Earnings per fully diluted share of $0.23 for first quarter of 2018 Revenue growth of 28% Annualized loan growth of 27%, annualized deposit growth of 22%

IRVINE, Calif.--(BUSINESS WIRE)-- 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 quarter ended March 31, 2018. 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.”

“First Foundation continues to grow as we attract new clients to the firm and see opportunities for future growth in our markets,” said Scott F. Kavanaugh, CEO. “We have completed the integration of staff and systems of Community 1st Bank and expect to complete our merger with Premier Business Bank in the second quarter of 2018.”

Highlights

Financial Results:

• 2018 first quarter compared to 2017 first quarter:
  • Total revenues were $43.2 million, an increase of 28%
  • Net interest income was $34.3 million, an increase of 32%
  • Income before taxes was $12.6 million, an increase of 39%
  • Earnings were $9.0 million, an increase of 47%
  • Earnings per fully diluted share were $0.23, compared to $0.18 in 2017, an increase of 27%
• 2018 Financial ratios:
  • Return on average tangible equity of 9.8% for the quarter
  • Return on average assets of 0.76% for the quarter
  • Efficiency ratio of 67.0% for the quarter
  • Total tangible shareholders’ equity of $379 million, tangible book value of $9.69 per share, and tangible common equity to tangible assets of 7.87%, in each case, as of March 31, 2018

Other Activity:

• Loan originations totaled $420 million for the first quarter

• Deposits increased by $193 million for the first quarter
• Assets under management (“AUM”) at FFA decreased by $106 million for the first quarter, partially related to volatility experienced in the markets
• $52 million of loans were sold in first quarter of 2018, with a gain of $0.5 million

“As we maintain loan rate and credit quality discipline, our loan production volumes may experience fluctuations,” said David DePillo, President of First Foundation Bank. “We have been successful in increasing our deposit base in the first quarter despite increasing competition for deposits.”

Details

• Total loans, including loans held for sale, increased $245 million in the first quarter of 2018 as a result of $420 million of originations which were partially offset by the sale of $52 million of multifamily loans and payoffs or scheduled payments of $123 million.
• The $193 million growth in deposits during the first quarter of 2018 included specialty deposits growth of $52 million, branch deposits growth of $16 million and wholesale deposits growth of $125 million.
• The $106 million decrease in AUM during the first quarter of 2018 was the net result of $67 million of new accounts, $78 million of portfolio losses and terminations and net withdrawals of $96 million.

About First Foundation

First Foundation, 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 regarding our expectations and beliefs about our future financial performance and financial condition, 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 that certain conditions to the closing of the PBB Bancorp acquisition may not be satisfied on a timely basis or at all; the risk that the costs associated with the PBB Bancorp acquisition, which will be incurred whether or not the acquisition successfully closes, may be higher than we expect; the risk of incurring loan losses, which is an inherent risk of the banking business; 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; the risk that the economic recovery in the United States will stall or will be adversely affected by domestic or international economic conditions and risks associated with the Federal Reserve Board taking actions with respect to interest rates, any of 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; 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 Item 1A, entitled “Risk Factors” in our 2017 Annual Report on Form 10-K for the fiscal year ended December 31, 2017 that we filed with the SEC on March 16, 2018, and other documents we file with the SEC from time to time. We urge readers of this news release to review the Risk Factors section of that Annual Report and the Risk Factors section of 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 2017 Annual Report on Form 10-K, whether as a result of new information, future events or otherwise, except as may be required by law or NASDAQ rules.

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 items of income or expense.
• 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 $33.6 million of goodwill and intangible assets as of March 31, 2018 and December 31, 2017. 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 $33.6 million and $2.1 million of average goodwill and intangible assets for the quarters ended March 31, 2018 and March 31, 2017, 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 March 31, 2018 as Compared to Quarter Ended March 31, 2017

Our net income and income before taxes in the first quarter of 2018 were $9.0 million and $12.6 million, respectively, as compared to $6.1 million and $9.1 million, respectively, in the first quarter of 2017. The $3.5 million increase in income before taxes was the result of a $3.7 million increase in income before taxes for Banking and a $0.3 million increase in income before taxes for Wealth Management which were partially offset by a $0.5 million increase in corporate interest expense. The increase in Banking was due to higher net interest income which was partially offset by a higher provision for loan losses and higher noninterest expenses. The increase in Wealth Management was due to higher noninterest income which was partially offset by higher noninterest expenses.

Our effective tax rate for the first quarter of 2018 was 28.6% as compared to 32.5% for the first quarter of 2017. As a result of reduced federal tax rates, our statutory tax rate decreased from 41.6% in 2017 to 29.0% in 2018. During the first quarter of 2017, we realized a 930 basis point reduction in our effective tax rate related to excess tax benefits resulting from the exercise of stock awards.

Net interest income for Banking increased 33% from $26.1 million in the first quarter of 2017, to $34.8 million in the first quarter of 2018 due to a 31% increase in interest-earning assets. On a consolidated basis, a decrease in our net interest rate spread was offset by a higher proportion of noninterest-bearing deposits and equity balances. As a result, our net yield on interest earning assets was 2.96% in both the first quarter of 2017 and the first quarter of 2018. The decrease in the net interest rate spread from 2.78% in the first quarter of 2017 to 2.56% in the first quarter of 2018 was due to an increase in the cost of interest-bearing liabilities from 0.68% in the first quarter of 2017 to 1.20% in the first quarter of 2018 which was partially offset by an increase in yield on total interest-earning assets from 3.46% in the first quarter of 2017 to 3.76% in the first quarter of 2018. The yield on interest-earning assets increased as new loans and securities added to the portfolio bear interest rates higher than the current portfolio rates as a result of increases in market rates. 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 increased costs of borrowings as the average rate on FHLB advances increased from 0.70% in the first quarter of 2017 to 1.55% in the first quarter of 2018. The average balance outstanding under the holding company line of credit increased from $2.2 million in the first quarter of 2017 to $41.6 million in the first quarter of 2018, resulting in a $0.5 million increase in corporate interest expense.

The provision for loan losses in the first quarter of 2018 was $1.7 million as compared to $0.1 million in the first quarter of 2017. The $1.7 million provision in the first quarter of 2018, during which we increased our loan balances by 7%, allowed us to maintain an ALLL equal to 54 basis points of non-acquired loans as compared to a decrease in our ALLL percentage in the first quarter of 2017.

Noninterest income in Banking in the first quarter of 2018 was comparable to the first quarter of 2017 as a $0.2 million increase in gain on sale of loans was offset by decrease in insurance revenues. During the first quarter of 2018 we realized $0.5 million in gains on the sale of $52 million of multifamily loans, while in the first quarter of 2017 we realized $0.3 million of gains on the sale of $21 million of multifamily loans. Noninterest income for Wealth Management increased by $1.0 million in the first quarter of 2018 when compared to the corresponding period in 2017 due to higher levels of AUM.

Noninterest expense in Banking increased from $18.3 million in the first quarter of 2017 to $21.8 million in the first quarter of 2018, due increases in staffing and costs associated with the Bank’s expansion, including the acquisition of Community 1st Bank (“C1B”) in November 2017, and the growth of its balances of loans and deposits. Compensation and benefits for Banking increased $2.2 million or 22% during the first quarter of 2018 as compared to the first quarter of 2017 due to salary increases and an increase in the number of full time equivalent employees (“FTE”) in Banking, which increased to 338.4 in the first quarter of 2018 from 290.0 in the first quarter of 2017 as a result of the increased staffing related to the C1B acquisition and additional personnel added to support the growth in loans and deposits. A $0.7 million increase in occupancy and depreciation for Banking in the first quarter of 2018 as compared to the first quarter of 2017 was due to costs related to the C1B acquisition and increases in our data processing costs due to increased volumes and the implementation of enhancements. The $1.2 million decrease in professional services and marketing was due to costs incurred in the first quarter of 2017 related to the resolution of an outstanding litigation matter. Customer service costs for Banking increased from $0.7 million in the first quarter of 2017 to $2.8 million in the first quarter of 2018 due to a 70% increase in average balances and increases in the earnings credit rates paid on the balances. The increases in the earnings credit rates reflects the increases in short term market rates during the first quarter of 2018 when compared to the first quarter of 2017. The increase in noninterest expense for Wealth Management was due to a $0.2 million increase in compensations and benefits and a $0.4 million increase in professional services and marketing costs. The increase in compensation and benefits for Wealth Management was due to raises given in the first quarter of 2018. The increase in professional services and marketing for Wealth Management was due to the legal related costs and increases in referral fees due to higher levels of AUM.

Quarter Ended March 31, 2018 as Compared to Quarter Ended December 31, 2017

Our net income and income before taxes in the first quarter of 2018 were $9.0 million and $12.6 million, respectively, as compared to $2.3 million and $13.0 million, respectively, in the fourth quarter of 2017.

Income before taxes for Banking increased by $0.4 million, while income before taxes for Wealth Management decreased by $0.5 million and corporate interest expense increased by $0.3 million. The increase in Banking was due to higher net interest income and lower noninterest expenses which were partially offset by a higher provision for loans losses and lower noninterest income. The decrease in Wealth Management was due to lower noninterest income and higher noninterest expenses.

In the fourth quarter of 2017, we recorded a $5.4 million tax charge, attributable to the remeasurement of the net deferred tax asset as a result of the reduced corporate tax rate under the Tax Cuts and Jobs Act enacted in the fourth quarter of 2017. As a result, the effective tax rate for the fourth quarter of 2017 was 82.6% as compared to a statutory rate of approximately 41.5%. As a result of reduced federal tax rates, our statutory tax rate decreased from in 41.6% in 2017 to 29.0% in 2018. Our effective tax rate in the first quarter of 2018 was 28.6%.

Net interest income for Banking increased 11% from $31.4 million in the fourth quarter of 2017 to $34.8 million in the first quarter of 2018 due to a 10% increase in interest-earning assets. On a consolidated basis, a decrease in our net interest rate spread was offset by a higher proportion of equity balances. As a result, our net yield on interest earning assets was 2.97% in the fourth quarter of 2017 and 2.96% in the first quarter of 2018. The decrease in the net interest rate spread from 2.60% in the fourth quarter of 2017 to 2.56% in the first quarter of 2018 was due to an increase in the cost of interest-bearing liabilities, which increased from 1.00% in the fourth quarter of 2017 to 1.20% in the first quarter of 2018, which was partially offset by an increase in yield on total interest-earning assets, which increased from 3.60% in the fourth quarter of 2017 to 3.76% in the first quarter of 2018. The yield on interest-earning assets increased as new loans and securities added to the portfolio bear interest rates higher than the current portfolio rates as a result of increases in market rates. 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 increased costs of borrowings as the average rate on FHLB advances increased from 1.28% in the fourth quarter of 2017 to 1.55% in the first quarter of 2018. The average balance outstanding under the holding company line of credit increased from $17.4 million in the fourth quarter of 2017 to $41.6 million in the first quarter of 2018, resulting in a $0.3 million increase in corporate interest expenses.

The provision for loan losses in the first quarter of 2018 was $1.7 million as compared to $0.9 million in the fourth quarter of 2017 primarily because the increase in outstanding loan balances, excluding acquired loans, was 43% higher in the first quarter of 2018 as compared to the fourth quarter of 2017.

Noninterest income in Banking decreased from $5.4 million in the fourth quarter of 2017 to $2.6 million in the first quarter of 2018 primarily due to lower gains on sales of loans. During the first quarter of 2018 we realized $0.5 million in gains on the sale of $52 million of multifamily loans, while in the fourth quarter of 2017 we realized $2.7 million of gains on the sale of $167 million of multifamily loans. In addition, loan related fees, including prepayment fees, were $0.5 million lower in the first quarter of 2018 as compared to the fourth quarter of 2017.

Noninterest expense in Banking decreased from $22.5 million in the fourth quarter of 2017 to $21.8 million in the first quarter of 2018. Compensation and benefit costs for Banking increased $3.1 million due to a 2% increase in FTE and seasonal increases in costs associated with raises, employer taxes and employer contributions to retirement plans. Legal costs for Banking decreased by $0.6 million during the first quarter of 2018 as compared to the fourth quarter of 2017 due to higher costs incurred during the fourth quarter of 2017 related to litigation matters. The increase in noninterest expense for Wealth Management was due to a $0.3 million increase in compensations and benefits and a $0.3 million increase in professional services and marketing costs. The increase in compensation and benefits for Wealth Management was due to seasonal increases in costs associated with raises, employer taxes and employer contributions to retirement plans. The increase in professional services and marketing for Wealth Management was due to the legal related costs. On a consolidated basis, other expenses were $2.9 million lower during the first quarter of 2018 as compared to the fourth quarter of 2017 primarily due to $2.6 million of one-time costs related to the acquisition of C1B incurred in the fourth quarter of 2017.

Changes in Financial Position

During the first quarter of 2018, total assets increased by $301 million primarily due to increases in cash and cash equivalents and loans. Cash and cash equivalents increased to $177 million at March 31, 2018 from $120 million at December 31, 2017 as we increased our on balance sheet liquidity to maintain compliance with regulatory guidelines. Loans and loans held for sale increased by $245 million as a result of $420 million of originations which were partially offset by the sale of $52 million of multifamily loans and payoffs or scheduled payments of $123 million. Deposits increased by $193 million as our specialty deposits, branch deposits and wholesale deposits increased by $52 million, $16 million and $125 million, respectively. Borrowings increased by $91 million due primarily to the additional borrowings utilized to support our loan growth. During 2018, the Company sold 0.6 million shares of its common stock through its at-the-market offering at an average price of $18.46 per share, generating net proceeds of $11.3 million. At March 31, 2018, the outstanding balance on the holding company line of credit was $30 million as compared to $50 million at December 31, 2017.

Our credit quality remains strong as our ratio of non-performing assets to total assets is at 0.28% at March 31, 2018. We recorded a $0.1 million loan chargeoff in the first quarter of 2018 as compared to 0.2 million of recoveries in first quarter of 2017. The ratio of the allowance for loan and lease losses to loans, excluding loans acquired in acquisitions, was 0.54% at March 31, 2018 and December 31, 2017.