations; and risks associated with seeking new client relationships and maintaining existing client relationships. Additional information regarding these and other risks and uncertainties to which our business and future financial performance are subject is contained in our 2019 Annual Report on Form 10-K for the fiscal year ended December 31, 2019 that we filed with the SEC on March 2, 2020, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 that we filed with the SEC on May 8, 2020, our Quarterly Report on Form 10-Q for the Quarter ended June 30, 2020 that we filed with the SEC on August 7, 2020, and other documents we file with the SEC from time to time. We urge readers of this news release to review those reports and other documents we file with the SEC from time to time. Also, our actual financial results in the future may differ from those currently expected due to additional risks and uncertainties of which we are not currently aware or which we do not currently view as, but in the future may become, material to our business or operating results. Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this news release, which speak only as of today's date, or to make predictions based solely on historical financial performance. We also disclaim any obligation to update forward-looking statements contained in this news release or in the above-referenced reports, whether as a result of new information, future events or otherwise, except as may be required by law or NASDAQ rules.

FIRST FOUNDATION INC.CONSOLIDATED BALANCE SHEETS - Unaudited(in thousands, except share and per share amounts)



September 30, June 30, September 30,

2020 2020 2019

ASSETS



Cash and cash equivalents $ 282,983 $ 414,179 $ 268,446

Securities available-for-sale 890,981 863,778 1,042,940

Allowance for credit losses - (8,049 ) (2,371 ) - investments

Net securities 882,932 861,407 1,042,940



Loans held for sale 512,598 527,970 501,860



Loans held for investment 4,615,323 5,136,812 4,374,208

Allowance for credit losses - loans (24,183 ) (28,129 ) (20,500 )

Net loans 4,591,140 5,108,683 4,353,708



Investment in FHLB stock 17,250 23,598 17,250

Deferred taxes 7,157 9,194 9,534

Premises and equipment, net 8,265 8,188 8,694

Goodwill and intangibles 95,735 96,181 97,717

Other assets 83,878 91,893 58,197

Total Assets $ 6,481,938 $ 7,141,293 $ 6,358,346



LIABILITIES AND SHAREHOLDERS' EQUITY



Liabilities:

Deposits $ 5,463,813 $ 5,647,841 $ 5,170,566

Borrowings 269,000 764,600 520,000

Accounts payable and other 71,189 90,131 63,420 liabilities

Total Liabilities 5,804,002 6,502,572 5,753,986



Shareholders' Equity

Common Stock 45 45 45

Additional paid-in-capital 433,263 432,791 433,426

Retained earnings 228,396 200,582 162,792

Accumulated other comprehensive 16,232 5,303 8,097 income (loss)

Total Shareholders' Equity 677,936 638,721 604,360

Total Liabilities and Shareholders' $ 6,481,938 $ 7,141,293 $ 6,358,346 Equity

FIRST FOUNDATION INC. CONSOLIDATED INCOME STATEMENTS - Unaudited (in thousands, except share and per share amounts)

For the Quarter Ended

For the Nine Months Ended

September 30,

June 30,

September 30,

September 30,

2020

2020

2019

2020

2019

Interest income:

Loans

$

55,231

$

55,134

$

56,483

$

165,249

$

166,828

Securities

6,107

6,539

5,349

19,643

17,700

FHLB Stock, fed funds sold and deposits

353

259

782

1,069

1,938

Total interest income

61,691

61,932

62,614

185,961

186,466

Interest expense:

Deposits

7,988

10,914

16,675

33,548

48,419

Borrowings

2,086

2,571

2,807

7,481

11,981

Total interest expense

10,074

13,485

19,482

41,029

60,400

Net interest income

51,617

48,447

43,132

144,932

126,066

Provision for credit losses

1,548

1,367

172

6,979

1,943

Net interest income after provision for credit losses

50,069

47,080

42,960

137,953

124,123

Noninterest income:

Asset management, consulting and other fees

7,368

6,733

7,304

21,863

21,234

Gain on sale of loans

15,140

-

4,218

15,140

4,218

Other income

1,133

2,236

2,460

6,282

6,126

Total noninterest income

23,641

8,969

13,982

43,285

31,578

Noninterest expense:

Compensation and benefits

17,914

18,288

17,167

56,059

53,402

Occupancy and depreciation

6,052

5,855

5,450

17,419

15,485

Professional services and marketing costs

2,077

2,049

1,745

5,880

5,773

Customer service costs

1,723

1,622

5,920

5,717

13,592

Other expenses

2,829

3,123

2,412

9,329

9,669

Total noninterest expense

30,595

30,937

32,694

94,404

97,921

Income before taxes on income

43,115

25,112

24,248

86,834

57,780

Taxes on income

12,177

7,258

6,892

24,831

16,755

Net income

$

30,938

$

17,854

$

17,356

$

62,003

$

41,025

Net income per share:

Basic

$

0.69

$

0.40

$

0.39

$

1.39

$

0.92

Diluted

$

0.69

$

0.40

$

0.39

$

1.38

$

0.91

Shares used in computation:

Basic

44,625,668

44,620,716

44,639,481

44,638,634

44,602,368

Diluted

44,885,776

44,812,369

44,935,308

44,883,612

44,876,614

FIRST FOUNDATION INC.CONSOLIDATED INCOME STATEMENTS - Unaudited(in thousands, except share and per share amounts)



For the Quarter Ended For the Nine Months Ended

September June 30, September September 30, 30, 30,

2020 2020 2019 2020 2019



Interest income:

Loans $ 55,231 $ 55,134 $ 56,483 $ 165,249 $ 166,828

Securities 6,107 6,539 5,349 19,643 17,700

FHLB Stock,fed funds 353 259 782 1,069 1,938sold anddeposits

Totalinterest 61,691 61,932 62,614 185,961 186,466income



Interest expense:

Deposits 7,988 10,914 16,675 33,548 48,419

Borrowings 2,086 2,571 2,807 7,481 11,981

Totalinterest 10,074 13,485 19,482 41,029 60,400expense



Net interest 51,617 48,447 43,132 144,932 126,066income



Provisionfor credit 1,548 1,367 172 6,979 1,943losses



Net interestincome afterprovision 50,069 47,080 42,960 137,953 124,123for creditlosses



Noninterest income:

Assetmanagement,consulting 7,368 6,733 7,304 21,863 21,234and otherfees

Gain on sale 15,140 - 4,218 15,140 4,218of loans

Other income 1,133 2,236 2,460 6,282 6,126

Totalnoninterest 23,641 8,969 13,982 43,285 31,578income



Noninterest expense:

Compensation 17,914 18,288 17,167 56,059 53,402and benefits

Occupancyand 6,052 5,855 5,450 17,419 15,485depreciation

Professionalservices and 2,077 2,049 1,745 5,880 5,773marketingcosts

Customerservice 1,723 1,622 5,920 5,717 13,592costs

Other 2,829 3,123 2,412 9,329 9,669expenses

Totalnoninterest 30,595 30,937 32,694 94,404 97,921expense



Incomebefore taxes 43,115 25,112 24,248 86,834 57,780on income

Taxes on 12,177 7,258 6,892 24,831 16,755income

Net income $ 30,938 $ 17,854 $ 17,356 $ 62,003 $ 41,025



Net income per share:

Basic $ 0.69 $ 0.40 $ 0.39 $ 1.39 $ 0.92

Diluted $ 0.69 $ 0.40 $ 0.39 $ 1.38 $ 0.91

Shares usedin computation:

Basic 44,625,668 44,620,716 44,639,481 44,638,634 44,602,368

Diluted 44,885,776 44,812,369 44,935,308 44,883,612 44,876,614

FIRST FOUNDATION INC. SELECTED FINANCIAL INFORMATION - Unaudited (in thousands, except share and per share amounts and percentages)

For the Quarter Ended

For the Nine Months Ended

September 30,

June 30,

September 30,

September 30,

2020

2020

2019

2020

2019

Selected Financial Data:

Return on average assets

1.79

%

1.06

%

1.10

%

1.24

%

0.90

%

Return on average equity

18.9

%

11.3

%

11.7

%

13.0

%

9.5

%

Return on average tangible equity (1)

22.2

%

13.3

%

14.0

%

15.3

%

11.4

%

Efficiency ratio (2)

40.1

%

53.0

%

59.5

%

49.4

%

63.1

%

Net interest margin

3.03

%

2.96

%

2.89

%

2.97

%

2.87

%

Cost of deposits

0.57

%

0.84

%

1.31

%

0.85

%

1.35

%

Loan to deposit ratio

93.9

%

100.3

%

94.3

%

93.9

%

94.3

%

Noninterest income as a % of total revenues

31.4

%

15.6

%

24.5

%

23.0

%

20.0

%

Loan originations

$

413,962

$

701,090

$

485,817

$

1,778,220

$

1,379,250

Assets under management

4,524,061

4,292,252

4,244,079

4,524,061

4,244,079

Tangible common equity to tangible assets

9.12

%

7.70

%

8.09

%

9.12

%

8.09

%

Book value per share

$

15.19

$

14.31

$

13.53

$

15.19

$

13.53

Tangible book value per share

13.05

12.16

11.35

13.05

11.35

Asset Quality:

Nonperforming assets

Nonaccrual loans

$

20,592

$

15,512

$

21,202

$

20,592

$

21,202

Other real estate owned

-

-

-

-

-

Total nonperforming loans

$

20,592

$

15,512

$

21,202

$

20,592

$

21,202

Loans 30 - 89 days past due

$

2,852

$

14,526

$

8,389

$

2,852

$

8,389

Accruing loans 90 days or more past due

2,403

-

106

2,403

106

Nonperforming assets to total assets

0.32

%

0.22

%

0.33

%

0.32

%

0.33

%

Loans 30 - 89 days past due to total loans

0.06

%

0.28

%

0.19

%

0.06

%

0.19

%

Allowance for credit losses to loans held for investment

0.52

%

0.55

%

0.46

%

0.52

%

0.46

%

Allowance for credit losses to nonaccrual loans

117.4

%

181.3

%

96.7

%

117.4

%

96.7

%

Net charge-offs (recoveries) to average loans - annualized

0.01

%

0.03

%

(0.01

)%

0.01

%

0.01

%

FIRST FOUNDATION INC.SELECTED FINANCIAL INFORMATION - Unaudited(in thousands, except share and per share amounts and percentages)



For the Quarter Ended For the Nine Months Ended

September 30, June 30, September 30, September 30,

2020 2020 2019 2020 2019

SelectedFinancial Data:

Return onaverage 1.79 % 1.06 % 1.10 % 1.24 % 0.90 %assets

Return onaverage 18.9 % 11.3 % 11.7 % 13.0 % 9.5 %equity

Return onaverage 22.2 % 13.3 % 14.0 % 15.3 % 11.4 %tangibleequity ^(1)

Efficiency 40.1 % 53.0 % 59.5 % 49.4 % 63.1 %ratio ^(2)

Net interest 3.03 % 2.96 % 2.89 % 2.97 % 2.87 %margin

Cost of 0.57 % 0.84 % 1.31 % 0.85 % 1.35 %deposits

Loan to 93.9 % 100.3 % 94.3 % 93.9 % 94.3 %deposit ratio

Noninterestincome as a % 31.4 % 15.6 % 24.5 % 23.0 % 20.0 %of totalrevenues

Loan $ 413,962 $ 701,090 $ 485,817 $ 1,778,220 $ 1,379,250 originations

Assets under 4,524,061 4,292,252 4,244,079 4,524,061 4,244,079 management

Tangiblecommon equity 9.12 % 7.70 % 8.09 % 9.12 % 8.09 %to tangibleassets

Book value $ 15.19 $ 14.31 $ 13.53 $ 15.19 $ 13.53 per share

Tangible bookvalue per 13.05 12.16 11.35 13.05 11.35 share



Asset Quality:

Nonperforming assets

Nonaccrual $ 20,592 $ 15,512 $ 21,202 $ 20,592 $ 21,202 loans

Other real - - - - - estate owned

Totalnonperforming $ 20,592 $ 15,512 $ 21,202 $ 20,592 $ 21,202 loans



Loans 30 - 89 $ 2,852 $ 14,526 $ 8,389 $ 2,852 $ 8,389 days past due

Accruingloans 90 days 2,403 - 106 2,403 106 or more pastdue



Nonperformingassets to 0.32 % 0.22 % 0.33 % 0.32 % 0.33 %total assets

Loans 30 - 89days past due 0.06 % 0.28 % 0.19 % 0.06 % 0.19 %to totalloans

Allowance forcredit lossesto loans held 0.52 % 0.55 % 0.46 % 0.52 % 0.46 %forinvestment

Allowance forcredit losses 117.4 % 181.3 % 96.7 % 117.4 % 96.7 %to nonaccrualloans

Netcharge-offs(recoveries) 0.01 % 0.03 % (0.01 ) 0.01 % 0.01 %to average %loans -annualized

(1)

Tangible equity is a non-GAAP financial measure. See disclosures regarding "Use of Non-GAAP Financial Measures" included as a separate section in this press release.

(2)

Efficiency Ratio is a non-GAAP financial measure: See disclosures regarding "Use of Non-GAAP Financial Measures" included as a separate section in this press release.

Tangible equity is a non-GAAP financial measure. See disclosures regarding(1) "Use of Non-GAAP Financial Measures" included as a separate section in this press release.

Efficiency Ratio is a non-GAAP financial measure: See disclosures(2) regarding "Use of Non-GAAP Financial Measures" included as a separate section in this press release.

FIRST FOUNDATION INC. SEGMENT REPORTING - Unaudited (in thousands)

For the Quarter Ended

For the Nine Months Ended

September 30,

June 30,

September 30,

September 30,

2020

2020

2019

2020

2019

Banking:

Interest income

$

61,691

$

61,932

$

62,614

$

185,961

$

123,852

Interest expense

10,024

13,435

19,328

40,899

40,804

Net interest income

51,667

48,497

43,286

145,062

83,048

Provision for credit losses

1,548

1,367

172

6,979

1,771

Noninterest income

17,976

3,635

8,173

26,270

6,465

Noninterest expense

24,949

25,042

26,397

76,235

52,388

Income before taxes on income

$

43,146

$

25,723

$

24,890

$

88,118

$

35,354

Wealth Management:

Noninterest income

$

6,020

$

5,631

$

6,161

$

18,139

$

11,713

Noninterest expense

5,166

5,404

5,423

16,735

11,085

Income before taxes on income

$

854

$

227

$

738

$

1,404

$

628

Other and Eliminations:

Interest income

$

-

$

-

$

-

$

-

$

-

Interest expense

50

50

154

130

114

Net interest income

(50

)

(50

)

(154

)

(130

)

(114

)

Noninterest income

(355

)

(297

)

(352

)

(1,124

)

(582

)

Noninterest expense

480

491

874

1,434

1,754

Income before taxes on income

$

(885

)

$

(838

)

$

(1,380

)

$

(2,688

)

$

(2,450

)

FIRST FOUNDATION INC.SEGMENT REPORTING - Unaudited(in thousands)



For the Quarter Ended For the Nine Months Ended

September June 30, September September 30, 30, 30,

2020 2020 2019 2020 2019

Banking:

Interest $ 61,691 $ 61,932 $ 62,614 $ 185,961 $ 123,852 income

Interest 10,024 13,435 19,328 40,899 40,804 expense

Net interest 51,667 48,497 43,286 145,062 83,048 income

Provision for 1,548 1,367 172 6,979 1,771 credit losses

Noninterest 17,976 3,635 8,173 26,270 6,465 income

Noninterest 24,949 25,042 26,397 76,235 52,388 expense

Income beforetaxes on $ 43,146 $ 25,723 $ 24,890 $ 88,118 $ 35,354 income



Wealth Management:

Noninterest $ 6,020 $ 5,631 $ 6,161 $ 18,139 $ 11,713 income

Noninterest 5,166 5,404 5,423 16,735 11,085 expense

Income beforetaxes on $ 854 $ 227 $ 738 $ 1,404 $ 628 income



Other and Eliminations:

Interest $ - $ - $ - $ - $ - income

Interest 50 50 154 130 114 expense

Net interest (50 ) (50 ) (154 ) (130 ) (114 )income

Noninterest (355 ) (297 ) (352 ) (1,124 ) (582 )income

Noninterest 480 491 874 1,434 1,754 expense

Income beforetaxes on $ (885 ) $ (838 ) $ (1,380 ) $ (2,688 ) $ (2,450 )income

FIRST FOUNDATION INC. SELECTED INFORMATION: LOAN AND DEPOSIT BALANCES - Unaudited (in thousands)

For the Quarter Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019

Loans

Outstanding principal balance:

Loans secured by real estate:

Residential properties:

Multifamily

$

2,084,175

$

2,556,332

$

2,369,081

$

2,143,919

$

1,941,624

Single Family

818,436

839,537

851,443

871,181

896,607

Subtotal

2,902,611

3,395,869

3,220,524

3,015,100

2,838,231

Commercial properties

770,964

774,939

793,182

834,042

871,225

Land

57,722

65,094

68,101

70,257

71,110

Total real estate loans

3,731,297

4,235,902

4,081,807

3,919,399

3,780,566

Commercial and industrial loans

858,744

875,464

696,596

600,213

566,390

Consumer loans

18,399

18,640

17,476

16,273

16,505

Total loans

4,608,440

5,130,006

4,795,879

4,535,885

4,363,461

Deferred fees and expenses

6,883

6,806

9,634

11,748

10,747

Total

$

4,615,323

$

5,136,812

$

4,805,513

$

4,547,633

$

4,374,208

Loans held for sale

$

512,598

$

527,970

$

520,721

$

503,036

$

501,860

Deposits

Demand deposits:

Noninterest-bearing

$

1,890,028

$

1,770,382

$

1,315,114

$

1,192,481

$

1,532,105

Interest-bearing

396,938

411,053

384,215

386,276

350,344

Money market and savings

1,922,264

1,643,871

1,380,903

1,334,736

1,316,899

Certificates of deposits

1,254,583

1,822,535

1,950,595

1,977,651

1,971,218

Total

$

5,463,813

$

5,647,841

$

5,030,827

$

4,891,144

$

5,170,566

FIRST FOUNDATION INC.SELECTED INFORMATION: LOAN AND DEPOSIT BALANCES - Unaudited(in thousands)

For the Quarter Ended

September June 30, March 31, December September 30, 31, 30,

2020 2020 2020 2019 2019

Loans

Outstanding principal balance:

Loans secured by real estate:

Residential properties:

Multifamily $ 2,084,175 $ 2,556,332 $ 2,369,081 $ 2,143,919 $ 1,941,624

Single Family 818,436 839,537 851,443 871,181 896,607

Subtotal 2,902,611 3,395,869 3,220,524 3,015,100 2,838,231

Commercial properties 770,964 774,939 793,182 834,042 871,225

Land 57,722 65,094 68,101 70,257 71,110

Total real estate 3,731,297 4,235,902 4,081,807 3,919,399 3,780,566loans

Commercial and 858,744 875,464 696,596 600,213 566,390industrial loans

Consumer loans 18,399 18,640 17,476 16,273 16,505

Total loans 4,608,440 5,130,006 4,795,879 4,535,885 4,363,461

Deferred fees and 6,883 6,806 9,634 11,748 10,747expenses

Total $ 4,615,323 $ 5,136,812 $ 4,805,513 $ 4,547,633 $ 4,374,208



Loans held for sale $ 512,598 $ 527,970 $ 520,721 $ 503,036 $ 501,860







Deposits

Demand deposits:

Noninterest-bearing $ 1,890,028 $ 1,770,382 $ 1,315,114 $ 1,192,481 $ 1,532,105

Interest-bearing 396,938 411,053 384,215 386,276 350,344

Money market and 1,922,264 1,643,871 1,380,903 1,334,736 1,316,899savings

Certificates of 1,254,583 1,822,535 1,950,595 1,977,651 1,971,218deposits

Total $ 5,463,813 $ 5,647,841 $ 5,030,827 $ 4,891,144 $ 5,170,566

FIRST FOUNDATION INC. SELECTED INFORMATION: INTEREST MARGIN - Unaudited (in thousands, except percentages)

For the Quarter Ended

For the Nine Months Ended

September 30,

June 30,

September 30,

September 30,

2020

2020

2019

2020

2019

Average Balances:

Loans

$

5,644,646

$

5,475,796

$

5,282,338

$

5,401,754

$

5,062,689

Securities

840,593

919,788

616,424

919,712

732,262

Total interest-earnings assets

6,814,550

6,550,312

5,985,601

6,504,024

5,856,354

Deposits: interest-bearing

3,769,335

3,791,997

3,553,660

3,755,796

3,520,069

Deposits: noninterest-bearing

1,832,709

1,442,333

1,508,290

1,514,954

1,270,845

Borrowings

698,860

810,844

486,807

730,763

640,267

Average Yield / Rate:

Loans

3.91

%

4.03

%

4.27

%

4.08

%

4.40

%

Securities

2.91

%

2.84

%

3.47

%

2.85

%

3.22

%

Total interest-earnings assets

3.62

%

3.78

%

4.18

%

3.81

%

4.25

%

Deposits (interest-bearing only)

0.84

%

1.16

%

1.86

%

1.19

%

1.84

%

Deposits (noninterest and interest-bearing)

0.57

%

0.84

%

1.31

%

0.85

%

1.35

%

Borrowings

1.19

%

1.28

%

2.29

%

1.37

%

2.50

%

Total interest-bearing liabilities

0.90

%

1.18

%

1.91

%

1.22

%

1.94

%

Net Interest Rate Spread

2.72

%

2.61

%

2.27

%

2.59

%

2.31

%

Net Interest Margin

3.03

%

2.96

%

2.89

%

2.97

%

2.87

%

Use of Non-GAAP Financial Measures

To supplement our unaudited condensed consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures (including, but not limited to, non-GAAP net income and non-GAAP financial ratios) of financial performance. These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company's performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.

We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures (as applicable), provide meaningful supplemental information regarding our performance by providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance to prior periods. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, net income or other financial measures prepared in accordance with GAAP. In the information below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release, or a reconciliation of the non-GAAP calculation of the financial measure.

In this press release, we use certain non-GAAP financial ratios and measures that are not required by GAAP or exclude certain financial items from calculations that are otherwise required under GAAP, including:

* The efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income and may exclude one-time and non-operating items of income or expense. Core deposit intangible amortization for the three and nine months ended September 30, 2020, and the three months ended June 30, 2020, of $0.5 million, $1.5 million, and $0.5 million, respectively, was excluded from noninterest expenses. For the nine months ended September 30, 2019, a $0.1 million of gain on sale of REO was excluded from noninterest income. * Tangible common equity (also referred to as tangible book value or tangible equity) and tangible assets, are equal to common equity and assets, respectively, less $95.7 million, $96.2 million, and $97.7 million of goodwill and intangible assets as of September 30, 2020, June 30, 2020, and September 30, 2019, respectively. We believe that this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of capital ratios. * Average tangible equity is equal to average common equity less $96.0 million, $96.4 million, and $98.0 million of average goodwill and intangible assets for the quarters ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively, and less $96.4 million and $98.9 million of average goodwill and intangible assets for the nine months ended September 30, 2020 and 2019, respectively. We believe that this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of capital ratios.

Discussion of Changes in Results of Operations and Financial Position

Quarter Ended September 30, 2020 as Compared to Quarter Ended June 30, 2020

Our net income and income before taxes for the three months ended September 30, 2020 were $30.9 million and $43.1 million, respectively, as compared to $17.9 million and $25.1 million, respectively, in the three months ended June 30, 2020. The $18 million increase in income before taxes was the result of a $17.4 million increase in income before taxes for Banking and a $0.6 million increase in income before taxes for Wealth Management. The increase in Banking was due to higher net interest income and noninterest income.

Our effective tax rate for the three months ended September 30, 2020 was 28.2% as compared to 28.9% for the three months ended June 30, 2020 and as compared to our statutory tax rate of 29.0%.

Net interest income increased 7% from $48.4 million in the second quarter of 2020, to $51.6 million in the third quarter of 2020 due to a 25% decrease in interest expense. The net interest margin increased from 2.96% in the second quarter of 2020 to 3.03% in the third quarter of 2020 due to an increase in the net interest rate spread. The net interest rate spread increased from 2.61% in the second quarter of 2020 to 2.72% in the third quarter of 2020 due to a decrease in the cost of our interest-bearing liabilities. The decrease in the cost of interest-bearing liabilities was due to decreased costs of interest-bearing deposits, resulting from decreases in deposit market rates and decreases in our borrowing costs due to declines in the Fed Funds rates, which strongly influence our borrowing rates. The average balance outstanding under the holding company line of credit increased from $4.1 million in the second quarter of 2020 to $5.3 million in the third quarter of 2020.

The provision for credit losses in the third quarter of 2020 was $1.5 million, as compared to $1.4 million in the second quarter of 2020. The $1.5 million provision for credit losses in the third quarter of 2020 was due to $0.1 million of net chargeoffs and a $5.7 million increase in the allowance for credit losses for investments. With the current interest rate environment and the increase we have experienced in prepayment speeds in our interest-only strip securities, this allowance represents the change in expected cash flows on these securities. These increases were partially offset by a $3.9 million decrease in the allowance for credit losses for loans, which was a result of a decrease in loans held for investment, as $513 million of loan balances were transferred to the held for sale category in preparation for a securitization next year, as well as a slight improvement in the economic scenario we utilize for the CECL calculation.

The $1.4 million provision for credit losses in the second quarter of 2020 was due to the growth in loan balances and $0.4 million of net chargeoffs.

Noninterest income in Banking increased from $3.6 million in the second quarter of 2020 to $18 million in the third quarter of 2020 due to gains on the sale of loans of $15.1 million, which was partially offset by a $1.3 million valuation allowance on mortgage servicing rights, which was due to an increase in prepayment speeds. Noninterest income for Wealth Management increased by $0.4 million in the third quarter of 2020 when compared to the second quarter of 2020 due primarily to higher levels of fees earned on AUM.

Noninterest expense in Banking decreased from $25.0 million in the second quarter of 2020 to $24.9 million in the third quarter of 2020. Compensation and benefits were $0.2 million lower in the third quarter of 2020, due to a decrease in the number of full time equivalent employees ("FTE"), from 437.4 in the second quarter of 2020, to 424.8 in the third quarter of 2020. Occupancy and depreciation expenses increased by $0.2 million in the third quarter of 2020 when compared to the second quarter of 2020 due primarily to higher core processing costs related to higher volumes and services. Noninterest expenses for Wealth Management decreased by $0.2 million in the third quarter of 2020 due to lower compensation and benefits costs.

Quarter Ended September 30, 2020 as Compared to Quarter Ended September 30, 2019

Our net income and income before taxes in the three months ended September 30, 2020 were $30.9 million and $43.1 million, respectively, as compared to $17.4 million and $24.2 million, respectively, in the three months ended September 30, 2019. The $18.9 million increase in income before taxes was the result of a $18.3 million increase in income before taxes for Banking, a $0.1 million increase in income before taxes for Wealth Management and a $ 0.4 million decrease in corporate noninterest expenses. The increase in Banking was due to higher net interest income, higher noninterest income and lower noninterest expenses. The increase in Wealth Management was due to lower noninterest expenses, offset partially by lower noninterest income.

Our effective tax rate for the third quarter of 2020 was 28.2% as compared to 28.4% for the third quarter of 2019 and as compared to our statutory tax rate of 29.0%.

Net interest income increased 20% from $43.1 million in the third quarter of 2019, to $51.6 million in the third quarter of 2020 due to a 14% increase in interest-earning assets and an increase in the net interest rate spread. The net interest rate spread increased from 2.27% in the third quarter of 2019 to 2.72% in the third quarter of 2020 due to a decrease in the cost of interest-bearing liabilities, from 1.91% in the third quarter of 2019, to 0.90% in the third quarter of 2020, which was partially offset by a decrease in yield on interest-earning assets, from 4.18% in the third quarter of 2019, to 3.62% in the third quarter of 2020. The decrease in the cost of interest-bearing liabilities was due to decreased costs of interest-bearing deposits, resulting from decreases in deposit market rates, and decreased costs of borrowings, as the average rate on FHLB advances and other overnight borrowings decreased from 2.29% in the third quarter of 2019 to 1.19% in the third quarter of 2020. The yield on interest-earning assets decreased due to decreases in yields on loans and securities and an increase in the proportion of lower yielding securities and deposits to total interest-earning assets. The yield on loans decreased due to accelerated payoffs of higher yielding loans during the last year and the decrease in market rates, which resulted in lower rates on loans added to the portfolio. The yield on securities decreased due to the purchase of $576 million of securities in the third quarter of 2019 at current market rates, which were lower than the overall yield realized in 2019. The average balance outstanding under the holding company line of credit decreased from $10.5 million in the third quarter of 2019 to $5.3 million in the third quarter of 2020, resulting in a $0.1 million decrease in corporate interest expense.

The provision for credit losses in the third quarter of 2020 was $1.5 million, as compared to $0.2 million in the third quarter of 2019. The $1.5 million provision for credit losses in the third quarter of 2020 was due to $0.1 million of net chargeoffs and a $5.7 million increase in the allowance for credit losses for investments. With the current interest rate environment and the increase we have experienced in prepayment speeds in our interest-only strip securities, this allowance represents the change in expected cash flows on these securities. These increases were partially offset by a $3.9 million decrease in the allowance for credit losses for loans, which was a result of a decrease in loans held for investment, as $513 million of loan balances were transferred to the held for sale category in preparation for a securitization next year, as well as a slight improvement in the economic scenario we utilize for the CECL calculation.

The $0.2 million provision for credit losses in the third quarter of 2019 was due to the growth in loan balances and $0.1 million of net recoveries.

Noninterest income in Banking in the third quarter of 2020 was $9.8 million higher than the third quarter of 2019 due to an increase in gains on sales of loans, offset partially by a decrease in other loan fees. Gains on sales of loans increased by $10.9 million, with $15.1 million in the third quarter of 2020, as compared to $4.2 million in the third quarter of 2019. Other loan fees decreased by $1.4 million due to a $1.3 million valuation allowance on mortgage servicing rights, which was due to an increase in prepayment speeds. Noninterest income for Wealth Management decreased by $0.1 million in the third quarter of 2020 when compared to the corresponding period in 2019 due primarily to lower levels of fees earned on AUM.

Noninterest expense in Banking decreased from $26.4 million in the third quarter of 2019 to $25.0 million in the third quarter of 2020 primarily due to lower customer service costs, which were partially offset by higher compensation and benefits, and occupancy and depreciation expenses. The $4.2 million decrease in customer service costs was due to decreases in the earnings credit rates paid on deposit balances, as interest rates have declined. Compensation and benefits were $1.1 million higher due to higher compensation costs and commission costs related to higher production volume during 2020. Occupancy and depreciation costs were $0.6 million higher due primarily to higher core processing costs related to higher volumes and services added during 2020. Noninterest expenses for Wealth Management decreased by $0.3 million in the third quarter of 2020, when compared to the third quarter of 2019, due to lower compensation and benefits expenses. The $0.4 million decrease in corporate expenses was due primarily to lower professional services and marketing and other expenses.

Changes in Financial Position

During the first nine months ended September 30, 2020, total assets increased by $168 million primarily due to an increase in cash and cash equivalents and loans, which was partially offset by a decrease in securities. During the first nine months ended September 30, 2020, securities decreased by $124 million primarily due to payoffs of mortgage backed securities. Loans and loans held for sale increased $77 million in the first nine months ended September 30, 2020 as a result of $1.8 billion of originations, which were partially offset by payoffs or scheduled payments of $1.1 billion and loan sales of $553 million. The $573 million growth in deposits during the first nine months of 2020 included increases in specialty deposits of $564 million, branch deposits of $353 million, and digital channel deposits of $329 million, which were partially offset by a $674 million decrease in wholesale deposits. Borrowings decreased by $474 million during the first nine months ended September 30, 2020 as cash provided by the increase in deposits, which exceeded the growth in our assets, was used to pay down our borrowings at the Bank. At September 30, 2020 and December 31, 2019, the outstanding balance on the holding company line of credit was $9 million and $10 million, respectively.

Our credit quality remains strong, as our ratio of nonperforming assets to total assets is at 0.32% at September 30, 2020. We recorded $0.1 million and $0.6 million of net loan chargeoffs in the first nine months ended September 30, 2020 and 2019, respectively. At September 30, 2020 and December 31, 2019, the ratio of the allowance for credit losses to loans, was 0.52% and 0.46%, respectively.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201027005228/en/

CONTACT: Kevin Thompson Chief Financial Officer First Foundation Inc. 949-202-4164 kthompson@ff-inc.com